The Urgent Need for Clarity in Local Audit Reform: Insights and Recommendations

The Housing, Communities, and Local Government Committee has sounded the alarm on England's local audit system, emphasizing that current measures may fall short in addressing the crisis. While the proposed Local Audit Office (LAO) aims to overhaul the system, a parliamentary committee urges more clarity and decisive action to restore trust and efficiency.

A Call for Reform: Lessons from the Past

The committee, in a letter to Secretary of State Angela Raynor, welcomed the government’s intention to establish the LAO. However, they emphasized the importance of learning from the former Audit Commission's challenges.

Committee chair Florence Eshalomi stressed the need for clarity on how the LAO will align local authority accounts with their intended purposes. She also called for transparency on the future roles of existing bodies, such as the Financial Reporting Council, once the LAO assumes leadership.

Audit Reform: A Slow Pace of Change

The Institute of Chartered Accountants in England and Wales (ICAEW) has highlighted the sluggish response to England's local audit challenges. The current system has created severe backlogs, impacting the quality and timeliness of financial statements.

Alison Ring OBE FCA CPFA of ICAEW emphasized the foundational role of clear financial statements in ensuring democracy, accountability, and transparency. She also called for investments in local authority finance teams to address inefficiencies and reduce redundant data collection.

A Troubling Data Deficit

The National Audit Office’s recent disclaimer of the 2022-23 Whole of Government Accounts highlights the consequences of a failing audit system. Only 10% of English councils provided reliable data due to audit backlogs, impacting public bodies, including the NHS.

ICAEW warns that the local audit market suffers from insufficient capacity, misaligned priorities among stakeholders, and under-resourced finance teams. These gaps exacerbate governance failures and lead to significant financial losses.

The Road Ahead

To restore accountability and efficiency, the government must provide a clear and actionable strategy for local audit reform. Key steps include:

• Defining the LAO's role and scope.
• Aligning data requirements across central and local governments.
• Addressing resource shortages in finance and audit teams.
• Ensuring financial statements are accessible and meaningful for all stakeholders.

As the consultation on local audit reform concludes on 29 January, all eyes are on the government’s next steps to build a robust and transparent audit system.