Accounting for Democracy Revisited: The Government Response and Proposed Review Contents

Appendix 2: National Audit Office Response

Letter from the Comptroller and Auditor General, 18 April 2018

I very much welcomed PACAC’s enquiry into various aspects of reporting by government departments and the ways in which accountability and scrutiny can be enhanced. I was pleased to have the opportunity to submit evidence to the enquiry, and I am delighted to set out in the Annex to this letter my comments on the Committee’s report.

This is an important report and I strongly support steps to enhance effective accountability by bodies spending public money. However, there should be a range of complementary means by which government departments should explain their plans and be held to account for their actions, spending and performance. In my view it is not practical or desirable for one means of reporting—the Annual Report and Accounts, for example—to bear the weight of meeting all accountability requirements.

The Annual Report and Accounts are prepared, audited and published after the year-end. They have to be prepared in accordance with relevant professional practice—for example, meeting standards that also apply across other parts of the UK economy—and it is important, in my view, not to move too far away from requirements that are recognised in both the private and public sectors.

The PACAC report has highlighted the need for better use of wider performance planning and reporting, covering departmental, policy and programme operational plans and achievements. I agree that there is a need for improvements in these areas. However, reporting that can be used and scrutinised by Parliamentarians at other points in the accountability cycle, and not just after the year-end, should be strengthened. For example, I would welcome steps to enhance further the use and accessibility of Single Departmental Plans.

I have set out comments against each of the report’s recommendations, which I trust will be helpful to you and the Committee, and I have also highlighted, in particular, my response to those recommendations that relate most to the work of the National Audit Office on behalf of Parliament.

I am very mindful that our work is primarily to support effective scrutiny by Parliamentarians in a manner which is itself cost-effective and value for money. Therefore, I would be pleased to work with the Treasury to help inform its assessment of the practicalities and cost implications of the proposals. It will be important to balance carefully what is being sought through the Committee’s recommendations alongside the impact of new regulatory and audit burdens on public bodies.

I hope that my comments and responses in the Annex to this letter are helpful and I would, of course, be very happy to discuss any of the points raised further.

AMYAS C E MORSE


Annex: NAO comments in response to Fourteenth Report of Session 2016- 17 by the Public Administration and Constitutional Affairs Committee (PACAC) on ‘Accounting for democracy: making sure Parliament, the people and ministers know how and why public money is spent’ (the PACAC report55).

Part A: Overview

1.The C&AG and the National Audit Office (NAO) support actions to continue to improve the quality, balance, understandability, accessibility and timeliness of reporting by public bodies on their spending and performance. Our detailed submissions to PACAC when it was considering this important topic supported the objectives and work of the committee in this area.

2.We welcome PACAC’s focus on seeking to improve annual reporting and other information, as well as efforts to meet Parliamentary and others’ needs through more accessible and understandable reporting. However, we note that this should be achieved not only through Annual Reports and Accounts but also by making better use of other initiatives such as Single Department Plans.

3.Our detailed comments are set out in the second part of this Annex. We particularly welcome the focus of the report on how the needs of Parliamentarians and other users can be better met. While initiatives have been taken to simplify and streamline accounts there is more that can be done to meet users’ needs.

4.We note that much of the focus of the recommendations is on Annual Reports and Accounts. While we welcome the report’s breadth we consider that there is an opportunity to look at how other reporting, particularly Single Departmental Plans, can be further enhanced. We also welcome the proposals for improving departments’ management information and for increasing transparency in a number of areas.

5.Although we support the overall aims of the recommendations, we would be pleased to work with the Treasury to help inform its assessment of the likely practical implications and costs of the proposals. There may be ways of enhancing the information available without adding as much to the external audit work and costs as is currently implied by the proposals. For example, the Annual Report and Accounts need not always be the default means of meeting users’ needs for data and information on departments’ plans and performance. Linked to this, if the Annual Report and Accounts is considered to be the appropriate place where new reporting requirements are to be met, it does not necessarily follow that this should be in the parts of the annual report that comprise the audited information. It may not always be possible, or necessary, to bring some of the suggested new information within the scope of the audit. To do so would increase reporting, compliance and auditing costs—which could be significant to achieve a reasonable level of assurance—and so the pros and cons of imposing new burdens need to be weighed carefully. We would be pleased to work with the Treasury to help it to assess the impact of the proposals on preparers of accounts and information while also considering whether and how any assurance requirements might best be met.

