National Audit Office (United Kingdom)

Encyclopedia : N : NA : NAT : National Audit Office (United Kingdom)

The National Audit Office (NAO) is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments and government agencies, non-departmental public bodies. The National Audit Office reports to the Comptroller and Auditor General who is an officer of the House of Commons of the Parliament of the United Kingdom. Most of their reports are investigated further by the Public Accounts Committee, a select committee of the House of Commons.

The Audit Commission performs a similar function for local government in England, the English NHS Trusts and some other public agencies in England and Wales. Audit Scotland has a similar role in Scotland, with the added responsibility of auditing the Scottish Executive and its public bodies.

The Wales Audit Office is responsible for auditing the Welsh Assembly Government and its public bodies. The Northern Ireland Audit Office performs similar functions in Northern Ireland.

Contents

1 Types of audit

1.1 Public Accounts Committee
1.2 Financial audit

2 History and establishment
3 Developments
4 Criticisms
5 Offices
6 See also
7 External links
8 References

Types of audit

The NAO has four main streams of work:

Financial Audits
Value For Money (VFM) audits
Section 2 Reports for HM Revenue and Customs
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.

Section 2 Reports are a small area of work for the NAO regarding the way HM Revenue and Customs collect taxes.

Good Governance is also a smaller area of work for the office and is somewhere in between VFM and financial audit work.

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.
To which there may be a NAO/PAC follow-up study.

Financial audit

The NAO’s financial audits feature three sub-audits: a certification-audit of the agency’s financial statements, a regularity audit of the statutory validity of the agency’s expenditure, and a propriety audit of the agency’s public business conduct in accordance with parliamentary, statutory and public expectations.

History and establishment

Established as the auditor for central government (including most of the externalised agencies and public bodies) in 1984 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:“The Audit Commission” by Couchman V. in Sherer & Turley: Current Issues in Auditing, Paul Chapman Publishing (1997)

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 National Audit Office building, built originally as the Imperial Airways Empire Terminal. The statue, "Speed Wings over the World" is by Eric Broadbent"

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.

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.“Reflexive Watchdogs? – How Supreme Audit Institutions Account for Themselves” Pollit & Suma, Public Administration, Vol. 75, (1997) 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.

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 every word of the text 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.

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 [link], 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.

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". There are currently smaller offices based in Blackpool and Newcastle, 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.

External links

References

[1] Audit, Accountability and Government White & Hollingsworth, Oxford University Press (1999)

From Wikipedia, the Free Encyclopedia. Original article here. Support Wikipedia by contributing or donating.
All text is available under the terms of the GNU Free Documentation License See Wikipedia Copyrights for details.