Central Government
Introduction
Central government consists of over 1,000 organisations including government departments, executive agencies,
trading funds and Non-Departmental Public Bodies (NDPBs). Government departments are headed by a Secretary of
State or by one or more Ministers and are staffed by civil servants. Their business is predominantly policy but may
also include a wide range of executive functions. Executive agencies were established as part of the "Next Steps"
initiative in the late 1980s. Their business is management of large executive processing functions, usually with a
focus on service to the public. Their performance is managed through a set of annual key performance targets agreed
with ministers.
Agencies are not constitutionally separate from their parent department are also staffed by civil servants and report
to Ministers through their parent department. Trading Funds are vehicles for financing and accounting for the
activities of a government department, executive agency or part of a department, which are generated from trading
activities rather than using funds voted by Parliament. They have a separate legislative constitution and are
controlled through financial targets, usually a return on capital employed.
NDPBs constitute a wide variety of different types of organisations. They include Royal Commissions, charitable
trusts, executive councils, and limited companies. They may be partly or wholly funded by government, through a
sponsoring government department. They have a wide variety of responsibilities, which may include some elements
of policy, service to the public, or further distribution of funds through grants. 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.
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. Related guidance is contained in the Government Internal Audit Manual (GIAM) (Does this still exist?).
All accounting officers are required to make provision for an internal audit service that meets the Treasury's
standards. 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 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.
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 but it
is now recommended practice to include one or more external non-executive members, and for one of the nonexecutive members to take the chair. Advice on the role of audit committees is included in GIAM. 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 more 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 be 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:
 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)
Government Internal Audit Manual (GIAM)HM Treasury (May 1996) (?)
January 2005