Central Government Introduction The United Kingdom is a parliamentary democracy based on the principle that every citizen has the right to vote in political elections. It is also a constitutional monarchy whereby ministers govern in the name of the Sovereign, who is both Head of State and Head of the Government. The highest government and law-making authority is the UK parliament, with responsibility for some matters also devolved to the Scottish Parliament, the Northern Ireland and Welsh Assemblies. The law-making executive consists of the Government (including members of the Cabinet and ministers responsible for policies), government departments and agencies, local authorities, public corporations, regulatory bodies and other organisations subject to ministerial control. Central government consists of over 1,000 organisations including government departments, executive agencies, trading funds and Non-Departmental Public Bodies (NDPBs). The main role of government departments is to implement government policy and to provide advice to ministers. They are staffed by politically impartial civil servants and are funded directly by parliamentary vote. They may have their own executive agencies, such as the Valuation Office Agency within HM Revenue & Customs, and work alongside local authorities, non-departmental public bodies and government-sponsored organisations. Private sector partners may provide some of their support functions, such as data processing. Most departments are responsible for the provision of their services across the whole of the UK and are headed by a responsible minister. Their performance is managed through a set of annual key performance targets agreed with ministers. However, some are headed by a permanent office holder and ministers with other duties are accountable for them to parliament. For example, the Secretary of State for Education and Skills accounts to parliament for the work of the Office for Standards in Education, which is headed by the HM Chief Inspector of Schools, who is independent of the Secretary of State. NDPBs, work independently of the ministers to whom they are accountable. There are currently more than 1,0000 NDPBs in the UK and they have their own boards made up of non-executives. Members of staff are not usually civil servants, but are usually employed on comparable terms and conditions. There are two main types of NDPB: Executive NDPBs, such as the Arts Council, who have executive, commercial or regulatory functions, and Advisory NDPBs, such as the Low Pay Commission, who are set up by ministers to advise them and their departments on particular matters. Executive agencies were introduced to deliver services more efficiently within available resources. They are part of the Civil Service but operate under individual framework agreements and budgets. They have delegated authority to engage their own staff and to organise their service provision so as best to meet their customer’s needs. Agencies are headed by Chief Executives responsible for day to day operations and accountable to the responsible minister. The Civil Service has no separate constitutional responsibility and civil servants are servants of the crown and thereby servants of the government. Executive powers are exercised by the responsible minister who is, in turn accountable to parliament. The duty of individual civil servants is to the minister in charge of their department in which they are serving. Changes of government, or minister, do not result in a change of staff. Civil servants carry out a diverse range of duties, ranging from the provision of services to the public – paying benefits, issuing driving licences etc – to providing administrative and policy support to their department and its minister. The Civil Service Commission oversees the processes for recruitment and appointment into the Civil Service. The senior full time official of all central government organisations (usually a Permanent Secretary in government departments, or chief executive in trading funds, agencies and NDPBs) is designated as the Accounting Officer. He or she is responsible for financial management, regularity, propriety and value for money, and for the adequacy and effectiveness of the internal control environment within the organisation. A Principal Finance Officer (PFO), the equivalent of a Director of Finance, has delegated responsibilities for financial management in departments and agencies. The operations of central government organisations are governed by parliamentary authority for income and expenditure, and by standards, procedures and controls laid down centrally by HM Treasury. The framework is set out in the manual Government Accounting, supplemented from time to time by directions and guidance in Dear Accounting Officer (DAO) letters. Audit Standards Internal Audit Standards HM Treasury, through its Assurance Control & Risk team (ACR), prescribes standards for the operation of internal audit in government organisations. These are published as the Government Internal Audit Standards. All accounting officers are required to make provision for an internal audit service that meets the Treasury's standards. In large departments this is usually provided by an in-house Internal Audit function. Smaller departments, agencies and NDPBs tend to outsource their provision, either to a private sector partner, or through a service level agreement with a larger public sector provider. The accounting officer approves the terms of reference for internal audit, although the head of internal audit should advise on the content of the Terms of Reference and should regularly consider whether any amendment is required. The standards were revised in 2001 to take account of new requirements for accounting officers to make an annual statement on internal control with their financial statements, and to manage risk as the basis for internal control. They were also made more consistent with the Institute of Internal Auditors' Standards. They now cover: Organisational standards: Scope Independence Audit committees Relationships with management, other auditors, and other review bodies Staffing, training and development Operational Standards: Audit Strategy Management of audit assignments Due professional care Reporting Quality assurance Some key features of the standards include: the Head of Internal Audit (HIA) gives an opinion on the assurance framework including risk management, control and governance in the organisation in an annual report scope includes the full system of internal control, including non-financial systems internal auditors in central government are required to meet minimum standards of training and proficiency, defined as the Government Internal Audit Certificate (GIAC) the Head of Internal Audit should report directly to the Accounting Officer. Other services for central government auditors provided centrally by the Audit Policy and Advice team include: organising conferences and seminars developing guidance on new topics or issues of concern circulating staff vacancy notices. Staffing and training standards Basic audit training is undertaken over a two-year period to meet the GIAC. On completion of the training course, which contains academic and practical training, the Head of Internal Audit certifies that the standard has been met and this provides the necessary endorsement that the auditor can exercise their skills across a range of work. The syllabus of the GIAC is aligned with the Institute of Internal Auditors' practitioner level (PIIA) and new staff undertaking training towards