Select Committee on Public Accounts Eleventh Report

Chapter 3: Support for Parliament—Value for Money work


  3.1  The primary objective of value for money work is to provide Parliament with independent information and advice about economy, efficiency and effectiveness in major fields of revenue, expenditure and in the management of resources. In addition to enhancing accountability to Parliament by publishing the results of investigations, the National Audit Office also aims to encourage audited bodies to improve their own performance in achieving value for money. The Office's aim is to identify lessons of good practice while providing independent scrutiny and assurance about the proper conduct of public business and to encourage well-managed risk taking.

  3.2  The main factors influencing the resources needed for value for money work include:

Increasing government expenditure on education, health, transport and tackling crime

  3.3  Public expenditure is set to increase by an average of just under 8 per cent in 2003-04 and at around 6 per cent in 2004-05 and 2005-06, with the increase concentrated in the priority fields of education, health, transport and criminal justice. This will have implications for the Office's audit work, in particular in focusing on the extent to which these increases in expenditure are delivering sustainable improvements in public services.

Greater focus on improving public services

  3.4  The National Audit Office has produced a series of reports focusing on public service delivery. For example, the Office's reports have examined the length of time which patients have to wait for hospital treatment—Inpatient and Outpatient waiting in the NHS (HC 221, 2001-02), and Inappropriate adjustments to NHS waiting lists (HC 452, 2001-02); the achievements of the higher education sector—Widening participation in higher education in England (HC 485, 2001-02) and Improving student achievement in English higher education (HC 486, 2001-02); and initiatives to improve law and order—Reducing Prisoner Reoffending (HC 548, 2001-02).

  3.5  Current studies are examining services provided to the elderly, transport issues, including the sale of National Air Traffic Services and the collapse of Railtrack, and the use of call centres by departments to make a range of services more quickly and easily accessible by the public. The Office also has a series of studies focusing on fraud prevention so that public money is used for its intended purpose and not misappropriated and revenue is properly assessed and collected.

New ways of delivering public services

  3.6  Increasingly services are being delivered through a range of different providers from the private and voluntary sectors and local government often involving complex contractual arrangements. As well as providing potential to deliver both better public services and value for money such approaches also carry risk.

  3.7  The National Audit Office's studies have assessed the extent to which planned improvements are being achieved and how well associated risks are managed. The Office has for example, published a series of reports on how information technology is being used to improve both service delivery and departments' efficiency—e-Revenue (HC 492, 2001-02), NHS Direct in England (HC 505, 2001-02), and Better Public Services through e-Government (HC 704, 2001-02). The involvement of the private sector through public private partnerships and the increasing application of commercial approaches to public sector activities including the disposal of state assets are important subjects which the Office's value for money work will need to continue to focus on.

Services provided by non-departmental public bodies

  3.8  The Government has accepted the recommendation of Lord Sharman's Report "Holding to Account—the Review of Audit and Accountability for Central Government" that the Comptroller and Auditor General should audit all non-departmental bodies. As a result more than 20 new organisations will become subject to financial audit and value for money scrutiny by the Comptroller and Auditor General, including English Heritage, the Housing Corporation and the Environment Agency.

Continuing quality and efficiency improvements.

  3.9  The National Audit Office will need to continue to develop the value for money methodologies it uses to deal with the increasingly complex issues raised by public service delivery. This will involve using a wider range of qualitative and quantitative diagnostic and analytical techniques to analyse the cost benefit and cost effectiveness of departments and agencies use of taxpayers' money.

Focusing on beneficial impact

  3.10  The National Audit Office aims to identify ways in which departments and agencies can achieve annual savings of eight times the value of the Office's net costs measured over a three year period. Savings identified through value for money work account for most of this figure. In addition to this financial impact, there is also a wider stimulus to value for money that comes from departments' awareness of the programme of studies covering all major areas of expenditure and the likelihood of a subsequent examination by the Committee of Public Accounts. The Office increasingly uses conferences and seminars to follow up reports to highlight where value for money can be improved and to spread good practice. In 2001-02 for example, the Office held conferences to promote widespread awareness of the good practice in our reports on Modernising Construction (HC 87, 2000-01) and Tackling Obesity in England (HC 220, 2000-01).


