THE NATIONAL AUDIT OFFICE
Statutory Functions
8. The Commission has three main functions under
the National Audit Act 1983:
- to examine the Estimates for the National
Audit Office (NAO) proposed by the Comptroller and Auditor General
(C&AG) and to lay them before the House with such modifications
as it thinks fit;
- to appoint the accounting officer for
the NAO; and
- to appoint an auditor for the NAO.
The NAO's Corporate Plan
9. The Commission continued its usual practice of
considering the NAO's current Corporate Plan at its summer meeting.
The Corporate Plan represents the medium term strategy of the
NAO for the following five years. As we have noted in previous
Reports[3], presentation
of the Corporate Plan at this point in the year enables the Commission
to consider trends in the scale and range of the NAO's activities
and their possible implications in terms of both human and financial
resources before the Office's annual Estimate is prepared. This
arrangement has continued to work smoothly and has meant that
the Commission has not needed to seek adjustments to the Estimate
when it is presented for the Commission's approval in December.
10. An opportunity is also given to HM Treasury to
comment in writing on the NAO's Corporate Plan before the Commission
considers it. This practice, though not mandatory, is consistent
with the Commission's statutory duty under Section 4(3) of the
1983 Act to have regard to any advice from the Treasury before
presenting the NAO's annual Estimate to the House. Any concerns
expressed by the Treasury are then discussed with the C&AG
before the NAO Estimate is prepared.
11. The NAO's Corporate Plan for 1999-2000 to 2003-04,
which was considered by the Commission in June 1998, sought an
increase in the Office's net budget for 1999-2000 of £1.4
million in real terms an increase of 3.4 per cent. The
Chief Secretary to the Treasury, while recognising that the NAO
had achieved significant efficiency savings and the value of its
work in saving public money through its audits (see para 24 below)
and acknowledging that its workload was growing, was concerned
at the size of the increase being sought. He hoped the Commission
would ask the NAO to do all it could to contain its costs and
avoid further increase in the next year's Plan.
12. The 1999 Corporate Plan for the period 200001
to 200405, which the Commission considered in July 1999,
sought the same gross cash budget for 200001 as had been
approved for that year in the 1998 Corporate Plan, a total of
£55.3 million. In real terms that represented an increase
of 0.5 per cent. While noting that the proposed budget for 2000-01
was at the level approved in the 1998 Corporate Plan, the Treasury
again expressed its hope that the NAO would do it all it could
to contain future cost increases.
13. In its Ninth Report the Commission noted that
the NAO's workload had increased by more than 10 per cent in the
three years to 1997-98 while gross costs had increased in real
terms by only 1 per cent. It suggested that that trend was likely
to continue.[4] This expectation
proved correct. Both Corporate Plans referred to the increased
workload with which the NAO has had to deal. This includes extensions
to the C&AG's rights of access, which we welcome, the provision
of advice and assistance to Government departments and Parliament
on the introduction of resource accounting, and work on the review
of audit and accountability arrangements for central government.
We discuss these additional demands further below. In total, over
the ten years up to 1998-99, the NAO's workload increased by more
than 25 per cent while its net costs went up by only 11 per cent
in real terms.
14. In addition the NAO has continued to contribute
significantly to the achievement of value for money in the organisations
it audits. Over the three years up to 1998-99, for example, the
work of the Office led to savings of some £1.2 billion, an
average of nearly £400 million per year. Although we do not
intend to discuss the 2000 Corporate Plan in detail in this Report,
we have noted that the NAO's work has led to even greater savings
over the last three years. The Office has thus more than met its
objective, as set out in the Corporate Plan, of achieving savings
for the taxpayer of eight times its net costs. In addition the
work of the NAO has helped to ensure that uneconomic activity
does not take place in the future. Other changes, such as improvements
in hospital treatment, have lead to greater effectiveness or improved
services to the public but cannot be easily measured in money
terms.
15. The Commission is satisfied that the NAO has
indeed done all it can to limit increases in its expenditure and
is impressed by the fact that, given the growth in its workload,
it has managed to contain the increases sought. The Commission
had no hesitation in approving the Corporate Plans for both 1999-2000
to 2003-04 and 2000-01 to 2004-05.
The NAO Estimates
16. The Estimate for Class XVIII B, Vote 1 (NAO)
for1999-2000 was exactly the same as that proposed in the NAO
Corporate Plan for 1999-2000 and approved by the Commission on
30 June 1998. It sought a net total of £43.4 million, which
was 6.1 per cent higher than the final net provision for 1998-99
of £40.9 million. The Treasury, which had commented on the
Corporate Plan, did not comment separately on the Estimate. The
Commission approved the Estimate in December 1998.