GIAC will normally take this qualification as well. In addition, a number of staff complete professional qualifications with CCAB accountancy bodies, and go on to attain other relevant qualifications such as the IIA's Membership level and Qualification in Computer Auditing. The civil service places considerable emphasis on skill enhancement and training and there are numerous post qualification courses which staff are encouraged to attend. Greater emphasis is now placed on Continuing Professional Development (CPD) to maintain currency with the Government Internal Audit Standard and qualified auditors should have an ongoing professional training plan. In many organisations personal development plans (PDP), or similar techniques, are a normal part of the staff appraisal and development process and CPD is frequently dealt with in the context of a PDP. Audit Committees HM Treasury has published Policy Principles for Audit Committees in Central Government and an Audit Committee Handbook (2003). In departments and agencies, audit committees are largely made up of executive managers with line management attending by invitation. It is now recommended practice to include one or more external nonexecutive members, and for one of the non-executive members to take the chair. None-executives are independent of line management and are best placed to challenge management and hold them to account. In NDPBs, where there is usually a non-executive Board, audit committees are sub-committees of the Board and are chaired by a board member other than the Chair. Relevant guidance is contained in Guidance on Codes of Practice for Board Members of Executive NDPBs. External Audit Departments and Agencies are audited by the National Audit Office (NAO) under the direction of the Comptroller and Auditor General (C and AG). Arrangements in NDPBs vary according to their constitution. At present, over half of NDPBs are audited by the NAO, but the NAO is not a Companies Act Auditor and so cannot audit NDPBs that are limited companies. In some other NDPBs, auditors may be appointed by either the Secretary of State or by the Board. In response to Lord Sharman’s report Holding to Account: Audit and Accountability in Central Government (2001), NAO has widened its remit to include the external audit of NDPBs. In addition to the statutory reporting on financial statements, external auditors have to give all central government accounts a report on regularity i.e. that expenditure has appropriate parliamentary authority. Under the 1983 National Audit Act, the NAO can examine and report on the economy, efficiency and effectiveness of public spending. The C and AG presents around 50 such Value for Money (VFM) reports to Parliament each year. For this purpose the NAO usually has rights of access to bodies where it is not the statutory auditor. All NAO reports are presented to the Parliamentary Committee of Public Accounts (PAC), who hold about 50 hearings each year to review findings in more depth. Current Issues The Efficiency Agenda In July 2004 Sir Peter Gershon published the conclusions from his review of public sector efficiency. The focus for the review had been to identify opportunities to release public sector resources out of activities which could be carried out more efficiently and to recycle these savings into front line services which meet the public’s highest priorities. Over £20Bn of efficiency gains were identified by Gershon to be delivered by 2007/08, involving a reduction in the number of civil service and military administration and support posts by 84,000. Departments have agreed their own specific contributions to these savings and have been required to establish plans to bring them to fruition – these are detailed in the 2004 Spending Review. In addition to the Gershon review, a review by Sir Michael Lyons concluded in March 2004 that 20,000 public sector jobs should be relocated from London and the South East in order to create up to £2Bn of efficiency savings over 15 years. Again, departments have been required to establish plans outlining their own contribution to the movement of posts out of London and the South East. Internal Audit has been impacted directly by the Efficiency Agenda, being required to make its own contribution to departmental efficiencies. Most noticeably this has been in the form of delivering savings of up to 2.5% per annum through revisions to budget baselines, staff numbers, structure and organisation along with developing innovate approaches to delivering its service. In addition Internal Audit is expected to play a role in providing assurance that the framework for delivering departmental savings is robust and that the mechanisms for calculating and reporting savings is robust. Internal Audit may also find itself increasingly required to identify and quantify efficiency savings across the audit programme. Co-ordinated Assurance Since the mid-1990s there has been a dramatic increase in the number of inspection and review bodies working in the public sector. This has placed an increasing burden on public services and increased the risks of duplicated effort and inconsistencies in findings and conclusions. At the same time this has presented an opportunity to deliver a broader range of assurance to management than has been previously possible. The challenge facing Internal Audit is to ensure that its activities are co-ordinated with those of other review bodies in order to maximise assurance, reduce duplication and enhance the value of the audit opinion offered to management. Whole of Government Accounts The December 2003 Pre-Budget Report conformed the government’s intention to cover the whole of the public sector for 2006/07. Whole of Government Accounts (WGA) will, for the first time, present a comprehensive picture of public finances prepared on a basis comparable with that of the private sector and aims to improve the transparency of public sector finances. Whilst much of the information required for WGA may already be brought together in the production of annual accounts some public bodies will be in a better state of readiness than others to meet the 2006/07 timetable. Internal Audit will need to be familiar with the requirements of WGA and be in a position to provide assurance that public bodies have established processes for collecting, analysing and verifying information required for the production of the accounts. Coupled with the introduction of resource accounting and budgeting WGA require greater levels of financial expertise from internal auditors. There is also an ongoing need to apply the new techniques to improve financial management and decision making at all levels Further Sources of Information Many government publications, and much information on individual bodies, are available on the Internet. The most useful sites are: Directgov www.direct.gov.uk Internal Audit Training & Development Handbook HM Treasury www.hm-treasury.gsi.gov.uk/fmra/ACR/acrhomepage.html The Treasury www.hm-treasury.gov.uk The Cabinet Office www.cabinet-office.gov.uk Portal for UK Government Organisations www.ukonline.gov.uk Selection of Government Publications www.official-documents.co.uk Whole of Government Accounts www.wga.gov.uk National Audit Office www.nao.org.uk Government Internal Audit Standards HM Treasury (2001) Holding to Account: the Review of Audit and Accountability for Central Government (Sharman Report) HM Treasury (2001) Management of Risk – Principles & Concepts (the Orange Book) HM Treasury (2004) Government Accounting 2000 HMSO (2001) (with regular updates) March 2005