Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Memorandum from the National Audit Office


  This Memorandum responds to the written questions put to us by the Environmental Audit Committee as part of their inquiry into the accountability of government for environmental performance. We have grouped our replies to the Committee's questions under the principal headings contained in the Annex attached to the Chairman's letter to the Comptroller and Auditor General of June 2000.

Section 1.  Theory/Model of accountability

  1.1  The key principles governing public audit were set out in a statement in October 1998 by the Public Audit Forum, which comprises all the major public audit bodies in the United Kingdom, as well as representatives from government departments and other bodies.[250] A credible public audit framework depends on the independence of the auditor, the scope of the auditor's work and the ability to make the results of the work public.

    —  Independence. The auditor must be independent so that he cannot be improperly influenced by those whose work he audits, and can exercise discretion in carrying out his work within the context of statutory requirements, client expectations and professional standards. Auditors must also have access to information in the custody or under the control of the audited body.

    —  Scope of audit. The effectiveness of public audit depends on its scope. In the context of financial audit, for example, this means the power to look at the propriety and regulatory of expenditure as well as reaching an opinion on the view presented by the financial statements.

    —  Adequate reporting arrangements. Public auditors should be able to report the results of their work to the representatives of the public responsible for funding the activities concerned, or directly to the public themselves.

  It is also essential that the auditor has a thorough understanding of the activities being audited and appropriate skills to evaluate data and other evidence, and draw conclusions from it.

  1.2  In our view these principles are equally applicable to the audit of environmental issues. The independence of the auditor is critical to objectivity in his or her work, and the auditor's remit must be sufficient to support production of meaningful, value added reports for the body under review and the auditor's stakeholder.

  1.3  As the Committee has noted, in February 2000, the Chief Secretary to the Treasury announced a review of audit and accountability for central government. The terms of reference for the review have yet to be announced formally. However, the Chief Secretary to the Treasury's statement on 28 February 2000 noted that:

    "The study will cover the issues raised by the Committee of Public Accounts converning the role and powers of the Comptroller and Auditor General in their recent report on the Government Resources and Accounts Bill (9th Report 1999-2000, HC 159). It will also cover other relevant issues, such as the role of audit in modernising government, including performance validation, the audit of joined-up activities, and attitudes to risk-taking. It will look at the implications of devolution, the wider European context, with particular reference to European directives affecting audit arrangements, possible models from other countries and the relationship with other audit and regulatory bodies. All this must have regard to the importance of Parliamentary scrutiny and accountability, the costs and burdens of regulation and the mechanics of change".

  The review will cover performance validiation and joined up activities, both of which have relevance to the audit of environmental and sustainable development topics.

Section 2.  Past activity

  2.1  Our value for money work is intended to assist government departments and agencies to improve their performance. Our work has included studies of a broad range of environmental programmes, and programmes with an environmental impact. Such studies have been part of our programme for over 10 years, and have ranged from, for example, energy efficiency programmes to the decommissioning of nuclear power stations.

  2.2  From time to time we may undertake more limited reviews to assist departments. For example, in 1998, we reviewed the progress made towards meeting the targets for sustainable development falling within the remit of the Department of Environment, Transport and the Regions. We looked in particular at the extent of progress revealed; the extent to which progress towards targets could be monitored; and the arrangements for reporting progress. The report was sent to the Department and used by them to assist the preparation of a completely new indicator set, which was published in December 1999.

  2.3  Over the last five years we have published nine reports focusing on environmental programmes. Details of the nine reports are provided in the Table below—a synopsis of each report is at Annex 1. In addition, we have published reports on government programmes with non-environmental objectives, but with significant environmental impacts. Last year, for example, we published a report on the part played by English Partnerships in assisting local regeneration, including its role in reclaiming vacant or underused land, thereby facilitating the use of brown-field sites.

Report title
Vehicle Emissions Testing, HC 402
The Home Energy Efficiency Scheme, HC 556
Office of Electricity Regulation: Improving Energy Efficiency Financed by a Charge on Customers, HC 1006
A Case Study of Stores Management in the Ministry of Defence, HC 951
Ministry of Agriculture, Fisheries and Food: Protecting Environmentally Sensitive Areas, HC 120
Ministry of Defence: Management of Utilities, HC 177
Department of Transport: Freight Facilities Grant in England, HC 632
The Protection of Scottish Fisheries, HC 28
National Rivers Authority: River Pollution from Farms in England, HC 235

  2.4  Studies covering environmental issues are identified as part of our annual planning process, and hence the number of reports will vary from year to year, as the Table above demonstrates. On average around 5 per cent of studies are likely to address directly environment topics but other studies may consider issues which have potential environmental implications. Whilst we do not have a team dedicated to environmental audits, in selecting staff to work on particular studies we match skills to the demands of the subject under review. In addition, we supplement internal skills with specialist expertise drawn from the private sector. As at any point in time a broad range of our work may deal with topics having environmental implications, it is difficult to say with any precision how many of our 130 value for money specialists will be allocated to such work in a year but it is likely to be between five and 10 staff.