6.Although we comment in the second part of this Annex on all the PACAC report’s recommendations, there are some that have a direct or possible impact on the NAO’s work which, for ease of reference, we highlight in this part of the Annex. These are the proposals (with relevant PACAC report paragraph references) that relate to:

Supporting Parliamentary needs

We agree that Annual Reports and Accounts are fundamental to accountability. A key part of our role is to provide assurance on accounts that in turn supports Parliament in holding government departments to account for the spending.

If there are plans to add new reporting requirements within Annual Reports and Accounts, in particular to support comparison of spending against Estimates and Spending Review totals, consideration needs to be given to including this in Departments’ analyses of, and commentary on, their performance against plans and not in the financial statements prepared in accordance with financial reporting standards.

We support steps to facilitate timely Parliamentary scrutiny and understanding of spending. We have run briefings and provided other support to help Parliamentarians to engage effectively with accounts. We are happy to explore ways of doing more of this.

The number of non-standard opinions and auditor reports (including qualified opinions) is typically small each year and so it would not be difficult to publish a list of non-standard reports by the C&AG each year.

Meeting user needs

We agree with the principle that steps should be taken to find ways of enabling analysts, and other users of the data in Annual Reports and Accounts, to extract and use this material.

However, it will be important to ensure that the availability and integrity of the original audited accounts, as reported to Parliament, is safeguarded and that there is a clear understanding that the auditor’s report relates only to the general purpose financial statements and does not provide assurance about extracted data separated from the context and explanation given by the full set of accounts.

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of Annual Reports and Accounts. We have provided briefings to Select Committees on key areas of departmental activities and spending and would be happy to respond to requests for further support to Parliamentary scrutiny.

The accounts of Government departments and other public bodies already include reporting requirements that go beyond those that apply in corporate reporting, for example in order to support reporting against relevant public expenditure control frameworks. It is appropriate that accounts meet specific public accountability requirements. However, we would note that additional reporting requirements add to the burden on preparers of accounts, the complexity of public sector accounts and, if subject to audit, the cost of external audit. Therefore, there should always be a careful consideration that the public interest is best served through additional reporting requirements if these go beyond generally accepted practice.

Annual reporting requirements

We agree that sharing good practice and encouraging its adoption is an important role for the government finance profession and that the Treasury has a key leadership role in this.

More widespread adoption of good practice supports better financial management and reporting, which supports better decision making and scrutiny. It also allows more efficient and effective audit and assurance to Parliament.

We have concerns about including this staffing-related data (particularly ‘staff engagement scores’) in Annual Reports and Accounts rather than being made available through other means. We would support the Treasury in exploring this further with, for example, the Scrutiny Unit, to consider options for achieving the aim here. We would not necessarily see the need for this information to be included in the audited part of the Annual Report which would require new audit procedures and lead to additional costs.

The proposals relating to including more information on a policy, programme and project basis would be an additional reporting burden, and so counter to the efforts to streamline reporting, but there may be an appetite for this form of more detailed analysis.

There may be an opportunity here to improve sub-head breakdowns in Estimates (and we would support HMT exploring this further with the Scrutiny Unit). However, there are likely to be better vehicles by which to report policy-focused performance information—eg Single Departmental Plans (SDPs) or through introduction of integrated reporting.

Including performance information in audited parts of Annual Reports and Accounts would add to audit costs—there would need to be arrangements for defining performance information and standards by which it should be reported—and so inclusion in audited parts of Annual Reports and Accounts would lead to significant additional compliance and audit costs.

Consideration also needs to be given to existing arrangements - including the personal responsibility of the Accounting Officer and interfaces with other processes by which major projects are held accountable.

We can see the benefits in making more information available but it may not need to be included in the audited parts of Annual Reports and Accounts because of the difficulties (and costs) of subjecting this information to external audit.

The purpose of accounts is not to track budgetary movements and so this runs counter to streamlining the accounts. Arguably there is information (in estimates and memoranda) that provide relevant information.

Although the recommendation refers to Annual Reports and Accounts it is unclear whether there would be an intention to propose that information tracking back outturn to original Estimates or other announcements would be subject to audit—if so, we would have concerns about the resources that might be needed to support this.

The Estimates and Memoranda already track budgeting statements. Inclusion of the proposed reconciliation in audited parts of Annual Reports and Accounts would be problematic, difficult to achieve in practice and resource intensive.

