National Audit Office (United Kingdom)
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- For other uses, see National Audit Office.
The National Audit Office (NAO) is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies. The NAO also carries out Value for Money (VFM) audit into the administration of public policy, although not into the merits of policy objectives themselves.
The NAO reports to the Comptroller and Auditor General who is an officer of the House of Commons of the Parliament of the United Kingdom and in turn report to the Public Accounts Committee, a select committee of the House of Commons. The reports produced by the NAO are reviewed by PAC and in some cases investigated further.
The Audit Commission performs a similar function for local government in England, the English NHS Trusts and some other public agencies in England.
Audit Scotland performs both the roles of the Audit Commission and the NAO in Scotland, including auditing the Scottish Executive and its public bodies.
The Wales Audit Office is responsible for auditing the Welsh Assembly Government, its public bodies and local government in Wales. The Northern Ireland Audit Office performs similar functions in Northern Ireland.
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[edit] Types of audit
The NAO has three main streams of work:
- Financial Audits
- Value For Money (VFM) audits
- Good Governance
The NAO carries out financial audits in the much the same way as private auditing bodies and voluntary applies the International Standards of Accountings (ISAs).
Value for Money (VFM) audits are non-financial audits to measure the effectiveness, economy and efficiency of government spendings. Roughly sixty of these reports are produced each year, the most notable from recent years being the reports on MRSA, which lead to the increase in public interest in topic, the report on the rescue of British Energy and the report in the Public Private Partnership to maintain the London Underground. The remits of the NAO and the Public Accounts Committee do not allow them to question the policy itself and so VFM reports only examine the administration of policy. The responsibility for the questioning policy is left for other select committees and debating chambers of Parliament.
Good Governance is also a smaller area of work for the office and is somewhere in between VFM and financial audit work. This work includes Section 2 Reports which examine the collection of taxes by HM Revenue and Customs and the DVLA.
[edit] Public Accounts Committee
The NAO and Public Accounts Committee (PAC) form the key links of the Public Audit Circle which has the following sequence:
- The NAO performs financial and VFM audits and makes its reports public
- The PAC has hearings based on NAO reports wherein failures in meeting regularity or propriety requirements are apparent.
- The PAC provides a report with recommendations based on PAC hearings.
- The Government responds to the PAC report in a Treasury Minute.
- The NAO publishes a reply to the minute and there may be a NAO/PAC follow-up study.
[edit] Financial audit
The NAO’s financial audits give assurance over three aspects of government expenditure: the truth and fairness of financial statements; the regularity (or statutory validity) of the expenditure, and; the propriety of the audited body’s conduct in accordance with parliamentary, statutory and public expectations.
[edit] History and establishment
Established as the auditor for central government (including most of the externalised agencies and public bodies) in 1983 as part of an “appropriate mechanism” to check and reinforce departmental balance and matching of quantitative allocation with qualitative purpose (as set out by public policy). The existence and work of the NAO are underpinned by three fundamental principles of public audit:[1]
- Independence of auditors from the audited (executives and Parliament)
- Auditing for: regularity, propriety and VFM (Value for Money)
- Public reporting that enables democratic and managerial accountability
The basic need for the NAO arises from these three fundamental principles, in that, as Parliament votes on public expenditure of various activities by public bodies, they need auditors that are independent of the body in question, the government and/or opposing political parties; while auditing for compliance and legal spending by departments on the activities voted for by Parliament, in a transparent and public forum.
[edit] Developments
The campaign for New Public Financial Management (NPM) has been the driving force behind the technological and functional development and change in the scale and scope of the NAO’s work. Determined to emulate the managerial efficiencies of the private sector, which is driven by profit-maximisation goals, NPM provided public sector audit with the moving goal that is VFM-maximisation: which is achieved by maximising economy, efficiency and effectiveness (3Es) while minimising cost.
VFM/performance audits have widened the scope of audit work beyond financial concerns and provided the “customer-based” approach that was lacking in the public sector. The research methodology referred to in the appendices of most VFM studies (carried out by the NAO) reflects on the use of a wide-range of marketing-research techniques (such as focus groups, customer-interviews, expert panels, commissioned research, longitudinal studies) by the NAO to measure and verify, the results and effectiveness of service provision by agencies, and to better understand customers and competitors in order to evaluate performance and to provide relevant and constructive recommendations.
