Ian “Ren” Rennie

• Professional and statutory relationships
• Working together in practice
• Avoiding conflicts of interest
• Transparency in communications
• What does the PAC need from its Audit
Institution?
• Support for the PAC
• Independence and inter-dependence
• The role of the SAI – examples and case studies from around the world.

• The National Audit Office (NAO) and the
Committee of Public Accounts in the House of
Commons (PAC) are the two key institutions in the state-audit framework in the UK and
English central government
• NAO is the UK’s Supreme Audit Institution
(SAI)
• Since devolution it also works alongside Audit
Scotland, the Wales Audit Office and the
Northern Ireland Audit Office.

• The head of NAO is the Comptroller and
Auditor General (C&AG), currently Amyas
Morse
• He is an Officer of the House of Commons and was appointed by the Queen
• He has statutory access and reporting rights
• He and his staff are totally independent of government.

• NAO is a parliamentary and not a government agency, but it is free
(by statute) to pursue an audit agenda and report publicly without external influence, even from MPs
• The Public Accounts Commission acts as the commissioning body for NAO, and approves its finances and oversees its governance arrangements
• Following revelations about the expense claims of the former C&AG
(Sir John Bourne) by the media in 2007, the Public Accounts
Commission reviewed the NAO’s governance structures
• As a result, a nine member board was created for NAO, with its own
Chairman (currently Andrew Likierman), and the C&AG will be limited to a ten-year term of office (previously undefined until their retirement in Sir John Bourne’s case lasting for 20 years).

• The National Audit Office (NAO) scrutinises
public spending for Parliament
• It helps to hold government departments and the bodies we audit to account for how they use public money
• It helps public service managers to improve
performance and service delivery, nationally and locally, by producing around 60 value for money
(VFM) audit reports a year
• All VFM reports take government policy as read and focus on how it is being implemented.

• NAO has two key roles:
1.
it undertakes financial audits of central government accounts continuously, from which it published reports on a yearly basis
2.
it produces around 60 value for money (VFM) audit reports a year on selected issues and policies
• All VFM reports take government policy as read and focus on how it is being implemented.

* Committee of Public Accounts

• The Committee of Public Accounts (PAC)
• Other select committees, including the Public
Administration Select Committee, Environment,
Health, Transport, etc.
• All MPs and peers
• Senior officials in government departments
• Members of the public and groups interested in aspects of NAO work.

* International Organisation of Supreme Audit Institutions

• The NAO provides an independent opinion ensuring accounts are:
• 'true and fair'
• properly prepared – in accordance with the relevant Accounting Framework
• regular – income or expenditure, or both, in line with Parliamentary intention.

The NAO approach:
• complies with International Standards on Auditing (ISAs)
• is a risk-based audit approach
• focuses on material matters, i.e. matters which could alter the user’s understanding of a set of financial statements.

• Audit opinion on financial statements
– The C&AG gives an opinion on financial statements, including whether they are true and fair
– For most the C&AG will also give a regularity opinion
• C&AG's report on accounts
– The C&AG may choose to issue a substantive report on an entity which he audits
– These are used to bring Parliament's attention to matters which have a direct or indirect effect on public expenditure
• Letter to management recommending process and control improvements.

• The C&AG certified 437 accounts in 2012-13
• More than £1 trillion of public income and expenditure
– Departments e.g. Health, Defence
– Agencies e.g. Highways Agency
– Arm’s-length bodies e.g. Environment Agency,
– Charities
– Companies
Competition Commission e.g. British Council, V&A e.g. School Food Trust
Source: NAO Annual Report & Accounts 2012-13

• Most reports are assessed in hearings by PAC and hold senior civil servants to account
• VFM studies typically cost on the order of £300-400,000 and take six months to a year to complete
• All VFM reports must be cleared by the Department or body that is under investigation in order to prevent any unagreed facts going in front of PAC
• Departments’ amendments often serve to ‘blunt’ NAO’s criticism, creating blander and sometimes euphemistic language
• At the same time, NAO is an expensive operation costing £73.9 million a year and employing 900 staff
• A key part of NAO’s legitimacy in the VFM role depends on its ability to generate financial savings to departments that are at least 9 times greater than NAO’s costs
• In 2012 NAO claimed almost £1.2 billion of financial saving were achieved.

