The Department is required to consolidate all academy trusts that were open during the relevant academic year into a set of consolidated financial statements with a 31 August year-end, known as the Academies Sector Annual Report & Account (SARA).
The Comptroller and Auditor General is the appointed auditor of the SARA and the National Audit Office performs these audits on his behalf. We, as group auditors, have issued this document in relation to academy accounts for the relevant reporting period. The amount and nature of the data that the Department is collecting from academies has not changed substantially from last year, therefore the degree of assurance work will be similar.
The document aims to provide an understanding of: an academy auditor’s role in the SARA; the NAO’s expectation of them in our role as group auditor; and an understanding of the risks of material misstatement in the group financial statements. The document captures our requirements, as group auditor, in accordance with International Standards on Auditing and Practice Note 10.
For more information:
Department Academies Accounts Direction 2020-21 (external link to GOV.UK Guidance)
A plan by the Department for Business, Innovation & Skills to reduce complexity and administrative burdens in the further education and skills sector, despite improving some processes, has had only limited impact on providers’ costs, according to a report by the National Audit Office.
Education providers receive around £7 billion of funding each year, mainly through the Department for Business, Innovation & Skills, the Department for Education and the Department for Work & Pensions. This supports around 4.2 million learners. Funding is complex, because different bodies fund different types of learner.
In 2012, in the light of reports by the National Audit Office and Public Accounts Committee, the Department for Business, Innovation & Skills developed a plan to simplify the administrative burden on the sector. The National Audit Office had estimated that the cost to the sector of complying with funding, qualifications and assurance requirements could be around £250 million to £300 million a year and that substantial savings could be made by reducing bureaucracy. In today’s report, the National Audit Office estimates that changes subsequently overseen by the Department have produced quantifiable savings of only around £4 million a year.
Today’s report finds that the Department for Business, Innovation & Skills has not done enough to streamline funding and assurance arrangements. Much of the cost to providers stems from having multiple funding routes. The two main funding bodies, the Skills Funding Agency and the Education Funding Agency, apply different funding principles, potentially to learners on the same course.
The Department for Business, Innovation & Skills does not know the overall cost to providers of dealing with funding and assurance requirements, and therefore cannot say whether compliance costs are rising or falling. The Department has also done little to estimate the likely costs of complying with forthcoming changes, which may make funding and accountability arrangements more complex.
Education providers acknowledge that there have been some positive steps to streamline processes, but most providers felt that the overall administrative burden was either worse than, or no different from, that experienced before the Simplification Plan.
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On 3 July 2013, the Committee of Public Accounts took evidence on the use of confidentiality clauses and special severance payments across government. The Committee decided to hold a further hearing to allow time for the Treasury to develop proposals to improve government’s approach to the use of compromise agreements within the public sector, and the National Audit Office to complete further work on the use of confidentiality clauses and severance payments in the culture, media and sport sector, defence sector and the health sector. This report gives the results of that further work.
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The Treasury is continuing to improve the Whole of Government Accounts (WGA), which shows in a single document the overall financial position of the UK public sector. Since the National Audit Office last reported, the Treasury has taken forward a number of initiatives to improve the robustness, timeliness and quality of the WGA and to help the Government use the document to inform its understanding of its financial position.
The most significant achievement for this year has been in the timeliness of the delivery of the WGA. The Treasury has published the WGA 2013-14 within 12 months of the reporting date, the first time that the WGA has been published so quickly. This is a significant step forward for the WGA and will provide more effective transparency and accountability for how public finances are managed.
However, the head of the NAO, Comptroller and Auditor General Sir Amyas Morse, has again qualified the WGA because of continuing issues with the quality and consistency of the data included; and has again expressed concern that bodies such as Network Rail continue to be excluded even though accounting standards require their inclusion. The NAO points out that Sir Amyas’s audit opinion on the 2013-14 WGA is similar to that of previous years. However, he also notes that the Treasury has plans in place to resolve most of the underlying issues leading to qualification and that it may be possible to remove a number of qualifications in the next three years.
The Treasury has, in particular, made significant progress in improving the quality of the data within the WGA through its management of the range of transactions that are made within the boundary of government, termed intra-Group transactions. The Comptroller and Auditor General is hopeful that the Treasury can maintain progress so that he can lift this qualification next year.
