Delays in audits at England’s 426 councils has for the first time ever forced the National Audit Office’s (NAO) head Gareth Davies to disclaim the Whole of Government Accounts (WGA) for 2022-23.

The decision by the Comptroller and Auditor General (C&AG) to disclaim the audit opinion on the WGA means that there is now “inadequate assurance over material amounts throughout the WGA”. The WGA is a vital tool in the management and scrutiny of public spending, as it brings together all public sector assets and liabilities, income and expenditure.

As well as local authority accounts, the WGA combines the accounts of more than 10,000 public bodies, including central government departments, devolved administrations, the NHS, academy schools and public corporations.

In his audit report, the NAO’s head, Gareth Davies, said he had been “unable to obtain sufficient, appropriate evidence upon which to form an opinion”.

No data at all from 187 local authorities

Just over 10% (43) of England’s 426 local authorities submitted reliable data to be incorporated in the WGA. Of the nearly 90% of local authorities that failed to submit reliable data, 46% (196) submitted information that hasn’t been audited, and 44% (187) did not submit any data at all.

The NAO said the government was taking steps to address the backlog in audited accounts for English local authorities, including the use of backstop dates by which each year’s audits must be completed. This process was, however, unlikely to allow the disclaimer on WGA to be lifted for 2023-24, but it did offer a medium-term solution to the problem, the NAO said.

“It is clearly not acceptable that delays in audited accounts for English local authorities have made it impossible for me to provide assurance on the Whole of Government Accounts for 2022-23. It is essential that the steps being taken by the government to restore timely and robust local authority audited accounts are effective,” Davies said.

Local authority financial pressures

Since 2021, seven local authorities, including Woking and Croydon, have effectively declared themselves bankrupt, with a raft of councils such as Somerset and Bradford warning they may have to do the same. The government has agreed to provide 19 councils with support to manage financial pressures through the Exceptional Financial Support system for the 2024-25 financial year.

Councils have been facing growing financial pressures in recent years due to rising populations and growing demand for social care, as well as dramatic cuts to central government funding, among other challenges.

Geoffrey Clifton-Brown MP, chair of the Committee of Public Accounts (PAC) said it was “deeply unsatisfactory” that failures in the local authority audit market have meant that the Comptroller and Auditor General was unable to give any formal audit opinion on the accounts for the first time ever.

Local authority reporting and audit issues

The NAO said that historically the number of bodies failing to submit data was “low and was not disproportionate to other changes to the list of bodies consolidated”.

But since 2019-20 this trend has been growing. That year saw a lack of data submitted from 21 bodies, “which was higher than usual”, but not material to WGA as a whole. “The number of bodies not submitting consolidation data for 2020-21 was much higher, as 155 bodies did not submit and was even higher in 2021-22 as 178 bodies did not submit. This was primarily due to local authority reporting and audit issues”, the WGA report said.

 The PAC chair said that if the issues were not addressed quickly it would become “increasingly difficult to hold local leaders to account and more horror stories of failing councils will follow”.

Improving corporate governance

Alison Ring, Director, Public Sector & Taxation, ICAEW, says that although the latest WGA has encountered major problems, “the fact that these are published at all is a step in the right direction. They are a huge improvement on what went before.

“Their imperfections should not prevent further progress being made in improving how the government is held to account, starting with an annual general meeting equivalent session of Parliament to formally adopt the accounts, and receive the audit report, as almost every other organisation has to. It would be a somewhat educational experience for MPs if they had to formally consider the state of the public finances each year.” 

She adds: “More timely publication would also help improve corporate governance by government, as well as enabling them to be routinely used by the cabinet and civil service leadership as a tool for strategic and tactical decision-making in the way that a board or an executive team would within large private sector organisations.”