ANALYSIS  ⁄  DEMOCRACY & GOVERNANCE

Exeter & East Devon council accounts delayed by Grant Thornton's "lack of staff resources"

Annual accounts for local government, including Exeter City Council, have been delayed by private sector firms failing to complete their work on time after cost-cutting government auditing reforms.

Exeter city council  East devon district council  Accountability & transparency 

Exeter City Council’s chief financial officer, Dave Hodgson, told a meeting of the council’s audit and governance committee on 4 December 2019 that the external auditors, Grant Thornton, had not yet provided their opinion on the council’s 2018/19 accounts even though the deadline for doing so was 31 July 2019.

Without that opinion, the accounts could not be approved formally and then published, thus delaying public scrutiny of the council’s financial affairs.

The delay also prevents the government from completing the national Whole of Government Accounts which give a comprehensive annual accounts-based picture of the financial position of the UK public sector. Insufficient staff resources at Grant Thornton was the cause.

Mr Hodgson added that the delays by Grant Thornton meant that Exeter City Council finance staff were having to spend time on the previous year’s accounts when they should be concentrating on budget planning for the 2020/21 year, which starts in April.

The council is also incurring extra costs by having to convene a special meeting of the audit and governance committee in January to approve the accounts.

In addition, the situation had created a risk of damage to the council’s reputation because only the small minority of people familiar with the audit procedures would realise that the delay was caused by the external auditors and not by the council itself.

The same issue has arisen on the other side of the M5 where East Devon District Council’s accounts were delayed by the same audit firm, Grant Thornton, though less severely than Exeter’s have been.

Despite a report to the East Devon committee making clear that the auditor’s failure to meet the 31 July deadline was down to a “lack of [auditor] staff resources”, Grant Thornton added extra fees to their bill due to “delays caused by council staff availability delaying the start of our interim audit”. Unsurprisingly, the council challenged this.

Similar problems have occurred across the country. More than 40% of audit opinions were not available by 31 July 2019, up from 13% the previous year, although it is important to note that some of these audits relate to police and fire authorities as well as councils.

By 31 October 2019 the position had improved, though a quarter of audit opinions had still not been received:

Appointed
auditor
Delayed audit opinions
at 31 July 2019
Delayed audit opinions
at 31 October 2019
BDO139
Deloitte1815
Ernst & Young9062
Grant Thornton7025
Mazars178
Total delayed208119
Total commissioned486486

Source: Public Sector Audit Appointments Ltd

To shed some light on how local government auditing reached this unhappy state, it is necessary to go back to the election of the Conservative-led coalition government in 2010.

One of the Conservative Party’s priorities at the time was “Localism” which, in practice, meant removing as many elements of central control over local government as possible, provided doing so was consistent with retaining sufficient power in Whitehall to impose austerity-driven policies.

One seemingly quick win was the decentralisation of the local government audit function, which had been controlled from the centre since 1983 by the Audit Commission. In ministers’ eyes, this scored well not just on localism, but also on increasing opportunities for private sector auditors in the local government market, on creating competition between firms to drive audit prices down and on making further expenditure savings by abolishing the commission and its overheads.

The abolition announcement was made on 13 August 2010, a mere three months after the general election and while Parliament was still in summer recess. The new language of government was exemplified by the Secretary of State, Eric Pickles MP, who described the commission thus: “rather than being a watchdog that champions taxpayers’ interests, it has become the creature of the Whitehall state”.

Although it took until 2014 to pass the legislation to shut down the commission, the development of arrangements to replace it proceeded in the meantime. Despite the validity of some prior criticism of the commission, many commentators considered what happened subsequently as a triumph of dogma over good planning and risk management.

Audit Commission logo

For anyone wanting an incisive analysis of the coalition’s local government auditing reforms, a recent paper commissioned by the House of Commons Housing Communities and Local Government Committee and written by Professor Laurence Ferry of Durham University makes some key points that illuminate Exeter City Council’s predicament.

First, the Local Government Association set up an arms-length body, Public Sector Audit Appointments Ltd (PSAA), supposedly to help local government bodies appoint auditors. In practice PSAA rapidly became a near-monopoly supplier of auditors to local government, setting standard fees for each authority based on the work needed to deliver an audit opinion in line with agreed professional standards. 98% of local government auditors are now supplied through PSAA.

