Memorandum submitted by the National Audit
Office
1. The National Audit Act 1983 requires
the Public Accounts Commission to examine the National Audit Office's
annual Estimate and to lay it before the House of Commons. The
Act provides that in doing so the Commission should have regard
to any advice given by the Committee of Public Accounts.
NATIONAL AUDIT
OFFICE ESTIMATE
FOR 2008-09
2. The Estimate includes provision for a
net resource requirement of £107.7 million, after allowing
for the appropriation of £20 million income for services
provided on a repayment basis:
£74.8 million relates to the provision of
audit and other assurance services.
£32.9 million relates to the project to
repair and refurbish the National Audit Office's headquarters
building.
3. The Estimate also includes provision
for £15.7 million capital expenditure: £1.5 million
relating to the provision of audit and other assurance services;
and £14.2 million relating to the repair and refurbishment
project. The net resource requirement and proposed capital expenditure
equate to a net cash requirement of £121.25 million, after
adjusting for non-cash items such as depreciation and capital
charges, and movements in working capital, for example changes
in the value of debtors and creditors.
4. The Estimate comprises three parts:
— Part I of the 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, income, and capital provision. It also provides
a reconciliation between the net resource requirement and the
net cash requirement.
— Part III covers extra receipts payable
to the Consolidated Fund. None are expected in 2008-09.
5. The Estimate also contains a forecast
Operating Cost Statement which shows the full costs of 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 does
not form part of the resource requirement.
PROVISION OF
AUDIT AND
OTHER ASSURANCE
SERVICES
6. Subhead A of the Estimate includes a
net resource requirement of £74.826 million, after allowing
for the appropriation of £20 million income, in respect of
the provision of audit and other assurance services. The net resource
requirement is £0.37 million less than the amount approved
by the Public Accounts Commission in December 2007 when it examined
the National Audit Office's Corporate Plan and reflects lower
expectations for public service pay increases in the year ahead.
The table in the Appendix to the Memorandum shows that it represents
a 4% increase in net resources, rather than the 4.5% proposed
in the Corporate Plan. The income and expenditure provisions have
also both been reduced by £0.5 million, following clarification
of the timing of new fee-paying work.
7. The Estimate also includes provision
for £1.5 million capital expenditure relating to the National
Audit Office's audit and other assurance services.
ANALYSIS OF
2008-09 GROSS RESOURCE
REQUIREMENT
8. After allowing for the appropriation
of £20 million income, the National Audit Office's gross
resource requirement is £94.8 million. The resources requested
by the National Audit Office are used to employ staff and buy
in outsourced services, to pay for the travel costs associated
with audit work, and to provide the infrastructure and support
necessary to underpin a modern audit operation. The following
table shows how the Office plans to use resources in 2008-09,
compared with previous years.
| Gross resources £ million
|
| 2006-07
Outturn
| 2007-08
Plans | 2008-09
Estimate
|
| Staff | 52.6 | 54.7
| 56.0 |
| Outsourcing | 19.1 | 21.9
| 24.5 |
| Travel | 3.8 | 3.9
| 4.0 |
| Other costs | 12.3 | 11.4
| 10.3 |
| Audit and other assurance services | 87.8
| 91.9 | 94.8 |
| Transfer to temporary accommodation subhead
| - | 0.7 | 2.2
|
| Gross resources including transfer | 87.8
| 92.6 | 97.0 |
9. Staff costs are expected to rise by about £1.3
million in 2008-09, mainly reflecting the annual salary uplift.
Outsourcing expenditure is planned to increase for financial audit
work to provide additional support to the Office in managing the
peak of work arising from the increasing number of audits being
completed within four months of the 31 March financial reporting
period and in auditing specialist areas such as complex IT systems.
On value for money, the level of outsourced work will expand the
Office's capacity to gather evidence and carry out statistical
analysis, and to exploit developments in research methodology.
Other costs include depreciation and capital charges on the Office's
asset base, information technology, printing, and training expenditure.
