
Audit firm highlights “significant weaknesses” in financial governance arrangements at councils
Four out of six statutory recommendations issued to councils last year by Grant Thornton were related to governance weaknesses, the auditor has said in a report.
- Details
The report, 'Lessons from recent auditor's annual reports', details the findings of a review of 92 annual auditor reports (AARs) produced by the auditor for its local government audited bodies, which represents almost a third (30%) of all councils in England.
The auditor made just six statutory recommendations – the most serious kind of recommendation it can issue – for four local authorities, covering late audited accounts, specific weaknesses in financial governance, and arrangements for the Housing Revenue Account.
However, it reported issuing nearly 120 key recommendations – a slightly less serious warning that does not require the council to produce a written response – relating to 40 different councils.
The auditor warned that the key recommendations in reports written between April 2022 and March 2023 showed an escalating rate of significant weakness in arrangements for financial sustainability.
"They also showed rising rates of significant weakness in arrangements for financial governance, internal control, performance management, and procurement; and in our view this is because the financial pressures some councils are facing is undermining other arrangements," the report added.
According to the report, the common issues facing councils between April 2023 and March 2024 related to savings and transformation plans and the dedicated schools grant, in particular, Special Education Needs and Disability (SEND) services.
Common issues also concerned financial governance and internal control, "sometimes linked to workforce issues", and performance management and procurement, "sometimes linked to prior year recommendations," the report said.
The report detailed a series of governance issues affecting local government and highlighted that key recommendations made on governance have almost doubled from 23 made for the 2021 to 2022 AARs to 42 made for the 2022 to 2023 AARs.
Grant Thornton said that four of the six statutory recommendations raised for 2022/23 related to poor financial governance.
The recommendations involved situations in which accounts were not being prepared because of "weak underlying finance systems" or lack of appropriate capacity and skills; and wider weaknesses in financial planning and monitoring arrangements.
The majority of key recommendations relating to governance concerned falling standards of internal control and/or falling standards of IT and data security.
"Often, this was linked to headcount reductions, vacant posts, and a reliance on contractors," the report said.
It added: "In the case of one council, external consultants concluded that internal controls were not fit for purpose after resources for the management accounting function had been reduced year on year for three years.
"The council was employing around 500 more people than is common for an organization its size, but in contrast there was a vacancy rate of up to 30% for the finance function."
For a different council there was a key recommendation raised around lack of IT security for the high rate of temporary staff coming and going – there was an unmitigated risk of data loss with each new starter and leaver, the report detailed.
Elsewhere, the report said councils have struggled to reduce dedicated schools grant deficits due to the demand for education and health care plans, and noted a trend in councils that were slow to react to rising costs being forced to “draw heavily” on their reserves in 2022/23.
Adam Carey
Head of Governance & University Solicitor
Director of Legal and Governance (Monitoring Officer)
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