Recommendations & Conclusions
7 items
17
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
When examining the 2019–20 WGA, we concluded that failures in the local audit market in England were resulting in poorer quality data for preparing the Whole of Government Accounts.26 We subsequently examined the timeliness of local auditor reporting in June 2023, and found that the backlog of audit opinions for …
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When examining the 2019–20 WGA, we concluded that failures in the local audit market in England were resulting in poorer quality data for preparing the Whole of Government Accounts.26 We subsequently examined the timeliness of local auditor reporting in June 2023, and found that the backlog of audit opinions for local government bodies remained unacceptably high, and delays to their publication hindered accountability for public spending. We found that over 630 accounts, some of which date as far back to 2015–16, were yet to be signed off by auditors by the end of November 2022.27 We also noted the pattern of deterioration in the number of local government audits completed by statutory deadlines. This issue has once again led to a qualification of the 2020–21 WGA, with the C&AG having identified 120 bodies where unaudited draft data was consolidated into the 2020–21 WGA following delays in the audit of the underlying accounts, a fourfold increase on the previous year. The C&AG noted that HM Treasury did not obtain information, or undertake analysis, to understand the risk of misstatements within the unaudited draft accounts, and that his own analysis, completed substantially using publicly available data, identified assurance gaps over £51.6 billion worth of Property, Plant and Equipment.28
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Government response AI summary
The government states it agrees and has implemented the recommendation, noting it wrote to the Committee in March 2024 to update on its senior-level engagement and discussions with stakeholders about options for clearing the local audit backlog.
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HM Treasury
18
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
We received written evidence from the University of Glasgow, which suggested two main points of failure in HM Treasury’s approach to the local audit crisis. Firstly, that the emerging problems in local audit were not identified or considered in terms of risk. It explained that this meant that a gap …
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We received written evidence from the University of Glasgow, which suggested two main points of failure in HM Treasury’s approach to the local audit crisis. Firstly, that the emerging problems in local audit were not identified or considered in terms of risk. It explained that this meant that a gap in oversight was allowed to grow when the Department for Levelling Up, Housing & Communities did not step into the oversight role previously occupied by the now defunct Audit Commission. Secondly, it suggested that HM Treasury had failed to appreciate the prime importance of reductions in local 23 WGA0002 Written evidence from ICAEW: The Institute of Chartered Accountants in England and Wales 24 Q 8 25 Q 22 26 Committee of Public Accounts, Report of session: Whole of Government Accounts 2019–20, Twentieth Report of Session 2022–23, HC 31, 14 October 2022 27 Committee of Public Accounts, Timeliness of local auditor reporting, Sixtieth Report of Session 2022–23, HC 995, 23 June 2023 28 WGA 2020–21, para 6, p 262 14 Whole of Government Accounts 2020–21 authority capacity and the malfunctioning of the English local audit market. It noted that the local audit crisis had not manifested outside England, where responsibility for local audit is devolved to the Accounts Commission in Scotland and to Northern Ireland Audit Office (NIAO) in Northern Ireland.29 We asked the Treasury about the evidence we had received. The Treasury told us that it thought that these were very fair assessments and that it talked regularly to the Charted Institute of Public Finance and Accountancy (CIPFA) about the financial management of local authorities. It recognised that it needed to focus on this, as well as the quality of local authority audit committee, and financial capacity and leadership in local government.30
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Government response AI summary
The government agrees and claims implementation, stating it updated the Committee in March 2024 on its senior-level engagement and detailed discussions with stakeholders regarding options for clearing the local audit backlog.
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HM Treasury
19
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
The Treasury told us that was putting in place a plan to try to eliminate the backlogs in local audit. It explained that this included: • establishing a final deadline for the production of the audited accounts for local government bodies, accepting that this may necessitate qualifications or even disclaimers …
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The Treasury told us that was putting in place a plan to try to eliminate the backlogs in local audit. It explained that this included: • establishing a final deadline for the production of the audited accounts for local government bodies, accepting that this may necessitate qualifications or even disclaimers on those accounts; • looking at the audit approach, in collaboration with the Financial Reporting Council, with the intention of providing guidance to auditors that underlines the importance of timeliness, and establishing a proportionate approach to historic audits in looking at audit quality reviews; • reviewing the workforce strategies that underly the production of these audits to close the resourcing gaps across the system; and • identifying what can be flexed in the accounting standards and the financial reporting framework to help to streamline the production of the accounts.31 In our report on the 2019–20 WGA, we noted the shortage of auditors with the knowledge and experience to deliver, within the expected timeframes, the high-quality audits required for the increasingly complex structures and transactions within Local Government accounts. The Treasury acknowledged that its primary contribution may be ensuring that funding is available to make engagement with public sector audit commercially viable for audit firms. As part of the 2021 spending review, the Treasury provided £40 million to the local authority sector to carry out audits and encourage more audit firms to enter the sector.32
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Government response AI summary
The government agrees and claims implementation, stating it wrote to the Committee in March 2024 to provide an update on its ongoing senior-level engagement and detailed discussions with stakeholders regarding the local audit backlog.