10. The business case for the repair and refurbishment
project noted that staff would need to be relocated to temporary
office accommodation while the National Audit Office's headquarters
building was being refurbished. It further noted that the extra
cost of renting office accommodation would be partially offset
by reductions in the costs of maintaining the headquarters whilst
it was unoccupied. When the Commission considered the draft Estimate
for 2007-08, it decided that, rather than meeting some of the
extra temporary office accommodation costs from the audit and
other assurance services subhead, the gross cost should be provided
for in the temporary accommodation subhead and the expenditure
provision for audit and other assurance services should be correspondingly
reduced.
11. In accordance with these arrangements, £2.2
million has been transferred to the temporary accommodation subhead
in 2008-09. The amounts so transferred are shown in the table
to enable comparisons between years on a consistent basis.
FINANCIAL IMPACT
AND EFFICIENCY
12. The National Audit Office has set the following key
performance targets for 2008-09:
(1) to secure a 9:1 return on the net funding from Parliament
for audit and assurance services
It will aim to secure savings equivalent to nine times its
net running costs in 2008. The Office will deliver auditable financial
impacts of £700 million in 2008, an increase of some £25
million compared with 2007.
(2) to secure efficiency savings across its operations
It will seek to achieve annual efficiency improvements in
2008-09 of at least 3% in corporate services, at least 2% in value
for money work and 1% on financial audit. The lower target for
financial audit work recognises that many audits already work
to an agreed fee quote, which provides a strong incentive to deliver
to cost.
(3) to increase the proportion of resources dedicated to front-line
work
In 2008-09, the Office is planning to use at least 75% of
its resources on front line work, up from 74% in 2007-08.
PROPOSED USE
OF RESOURCES
IN 2008-09
13. The National Audit Office provides Parliament with
assurance on the proper accounting for central government expenditure,
revenue, assets and liabilities, and on the value for money achieved
in the use of resources. The Office categorises its work under
four main objectives:
1. Financial audit: providing assurance that departments'
financial statements have been properly prepared and give a true
and fair view; that resources have been applied to the purposes
intended by Parliament; providing assurance on the assessment
and collection of tax revenue; and encouraging good governance
and providing assurance on the management of risk, through reviews
of financial systems.
2. Value for money: providing Parliament with independent
information and advice about economy, efficiency and effectiveness
and validating systems underpinning Public Service Agreement targets,
and work on regulation. The Office aims to produce 60 reports
each year examining the whole range of public services.
3. Support for Parliament and other organisations: support
for the Committee of Public Accounts, other Select Committees,
responding to enquiries from Members of Parliament and members
of the general public, and the provision of advice and (on a cost
recovery basis) training to support effective scrutiny of public
finances in other countries.
4. Comptroller function: the Comptroller and Auditor General's
statutory responsibility to approve the release of funds from
the Exchequer to departments.
14. The table below shows how the National Audit Office
proposes to use its gross resources on these objectives in 2008-09,
compared with previous years.
| 2006-07 Outturn
| 2007-08 Plan
| 2008-09 Estimate
|
| £m | Percent
| £m | Percent
| £m | Percent
|
| 1. Financial audit | 47.6
| 54 | 50.1 | 54
| 53.0 | 55 |
| 2. Value for money | 29.5
| 34 | 30.5 | 32
| 31.2 | 32 |
| 3. Support for Parliament etc | 10.5
| 12 | 11.8 | 13
| 12.6 | 13 |
| 4. Comptroller function | 0.2
| <1 | 0.2 | <1
| 0.2 | <1 |
| TOTAL | 87.8 |
| 92.6 | | 97.0
| |
15. In 2008-09, the National Audit Office will be allocating
additional resources to support Parliament by:
starting to take on up to 100 new audits of Government-owned
companies following enactment of the Companies Act 2006, extending
the Committee of Public Accounts' oversight to new areas of public
business;
developing a new series of reports on financial management
in departments, to assist the Committee of Public Accounts in
holding departments to account for financial management and to
support its improvement across the public sector;
providing extra support for Select Committees, in response
to growing demand for advice, for example on issues such as sustainability,
and produce performance briefings, building on work started in
2007-08, identifying issues arising from published material on
the performance of specific departments;
supporting extended Parliamentary scrutiny in the regions
by preparing to start a second round of independent performance
assessments of Regional Development Agencies to provide assurance
on their performance and value for money, producing regional companion
reports for selected national value for money reports, and responding
to Committees' requests for briefing on regional issues, including
extending support to Regional Select Committees if they are established
during the year;
extending performance validation work, in stages, to new Departmental
Strategic Objectives, to increase assurance about the robustness
of performance reporting, and to support the production of departmental
performance briefings;
developing its work on regulation, focusing on departments'
performance in assessing the likely costs and impacts of new regulations;
their progress in reducing administrative burdens against the
target for most departments of a 25% reduction by 2010; and working
with the Better Regulation Executive to review how well regulators
have implemented the recommendations of the Hampton Review of
inspection and enforcement; and by
improving its data analysis capability, to ensure that reports
continue to be based on reliable, independent, data, collected
from a wide range of sources, using the most illuminating methods
and analytical techniques.
