Almost 20 local authorities are facing delays of up to three months in the auditing of their accounts due to a staff shortage at their audit firm EY, LGC has learned.
Public Sector Audit Appointments, which appoints auditors to local public sector organisations, confirmed to LGC that 19 bodies, mainly district councils, have been informed their accounts will not be audited until after the 31 July deadline for their 2018-19 accounts to be signed off.
Councils affected include the six districts in Northamptonshire.
Asked to comment, EY pointed LGC to a letter from its associate director Neil Harris to Northamptonshire’s chief finance officers, which has been published by Kettering BC. In it Mr Harris wrote: “As your auditors we try to conduct our work in as timely a manner as possible, having regard to your responsibilities. Unfortunately, we are experiencing staff turnover and challenges in recruiting new staff, which affect the audit timetable.”
He added: “Whilst we always strive to provide excellent client service, my first priority must be to safeguard the quality of the audits provided, and avoid putting our professional standards at risk.”
The 2018-19 financial year is the second year of the 31 July target for all council accounts to be audited and signed off but prior to that it was not uncommon for audits to be concluded as late as September. It is also the first year of a new set of five-year contracts let by the PSAA on behalf of almost 500 councils and other local public bodies such as police and parks authorities.
EY won contracts worth £10.9m a year to audit 184 organisations, the second largest of five lots let by the PSAA. PSAA has previously said the scheme will save the sector £6m a year on the five years of the contracts, equivalent to a reduction in fees of 18%.
The largest lot, valued at £14.4m a year, was won by Grant Thornton. The firm’s head of local government Paul Dossett told LGC all audit firms were finding recruitment and retention difficult.
“Audit is under scrutiny at the moment. While it’s easy to recruit new [people], retaining high quality staff is quite challenging,” he said.
“We are caught in a pincer movement of reduced fees, increased regulatory risk and a shortened deadline. It’s really quite a challenging world for public sector audit at the moment.”
A review of the PSAA’s procurement by the Cardiff Business School published in January found while the exercise had been successful, there remained “significant risks and challenges, which are inherent in the market” in the longer term.
In a statement the PSAA said it was “disappointed” by the situation but that EY’s decision was driven by the “fundamental need to ensure that the requirements of relevant professional standards are met”. The statement said PSAA was in “close contact” with EY on its plans for this year’s audits and its “action plan” to ensure similar issues did not arise in future years.
“EY is agreeing with each [affected body] the best way forward in relation to the audit of their 2018-19 accounts, taking into account individual circumstances and preferences. We appreciate that this is a less than ideal solution but, unfortunately, there are no practical alternative options available.”
The statement said councils would still be in compliance with the Accounts and Audit Regulations 2015 if they publish an explanation of why audited accounts are not available by 31 July 2019.