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The effectiveness of internal audit in central government

The National Audit Office has today published a report examining the effectiveness of internal audit in central government, covering both main departments and their associated arm’s length bodies.

Government is not getting the most out of the £70 million it spends on internal audit because the service does not always focus on the right issues and it is often not of sufficient quality to be useful in decision-making.

According to today’s report, Chairs of Audit Committees and other senior stakeholders expect more from their internal audit service. Although 84 per cent of respondents to an NAO consultation considered internal audit added some or substantial value to their organization, they had concerns over the current depth of insight, relevance and underlying execution of internal audit work. Many key stakeholders believe that internal audit work is not sufficiently tailored to be relevant to the different issues facing individual organizations.

Treasury guidance on what internal audit should deliver is not sufficiently specific, leading to expectations of internal audit being unclear. There is little consistency in the application of standards. Variations in quality and coverage mean that the NAO often cannot take assurance from internal audit work, and it is often of insufficient scope or quality for the spending watchdog’s external audit work.

There are specific areas where internal audit could be more effective. Users of internal audit identified particular gaps in such areas as the usefulness and relevance of reports; the expertise of staff, including expertise on IT-based information systems; the identification of efficiencies in the organization; and the ability to offer advice to senior management. Some 40 per cent of stakeholders thought some or substantial improvement was needed in the expertise or professionalism of internal audit.

HM Treasury’s Internal Audit Transformation Programme is a partial solution to the issues identified by the NAO, but the project does not consider, in sufficient detail, what should be expected of an effective internal audit service. Nor does the Treasury have an accurate view on the costs of internal audit in government.

"Good internal audit should be the 'eyes and ears' of senior management, giving honest and clear information. However, in central government, it is not delivering consistently at this level. "There needs to be a clearer statement of the important role of internal audit from the Treasury on one side and a determined move to deliver internal audit’s full potential across government on the other."

Amyas Morse, head of the National Audit Office

Notes for Editors

  • Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  • The National Audit Office scrutinizes public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of more than £1 billion in 2011.

PN: 33/12