The latest set of accounts, the fifth to be published by the Treasury, shows that net expenditure (the shortfall between income and expenditure) decreased by £30.1 billion to £148.6 billion largely owing to an increase in taxation revenues and stabilisation of overall expenditure. Direct expenditure (money spent in the direct delivery of the Government’s policies) fell for the first time since 2010-11, by £2.2 billion in 2013-14 to £663.6 billion, mainly because of a reduction in provision expenses offset by increases in the purchase of goods and services. Within this overall expenditure, public sector staff salaries have fallen for the first time to £146.4 billion from £147.6 billion and the overall cost of benefits has also fallen to £213.4 billion from £215 billion.
Net liabilities (the shortfall between asset and liabilities) increased to £1,851.8 billion (at 31 March 2014) from £1,627.9 billion (at 31 March 2013) largely as a result of increases in public sector pension liabilities of £130 billion and government borrowing of £99.9 billion.
The WGA is one part of a wider set of processes which Treasury uses to manage significant risks to public finances. The Treasury has improved its analysis of the trend data within WGA, which is starting to reveal the impact of fiscal consolidation and improvements in the performance of the economy. For example, WGA shows the effect on salaries of reductions in public sector staffing; the process of restructuring the benefits regime; and the increases in revenue flowing through from the emerging economic recovery during 2013-14. The Treasury’s analysis of trends in government assets and liabilities should be enhanced to demonstrate the full financial impact of changes in the delivery of public service in the next Parliament.
The Treasury is taking steps to make disclosures in WGA more detailed and transparent. However, there is more to be done, particularly in relation to the disclosures on the purchase of goods and services; the risks related to borrowing; and fraud and losses across government. Enhancing disclosures in these areas will help the reader to see how government spends taxpayers’ money; assess the impact of the government’s management of the economy on borrowing; and understand the main sources of financial losses.
]]>The Office for Students (OfS) has regulated the higher education sector since 2018 and is sponsored by the Department for Education (the Department). The OfS’s objectives include helping students access education, ensuring they have a high-quality experience, making sure they can progress into employment or further study, and ensuring they receive value for money. Should higher education providers become financially unsustainable or unviable, students would be adversely affected in all these areas. The COVID-19 pandemic added to existing financial stress in the sector, and began when the OfS was still relatively new.
The proportion of higher education providers with an in-year deficit increased from 5% in 2015/16, to 32% in 2019/20. Financial stress is not confined to one part of the sector; the 20 providers that have had a deficit for at least three years range in size from 200 students to more than 30,000. During 2020/21, 33 out of 247 providers (13%) had forecast that, by the end of the year, they would not have enough money to continue to fund at least 30 days’ expenditure from their cash or credit facilities.1
Short-term financial risks in the higher education sector are dominated by the COVID-19 pandemic, but medium- and long-term risks are more deep-seated. The pandemic meant higher education providers had to invest in new ways of teaching, while dealing with risks that they would lose income from a fall in international student fees, conferences, accommodation and research. Some providers are highly dependent on fees paid by international students and face financial risks that pre-date the pandemic. In addition, valuations of pension schemes (particularly the Universities Superannuation Scheme) indicate that higher employer contributions will be needed.
The OfS makes good use of the financial data it collects, analysing it in a systematic way to identify which providers require closer scrutiny. In addition to collecting detailed annual financial and performance data, the OfS requires providers to report events such as breach of conditions associated with loans, changes to teaching provision, or other events that might increase financial risk. During 2021, the OfS identified 98 out of 245 providers (40%) for detailed review of their financial viability and sustainability. The OfS has undertaken some financial analysis and scenario modelling of key risks but it does not yet have an integrated model to assess the impacts of long-term financial stress in the sector. Its heavily data-driven approach to assessing financial risk does not yet have the full confidence of all providers. As at December 2021, the OfS had made 10 providers subject to enhanced monitoring because of concerns about increased risk to their financial viability.
The Department and the OfS have not yet been successful in achieving a good understanding among providers of why the OfS collects all the data it does, and how it uses it. The sector bodies and providers that that the NAO spoke to said the OfS did not routinely speak with most higher education providers, leading them to doubt whether the OfS had all the information needed to put financial data into context. The OfS considers it has engaged with providers sufficiently to understand risks to their financial sustainability. Early in the COVID-19 pandemic, the OfS spoke to most higher education providers to understand how they were responding to new pandemic-related risks, which was well received.
During the COVID-19 pandemic, the OfS found that it needed stronger powers to intervene to protect students’ education if providers were at risk of going out of business. It found there were common weaknesses in student protection plans2 – including providers being over-optimistic about the risks they faced, lack of detail about what specific actions providers would take, and weak refund and compensation policies. Student satisfaction fell sharply between 2020 and 2021, when pandemic lockdown measures were in place. In a survey in early 2021, 33% of undergraduates said they thought university offered good value for money and 54% thought it did not. In April 2021, the OfS adopted new powers that allow it to direct providers at risk of market exit to implement specific measures to protect students.