The proposal for audit assurance over performance data and commentary in annual reports would be a significant new requirement that would be an additional burden for preparers and which would involve significant audit costs. The nature and extent of work required to provide the level of assurance that is implied here would go far beyond the existing annual external audit process.

What is described here may better sit within the existing assurance framework, albeit strengthened, supporting the personal responsibilities of the Accounting Officer. The Treasury may wish instead to consider how to enhance existing internal assurance frameworks, and how these are reported in governance statements, in order to strengthen practice across departments.

Management information

We support steps to improve management information and to enhance the use of Single Departmental Plans. We welcome the support given to sharing information with the NAO.

Other actions to improve transparency

Materiality is disclosed in planning and completion reports to those charged with governance. In principle we support taking further steps towards extended auditor reporting where this is appropriate - for example, where public bodies’ own corporate reporting would be consistent with this which is more likely in cases where bodies are required to comply with the FRC’s Governance Code or where bodies voluntarily choose to do so.

We welcome the restatement of support for the NAO’s role in providing independent assurance to Parliament.

With regard to adopting national statistics principles in annual report and accounting data, we think that the requirement for reporting to be ‘fair, balanced and understandable’, which is derived from the FRC’s expectations and has been adopted across the public sector too, remains the most appropriate standard to apply to annual reports. Annual accounts are, of course, subject to international financial reporting standards. We think that the existing framework, applied appropriately, supports consistency across reporting by public bodies.

7.Our detailed comments against each of the PACAC report recommendations are set out in the second part of this Annex. We would, of course, be pleased to discuss any of these further.


Part B: Detailed comments in response to an analysis of the PACAC report recommendations

The PACAC report’s recommendations can be analysed as:

Our detailed comments to the recommendations, analysed by these themes, are set out below.

Supporting Parliamentary needs

PACAC Recommendation

(including PACAC report paragraph reference)

New implications for the NAO’s work for Parliament? (Yes / No / Possible)

NAO comments

Annual Reports and Accounts should be the cornerstone of Parliamentary accountability. The House of Commons should, through the Accounts, have the ability to hold the executive to account for its spending, against plans announced in the Estimates and Spending Review.

(Paragraph 91)

Possible

We agree that Annual Reports and Accounts are fundamental to accountability. A key part of our role is to provide assurance on accounts that in turn supports Parliament in holding government departments to account for the spending. If there are plans to add new reporting requirements within Annual Reports and Accounts, in particular to support comparison of spending against Estimates and Spending Review totals, consideration needs to be given to including this in Departments’ analyses of, and commentary on, their performance against plans and not in the financial statements prepared in accordance with financial reporting standards.

We comment below on the more detailed recommendations that support this overall recommendation.

We support the Public Accounts Committee and its Chair in their intention to take evidence from senior civil servants about excess votes where the Committee deem it necessary. We urge the Government to consult with the Public Accounts Committee to ensure it has enough time to do this.

(Paragraph 95)

Possible

We support steps to facilitate timely Parliamentary scrutiny and understanding of spending.

Many Members of Parliament will wish to continue to rely upon the work of the National Audit Office and the Scrutiny Unit to alert them to issues in the accounts. However, it is also clear that Members have welcomed the opportunity to understand more about what information is available within these documents and how they and their staff can use them. We therefore encourage the National Audit Office and Scrutiny Unit to continue to publicise the information contained in the accounts and to offer training to Members, their staff and other Parliamentary staff in how to use the accounts.

(Paragraph 113)

Yes

We have run briefings and provided other support to help Parliamentarians to engage effectively with accounts. We are happy to explore ways of doing more of this.

Professor Heald argues that Accounts give us assurance that the Government knows what it spends money on, and can measure it accurately. At the moment, we do not have summarised data that enables us to check how many of the Government’s published Accounts are either accurate or properly compiled. The National Audit Office should publish an annual report which identifies how many Accounts are qualified, why they were qualified and what that tells us about the Government’s ability to manage its finances effectively.

(Paragraph 130)

Yes

The number of non-standard opinions and auditor reports (including qualified opinions) is typically small each year and so it would not be difficult to publish a list of non-standard reports by the C&AG each year.

Meeting user needs

PACAC Recommendation

(including PACAC report paragraph reference)

New implications for the NAO’s work for Parliament? (Yes / No / Possible)

NAO comments

Annual Reports and Accounts must be clearly presented so that non- Accountants can read and make use of them.

