English Council Audit Costs Rise Amid Bankruptcy Crisis

Audit costs for local English councils have more than tripled over the past three years, coinciding with a period in which many councils have fallen into bankruptcy.

A new report by the Audit Reform Lab at the University of Sheffield found that audit fee scales for English councils increased by an average of 238 per cent between 2022/23 and 2023/24.

The study, the first significant comparison of local authority audits across England, Scotland, and Wales, reviewed around 400 councils between 2018 and 2024.

Under the previous government, Thurrock and Croydon (for the third time) entered bankruptcy in 2022, followed by Nottingham, Birminghamand Woking in 2023.

Earlier this year, the National Audit Office warned that nearly half of England’s councils could face bankruptcy because of a £4.6bn deficit.

The Audit Reform Lab found that English councils now pay more than twice the hourly rates for additional audit work compared to their Scottish and Welsh counterparts, and also experience longer delays in having their audits signed off.

Audit directors’ hourly rates in England jumped from £165 in 2022/23 to £414 in 2023/24. By comparison, audit directors in Scotland and Wales earned £169 and £170 per hour, respectively, in the 2023/24 financial year.

Delays in England’s local authority audits have worsened. According to the report, as of June 30, 2024, only 1 per cent of 2022/23 audits were completed on time, with 68 per cent still outstanding.

Dr Daniel Tischer, author and researcher at Audit Reform Lab, said: “Audit firms have hiked hourly costs for cash-strapped local councils in England to eye-watering levels, while also failing to sign off accounts.”

Call for tighter local audit regulation

“The market is broken, regulation is feeble, and the price hikes create a moral hazard where auditors have little incentive to deliver work on time and to budget,” he noted.

The abolition of the Audit Commission in 2015 left English council audits almost entirely in private hands.

The Public Sector Audit Appointments (PSAA) sets fee scales in consultation with audit firms, but auditors often receive higher fees through additional hourly charges.

Labour’s newly proposed Local Audit Office (LAO) is set to restore some powers previously held by the Audit Commission, though Tischer has called for the plans to be strengthened.

“Labour’s plans to create a Local Audit Office are welcome, but they should further strengthen the Office’s capacity to conduct audits by enabling a 70/30 split of public versus private audits for English councils. This would ensure the LAO has the expertise and capacity to challenge private interests and protect the public good,” he added.