Democracy Experts Sound Alarm on Corruption Risk as Local Council Audits Collapse

This is a joint letter coordinated by Research for Action, a co-operative undertaking research to support social, economic and environmental justice

We represent a range of organisations and individuals working on audit and accountability, local government and local democracy. We are deeply concerned about the current situation in local government audit.

In October, a cross-party group of MPs and peers wrote to the Prime Minister, Rishi Sunak, asking him not to drop audit reform. We are also alarmed that the Government has shelving long-promised audit legislation, with no mention of it in the King’s Speech on 7 November.

In particular, we are concerned that a lack of primary legislation is continuing to damage local government and local accountability.

In 2022 and 2023, KPMG was fined a record amount for its failures to audit Carillion effectively. But where is the accountability for local government audit and its shortcomings?

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Local Audit Is Barely Happening

Local audit is an annual opportunity to scrutinise and improve the £100 billion of spending decisions made by local government. It is potentially a powerful accountability mechanism, but it is in a terrible state.

It is well-known that the backlog of local audits being delivered on time is huge, with only five local authority audits for 2022-23 being delivered by the deadline of September 2023, a sharp decline in the already-unacceptable 12% of local government audits delivered on time in 2021–22 (Public Accounts Committee Report on ‘Timeliness of Local Audit’, June 2023).

But it is not just the backlog that is the problem.

The quality and scope of audit has also been reduced. This lack of proactive oversight has been identified as a contributing factor to the disastrous situation at Thurrock Council, and in the financial crisis facing Birmingham City Council in September.

Meanwhile, behind the big stories, there are many problems across other authorities which cumulatively have a major impact on the people living there.

Additionally, there has been a knock-on effect on the delivery of ‘whole of government accounts’, which in turn has an impact on transparency and accountability at a national level.

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Damaging Local Democracy

Another democratic aspect of this problem is that ‘interim solutions’ put in place after the abolition of the Audit Commission in 2014, for example the Local Audit and Accountability Act, have created a huge backlog and stifled democracy.

These piecemeal arrangements have created the conditions for poor decision-making and have shut out the ‘armchair auditors’ who the Government expected would replace the Audit Commission.

Citizens and journalists are stonewalled when they try to raise questions and concerns to councils’ external auditors, as analysis produced by Research for Action (‘Democracy Denied’ (2021), ‘Local Audit: Why Public Interest Needs to Count’ (2023)) has repeatedly shown. While there is some good practice in local government with regard to transparency and accountability, there are also many examples of people being refused information which should be in the public domain.

In May 2023, the Levelling Up, Housing and Communities Committee began an inquiry into financial reporting and audit in local authorities. The committee’s report has not yet been published but will certainly reinforce what has been said already; there is an urgent need for consistent and wholesale reform in the way local authority audits are carried out and delivered.

The promised new body, the Audit, Reporting and Governance Authority (ARGA), already much-delayed since the white paper of 2023, has no firm start date. Given this situation, it is unacceptable that the Government has yet again postponed the legislation that would enable this significant reform.

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What Is Needed

Audit, and local audit in particular, needs deep change and not superficial reform. This change has three key aspects: transparency, robust scrutiny, and regulation. This needs both new primary legislation and amendments to existing legislation. We call on the current Government to bring forward audit reform legislation in this parliamentary session.

In this legislation, it must firstly ensure robust scrutiny by, for example, developing the remit of audit with more capacity for identifying fraud and corruption, making local government audit committees and scrutiny arrangements more comprehensive and well-resourced, and ensuring greater civil society participation in audit.

Secondly, it must improve regulation and oversight by, for example, doing more to eliminate conflict of interest in auditors, officers and councillors.

Additionally, we call on the Government to foster greater transparency by amending existing legislation such as the Freedom of Information Act 2000 so that there is improved disclosure over external audits and, similarly, over private companies delivering public contracts.

We ask MPs and peers from all parties to demand that the Government bring forward draft legislation and work across parties to develop better support and understanding for the particularities of local audit, and to listen to the local government sector, civil society and grassroots organisations in making local audit into a genuine tool for accountability and transparency.

With a record number of local authorities facing the Section 114 notices that signal possible financial collapse, it is imperative that auditing is carried out in a timely and thorough manner. Inaction is hurting the local government sector, and stifling democratic participation. Comprehensive audit reform is long overdue.

Signed,

• Professor Adam Leaver (University of Sheffield/ Audit Reform Lab)
• Tom Brake (Director, Unlock Democracy)
• Gillian Fawcett (former Auditor, Audit Commission)
• Dr James Brackley (University of Sheffield/ Audit Reform Lab)
• Dr Ben Worthy, Senior Lecturer in Politics, Birkbeck College, University of London
• Dr Ruth Hubbard, co-founder, It’s Our City! 
• Alan Hall (former Chair, Lewisham Council Audit Committee)
• Research for Action 
• The Peoples’ Audit
• Joanna Booth

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