(Paragraph 17)

No

We agree that Annual Reports and Accounts must be understandable and accessible to their users and that, therefore, preparers of accounts need to consider the needs of those users that are not trained accountants.

Accounts would be better used if they were prepared more often with the ultimate readers in mind, for example commentators on public policy, peers and MPs and their researchers.

(Paragraph 24)

No

We agree that Annual Reports and Accounts must be understandable and accessible to their users.

It is clear that Annual Reports and Accounts are hard to follow. Non- accountants and commentators like the King’s Fund and Taxpayer’s Alliance do not find them as useful as they should be. Professor Prowle and Dr Harradine are right to call for more systematic information about who is using Accounts, what figures and facts they are using from them and what they think about the documents. We recommend that the Treasury carries out research to identify how many people are buying and downloading Annual Reports and Accounts, who current readers are, what those readers think and who the potential readership is likely to, or should, include. We further recommend that the Treasury should regularly seek to find out what potential users of the Annual Reports and Accounts (including those who submitted evidence to our inquiry) think about how they could be improved to make it easier to assess the effectiveness of Government spending.

(Paragraph 27)

No

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of accounts, noting in particular efforts to streamline and simplify accounts.

Departments and the Treasury should consider always that the demands of public sector users of financial information differ from those of private sector users and therefore they may need to provide them with additional explanations and information.

(Paragraph 31)

No

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of accounts, noting in particular efforts to streamline and simplify accounts.

Whilst the Treasury’s reforms are a good first step, the way they have been implemented by different Departments, within a broad framework, currently varies widely. It is clear from the evidence provided to us that, on their own, the reforms as currently implemented will not necessarily provide Annual Reports and Accounts that completely fulfil the needs of potential users.

Departments should make concerted efforts to present financial data in a way that clearly links measurable outputs and outcomes, and is useful to readers.

(Paragraph 32)

No

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of accounts, noting in particular efforts to streamline and simplify accounts.

It is disappointing that the Treasury have not monitored any changes in the way that accounts have been used since the reforms of 2015–16. As we recommend above, the Treasury should monitor the use of accounts to identify good practice. Where good practice already exists, Departments should be encouraged to learn from it. We also believe further reform is needed to address more directly the need for greater transparency and address needs of users.

(Paragraph 33)

No

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of accounts, noting in particular efforts to streamline and simplify accounts.

Annual Reports and Accounts should routinely be published in Excel or another similar usable format, so that analysts (whether inside Parliament, for which see below in Chapter 4, or outside in civil society) can swiftly extract the data and make use of it. The Treasury, working with Departments, should strive to improve Annual Reports and Accounts against the open data ranking system devised by Full Fact and endorsed by the Public Administration Select Committee in 2014.

(Paragraph 64)

Possible

We agree with the principle that steps should be taken to find ways of enabling analysts, and other users of the data in Annual Reports and Accounts, to extract and use this material.

However, it will be important to ensure that the availability and integrity of the original audited accounts, as reported to Parliament, is safeguarded and that there is a clear understanding that the auditor’s report relates only to the general purpose financial statements and does not provide assurance about extracted data separated from the context and explanation given by the full set of accounts.

The Government should use modern technology to make the Accounts useful to outsiders, for example making them touchscreen friendly so that the data can be organised in different ways. The accompanying narrative should be shorter, written in plain English and accompanied by summary data and insightful graphics.

(Paragraph 66)

Possible

We agree with the principle that summary financial information, and other information extracted from Annual Reports and Accounts, especially coupled with innovative use of technology, has the potential to enhance the usefulness of Departments’ reporting.

However, it will be important to ensure that the availability and integrity of the original audited accounts, as reported to Parliament, is safeguarded and that there is a clear understanding that the auditor’s report relates only to the general purpose financial statements and does not provide assurance about extracted data separated from the context and explanation given by the full set of accounts.

We recommend that the Treasury make FRAB more representative of the consumers of Accounts and more attuned to users’ requirements, by increasing representation on the Board of users or user groups. We further recommend that Treasury and FRAB should consider how, within the framework of recognised accounting standards, Accounts could be made more useful and responsive to the needs of users, providing the sort of information we have proposed within this report.