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HM Treasury
20
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
We were concerned that the problems we see now in the local audit sector could spread and contaminate the health sector. We asked what more it could do to help to address the issues with the audit of local government. The Treasury recognised the importance of both auditor incentives and …
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We were concerned that the problems we see now in the local audit sector could spread and contaminate the health sector. We asked what more it could do to help to address the issues with the audit of local government. The Treasury recognised the importance of both auditor incentives and sanctions. It told us that its work so far had tended to focus on incentives, through providing more funding and the proportionality of the regulatory framework, so it thought that it now needed to turn to look at what the sanctions were. It similarly recognised the importance of fixing the issues within local government audit in order to stem the contagion of audit failures from spread to other sectors such as health. 29 WGA0001 Written evidence from Professor David Heald (Emeritus Professor at Adam Smith Business School, University of Glasgow) 30 Q 17 31 Q 3 32 Q 10; Public Accounts Committee, Report of session: Whole of Government Accounts 2019–20, 14 October 2022 Whole of Government Accounts 2020–21 15 The C&AG noted that this risk was already crystallising, and that he expected that the Department of Health’s accounts for 2022–23 will be delayed by two months because of a failure of a local audit supplier to complete the necessary work.33
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Government response AI summary
The government agrees and claims implementation, noting it updated the Committee in March 2024 on its senior-level engagement and detailed discussions with stakeholders regarding options for clearing the local audit backlog.
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HM Treasury
21
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
We asked the Treasury what it could do to address the audit backlog in the local government sector more quickly. The Treasury stated that it expected the clearance of the local audit backlog to take several years. The C&AG noted that the work that the Treasury and the NAO were …
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We asked the Treasury what it could do to address the audit backlog in the local government sector more quickly. The Treasury stated that it expected the clearance of the local audit backlog to take several years. The C&AG noted that the work that the Treasury and the NAO were doing could clear the backlog much faster, but that this would be at the expense of a large number of qualified and disclaimed audit opinions, the price of which would be lost assurance over public spending. He explained that returning to unqualified audit opinions within local government would take longer owing to the need to close the gap between “accepted accounting and audit practice in that sector and what is now required by auditing standards and accounting standards”. The Treasury recognised that it needed to strike a balance between the risks posed by getting the timeliness of accounts back on track.34
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Government response AI summary
The government states it agrees and has implemented the recommendation, noting it wrote to the Committee in March 2024 to update on its senior-level engagement and discussions with stakeholders about options for clearing the local audit backlog.
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HM Treasury
28
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
Both of the professional bodies that responded to the Committee’s request for evidence addressed the collection and use of data. The ICAEW told us that a lot more could be done to explain how public spending has been used to meet policy objectives and the needs of the population, and …
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Both of the professional bodies that responded to the Committee’s request for evidence addressed the collection and use of data. The ICAEW told us that a lot more could be done to explain how public spending has been used to meet policy objectives and the needs of the population, and noted a lack of commentary on the non-financial KPIs used as metrics for policy progress on matters including education, levelling up, tackling poverty, crime 42 Q 37 43 Q 41 44 Q 38; Committee of Public Accounts, Covid-19: Cost tracker update, Thirty-Eighth Report of Session 2021–22, HC 640, 23 February 2022 45 Qq 28, 40; Public Accounts Committee, Bounce Back Loans Scheme: Follow-up – Report, HC 961, 27 April 2022 46 Q 38; Public Sector Fraud Authority Website 47 Q 42 48 Qq 42–43 18 Whole of Government Accounts 2020–21 levels, progress on major strategic infrastructure projects, or illegal immigration.49 This echoes our own concerns raised in the report on the 2019–20 WGA, where we stated that current Government policies and economic context were not reflected in WGA reporting, and we recommended changes to the Performance Report.50 The ACCA made particular note of the scope for expanding and enhancing the reporting of data relating to the Net Zero and wider sustainability targets, and commented on the need for this data to be subject to external audit.51
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Government response AI summary
The government acknowledges the committee's observations and commits to continuous WGA improvement, ensuring it reflects topical interest, and considering additional disclosures, while noting the 2021-22 WGA includes climate disclosures and signposts other relevant government publications.
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HM Treasury
29
Conclusion
Ninth Report - Whole of Government Acco…
Acknowledged
We asked the Treasury how it was reflecting the issue of Net Zero spending in the WGA, given its importance across government and therefore every public body that is included in the WGA. At present, the WGA deals primarily with listing spending commitments relating to Net Zero. HM Treasury committed …
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We asked the Treasury how it was reflecting the issue of Net Zero spending in the WGA, given its importance across government and therefore every public body that is included in the WGA. At present, the WGA deals primarily with listing spending commitments relating to Net Zero. HM Treasury committed to making this information more prominent as the money begins to be spent and it has data on what has been spent against those commitments.52 We observed that, as with COVID spending, some of this spending will become business as usual, so it will be important to balance this with the ability to track funding. There is also a risk that both the funding and the activity become so entrenched as business as usual that the impact can no longer reliably be tied to the intervention. HM Treasury maintained that for the moment, it was sufficient to know where spending is planned – in the 2021 Spending Review, and in the performance reports of individual components. The NAO noted that the data that HM Treasury plans to collect now will only be published in two to three years, given the accounts’ productions schedule. The public bodies that are incorporated into the WGA and their auditors will need time to produce audited sustainability data.53 Optimal use of WGA data
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Government response AI summary
The government acknowledges the importance of reflecting topical issues like Net Zero and states the 2021-22 WGA includes climate disclosures. It commits to continuous improvement and careful consideration of additional disclosures, while maintaining WGA as a record of past performance and part of a broader …
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HM Treasury