NHS and local government bodies ignore auditors’ warnings

The number of NHS and local government bodies with significant weaknesses in their arrangements for delivering value for money is ‘unacceptably’ high, but bodies are failing to take action on auditors’ warnings, according to a report from the National Audit Office (NAO)

Despite auditors giving unqualified opinions on financial statements from 2015-18, showing that local bodies are complying with financial reporting requirements, the number of qualified conclusions on arrangements to secure value for money has increased from 170 (18%) in 2015-16 to 208 (22%) in 2017-18.

The NAO’s report, Local auditor reporting in England 2018, also found that auditors qualified their conclusions at 40 (8%) of local governments. The number of qualifications was highest for single-tier local authorities and county councils where auditors qualified 27 (18%) of their value for money arrangements.

Local NHS bodies received more qualifications on arrangements to secure value for money than local government bodies with 168 (38%) qualified, up from 130 (29%) in 2015. This was due to not meeting financial targets such as keeping spending within annual limits, not delivering savings and inadequate plans to achieve financial balance. The increase is particularly noticeable at clinical commissioning groups with qualifications for poor financial performance increasing from 21 (10%) in 2015-16 to 67 (32%) in 2017-18.

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.’

Local auditors have additional powers to ensure action in certain situations. This includes being able to issue public interest reported to draw the public’s attention to an issue and require the body to consider the report as well as being able to issue statutory recommendations that the body must also report and consider in public.

Despite these extra powers, since April 2015, auditors have only issued three public interest reports and seven statutory recommendations. The public interest reports related to unlawful use of parking income, governance failings and management of major projects or members’ conduct.  The statutory recommendations were with regards to failing to deliver planned cost savings, poor processes for producing annual financial statements and failure to address weaknesses highlighted by independent reviews.

As part of its review the NAO contacted 102 local public bodies where auditors had reported concerns about their arrangements to ensure value for money. Of these, 57 (95%) said they had plans in place to address their weaknesses but only three had fully implemented their plans. Half of the bodies said that the auditor’s report identified issues that they already knew about. However, the auditor’s report is not supposed to only highlight new issues but to ‘provide public assurance on the adequacy of the arrangements in place during the year’. This suggests that there is a gap between what the bodies expect the auditors to report and what the requirement is on auditors to highlight.

Meg Hillier, chair of the committee of public accounts, said: ‘It is deeply concerning that local auditors are raising increasing numbers of concerns about local bodies’ arrangements to secure value for money, but these are often not being listened to and there is no consequence for the local bodies themselves.

‘Local auditors should be using the full range of their powers and local bodies should be acting on their findings transparently, with departments holding them to account.’

Paul Dossett, head of local government at Grant Thornton UK LLP, commented: 'The NAO report needs to be viewed in the context of a decade of austerity where the financial position of many public bodies has worsened. However, the variation between the different types of bodies, and within the sector, shows that strong financial management is not universal and that good practice is not universally shared or applied. The forthcoming CIPFA Financial Management Code should ensure more consistency in the financial management of local government by both politicians and officers.

'This report reflects that Government departments have paid little practical heed to auditors’ reports, and this has had an influence on the regulatory environment that local bodies respond to. Coupled with a significant reduction in audit fees and a more limited approach to value for money, introduced by the 2015 Audit Code of Practice, there is a risk that the role of public audit will become diminished at a time when public expectations of auditors are at an all-time high.'

The NAO report - Local auditor reporting in England 2018 - is here.

Report by Amy Austin

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