  3.11  The value for money field is diverse and complex. It covers annual cash flows of around £650 billion and assets of much greater value. The National Audit Office can carry out VFM examinations in all central Government departments and executive agencies. It can also carry out such reviews at most of the public bodies where it has inspection rights. For example the reports The Millennium Dome (HC 936, 1999-2000) and The Winding-up of the New Millennium Experience Company Limited (HC 749, 2001-02) were based on using the Office's rights to inspect the New Millennium Experience Company.


  3.12  To achieve the objectives for value for money work, the National Audit Office undertakes monitoring and analytical work to select topics for examination. It then carries out the investigative and other work necessary to collect, verify and secure departments' acceptance of the evidence which underpins the Office's conclusions. In selecting studies, the Office will continue to take account of suggestions from Members of Parliament as to possible lines of inquiry, and consider the materiality of expenditure, the rate of innovation and assess the potential risks to value for money.

  2.  Studies selected for value for money examinations are designed to:

    —  lead to reports on ways of achieving better services to the public by focusing on the results achieved;

    —  follow up previous National Audit Office and Committee of Public Accounts reports to ensure that action promised by departments and agencies has been taken;

    —  identify the scope for improving economy, efficiency and effectiveness through analysis of inputs, processes and programme outputs;

    —  review managerial operations which have a material effect on achieving value for money;

    —  support well thought through risk-taking and innovation and identify and promote good practice so that experience can be shared and risks minimised;

    —  examine the acquisition of assets and services, joint ventures and other forms of commercialisation, and the redeployment and disposal of assets so that best value is promoted and achieved;

    —  deliver beneficial impacts, including financial savings.

  3.13  In carrying out studies, the National Audit Office will consult extensively with audited bodies, and other audit and regulatory bodies to ensure that, where appropriate, audit and inspection programmes complement one another. For example the fieldwork underpinning the report on Better Public Services through e-government (HC 704, 2001-02) involved joint visits with the Audit Commission to private sector companies and a conference in July 2002 will promote the key messages from the National Audit Office and Audit Commission reports on electronic government.

  3.14  Thematic studies such as Purchasing Professional Services (HC 400, 2000-01) have also looked at a range of procurement issues across government and building on this work the National Audit Office has produced joint guidance with the Office of Government Commerce on Getting Value for Money from Procurement—How auditors can help.

  3.15  The Office will continue to consult widely with many other organisations and individuals, including the customers and beneficiaries of services and other interested parties. For example, the fieldwork leading to the report on Improving Student Achievement in English Higher Education (HC 486 2001-02) involved focus groups with staff, quantitative analysis of the Funding Councils' performance indicators and benchmarking data, qualitative research amongst current and ex-students and a postal survey of 123 higher education institutions.

  3.16  The main outputs of value for money work are some 50 published reports to Parliament each year. In 2001-02 the National Audit Office investigated a wide range of value for money issues and achieved its planned level of outputs. Reports examined matters as diverse as reducing prisoner reoffending, agricultural fraud, the New Deal for Young People, NHS Direct, and the commercialisation of public sector science.

  3.17  The National Audit Office also responds to enquiries from Members of Parliament which can lead to significant investigations of important value for money issues and in some cases to Comptroller and Auditor General's reports to Parliament.

  3.  Members of Parliament raise matters which lead to National Audit Office Investigations:

    —  Two Members of Parliament wrote to the Comptroller and Auditor General raising concerns about the Individual Learning Accounts scheme. The National Audit Office initiated an investigation and expects to report to Parliament later this year.

    —  A Member of Parliament raised concerns about the administrative costs of the 2001 Census and the omission of some of his constituents from the Census. A visit to the Member's constituency was incorporated into the fieldwork and an investigation was carried out into the omission of his constituents. A report on the 2001 Census will be published in 2002.

    —  A Member of Parliament wrote to the Comptroller and Auditor General about the costs of suspending medical staff. The issues raised were included in work on clinical governance aimed at identifying issues for a study, the results of which will be presented to the Comptroller and Auditor General in summer 2002, prior to starting work on the investigation.


  3.18  In 2001-02, the average cost of a major investigation was £195,000 against the target of £196,000, at 2002-03 prices. Despite the increasing complexity of work to assess the economy, efficiency and effectiveness of programmes, the National Audit Office has progressively reduced the average cost of studies by strengthening planning and management and aims to continue this over the Plan period. Where studies require special knowledge or expertise, it is often more economical to acquire these from the private sector or universities on a consultancy basis.

