Select Committee on Public Accounts Minutes of Evidence

Memorandum submitted by the Comptroller and Auditor General

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.

The Public Accounts Commission approved the National Audit Office's plans for 2002-03 to 2004-05 on 12 July 2001. This memorandum covers my 2002-03 Estimate and relates it to those plans.


  After taking account of 12.7 million income from fee-paying work, I am seeking a net total of 51.6 million in resource terms. Adjusting for non-cash items such as depreciation and capital charges, this equates to a net cash requirement of 50 million. This was the sum approved by the Commission on 12 July 2001 when it examined the National Audit Office's Corporate Plan for 2002-03 to 2004-05.

  Since the Commission approved the National Audit Office's Corporate Plan in July 2001, the Office has been successful in securing additional work on providing pre-accession advice to prospective members of the European Community and more services to the Auditor General for Wales. The costs of this extra work are recoverable and the net expenditure provisions remains unchanged at 50 million. The gross expenditure provision has, however, been increased by 1.8 million, matched by a corresponding increase in income (Appropriations in Aid).

.  The Resource Estimate does not make provision for implementing the recommendations of Lord Sharman's report Holding to Account. The Government is expected to announce its response to the report shortly, but the full effect on the Office's workload will not materialise until after 2002-03. The Comptroller and Auditor General will wish to discuss the implications with the Public Accounts Commission in the summer, in the context of his next Corporate Plan.

.  The Resource Estimate consists of three parts:

    —  Part I of the Resource Estimate includes the Ambit, which sets out the purposes for which the resources are required, states that the National Audit Office will account for the Estimate, and sets out the net provision sought in resource and cash terms.

    —  Part II sets out the National Audit Office's Request for Resources in both gross and net terms, showing resource expenditure and income. It also provides a reconciliation between the net resource requirement and the net cash requirement, with an analysis of non-cash items, such as depreciation, and working capital movements, for example changes in the value of debtors and creditors.

    —  Part III covers extra receipts payable to the Consolidated Fund. None are expected in 2002-03.

.  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 expenditure met directly from the Consolidated Fund, which is excluded from the Net Resource Outturn and Resource Budget Outturn.

NATIONAL AUDIT OFFICE PLANS FOR 2002-03.  The National Audit Office plans to complete the audit of around 550 accounts and some 50 major reports to Parliament, plus a significant volume of other outputs.

.  To maintain and enhance its service to Parliament, the Office plans to use its resources in 2002-03 to respond to the continued growth in government expenditure and initiatives. The Office's efficiency programme will continue with the modernisation of its audit approach and rigorous management of administrative costs, yielding efficiency savings of around 2 per cent in 2002-03.

.  Key factors influencing the resources required in 2002-03 include:

Government's increased expenditure programme

Government expenditure continues to rise steadily, by some 6 per cent, or 24 billion, in both 2002-03 and 2003-04 compared with the previous year, with a corresponding rise in tax revenue. The National Audit Office has to respond to these changes and ensure its audit coverage remains at the standard expected by Parliament. And the emergence of new and reconstituted bodies continues to create additional work.

Development of Financial Audit

The National Audit Office played a crucial role in ensuring that the Government's timetable for resource accounting and budgeting was met. The Office did this by providing departments with help in identifying and resolving problem areas and by providing advice and guidance. Resource accounts require more judgement than the appropriation accounts they replace and provide a lot more information on resources consumed and the value of assets and liabilities. Much of the audit work on appropriation accounts will still be carried out as part of the audit of resource accounts but more effort is needed because resource accounts consist of five financial statements rather than the one required for appropriation accounts.

The discontinuation of the audit of appropriation accounts will allow the National Audit Office to direct resources to the programme of work on the proper conduct of public business so as to give further coverage of issues such as the standards of financial management in public sector bodies, the operation of internal controls, and electronic service delivery. Where significant issues emerge, the National Audit Office will report the results of this work to Parliament.

The introduction of Whole of Government Accounts and Statements on Internal Control

The National Audit Office is increasingly engaged with the Treasury's development of Whole of Government Accounts, accruals-based financial statements covering the whole of the public sector, which are to be audited by the Office.

The first step is to publish Central Government Accounts for 2003-04, covering departments (including their agencies), NDPBs and central funds, such as the Consolidated Fund. To meet this milestone there are to be two dry run years in 2001-02 and 2002-03, which will be audited but not published. The National Audit Office has a key role to play in this long-term project in resolving the complex technical and audit issues in consolidating accounts across government.

The National Audit Office is also committed to helping departments meet the timetable laid down by the Treasury for the introduction of Statements on Internal Control, which arise from an extension to the central government sector of the corporate governance reforms recommended by the Turnbull Report. Under the new arrangements, each Accounting Officer will prepare a Statement describing the system of internal control in place to identify and manage risks within the organisation.

Correspondence with Members of Parliament and members of the public

This is an important element of the service the Comptroller and Auditor General provides to Parliament as an Officer of the House and it is essential that a high quality, timely service is delivered. The National Audit Office is therefore allocating additional resources to this work in 2002-03.

Investment in information and communications technology

As for other public bodies, information and communications technology continues to play an increasingly important role in the National Audit Office business. And investment is needed to meet new Public Records Office requirements. The National Audit Office will need increasingly well trained IT auditors to review and advise departments on the risks associated with the implementation of e-government. Development of a programme to update and renew the Office's IT software and hardware is in hand to ensure that IT services remain efficient and support the business effectively. The main components of the programme are:

    —  financial audit software to improve the efficiency and effectiveness of financial audit;

    —  laptop computers and technical support to provide flexibility and mobility in the delivery of audit services;

    —  improved information management systems;

    —  business continuity arrangements.

Audit staff will also need to be trained in the use of new technology.

Staffing in a competitive employment market

The National Audit Office exists in a competitive market for the recruitment and retention of skilled staff. While the Office has been able to attract graduates and trainees because of the quality of its training regime, competing with the schemes and benefits available in the private sector for qualified staff is still a challenge. Demand is also intensifying for staff with other skills and experience, particularly in the fields of information and communications technology.

New business

The Estimate provides for an increase in income of 1.8 million compared with the corresponding provision for 2001-02. This is as a result of the National Audit Office successfully securing opportunities to carry out additional work providing pre-accession advice to prospective members of the European Community, and for the Auditor General for Wales. As part of its arrangements for developing staff, the Office operates an outward secondment programme from which it also expects to secure additional income in 2002-03.

SUMMARY 11.  The National Audit Office's resource requirement for 2002-03 included in the Estimate has been prepared in line with the cash resource provision approved by the Public Accounts Commission in July 2001—a net total of 50 million. In cash terms, proposed net expenditure for 2002-03 shows an increase of 2.4 million or 5 per cent over 2001-02. In constant terms this represents an increase of 1.2 million or 2.5 per cent.


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Prepared 29 October 2002