Second, fee income from audits has fallen significantly, though some of this reflects prescribed reduced auditing activity, such as a move away from value-for-money studies. Professor Ferry’s report notes that the average standard fee across England fell from above £200,000 in 2010 to £60,000 by 2018. PSAA’s fee-setting process has had the following effects in Exeter and East Devon:

YearExeter City CouncilEast Devon District Council
2015/16£57,887£50,821
2016/17£57,887£50,821
2017/18£57,887£50,821
2018/19£44,573£39,132
2019/20£44,573£39,132

Source: Public Sector Audit Appointments Ltd

Third, only two of the “Big Four” audit firms continue to deliver local government audits via PSAA: Deloitte and Ernst & Young. Of the others PWC has not bid for work while KPMG did so for 2018/19 but failed. Only three other firms are engaged in local government audits, which contrasts with nine private sector firms in the days of the Audit Commission.

This scenario goes a long way to explaining why firms like Grant Thornton have struggled to complete their contracted work on time.

The firm said in a statement: “There are significant pressures facing the auditing profession at the current time due to a combination of increased regulatory scrutiny, the challenges of recruiting and retaining staff across the country and the increasing complexity and quality of draft accounts.

“Local government auditors are now working in a different and more challenging environment to 2017, when the last audit tenders were made, which is contributing to delivery challenges within all firms.

“Exeter City Council published a statement on its website in July which outlined the impact of resourcing on the progression of the council’s audit. We are currently working with the council to conclude the audit in the next few weeks.”

Exeter Civic Centre entrance sign

This is doubtless true. But as a member of Exeter City Council’s audit and governance committee pointed out, it does not explain why the audit firms continue to bid for work for which the fees, by their own admission, are now insufficient. Perhaps they are trying to build a track record that will stand them in good stead for whatever new audit regime comes next?

For there will indeed be changes, given the extent of concern about the present arrangements. For example, the PSAA’s chief executive, Tony Crawley, summarised his views in a blog post in January 2019:

“Whilst our contracts ensure that the firms are remunerated at the level of their bids, and the majority of S151 officers think the audit fee is now about right, we are conscious that there is a perception of a risk to audit quality resulting from the new prices.

“There is no doubt that audit fees have reduced significantly, and typically are now 35% of their 2012 levels in absolute terms following successive reductions of 40%, 25% and for 2018/19 onwards, a further 23%.

“Whilst a large chunk of the earlier reductions were down to eliminating Audit Commission central costs and changes to the work requirements, the reductions are now substantially due to our suppliers reducing their prices for delivering audits that meet the scope of the Code of Audit Practice requirements, including the auditing standards.”

This followed Sir John Kingman’s 2018 review of the Financial Reporting Council which noted that the PSAA was focussed on the costs of audit, concluding that “these arrangements, in practice, may well be prioritising a reduction in cost of audit, at the expense of audit quality”. And it preceded the July 2019 announcement of a review into the quality of local government audits, the final report from which is due in March 2020.

Exeter City Council accounts delayed by auditors Grant Thornton

So, apart from the presumably unintended consequences of disruption to local authority finance departments, how does the reform score against other expected benefits? Not too well is the answer.

First, it had limited impact on Localism. The change removed the heavy hand of the Audit Commission, but has not given councils any meaningful new freedoms, given that almost all of them are saving time and effort by going through the PSAA appointments system.

Second, it failed to create increased opportunities for private sector auditors in the local government market. As Professor Ferry points out: “The new audit regime has failed to increase audit market competition for local government, which now has actually fewer suppliers including fewer Big Four firms, than prior to the reforms.

“There are now only five firms providing public audit services to local government, rather than ten under the Audit Commission regime (including its own District Audit Service). The situation is arguably an oligopoly.”

Third, the aim of creating competition between firms to drive down audit prices was achieved, but by other means. Some have withdrawn from the market, as the reform was always going to be a tough sell to firms who live or die by fee earnings, and it has been PSAA rather than competition that has driven fees down.

Nevertheless, some expenditure savings were made by abolishing the Audit Commission and its overheads, as noted by Tony Crawley above.

However, the government’s August 2010 announcement had little to say about audit quality other than that the changes would “maintain auditing standards”. The evidence suggests that even this modest ambition has not been achieved.

Audit firms are not charities. If a piece of fee-earning business is not going to show a profit in the long run, these firms will either make savings by cutting the amount of work done or by handing it over to more junior and less experienced, which is to say cheaper, staff.

Meanwhile, back in Exeter, Dave Hodgson has been left to find staff time both to finish the audit and to make financial plans for 2020/21.


 is a contributing editor of Exeter Observer.

