Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 15
15
Deferred
Paragraph: 74
Quickly implement proposed actions to clear audit backlog and provide regular progress updates.
Recommendation
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, when auditors qualify or disclaim the audit opinions on delayed audits, the accompanying commentary should be clear whether the local authorities are at fault and whether the audit has given any indication of financial failings or distress at those authorities.
Government Response Summary
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 is considering how to ensure consistent messaging regarding fault and will keep the recommendation for specific fault identification under review.
Paragraph Reference:
74
Government Response
Deferred
HM Government
Deferred
We are working to clear the unprecedented backlog and our consultation on proposals will begin in early February. This has been detailed and complex work, balancing various imperatives across the system. We have engaged with stakeholders across the sector and have developed a proposal that has the agreement of all system partners. We will continue to provide updates to the Committee on progress at key junctures. Auditors are already required under International Standards on Auditing (UK) to outline the reason for any modified opinions. System partners, including the FRC as the body which develops and maintain auditing standards within the UK, recognise the importance of communicating the reasons behind an issuance of any modified opinion and will be supporting stakeholders in understanding the different types of opinions which can be issued and what they mean. The NAO is responsible for providing guidance to auditors on the way in which auditors report and will shortly be consulting on a revised Code of Audit Practice. Auditors’ statutory duty to report on value for money arrangements and their statutory audit powers (such as the power to make statutory recommendations or produce Public Interest Reports where necessary) are an important mechanism for assurance and for identifying areas of concern at an early stage, allowing councils to address them. Under the government’s proposals this will remain a high priority. While timeliness has long been a requirement of the Code, and there are already mechanisms by which auditors can flag concerns about financial failings, the forthcoming NAO consultation proposes further measures to make reporting on local bodies’ arrangements to secure value for money more timely. We recognise that the proposal to introduce a backstop will result in a number of disclaimers or qualifications, and we are considering with system partners how best to ensure consistent messaging to explain that these opinions have been issued in the context of a system-wide process to clear the backlog and are not necessarily the fault of local authorities. We remain committed to exploring how greater measures of transparency concerning audit delays could influence behaviours across the local audit system. While mechanisms such as specifically identifying fault as the Committee propose may (and already do in some respects as outlined above) have a role to play, such approaches need to be carefully considered to avoid unwarranted and unforeseen consequences. Therefore, this area requires additional time and collaboration, with input from all parts of the local audit system for full consideration and we will keep this recommendation under review.