• The C&AG agrees a yearly programme of reports for review with the PAC
• Within PAC the most influential figure is the Chairman
• By convention the Chair is always drawn from the main opposition party
• Once a VFM study is published by NAO, in just under three quarters of cases PAC then takes the report and conducts an oral evidence session
• Here Permanent Secretaries and other senior civil servants are questioned by the Chair and committee members about the programme in question
• Several months after this, PAC produces a report of their findings.

• Parliament uses NAO reports to hold government to account for how it spends public money
• Cover a wide range of significant topics, such as the
NHS and major defence projects, and increasingly focus on local services, including those delivered by local government
• Select studies based on a detailed assessment of risks to value for money, with input from PAC and
Parliament.

• Reports highlight important lessons for the bodies audited and for government more widely
• Do not comment on the merits of policy but aim to conclude on whether value for money has been secured.

• The C&AG has complete discretion over the content of reports
• Agree the factual accuracy of our reports with the bodies audited but not the conclusions and recommendations
• Also seek comments from other parties mentioned in reports
• The aim is to ensure subsequent debate focuses on lessons to be learned, with the facts agreed.

• Carry out investigations into areas of concern raised by
Members of Parliament or members of the public
• In 2012-13 this work included:
– contracting out language services in the justice system
– the progress of the Work Programme
– preventing fraud in contracted employment programmes
• Also provide in-depth analysis into the systemic issues faced across government, including:
– the effective use of information and ICT
– good practice in financial management.

• The number of NAO reports averages 56 per year, but varies with the length of the parliamentary session
• Approximately 70 per cent of NAO’s VFM reports are reviewed by the PAC: on average the Committee handles 40 such reports per parliamentary session.
• PAC hearings engage a large number of witnesses, nearly 1,250 between 2003 and 2008, three quarters drawn from government departments and NAO, around a fifth from public bodies and non-ministerial departments and the small remainder from executive agencies.

• NAO and the PAC are highly influential bodies with government and within wider society because of their high media profile
• Research shows that NAO attracts over 1,000 mentions in the UK press annually for certain key words
• The PAC has interest levels in the low 100’s, and this mostly focuses on the most vigorous pronouncements of the Chair, Margaret Hodge
• This has increased significantly during the lifetime of this Government.

• NAO and PAC are influenced by a number of often subtle factors
• Government policy plays an important role
• So does the ‘agenda’ of MPs who lobby the PAC
• PAC members too influence their considerations
• Treasury is also influential through its budgetary role
• There is some NAO influence from large private audit companies (who deliver some of the financial audit work)
• From management consultancies (of which some of the largest serve as NAO’s ‘strategic partners’ in undertaking
VFM work)
• From professions and academics in particular issue areas.

• The Committee of Public Accounts is appointed by the House of
Commons
• To examine "the accounts showing the appropriation of the sums granted to Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the Committee may think fit" (Standing Order No 148)
• The Committee does not consider the formulation or merits of policy (which fall within the scope of departmental select committees)
• Rather it focuses on value-for-money criteria which are based on economy, effectiveness and efficiency.

• PAC reports are written by NAO for the PAC Chair who exerts a good deal of influence on their judgements
• PAC reports are not constrained by the clearance process applied to
VFM studies, and hence they are often franker in their criticisms
• The final stage of the VFM process is that the government must formally reply to PAC reports in the form of a published Treasury
Minute
• In practice written by departments responding to the criticisms and recommendations made
• Typically, departments accept, in whole or partially, more than 90 per cent of PAC recommendations
• For the VFM reports that do not go to PAC or have a PAC report, there is no Treasury Minute.

• All PAC evidence, written and oral, is published
• All reports are published and publicly available
• All hearings are open to the public
• Many hearings are televised and attract a great deal of interest
• Government responses to PAC recommendations are published.

