National Audit Office report on Local auditor reporting in England 2018

In 2017-18, 495 local authorities, local police and local fire bodies were responsible for around £54 billion of net revenue spending and 442 local NHS bodies received funding of approximately £100 billion. Each year, local auditors give an opinion on whether these bodies produce financial statements that comply with reporting requirements and if they have arrangements to properly manage their business and finances. Auditors can draw attention to weaknesses by ‘qualifying’ their opinion and issuing a ‘non-standard’ report. Local bodies should take any issues raised seriously and address them appropriately.

Auditors gave unqualified opinions on local bodies’ financial statements from 2017-18, although opinions at 16 local government bodies have yet to be issued1. This provides assurance that they are accounting properly for their income and expenditure, and is consistent with the position since 2015-16.

However, auditors have identified significant weaknesses in an increasing number of local bodies’ arrangements to secure value for money, up from 170 (18%) in 2015-16 to 208 (22%) in 2017-18. This increase varies between local government and NHS sectors. The number of local government bodies receiving qualified conclusions was 40 (8%) in 2015-16. In 2017-18, and with 20 conclusions still to be issued2, 40 (8%) qualified conclusions have been issued overall, but 18% of single tier local authorities and county councils received a qualification. In the NHS, the number rose from 130 (29%) to 168 (38%) across the same period.

In addition to qualifying accounts, local auditors have a range of reporting powers. For example, they can issue a public interest report or issue recommendations that local bodies must consider publicly, such as recommending that bodies produce more detailed and realistic savings plans that take account of key risks. These powers are being used infrequently, with only three Public Interest Reports and seven Statutory Recommendations being issued since April 20153.

There is no direct consequence of receiving a ‘non-standard’ report from a local auditor. While departments responsible for the oversight of local bodies may intervene in connection with an issue, such as failure to meet expenditure limits, there are no formal processes for reporting publicly whether bodies are tackling these issues. Departments use information from local auditors’ reports to differing extents to inform their understanding of the issues local bodies are facing, but they also need to be able to challenge local bodies to demonstrate that they are taking appropriate action where necessary.

Given increasing financial and demand pressures on local bodies, they need to take prompt and effective action to strengthen their arrangements and improve their performance when issues are raised. The proportion of bodies with insufficient plans for keeping spending within budget or who have significant weaknesses in their governance, is too high. This is a risk to public money and undermines confidence in how well local services are managed. Local auditors need to exercise the full range of their additional reporting powers, especially where they consider that local bodies are not taking sufficient action.

Amyas Morse, the head of the NAO, said today:

“I am shocked by the persistent high level of qualified audit reports at local public bodies. A qualification is a judgement that something is seriously wrong, but despite these continued warnings, the number of bodies receiving qualifications is trending upwards. Let us hear no cries of ‘where were the auditors?’ when things go wrong. The answer will be ‘they did the job, but you weren’t listening’.”

“This is not good enough; local bodies need to address their weaknesses, and departments across government should ensure they are challenging local bodies to demonstrate how they are responding.”

Key facts

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Notes for Editors 

1. For the two previous years, the equivalent figures for the 16 opinions yet to be issued on the financial statements in 2017-18 are: 5 in relation to 2016-17, 2 in relation to 2015-16.
2. For the two previous years, the equivalent figures for the 20 conclusions on VFM arrangements yet to be issued in 2017-18 are: 8 in relation to 2016-17, 2 in relation to 2015-16.
3. Public Interest Reports have drawn attention to issues such as unlawful use of parking income, governance failings in the oversight of a council-owned company, management of major projects or members’ conduct. Auditors have made Statutory Recommendations in relation to failing to deliver planned cost savings, poor processes for producing the annual financial statements and failure to address weaknesses highlighted by independent reviews.
4. Since 2015, the NAO’s Comptroller and Auditor General (C&AG) has been responsible for setting the standards for local public audit, through maintaining a Code of Audit Practice and issuing associated guidance to local auditors. This report provides an overview of the work of local auditors. 
5. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
6. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public-sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services. Our work led to audited savings of £741 million in 2017.