Exeter in brief
Exeter in brief

Royal College of Nursing staff at the ROYAL DEVON NHS TRUST have resumed strike action alongside South Western Ambulance Service workers as healthcare professionals across the country stage the biggest strike in NHS history.

Detailed plans for the Honiton Road MOOR EXCHANGE RETAIL PARK have been submitted for approval. Outline planning permission for the development was granted two years ago.

The police inspectorate says DEVON AND CORNWALL POLICE must make urgent improvements after it was found to be inadequate in three of nine areas including responding to emergency and non-emergency calls and managing registered sexual and violent offenders.
Its assessment found two other areas required improvement while two more were graded “good”. A new chief constable was appointed in December after the force was placed under enhanced inspectorate monitoring last year.

DEVON COUNTY COUNCIL is consulting on its draft Exeter Local Cycling and Walking Infrastructure Plan, which is already nearly six years late, until the end of March.

UNIVERSITY OF EXETER staff have resumed strike action over pay, pensions and working conditions alongside Exeter school teaching staff with dozens more strike days planned during February and March.

EXETER CITY FUTURES published the agenda for its last board meeting on 30 January, two months after the meeting was held. It says it is “committed to being completely transparent and open about the things that are discussed at board meetings”. No minutes were included.

DEVON COUNTY COUNCIL is not making sufficient progress with its children’s services since they were judged inadequate in January 2020 according to the latest Ofsted monitoring report which found that key areas still require significant change and serious issues remain.

The UNIVERSITY OF EXETER has submitted detailed plans for its 1,700 bed West Park redevelopment of 50,000m2 of student accommodation.

Royal College of Nursing staff at the ROYAL DEVON NHS TRUST have resumed strike action alongside South Western Ambulance Service workers as healthcare professionals across the country stage the biggest strike in NHS history.

Detailed plans for the Honiton Road MOOR EXCHANGE RETAIL PARK have been submitted for approval. Outline planning permission for the development was granted two years ago.

The police inspectorate says DEVON AND CORNWALL POLICE must make urgent improvements after it was found to be inadequate in three of nine areas including responding to emergency and non-emergency calls and managing registered sexual and violent offenders.
Its assessment found two other areas required improvement while two more were graded “good”. A new chief constable was appointed in December after the force was placed under enhanced inspectorate monitoring last year.

DEVON COUNTY COUNCIL is consulting on its draft Exeter Local Cycling and Walking Infrastructure Plan, which is already nearly six years late, until the end of March.

UNIVERSITY OF EXETER staff have resumed strike action over pay, pensions and working conditions alongside Exeter school teaching staff with dozens more strike days planned during February and March.

EXETER CITY FUTURES published the agenda for its last board meeting on 30 January, two months after the meeting was held. It says it is “committed to being completely transparent and open about the things that are discussed at board meetings”. No minutes were included.

DEVON COUNTY COUNCIL is not making sufficient progress with its children’s services since they were judged inadequate in January 2020 according to the latest Ofsted monitoring report which found that key areas still require significant change and serious issues remain.

The UNIVERSITY OF EXETER has submitted detailed plans for its 1,700 bed West Park redevelopment of 50,000m2 of student accommodation.

More Analysis
Lottery graphic

COMMUNITY & SOCIETY

Council lottery operator to take cut from local charitable donations

Decision to promote gambling as "incentivised giving" plays down risks without assessing potential impacts or evidencing claimed benefits, disrupting relationships between community and voluntary sector organisations and supporters.

Exeter Development Fund workshop presentation October 2021

DEMOCRACY & GOVERNANCE

Exeter City Futures falsely claims development fund documents disclosed under FOI legislation

Senior council director puts company on collision course with Information Commissioner's Office as significant governance failings emerge after councillors and public kept in dark over Liveable Exeter financing scheme proposals.

Exeter City Council 2020-21 external audit report cover

DEMOCRACY & GOVERNANCE

Exeter City Living put council at "significant financial risk" after £2.2 million loss in first two years

Missing business plan, lack of transparency and conflicts of interest among senior council directors prompt board resignations and governance review at council-owned and funded company.

All Analysis
News
Exeter empty and second homes by council tax band October 2022 bar chart

PLANNING & PLACE

Exeter has more empty and second homes than built in city in past two years

Council tax premium proposals that aim to raise additional revenue from underused housing stock might also encourage return to residential occupancy.

