Agenda item

A letter from the Minister of State for Housing, Communities and Local Government in relation to action to tackle the local audit backlog in England had been circulated with the agenda. 

The letter had been sent before the summer recess to give Local Authorities and audit firms an updated on the awaited measures to recover the backlog in the local audit market.  The backlog was due to a result of quite complex challenges as well as some failures in the local government audit system.

A series of backstop dates had been proposed for audits to be completed and audit opinions to be issued.  However the latest dates were delayed following the recent Parliamentary Election and a consultation undertaken by the new Government.   Middlesbrough Council’s 2021/2022 and 2022/2023 accounts were currently subject to audit and no opinion had been issued.  The new proposed backstop dates were subject to secondary legislation and the proposal was to apply 13 December 2024 as the backstop to all financial years up to 31 March 2023.

A number of measures had been taken by the Government in consultation with CIPFA and the Financial Reporting Council (FRC) including discussion as to how the backstop system would work and enable local authorities to recover the situation.  Longer term, there would be proposals for a more significant overhaul of the whole system.

The expectation was that there would be full assurance, with “clean” opinions for many bodies by the first backstop date of 13 December 2024. However, due to the time constraints, auditors were likely to issue ‘disclaimed’ audit opinions (no assurance) on many accounts.  Early indications were that this could be several hundred in this first phase which might, in the short term, cause additional concern. 

The Ministry would continue to work with the FRC and other key organisations across the local audit sector to support local bodies, auditors and the wider world to understand what the different types of modified opinions meant.   Local Bodies should not be unfairly judged based on disclaimed or modified opinions caused by the introduction of backstop dates that were largely beyond their control and auditors would be expected to clearly set out the reasons for the issuing of such opinions to mitigate the potential reputational risk that local bodies might face.

The Director of Finance explained that nothing fundamental had changed that had led to the current position.  Local Authority accounts had become more complex and specialist skills were required to produce them.  Over a period of years, the Council’s accounts had been produced within the required timescale.  However since 2021/2022 there had been difficulties in recruiting and retaining people with the required skillset both in audit and local government finance to produce these very technical documents.   It was likely that there would continue to be disclaimed or modified opinions on accounts issued for some time, with the aim of catching up by 2025/2026.

A further issue was how the Auditor would start work on the 2023/2024 when they did not have audited closing balances for the previous year.  This was a significant issue and there was currently no solution.   However, additional work had been undertaken on the outstanding accounts to get them in as good order as possible.

AGREED that the information provided was received and noted.