9 Statutory audit reports
Contents
Audit Commission .................................................................................................................................... 1
Background .......................................................................................................................................... 1
Regularity / probity audit ...................................................................................................................... 2
Value for money (VFM) ....................................................................................................................... 2
Statutory Reports .................................................................................................................................. 2
Reports in the public interest ................................................................................................................ 3
Immediate referrals ............................................................................................................................... 3
Other reporting on NHS bodies ................................................................................................................ 3
Management Letters ............................................................................................................................. 3
NHS Executive FPB-ATA Role – Audit Commission Reports/National Studies ................................... 4
National Audit Office (NAO) ................................................................................................................... 4
Role of the NAO ................................................................................................................................... 4
The Public Accounts Committee .......................................................................................................... 5
NHS Executive FPA-PHI Role - NAO Report ......................................................................................... 5
Marking work ....................................................................................................................................... 5
Strategic planning ................................................................................................................................. 5
VFM reports ......................................................................................................................................... 5
NAO reports on summarised / appropriation accounts ......................................................................... 5
PAC hearings ........................................................................................................................................ 6
Briefing for Ministers ........................................................................................................................... 6
Contacts .................................................................................................................................................... 6
Audit Commission
Background
9.1
The external audit of the NHS (Health Authorities, Special Health
Authorities; NHS Trusts, Primary Care Trusts and NHS Trustees)is
undertaken by auditors appointed by the Audit Commission. The
Commission appoint auditors, normally on a 5 year basis, with around 70%
of audits carried out by District Audit and the balance by the large
accounting firms. District Audit is part of the Audit Commission, but acts as
an arms length agency. The auditors’ statutory responsibilities cover both
financial (regularity and probity) audit and value for money. They work to a
Code of Practice that is approved by Parliament.
Regularity / probity audit
9.2
9.3
As part of their regularity/probity audit, external auditors will consider the
following:

the adequacy of financial systems, both in terms of generating materially
accurate annual reports, and in terms of preventing and detecting loss or
error;

the appropriateness of arrangements for the prevention and detection of
loss arising from fraud or corruption;

the adequacy of arrangements for establishing the legality of proposed
actions; and

the accuracy of the annual accounts in giving a true and fair view of the
annual financial activity of the body.
The extent of work undertaken in each area will be dependent on a risk
assessment undertaken by the auditor. This assessment will consider the
degree of loss or error and the value of transactions (materiality). The audit
planning process should ensure that all financial systems are considered over
a reasonable cycle, with material expenditure and income systems being
reviewed every year.
Value for money (VFM)
9.4
Each year the Audit Commission selects a number of national studies. The
intention is to select a project relevant to each type of body. The
Commission's special project teams carry out their reviews and reports are
published which are widely publicised. The Commission sets up an advisory
group for each study and invites the NHS Executive to provide a senior
official.
9.5
Following the national study, the Commission provides an audit
methodology for local application, and train the local auditors. The findings
of the local VFM audits are reported to the body in the management letter.
(Arrangements may differ for some projects.)
Statutory Reports
9.6
The Audit Commission's auditors issue two types of statutory reports:

reports in the public interest (RIPIs) issued under Section 8 of the Audit
Commission Act 1998

