Counting the cost of change

The audit regime for public-sector organisations is set to change forever in the wake of last month’s ‘Modernising Government’ white paper.

Local authorities and Whitehall departments face dramatic changes in their working practices, which in turn will force auditors to adapt the way they work to meet the challenges of auditing new structures and methods of public service delivery.

At the centre of current and future debate are the four national audit agencies – the National Audit Office, the Audit Commission, the Northern Ireland Audit Office and the Accounts Commission for Scotland – which have a watchdog role over UK public-sector finances.

The four agencies are working to cross boundaries and develop common standards for public audit. To this end they have established the Public Audit Forum, a melting pot of ideas and debate.

Leading the consultative aspect of the forum is the deputy comptroller and auditor general of the NAO, Robert Le Marechal. Keen to embrace change, Le Marechal believes flexibility is a desirable attribute in any public-sector manager, regardless of intervention by auditors.

‘Managers will often argue that they cannot do new and different things because of the shadow of audit,’ he explains. ‘But I have seen no evidence of this ever happening.’

The ‘Modernising Government’ white paper outlines changes which must be made. The attitude organisations’ have towards auditors are an important facet of this, Le Marechal says.

He adds that the NAO has always maintained it does not intend to stand in the way of innovation and plans to work with the government to get its message across.

Auditors have attempted to convince public bodies of their stance during investigations into the government’s controversial private finance initiative.

The failings of this innovative funding approach to public infrastructure projects, and the lessons that need to be learned, have been covered in numerous Commons’ public accounts committee meetings. Backbench MPs, always keen to sink their teeth into a government, have had a field day criticising civil servants for their poor financial management and unwillingness to adapt to change.

‘We will not rubbish people just for trying something new,’ says Le Marechal.

‘If we are going to carry out a value-for-money study of a new programme, we identify at the outset the criteria we are going to use to evaluate performance and agree those criteria with the body we are auditing. That ensures people there come in from the start and that they are signed up to the methodology when the report is published.’

As part of this approach to audit, risk identification will be crucial in the future, Le Marechal believes. ‘If a body has done something to identify its risks so that it can evaluate how it is doing but something comes out of the clear blue sky and causes its work to fail, then the auditor should not beat it up,’ he says.

Le Marechal suggests that in future, auditors will have to be more aware of the need to conduct their work fairly. ‘We have to judge them against what it was reasonable for them to manage their performance against,’ he says.

As the emphasis in auditing government services shifts from inputs to outcomes, performance measurement will become the focus of accountability.

The aim is to maintain public confidence that funds are spent properly and wisely.

The government is also worried about measuring performance because there is no equivalent to accounting standards in place to ensure propriety, according to Le Marechal. The forum is working to develop such standards so that the performance measures can be audited properly.

But that doesn’t necessarily mean opportunities to deliver better value for money should be missed. ‘Auditors can support and encourage worthwhile change while providing independent scrutiny and assurance, and effectively fulfilling their statutory responsibilities,’ says Le Marechal.

The forum is working with the Auditing Practices Board on an approach to auditing performance measurement. The NAO has established a directorate of performance measurement.

Increasing demands on auditors also mean they will have to rely more on the work of other audit bodies. Additionally, the number of tiers of audit which a public sector organisation could be subjected to will also increase.

‘It is about more than just avoiding all the auditors being there at the same time but rationalising the work and making everyone trust the work of other auditors,’ says Le Marechal.

The NAO already relies on Audit Commission work to produce the accounts for the National Health Service and the trend is set to increase, Le Marechal believes.

But perhaps the biggest problem facing government is a shortage of skilled, public sector accountants. Private sector auditors are likely to be increasingly in demand – particularly when resource accounting systems go live in government departments in the next two years.

Staff shortages in accounts departments as well as among auditors will inevitably mean that the private sector has a bigger role to play in the public sector. Firms such as KPMG are winning more contracts to undertake public sector audit work. The Audit Commission has just reappointed the Big Five firm as auditor of two NHS trusts.

As Le Marechal explains: ‘There are too few accountants in financial management in the public sector.

As the various government departments introduce resource accounting, they are finding the need for more qualified accountants and they do not have enough yet.’


The first major piece of work undertaken by the Public Audit Forum, whose work is co-ordinated by NAO deputy chief Robert Le Marechal, focuses on the implications for audit of the modernising government agenda.

Since its establishment in October last year, the forum has been decidedly quiet. But it is now breaking that silence by drawing attention to public audit issues.

The forum comprises the four UK public-sector audit bodies – the National Audit Office, the Audit Commission, the Accounts Commission for Scotland and the Northern Ireland Audit Office – and aims to provide a focus for thinking on public audit.

Its basic remit is to build co-operation between the national audit agencies to enhance the effectiveness of the public audit regime and to focus on common issues to develop audit standards.

Le Marechal chairs the forum’s consultative group. He advocates closer integration between the different tiers of government, including those bodies which are subjected to audit investigation.

‘There are common standards across the public sector which the forum aims to promote,’ Le Marechal says. ‘It is also important that the bodies being audited know what to expect and what special factors apply to public-sector audit that do not apply to the private sector as well.’

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