17. The Estimate for the following year too was identical
with that proposed in the Corporate Plan approved by the Commission
in July 1999, namely £44.7 million. The Treasury, which had
already commented on the Corporate Plan, also commented on the
Estimate. It noted that the provision was 3 per cent higher than
the forecast outturn for 1999-2000 of £43.4 million and above
inflation, notwithstanding the fact that the NAO was no longer
responsible for funding work in Scotland or Wales. The Commission
recognised that the advent of resource accounting involved considerable
extra work and that were also more accounts to be audited. It
noted that no provision had been sought for auditing Scotland
as after March 2000 the work was to be carried out by Audit Scotland
and funded by the Scottish Parliament, and that in Wales the NAO
would be reimbursed for the work involved. The Commission approved
the Estimate without amendment in December 1999.
Appropriation Accounts
18. At its summer meeting, the Commission considers
and takes note of the Appropriation Account for the previous financial
year. The Appropriation Account for every year since 1991-92 has
shown an underspend. The
Appropriation Accounts for 1997-98 and 1998-99 also showed underspends
which at £306,389 and £277,246 respectively were considerably
smaller than that in 1996-97 which was £560,796. The underspends
in 1997-98 and 1998-99 were less than 1 per cent of the total
net provision in both years. The Commission welcomes this evidence
of effective financial monitoring in the NAO.
Value for Money Studies
19. In addition to its financial audit work Robson
Rhodes, the NAO's external auditor, prepares value for money (VFM)
studies on various aspects of the NAO's operations. At its meeting
in June 1998 the Commission considered a VFM study on Information
Systems (IS) and Information Technology (IT) strategy. The
study had concentrated on the IS/IT environment supporting the
Resource Management System which was unique to the NAO. It found
that the NAO's system had a number of strengths it had
been delivered on time and within budget, the latest hardware
was being used and staff appeared well motivated and relatively
experienced in the technology used but identified two
areas which could be improved user sponsorship/involvement
could be increased and there was a need to develop and improve
user manuals and training. The NAO has accepted the recommendations
made in the study.
20. In July 1999 the Commission considered Robson
Rhodes's VFM Review on Reliance on Internal Audit. The study assessed
the scope for the NAO to place more reliance on the work of internal
audit to support the C&AG's opinion on the financial statements.
It noted that the combined cost of internal and external audit,
some £50 million, appeared relatively small when compared
with the £600 billion of expenditure certified each year
but concluded that it was nevertheless a substantial investment
in public accountability and that it was incumbent on all concerned
to ensure that this money was effectively deployed. The study,
while acknowledging that much had already been done to promote
better understanding, proposed certain changes such as continuing
to monitor the development of Audit Committees in central government
and using the opportunity created by the introduction of the statement
on internal financial control to review critically the discharge
of the Accounting Officer and Internal Audit responsibilities
in relation to systems of financial control. The NAO accepted
the Review's recommendations and has been working with the internal
audit profession in Whitehall to identify best practice.
Other responsibilities of the NAO
The introduction of resource accounting and budgeting
across Government
21. We have referred above to the extra work which
the introduction of resource accounting and budgeting has engendered.
The first sets of Resource Accounts to be audited fully and laid
before Parliament will be published by each department for the
financial year 1999-2000. The key difference between Resource
Accounts and Appropriation Accounts is that Resource Accounts
consist of five statements whereas Appropriation Accounts are
only one. This and other additional features of Resource Accounts
will make the audit work more complex and demanding. For example,
Resource Accounts provide far more information on resources consumed
and the value of assets and liabilities; there is thus considerable
scope for different interpretations.
22. The results of the dry-run audits of departments'
1998-99 accounts revealed the extent of the work still to be done
on all sides. Of 52 accounts, 30 would have received a qualified
audit opinion. The NAO found that it is predominantly in the larger
and more complex departments that difficulties have tended to
arise. In addition to the substantial number of qualifications
which would have been required, nearly a third of the accounts
had not been submitted to the C&AG for audit by 30 November,
the likely statutory deadline for submission once resource accounting
goes live. Assisting departments to take firm action to address
their outstanding accounting issues and the ongoing need to provide
advice and guidance will continue to place a very heavy burden
on the NAO.
