Treasury permanent secretary James Bowler has warned MPs that the next instalment of the Whole of Government Accounts is likely to be rejected by the National Audit Office because of missing data on the state of local government finance.
The public-spending watchdog refused to sign off the 2022-23 snapshot of government finance when it was published last year after around 200 local authorities failed to provide any information owing to the longstanding crisis in local audit work.
Yesterday, Bowler told members of parliament's Public Accounts Committee that he anticipates that the next edition of the WGA – which is due to be published in July and which will cover 2023-24 – is expected to suffer the same fate because of incomplete data.
The WGA is a groundbreaking attempt to provide a single statement of government income, expenditure, assets and liabilities that launched with data for the 2009-10 financial year. It aims to bring together figures from more than 10,000 public bodies ranging from central government departments to individual schools.
A shakeup of the local audit market instigated by the coalition government's decision to scrap independent public corporation the Audit Commission has left many councils struggling to get their accounts audited on time. Even before 2024's disclamation, the NAO issued a qualified opinion on the Whole of Government Accounts for three straight years because of missing data.
Bowler told PAC members that local-government audit was in a "parlous state", although he said the "legislated recovery plan", set out by the new government last summer, appeared to be "on track". Nevertheless, he said he expected at least one more WGA to be knocked back by NAO head Gareth Davies and his team.
"Just being totally honest, we do expect a period of disclaimed accounts for WGA," Bowler said.
"The plans are in place. It will take a while to get through this. It's entirely up to the NAO what they do with our accounts. I wouldn't be surprised if the next set of accounts are disclaimed. We know already that there's slightly less missing data, but it's still significant."
Out of 426 local authorities across England, only 43 submitted reliable data in time for it to be used for the WGA 2022-23. The remainder were broadly split between those that submitted unaudited data and those that submitted nothing.
Bowler told MPs yesterday that around 90% of councils had complied with a "backstop" of completing their 2022-23 audits by December last year. Under the recovery plan, councils are supposed to submit 2023-24 audits by the end of next month.
The perm sec told MPs that "missing data should really start to reduce in 2024-25" as the backlog-recovery programme set out by ministers last year kicks in.
"Ourselves and the NAO's hope is that by 2025-26, we'll be in a better place," he said.
He said the missing local-government data was clearly "hugely suboptimal" but insisted that the recovery-plan backstops – which run to November 2028 – and plans to create a new single body responsible for overseeing local audit meant "reliability should increase".
Local Audit Office plans
The Ministry of Housing, Communities and Local Government is currently consulting on its plans for the Local Audit Office.
Will Garton, MHCLG director-general for local government, growth and communities, said the LAO would attempt to bring roles currently undertaken by a range of different bodies under one roof.
He said that subject to the consultation's outcome, the LAO would take on registration of firms and "systems leadership" from the Financial Reporting Council; audit-quality reviews from the FRC and the Institute of Chartered Accountants; enforcement from the FRC; the code of practice from the NAO; and would also take on responsibility for procurement and contract management.
Garton told MPs he expected the future local-audit landscape to have "some element of public-sector capacity" – something that was lost following the abolition of the Audit Commission.
NAO head Gareth Davies, who was also present at yesterday's committee meeting, said no-one should underestimate how significant an undertaking it would be to create new public sector audit capacity "given that it has gone".
He added: "Certainly the National Audit Office is willing and able to assist with practical advice on what's required to establish that kind of capability."