The government has acknowledged that clearing the growing audit backlog in local councils will take years, as it set a broad timeline for dealing with the crisis.
Under plans announced by local government minister Jim McMahon this week, annual “backstop dates” will be set for completing audits until 2028.
It is expected that in the short term this will lead to hundreds of council audits not being completed.
The announcement was welcomed by local government and accounting bodies as a first step in tackling the problem. But the government acknowledges the “unfortunate” result that many councils will likely not undergo the full audit process at a time when their finances are under increasing pressure.
In a written statement to parliament this week, McMahon said that the local audit system in England was “broken”. Just 1% of councils and other local bodies published audited accounts on time last year, and the size of the backlog is expected to grow to about 1,000 later this year.
The government will set a backstop for completing audits for 2022-23 of 13 December this year, and a backstop for 2023-24 audits of 28 February 2025. Backstop dates will also be set for the subsequent four years, with 2027-28 audits expected to be completed by 30 November 2028.
McMahon said auditors will issue a “disclaimed” or “modified” audit opinion where they are not able to complete audits.
The government “recognises that this is likely to have unfortunate consequences for the system in the short term”, he added, saying it was “forced to take this difficult decision” due to the inherited backlog.
“Auditors are likely to issue hundreds of ‘disclaimed’ audit opinions and disclaimed opinions will likely continue for some bodies for a number of years,” the minister warned.
In a letter to council chief executives and other stakeholders following the announcement, McMahon said that early indications suggested there could be “several hundred” disclaimed accounts in the “first phase” of the framework, which may cause “additional concern” in the short term.
In his statement, McMahon said most disclaimed opinions should be limited to the next two years, up to the 2024-25 backstop of February 2026. After this, he expects “only a small number of exceptional cases, due to specific individual circumstances”.
Auditors’ other statutory duties – such as reporting on value for money arrangements and making statutory recommendations – remain a “high priority”.
McMahon admitted that “aspects of these proposals are uncomfortable”, but said: “Without this decisive action, the backlog would continue to grow, and the system will move even further away from timely assurance.”
Acknowledging that “significant reform is needed to overhaul the local audit system to get the house in order and open the books”, McMahon said he will update parliament in the autumn on “the government's longer-term plans to fix local audit”.
There is increasing concern about the wider impact of the failing local audit system. A report from the Public Accounts Committee in 2023 said delays were reducing transparency over about £100bn of council expenditure, “impacting other areas of government spending such as the NHS and central government”.
And in March, the head of the National Audit Office, Gareth Davies, said the quality of the data for the Whole of Government Accounts was "being eroded" by missing and unaudited data – with English local authorities accounting for most of the problem.
In February, the previous government acknowledged the backlog had grown to an “unacceptable level”, and proposed a backstop date of September 30 this year for audits up to 2022-23.
Pete Marland, chair of the Local Government Association’s economy and resources board, said McMahon's announcement was “positive”, given the body’s call for a “pragmatic solution” to the backlog.
The announcement, which follows a commitment in Labour Party’s 2024 general-election manifesto to “overhaul the local audit system”, was also welcomed by bodies representing councils and finance professionals.
“We are pleased that the government has committed to overhauling local audit in the longer term,” Marland added. “There is an urgent need to restore confidence in the local audit arrangements, restore timely audits permanently, and improve financial reporting.”
Owen Mapley, chief executive of the Chartered Institute of Public Finance and Accountancy, said the move was an “important step to address the backlog and re-establish timely financial reporting and audit in England”.
Cipfa chief executive Alan Vallance said the reset of auditing through the backstop dates was “an important step to restoring credibility”.
Public Sector Audit Appointments, which appoints auditors to councils and sets fees, also welcomed the announcement.
PSAA chair Bill Butler said the ministerial statement “illustrates the stark challenge facing local government audit, and the drastic nature of the steps needed to address it”.
“This difficult but necessary solution has unprecedented consequences for the sector and the bodies affected, and recovery from it will be challenging for all parties,” he said.