Audit costs for English councils triple in one year, report finds

Audit costs for English councils more than tripled between 2022/23 and 2023/24, with the majority of the increase driven by higher fees rather than additional work, according to a new report from the Audit Reform Lab.

Based at the University of Sheffield, the Audit Reform Lab found that less than one fifth of the average 238% rise in costs was due to greater complexity. The remainder stemmed from audit firms increasing their rates.

The study, which analysed data from around 400 councils across England, Scotland and Wales between 2018 and 2024, also found that English councils pay more than double the hourly rate for additional audit work compared with their Scottish and Welsh counterparts.

As of 30 June 2024, 68% of English council audits for the 2022/23 financial year were still outstanding. In contrast, only 12% of Scottish and 9% of Welsh council audits for the same year had not been signed off. For the previous financial year, 59% of English audits were delayed by over 12 months, compared with none in Scotland or Wales.

Audit fee scales in England rose sharply between 2022/23 and 2023/24, while remaining relatively stable elsewhere. In the same period, Welsh audit costs increased by 7% and Scottish costs fell by 2%.

The hourly rate for audit directors in England rose from £165 to £414. In comparison, hourly rates in 2023/24 were £169 in Scotland and £170 in Wales.

England’s local audit system has been largely privatised since the abolition of the Audit Commission in 2015. The Public Sector Audit Appointments (PSAA) sets fee scales in consultation with firms, but auditors often receive higher payments through additional hourly rates. Wales and Scotland retain greater public oversight of local audits.

Dr Daniel Tischer, researcher at the Audit Reform Lab and author of the report, 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.

“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. English councils are not only getting bad value for money, but weak and delayed audits are also compromising local accountability and national fiscal oversight.”

The report supports Labour’s proposal to establish a Local Audit Office (LAO), which would regain some of the Audit Commission’s former powers. Tischer welcomed the plans but urged the government to go further.

Tischer added: “We need a substantive role for public auditing. 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 Local Audit Office has the expertise and capacity to challenge private interests and protect the public good.”