Recommendations & Conclusions
31 items
1
Conclusion
First Report - Financial Reporting and …
Deferred
The publication of local authority accounts and local authority audit have a vital role to play in supporting local democracy and accountability. However, their capability to fulfil this vital role is limited because stakeholders who might want to use the information in the accounts encounter significant challenges in finding and …
Government response. The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after …
Ministry of Housing, Communities and Local Government
2
Conclusion
First Report - Financial Reporting and …
Deferred
There is currently no shared view of the purposes of local authority accounts and who should be using them. This has made it difficult to decide what the format and contents of the accounts, and their accompanying audit outputs, should be so that accounts fulfil their role in supporting local …
Government response. The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and finds the committee's proposals a helpful starting point. It accepts the merit of issuing a policy statement but defers this until after …
Ministry of Housing, Communities and Local Government
3
Conclusion
First Report - Financial Reporting and …
Deferred
We believe that the first purpose of local authority accounts is: To provide a credible public financial record that can be relied upon, and which can be used as a point of comparison for other financial information to assess its credibility and accuracy.
Government response. The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code …
Ministry of Housing, Communities and Local Government
4
Conclusion
First Report - Financial Reporting and …
Deferred
We believe that the second purpose of local authority accounts is: To enable council taxpayers, businesses, central government, and other sources of funding to understand what money the local authority has received (including council tax, government grants and borrowing) and how the authority has used its resources, so they can …
Government response. The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code …
Ministry of Housing, Communities and Local Government
5
Conclusion
First Report - Financial Reporting and …
Deferred
We believe that the third purpose of local authority accounts is: To enable residents, service users, and councillors to understand the value for money offered by the authority’s spending, so that they can scrutinise the economy, efficiency, effectiveness, and equity of services or programmes.
Government response. The government agrees it would be beneficial to clearly set out the purposes of local authority accounts and considers the committee's proposed purpose a helpful starting point. It defers issuing a policy statement and formal adoption into the Accounting Code …
Ministry of Housing, Communities and Local Government
6
Conclusion
First Report - Financial Reporting and …
Deferred
We believe that the fourth purpose of local authority accounts is: To enable councillors and officers inside the authority to understand the financial activity, financial position, financial sustainability, and resilience of the authority, so that they can make informed decisions and run that authority efficiently and effectively. (Paragraph 42) Financial …
Government response. The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a …
Ministry of Housing, Communities and Local Government
7
Conclusion
First Report - Financial Reporting and …
Deferred
We believe that the fifth purpose of local authority accounts is: To enable the public, oversight bodies and central government to understand the financial situation and any actual or potential financial issues affecting the authority, so that they can make informed decisions about what actions to take.
Government response. The government agrees to clearly set out the purposes of local authority accounts in a single place, using the Committee's proposals as a starting point. They will work with CIPFA and FRC to align the Accounting Code and issue a …
Ministry of Housing, Communities and Local Government
8
Recommendation
First Report - Financial Reporting and …
Deferred
The Government must ensure that the purposes of local authority accounts are clearly set out in government policy and accessible to all relevant stakeholders. This should be done before the next accounts production cycle for the year ended 31 March 2024.
Government response. The government agrees there is merit in issuing a policy statement to clearly set out the purposes of local authority accounts. However, this will be done as part of a longer process with CIPFA and FRC, with an update provided …
Ministry of Housing, Communities and Local Government
9
Recommendation
First Report - Financial Reporting and …
Accepted in Part
The Government must also coordinate with key stakeholders in the sector, including the Chartered Institute for Public Finance and Accountancy and the local audit system leader, to ensure that the production, content and format of local authority accounts are aligned with the agreed purposes of local authority accounts; and it …
Government response. The government commits to working with CIPFA and FRC to align the Accounting Code's requirements with the agreed purposes of local authority accounts. They will report back to the Committee on this progress ahead of the 2025-26 financial year consultation …
Ministry of Housing, Communities and Local Government
10
Conclusion
First Report - Financial Reporting and …
Acknowledged
The Code of Practice on Local Authority Accounting (the Accounting Code) is a statutorily recommended guidance document for preparing and understanding local authority accounts, but it is too expensive to be accessed by all possible users of the accounts. If made accessible, it could also serve to keep the agreed …
Government response. The government acknowledges it may be beneficial to consider how to encourage the use of the Accounting Code and will consider this alongside CIPFA as they reform financial reporting, but does not commit to making the Code freely available.