immediate referrals to the Secretary of State issued under Section 19 of
the Audit Commission Act 1998 ;
Reports in the public interest
9.7
Where matters are serious and an auditor decides a matter should be brought
to the attention of the public he does this by issuing a report under S8 of the
Audit Commission Act 1998
9.8
This report is issued to the health body concerned and copied to the Secretary
of State. It is for the health body concerned to make this public and to
respond to the report and for the NHS Executive to ensure they do so.
Immediate referrals
9.9
The referral under S19 of the AC Act 1998 is made to Secretary of State in
confidence and not to the health body (usually this referral is discussed in
draft with the health body, but an auditor may choose not to do so).
9.10
This type of report is issued where a health body has taken or is about to take
action that may be unlawful and may lead to a loss. Given the nature of the
referral, it is possible that the facts may not be fully ascertained before it is
issued.
9.11
Secretary of State takes the appropriate action through his officials.
Other reporting on NHS bodies
Management Letters
9.12
The external auditors incorporate their findings on regularity, probity and
value for money in Management Letters which they are required to submit to
the body by 31 December.
NHS Executive FPB-ATA Role – Audit Commission
Reports/National Studies
9.13
The NHS Executive FPB-ATA section responsible for liaison with the Audit
Commission acts as a liaison point within the Department. It acts as the point
of receipt for AC reports and other communications and conveys information
to those with an interest.
9.14
The various activities include:
a) Identifying the section responsible for the area of work covered by
the report and advising them of the action they will be required to
take
b) Ensuring that the consultation process between the Audit
Commission and the Department is properly effected and briefing
for Ministers and senior officials is prepared to the deadlines
c) Distribution of the reports/studies
d)
Identifying recommendations from the VFM studies that link to
national priorities and facilitating the process for following
through the recommendations
National Audit Office (NAO)
Role of the NAO
9.15
The National Audit Office audits the accounts of all government departments
and a wide range of other public bodies, including the National Health
Service. This entails examining expenditure and revenue amounting to £600
billion a year. The main benefit for this work is to give assurance to
Parliament that this money has been spent in the way they intended, and that
they can rely on the statements provided to them. Where the NAO find
material irregularities in expenditure or are not fully confident about
significant figures in the accounts, the Comptroller and Auditor General
qualifies his audit opinion and presents a report to Parliament.
9.16
The National Audit Office also conducts a number of value for money
investigations each year. Their investigations evaluate the economy,
efficiency and effectiveness achieved in major fields of revenue and
expenditure and in the management of resources. In selecting studies the
NAO tend to concentrate on areas where the use of resources is greatest and
the risk to good value for money is often highest. The NAO normally
publish their reports and simultaneously present them to Parliament.
The Public Accounts Committee
9.17
The Public Accounts Committee (PAC) is the most senior of the House of
Commons committees. It takes evidence from Accounting Officers on the
basis of NAO value for money reports and often on annual accounts which
have been qualified by the Comptroller and Auditor General. Subsequently,
the PAC publish a report and the Government is required to respond to their
conclusions and recommendations by way of a Treasury Minute. It is quite
usual for the NAO to revisit a topic 2 to 3 years after a PAC report to
establish whether the undertakings given in the Treasury Minute have been
fulfilled and that value for money is being obtained.
9.18
Through the NAO/PAC process, Parliament has an opportunity to question
Departments on the machinery they have in place to carry out Government
policies.
NHS Executive FPA-PHI Role - NAO Report
9.19
The FPA-PHI acts as the liaison point within the Department. As the point
of receipt for most NAO communications, the branch conveys information to
those in the office with an interest. The various activities include :-
Marking work
9.20
This is an information gathering process on a range of topics. FPA-PHI
advises those who have responsibility for the NAO's chosen topics that they
will be contacted for specific information.
Strategic planning
9.21
Each autumn the Department meets the NAO to discuss their proposed value
for money (VFM) studies. The Department's Accounting Officer is involved
in this process and in the new year the NAO advise what choice has been
made. FPA-PHI obtain comments on the proposed studies from the
responsible branches and co-ordinate briefing for meetings.
VFM reports
9.22
At the start of a study FPA-PHI brief those who are substantially involved.
They also set up a 'task force' whose brief is to advise the Accounting
Officer. At each stage (preliminary, outline and draft reports) FPA-PHI
circulate the material advising on procedural issues.
NAO reports on summarised / appropriation accounts
9.23
These are circulated as for VFM reports
PAC hearings
9.24
FPA-PHI advise those who will be producing briefing material, and set up a
series of meetings with the Accounting Officer. The branch commissions
briefing in advance of each meeting and is responsible for producing the
briefing pack. They are also responsible for arrangements on the day of the
hearing, for ensuring that the transcript of the hearing is correct and that
material requested by the committee is sent. FPA-PHI circulate the Treasury
letter commissioning the Treasury Minute response to a PAC report and seek
contributions as appropriate, also ensuring that Treasury deadlines are met.
Briefing for Ministers
9.25
FPA-PHI alert ministers and senior NHS Executive management to
publication by NAO and PAC of reports, after requesting briefing/lines to
take from policy branches.
Contacts
Queries on Audit Commission should be
addressed to:
Liz Waddington
NHS Executive FPB-ATA
Room 4E 54
Quarry House
Leeds LS2 7UE
Telephone: 0113 254 5386
Queries on National Audit Office should be
addressed to:
Tony Moyle
NHS Executive FPA-PHI
Room 4W12
As above