University of Exeter students based at Streatham & St Luke's campuses 2021-22 & 2022-23 table

PLANNING & PLACE

30,000 students based at Exeter university campuses in 2022-23

Freedom of information request reveals significant drop on last year with postgraduate students accounting for 58% of fall in numbers.

Devon County Council headquarters at County Hall

DEMOCRACY & GOVERNANCE

Underperforming county council children's services to receive nearly half of proposed spending increases

Details of simultaneous £50 million 2023-24 spending reductions not yet published as finance director cites service delivery "re-prioritisation".

All News
Comment
Co-living - discover a new way to rent

PLANNING & PLACE

Council development levy changes are insufficiently evidenced and don't meet city infrastructure needs

Exeter City Council and Liveable Exeter partners impose faulty typology driven by policy objectives while ignoring new local plan, evidence base and statutory funding statement and excluding residential and retail charges from review.

Exeter city centre retail area map 2017 and 2022 CDRC data

CLIMATE & ENVIRONMENT

Is the grass really greener in Exeter city centre?

Academic research placing Exeter retail area at top of green space table was nationally reported, locally misrepresented then repurposed as booster fuel by local politicians overlooking study's social justice focus.

Exeter City Council outline draft local plan site allocations crop

PLANNING & PLACE

Will council seek investment zone status for Liveable Exeter sites?

Government growth plans combine tax breaks with planning deregulation, putting affordable housing provision and environmental protections at risk with little evidence that promised investment zone benefits would result.

