An auditor says it will have to sign off Nottingham City Council’s accounts from the past four years with no certainty that everything is in order, amid efforts to tackle a national backlog.
The financial accounts of public organisations, such as councils, are reviewed by auditors to ensure everything is accurate and properly managed.
The council audit system is typically used as an early warning indicator of financial failure, including effective bankruptcy.
These assessments were conducted by the Audit Commission until it was closed by the Government in 2015.
Work is now outsourced to private firms, and since then, a significant backlog has developed.
To address and “reset” the system, the Government has set a legal deadline of 13 December for outstanding accounts up to 2022/23 to be reviewed, even if an auditor fails to complete them and provide assurances.
Accounts for 2023/24 must be finalised by February 2025, with further deadlines set for 2024/25 and future years.
Grant Thornton, the auditor for Nottingham City Council, says the authority’s accounts from 2019/20 to 2022/23 will be signed off with a disclaimer stating they are incomplete.
During an Audit Committee meeting on Friday (29 November), Andrew Smith, key audit partner, said they had not been able to progress on accounts between 2020/21 and 2022/23 due to issues with the 2019/20 accounts.
“The implications of this going forward are that we don’t have assurances of the opening balances, so there will be a disclaimer on the 23/24 accounts because we are not going to be able to recover in time,” he said.
“That isn’t a great situation.”
The issues with the 2019/20 accounts relate to concerns raised in an Ernst and Young (EY) report published earlier this year.
EY had been investigating whether managers had overridden financial controls in other departments, following the discovery of misspending council tenants’ rent money from the Housing Revenue Account (HRA).
“You have corrected some of those issues in terms of the HRA breach, but what we don’t know and what we weren’t able to get assurance on in 19/20 was potential management override of controls,” Mr Smith added.
He said substantive audit work would be needed to provide certainty from their perspective and that forensic accountants would be required to do this.
Councillors were told full audit work would take a minimum of six months per financial year, meaning at least two years would be needed to fully review the accounts, assuming no further issues were uncovered.
Cllr Adele Williams (Lab), chair of the committee, said: “It is a national position.
“Local audit is in a mess nationally, and it has been for at least a decade, more than a decade.
“We are now in a position where we can start to recover assurance and be in a stable position. We know there is still some uncertainty sitting there because the audits haven’t been fully completed.
“None of us are happy with this position.”
Mr Smith said it will take “several years” to get back to fully audited accounts, even with the Government’s deadline dates.
During the meeting, councillors agreed to accept the progress made so far on the accounts, both internally and externally, while noting the risks.
The statement of accounts up to 2022/23 was also approved ahead of being signed off by 13 December.
Stuart Fair, interim corporate director of finance, said he is “satisfied the quality of the formulation of accounts represents proper accounting practice.”
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