Hertfordshire County Council launches complaint after accounting giant fails to deliver annual audit

Hertfordshire County Council has launched a complaint against accounting giant Ernst & Young after it failed to deliver its annual audit.The county’s 2022/23 audit has ‘been on pause’ since Ernst & Young (EY) ceased its local government work in August last year.

EY made the decision in order to focus on older audits amid a national backlog across the sector – currently subject to a government review.It has instead given the county council a ‘disclaimed opinion’, meaning the council will be forced to publish qualified accounts – which have not been fully audited – for the first time in June.The local authority has submitted a letter of complaint to EY to challenge the approach.A report prepared by Scott Walker, the council’s head of corporate finance, said a consultation was published by the Department of Levelling Up, Housing & Communities (DLUHC) in February 2024, setting out proposals to clear the national backlog.The timetable proposed the 23/24 audit be completed in May 2025 and the following respectively in March 2026, January 2027, November 2027 and November 2028. The report stated the council ‘broadly agreed’ as no viable alternatives had been developed.It added: However, the council did make clear that it, and indeed many councils, find themselves in an unacceptable position due to wider national failings in the audit and accounts system.‘The council has always produced accounts by required deadlines and to a good standard (evidenced by the audit work). The delays nationally now mean it will have a disclaimed set of 2022/23 accounts, and it will take a number of years to catch up and return audits to a more timely cycle of completion.’At a meeting of the council’s audit committee, Mr Walker discussed the issue further.He said: ‘The audit did start in July and August of last year, but following some published national guidance and recommendations, the audit was paused at that point.‘Since then, [the audit] hasn’t restarted. Earlier in the calendar year, consultations were launched by a number of bodies looking at how to improve the position across the sector.‘The consultations, particularly one from government, cover three phases – one about clearing the backlog with stop dates or stopping audits.‘They also then looked at what the future deadlines need to be for the coming years… also looking at how they could impact and change standards and audit scoping to try and stop the same backlog happening in future.‘We still await the responses from those consultations and the exact detail of how they will impact going forward. I think this is a key point – we probably won’t get those answers until July at the earliest point.‘The view is that this will be too late for EY to include our audit of 2022/23 accounts. We’re likely to receive a disclaimer for the accounts by the September backstop date.’Mr Walker added the council had received a draft value for money report from EY for 2022/23, the findings of which were ‘generally positive’.He revealed that the council’s 2023/24 accounts will be examined by a new auditor – KPMG.Cllr Richard Thake told the committee: ‘I am as disgruntled as anybody about this situation we find ourselves in.’He said the report sums up the ‘frustrations we’re all facing here’.Cllr Thake added: ‘The council has had to broadly agree with the consultation proposals because nothing else has been put forward. That is a disgrace.’Elizabeth Jackson of EY attended the meeting to field questions from councillors.Cllr John Hale asked her to confirm whether all local authorities had been treated the same and that all audit work had been paused since last July.She said: ‘We did do TfL (Transport for London) and we have done GLA (Greater London Authority) and we’ve also done Central Beds because their audit started much, much earlier – at the beginning of June. Therefore, by early August – when the pausing started to a certain extent and we refocused our priorities elsewhere – [the Central Beds audit] was almost complete, it was at like a 90 per cent stage.’Cll Hale pressed on: ‘Presumably, as you’re going to disclaim an opinion, very little work needs to be done. Therefore, you should be in a position – I would have thought – to issue that report early in August and the fee would be relatively small?’Ms Jackson said the fee would be ‘dramatically reduced’.She added: ‘There will be ‘an element of fee’ to be paid for the value for money draft report, plus planning and account tests but the final amount was likely to be decided by the Public Sector Audit Appointments.Cllr Seamus Quilty called the situation ‘incredibly worrying’.He said: ‘The reputational damage to us councillors might be very minimal, but to officers and professionals – it’s an incredibly damning thing that the accounts they’re overseeing are being qualified.‘I think we have to take this quite seriously and we have to actually share it with the full council.’Cllr Quilty suggested committee chairman Alastair Ward-Boothe write to all councillors so they could share the issue with residents. He added they needed a sensible solution to avoid ‘reputational damage’. Cllr Ward-Booth said he would present the audit report at the next full council meeting, but agreed to talk to officers about releasing public information.Cllr Tim Walker said the auditing issue was likely to affect ’90 per cent of councils’ and requested this context be added to any letter.