Ministry of Housing, Communities and Local Government
11
Recommendation
First Report - Financial Reporting and …
Rejected
Through coordination with the Chartered Institute of Public Finance and Accountancy, the Department for Levelling Up, Housing and Communities must make the Accounting Code freely available to all possible users of local authority accounts before the next accounts production cycle for the year ended 31 March 2024. Once this has …
Government response. The government states the Accounting Code is produced by an independent body (CIPFA) and local bodies receive funding for compliance. It does not commit to making the Code freely available by the recommended deadline of March 2024, but will consider …
Ministry of Housing, Communities and Local Government
12
Conclusion
First Report - Financial Reporting and …
Rejected
Within the broader rationale for the local authority accounting and audit systems, the purposes of local audit specifically are: • to establish the credibility of the local authority accounts, so that they can fulfil their purposes in supporting local accountability; and • to supplement the local authority accounts with relevant …
Government response. The government explicitly rejects the Committee's stated purposes for local audit, arguing that auditors are not equipped to comment on value for money and that such an expectation would hinder efforts to clear the audit backlog. It points to Oflog's …
Ministry of Housing, Communities and Local Government
13
Conclusion
First Report - Financial Reporting and …
Acknowledged
The local audit system is currently in an unacceptable crisis which requires significant and urgent attention. The most significant symptom of the crisis is an extensive backlog of incomplete audits and unaudited accounts, some of them many years out of date. This has led to a deleterious cycle in which …
Government response. The government acknowledges the unprecedented audit backlog, stating that a consultation on proposals to clear it will begin in early February. They are working with system partners on a solution and will provide updates on progress.
Ministry of Housing, Communities and Local Government
14
Conclusion
First Report - Financial Reporting and …
Acknowledged
The Department has proposed a series of actions to clear the audit backlog, which include resetting the system through a limited series of statutory deadlines for the delivery of outstanding audits from previous financial years. These proposals represent a necessary first step towards overcoming the audit crisis. However, more work …
Government response. The government acknowledges the need for action to clear the audit backlog and states that a consultation on their proposals will begin in early February, emphasizing that this has involved detailed and complex work with system partners.
Ministry of Housing, Communities and Local Government
15
Recommendation
First Report - Financial Reporting and …
Deferred
The Department must move quickly to clear the audit backlog and implement its proposed actions by the end of the calendar year 2023. Until the actions have been fully implemented, the Department should provide us with updates on its progress every four months. In addition, the Department should ensure that, …
Government response. The government is working to clear the backlog with a consultation beginning in February, but does not commit to the 2023 deadline. It will provide updates at key junctures, and while auditors already provide reasons for modified opinions, the government …
Ministry of Housing, Communities and Local Government
16
Conclusion
First Report - Financial Reporting and …
Accepted in Part
We welcome the commitment of the then-Parliamentary Under-Secretary of State for Local Government and Building Safety to address the causes of delays in the local audit system. While the lack of an annual statutory deadline is not itself a cause of delays, the lack of any consequences for local authorities …
Government response. The government will consult on proposals including statutory backstop dates for outstanding and future audits and will consider making backstop dates a permanent feature. They also commit to developing an escalated reporting framework, publishing lists of authorities with delayed audits, …
Ministry of Housing, Communities and Local Government
17
Recommendation
First Report - Financial Reporting and …
Accepted in Part
The Department must introduce backstop dates for publishing audited local authority accounts on an annual basis going forwards. The Department must also ensure that, if an authority and its auditors do not collectively produce audited accounts by the backstop date in a given year, then the Section 151 Officer of …
Government response. The government will introduce statutory backstop dates for outstanding historic years and the next five years, and will consider their permanent inclusion. It agrees Section 151 Officers should update their councils on audit issues but does not accept the requirement …
Ministry of Housing, Communities and Local Government
18
Conclusion
First Report - Financial Reporting and …
Acknowledged
The Redmond and Kingman Reviews stated that a local audit system leader should be a new standalone organisation, but the Government has decided to combine it with the separate audit regulator which is currently the Financial Reporting Council (FRC) but will eventually be the Audit Reporting and Governance Authority (ARGA).
