Correspondence between the Chairman of
the Public Accounts Commission and the Comptroller and Auditor
The Commission is grateful to you and your colleagues
for answering our questions so fully at Tuesday's meeting. On
that basis, we have approved the NAO's draft Estimate for 2002-03
and we have agreed that it should be laid before the House of
As you know, during the course of our questioning,
a number of issues arose on which you undertook to provide the
Commission with further information and I thought it would be
helpful if I briefly summarised my understanding of these.
(i) Your observations on the level of assistance
the NAO receives from Government departments in its attempts to
secure overseas audit contracts and, in particular, a list of
the ways in which you feel that the Department for International
Development could be more proactive and supportive in promoting
the concept of auditing as a key component of civic improvement
programmes (you mentioned in particular the frequency of changes
in the criteria for providing development assistance as between
regional and single-country projects).
(ii) Your estimate of your current share
of the global market in contract work for the auditing of public
sector bodies and other organisations which disburse public money.
(iii) Any information you have about the
ratio of the cost of auditing public expenditure to the volume
of such expenditure audited, both in the UK and other comparable
(iv) Your assessment of the difference in
he impact made, in terms of implementation, of VFM studies taken
up by the PAC, as compared with those which are not.
(v) Your assessment as to how the NAO, through
extra VFM studies, could significantly expand the scope of scrutinyand
thus the perceived risk of scrutinyamongst accountable
bodies. (Particular reference was made in this context to the
Sixth Report of the Public Administration Committee of 1998-99
into Non-Departmental Bodies).
14 March 2002
Rt Hon Alan Williams, MP
(Chairman of the Public Accounts Commission)
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Thank you for your letter of 14 March. I am
pleased the Commission has approved the NAO's Estimate for 2002-03
and agreed to lay it before the House of Commons.
At the hearing I agreed to provide further information
to the Commission and I am grateful for your summary of the issues
to be covered. I address each of them below.
(i) The level of support we receive from the
Government in relation to overseas contracts
We have consistently received sound and effective
support from the Foreign and Commonwealth Office and the Department
for International Development in relation to our bids for the
audit of international organisations and contracts for other overseas
work. We are also pleased with the support we have received in
respect of our expanding programme of technical co-operation work.
The Foreign and Commonwealth Office recently wrote to all heads
of missions alerting them to the kind of work the NAO undertakes
as a means of ensuring that further opportunities for winning
external audit work are not overlooked. We are hoping that this
will alert Embassies and High Commissions to "nose out"
opportunities and surface them with us. This is, of course, In
line with Parliament's concern for the development of democratic
government overseasand, of course, for the better stewardship
of British taxpayers' money provided as overseas aid.
One area which we feel would merit further consideration
is the support by DFID of regional rather than national development
programmes. In certain parts of the world (for example the Caribbean)
the provision of generic training and support on a regional basis
is likely to be more efficient and effective than specific national
(ii) An estimate of our share of global contract
work for the audit of public sector bodies
Unfortunately, there is no information on which
to base a comprehensive market share statistic for international
organisations audited by Supreme Audit Institutions. However,
to take one sector as an example of our share of work, we hold
four of the 17 available audit appointments to United Nations
Organisations and the Specialised Agencies (International Labour
Office, International Atomic Energy Agency, World Food Programme
and the Pan-American Health Organisation). No other Auditor General
has more than three appointments.
We have also been very active in developing
technical co-operation programmes with overseas national audit
institutions. We have won a majority of the work available through
the EU-funded twinning programme to assist Candidate Countries
to improve their financial management and administrative procedures.
Of the eight public audit sector twinning projects set up by Candidate
Countries to date, the NAO is the leading partner in sixHungary,
Slovenia, Bulgaria, Romania, Latvia and Lithuania; and is involved
in providing short term inputs to the other twoEstonia
and the Czech Republic.
All of this work abroad the NAO has won in open
competition with other national audit bodies. And where we have
an opportunity to compete with private firms for international
work undertaken at home we are also successful. An example is
the work we do on behalf of the European Commission on the Commission's
Agricultural Guidance and Guarantee Fund.
Of course, and as you know, this overseas work
is not an NAO expense as it is fully funded by the purchaser.
(iii) The cost of auditing public expenditure
The NAO's expenditure was some £55 million
in 2000-01 against aggregate revenue and expenditure audited of
£650 billion, leaving the cost of the NAO at £84 per
£1 million of aggregate revenue and expenditure. Where data
exists, the NAO compares favourably with other Supreme Audit Institutions.
For example, the cost of the Canadian Office of the Auditor General
was around $59 million (equivalent to £26 million) for 2000-01
against $344 billion (£150 billion) aggregate revenue and
expenditure audited. This means that the cost of the Canadian
Office was £170 per £1 million of revenue and expenditure
audited. And the US General Accounting Office cost $413 million
(£286 million) compared to government revenue and expenditure
of $4,560 billion (£3,173 billion) so that the GAO cost £90
per £1 million of expenditure audited.
