Auditor shortage delays Reading Council accounts

According to Labour council leader Cllr Jason Block, Reading is one of 50 councils that have not yet produced signed-off accounts for the 2018/19 financial year. In Reading’s case, the delays have cost the council more than £600,000, Berkshire Live reported.

The hold-ups go back to the 2016/17 accounts, which were audited by EY and published in July 2019 after a two-year delay. The auditors reportedly raised more than 1,638 queries on these accounts.

The 2017/18 accounts, due by July 2018, were delayed by the previous year’s late accounts and finance officials told councillors at a meeting on 25 February that competing pressures had prevented staff from working on the 2018/19 accounts.

The latest annual report and accounts should be completed soon and be ready for a 30-day public inspection period by the end of its March financial year, the council said.

The Reading audit debacle has drawn criticism from Lib Dem opposition councillors and in previous years from local MP Alok Sharma, who was promoted to Secretary of State for Business in the recent cabinet reshuffle. In that role, he is responsible for overseeing audit regulation, which is the subject of two separate government reviews.

Public sector audits were privatised in 2014, when the old Audit Commission was retired and a new local government-backed entity Public Sector Audit Appointments Ltd (PSAA) was created. The PSAA is responsible for setting fees and appointing auditors to 98% of all relevant authorities and ensuring that their contracts are managed consistently and effectively.

Growing crisis

Five years on, however, and the picture is looking bleak. In August last year, PSAA reported that 210 out of 486 (40%) audit opinions on 2018/19 accounts were not available by the target date of 31 July 2019, compared to 13% of opinions that were not available by the target date the previous year.

“The target date has been missed in some cases because of a shortage of appropriately skilled and experienced auditors,” the PSAA reported to substantiate the Reading Council leader’s claim. “In others, the standard and timeliness of draft accounts, and/or associated working papers, has been lacking. Other delayed opinions arise from difficulties in obtaining responses to and resolving audit queries, and unresolved technical issues including matters arising within group accounts.”

Audit skills shortages are being felt across the profession, but the situation appears to be building towards a crisis in the public sector. The recent Brydon review set out to revive the credibility and kudos of auditing by separating it from the accounting profession, but another review is underway into public sector audit, led by former Chartered Institute of Public Finance and Accounting (CIPFA) president Sir Tony Redmond.

The deadline for comment was in December, so the sector will be looking to see if Sir Tony can find a solution to the underlying problems. He was president of CIPFA around the time of the transition in public sector audit arrangements when the institute raised concerns about “substantial issues” relating to the resourcing of local audit.

Market failure in audit

Five years later, in its formal response to the Redmond review in December 2019, CIPFA commented: “Feedback from discussions with practitioners has indicated some concerns regarding the availability of audit resources with the necessary skills, experience and knowledge of UK local authority accounting, with audit resources either being brought in from overseas or tasks transferred abroad, including areas such as analytical review and treasury management. This may increase the risk that UK local government-specific expertise and knowledge is not applied or available to inform the audit process.”

CIPFA CEO Rob Whiteman added: “Since the abolition of the Audit Commission, we are seeing market failure in audit. The simple fact is that high-quality audit cannot be achieved on the cheap.”

To remedy the situation the institute called for the formation of an independent regulatory body to oversee local audit as part of a rethink to join up “what has become an overly fragmented structure in England”. The proposed regulatory body would bring together responsibilities for audit appointments, standards, enforcement and public reporting on the overall position for councils nationally – much as the Audit Commission used to do.

Have you been involved in any public sector audits, or seen evidence of the growing auditor shortage? Share your thoughts by commenting below so we can get to the bottom of this issue.