16. Resources will also be allocated to carry out extra
financial audit work following the Treasury's decision that departments
will adopt International Financial Reporting Standards from 2008-09,
the most fundamental change to government accounting since the
introduction of resource accounting in 2001. The National Audit
Office will also extend its efficiency work, at the Government's
request, to carry out an annual review of departments' achievement
of cash-releasing savings and reductions in administration budgets.
17. The National Audit Office plans to complete the expansion
of its Newcastle base in 2008-09. Some 10% of the Office's staff
will be based in Newcastle, leading work on the Departments for
Communities and Local Government, Environment and Rural Affairs
and Work and Pensions, together with some of the Office's NHS
work. Under the expansion arrangements, the Blackpool Office will
close in December 2008, staff having the choice of relocating
to Newcastle or London. The resource costs of closing the Office
have already been provided for, but there will be an impact in
cash terms as staff who decide not to relocate will be eligible
for redundancy.
18. The National Audit Office and HM Revenue and Customs
have agreed a revised approach to calculating the Office's annual
VAT liability from April 2008. This will result in the Office
paying approximately £0.5 million more VAT.
INCOME
19. The National Audit Office's request for resources
takes account of the income it expects to generate from fee-paying
audits, from providing services to international and overseas
clients, and from secondments to other organisations (see table).
The income forecast included in the Office's Corporate Plan has
been reduced by £0.5 million, with a matching reduction in
gross expenditure. This follows clarification of the timing of
a new round of independent performance assessment work on Regional
Development Agencies, which will now start in 2009-10 rather than
in late 2008-09, and a reassessment of the market for international
work.
| Income £ million
|
| 2006-07
Outturn
| 2007-08
Plans | 2008-09
Estimate
|
| Fee-paying audits | 14.3 |
13.2 | 15.1 |
| Services to international and overseas clients
| 3.9 | 4.3 | 3.7
|
| Outward secondments | 0.8 |
0.7 | 0.9 |
| Other income | 1.0 | 0.3
| 0.3 |
| TOTAL | 20.0 |
18.5 | 20.0 |
CAPITAL EXPENDITURE
20. The National Audit Office uses information technology
hardware and software to deliver its services efficiently and
effectively, and will need to continue to renew its equipment
and invest in software to maintain a responsive and reliable service
and to upgrade its information systems. In 2008-09, the Office
will continue to increase and improve remote access to its network
enabling staff to work more flexibly and efficiently.
REPAIR AND
REFURBISHMENT OF
THE HEADQUARTERS
BUILDING
21. Subheads B and C of the Estimate include provision
for expenditure on the repair and refurbishment of the National
Audit Office's London headquarters building. The Public Accounts
Commission in July 2006 approved a fully costed concept design
with a total estimated cost of £77.44 million over the three-year
life of the project. The project is currently on track to be completed
by the target date of summer 2009 and is within budget. The estimated
resource requirement for 2008-09 is £32.9 million, and the
capital expenditure requirement is £14.2 million.
PROGRESS ON
THE REPAIR
AND REFURBISHMENT
PROJECT
22. Since the Public Accounts Commission approved the
business case in July 2006 considerable progress has been made
in driving the project forward. In November 2007, the National
Audit Office successfully moved more than 800 London-based staff
into temporary office accommodation in a neighbouring building.
Contractors have been appointed for the next phase of the project,
and construction work began in January 2008.
