Over a third of Councils face severe financial difficulties, warns Chartered IIA
25 July 2024
Over a Third of Councils Face Severe Financial Difficulties, Warns Chartered IIA
New research reveals alarming financial instability and audit weaknesses amongst many local authorities
- Over a third (35%) of Chief Internal Auditors surveyed said that their local authority is likely to face severe financial difficulties in the 2024/25 financial year significantly impacting the delivery of essential statutory services.
- One in ten of them (11%) predict their council might issue a Section 114 notice and face bankruptcy within the next two years, adding to the six that have declared bankruptcy since 2021.
- A staggering 88% of those local authority internal audit functions who responded said they have been unable to complete their audit plans. This means local authorities may not be getting adequate independent assurance on their major risks which threatens their operational and financial stability.
A new survey of Chief Internal Auditors suggests that many local authorities may be facing a looming financial crisis, exacerbated by overstretched budgets and a spike in demand for local services due to the cost-of-living crisis. Simultaneously, local authority internal audit functions are being stretched to their limits with nine in ten reporting they have been unable to finish their annual audit plans in part due to staffing, skills and resource constraints.
The Chartered IIA’s latest report, ‘An Evaluation of the Health of Internal Audit in Local Authorities’ is based on a survey of 168 Chief Internal Auditors from local authorities across the UK and Northern Ireland, reflecting the views of 44% of all local authority internal audit functions.
The report urges local government audit committees and senior management to collaborate with their internal audit teams to identify, manage and mitigate financial and other key risks to help prevent a financial crisis or even bankruptcy.
Additional findings:
- Among the 88% who did not complete their audit plan, 39% cited staff shortages and 32% pointed to inadequate team size, structure and competencies.
- Nearly half (48%) reported a decrease in internal audit team staff over the past two years.
- While 71% of respondents felt their audit committee understood the purpose of internal audit, 26% did not share this view.
- Nine in ten (90%) Chief Internal Auditors felt their voice was valued and listened to by audit committees, and 76% said the same of senior leadership teams.
Anne Kiem OBE, Chief Executive of the Chartered Institute of Internal Auditors said: “Our research underscores the potentially colossal financial challenges currently facing local authorities across the country, with many Chief Internal Auditors warning us of severe impacts to the delivery of essential local services. We are increasingly concerned about the health of local authority internal audit teams, with many shrinking over recent years. Therefore, we would urge local authority leaders to resource their internal audit functions appropriately, to harness their full potential and ensure adequate independent assurance is in place where their major risks and long-term financial stability are concerned.”
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FOR MORE INFORMATION / FURTHER COMMENT CONTACT GAVIN HAYES ON GAVIN.HAYES@IIA.ORG.UK / 07900195591
Notes to editors
About the research
The data gathered for this research was via an anonymous survey completed by 168 Chief Internal Auditors or the most senior internal auditor at local authorities across the UK and Northern Ireland. The survey used a series of multiple choice, Likert scale and free comment question styles. Heads of Internal Audit were required to fill in one survey per local authority they represent. The survey opened 9 April 2024 and closed 29 April. Only fully completed responses were included in the final analysis of the survey results.
The full report can be downloaded here.
About the Chartered Institute of Internal Auditors
The Chartered IIA represents over 10,000 internal audit professionals in organisations spanning all sectors of the economy, across the UK and Ireland. It champions the contribution internal audit makes to good corporate governance, strong risk management and a rigorous control environment leading to the long-term success of organisations, including those in the public sector.
