NAO report on local auditing in England 2018

By agency reporter
January 13, 2019

The number of NHS and local government bodies with significant weaknesses in their arrangements for delivering value for money for taxpayers is unacceptably high and increasing, according to a new report by the National Audit Office (NAO).

In 2017-18, 495 local authorities, local police and local fire bodies were responsible for around £54 billion of net revenue spending and 442 local NHS bodies received funding of approximately £100 billion. Each year, local auditors give an opinion on whether these bodies produce financial statements that comply with reporting requirements and if they have arrangements to properly manage their business and finances. Auditors can draw attention to weaknesses by ‘qualifying’ their opinion and issuing a ‘non-standard’ report. Local bodies should take any issues raised seriously and address them appropriately.

Auditors gave unqualified opinions on local bodies’ financial statements from 2017-18, although opinions at 16 local government bodies have yet to be issued. This provides assurance that they are accounting properly for their income and expenditure, and is consistent with the position since 2015-16.

However, auditors have identified significant weaknesses in an increasing number of local bodies’ arrangements to secure value for money, up from 170 (18 per cent) in 2015-16 to 208 (22 per cent) in 2017-18. This increase varies between local government and NHS sectors. The number of local government bodies receiving qualified conclusions was 40 (8 per cent) in 2015-16. In 2017-18, and with 20 conclusions still to be issued, 40 (8 per cent) qualified conclusions have been issued overall, but 18 per cent of single tier local authorities and county councils received a qualification. In the NHS, the number rose from 130 (29 per cent) to 168 (38 per cent) across the same period.

In addition to qualifying accounts, local auditors have a range of reporting powers. For example, they can issue a public interest report or issue recommendations that local bodies must consider publicly, such as recommending that bodies produce more detailed and realistic savings plans that take account of key risks. These powers are being used infrequently, with only three Public Interest Reports and seven Statutory Recommendations being issued since April 2015.

There is no direct consequence of receiving a ‘non-standard’ report from a local auditor. While departments responsible for the oversight of local bodies may intervene in connection with an issue, such as failure to meet expenditure limits, there are no formal processes for reporting publicly whether bodies are tackling these issues. Departments use information from local auditors’ reports to differing extents to inform their understanding of the issues local bodies are facing, but they also need to be able to challenge local bodies to demonstrate that they are taking appropriate action where necessary.

Given increasing financial and demand pressures on local bodies, they need to take prompt and effective action to strengthen their arrangements and improve their performance when issues are raised. The proportion of bodies with insufficient plans for keeping spending within budget or who have significant weaknesses in their governance, is too high. This is a risk to public money and undermines confidence in how well local services are managed. Local auditors need to exercise the full range of their additional reporting powers, especially where they consider that local bodies are not taking sufficient action.

Amyas Morse, the head of the NAO, said: “I am shocked by the persistent high level of qualified audit reports at local public bodies. A qualification is a judgement that something is seriously wrong, but despite these continued warnings, the number of bodies receiving qualifications is trending upwards. Let us hear no cries of ‘where were the auditors?’ when things go wrong. The answer will be ‘they did the job, but you weren’t listening’. This is not good enough; local bodies need to address their weaknesses, and departments across government should ensure they are challenging local bodies to demonstrate how they are responding.”

* Read Local auditor reporting in England 2018 here

* National Audit Office


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