• Sometimes NAO and PAC have persuaded or compelled government bodies to provide them with information, often financial
• For instance, in a 2001 report, Tacking Obesity in England, the study team were able to make an estimate of the total direct and indirect costs of obesity to the NHS and wider economy in England of £2.6 billion
• Similarly, the NAO report Department of Health Reducing Alcohol
Harm: health services in England for alcohol misuse, published in
October of 2008, reported a figure of £2.7 billion annually for the cost of alcohol harm to the economy
• Such estimates are often influential in putting the salience of issues into sharper focus.

• the office of the auditor general is an independent body that reports to parliament
• Made up of professional auditors and technical experts, the office submits periodic reports on the financial statements and operations of government entities—but with less emphasis on legal compliance than in the Napoleonic system
• The office serves no judicial function but, when warranted, its findings may be passed to legal authorities for further action
• Used by he United Kingdom and most Commonwealth countries including many in sub- Saharan Africa, a few European countries such as Ireland and
Denmark, and Latin American countries such as Peru and Chile
• often referred to as national audit offices.

• In the Napoleonic system the supreme audit institution—called the cour
des comptes (court of accounts)—has both judicial and administrative authority
• is independent of the legislative and executive branches
• is an integral part of the judiciary, making judgments on government compliance with laws and regulations as well as ensuring that public funds are well spent
• audits every government body, including ministries, departments, and agencies; commercial and industrial entities under the purview of ministries; and social security bodies.
• Used by Latin countries in Europe, Turkey, Francophone countries in Africa and Asia, and several Latin American countries like Brazil and Colombia
• In Francophone Africa, this model may co-exist with general state inspectorates, some of whom may be nominated as the country’s SAI.

• The board system, prevalent in Asia, is similar to the Westminster model in that it is independent of the executive and helps parliament perform oversight
• Indonesia, Japan, and the Republic of Korea, for example, have an audit board composed of an audit commission (the decision making body) and a general executive bureau (the executive organ)
• The president of the board is the de facto auditor general
• The board’s primary mandate is to analyse government spending and revenue and report its findings to parliament.
• As well as Asia also used by some European countries including Germany and the Netherlands, Argentina, and Asian countries including Indonesia,
Japan and the Republic of Korea .

• Independence of the government - is often curtailed in small but crucial ways. For example, the appointment of the head of an SAI may be through an open recruitment process or through the personal appointment of a head of state
• Ex-post versus ex-ante – while SAIs are generally associated with auditing expenditure after it is spent – some SAIs also have a role in approving the commitment of expenditure - others have a role in commenting on national budgets before they are approved
• Sanctions – while many SAIs only have the powers to report on the use of public funds others have the powers to surcharge, and even imprison, individuals found guilty of having used public monies improperly
• Legal immunity – while the heads of some SAIs are covered by parliamentary immunity when they issue their audit reports, others can be sued by auditees unhappy with audit report findings ...

• Reporting to parliaments – while some SAIs have a clear duty to report audit findings to parliament, others are deemed independent of parliament or are expected only to report to the head of state or ministry of finance.
• Going public – while some SAIs can publish their audits as soon as they are completed and parliamentary hearings are open to the public and the media, in others the veil of secrecy shrouds all steps in the process and it may be years before an audit report reaches the public domain
• Coverage – while some SAIs are required to audit all government entities each year others are only required to produce one overall annual report on the use of the national budget and/or have discretion as to how many individual entities to audit each year. In some there are limits on what funds the SAI can audit. In some they will not be able to audit para-statals, the security services, and / or the central bank and related institutions ...

• Tiers of government – while some SAIs can audit all tiers of government, including local government, others are limited to central government income and expenditure and regional or provincial audit institutions audit the other tiers.
• Types of audits - while many SAIs have more limited legal mandates some are free to conduct a wide variety of audits including:
– regularity audits (encompassing compliance and financial audits)
– performance or value for money audits
– environmental audits
– forensic audits.

• Relationship to ministries of finance –while in some countries the
SAIs are clearly independent of the government, and the ministry of finance, in other countries this is much less clear – with some ministries of finance running their own internal audit services which can often carry out very similar functions to those of an SAI and in others the SAIs acting as a department of the ministry of finance.
Even where an SAI may be legally independent it may be beholden to the ministry of finance for funding, accommodation and other services as well as the issuance of audit reports
• Staffing – while some SAIs have extensive control over their staffing resources – being able to recruit, determine remuneration arrangements, promote, discipline and even dismiss staff – others have to work within wider public sector systems and may not even be able to determine who they employ.