(Paragraph 73)

No

FRAB will wish to consider this recommendation. There is a case for each of the relevant authorities (eg the Treasury, the Department of Health, CIPFA/LASAAC), which are advised by FRAB, to consider ways of improving engagement with users of accounts and other stakeholders as part of the various standard setters’ approach to developing improvements. But is not necessarily the case that this would best be achieved by broadening and expanding FRAB itself given that it is already a relatively large board.

Select Committees should consider the suggestion made by the Director of Full Fact that they should have an annual hearing not simply on the Annual Report and Accounts, but on the information published by Government Departments (including Accounts) more generally. Departments should take note of what select committees have to say on how Annual Reports and Accounts of individual Departments could be made more useful to their readership, within the general requirements of accounting standards, audit and consistency. The Treasury should also influence Departments to follow the example of the Department of Health in consulting specialist think tanks and researchers about what information they would like the Department’s Annual Reports and Accounts to disclose (in addition to the information the Treasury mandates to maintain consistency between Departments).

(Paragraph 74)

Possible

We would support further initiatives to follow up, and build on, previous efforts to identify and the meet the needs of users of Annual Reports and Accounts. We have provided briefings to Select Committees on key areas of departmental activities and spending and would be happy to respond to requests for further support to Parliamentary scrutiny.

It is important that the Treasury recognises that accounts in the public sector do very different things to accounts in the private sector and their design should reflect the different groups of people that use them. Given that, it is important that although the accounts currently meet the international standards, the Government makes additional disclosures above and beyond standard corporate accounting.

Otherwise both Parliament and citizens will be unable to use these documents to hold government to account.

(Paragraph 128)

Possible

The accounts of Government departments and other public bodies already include reporting requirements that go beyond those that apply in corporate reporting, for example in order to support reporting against relevant public expenditure control frameworks. It is appropriate that accounts meet specific public accountability requirements. However, we would note that additional reporting requirements add to the burden on preparers of accounts, the complexity of public sector accounts and, if subject to audit, the cost of external audit. Therefore, there should always be a careful consideration that the public interest is best served through additional reporting requirements if these go beyond generally accepted practice.

Annual reporting requirements

PACAC Recommendation

(including PACAC report paragraph reference)

New implications for the NAO’s work for Parliament? (Yes / No / Possible)

NAO comments

The Treasury should identify good practice, and share and encourage its adoption by other Departments.

(Paragraph 25)

Yes

We agree that sharing good practice and encouraging its adoption is an important role for the government finance profession and that the Treasury has a key leadership role in this.

More widespread adoption of good practice supports better financial management and reporting, which supports better decision making and scrutiny. It also allows more efficient and effective audit and assurance to Parliament

The Treasury should update its guidance to Departments setting out that Annual Reports and Accounts should include statistics on staff turnover within the Department and also the staff engagement scores for the Department from the latest Civil Service People Survey. The average figures for the Civil Service should also be included.

(Paragraph 34)

Possible

We have concerns about including this staffing-related data (particularly ‘staff engagement scores’) in Annual Reports and Accounts rather than being made available through other means. We would support the Treasury in exploring this further with, for example, the Scrutiny Unit, to consider options for achieving the aim here. We would not necessarily see the need for this information to be included in the audited part of the Annual Report which would require new audit procedures and lead to additional costs.

We recommend that the Treasury explore how Annual Reports and Accounts can be made more useful by requiring Departments to report not just by organisational unit but also by policy area. This could be achieved by, for instance, restructuring the Estimates subheads or providing additional spending breakdowns of spending within the notes to the Accounts. Senior officials would remain accountable for the money they have spent through reporting by organisational unit. Audited statements for policy area should include both performance and financial data so that citizens can evaluate how effectively Departments are spending money.

(Paragraph 45)

Yes

This would be an additional reporting burden, and so counter to the efforts to streamline reporting, but there may be an appetite for this form of more detailed analysis.

There may be an opportunity here to improve sub- head breakdowns in Estimates (and we would support HMT exploring this further with the Scrutiny Unit).

However, there are likely to be better vehicles by which to report policy-focused performance information - eg Single Departmental Plans (SDPs) or through introduction of integrated reporting.

Including performance information in audited parts of Annual Reports and Accounts would add to audit costs – there would need to be arrangements for defining performance information and standards by which it should be reported – and so inclusion in audited parts of Annual Reports and Accounts would lead to significant additional compliance and audit costs.