Having predominantly taken what Pollit & Suma (1997) call the “managerial” approach to self accountability, the NAO has and tended to put an emphasis on the benefits it provides as justification for its existence.[2] And this is possibly explained by two things, the first and more positive view, is that the NAO is applying similar VFM criteria to itself as an example and form of assessment; the second view is that the NAO being financed by public funds is also under a pressure to exhibit a need for its existence and the derived usefulness.
The NAO works under pressure to meet statutory and public expectations, playing multiple roles: as auditor, evaluator and guide.
[edit] Criticisms
Some of the criticisms that have been levelled at the NAO include the following:
- It is not sufficiently accountable. Although the NAO scrutinises other public bodies, it appears to be immune from scrutiny itself. There is no open, independent mechanism whereby the quality of its work is assessed. Its reports are subject to external review after publication, by teams of academics from Oxford University and the London School of Economics. These reviews consider whether the methods, findings and conclusions of the reports are sound, and have on occasion found the intellectual basis of the reports to be thin. The results of the reviews are not, however, made public.
- Its reports are excessively neutral and cautious. This criticism stems from the normal way in which the reports are written. Typically, an initial draft of the report is shared with the department(s) about which it is written. There then begins a long process of 'clearance', during which all facts must be agreed between NAO and department. The reason for this is to give the PAC a mutually agreed report on which to base its later hearing; the hearing would be pointless if the departmental witnesses were able to disagree with the findings of the report. In practice, the clearance process invariably leads to a watering down of the initial draft, with the most contentious early findings removed at the behest of the department (and never, therefore, made public).
- A specific example of the NAO's perceived timidity and willingness to kowtow to departments is its report on the Al Yamamah arms deal between the UK and Saudi Arabia, which has never been published. The NAO refused to release the report under the Freedom of Information Act 2000, citing the sensitivity of the report for Anglo-Saudi relations. A senior NAO official stated, however, that the decision not to release the report was made by Parliament rather than the NAO itself. [1]
- Its savings are not robustly calculated. The NAO claims to save the taxpayer £8 for every £1 it costs to run (it has a target to increase this ratio to 9:1). These 'savings', however, do not only include reductions in public expenditure, which might be expected to be the sole definition of 'savings'. They also include quantifications of non-financial impacts of the NAO's work, expenditure being not reduced but better targeted and even, in some cases, increased expenditure. (For example, the NAO published a report on how the Department for Work and Pensions was making the general public aware of state benefits to which they might be entitled. Any increase in the take-up of benefits that could be shown to be directly attributable to the report would be counted as a 'saving' by the NAO.) If the definition of 'savings' were restricted to reductions in public expenditure, the amount of savings that the NAO could legitimately claim to have made on behalf of the taxpayer would be significantly reduced.
- Its reports are insufficiently strategic. The NAO produces a wide range of reports on all aspects of central government expenditure, but many of these deal with marginal topics like government leaflets, countryside rights of way and railway stations. As David Walker notes [2], the NAO does not and cannot examine major strategic issues such as the underlying principles of the Private Finance Initiative and the effect of class sizes on educational attainment.
- Its reports do not deal adequately with the issue of value for money. The NAO uses a broad brush definition of 'value for money' to plan and carry out its reports. The reports do not, as might be expected, focus on detailed financial analysis of whether or not a particular scheme or initiative is value for money. Instead, they focus on qualitative analysis of costs and benefits. In 2005, an NAO report on NHS Local Improvement Finance Trusts (LIFT) was severely criticised by one of the PAC members, Jon Trickett, for its focus on qualitative analysis of the benefits of LIFT schemes and the paucity of its financial analysis [3]. The NAO is currently working on a report about the use of consultants in the public sector [4]. The report will not, however, address the question of whether consultants employed by the public sector give good value for money, nor will it consider the quality of the advice given to departments by consultants. Instead it will focus on secondary issues such as whether good practice is being followed in the hiring and management of consultants.
[edit] Offices
The NAO currently occupies buildings on Buckingham Palace Road, near Victoria railway station in London, built originally for Imperial Airways as their "Empire Terminal". The central part of the building is listed and the entire building will undergo a £77m restoration and refurbishment beginning in 2008.
There are currently smaller offices based in Blackpool and Newcastle upon Tyne, however the Blackpool office is soon to close and the Newcastle office is set to expand and carry out most of the NAO's audits based in the North of England.
[edit] See also
- Australian National Audit Office
- National Audit Office of the People's Republic of China
- Government Accountability Office
[edit] External links
[edit] References
[1] Audit, Accountability and Government White & Hollingsworth, Oxford University Press (1999)
