Local Audit Backlog Undermines Public Sector Accounts, MPs Warn

New report reveals significant overstatements in income and debt due to unreliable data in government accounts.

A report on the Whole of Government Accounts (WGA) for the fiscal year 2022-23 has raised serious concerns regarding the integrity and reliability of government financial data.

It states that income and debt figures have been overstated by tens of billions of pounds due to a backlog in local audits, which is hampering transparency and financial oversight.

The National Audit Office (NAO) has been unable to sign off on the government accounts for 2022-23, with only 10% of the 426 local authorities in England providing reliable financial data for that period.

This situation has drawn attention from the Public Accounts Committee, which emphasizes that the Ministry of Housing, Communities and Local Government (MHCLG) is not able to effectively monitor local councils' financial health amid a climate where many councils are at risk of declaring effective bankruptcy.

The report has found that the lack of detailed data has resulted in an estimated overstatement of net income in the WGA by £34.4 billion and net debt by £31.7 billion.

The Government, responding to the committee's findings, indicated that it is aware of the local financial situations and mentioned alternative methods for assessing council health, including informal communications and auditors’ reports on significant public interest issues.

However, the committee pointed to instances like Barnet Council, which issued a section 114 notice in 2020 due to unlawful pensions spending, yet the MHCLG only became aware of the issue in 2024. Given the findings, the committee has requested the Government to outline a plan within six months to address the scale of missing data, amidst ongoing uncertainty regarding the future of council audit arrangements.

In response to the situation, the Government has introduced legal deadlines mandating the completion of council accounts and plans to establish a local audit office.

Nonetheless, the committee expressed concern that both the Treasury and MHCLG have been slow to respond, leading to questions about the enforcement of these deadlines and potential consequences for councils that do not comply.

The limited capacity of audit firms to conduct necessary assessments at scale adds to the ambiguity about how the new audit office will fulfill its responsibilities.

Sir Geoffrey Clifton-Brown, chair of the committee, noted the historical significance of the NAO's inability to sign off on the WGA, underscoring the detrimental impact of unreliable data on transparency for taxpayers.

He contextualized the current fiscal challenges within broader uncertainties, both domestic and international, emphasizing the urgent need for the Government to rectify flaws in the WGA.

The report suggests that the WGA should ideally provide a clear overview of public finances to support effective decision-making and enhance understanding of fiscal risks.

The WGA also highlights ongoing risks linked to climate change, escalating health expenditures, and geopolitical tensions that are projected to exert further pressure on public finances.

Additionally, the Office for Budget Responsibility (OBR) forecasts that public sector net debt could potentially triple over the next fifty years if current trends persist.

However, the report criticizes the WGA for not sufficiently contextualizing such challenges within the framework of current government spending and financial commitments, thereby limiting the ability of stakeholders to grasp the full extent of the UK’s financial challenges.

The Government has been approached for further comment on these findings.