• The committee will issue a press notice outlining the main themes of inquiry, or terms of reference
• The press notice will invite interested parties to submit written evidence addressing the terms of reference, before a specified deadline
• A committee may also identify possible witnesses and issue specific invitations to them to submit written evidence
• Interested parties may then submit written evidence
• Committee staff will be able to offer advice on how evidence might be submitted in alternative formats where a prospective witness would have difficulty producing a written memorandum.
http://www.parliament.uk/briefing-papers/SN06208

• It assists the Committee if those submitting evidence adhere to the following guidelines
• Each submission should:
– state clearly who the submission is from, i.e. whether from yourself in a personal capacity or sent on behalf of an organisation, for example the submission could be headed ‘Written evidence submitted by xxxxxx’
– be no more 3,000 words in length / run to no more than eight sides of A4 paper
– as far as possible comprise a single document
– b egin with a short summary in bullet point form
– have numbered paragraphs
– be in Word or Rich Text format (not PDF) with as little use of colour or logos as possible.
http://www.parliament.uk/documents/commons-committees/witnessguide.pdf

• As a guide each submission could contain the following information:
– an executive summary of the main points made in the submission
– a brief introduction about yourself/your organisation and your reason for submitting evidence
– any factual information you have to offer from which the committee might be able to draw conclusions, or which could be put to other witnesses for their reactions
– any recommendations for action by the Government or others which you would like the committee to consider.

• Material already published elsewhere should not form the basis of a submission, but may be referred to within or attached to a submission, in which case it should be clearly referenced
• You should be careful not to comment on matters currently before the court of law, or matters in respect of which court proceedings are imminent. If you anticipate such issues arising, you should discuss with the clerk of the committee how this might affect the written evidence you can submit
• Committees do not normally investigate individual cases of complaint or allegations of maladministration.

• Following discussion with potential witnesses, the committee will issue a press notice announcing from whom it intends to hear oral evidence, and when
• Most written evidence received is published on a committee’s website during the course of an inquiry
• Oral evidence sessions will take place, ordinarily in public
• The focus is on the committee putting questions to witnesses
• Transcripts of the sessions will be posted on the committee’s website
• Live and archived coverage of committee public meetings are available

• Audit techniques are designed to assess the truth and fairness of the accounting information
• Reported accounting information may
– contain errors
– not disclose frauds
– be inadvertently misleading
– be deliberately misleading
– fail to disclose relevant information
– fail to conform to regulation.

• Comprehensive examination and review of managerial policies and operational efficiency
• Checking the performance of the organisation and comparing it with expected norms
• Critical examination and analysis of the contribution of the organisation for the benefit of the society
• Evaluation and measurement of efficiency of human resources in the organisation and comparing it with expected utilisation.

• Idea of intensive central inspection as a means to drive improvement in local government services, value for money and governance is relatively new
• The 1997 Labour Government replaced the compulsory competitive tendering requirements with a duty to provide best value—a combination of quality and cost
• The Best Value Inspection Service was set up, under the Audit
Commission, to inspect local services following best value reviews, and to publish reports with scores for service quality and prospects for improvement
• A year later the Commission realised that the best value system was excessively bureaucratic and unsustainable, for both the Audit
Commission and local government and proposed comprehensive performance assessment—an assessment of the council as a whole, including corporate capacity, service standards and performance management arrangements
• The Commission subsequently undertook CPA of all local authorities
(twice) between 2002 and 2008.

• In 2009 the Audit Commission replaced CPA with comprehensive area assessment, which sought to encourage the council and its various partners to work together more effectively for the benefit of the area
• Although CAA took account of a wider set of players than CPA, the Audit Commission's responsibility was restricted to local government, and it was still, in effect, the local authorities that were judged.

• One of the first actions of the present
Secretary of State was to instruct the Audit
Commission to cease work on CAA
• The Government has no plans to replace CAA with any other form of centrally-imposed inspection
• Inspection will remain for services to vulnerable people but the Audit Commission is not directly responsible for those.