Government response. The government acknowledges the conclusion, confirming their decision to appoint a system leader from within the current system (FRC, transitioning to ARGA) rather than creating a new standalone body, explaining that this policy was subject to public consultation.
Ministry of Housing, Communities and Local Government
19
Recommendation
First Report - Financial Reporting and …
Accepted in Part
The establishment of the local audit system leader will require primary legislation. The legislation required to establish ARGA has been significantly delayed and there appears to be little or no forward momentum or urgency in the Government to introduce it. Moreover, the Department for Levelling Up, Housing and Communities, which …
Government response. The government views a new arm's length body for local audit as unnecessary and has instead appointed the FRC as a shadow system leader, which is now staffed and working. Full establishment of ARGA through primary legislation is subject to …
Ministry of Housing, Communities and Local Government
20
Recommendation
First Report - Financial Reporting and …
Rejected
The Government must reconsider its plan to combine the local audit system leader with the new audit regulator, ARGA. Specifically, the Government must, in coordination with the FRC, which currently has shadow system leader responsibility, introduce legislation to create a new body to manage, oversee and regulate local audit in …
Government response. The government rejects the recommendation to create a new, separate body for local audit, stating a new arm's length body is not necessary and that ARGA's full establishment is dependent on parliamentary time, while a shadow system leader function is …
Ministry of Housing, Communities and Local Government
21
Recommendation
First Report - Financial Reporting and …
Rejected
The Department must ensure that the local audit system leader is the primary point of contact to which local auditors can escalate matters of concern that they find during an audit of a local authority. Additionally, the local audit system leader must be responsible for collecting and considering audit findings …
Government response. The government states it is not envisaged that the local audit system leader will be the primary point of contact for auditors' escalations or coordinate responses to systemic issues. It notes existing reporting mechanisms to the Secretary of State and …
Ministry of Housing, Communities and Local Government
22
Conclusion
First Report - Financial Reporting and …
Deferred
Statutory overrides, namely requirements introduced by legislation that override standard accounting practice, are not aligned with the intended purposes of local authority accounts. Some statutory overrides can be beneficial by reducing the complexity of the accounts, but many add new requirements to the disclosures in the accounts. Additional requirements in …
Government response. The government recognises that statutory overrides can add complexity to accounts and commits to reviewing existing overrides and relevant legislation to ensure their value outweighs complexity. However, this review will be deferred until after the audit backlog is cleared.
Ministry of Housing, Communities and Local Government
23
Recommendation
First Report - Financial Reporting and …
Deferred
The Department for Levelling Up, Housing and Communities must immediately initiate a review into existing legislation that places requirements on the contents and format of local authority accounts. The review should refer to the intended purposes and users of the accounts (as we have set out earlier) and determine what …
Government response. The government commits to reviewing existing legislation on local authority accounts to reduce complexity and ensure usefulness, but states this will not be an immediate priority due to the audit backlog and will instead form part of long-term reform work.
Ministry of Housing, Communities and Local Government
24
Recommendation
First Report - Financial Reporting and …
Accepted
The Department should coordinate with the Chartered Institute of Public Finance and Accountancy and the CIPFA/LASAAC Local Authority Code Board to ensure that the Accounting Code does not interpret existing legislation as placing requirements on local authority accounts disclosures that are neither mandated nor intended by the existing legislation.
