Skills in short supply for local government audit

Auditors face a recruitment crisis. Historic figures in local government audit, writes Richard Harbord, must be turning in their graves.

As always when faced with the excitement of current local government I first turn to the greats of our municipal heritage to map out the journey we have been on. I have considered Burton’s Accounts and Audit written in 1923 when he was the City Treasurer of Manchester, and the seminal work of A Carson Roberts who, in 1930, was in charge of metropolitan audit and financial advice to the Ministry of Health (interestingly the department was responsible for local government but didn’t have it in the title).

But the best of all is Bedford’s Audit of Local Authorities published in 1938 and unique to the extent it ran to a second edition.

The second edition also runs to 1007 pages and has such detail about financial systems and financial control that it is truly amazing (I have just written a set of financial regulations which ran to 16 pages, and I realise now that I should have done better).

Improve

It is interesting to think that the Audit Commission closed at the end of March 2015 and we have therefore now had six years of progress since then. I was a great supporter of much of the work carried out by the Audit Commission although I did agree that they had become over large and were involved in areas which were not their core business.

However, the work around the comprehensive performance assessment and its financial counterpart did a great deal to improve standards and emphasise the importance of financial control.

I have fond memories of working at a London Borough as chief executive and ensuring the stair s were polished each morning during the inspection, visiting reception each morning to ask if they could be pleasant to visitors for yet another day and persuading civic catering to produce lunches comparable to the Ritz. The end result of excellence made it all seem worthwhile.

Later I was director of finance, which had been poor, and we adopted the imaginative strap line “aspire to be weak” and celebrated when we met our aspiration.

Given the current state of local authorities and their finances there is an interesting doctorate to be written about the contribution of external audit to financial health and well being.

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Decline

There is clearly recognition that there needs to be change and improvement in the current system. The Redmond Review was commissioned in 2019 only four years after the demise of the Audit Commission and sadly some of the recommendations from that excellent review will not be implemented until 2023.

In July 2021 the House of Commons public accounts committee published a critical report on the state of external audit for local authorities and felt that the current system was close to breaking and the then MCHLG had not given “credible detail on addressing the urgent problems that cannot wait for the Redmond Review to be implemented”.

The headlines following the committee’s report were worrying. They reported that over half the audits examined by the Financial Reporting Council needed ”more than limited improvement.” There were only eight firms in the local authority audit market and two of those are responsible for 70% of all audits.

There were six areas of major recommendation and a follow-up has yet to be formally produced.

The main areas were: The decline in timeliness of external audit which makes accountability and effective decision making difficult; over reliance on a few firms and significant barriers of entry to new firms means there is a pressing risk of market collapse. One firm leaving the market would create a fundamental capacity gap.

Shortage

The commercial attractiveness to firms to carry out external audits has declined. The committee urged that the 2021 procurement exercise gives a new fee regime which would bring fees in line with the cost of the work.

There is a real shortage of people with the necessary skills in this market and the FRC and accountancy institutions need to urgently address this.

The committee were not convinced that the new audit arrangements will meet the need which is currently present. In may 2021 the Government announced ARGA would replace the FRC as regulator but Procurement will remain with the current PSAA . ARGA requires legislation and is currently set for a 2023 start.

The committee were very unhappy indeed and said that government had become increasingly complacent about external audit in local government. Burton, Bedford and Carson Roberts must be turning in ther graves.

Richard Harbord is former chief executive at Boston Borough Council.

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