  2.5  On the wider front, we are involved in international developments in environmental audit. We are an active participant in the INTOSAI Working Group on Environmental Auditing, which prepares guidance for state audit institutions world wide. For example, we are one of the co-authors of the Working Group's "Guidance on Conducting Audits of Activities with an Environmental Perspective".[251] We are also a Member of the EUROSAI Working Group, similarly established to share and disseminate good practice amongst European state audit institutions, which is scheduled to hold its first full meeting in October 2000. Environmental audit is also a frequent topic for discussion at liaison meeting with the other national audit institutions.

Section 3. Modernising government

  3.1  As the Committee will be aware, the Government's White Paper on Modernising Government, published in March 1999, set out a programme of reform in the way government conducts its business. The focus of the White Paper is on improving the quality, co-ordination and accessibility of public services for citizens. Departments and other public bodies with overlapping responsibilities for the delivery of public services are expected to seek new ways of working together, and working with the sector and voluntary service deliverers to give the better value for money. As part of these reforms, the Government intends to make better use of information technology, to shift the thinking from inputs to outcomes, and to reward innovation.

  3.2  Our response to the Modernising Government agenda was set out in a booklet sent to all government departments last summer. In addition, in April 1999, the Public Audit Forum published a report "Implications for Audit of the Modernising Government Agenda"[252] outlining the challenges posed by the new agenda for public audit, including the need for new forms of accountability, the readiness of auditors to embrace change, and the challenge of assessing value for money where more than one body is involved.

  3.3  We have established a central team to undertake reviews of issues which span the work of many departments. For example, we have already published a report on "Modernising Procurement" (HC808, Session 1998-99) and are currently working on studies of "Modernising Construction" and "Business Risk Management". Much of the work on cross-cutting issues is undertaken by teams shadowing specific departments. For example, the recent report on "Criminal Justice: Working Together" (HC 29, Session 1999-2000) looked at the joint administration of criminal justice by the Crown Prosecution Service, the Home Office and the Lord Chancellor's Department.

  3.4  We are also developing our work on performance measurement—from providing advice on the data needed to underpin performance measures, to helping departments' evaluate their actual performance. For example, we recently published a report "Good Practice in Performance Reporting in Executive Agencies and Non-Departmental Public Bodies" (HC272. Session 1999-2000).

  3.5  To ensure that we have the right skills and experience to undertake this range of work as effectively as possible and to add value we have recruited staff and developed new training courses and other ways of learning. As external auditors of government departments we have a key role to play in continuing to support and encourage worthwhile change and innovation. We seek to do this by encouraging and broadcasting successful initiatives, examining the factors behind success, and disseminating good practice. Where issues cross the boundary between central and local government, we work with colleagues in the Audit Commission to identify opportunities for public bodies to work more effectively together.

Section 4. Auditing the sustainable development strategy

  4.1  The Committee will be aware that in May 1999, the Government published "A strategy for sustainable development for the United Kingdom". The strategy sets out the Government's main aims for achieving sustainable development and identifies priorities for action. In December 1999, the Government also published "Quality of life counts", which identified the key indicators it intends to use to measure progress against the strategy.

  4.2  Whilst the concept of sustainable development is complex and inevitably involves the interaction of many interconnecting policies, aspects of the strategy are, in our view, auditable.

    With regard to the strategy as a whole and progress towards the objectives: A significant part of the strategy is concerned with setting policy aims, objectives and the instruments to be used to achieve the government's intentions. The scrutiny of much of this falls within the purview of the new Sustainable Development Commission, an independent body set up by Government to monitor progress on sustainable development and to help build consensus on action to be taken to accelerate its achievement.

  The National Audit Office can review key elements feeding into the strategy. As part of our response to Modernising Government, for example, we are looking currently at the development of the National Air Quality Strategy. The study will consider how well the Department of Environment, Transport and the Regions has worked with others in government, industry and elsewhere to prepare a robust framework for improving air quality. Other aspects of the sustainable development strategy could be subject to similar scrutiny.

