In December the National Audit Office (NAO) took an unprecedented step in refusing to sign off the Whole of Government Accounts (WGA) for 2022/23.
The NAO are the ultimate guardian of the quality of financial reporting in the UK and so it is not hard to understand why they have taken this position. But it should come as a shock - a badge of shame - the causes of which need to be sorted as quickly as possible.
There is no doubting the key causes of this totally unacceptable situation. Responsibility lies fairly and squarely with local authority reporting.
Only 10% of local authorities submitted what the Guardian describes as "reliable" financial statements. Of the remaining 90%, half submitted unaudited financial statements, and the other half did not submit any financial data at all.
Local authority finances generally are in a parlous state, so the non-availability of reliable financial statements at the individual local authority level could hardly have come at a worse time. For example, the struggling Woking Council, which effectively went bust in 2023, had not submitted audited figures for four years according to the Guardian.
At least there is a fair degree of agreement as to what the root cause of the local authority reporting issues are.
Eric Pickles and the Audit Commission
In 2015 then secretary of state for communities and local government, Eric Pickles, abolished the Audit Commission - the body had been responsible for auditing local authority financial statements. His rationale was to reduce red tape and save money, but some serious unintended consequences have subsequently transpired.
There is limited interest amongst private sector audit firms in bidding for low margin local authority work; a situation that is hardly likely to improve given the current state of their finances.
All in all it hard to avoid the conclusion that this is a disastrous situation. The effects on public sector reporting credibility are potentially profound. It is important to both isolate the causes of this disastrous state of affairs and, even more importantly, to fix them. Lessons must be learned!
Check out all of our verifiable CPD on financial reporting, here!
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