A-level grade inflation distorted the higher education market, and increased financial risk for some providers. The Department’s adoption of grades assessed by schools and teachers in place of examinations in the summers of 2020 and 2021 meant more students were eligible for places at their first-choice provider. This caused challenges for both oversubscribed and undersubscribed universities.
The NAO recommends that the Department works with the OfS to agree how best to measure the impact of the regulatory regime for the higher education sector. OfS should communicate more effectively to build trust in its approach as a regulator, and should be more ready to share sector insights to improve efficiency in the sector.
]]>The National Audit Office is calling on the Treasury to be rigorous and objective in assessing whether government guarantees for new UK infrastructure projects are genuinely needed and the projects are likely to bring significant public value.
The UK Guarantees scheme was introduced in 2012 because of adverse credit conditions, to avoid delays in investment in UK infrastructure projects that may have stalled. Since then, market conditions have improved. In today’s report, the NAO considers that the Scheme can play a role in enabling progress in some significant infrastructure projects. The Treasury has assembled an experienced commercial team and internal governance arrangements to measure and manage risks to the taxpayer.The Scheme is currently due to close in December 2016 and can support up to £40 billion in finance.
Under the Scheme, the Treasury guarantees that lenders to infrastructure projects will be repaid in full and on time, irrespective of project performance. The Scheme transfers project risk to government and ultimately the taxpayer, in return for a fee. Once the Treasury has issued a guarantee it cannot withdraw it or change the fee if project risk or market prices change. The length of exposure varies greatly: five years for an ethane import and storage facility at Grangemouth, up to 29 years in the case of the Mersey Gateway Bond and 44 years for the new University of Northampton campus.
The Treasury launched the Scheme in 2012, when private finance for infrastructure had been heavily constrained. Although market conditions have improved considerably, the Scheme continues to support lending for new infrastructure projects. To date, the Treasury has guaranteed £1.7 billion of finance across 8 projects and ‘prequalified’ (deemed eligible for support) 39 more projects. The prequalified projects have a total value of £34 billion, equivalent to 7% of the investment identified in the most recent National Infrastructure Plan (£466 billion) and could result in up to £24 billion in guarantees, including the Hinkley Point C nuclear power plant (up to £17 billion). The Scheme means that the Treasury was in effect the second most active lender to new UK infrastructure projects in 2014.
The Treasury intentionally designed the Scheme to be flexible and there is no upper limit on risk. Guarantees are available for projects meeting a broad definition of infrastructure (spanning energy, transport, health, education, courts, prisons and housing). The NAO found that the Treasury does not apply its eligibility criteria strictly, since it has not put in place objective tests to check whether projects genuinely need a guarantee. For example, the Treasury supported one £8.8 million project (to install energy saving lighting in 150 car parks) that is of a scale that cannot reasonably be described as meeting its ‘nationally significant’ test.
In providing guarantees, the Treasury does not consider the overall value for money of the projects, but uses a narrow test that the guarantee fee must represent a market price for the risk[1]. The NAO does not, however, have full confidence in the reliability or completeness of market benchmarks to measure actual risks to the taxpayer.
Investors in government guaranteed debt usually receive a higher return than on government gilts even though the credit risk is the same (this reflects that guaranteed debt is less easily tradable than government gilts, reducing its attractiveness to some investors). The Treasury assumes guaranteed debt will typically be priced at 0.5% above gilts, although it has achieved better results when the debt has been competitively auctioned. Based on the use of the Scheme to date and the expected take up until it closes, the illustrative extra cost through using guarantees as opposed to direct lending could be between £35 million and £120 million a year, with and without Hinkley Point C.
[1] To comply with European State Aid guidance the Scheme is not intended to provide subsidised loans to infrastructure projects
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There are various models of the commissioning cycle. For example, the NHS model uses nine elements within three broader stages – strategic planning, procuring services, and monitoring and evaluation. The Institute for Public Care model is based upon four key performance management elements – analyse, plan, do and review.
The National Audit Office (NAO) model highlights those elements of the commissioning cycle where we think that a good relationship with third sector organisations (TSOs) has a significant impact on helping commissioners achieve good value for money. Our guidance is organised around these elements.
Source: National Audit Office
A text description of the model (pdf – 21KB) is available.