Government response. The government agrees on the importance of the Accounting Code aligning with legislation and will work with CIPFA to review legislative disclosure requirements and their necessity. Any changes will be implemented through CIPFA LASAAC's annual review process.
Ministry of Housing, Communities and Local Government
25
Conclusion
First Report - Financial Reporting and …
Deferred
The Government previously accepted the Redmond Review’s recommendations to introduce a standardised statement of service information and costs for local authority accounts. Implementing these recommendations would constitute an important step to improving the clarity and content of local authority accounts. 38 Financial Reporting and Audit in Local Authorities However, the …
Government response. The government remains committed to introducing a standardised statement but explains that implementation is delayed until the audit backlog is cleared to avoid additional burdens on auditors, while CIPFA develops interim performance reporting.
Ministry of Housing, Communities and Local Government
26
Recommendation
First Report - Financial Reporting and …
Deferred
The Department, in consultation with the Chartered Institute of Public Finance and Accountancy, must resume the introduction of a standardised statement of service information and costs for local authority accounts as soon as actions to address the audit backlog have been implemented. We expect a standardised statement could be introduced …
Government response. The government remains committed to a standardised statement but defers its introduction until the audit backlog is cleared, citing concerns about adding new requirements at this time. CIPFA will first focus on developing better performance reporting, which could be a …
Ministry of Housing, Communities and Local Government
27
Recommendation
First Report - Financial Reporting and …
Deferred
Local authority accounts are currently required by legislation to include Pension Fund statements, but this has made the accounts longer, more complicated, and less useful to users. The Government should introduce legislation to decouple local authority accounts from these Pension Fund statements, which should be published as separate documents.
Government response. The government commits to considering the recommendation to decouple local authority accounts from pension fund statements as part of a broader review of legislation it has already committed to undertake.
Ministry of Housing, Communities and Local Government
28
Conclusion
First Report - Financial Reporting and …
Rejected
Local auditors are good at establishing the credibility of the accounts under audit. However, while recent changes to the Audit Code have made improvements to the commentary around value for money, many stakeholders want an opinion from the auditors over whether their local authority has achieved value for money for …
Government response. The government rejects the idea of auditors providing a value for money opinion on services, stating this responsibility lies with democratically elected leaders, and such a requirement would place significant, unequipped demands on the current audit system.
Ministry of Housing, Communities and Local Government
29
Recommendation
First Report - Financial Reporting and …
Rejected
The Department should work with the organisation that prepares the Audit Code (currently the National Audit Office, eventually the system leader) to ensure that local auditors’ opinions over value for money include an actual assessment of value for money achieved, not merely whether appropriate arrangements exist. Such assessments of value …
Government response. The government rejects the recommendation, arguing that ensuring value for money is the responsibility of local leaders, that auditors lack the resources and expertise for such specific assessments, and that it would hinder efforts to clear the audit backlog. They …
Ministry of Housing, Communities and Local Government
30
Recommendation
First Report - Financial Reporting and …
Accepted
The Department should work with the organisation that prepares the Audit Code (currently the National Audit Office, eventually the system leader) to assess the potential benefits (for example, to timescales and resourcing) of decoupling value for money work from financial audit work, and report the findings of the assessment to …
Government response. The government agrees with the recommendation, committing to consult on decoupling value for money work from financial audit work, continue collaboration with the NAO and FRC, and report the assessment findings to the Committee before the end of this Parliament.
Ministry of Housing, Communities and Local Government
31
Recommendation
First Report - Financial Reporting and …
Acknowledged
The Department should work with the organisation that prepares the Audit Code (which is currently the National Audit Office but will be the system leader) to introduce new guidance for the auditors of local authorities in order to encourage them to make more proactive use of their existing powers to …
Government response. The government agrees with the importance of auditors using their powers and will work with the NAO and FRC to consider the merits of introducing new guidance. However, it does not commit to introducing the guidance or assessing its effect.
Ministry of Housing, Communities and Local Government