  4.  Average costs of major VFM outputs


  At 2002-03 prices in £000


AgricultureAgricultural fraud: The case of Joseph Bowden
Cross Government ReportsModern Policy-Making: Ensuring Policies Deliver Value for Money
Joining Up to Improve Public Services
Purchasing Professional Services
Better Public Services through e-government
Better Regulation: Making Good Use of Regulatory Impact Assessments Resource Accounting
Culture, Media and SportWinding-up The New Millennium Experience Company Limited
Awarding the new licence to run the National Lottery
The BBC: Collecting the television licence fee
DefenceNon-Competitive Procurement in the Ministry of Defence
Ministry of Defence: Major Projects Report 2001
The Joint Services Command and Staff College
Combat Identification
Implementation of Integrated Project Teams
Major Repair and Overhaul of Land Equipment
EducationWidening participation in higher education in England
Improving student achievement in English higher education
EmploymentThe New Deal for Young People
EnvironmentPolicy Development: Improving Air Quality
The operation and wind up of Teesside Development Corporation
Regulating Housing Associations' Management of Financial Risk
HM Customs & ExciseLosses to the Revenue from Frauds on Alcohol Duty
The Misuse and Smuggling of Hydrocarbon Oils
Customs & Excise Accounts 2000-01
Inland revenueIncome Tax Self-Assessment
NIRS 2: Contract Extension
Inland Revenue Accounts 2001-02
Law, Order & GeneralReducing Prisoner Reoffending
Collection of fines and other financial penalties in the criminal justice system
The Implementation of the National Probation Service Information Systems Strategy
Financial Management of the European Union
National Health ServiceInpatient and Outpatient Waiting in the NHS
Inappropriate adjustments to NHS waiting lists
NHS Direct in England
The Management of Surplus Property by Trusts in the NHS in England
Handling Clinical Negligence Claims in England
Overseas AffairsPerformance Measurement—Helping to Reduce World Poverty
Privatisation/Asset Sales/
The Auction of Radio Spectrum for the Third Generation of Mobile Telephones
Delivering the Commercialisation of Public Sector Science
Public Private PartnershipsInnovation in PFI Financing: The Treasury Building Project
Managing the relationship to secure a successful partnership in PFI projects
Redevelopment of MOD Main Building
RegulationGiving Confidently: The role of the Charity Commission in regulating charities
Opening the Post: Postcomm and postal services—the risks and opportunities
Pipes and Wires
TransportRoyal Travel by Air and Rail
Ship Surveys and Inspection
Work & PensionsFraud and Error in Income Support


  6.  The National Audit Office has a range of quality mechanisms to ensure continuous improvement in its VFM outputs

    —  Staff independent of those managing the study review progress, provide advice about VFM issues, methodology and drafting.

    —  Expert panels drawn from staff internally and technical experts externally quality review reports in draft.

    —  Independent reviews, currently undertaken by the London School of Economics, are completed for all published reports, focusing on technical content, presentation and quality of analysis[8].

    —  Audited bodies are invited to comment on performance following the completion of each study.

    —  Lessons learned from quality reviews are disseminated to staff and incorporated into the internal training programme.


  3.19  The National Audit Office's value for money teams require the right mix of experience and to be trained in the range of analytical and diagnostic techniques needed to undertake such studies. Staff who qualify through the chartered accountancy training scheme and accountancy trainees' scheme, contribute skills in financial and business management. The Office also recruits skills from the wider market, for example in operational research, statistics, economics and evaluation. In addition, the Office employs graduates who have recently completed their masters degree and have appropriate training—often with research experience.

  3.20  In many of the main subject areas, these skills are supplemented by staff with considerable knowledge of the audit field under scrutiny, for example, from the health service, the armed forces, merchant banking and the Treasury. These skills enable the National Audit Office to choose from a wide range of analytical techniques, identify and make more effective use of external consultancy and academic expertise, and enhance the impact of its work. The need to maintain current and relevant skills is reflected in the period contract terms on which some staff are employed.

  3.21  The National Audit Office also networks into the expertise in academia and the wider private and public sectors and has a Private Finance Initiative panel to bring in external specialist knowledge. Consultants are also employed to support individual studies, when appropriate, and whole studies are sometimes contracted out. For example the report on Government on the Web II (HC 764 2001-02) was contracted out to a team from the London School of Economics and University College London. Two further studies will be contracted out in 2002-03.


