The government’s public sector financial accounts are facing major issues, according to the National Audit Office (NAO). The NAO has stated that the financial data related to hundreds of councils and authorities are unreliable, making it impossible to sign off on the accuracy of the latest public spending figures. This has led to the NAO withholding approval of the government’s accounts.
The NAO’s decision to “disclaim” the government’s accounts is unprecedented and has raised concerns about the overall financial health of local governments. Only 10% of local authorities submitted reliable formal accounts for the 2022-23 period, with half failing to submit any financial data and the other half submitting unaudited accounts.
The lack of reliable financial data can lead to more councils facing financial difficulties or even bankruptcy. This situation is exacerbated by lengthy backlogs in council audits, with many councils failing to submit accounts for years or submitting unaudited accounts covering significant spending and investment decisions.
Some councils, such as Woking borough council and Spelthorne council, have not submitted any accounts for the past two financial years. Additionally, seven local authorities have failed to audit their accounts for five or more years, including Slough council, which declared bankruptcy in 2021.
The current audit crisis in local governments can be traced back to the abolition of the Audit Commission in 2015, which has created a private market in auditing local authority accounts. This move was intended to cut red tape and save money but has resulted in a lack of accountability and oversight in council finances.
To address these issues, the government is considering reforms to the local audit system, allowing councils to push through audited pre-2022-23 accounts without formal signoff and providing more time for auditing future accounts. However, the NAO is likely to continue withholding approval of the government’s accounts until there is more assurance around council finances.
It is crucial for the government to take decisive action to resolve the local audit crisis and ensure that the whole of government accounts are accurate and reliable. The Treasury has expressed commitment to working with local authorities to improve reporting and transparency to address the missing data and restore confidence in the nation’s finances.