    With regard to the sustainable development indicators and associated targets:  it would be possible for us to examine sustainable development indicators and progress against targets. Usually the setting of targets is ultimately a matter for the Government, and we would not therefore question whether, for example, a particular target had been set at the right level. Also, generally we would not seek to examine issues which are primarily a matter for scientific judgement. In other respects we have considerable experience in examining how performance targets across government are measured and reported, and this would provide a foundation for any work on specific environmental topics. As noted in paragraph 6 above, in 1998 we reviewed progress made towards meeting the targets for sustainable development falling within the remit of the Department of Environment, Transport and the Regions.

    With regard to the "greening" of government operations: we have already published reports tackling various aspects of "greening" government, for example on the management of utilities and the management of hazardous stores within the Ministry of Defence. In general, however, our strategy for value for money studies has been to focus more on performance in terms of the outputs and outcomes of main environmental programmes, rather than government's internal management processes—although the latter do fall within our remit.

  4.3  Progress made by government in implementing the sustainable development strategy is one of the areas which we keep under review when planning our study programme. We have in our current programme major studies which are likely to tackle key sustainability topics, or topics with an environmental impact. Work currently in progress includes a study of the Environment agency's work on Inland Flood Defences and, as already mentioned, development of the National Air Quality Strategy. Planned studies include Waste Management, and Recycling Land for Development.

  4.4  In our view, there is no substantial obstacle in current legislation to us undertaking work on environmental topics or the sustainable development strategy. Our approach to value for money audit is governed by the National Audit Act 1983 which empowers the Comptroller and Auditor General to carry out examinations into the economy, efficiency and effectiveness with which public money has been spent. We are not empowered to question the merits of policy objectives. Where government has set environmental objectives, we have used our powers under the "effectiveness" criterion to examine the extent to which those objectives have been met.

  4.5  In general, we have encountered no particular obstacles or barriers to developing or carrying out audits of environmental or sustainable development topics. In practical terms, environmental and sustainable development issues can raise specific challenges, for example, a lack of reliable data or disagreement amongst experts about the underlying scientific processes. With regard to UK performance against international commitments, there is no obstacle to our reviewing and reporting on progress, although we would not wish to cut across established mechanisms, such as international commissions, for reviewing progress.

Section 5.  An environmental auditor

  5.1  We believe the current statutory audit framework provides a flexible means of responding to the priorities that emerge, including those relating to the environment and sustainable development. Our current position allow us to look at environmental topics in a joined-up way, helping to minimise the audit burden on the audited bodies. It also enables us to take account of the wider context of policy making in government, and the interactions between environmental and other objectives which government may pursue. We note too that the new Sustainable Development Commission, an independent body which the Government proposes to monitor progress on sustainable development, is due to be set up during the Summer of 2000.

  5.2  Environmental issues, like other aspects of our work, are likely to raise issues which require specialist technical kowledge. On our environment focused reports, we have, for example, used the services of consultant engineers, environmental scientists, statisticians and other experts. Thus private sector expertise has a valuable contribution to make in the audit of government's performance in pursuit of environmental and sustainable development objectives. The ability to put in place study teams which combine specialist private sector knowledge with skilled auditors knowledgeable about the public sector environment has, in our experience, proved particularly effective.

Section 6.  Environmental issues in the National Audit Office's wider work

  6.1  The extent to which we consider the environmental costs and benefits in our consideration of value for money will depend on the nature of the policy objectives behind the programme. Thus if an expenditure programme is primarily environmental in nature or its policy objectives recognise environmental impacts, environment costs and benefits will be an important consideration in assessing value for money. For example, our current study of Inland Flood Defences is examining, amongst other issues, how the Environment Agency has set about considering the environmental impact of its network of defences. Other reports considering environmental costs and benefits in this way include the "Department of Transport Environmental Factors in Road Planning and Design" (HC389, 1994). Where the objectives of expenditure are not primarily environmental, and the environmental issues are marginal, we would be unlikely to look at the environmental costs and benefits of the programme.

  6.2  The effectiveness of many environmental programmes often depends on how well a variety of public bodies work together. As noted above, we are continually enhancing our approach to the audit of joined-up issues and, by using a broader range of analytical methods, we expect to provide a deeper insight into the effectiveness of government programmes including those with an environmental impact, focusing in particular on outcomes achieved.

July 2000

250   The Principles of Public Audit: Statement by the Public Audit Forum, October 1998 ( Back

251   Available from the Group's web site Back

252   Implications for Audit of the Modernising Government Agenda, April 1999, Public Audit Forum. Back

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