Select Committee on Public Accounts Eleventh Report

Chapter 5: Request for Resources for 2003-04 to 2005-06


  5.1  The level of resources required by the National Audit Office in the period 2003-04 to 2005-06 reflects the impact of a number of external factors to which the Office has to respond. Key factors include:

    —  the recommendations of the Sharman Report, including the validation of performance systems;

    —  an increasing, and more complex financial audit workload—for example each resource account contains five financial statements whereas appropriation accounts had only one;

    —  additional support requested by Parliament; and

    —  staffing in a competitive employment market.


  5.2  Lord Sharman's Report "Holding to Account, The Review of Audit and Accountability for Central Government", published in February 2001 made a number of recommendations aimed at strengthening existing audit and accountability arrangements in central Government. The Government's response to Lord Sharman's Report, issued in March 2002, accepted that the Comptroller and Auditor General should:

    —  be responsible for validating systems used in reporting Public Service Agreement targets;

    —  audit all non-departmental public bodies; and

    —  have statutory access to all bodies receiving grants from, or who contract with bodies he audits, as well as to other bodies such as registered social landlords and train operating companies.


  5.3  The Government's invitation to the Comptroller and Auditor General to validate departmental data systems used in reporting on performance against Public Service Agreement targets, as a first step towards improving Parliamentary accountability, will have a significant impact on the Office's workload over the Plan period. Under the new arrangements, the Comptroller and Auditor General aims to validate systems underpinning performance reports against Public Service Agreement targets at least once in the lifetime of the targets. Targets typically cover three years, but may be revised every two years as part of the biennial Spending Reviews.

  5.4  The National Audit Office plans to start validation work on systems relating to Public Service Agreements for 2003-06. In considering the validation programme, the Office has taken account of the potential rate of change in targets and data systems, and the need for Parliament and Departments to have a view of the quality of data systems well before the final year of the targets. The validation programme therefore provides for a review of Public Service Agreements for each main department and cross cutting programme in the first two years of the life of the target. Validation conclusions will be reported to Parliament.

  5.5  The National Audit Office approach to validation aims to minimise costs and burdens on audited bodies by taking assurance where possible from the work of other professional bodies, as well as from the work of review units within Departments that are independent of line management, such as internal audit. The Office will therefore work closely with bodies such as the Audit Commission, the Office for National Statistics, and also new bodies such as the Commission for Healthcare Audit and Inspection and the Commission for Social Care Inspection which will have a validation remit in their particular sectors.


  5.6  The Government accepted the recommendation in Lord Sharman's Report that the Comptroller and Auditor General should be appointed as the auditor on behalf of Parliament of all executive non-departmental public bodies, including those that he does not currently audit. This decision brings the National Audit Office more than 20 new audits, including some major non-departmental public bodies such as English Heritage, the Housing Corporation and the Environment Agency. As the Office will recharge the costs of the audits to the bodies concerned, there will be no need to seek additional funding from Parliament for this work.


  5.7  As a result of Lord Sharman's Report, the Comptroller and Auditor General, will have statutory access and inspection rights which will extend the scope of the Office's audit field.


  5.8  The National Audit Office's statutory certification responsibilities vary from year to year in response to machinery of government changes and in response to the creation of new statutory bodies to perform particular functions, such as the proposed Tribunals System Executive Agency. Over the Plan period, the Office envisages significant growth in certification work on top of the 20 or so new non-departmental public bodies transferring to the Comptroller and Auditor General in line with the recommendations of Lord Sharman's report.

  5.9  One of the main areas of growth in certification work are the 18 Special Health Authorities, for example the Health Development Agency, which are expected to transfer from the Audit Commission from 2003-04 onwards. In addition, the National Audit Office will need to allocate further resources to make a contribution to the successful implementation of the whole of government accounts project.

  5.10  Non-departmental public bodies meet the cost of audit by the National Audit Office by paying an audit fee. In other cases, for example whole of government accounts, they will need to be met out of additional funds provided by Parliament.


  5.11  The Public Accounts Commission and the Modernisation Committee both wish to strengthen Parliament's scrutiny of the Executive and have invited the National Audit Office to provide staff to support Select Committees' work to monitor spending programmes. The Office welcomes the opportunity to further assist Parliament in this way, provided that it can be done while maintaining the service to the Committee of Public Accounts.