Departments should disclose both financial and performance information about significant programmes in their Annual Reports and Accounts and clearly relate spending to outputs, outcomes and performance. Annual Reports and Accounts should disclose useful information about each programme, such as its planned duration, its current and forecasted cost and its current performance. This information, which should be audited, should be disclosed for all financially material or politically significant programmes within the Departmental boundary.

(Paragraph 50)

Yes

This would be an additional reporting burden, and so counter to the efforts to streamline reporting, but there may be an appetite for this form of more detailed analysis.

There may better vehicles by which to provide information on plans for programmes - eg Single Departmental Plans (SDPs). But, including forward looking programme information in audited parts of Annual Reports and Accounts would be problematic, given the difficulty of providing assurance on forward looking information, and would lead to additional compliance and audit costs.

Departments should also report data about significant projects, such as Trident and HS2 (which is the largest infrastructure project in Europe), in their Annual Reports and Accounts. This data, which should also be audited, should include spend to date for each project, spend in the year for each project, milestones met or not met and forecasted end date for the project. It should be provided for all projects that are significant in terms of the delivery of the Government’s priorities or that have a lifetime budget that is above materiality. Some of this data may be similar to the data held in the Annual Report on Major Projects, in which case the Department should clearly identify links to the Major Projects report within individual Departmental Annual Reports and Accounts so that the reader can swiftly access the data concerned.

(Paragraph 51)

Yes

This would be an additional reporting burden, and so counter to the efforts to streamline reporting, but there may be an appetite for this form of more detailed analysis.

There may be better vehicles by which to report project-focused performance information - eg Single Departmental Plans (SDPs) or through introduction of integrated reporting.

Consideration also needs to be given to existing arrangements - including the personal responsibility of the Accounting Officer and interfaces with other processes by which major projects are held accountable.

Including forward looking major project information in audited parts of Annual Reports and Accounts would be problematic, given the difficulty of providing assurance on forward looking information, and would lead to additional compliance and audit costs.

Alongside information on the effectiveness of its services, Departments should publish the costs of basic elements of those services. We recommend that Departments in future publish the full public sector unit costs (on a consistent basis) for key services (including those mentioned in their Single Departmental Plan and Annual Report) - for example the cost of a prison place, a court hearing, a school place or a hospital stay - on a consistent basis over time. Collecting and publishing comparative unit cost data across regions, and over time, and perhaps also against international comparators, would enable Government and public alike to assess how cost effective Government policies and programmes are, to understand how cost effective service delivery is, and identify where action is needed to address poor value for money.

(Paragraph 55)

Possible

This recommendation would lead to an additional reporting requirement but it is not explicitly, or implicitly, stated that this additional information would be in Annual Reports and Accounts or subject to audit.

We can see the benefits in making this information available but it may not need to be included in the audited parts of Annual Reports and Accounts because of the difficulties (and costs) of subjecting this information to external audit.

In addition to the “core tables” which are already published, Annual Reports and Accounts should expand reporting of other information, wherever possible to show longer time series of other data. In each case this should be accompanied with narrative, to explain to the reader information, such as explanations for spending variations over time, which might not be evident from the figures alone. Time series and accompanying trend analysis should cover a rolling period of five years past: for income, assets, liabilities and expenditure. Where possible, projections of future spending should also be extended forward into the remainder of the Spending Review period.

Expenditure and balance sheet trends should be shown broken down between different policy areas and programmes and accompanied by helpful narrative explaining the main causes of changes and impacts on service activity. Information should be adjusted for any changes in the responsibilities of Departments (such as the movement of the Office for Civil Society from the Cabinet Office to the Department of Culture, Media and Sport) or accounting policies, so that it is comparable across a number of years.

(Paragraph 60)

Possible

It is unclear whether this additional information would be in the audited parts of Annual Reports and Accounts. We can see the benefits in making this information available but it may not need to be included in the audited parts of Annual Reports and Accounts because of the difficulties (and costs) of subjecting this information to external audit.

The Annual Reports and Accounts should continue to report on spending against the Estimates. The Treasury should consider whether future Annual Reports and Accounts need to be adjusted to reflect any changes suggested by the Procedure Committee in its report on the Estimates process. Given that the Accounts report against what the Government promised to do in the estimates, it is vital that the link between the two documents is completely clear. The Treasury should continue to review how the Estimates and Accounts can be made more consistent with each other (greater “alignment”).

