What is the local government audit in the UK?
Local government audit is the independent examination of a council’s financial statements, spending decisions and value-for-money arrangements. In England, local authorities – from county councils and metropolitan boroughs to police and crime commissioners and fire authorities – are all subject to examination under the Local Audit and Accountability Act 2014.
The system replaced the old Audit Commission model, which was abolished in 2015. Today, local bodies appoint their own auditors through Public Sector Audit Appointments (PSAA), and the external audit work is carried out by registered audit firms rather than a central government body. The National Audit Office (NAO) sets the Code of Audit Practice that every local auditor must follow when conducting local audits in England.
It’s a system that should work well. But right now, it’s under serious strain.
What does a local government auditor do?
A local government auditor does more than check the numbers add up. The role has three main parts:
Opinion on the financial statements. The auditor reviews the council’s annual accounts – prepared under CIPFA’s Code of Practice on Local Authority Accounting – and gives an opinion on whether they present a true and fair view. This follows International Standards on Auditing (UK), the same framework used in private sector work.
Value-for-money assessment. Auditors must also assess whether the local authority has proper arrangements for securing economy, efficiency and effectiveness. This goes beyond the accounts themselves. It looks at governance, financial planning and how the council manages risks to its financial position.
Reporting in the public interest. If serious problems are found – unlawful expenditure, governance failures, or a breakdown in financial controls – a public interest report can be issued. These are rare but powerful. They force the authority to consider the report in a public meeting, and they tend to make the local press.
There are also powers to issue advisory notices, apply to the courts for a declaration that an item of account is unlawful, and refer matters to the Secretary of State. Local audits carry real teeth when they need to.
Are local governments audited?
Yes. Every local authority in England and Wales must have its accounts examined. This applies to all principal councils, combined authorities, police bodies, fire authorities, national park authorities and certain other local government bodies. The requirement isn’t optional.
Parish councils with turnover above 25,000 pounds must also have a limited assurance review. Smaller parishes complete an annual return that may be selected for review by the appointed examiner.
But here’s the problem: while these examinations are legally required, many aren’t being completed on time.
The audit backlog crisis
By the end of 2023, roughly 500 audit opinions on local authority audited accounts were overdue – some dating back to 2015/16. The backlog built up for several reasons. Accounting standards grew more demanding (particularly around property valuations and pension fund assets). The pool of qualified local auditors shrank after the Audit Commission closed. And the fees set by PSAA didn’t reflect the actual work involved, making local audits commercially unattractive for many audit firms.
The Financial Reporting Council (FRC), which oversees quality through its Quality Review team, flagged serious concerns about timeliness and standards. CIPFA, the Chartered Institute of Public Finance and Accountancy, warned that the situation was undermining public trust in council finances.
In response, the Ministry of Housing, Communities and Local Government launched a local audit reform programme. MHCLG proposed a backstop date approach – setting deadlines by which outstanding audit reports must be cleared, even if that means issuing modified or disclaimed opinions on older years. The goal is to reset the local audit system and get local audits back on a timely cycle by 2027/28. This is a major local audit reform effort.
How the local audit system is changing
Several reforms are in progress or planned:
- The new Audit, Reporting and Governance Authority (ARGA) will replace the FRC and take on a stronger role overseeing quality across local bodies
- PSAA has awarded new contracts for 2023/24 onwards with higher fee scales that better reflect the work required
- The NAO is expected to revise value-for-money reporting requirements to reduce complexity
- A new system leadership role gives the local audit office function clearer responsibility for performance across the sector
There’s also growing interest in technology-led approaches – data analytics on council transaction records, automated testing of journal entries, and continuous monitoring techniques. These won’t replace professional judgement, but they can make the process more efficient for both firms and the local authorities being examined.
Why local government audit matters
Councils in England spend around 120 billion pounds of public money each year. That covers social care, housing, waste collection, planning, roads and much more. Without timely, independent scrutiny of local public bodies, there’s no external check on whether that money is being spent properly. The audit regime for local authorities exists precisely for this reason.
The collapse of finances at councils like Northamptonshire, Croydon and Slough showed what happens when governance and financial controls fail. In each case, findings came too late or weren’t acted on quickly enough. A functioning local audit system is the early warning mechanism that’s supposed to prevent exactly this kind of failure.
For residents, verified accounts and the auditor’s annual report are key tools for holding their council to account. And for central government, aggregate data across all local bodies provides vital intelligence about the financial health of the sector.
How we can help
At Audit Group, we work with public sector organisations including housing associations and bodies that interact closely with local authorities. Our team understands public sector standards, CIPFA requirements and the accountability framework that local government operates within.
If your organisation needs support or you’d like to discuss how local government audit requirements affect your operations, call us on 0161 832 4451 or visit our contact page.
