External auditors blamed for delays to local government accounts

“Auditors scrutinising local authority accounts and the body responsible for appointing them have come under fire after new figures showed 40% of audit opinions missed the target date of 31 July.

Public Sector Audit Appointments (PSAA), the body responsible for appointing auditors, this week revealed that 210 out of 486 audit opinions on local government bodies for 2018/19 were not delivered on time.

The figure has jumped sharply from last year, when only 13% of opinions missed the deadline.

Graham Liddell, managing director at financial reporting consultancy LPFG and former senior technical manager at the Audit Commission, said: “This is a failure of the audit firms and of PSAA who appointed them.

“Of course, local authorities can make improvements, but by and large local authorities delivered the accounts, and by and large auditors failed to audit them.

“All the audit firms have enough staff to deliver their portfolio of local authority audits, it is just that they have chosen to maintain their margins and prioritise other sectors.

“I have immense sympathy for public sector audit teams who have been a handed an impossible job by their employers, but none for the firms themselves.”

He said that PSAA has presided over a process which has seen audit fees driven down to unsustainable levels.

“The big question is what does it do next? For a start, PSAA needs to stop defending auditors and blaming local authorities.

“It then needs to think carefully about audit fee rebates and how loudly it is going to name and shame the culprits.”

In a statement, the PSAA said a number of factors had driven the deterioration in performance, including, in some cases, a shortage of appropriately skilled and experienced auditors.

It said that, in other cases, the standard and timeliness of draft accounts, or working papers, has been lacking.

Other delayed opinions arose from difficulties in obtaining responses to and resolving audit queries, and unresolved technical issues including matters arising within group accounts, it said. …”

Auditors and PSAA slammed after jump in accounts deadline failures

“Council to appoint investigator to examine award of £15k additional duties payment to chief executive”

“A borough council is to appoint an independent investigator to examine the procedure followed when an additional duties allowance of £15,000 per annum was awarded to its chief executive.

The allowance, which was backdated to October 2016, was approved by a previous Leader of Surrey Heath Borough Council to recognise the additional work and responsibilities undertaken by the chief executive.

The council said it had received a number of enquires on the matter.

In a statement Surrey Heath said: “At the request of the Chief Executive, the Performance & Finance Scrutiny Committee will be asked to consider the appointment of an independent investigator to examine the procedure followed to award the additional duties allowance. The Chief Executive’s basic salary for 2018/19 was £120,687 plus the additional duties allowance of £15,000.”

Cllr Richard Brooks, Leader of Surrey Heath, said: “The council is committed to openness and transparency. All councillors and officers will cooperate fully in the independent review with any recommendations taken to full council.

“In the meantime I would like to thank the Chief Executive Karen Whelan for her continued dedication and hard work on behalf of the council. …”

https://www.localgovernmentlawyer.co.uk/employment/395-employment-news/41212-council-to-appoint-investigator-to-examine-award-of-15k-additional-duties-payment-to-chief-executive

Dramatic rise in delayed local government audit opinions

“Urgent improvement” is needed after a sharp rise in delayed audit opinions in local government, said the organisation that appoints auditors to 98% of council, police and fire authorities.

More than 40% of audit opinions (210 out of 486) on 2018-19 statements of accounts missed the target date of 31 July, figures released today from Public Sector Audit Appointments showed. Last year, just 13% were not available by the target date.

Tony Crawley, Public Sector Audit Appointments’ chief executive, suggested the rise was because of a lack of skills and poorly filled out paperwork.

“The challenge for all of the parties engaged in the accounts and audit process is to address the need for improvement urgently,” he said.

Accounts and working papers needed to be “prepared to the right standard”, Crawley explained, and auditors should have “sufficient appropriately trained and skilled staff”.

He added PSAA “looks forward” to working with the government on its review of the local audit system, which is expected to include the timeliness of audit opinions within its scope.

Crawley added: “There is also a need to address the more strategic challenges which arise from the current debates about auditing following various widely reported financial failures in the private sector.”

Although the deadline date for audit opinions is not statutory, auditors and audited organisations strive to meet it when possible, and bodies that do not do so must issue a statement explaining why they were unable to. …”

https://www.publicfinance.co.uk/news/2019/08/psaa-records-dramatic-rise-delayed-audit-opinions

“Accountancy fines double to record £32m as regulator gets tough”

“Fines against accountants more than doubled to a record £32m last year as the regulator cracked down on auditors in an attempt to repair its reputation in the wake of Carillion’s controversial collapse.

The penalties imposed mark a significant rise from the £13m in fines handed out by the Financial Reporting Council over the 2017-18 financial year.

The total would have reached £42.9m in the year to March 2019 if the FRC hadn’t offered discounts to firms that volunteered to settle cases early.

