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Council Coffers Crisis Revealed: Auditing of Public Money by Local Authorities Collapses – So How is Taxpayers’ Cash Being Spent?

Serious problems have arisen after the Government abolished the Audit Commission and handed the job to private accountancy firms instead

Photo: Richard Newton/Alamy

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Additional reporting by Josiah Mortimer

Financial checks on nearly £60 billion of public money spent every year on essential services like schools, social care, housing, roads and environmental services has virtually collapsed in England, an investigation by MPs will reveal later this year.

A dearth of auditors to undertake the task of checking whether public money has been properly spent has left local government in crisis.

The majority of the 350 councils have no independent verification of the money they spend. Only 15% of councils have been properly audited in the last financial year.

Labour MP Clive Betts, chair of the Commons’ Levelling Up, Housing and Communities Committee, has described the situation as “shocking and alarming “after it started to investigate, saying that it was clear “ the situation is unravelling as more evidence is collected”.

Gareth Davies, head of the National Audit Office, has warned MPs that the situation is “unacceptable” and could lead to loss of  public trust in councils to spend their money. He has said the problem is now spreading to the NHS, housing associations, the Department for Work and Pensions and other public bodies since they are audited by the same firms.

In evidence to MPs, the NAO said: “Weak audit undermines trust and confidence in any enterprise. Weak public audit is arguably worse in that it undermines citizens’ trust in the governance of public bodies and their use of public money in which we all, as citizens and taxpayers, have a stake.

“A situation where only 15% of 2021-22 English local government audits had been completed within nine months of the financial year end is clearly unacceptable and hugely damaging to public trust.

“The system of local public audit in England overall remains in danger of ceasing to function in the face of a growing mountain of work to be undertaken.”

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The problem has arisen after the Government abolished the Audit Commission quango, which kept a tight monitoring of local council expenditure. It handed the job to private accountancy firms to do the work instead.

Only nine companies are prepared to audit local councils, preferring to concentrate on lucrative work with private firms. The Government believes it will have to raise fees by between 100 and 150% in order to attract the firms to audit councils.

As of 31 December 2022, there were 619 outstanding audits among all local government, which had reduced to 545 by 31 March this year.

A number of scandals involving the loss of public money have started to emerge.

The worst affected authority in England is the London borough of Croydon, which has not been independently audited since 2015 – nearly eight years.

Now, council taxpayers in Croydon face a 15% rise following the authority, cuts in services and the council building up £1.6 billion in debt after losing millions on speculative commercial investments.

Croydon’s Conservative Mayor, Jason Perry, has written to MPs on the committee saying that the senior officials responsible resigned when faced with disciplinary action, and that the authority has handed over reports to the Metropolitan Police to investigate.

Other councils in deep financial trouble include Woking, which declared bankruptcy with £1.2billion in debt; Slough, also bankrupt with a £1 billion hole in its finances; and Thurrock, which has £1.5 billion in debts and is also bankrupt. More may be in trouble.

Evidence has been sent to MPs that the London borough of Lambeth has doubled its debt to £700 million in the last five years and there is evidence of weak internal auditing of its housing programme.

A spokesperson for the Local Government Association said: “Local audit is in crisis. The current issues with local audit are complex and have a number of causes including a limited number of firms within the market and a shortage of suitably qualified auditors working for those firms.

“Councils take their financial responsibilities seriously which is why the overwhelming majority publish their draft accounts on time. The late delivery of audit opinions is concerning to councils, given the important role that external audit plays in assurance over use of taxpayers’ money both centrally and locally.”

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A Freedom of Information request to the Treasury by Byline Times reveals that the problem has been known about since at least 2019.

The Government publishes what is known as the ‘Whole Government Accounts’ detailing all public expenditure. The last report for 2019-20 was ruled to be incomplete because of the number of local councils that could not produce properly audited accounts or any accounts at all in time.

The Treasury released the names of the 21 (including a publicly-owned airport and development corporation) that could not produce any financial reports in time: Calderdale; Cardiff International Airport; Chiltern; Copeland; Daventry; Dover; East Northamptonshire; Ebbsfleet Development Corporation; Elmbridge; Kings Lynn and West Norfolk; Lancaster; Lewes; Mole Valley; Northampton; Nuneaton and Bedworth; Oadby and Wigston; Reading; Slough; South Bucks; South Cambridgeshire; and Woking.

Another 38 could only send in unaudited accounts. They include: Blackpool; the London boroughs of Barking, Bexley ,Camden, Croydon, Enfield and Waltham Forest; Bristol; Coventry; the Greater London Authority; Eastbourne; Hastings; Liverpool; Nottingham; Peterborough; Plymouth; Scarborough; Stevenage; Warrington; Watford; and Wiltshire.

Juliet Swann, senior policy officer for nations and regions at Transparency International UK, said that it warned a decade ago that abolishing the Audit Commission “risked opening-up a black hole in local government accountability” and that “events since provide ample evidence of this”. 

“As one council after another suffers a collapse in financial control, it is clear we need a thorough review of transparency and accountability in local government,” she told Byline Times. “Investing in systems of audit, oversight and public reporting ultimately protects the taxpayer and helps people hold to account those chosen to run public bodies for them.”

For Gloria Dawson, spokesperson for the Research for Action group, the findings should be of “deep concern to anyone who cares about democratic accountability”.

“The privatisation and fragmentation of local audit has led to the near-collapse of the public audit regime,” she said. “Public audit should be providing timely independent oversight of councils’ finances – something that is needed now more than ever. Local government finances were in crisis before the pandemic and that has only intensified. There has never been a more important time for scrutiny of public funds.”

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