  5.12  The National Audit Office has seconded staff to Select Committees for a number of years on both short-term and long-term attachments. It is envisaged that there will be a growth in the number of secondments over the Plan period by around five. Provided that the salary costs of the individuals will be reimbursed by the host organisation, there should be no need for an increase in the Office's net resource requirement.


  5.13  A key factor in maintaining and enhancing the standard of the outputs that the National Audit Office produces is the quality of the staff that it employs and the training provided. To deliver 50 major reports to Parliament and audit around 550 accounts a year as well as implementing the recommendations of Lord Sharman's Report, responding to Government initiatives and providing a first class service to Parliament, the Office needs to able to recruit, retain and reward high quality staff.

  5.14  Recruiting staff with the skills necessary to undertake the increasingly complex nature of the Office's responsibilities (for example, performance validation and value for money work) is challenging at a time when there is keen competition for highly qualified accountancy staff across the economy as a whole. For example, the IRS Employment Review, issued in February 2002, forecast that private sector accountancy salaries are expected to rise by 6.9 per cent in 2002.

  5.15  The National Audit Office has been able to attract able graduate trainees because of the quality of its professional training regime. But it has to compete with the schemes and benefits available in the private sector for qualified staff and trainees with the potential to move quickly to management positions within the organisation.

  5.16  Salary is not the only factor in determining career choice. The National Audit Office can offer an interesting range of work to potential recruits and opportunities to make a direct contribution to the Parliamentary process. Yet pay remains an important part of any package and the Office has no option but to ensure that it remains at least within striking distance of its main competitors.


  5.17  In common with central Government departments, the National Audit Office Supply Estimates are now prepared on a resource, rather than cash, basis. The amount that the Office will need to seek from Parliament, after taking account of income from fees for audit work and other services is termed the net resource requirement. The table below shows that, despite the need for additional funds to meet the increasing demands outlined above, the Office is able to contain its forecast net resource requirement for 2003-04 to an increase of £3.1 million, or 6 per cent. This is well within the 7.8 per cent increase for Government as a whole. In constant terms this represents an increase of £1.8 million, or 3.4 per cent. Similar percentage increases are expected over the remaining years of the Plan.

8.  National Audit Office: Net resource requirement 2001-02 TO 2005-06

Human Resources
Other Running costs
Gross resource requirement
Net resource requirement

  5.18  Staff costs represent around 60 per cent of the National Audit Office net resource requirement. There is a need for a increase in staff numbers in 2003-04 for new work on certification audits, the validation of performance systems, and for supporting Parliament. In addition, the Office will need to absorb the cost of the increase in employer's national insurance contributions announced in the April budget. In 2004-05 and 2005-06, staff numbers are expected to fall slightly, as the Office subcontracts more certification work to private sector audit firms to reach the target of 25 per cent suggested in Lord Sharman's report.

  5.19  In addition to staff costs the National Audit Office incurs:

    —  consultancy costs, relating mainly to elements of the Office's financial audit and value for money work contracted out to the private sector;

    —  travel and subsistence costs of staff, relating mainly to financial and value for money work;

    —  recruitment and training costs; and

    —  running costs associated with maintaining the headquarters and other accommodation, providing office equipment, stationery and supplies.


  5.20  The net resource requirement includes depreciation relating to the National Audit Office's fixed asset base, which comprises its headquarters building and information and communications technology equipment. The Office will need to continue to expand its asset base to support the increasing use of information technology in its work, for example mobile computing and electronic records management, and to refresh its information technology hardware and software.

  5.21  As noted in paragraph 4.17, the National Audit Office is reviewing its accommodation requirements. If the outcome of the review were to suggest significant changes to the Office's capital expenditure requirements, the Office would, of course, make a business case to the Commission for any extra funding needed. Pending the outcome of that review, the Office forecasts that around £1 million a year will be needed for capital expenditure over the Plan period, a slightly lower level than in previous years.


  5.22  The National Audit Office's net cash requirement each year is derived by adjusting the net resource requirement for non-cash items such as depreciation, notional interest, movements in provisions and working capital, and by adding capital expenditure. It is expected that the increase in the Office's net cash requirement over the Plan period will be of the same order as the increase in the net resource requirement outlined in the table above.

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© Parliamentary copyright 2002
Prepared 7 November 2002