The rise in fines follows a series of accounting scandals at companies, such as Patisserie Valerie, which has put the work of auditors under heightened scrutiny and attracted criticism from politicians and regulators.

The accounting watchdog said the rise in penalties last year was partly due to more cases coming to a close over the period, as well as a rise in serious misconduct by accountants and the size of the auditing firms involved. The “big four” accounting firms – KPMG, Deloitte, PwC and EY – accounted for six of the nine fines imposed.

The big four have attracted heavy criticism over the quality of their audit work, particularly following the Carillion collapse.

Critics said KPMG should have spotted the construction firm’s problems sooner, and claimed auditors were prioritising profits over proper company scrutiny.

The FRC itself has been criticised for failing to keep close enough tabs on the industry, and is now set to be replaced with a new regulator.

The FRC’s executive counsel, Elizabeth Barrett, said: “The clarity and accuracy of financial reporting is of critical importance to us all. The significant increase in the number, range and severity of sanctions sends a clear message that where behaviour falls short of what is required, we will hold those responsible to account.”

https://www.theguardian.com/business/2019/jul/31/accountancy-fines-double-to-record-32m-as-regulator-gets-tough?CMP=Share_iOSApp_Other

Grant Thornton – EDDC’s auditors – get more flack

Owl says: Good job we have internal auditors and an Audit and Governance Committee and a Scrutiny Committee …

“What is most perturbing is that the auditor being relied upon by investors [in Sports Direct – whose shares have tumbled] to navigate their way through the accounting miasma is Grant Thornton. It is jolly good that Grant Thornton is a challenger to the big four, but investors might feel more comfortable if the track record were more stellar.

Among its stunning successes were the audit of Patisserie Valerie, where tens of millions of pounds vanished, and Neil Woodford’s gated Equity Income fund.

Small wonder Grant Thornton has been put under special measures to raise audit quality by the enforcer, the Financial Reporting Council. Given the known unknowns, the 9 per cent drop in Sports Direct looks too kind. …”

https://www.dailymail.co.uk/money/comment/article-7249985/ALEX-BRUMMER-Chaos-Mike-Ashleys-empire-transpires-no-master-plan-place.html

Grant Thornton (EDDC’s auditors) delay Sports Direct results

Owl says: not the first of the big auditors to get caught up in new, tighter regulation and certainly not the last.

“Retail tycoon Mike Ashley spooked investors on Monday after bosses at his tracksuits and trainers empire Sports Direct were forced to delay publication of its full-year results.

The acquisitive group’s highly-anticipated results were due to be published on Thursday but now the City may need to wait until August 23rd to glimpse beneath the bonnet of the firm.

Fearing the worst, investors fled. Shares slid 15 per cent in early trading on Monday to £2.20 – near to a seven-year low and well below the firm’s 2007 flotation price of £3.00. …

It said that its auditors at Grant Thornton need more time to sign off the accounts due to increased regulation and also pointed to ‘uncertainty’ around the future trading performance of House of Fraser, which it bought in a pre-pack administration for £90million last summer.

‘The reasons for the delay are the complexities of the integration into the company of the House of Fraser business, and the current uncertainty as to the future trading performance of this business, together with the increased regulatory scrutiny of auditors and audits,’ the group said. …”

https://www.thisismoney.co.uk/money/markets/article-7248053/Sports-Direct-shares-slump-billionaire-retail-tycoon-Mike-Ashley-delays-results.html

“Audit review raises prospect of new transparency rules for s151s” [Finance Officers]

“A review of local government audit announced by the government this week will consider new measures to give the public better access to financial information produced by section 151 officers.

Local government secretary James Brokenshire this week revealed the review, which will report next Spring, will be headed up by former Chartered Institute of Public Finance and Accountancy (CIPFA) president Sir Tony Redmond.

Brokenshire told the House of Commons this week that the review will examine the purpose, scope and quality of statutory audits of councils in England and the supporting regulatory framework.

The review follows concerns about the quality of local authority audits following the abolition of the Audit Commission in 2014.

Speaking to CIPFA’s annual conference in Birmingham this week, Brokenshire said: “Concerns have been recently raised about audit quality and whether the audit framework is too fragmented.”

But he said that restoring confidence in the audit regime needs to be accompanied by improvements in the way financial information is presented by local authorities.

He said: “As a result, I have also asked Tony to include transparency of financial reporting within the scope of his review.

“To be absolutely clear, I am approaching this with an open mind but our aim must be to ensure that the financial reporting and audit framework helps members, section 151s and chief executives to make informed and responsible decisions about improvements and is more open and accountable to our citizens.” …”

Audit review raises prospect of new transparency rules for s151s