However, there are a number of problems in comparing
the UK figures with other Supreme Audit Institutions. The NAO's
remit, comprising both financial audit and value for money audit,
is broader than that of many other audit offices and we are therefore
able to ensure closer scrutiny than is the case elsewhere. And
the level of work involved in carrying out, for example, a financial
audit in different countries varies considerably. In France the
regulations allow several years' departmental accounts to be audited
at the same time, which entails considerably less work than the
UK requirement to audit each year's accounts separately and to
report to Parliament as appropriate.
(iv) An assessment of the difference in impact
between those studies which are taken by PAC and those which are
The Committee's decision to take an NAO report
increases its impact. Senior Departmental officials spend a considerable
time focusing on the report and preparing for hearings. The generation
of a Committee report requires the Government to respond via a
Treasury Minute. And the potential threat of a follow-up by the
Committee ensures that Departments respond positively to the recommendations
However, it is not necessary for all of our
reports to be taken by the Committee; and reports which are not
taken also have an impact. For example, our report on Regulating
Freight Imports from Outside the European Community (HC 131, 2000-01)
made important recommendations in respect of the risk management
systems at HM Customs and Excise. The Department produced an action
plan and are working through the required actions.
(v) How the NAO could expand the scope of
its scrutiny through extra VFM studies
NAO reports to Parliament cover the full range
of Departments' activities so that the Committee can exercise
effective scrutiny of how public money is utilised. When new methods
of service delivery and new initiatives have been introduced,
such as joined-up government, e-government, the Private Finance
Initiative and Public Private Partnerships, it has been important
to provide the Committee with an early opportunity to consider
whether these initiatives are likely to deliver value for money
and that public funds are not put at risk. The pace of change
in the public sector continues, however, and new approaches to
service delivery continue to be introduced which must be subject
of scrutiny. There is, therefore, now scope to increase the number
of reports which are published each year to assess how these changes
in the delivery of public services and ongoing increases in public
expenditure are delivering value for money.
More work is needed to determine the level of
increase in reports that would be justified and over what timescale
such an increase might be implemented. The number of NAO staff
deployed in producing reports for Parliament is maintained at
a level that itself represents value for money while having some
margin which allows the NAO to report quickly on events such as
the significant delays in issuing passports in the summer of 1999.
An initial assessment, however, suggests that there are two areas
where an increase in the number of NAO reports would strengthen
the Committee's scrutiny:
to enable members to assess how well
Departments are implementing the Committee's recommendations the
NAO could produce a number of short reports or memoranda on the
action taken by Departments and the impact in improving value
for money. These reports would form the basis for the Committee
to question Accounting Officers on the progress they had made;
to strengthen and enhance the Committee's
coverage of executive agencies and Non-Departmental Public Bodies
(NDPBs) the NAO could increase the number of reports on these
organisations many of which, though relatively small compared
with the Departments of State, are at the forefront of service
delivery. Many are also entities which are in the public eye,
such as the Housing Corporation and the Environment Agency. An
increase in our scrutiny of NDPBs would be very much in keeping
with the recommendations of the Sharman Report, and with the report
of the Public Administration Committee to which you refer in your
letter, in strengthening Parliamentary accountability for these
My intention is to consider these possibilities
and others in more depth including their resource consequences
over the coming months. The Public Accounts Commission would then
have an opportunity to consider them in more depth when they review
the NAO's Corporate Plan for 2003 to 2006 in June.
16 April 2002
* * * * * *
Thank you very much for your full reply, dated
16 April 2002, to my letter of 14 March. This is most helpful.
I was pleased to note that, in general, the
NAO received full co-operation from the FCO and DFID in relation
to bids for contract work overseas. I will, however, take up with
DFID the point you made about supporting regional rather than
national development programmes.
I was also encouraged by your reference in paragraph
(v) to your consideration over the coming months of ways in which
the NAO could usefully expand the scope of its scrutiny through
additional VFM studies. The Commission will certainly welcome
the opportunity to discuss your thinking in this area at our summer
meeting on the NAO's Corporate Plan.
In the spirit of greater openness encouraged
by the Sharman Report, we may wish to publish your letter of 16
April. Would this cause any problem for you?
24 April 2002
Rt Hon Alan Williams MP
(Chairman, Public Accounts Commission)
* * * * * *
Dear Mr Williams
Thank you for your letter on 24 April. I welcome
your intention to take up with the DFID the question of their
support of regional rather than national programmes of financial
training and support.
You ask whether I foresee any difficulty should
you decide to publish my previous letter of 16 April. I am glad
to say that the answer is "No" and that I would be content
for you to publish the letter in due course.
20 May 2002