All Comment
On our radar
All topics

ACCOUNTABILITY & TRANSPARENCY ACCOUNTABILITY & TRANSPARENCY ACCOUNTABILITY & TRANSPARENCY   AIR QUALITY AIR QUALITY AIR QUALITY   COP26 COP26 COP26   COVID-19 COVID-19 COVID-19   CITYPOINT CITYPOINT CITYPOINT   CLIFTON HILL SPORTS CENTRE CLIFTON HILL SPORTS CENTRE CLIFTON HILL SPORTS CENTRE   CLIMATE CRISIS CLIMATE CRISIS CLIMATE CRISIS   CO-LIVING CO-LIVING CO-LIVING   CONGESTION CONGESTION CONGESTION   COUNCIL TAX COUNCIL TAX COUNCIL TAX   CROWN ESTATE CROWN ESTATE CROWN ESTATE   CYCLING & WALKING CYCLING & WALKING CYCLING & WALKING   DEMOCRATIC DEFICIT DEMOCRATIC DEFICIT DEMOCRATIC DEFICIT   DEVON & CORNWALL POLICE DEVON & CORNWALL POLICE DEVON & CORNWALL POLICE   DEVON CARBON PLAN DEVON CARBON PLAN DEVON CARBON PLAN   DEVON COUNTY COUNCIL DEVON COUNTY COUNCIL DEVON COUNTY COUNCIL   DEVON PENSION FUND DEVON PENSION FUND DEVON PENSION FUND   EAST DEVON DISTRICT COUNCIL EAST DEVON DISTRICT COUNCIL EAST DEVON DISTRICT COUNCIL   EXETER AIRPORT EXETER AIRPORT EXETER AIRPORT   EXETER CATHEDRAL EXETER CATHEDRAL EXETER CATHEDRAL   EXETER CITY COUNCIL EXETER CITY COUNCIL EXETER CITY COUNCIL   EXETER CITY FUTURES EXETER CITY FUTURES EXETER CITY FUTURES   EXETER CITY LIVING EXETER CITY LIVING EXETER CITY LIVING   EXETER COLLEGE EXETER COLLEGE EXETER COLLEGE   EXETER CULTURE EXETER CULTURE EXETER CULTURE   EXETER DEVELOPMENT FUND EXETER DEVELOPMENT FUND EXETER DEVELOPMENT FUND   EXETER EXTINCTION REBELLION EXETER EXTINCTION REBELLION EXETER EXTINCTION REBELLION   EXETER LIVE BETTER EXETER LIVE BETTER EXETER LIVE BETTER   EXETER LOCAL PLAN EXETER LOCAL PLAN EXETER LOCAL PLAN   EXETER PHOENIX EXETER PHOENIX EXETER PHOENIX   EXETER PRIDE EXETER PRIDE EXETER PRIDE   EXETER SCIENCE PARK EXETER SCIENCE PARK EXETER SCIENCE PARK   EXETER ST DAVID'S EXETER ST DAVID'S EXETER ST DAVID'S   EXETER TRANSPORT STRATEGY EXETER TRANSPORT STRATEGY EXETER TRANSPORT STRATEGY   EXETER CITY CENTRE EXETER CITY CENTRE EXETER CITY CENTRE   FREEDOM OF INFORMATION FREEDOM OF INFORMATION FREEDOM OF INFORMATION   FRIDAYS FOR FUTURE EXETER FRIDAYS FOR FUTURE EXETER FRIDAYS FOR FUTURE EXETER   GENERAL ELECTIONS GENERAL ELECTIONS GENERAL ELECTIONS   GUILDHALL GUILDHALL GUILDHALL   HARLEQUINS HARLEQUINS HARLEQUINS   HEART OF THE SOUTH WEST LEP HEART OF THE SOUTH WEST LEP HEART OF THE SOUTH WEST LEP   HOUSING CRISIS HOUSING CRISIS HOUSING CRISIS   LGBTQIA+ LGBTQIA+ LGBTQIA+   LIVEABLE EXETER PLACE BOARD LIVEABLE EXETER PLACE BOARD LIVEABLE EXETER PLACE BOARD   LIVEABLE EXETER LIVEABLE EXETER LIVEABLE EXETER   LOCAL INDUSTRIAL STRATEGY LOCAL INDUSTRIAL STRATEGY LOCAL INDUSTRIAL STRATEGY   LOCAL ELECTIONS LOCAL ELECTIONS LOCAL ELECTIONS   MAKETANK MAKETANK MAKETANK   MARSH BARTON MARSH BARTON MARSH BARTON   MET OFFICE MET OFFICE MET OFFICE   MID DEVON DISTRICT COUNCIL MID DEVON DISTRICT COUNCIL MID DEVON DISTRICT COUNCIL   NET ZERO EXETER NET ZERO EXETER NET ZERO EXETER   NORTHERNHAY GARDENS NORTHERNHAY GARDENS NORTHERNHAY GARDENS   OXYGEN HOUSE OXYGEN HOUSE OXYGEN HOUSE   PARIS STREET PARIS STREET PARIS STREET   PARKING PARKING PARKING   PENINSULA TRANSPORT PENINSULA TRANSPORT PENINSULA TRANSPORT   PLANNING POLICY PLANNING POLICY PLANNING POLICY   PRINCESSHAY PRINCESSHAY PRINCESSHAY   PROPERTY DEVELOPMENT PROPERTY DEVELOPMENT PROPERTY DEVELOPMENT   PUBLIC CONSULTATION PUBLIC CONSULTATION PUBLIC CONSULTATION   PUBLIC HEALTH PUBLIC HEALTH PUBLIC HEALTH   PUBLIC REALM PUBLIC REALM PUBLIC REALM   PUBLIC TRANSPORT PUBLIC TRANSPORT PUBLIC TRANSPORT   RAMM RAMM RAMM   REFUSE & RECYCLING REFUSE & RECYCLING REFUSE & RECYCLING   RETROFIT RETROFIT RETROFIT   RIVERSIDE VALLEY PARK RIVERSIDE VALLEY PARK RIVERSIDE VALLEY PARK   ROYAL DEVON NHS TRUST ROYAL DEVON NHS TRUST ROYAL DEVON NHS TRUST   SIDWELL STREET SIDWELL STREET SIDWELL STREET   SOUTH WEST EXETER EXTENSION SOUTH WEST EXETER EXTENSION SOUTH WEST EXETER EXTENSION   SOUTH WEST WATER SOUTH WEST WATER SOUTH WEST WATER   SOUTHERNHAY SOUTHERNHAY SOUTHERNHAY   SPORT ENGLAND LOCAL DELIVERY PILOT SPORT ENGLAND LOCAL DELIVERY PILOT SPORT ENGLAND LOCAL DELIVERY PILOT   ST SIDWELL'S COMMUNITY CENTRE ST SIDWELL'S COMMUNITY CENTRE ST SIDWELL'S COMMUNITY CENTRE   ST SIDWELL'S POINT ST SIDWELL'S POINT ST SIDWELL'S POINT   STAGECOACH SOUTH WEST STAGECOACH SOUTH WEST STAGECOACH SOUTH WEST   STUDENT ACCOMMODATION STUDENT ACCOMMODATION STUDENT ACCOMMODATION   TEIGNBRIDGE DISTRICT COUNCIL TEIGNBRIDGE DISTRICT COUNCIL TEIGNBRIDGE DISTRICT COUNCIL   UNIVERSITY OF EXETER UNIVERSITY OF EXETER UNIVERSITY OF EXETER  

More stories