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    The new Code of Audit Practice: helping local public services rise to the extraordinary challenges ahead

  • Posted on April 8, 2020 by

    Local audit

    We all rely on local public services to be able to function in our day-to-day lives, and in these challenging times, we’re even more reliant on those services. Whether from local authorities, local NHS organisations police forces and fire and rescue organisations, to keep us safe and take care of us should we need it.

    At the National Audit Office (NAO) we’re responsible for scrutinising the spending of central government departments, agencies and other national public bodies but who audits local public services? And what do those auditors do?

    Local public bodies are audited by firms appointed as local auditors. Every year, they carry out their work auditing these bodies’ accounts and assessing the adequacy of their arrangements to secure value for money. They carry out this work in accordance with the Code of Audit Practice and, although the NAO doesn’t audit local public bodies, the Code they must follow is set by the Comptroller and Auditor General (C&AG) who leads the NAO.

    The law requires the Code to be reviewed at least once every five years, which meant a revised Code was due by April 2020. So, back in the summer of 2018 we started on the project to review and prepare a new Code.

    Our review of the Code

    The review of the Code came at an interesting time in the audit world, given both the increased level of interest in the audit profession more widely, and the announcement of a number of independent reviews across the profession. The review by Sir Donald Brydon and, more recently, the review of local authority audit and financial reporting being undertaken by Sir Tony Redmond. To add to this complex environment, the review started under the NAO’s previous C&AG but was to be completed under our new C&AG, Gareth Davies, who arrived at the NAO in June 2019.

    We wanted to ensure that we were engaging as widely as possible, so last Spring we began the first stage of our consultation process, seeking views about the issues people considered were relevant to the development of the new Code. We received over 40 formal responses to the first stage of the consultation and gathered further useful information from wider engagement through attendance at conferences and other events

    Having taken into account those views, we drafted the text of the new Code and undertook a further public consultation on the draft text in the autumn of 2019. The draft was further refined in light of this second round of feedback, and the final draft of the Code was then laid before Parliament in January 2020. It received approval in March and, almost two years after the project began, came into force last week. The Code applies to audits of 2020-21 financial statements onwards.

    What’s changed under the new Code?

    In the first part of our consultation, we received a lot of feedback telling us that people wanted auditors’ work to be more useful to the bodies being audited as well as the wider public, that reporting by auditors should be more timely, and that much of the language used by auditors was not readily understandable to a non-accountant.

    A significant proportion of these comments were made in relation to the work auditors do assessing and reporting on the arrangements that local audited bodies have in place to secure value for money. Unlike the NAO’s studies, where we report on whether value for money has actually been achieved, local auditors look at the overall arrangements that bodies have in place across a range of areas covering decision making, governance, and working with others through partnerships. From the consultation, it was clear that people wanted to see more information being reported from auditors’ work, and in particular in relation to financial sustainability.

    The new Code looks to address these issues by requiring auditors to issue an annual commentary on the arrangements that bodies have in place, under three focussed headings:

    • Financial Sustainability
    • Governance and Improving Economy
    • Efficiency and Effectiveness

    Where an auditor finds significant weaknesses in a body’s arrangements, they are expected to bring this to the body’s attention promptly, and to accompany it with clear recommendations setting out what the body should do to address the weakness. The commentary and recommendations will be set out in an Auditor’s Annual Report, that will bring together all of the work the auditor has undertaken in the previous year, including following up on recommendations made previously.

    Looking ahead

    For the NAO, the publication of the new Code is not the end of the story. Colleagues are now working hard to develop the detailed guidance that will sit underneath the new Code, and we’re again looking to consult the relevant sectors extensively as we take forward its development.

    I’m delighted that the new Code has now come into force and would like to thank colleagues in the NAO’s Local Audit Code and Guidance Team for their work in bringing the new Code into being, and to all of you who responded constructively to our various consultations over the last 18 months.  I look forward to seeing the impact that the approaches I’ve outlined here will have on helping to ensure that local public bodies continually improve their arrangements to make best use of their scarce resources.

    2020-21 will be a very challenging year for local bodies as they put in place all kinds of arrangements to cope, with the new reality presented by COVID-19 Coronavirus. Through the new Code, local auditors will have an opportunity to use their reporting to help their clients rise to the challenge.

    Get more information about the new Code of Audit Practice.

  • What’s it like to be Chair of the NAO?

  • Posted on March 4, 2020 by

    Lord Michael Bichard

    It’s difficult to believe that I have been the Chair of the NAO for nearly six years, but all good things come to an end. Because the term of office is limited by statute, I shall shortly be stepping down. In fact, the advert for my successor is now public. 

    This has been one of those jobs which I shall look back on with great affection. For a start it has allowed me to work with people of the highest quality who have a real passion for what they do. At the same time I have been able to stay close to the key issues of government and to play a part in shaping the direction and strategy of the organisation, at a moment when the independent role of the NAO has never been more important.  

    Whether through its financial audit or value for money work, the NAO has played a unique and invaluable part in safeguarding governance, promoting the more efficient use of scarce resources and clarifying the ever more complex accountability arrangements that now surround the delivery of public services. I am especially proud of the way in which we have maintained the quality of our work and courageously exposed failings when they have occurred. Without the NAO the public would have been much less conscious of the problems with universal credit, the cost and delays of Crossrail, the vulnerable state of local government finance and the mismanagement of several major IT projects. 

    At the same time, we cannot be complacent. As the previous Comptroller and Auditor General memorably said, “we have to be much more than mortuary attendants”. Rather, we need to play a full part in helping to improve the quality of public services and to use the knowledge and information we have to that end. That’s why I have constantly emphasised the need for us always to be looking to add value and to measure our success by the impact we make. Are things changing for the better as a result of our work? For me the answer to that question is still not enough.  

    As one of our stakeholders said during the current Strategic Review, “you know more than you tell”; using our knowledge to best effect has to be a priority as we move forward. In truth, any great organisation knows there is always more to do. That is why our strategic review is so important and why the arrival of a new Comptroller and Auditor General provides exciting opportunities.  

    I have greatly enjoyed working with two brilliant Comptrollers and my successor will want to quickly establish a strong relationship with Gareth Davies to support him in dealing with the many external challenges which the office will face as well as driving through the organisational changes we need. 

    Chairing the NAO is a privilege and a chance to make a difference to the way our public services are delivered. I am stepping down reluctantly, but I know there are others who share my passion for the work we do, and I hope that they will think about taking on the role. 

    Get more information on the role of NAO Chair.

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