Memorandum submitted by the National Audit
Office (PAC 00-01/40)
1. The National Audit Office Act 1983 requires
the Public Accounts Commission to examine the National Audit Office's
annual Estimate and lay it before Parliament. The Act provides
that in doing so they should have regard to any advice given by
the Committee of Public Accounts.
2. The Public Accounts Commission approved
the National Audit Office's plans for 2001-02 to 2005-06 on 18
July 2000. This memorandum summarises the key features of those
plans and covers my 2001-02 Estimate proposals.
ESTIMATE PRESENTED
ON A
RESOURCE BASIS
3. The Estimate differs from that presented
in previous years. Under Section 5 of the Government Resource
Accounting Act 2000 the National Audit Office will account for
its operations in resource rather than cash terms, from the year
of account 2001-02 onwards. The Office has therefore prepared
its Estimate for 2001-02 as a Resource Budget—similar to
that which will be used by Government Departments, for their Resource
Estimates. Resource budgeting aims to change the way in which
central government bodies plan and manage their spending, by:
— ensuring that the full economic costs
of activities are measured properly, both by including non-cash
costs such as the cost of capital, and by matching costs to the
period in which they are incurred rather than when they are paid;
— improving the treatment of capital
spending by spreading the cost and consumption of capital over
its useful life.
It therefore introduces new accruals items such as
depreciation, cost of capital charges and provisions into budgets
which did not apply to cash.
4. The Resource Estimate consists of three
parts as in the old style Supply Estimate. Part I of the Resource
Estimate gives the Ambit, confirmation that the National Audit
Office will account for the Estimate and the net provision sought
in resource and cash terms. Part II sets out the National Audit
Office's Request for Resources in gross terms, showing resource
expenditure and income.
5. Part II also reconciles the net cash
requirement to the net resource outturn setting out the non-cash
items and working capital movements. Part III is available to
show extra receipts payable to the Consolidated Fund (CFERs),
analysed between income (CFERs due in the financial year), and
receipts (CFERs received in the financial year).
6. A key difference from the Cash Estimate
is that the Resource Estimate contains a forecast Operating Cost
Statement which shows resources that are expected to be consumed
by the Office during the year net of the Office's income. The
Net Operating Cost includes non-voted items provided direct from
the Consolidated Fund whilst such items are excluded in the voted
net resource outturn and resource budget outturn. There is also
a forecast Cash Flow Statement showing the cash inflows that are
expected to occur during the year.
PERFORMANCE IN
1999-2000
7. In 1999-2000 the National Audit Office
delivered all its planned outputs within the cash voted by Parliament.
Net expenditure was £43.1 million against the provision of
£43.4 million. The Office delivered 52 major reports to Parliament,
completed 660 audits and produced a significant volume of other
financial audit and value for money outputs.
8. In addition the National Audit Office
has continued to respond to the interests and concerns of Parliament
on issues of accountability and propriety, and to changes in the
way public services are delivered. There have been increases in
workload arising from the introduction of resource accounting,
work on issues such as electronic service delivery and an increase
in the complexity and range of letters and enquiries from Members
of Parliament and the public.
9. This was also the first year in which
the National Audit Office provided an all-embracing service of
financial and value for money audit and administrative support
to the Auditor General for Wales, who reimburses all the costs
incurred. In addition, the Comptroller and Auditor General continues
to audit functions in Wales and Scotland, such as defence, social
security and Inland Revenue—around 50 per cent of general
government spending in Wales and Scotland.
10. Since 1990-91, the National Audit Office
workload has increased by around 30 per cent while its net costs
have gone up by only 6 per cent in real terms.
NAO PLANS FOR
2001-02
11. The Office plans to continue to deliver
50 major outputs for Parliament in 2001-02 and subsequently, and
to audit 650 accounts in 2001-02.