TSOs vary greatly: some are community or user-facing organisations; some have an advocacy role, either alone or as part of wider services to the community and users; some work in partnership or as federated bodies; and TSOs also vary in their size, from volunteer-led community groups to large national organisations, from small self funded bodies to major social enterprises. It is partly this variety that enables the sector to bring the benefits that it does to delivery of public services.
Although the model describes TSOs (and others) as service providers, many TSOs have an important role as advocates for the needs and services required by those people that commissioners have to provide for. We say more about this under ‘Assessing Needs’.
Successful commissioning toolkit: Table of contents
What are third sector organisations and their benefits for commissioners?
]]>This section summarises sections on risk management in “Intelligent Monitoring: an Element of Financial Relationships with Third Sector Organisations” published by the National Audit Office in 2009.
Any financial agreement carries some risk [Note 1]. Manage risk, do not seek to eliminate it. This would be both impractical – since the cost of removing all risk may be far more than the cost of risk if it materialises – and undesirable – since well-managed risk taking also presents opportunities to innovate, experiment and develop new ideas where more traditional ways of working are not able to deliver real change.
Some programmes are inherently risky – for example, because they deal with an innovation that may not work as hoped. You and your governors (Ministers, councillors, Board members etc) need to be clear about the level of risk you are prepared to take [Note 2].
Depending on the nature and confidentiality of such risks, you may involve stakeholders, including potential providers, in this work. For some programmes, there is a risk committee, with external members, to help with this.
Risk management needs to be done throughout the period of a financial agreement [Note 3]. The first stage is to identify the risk before the financial agreement is put in place [Note 4]. This will help you make decisions further into the process. You should reassess risk on a regular basis to identify new risks that have arisen, changes in existing risks, or risks that have ceased to be relevant.
There are four types of risk [Note 5]:
At the start of the financial agreement, you should agree a risk register with the provider. To save on duplication of work, you should draw on any risk register the provider already has.
Once the risk register has been drawn up, it provides a basis for monitoring [Note 4]. This can be done by periodically updating and circulating the register. If the assessment of risk remains the same, no further special action is needed. If risk is assessed as greater, defences against risk (identified in the risk register) will need to be deployed. These may require more focused monitoring but are likely to need closer management and action – possibly even termination of the financial agreement.
Notes
Note 1: Improving Financial Relationships with the Third Sector: Guidance to Funders and Purchasers (pdf – 696KB), HM Treasury, National Audit Office, Office of Government Commerce, 2006.
Note 2: Known as ‘risk appetite’. See chapter 5: Risk Appetite, The Orange Book: Management of Risk – Principles and Concepts (pdf – 473KB), HM Treasury, 2004.
Note 3: The Orange Book: Management of Risk – Principles and Concepts (pdf – 473KB), HM Treasury, 2004.
Note 4: HM Treasury, Managing Risk with Delivery Partners
Note 5: The first three are drawn, with small changes in terminology, from Good Practice Contract Management Framework (pdf – 202KB), National Audit Office, 2008. The fourth type is identified in HM Treasury, The Orange Book: Management of Risk – Principles and Concepts (pdf – 473KB), HM Treasury, 2004.
Successful commissioning toolkit: Table of contents
This briefing paper presents the Committee with an overview of regulatory reform, the background to the system and the recent work that the National Audit Office had conducted in the area.
The role of the National Audit Office is to apply the unique perspective of public audit to help Parliament and government drive lasting improvement in public services. We have scrutinised and reported on government efforts to reform regulation over the last ten years.
This paper is not intended to provide an overall assessment of regulatory reform but simply to illustrate, with examples, the range of our work. It sets out:
We have supported the Regulatory Reform Committee several times in recent years. We have most recently provided assistance with the Committee’s inquiry into Themes and Trends in Regulatory Reform, for which we also provided a formal briefing paper. Since the inquiry, we have provided a further paper on government efforts to reduce bureaucracy on public sector frontline workers. The National Audit Office will continue to support select committees in 2010-11, supporting specific inquiries where our expertise and perspective can add value.
October 2010
]]>A National Audit Office report to Parliament has found that the Government’s Programme has made progress and that, as of April 2009, 86 per cent of homes in the social sector were classed as decent. The Programme has also brought wider benefits such as improved housing management, tenant involvement and employment opportunities.
There is however much left still to do. The original target was that all social sector homes would be decent by 2010, but by November 2009 the Department was estimating that approximately 92 per cent of social housing would meet the standard by 2010, leaving 305,000 properties ‘non-decent’. 100 per cent decency would not be achieved until 2018-19.