(Paragraph 92)

No

This is largely a matter for the Treasury. As a general point of principle, we support alignment

In our view, the Annual Reports and Accounts should enable the reader to see how final outturn compares to the original plans, set out in the Spending Review as the Institute for Government has suggested. To do this currently involves tracking figures between several documents (the Spending Review, Main Estimates, Supplementary Estimates and Accounts) and is complicated and technical. Annual Reports and Accounts should provide a simple summary of why the figures have changed from the Government’s original plans in the Spending Review or the Budget. This should be incorporated into the annual analysis that we recommend above.

This will enable the House of Commons to hold the Government to account for changes to its spending plans.

(Paragraph 100)

Possible

The purpose of accounts is not to track budgetary movements and so this runs counter to streamlining the accounts. Arguably there is information (in estimates and memoranda) that provide relevant information.

Although the recommendation refers to Annual Reports and Accounts it is unclear whether there would be an intention to propose that this information be subject to audit - if so, we would have concerns about the resources that might be needed to support this.

Parliamentary scrutiny of the Government’s commitments to Parliament should not be limited to the announced spending limits. The House of Commons should be able to scrutinise, through the Annual Reports and Accounts, how actual spending and activity compared to any financial commitments announced to Parliament, in press releases, or through the media to spend on or cut particular programmes or policy priorities. The Annual Report and Accounts should include an audited statement reconciling, as far as reasonably practicable, the financial commitments made with what eventually happened. This would include financial commitments made in ministerial announcements to Parliament (either in select committees or in debates), the Spending Review, the Budget, the Manifestos of the elected parties and Departmental press releases.

(Paragraph 103)

Yes

The Estimates and Memoranda already track budgeting statements. Inclusion of the proposed reconciliation in audited parts of Annual Reports and Accounts would be problematic, difficult to achieve in practice and resource intensive.

When Government statistics are published, the publishing Department names a statistician that MPs and journalists can approach with queries about the meaning of the published data. A similar practice should be brought into effect with Annual Reports and Accounts. We recommend that every published Annual Report and Account should in future contain the contact details of named individuals within the Department’s finance function whom journalists, MPs, House staff and members of the public can approach with queries about how the accounting data can be used for example to illuminate how much is spent on a particular policy priority or how much a department owes on a Private Finance contract.

(Paragraph 114)

No

This is a matter for the Treasury and other government departments to consider in the light of their existing arrangements by which the public and press can contact departments. Not a matter on which we would comment specifically.

Departments should also subject the performance data and commentary in their Annual Report to an authoritative audit of the accuracy, completeness and objectivity of the data and statement made, to enable citizens and their representatives to obtain a full and unbiased view of the Department’s performance. This audit should go further than the NAO’s current audit of the annual report for consistency with the accounts. This audit should be conducted by an independent body, potentially the NAO, if it considers it appropriate, or UKSA. This audit should assess the accuracy of the statistics used in assessing performance, whether the Department has used a complete set of statistics in that assessment, and how true and fair the commentary provided in the report is.

(Paragraph 149)

Yes

This would be a significant new requirement that would be an additional burden for preparers and which would involve significant audit costs. The nature and extent of work required to provide the level of assurance that is implied here would go far beyond the existing annual external audit process.

What is described here may better sit within the existing assurance framework, albeit strengthened, supporting the personal responsibilities of the Accounting Officer. The Treasury may wish instead to consider how to enhance existing internal assurance frameworks, and how these are reported in governance statements, in order to strengthen practice across departments.

Management information

PACAC Recommendation

(including PACAC report paragraph reference)

New implications for the NAO’s work for Parliament? (Yes / No / Possible)

NAO comments

The Government must give priority to improving management information. This will mean ensuring the political and administrative leadership of all Departments is committed to good management information. This commitment should be included in the appraisal of the work of Permanent Secretaries and Executive Departmental Board members. The Government should make clear that it expects the Single Departmental Plan framework to last for the long term.

(Paragraph 167)

No

We support steps to improve management information and to enhance the use of Single Departmental Plans.

The Treasury and Cabinet Office should work together in making sure that Departments use Single Departmental Plans internally. The Government should ensure that all their major decisions are made on the basis of a full understanding of the practically available data.

They should also move forward with the other aspects of the Financial Management Review, developing, for example, better information on the costs of activity in the public sector and on realistic forecasting.

(Paragraph 184)

No

We support steps to improve management information and to enhance the use of Single Departmental Plans.