  3.22  There are often specific improvements in value for money which flow from changes made to procedures on the specific programmes that the National Audit Office examines (or on similar programmes elsewhere in the public sector). Analysis of the impact of the Office's work shows that in 2001, departments made 220 significant improvements to their procedures, all of which should lead to improved value for money. In selecting areas for scrutiny, the Office aims to continue to secure a financial impact of at least £8 for every £1 spent.

  3.23  In addition, a measure of the National Audit Office's impact is given by the response of the Government in Treasury Minutes to recommendations of the Committee of Public Accounts. The seven Treasury Minutes issued in 2001-02, covering 27 Committee reports, accepted 94 per cent of the Committee's recommendations. Action by departments to implement earlier recommendations led to identifiable savings or economies in 2001 of some £410 million. Benefits are still being achieved from continuing savings reported in earlier Corporate Plans.

  3.24  The impact of value for money work depends on departments implementing the changes which flow from the Office's work. This can mean that departments have to review the way in which they deliver services and manage major projects and programmes. These changes can take time to implement and so the impacts can arise some years after the work was completed.

  3.25  Some examples of such impacts are:

    As a result of 27 reports on Private Finance Initiative (PFI) and Public/Private Partnership (PPP) subjects, the National Audit Office has continued to have a major influence on savings arising from successful PFI projects. These have generated savings of £162 million in 2001, which included £30 million in respect of new contracts let in 2001.

    The National Audit Office report on Military Operations in Kosovo (HC 530, 1999-2000) followed up previous work on Bosnia which found that information on assets and stock held in theatre was flawed. Following the Public Accounts Committee's recommendations on the need for better information on assets in theatre, the Ministry of Defence introduced new asset tracking systems and recovered £75 million from the United Nations for the United Kingdom contribution to Bosnia peace-keeping activities.

    In line with National Audit Office and Committee of Public Accounts recommendations on the reports on the Flotation of the National Grid (HC 651, 1997-98), once the Secretary of State for Trade and Industry had decided to surrender special shares in PowerGen and National Power, he sought additional consumer benefits from the companies. PowerGen announced that from 1 April 2001 it would reduce surcharges paid by customers using prepayment meters and eliminate the surcharge partly by the staged introduction of new technology by 2005. The company valued these concessions at £14 million, of which the reduced surcharge represents £6.4 million over four years. The company would also invest £800,000 in energy efficiency measures. National Power (now Innogy plc) announced that they would invest £5.7 million on energy efficiency measures for potentially 20,000 "fuel poor" households under the "health through warmth" banner. The total value of the impact is £20.5 million over four years.

    Following the National Audit Office report on the Gaming Board (HC 537, 1999-2000) the Committee of Public Accounts recommended, and the Government accepted, that licensing fees charged to the gaming industry and to lotteries should recover the full costs of the Gaming Board's licensing work. The Minister for Sport announced new fees in March 2002 which will result in an extra £400,000 being recovered. The Minister also announced that the Gaming Board and the Government had accepted all 26 of the National Audit Office's recommendations and to date 23 had been implemented.

  3.26  Reports also identify examples of waste and lead to improvements in procedures:

    The National Audit Office report into Accepting Equipment Off-Contract and into Service (HC 204, 1999-2000) noted that the Ministry of Defence had paid £60 million in additional costs to rectify problems on equipment that it had accepted but which did not meet its requirements.

    Following the National Audit Office examination Educating and training the future health professional workforce for England (HC 277, 2000-01), the Department of Health and the Higher Education Funding Council for England accepted the need for a better understanding of the variations in price and quality between different education providers. A joint working group led by the Department and Universities UK, with the involvement of the Funding Council and other key stakeholders, was set up in September 2001 and is currently reviewing the principal issues raised by the National Audit Office examination.

    Acute Trusts in England hold some £3 billion of medical equipment which is sometimes involved in adverse incidents which produce, or have the potential to produce, unwanted effects involving the safety of patients, users, or other persons. The National Audit Office report The Management of Medical Equipment in NHS Acute Trusts in England (HC 475, 1998-99) identified several ways of reducing these risks including: fuller reporting of adverse incidents; promulgation of best practice; better user training; and standardisation of makes and models of equipment.

8   The National Audit Office now share the London School of Economics quality assessments with audited bodies. Back

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Prepared 7 November 2002