Select Committee on Public Accounts Commission Report

7  Relationship between the NAO and the Audit Commission

90. The NAO and the Audit Commission have distinct mandates. The NAO is responsible for supporting the C&AG in his audit of central government departments, whereas the Audit Commission appoints auditors to audit local government with the appointed auditors having powers independent from the Commission.

91. However, as national and local government bodies work more closely on the delivery of public services it is evident that these mandates will become less distinct and the NAO and the Audit Commission will need a greater degree of collaboration and partnership. There are an increasing number of examples where this is happening:

  • NAO participation on the Audit Commission's Comprehensive Area Assessment Strategy Board.
  • Joint audit reports on areas such as the finances of the NHS and the delivery chains for Public Service Agreements.
  • The coverage of the recent report "Staying Afloat" which dealt with local authority costs related to the floods last summer, but also addressed the value for money of different government grant schemes.

92. In addition, as the government accounts move to International Financial Reporting Standards (IFRS), it is essential that the responsible audit bodies are able to reach common views on the interpretation of IFRS.

93. It has been suggested that consideration should be given to merging the two audit bodies. The arguments I have heard for and against include:


  • Cost savings secured through the benefits of scale and synergies.
  • A single identity for the organisation responsible for the audit of public money in the UK (I am told there is much confusion between the NAO and the Audit Commission, even among the better informed).
  • A single, unambiguous approach to policy development.
  • Improved consistency and quality through better sharing of knowledge and intellectual capital.


  • There is no empirical evidence which suggests the current divide in responsibilities is operating against the public interest.
  • The constitutional background and the lines of accountability for the audit of central government and local government are, properly, quite different and could become unclear if one body was responsible for both.
  • There will be a substantial challenge for the leaders of a merged organisation in bringing together the different cultures and professional backgrounds of the people in the two organisations, which might divert focus from its formal responsibilities.

94. The question of whether a merger of the two bodies should be pursued is beyond my Terms of Reference. I support the need for closer collaboration both at a working level and board level and I have proposed an exchange of Board/Commission membership. It seems to me that pursuing a merger now would slow down the governance reforms necessary at the NAO while the public policy case for a merger is formulated and what would most likely be complex legislation passes through the parliamentary process. My personal view is that it would be better to put the structure of the NAO on a firmer footing, continue to strengthen relationships between the two organisations and then evaluate in (say) 6 years the cost effectiveness of maintaining the divided structure against moving to a single body.

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Prepared 7 February 2008