23. We understand that if the Government is to achieve
its aim of replacing Appropriation Accounts with Resource Accounts
for 2001-02, there are two critical years when Resource Accounts
run in parallel with Appropriation Accounts 1999-2000
and 2000-01 during which the majority of the difficulties
identified during the dry-run process must be ironed out. The
Treasury has requested the NAO to provide all help possible to
departments in making the initiative a success. The Office must,
therefore, be in a position to apply increased resources to identifying
and helping to resolve problem areas, as well as continuing to
play a very active role in providing advice and guidance. It will
also be necessary for the Office to have extra resources to reduce
risks, identify remedial measures and report findings to Parliament
and the Committee of Public Accounts.
Rights of Access
24. The 1998 Corporate Plan noted that the C&AG
had been appointed to audit all the non-departmental public bodies
which had been proposed in legislation since May 1997. These include
the Legal Services Commission, the Disability Rights Commission
and the National Lottery Commission. A full list is given in Annex
A.
Investors in People
25. The 1999 Corporate Plan noted the NAO's commitment
to quality and to the continuous improvement of its practices
and the development of its people. The quality of the Office's
work is dependent on staff having technical and management skills
and knowledge that are appropriate and up-to-date. The Office
therefore seeks to ensure that staff are supported by providing
appropriate induction, training and development opportunities,
in line with business goals.
26. As part of its programme of continuous improvement,
the National Audit Office has been using the nationally recognised
framework for bench-marking training and development activities,
known as Investors in People, some three months earlier than originally
planned.
The Government Resources and Accounts Bill
27. In the autumn of 1999 the Government Resources
and Accounts Bill started its progress through Parliament. The
primary purpose of the Bill is to implement resource accounting.
However, the legislation provides a rare opportunity to modernise
the NAO's audit and access rights and the accountability of Government
to Parliament. The Committee of Public Accounts[5],
supported by the Chairman of the Commission, has therefore been
pressing the Government to use the legislation to put the Office's
access rights on a firmer footing, to make the C&AG auditor
of all executive non-departmental public bodies and to provide
for him to make independently-validated performance measures.
28. A number of important improvements to the Bill
have already been secured:
- statutory regularity audit will extend to
all accounts prepared by departments and cover the use of resources,
not just cash;
- there is to be a mechanism to enable the Treasury
to make the C&AG the statutory auditor of non-departmental
public bodies that he does not currently audit; and
- the C&AG's role and his relationship with
Parliament have been made more secure in several ways.
The Commission welcomes these improvements. However,
we remain disappointed that the Bill fails to ensure that the
C&AG has access rights and an audit remit reflecting current
delivery of public services and that further necessary improvements
have not been achieved.
Review of audit and accountability arrangements
for central government
29. As the Government Resources and Accounts Bill
completed its passage through the House of Commons, the Chief
Secretary to the Treasury announced a study to recommend suitable
audit and accountability arrangements for central government in
the 21st century.[6] The
study will cover all of the concerns raised by the Committee of
Public Accounts, together with the Treasury's own issues, including:
- the role of audit in modernising government,
including performance validation, the audit of joined-up activities
and attitudes to risk-taking;
- the implications of devolution, the wider
European context, possible models from other countries and the
relationship with other audit and regulatory bodies; and
- the importance of Parliamentary scrutiny,
the costs and burdens of regulation, and the mechanics of change.
Lord Sharman has been appointed to lead the project
team. A full list of the members of the Steering Group, under
the Chairmanship of the Chief Secretary, is given in Annex B.
External Auditors
30. Robson Rhodes were appointed as the NAO's external
auditors for a three year term with effect from the 1996-97 accounts.
An option to extend the appointment by a further two years was
exercised in summer 1999. Robson Rhodes' appointment will therefore
end after the completion of the 2000-01 audits. Our practice is
to rotate auditors after their appointment is completed and procedures
are therefore under way to recruit new auditors. The Commission
would like to thank Robson Rhodes for the excellent work they
have carried out during their appointment.
Visits to the NAO
31. Commissioners visited the NAO's headquarters
building in Buckingham Palace Road in March 1999 for an informal
briefing on the work of the Office. As we noted in our previous
Report[7], we welcome the
opportunity which such visits provide for discussions with senior
staff at the Office. Their work in scrutinising the Executive
is a vital contribution to the effectiveness of the Parliamentary
system.
3 Eighth Report, HC 658 (Session 1995-96), para 12;
Ninth Report, para 9 Back
4 Op
cit., para 12 Back
5 Ninth
Report from the Committee of Public Accounts, Government Resources
and Accounts Bill, HC 159, Session 1999-2000 Back
6 Official
Report, 28 February 2000, col 152W Back
7 Op
cit., para 31 Back
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