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4.4.4. Annual accounts and reports

The GRA Act 2000 distinguishes between departmental accounts and whole-of-government accounts. For departmental accounts, the law requires that “a government department for which an estimate is approved by the House of Commons in respect of a financial year shall prepare resource accounts for that year detailing: a) resources acquired, held or disposed of by the department during the year, and b) the use by the department of resources during the year. Resource accounts shall be prepared in accordance with directions issued by H.M. Treasury (s. 5). In addition to all government departments, the House of Commons, the House of Lords and other constitutional bodies also submit accrual-based accounts.

Concerning whole-of-government accounts, the GRA Act 2000 (s. 9) states that “the Treasury shall prepare, for each financial year, a set of accounts for a group of bodies which, it appears to the Treasury, exercise functions of a public nature and are entirely or substantially funded from public money... The accounts shall contain such information in such form as the Treasury thinks fit”. As with departmental accounts, the law specifies that “the Treasury determines the form and content of the accounts, aiming to ensure that the accounts present a fair and true view and that they conform to GAAP”.

4.5. External audit

The post of the Comptroller and Auditor General (C&AG) of the United Kingdom was created in 1866, although its origins go back much further (see White and Hollingsworth, 1999, chapter 4). Since 1998, external audit arrangements have changed to reflect the creation of new national assemblies in Scotland and Wales (Box 5). This section focuses mainly on the legal basis for the National Audit Office (NAO), which is headed by the C&AG.

To co-ordinate external audit arrangements in the nation, a public audit forum, comprised of representatives of all the public audit offices, was launched in 1997 (independently of any law requiring this). The forum published “Principles of Public Audit”, which stresses the independence of public sector auditors, the wide scope of audits and the need for public availability of audit results (see www.public-audit-forum.gov.uk).

4.5.1. Managerial, financial and operational independence

The C&AG is managerially independent. The E&AD Act 1866 specifies that the Queen appoints the “Comptroller General of the Receipt and Issue of Her Majesty’s Exchequer and Auditor General of the Government’s Accounts”.30 Since 1983, C&AGs have been appointed upon a motion of the Prime Minister, acting with the agreement of the chairman of the PAC [s. 1(3), National Audit Act]. The C&AG may not hold any other office appointed by the

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Box 5. United Kingdom: External audit arrangements

Comptroller and Auditor General (of the United Kingdom)

●Post created under Exchequer and Audit Departments Act 1866.

●Head of the National Audit Office, which was created by statute law in 1983.

●Audits all central government bodies in England, as well as reserved areas (for example, defence, foreign affairs, social security) throughout the United Kingdom.

Audit Commission

●Created by Local Government Finance Act 1982 (although the function goes back much further).

●Role and functions now set out in Audit Commission Act 1998.

●Audits local governments in England and Wales.

Auditor General for Scotland

●Created in the Scotland Act 1998.

●Heads Audit Scotland.

●Audits accounts of bodies funded by the Scottish Parliament.

Auditor General for Wales

●Created in the Government of Wales Act 1998.

●Audits accounts of the Welsh National Assembly and its sponsored bodies.

●The Wales Audit Office is planned to be operational in 2005.

Auditor General for Northern Ireland

●Post created in the 1921 Exchequer and Audit Departments Act (Northern Ireland).

●Supported by the Northern Ireland Audit Office.

●Audits Northern Ireland departmental and local government expenditure.

●Mainly based on the Audit (Northern Ireland) Order 1987.

Queen, nor is he/she able to hold office in either house of Parliament (s. 3, E&AD Act 1866). To further enhance the independence of the C&AG from the Crown, the National Audit Act specifies that the status of the C&AG is an “officer of the House of Commons” [s. 1(2), National Audit Act]. The 1983 Act changed the status of the staff of the NAO from being civil servants to “staff appointed at such remuneration and conditions as the C&AG may determine” [s. 3(3), National Audit Act].

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The NAO is financially independent: “the expense of the NAO shall be defrayed out of moneys provided by Parliament” (s. 4, National Audit Act). Accordingly, the C&AG’s salary is a direct charge on the Consolidated Fund. Regarding the NAO’s budget, “the C&AG shall prepare an estimate of the expenses of the NAO and the Public Accounts Commission shall examine the estimate, and lay them before Parliament, with modification if the Commission thinks fit”.31 The C&AG is also given the authority to charge fees for auditing; any such fees shall be paid by him/her into the Consolidated Fund (s. 5). The accounts pertaining to the annual budget of the NAO are examined each year by the PAC.

Operational independence is ensured in law. The C&AG has complete discretion in the discharge of his/her functions. However, in determining whether to carry out examinations, he/she shall take into account any proposals made by the PAC [s. 1(3), National Audit Act].

4.5.2. Institutional coverage of audits

The GRA Act 2000 provides the authority for the C&AG’s financial audits of departmental resource accounts. It also provides for his/her statutory audit of other accounts such as the whole-of-government accounts. All executive agencies are audited by the C&AG under the GRA Act. The National Audit Act (ss. 6-7) provides the C&AG with statutory powers to conduct value-for-money examinations of departments, executive agencies, NDPBs, and a wide variety of NHS and other public bodies.