The National Audit Office has concluded that there are weaknesses in the information collected by the Department, warning that information gaps create a risk to value for money. Weaknesses in the Department’s information are illustrated by uncertainties over the total cost of the Programme to itself or to the sector and the number of properties improved.
The Department is committed to funding the Programme and is currently reviewing the funding mechanism. But, unless a plan is put in place to appropriately fund housing repairs, there remains a risk that a backlog will again build up, reducing the value for money of what has been achieved so far.
]]>The National Audit Office conducted a survey which found that 61 per cent of PFI contracts which have been let to date did not have contractual arrangements to share refinancing gains. These are the gains which arise from more favourable financial terms negotiated between the private sector PFI contractor and their lenders as the risk in the project diminishes. In its survey the NAO was informed of 12 completed PFI refinancings from which departments had secured benefits of at least £17 million out of total gains of about £65 million. But the NAO also found evidence that some refinancings have taken place without departments being aware.
To address these problems the OGC issued revised guidance in July, addressing future PFI deals, where refinancing gains are to be shared 50/50. It also launched in October, with CBI support, a code of practice to help departments to secure 30 per cent of future refinancing gains on most early PFI deals. Over the past two years the OGC has been changing the approach of departments and the market so that 50/50 sharing of refinancing gains has been adopted in most contracts let since June 2001.
These new measures by the OGC followed the publication in June 2000 of the NAO’s report on the refinancing of the Fazakerley prison PFI contract. The NAO report, and a subsequent report by the PAC, highlighted that there are opportunities for the private sector to generate significant benefits from refinancing PFI projects. Better financing terms can be obtained once the initial risks of introducing the required service have been dealt with and early PFI projects can also take advantage of the better terms that are available now that the PFI market has become established.
Included in the NAO’s recommendations are that the OGC should take steps to ensure departments are fully aware of the refinancing issues covered in the OGC’s new guidance and departments should obtain information from their contractors about their financial situation to ensure departments are aware of all refinancings for which the benefits should be shared.
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The National Audit Office concluded that Postcomm, aided by the new consumer watchdog Postwatch, have made a good start, setting out clearly what they are seeking to achieve, undertaking extensive consultations and issuing six licences in what was previously the Post Office’s monopoly area. But there are clear tensions between Postcomm’s objectives which lead to a number of risks.
Postcomm are shortly to publish a consultation document containing their proposals for opening up the market to competition and so addressing these two risks. In doing so, they will need to show that their proposals will indeed encourage competition, whilst providing sufficient assurance that the universal service will not be damaged by what they propose.
The National Audit Office note that Consignia provides an extensive service which is relatively cheap and well regarded. But Consignia has rarely met its delivery targets in recent years, has experienced deteriorating profitability and faces serious industrial relations problems. Until there is effective competition, Postcomm will need to regulate Consignia’s prices and quality of service directly through the licence they issued to the company in March 2001. In carrying out this task, Postcomm run the following risks:
In a joint initiative the two audit organisations have looked at consumer protection in the round, the National Audit Office focusing on the central responsibilities of the Office of Fair Trading and the Audit Commission focusing on the activities of the local trading standards services*.
* Measure for Measure: The Best Value Agenda for Trading Standards Services, a report by the Audit Commission, can be obtained directly from the Audit Commission.
The National Audit Office’s report to Parliament considered how well the OFT protect the consumer by licensing consumer credit businesses; by combating unfair terms in consumer contracts; and by acting against traders who persistently flout their legal responsibilities. Many retailers, most motor traders, many debt collectors and all high street banks and mortgage brokers need a consumer credit licence, and there are currently some 150,000 active licence holders.
The National Audit Office reports that the OFT publish high quality advice for consumers; they have combated specific unfair practices by issuing guidelines backed by the threat of revoking traders’ consumer credit licences; and their work to combat unfair terms in consumer contracts secured savings for consumers in 1998 of at least £100 million, or fourteen times the cost of the OFT’s consumer protection work. The National Audit Office report highlights room for improvement, however, and in particular that:
In July 1999, the Government announced a fundamental review of the OFT’s consumer affairs functions. Many of the issues highlighted by the NAO report are being considered as part of the review, including how the OFT work with local trading standards services.
The National Audit Office worked closely with the Audit Commission in preparing its Report. The National Audit Office’s findings and conclusions are informed by surveys of consumers, used car dealers, and local authority trading standards services. The National Audit Office also consulted widely with trade associations, business and consumer representatives including Consumers’ Association and the National Consumer Council.
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