REFURBISHMENT PROJECT:
ESTIMATED RESOURCE
REQUIREMENT
| 2006-07 | 2007-08
| 2008-09 | 2009-10
| 2010-11 | Total
|
| Actual
£m
| Forecast
£m | Forecast
£m
| Forecast
£m | Forecast
£m
| Forecast
£m |
| Resource requirement | 0.8 |
10.7 | 32.9 | 12.3
| 1.6 | 58.3 |
| Capital requirement | 0.1 |
0.9 | 14.2 | 3.6 |
0.3 | 19.1 |
23. Forecast expenditure for 2007-08 is some £7
million lower than the provision included in the Estimate for
that year, which was prepared on the assumption that repair and
refurbishment expenditure would be incurred at a faster rate.
Latest projections show that more expenditure is likely to be
incurred in the later years of the project.
24. The resources requested for the repair and refurbishment
project in 2008-09 represent the National Audit Office's best
estimate based on current projections of resource requirements.
The timing of expenditure may, however, change, for example, when
contract details for the next phases of the project are finalised
during the year.
25. Under end year flexibility arrangements operated
by the Treasury, departments may transfer unspent resources to
future years. The National Audit Office may wish to take advantage
of such arrangements to use unspent provision from 2007-08. If
so, it will come back to the Public Accounts Commission later
in the year to seek its approval to a Supplementary Estimate reflecting
the changes necessary.
26. The resources requested by the National Audit Office
for 2008-09 relate to construction costs, professional fees, and
the cost of temporary office accommodation while the refurbishment
takes place. The table below analyses the resource requirement
in more detail.
| Type of expenditure | Resources 2008-09
|
| £ million |
| Construction expenditure and enabling works
| 38.14 |
| Temporary office accommodation | 8.67
|
| Other | 0.30 |
| Total resources | 47.11
|
| Of which: | |
| Revenue expenditure | 32.87
|
| Capital expenditure | 14.24
|
NET CASH
REQUIREMENT
27. The net resource requirement and proposed capital
expenditure equate to a net cash requirement of £121.25 million,
after adjusting for non-cash items such as depreciation and capital
charges, and movements in working capital, for example changes
in the value of debtors and creditors.
SUMMARY
28. The National Audit Office's £107.7 million net
resource requirement for 2008-09 will enable the Office to continue
to develop and strengthen the ways in which it supports Parliament.
In doing so, the Office will seek to secure savings of at least
nine times its ongoing net cost. The resources will also enable
the Office to make substantial progress on the project to repair
and refurbish its headquarters.
29. After adding capital expenditure, and adjusting for
non-cash items and movements in working capital, the National
Audit Office's net cash requirement for 2008-09 is £121.25
million.
TJ Burr
Comptroller and Auditor General
20 February 2008
APPENDIX
ANNUAL INCREASES
IN NET
RESOURCES
| 2005-06 | 2006-07
| 2007-08 | 2008-09
|
| £million |
£million | £million
| £million |
| Baseline net resource requirement | 60.197
| 65.717 | 69.8722 | 74.0643
|
| Addition for higher superannuation rates1 |
1.800 | 0.200 | - |
- |
| Adjusted baseline net resource requirement |
61.997 | 65.917 | 69.872
| 74.064 |
| Annual increase | 3.720 |
3.955 | 4.192 | 2.962
|
| Transfer to repair and refurbishment | -
| - | -0.740 | -2.200
|
| Extra resources to prepare a business case for the repair and refurbishment project
| - | 0.500 | -
| |
| Estimate for audit and assurance work | 65.717
| 70.372 | 73.324 | 74.826
|
| Percentage increase on baseline |
6% | 6% | 6%
| 4% |
Notes on the baselines used for calculating annual increases
in the net resource requirement
The baseline is the previous year's net resource requirement adjusted
as follows:
1 In 2005-06 and 2006-07 the 6% increases were based on the
previous year's net resource requirement after making adjustments
to cover higher superannuation contributions which employers were
required to make to the Principal Civil Service Pension Scheme.
Automatic adjustments were made to departments' spending limits
to accommodate these changes.
2 The baseline for 2007-08 excluded the £0.500 million
approved by the Public Accounts Commission in 2006-07 to develop
a business case for the repair and refurbishment project.
3 The baseline for 2008-09 includes the £0.74 million
transferred from audit and other assurance services in 2007-08
to the repair and refurbishment project
| 