The C&AG is the auditor of almost all central government bodies. This definition includes NDPBs, but excludes some publicly funded bodies such as higher education institutions and housing associations. Some NDPBs are companies and ministers appoint private auditors to audit them. The C&AG is currently unable, under the Companies Act, to audit limited companies. It has been recommended that the C&AG should audit such companies on behalf of Parliament (Sharman, 2001).

To allow the C&AG to extend the scope of bodies covered by his/her audits, H.M. Treasury may, by law, order a public body’s accounts to be audited by the C&AG, subject to the restriction that the body is performing public functions or being substantially funded by public money (s. 25, GRA Act 2000). In this context, H.M. Treasury initiated the GRA Act (Audit of Public Bodies) Order 2003, which made the C&AG the statutory auditor of a further 25 NDPBs. Also, the GRA Act 2000 (Rights of Access of Comptroller and Auditor General) Order 2003 gave the C&AG wider statutory access to different bodies for audit or examination purposes. Finally, the C&AG’s activities are not limited to those specifically prescribed by statute. At times, he/she conducts some audits by agreement, not because statute requires him/her to do so.

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4.5.3. Types of audit

The E&AD Act 1866 mandated regularity audits to ensure that every payment was supported by vouchers and that money expended was for the purposes granted by Parliament. As early as the late 19th century, economy and efficiency audits began, with PAC support, but not under any specific statutory authority (Sharman, 2001, annex B). The compulsory review of every financial transaction was abandoned, as from the E&AD Act 1921. The National Audit Act 1983 gave the C&AG the express power to report to Parliament at his/ her own discretion on the economy, efficiency and effectiveness with which government bodies have used public funds. The emphasis in the law is on the discretion of the C&AG.

The GRA Act 2000 (s. 6) obliges the C&AG to provide an audit certificate in which he/she must state whether in his/her opinion the accounts show:

●a true and fair view (as required in company accounts);

●that the money provided, and resources authorised, by Parliament have been expended for the purposes intended by Parliament;

●that the financial transactions covered by the accounts are in accordance with the relevant authority which governs them.

For local governments, under the Audit Commission Act 1998 (s. 34), the Audit Commission is also authorised to undertake or promote studies that assess the impact of policies on economy, efficiency and effectiveness. The Audit Commission is authorised to require relevant bodies to publish performance standards information for different financial years (s. 44). Thus, by law, bodies delivering public services at local government are obliged to prepare performance indicators for their sphere of activity.

4.5.4. Powers of investigation

The C&AG has strong powers of investigation, explicit in two separate acts. In relation to financial audits, “he shall have a right of access at all reasonable times to any of the documents relating to the department’s accounts”. “A person who holds or has control of any of those documents shall give the C&AG any assistance, information or explanation which he requires in relation to any of those documents” (s. 8, GRA Act 2000). Concerning value- for-money audits, the C&AG “shall have a right of access at all reasonable times to all such documents as he may reasonably require for carrying out examinations” and “shall be entitled to require … explanations as are reasonably necessary for that purpose” (s. 8, National Audit Act). Time delays for the provision of specific information are not specified in law.

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4.5.5. Reporting obligations and publication

As from 1866, the C&AG was required to submit to the Treasury audits of Consolidated Fund accounts and other specific appropriation accounts. If H.M. Treasury did not submit the audit report of the C&AG to the House of Commons within 10 months, the C&AG was authorised to do so (ss. 21 and 32, E&AD Act 1866). The C&AG’s statutory powers to report to Parliament were extended in 1983; he/she may report to the House of Commons the results of any value-for-money examination (s. 9, National Audit Act). These are laid before Parliament as House of Commons papers. The NAO publishes around 60 value-for-money reports each year.

The GRA Act 2000 maintained the same reporting to Parliament procedures and timetable as the 1866 Act. Departments must send accounts to the C&AG within eight months after the fiscal year begins and the C&AG is given two months to audit them. The rather long ten-month delay reflects the late adoption of appropriation acts. However, the GRA Act authorises H.M. Treasury, by statutory instrument, to change any of the reporting dates (s. 22), subject to annulment by a resolution of the House of Commons. Also, should H.M. Treasury not report to the House of Commons within the legal deadlines, the C&AG is required to report as soon as possible after their expiry (s. 26).

Concerning whole-of-government reports, the C&AG must satisfy him/ herself that the accounts present a true and fair view. After certifying the accounts, the C&AG returns his/her annual report to H.M. Treasury, which lays the accounts and the C&AG’s report before the House of Commons (s. 11). By law, it is H.M. Treasury’s responsibility to decide on the timing of submission of the whole-of-government accounts to the House of Commons [s. 11(6), GRA Act 2000].

4.5.6. Enforcement of findings

The NAO has no independent powers to enforce its findings – it is up to the PAC to ensure follow-up. After the NAO’s reports are laid before Parliament, the PAC normally takes oral evidence in public from the department’s AO, with briefings provided by the NAO. The PAC considers the evidence and publishes its own report, referring to the NAO report. The PAC is unable to examine all departmental matters and the House of Commons departmental select committees take little interest in financial matters, preferring to rely on the PAC.

The PAC has an important deterrent effect, since waste or ineffective spending by departments may be uncovered by reports or hearings. By a longstanding convention, the government responds to every PAC report, usually within two months (responses are known as Treasury Minutes). The NAO and