It’s clear the audit process is not working as it should, with just 1% of local bodies publishing audited accounts on time in 2022-23. In September 2024, the government announced plans to introduce statutory backstops to clear the backlog.

“Compiling a statement of accounts is a mammoth task,” explains Rikin Tailor, Director of Finance at Westminster City Council. “When you consider the size of a council, the number of transactions and the breadth of the services on offer, it is a significant undertaking.”

Councils also grapple with resourcing constraints to manage the preparation of financial statements. “It's difficult to recruit experienced staff,” says Cecilie Booth, Executive Director of Resources at Peterborough City Council, “and when you recruit them, it's difficult to hold on to them because they are like gold dust and are easily tempted away.”

Many councils are turning to private sector hires to fill resource gaps. Still, the lack of expert knowledge has presented challenges. “It’s not easy for councils to go out and just recruit someone who understands the CIPFA code. Often, they have to bring in someone with corporate experience who looks at the accounts and asks, ‘What is going on here?’” says David Riglar, Partner at EY.

While training can help improve the technical knowledge of recruits to the sector, limited resourcing levels mean that often finance teams are more focused on keeping up with their daily workload. “From a local authority perspective, you're so caught up in the day-to-day you can't give the time and dedication required to some of the technical aspects of accounts. Often, you rely to some extent on what the auditors say because they are more immersed in that world than we are as practitioners,” states Tailor.

Valuations were highlighted as particularly challenging by councils, “We lost a lot of time on the valuation of solar panels in our last financial statements,” says Booth. “It is such a niche area, and auditors took a different view on the valuation process. In this respect, the former Audit Commission offered a lot greater certainty in approach.”

Finally, councils are having to contend with the snowball effect of having to get multiple years of financial statements over the line. While introducing statutory backstop dates has been welcomed, there are sector-wide, structural issues that need addressing, such as promoting public finance as an attractive career.

Building strong foundations

Putting the right infrastructure and resources in place is the essential first step in preparing a good-quality draft set of accounts. “This isn’t just about having the right number of people in the finance team,” says Riglar, “it’s about the experience and training of those members of the team, the technology that is in place to support them and the regard with which preparing a high-quality set of financial statements is held within the organisation.”

Help is available from CIPFA and other external bodies to build the experience of those new to the sector. “We received support from CIPFA this year [for capital closing]. Their representative made a huge difference, and the team learned a lot from her,” details Booth.

Some local authorities also collaborate and share technical knowledge. “London tends to be well connected in terms of treasurer networks,” says Tailor, “but an approach where people take on certain work streams across the sector and communicate that to others in their local network can be beneficial.”

Preparing the data

When compiling financial statements, it is vital that finance adopts a joined-up approach to gathering information from across the organisation and prepares supporting information alongside accounts. “For those audits where the process has not worked effectively, it is not uncommon for finance teams to start working on supporting records at the point we request them,” says Riglar.

“It should be done when preparing the numbers.” Adopting a standardised approach to working papers goes a long way to facilitate the process. “The best councils tend to have a working paper protocol; it doesn’t have to be complicated, simply a lead sheet that clearly explains what the evidence is, where it's come from, who is responsible for it, who it was prepared by, and then who was checking it,” adds Riglar.

Developing internal control procedures

The next stage is developing robust internal control procedures to ensure supporting records match the financial statements. To aid this process, finance teams can use the CIPFA disclosure checklist. “In some instances, due to weak or inconsistent internal controls, basic errors were uncovered after some simple arithmetic and cross-referencing audit procedures,” says Riglar.

Getting ready for the audit

As the audit itself approaches, finance teams need to be clear on and commit to agreed timescales. Audit firms often use audit portals for council finance teams to submit information, assign tasks and detail availability. In some instances, firms will conduct pre-audit checks to ensure the council is ready to go ahead. “We now look to do some checks of accounts and working papers before the audit starts,” says Riglar, “before committing a team of five or six people and realising that half the working papers aren’t there.”

Developing a strong working relationship and ensuring regular communication is also pivotal to a smooth process. “It’s important to engage auditors with what you are doing more widely,” says Tailor. “So, if we’re doing something different, we’re proactive in communicating that, and we make sure they are invited to our audit committees and other relevant meetings.” Finally, relationship building need not be confined to the audit process, with audit firms often happy to run workshops that set out their expectations and good practices.

The introduction of the statutory backstops, while no panacea, is a positive step that offers council finance teams a pathway out of the mire. Now, the onus is on councils to work with their auditors and follow best practice when preparing financial statements for audit. Putting the right infrastructure and procedures in place, ensuring robust internal controls and developing a good working relationship with auditors all play a part in audit success.