Comment / Time to pay more attention to audit reports

Audit reports provide assurance to the public, but the message often gets lost in the delivery. Each year local auditors give an opinion on whether NHS bodies’ financial statements give a true and fair view of the financial position. And they also provide a conclusion on whether they have the right arrangements in place to secure value for money. For clinical commissioning groups, there is also a regularity opinion on whether income and expenditure are in line with what they are legally allowed to receive/spend.

Each of these three main opinions can result in a ‘qualification’ – as explained in a new short briefing from the HFMA – External audit reports: the role of the audit committee. But there can be a tendency to just see the ‘qualification’ and not understand the cause.

There is also a tendency to talk about ‘accounts being qualified’ and for many people that conjures up the idea that there is something wrong with a body’s financial reporting. In fact, recent experience suggests the opposite is true.

The National Audit Office’s Local auditor reporting in England 2018 report in January said that there were no qualifications on the financial statements for NHS bodies in 2017/18. In fact, the financial statements across all local public bodies provided a true and fair view of their financial positions. And this was also the case in 2015/16 and 2016/17 – indicating that they are all complying with accounting requirements.

However, there were a number of regularity opinion and value for money conclusion qualifications. Eighty-one CCGs received a qualified regularity opinion because they spent more than Parliament had allocated to them. And 168 CCGs and providers received qualifications on the grounds of their value-for-money arrangements. This number has grown since 2015/16 and the main reasons for this are connected to financial performance and financial sustainability.

Financial performance relates to missing financial targets such as annual spending limits or planned savings. And coupled with auditors flagging up issues about ‘going concern’ in a number of organisations, you could say the NAO’s report on local audits suggests that local bodies are accurately reporting a difficult financial position with significant levels of overspending.

However, there are other issues raised about services and governance that are entirely within local bodies’ control – and not all financial issues can be laid at the door of the current financial climate. So the reports should not be overlooked.

The local audit process largely goes unnoticed by the general public and they could be forgiven for not understanding the intricacies of the different opinions and conclusions and what qualifications might relate to. However, the same cannot be said for local NHS bodies.

Yet the NAO’s January report found that a significant proportion of local bodies may not fully understand the purpose of the auditor’s conclusion on arrangements to secure value for money and the importance of addressing those issues. Many bodies saw audit reports as simply identifying issues they already knew about – missing the point that the auditor’s report is about providing assurance to the public not bringing new issues to local bodies’ attention.

As a minimum, the public might expect that local bodies would quickly address any weaknesses highlighted to them in their auditor’s report – especially if they are issues that were already known about. Yet most bodies talk about having plans to address issues rather than reporting that weaknesses have already been addressed. Some issues will clearly require a longer term plan to sort out, but audit committees need to ensure that things are moving in the right direction.

The NAO report highlights that under the current local audit and performance framework, ‘there is no direct consequence of receiving a non-standard report from the local auditor’. The days of this being reflected in the Audit Commission’s auditor’s local evaluation are long gone. There is no recommendation from the NAO to reintroduce such an approach, but there is a clear call for local bodies to take their local audit reports more seriously.