Management information should be seen as a key function of a Department. It should not be seen as a ‘nice to have’ nor confined to the Finance team. The Treasury and Cabinet Office should ensure that all senior civil servants are aware that it is impossible for them to deliver public services effectively or efficiently without good data linking outcomes to spending and realistic medium term plans.

(Paragraph 185)

No

We support steps to improve management information and to enhance the use of Single Departmental Plans.

The Treasury and Cabinet Office should work with Departments to ensure that the full Single Departmental Plans are published, subject to necessary omissions on grounds of national security or commercial confidentiality. Departments must, on a quarterly basis, share the full un-redacted Single Departmental Plans with the Comptroller and Auditor General and his staff. Unaudited progress reports against the Single Departmental Plans (with the restrictions above and full access for the National Audit Office) should be published on a quarterly basis (as recommended by the Comptroller and Auditor General) so that Parliament is informed of Departmental progress. These should include commentary on performance and, where required, actions being taken to improve outcomes. It is disappointing that the Treasury have rejected a similar recommendation from the Public Accounts Committee; we urge them to reconsider.

(Paragraph 197)

Possible

We support steps to improve management information and to enhance the use of Single Departmental Plans. We welcome the support given to sharing information with the NAO.

The Government should ensure that past performance information published on performance against Single Departmental Plans remains available when new information is published so they can be used as accountability documents in the future, and progress over time can be easily monitored. As with Annual Reports and Accounts, data from the Single Departmental Plans should be available in excel format so that users are able to analyse that data more thoroughly.

(Paragraph 198)

No

We support steps to improve management information and to enhance the use of Single Departmental Plans.

Departments should report against their Single Departmental Plan in their Annual Report and Accounts in a consistent format throughout. Such reporting should provide a complete financial and performance picture of the Department’s activity for the year.

(Paragraph 202)

No

We understand that there are current requirements to report against Single Departmental Plans in Annual Report and Accounts.

Other actions to improve transparency

PACAC Recommendation

(including PACAC report paragraph reference)

New implications for the NAO’s work for Parliament? (Yes / No / Possible)

NAO comments

Materiality for Government Accounts should be disclosed. Whilst witnesses to our inquiry raised concerns about interest from the media and others pushing down materiality, this has not happened in the private sector where materiality is already disclosed. Materiality helps people understand how detailed the audit of the Accounts has been and how far they should rely upon the auditor’s assurance about the accuracy of the figures.

(Paragraph 138)

Yes

This is disclosed in planning and completion reports to those charged with governance. In principle we support taking further steps towards extended auditor reporting where this is appropriate - for example, where public bodies’ own corporate reporting would be consistent with this which is more likely in cases where bodies are required to comply with the FRC’s Governance Code or where bodies voluntarily choose to do so.

The Government’s support for the Comptroller and Auditor General and the NAO is welcome and important. The NAO’s role is constitutionally vital, both as the auditor of value for money in the public sector and as the auditor of the Accounts. As Government’s independent auditor, the NAO assures Parliament that it can rely upon the financial data published in unqualified Accounts to scrutinise the Government. Irrespective of the format or the contents of Annual Reports and Accounts, the NAO’s valuable role must be protected.

(Paragraph 139)

Yes

This is welcome.

Several of our witnesses have suggested that there is bias or spin in the Annual Report sections of Annual Reports and Accounts. The Government should move to address this by adopting the same principles to which National Statistics are subject (frankness, impartiality, objectivity and accessibility) for all the data in the Annual Report and Accounts. The new revised UKSA statistical Code of Practice should be extended to all accounting data within Departments. The National Audit Office and UKSA should work together to ensure that the code is adopted by Departments and to notify Parliament and the public where Annual Reports and Accounts are currently falling short of its requirements.

(Paragraph 147)

Yes

With regard to adopting national statistics principles in annual report and accounting data, we think that the requirement for reporting to be ‘fair, balanced and understandable’, which is derived from the FRC’s expectations and has been adopted across the public sector too, remains the most appropriate standard to apply to annual reports. Annual accounts are, of course, subject to international financial reporting standards. We think that the existing framework, applied appropriately, supports consistency across reporting by public bodies.


55 The detailed PACAC report can be found here. The C&AG gave evidence to PACAC in support of its consideration of this topic in May 2016 which can be found here. The NAO also submitted written evidence which can be found here and here.




Published: 27 June 2018