12. The Office's efficiency programme will
continue but the level of resourcing required by the National
Audit Office is determined largely by external factors outside
its control. There is a continuing increase in workload from resource
accounting and other initiatives, and the Office must respond
to the rapidly changing environment. The Office therefore needs
to invest in its capability for the future. There are a number
of developments which necessitate an increase in funding in 2001-02
including:
Government initiatives and restructuring
— Resouce accounting and budgeting:
The results of the dry run audits of departments' 1998-99 accounts
revealed the extent of the work still to be done for the successful
introduction of resource accounts. Over half the accounts would
have received a qualified audit opinion and nearly a third were
not rendered to the Comptroller and Auditor General by the due
date. It is predominantly in the larger and more complex departments
that difficulties have tended to arise. Departments have a significant
programme of action to meet the Government's timetable for the
implementation of resource accounting and budgeting, and the Public
Accounts Committee, along with the Treasury have asked the National
Audit Office to provide all possible help to departments. This
will continue to require additional effort and resources from
the Office to make it a success;
— Increased expenditure programme:
Government expenditure continues to rise steadily, by some 6 per
cent, or £20 billion, in 2001-02 compared with the previous
year, with a corresponding rise in tax revenue. The National Audit
Office has to respond to these changes and ensure that the rigour
of its audit coverage remains at the high level expected by Parliament;
— Additional audits: The Government
is setting up a number of new or re-constituted bodies. We have
been successful in securing an increase in the number of Education
Action Zones to be audited from 25 in 1999-2000 to 73 in 2001-02.
In the first years of an organisation's existence, considerable
investment is required by the National Audit Office in acquiring
the necessary understanding of its activities, business processes
and accounting systems;
— Developments in auditing: As part
of the corporate governance reforms recommended by the Turnbull
Committee, from 2001-02 departments will be required to produce
statements of internal controls along with the financial statements.
These will need to be reviewed by the National Audit Office as
part of the financial audit to ensure that controls in material
areas of risk have been identified and reported as operating.
The National Audit Office modernisation programme
— Human resources: The quality of the
National Audit Office's people and management practices received
external validation in 1999 with Investor in People accreditation.
Review of the Office's staffing strategy in the changing environment
has identified scope for further development from greater investment
in such areas as recruitment, training and secondments/outplacements,
so as to ensure that in the medium term and beyond it is able
to recruit, reward and retain high quality staff;
— Information and communications technology:
The National Audit Office has several strategic projects in information
technology, designed to improve efficiency and provide staff with
the necessary support to fulfil their Office's role. The Office
is procuring new financial audit software, is piloting a mobile
computing strategy and is developing an electronic records management
system;
— Accommodation and facilities: The
significant improvements in working practices sought through the
Office's information and communications strategy depend on appropriate
infrastructure, notably replacement telephone system. The Office
also intends to buy a new fire detection and alarm system for
its Headquarters.
Staffing in a competitive environment
— Salaries: The National Audit Office
continues to find itself in a very competitive market for the
recruitment and retention of high quality staff. While the Office
has been able to attract graduates and trainees because of the
quality of its early training regime, it can be difficult to compete
with the schemes and benefits available in the private sector
for qualified staff. Demand is also intensifying for staff with
other skills and experience, particularly in the fields of information
and communications technology. All these factors put upward pressure
on the Office's salary cost.
SAVINGS
13. In addition to securing efficiencies
itself, the National Audit Office continues to contribute significantly
to the achievement of value for money in the organisations it
audits. For example, in the last three years savings resulting
from the work of the Office have amounted to some £1.3 billion,
an average of £427 million each year. The Office has thus
met its target of achieving savings for the taxpayer of eight
times its net cost.
2001-02 ESTIMATE
PROPOSALS
14. There have been two changes since the
Commission approved the National Audit Office's plans and which
affect the Office's gross requirement:
— the Office has enjoyed additional
success in winning self-financing fee paying work: from the Welsh
Assembly; on partnering Supreme Audit Institutes in EU candidate
countries; and in respect of conferences drawing on lessons learned
from our Value for Money reports; and
— a technical accounting change to
meet the requirements of the Resource Accounting Manual whereby
the costs of NAO staff seconded to external bodies are accounted
for gross rather than netted off in a suspense account.
Accordingly, the Office is now seeking an additional
£800,000 gross funding, in cash terms, ie £58.4 million,
fully financed by additional receipts.
15. The net provision in cash terms remains
at the level approved by the Public Accounts Commission in July
2000—a net total of £47.6 million. In the same terms,
proposed net expenditure for 2001-02 shows an increase of 6.5
per cent over 2000-01.
National Audit Office
January 2001
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