helping the nation

spend wisely

A N N U A L

R E P O RT

2 0 0 1

key successes
1.4 billion saved by our work over the past three years Exceeded our target of saving 8 for every 1 spent on running the office 53 major reports to Parliament covering topics from the Millennium Dome to tackling the problem of obesity 650 billion of government expenditure and revenue audited in 2000-01 An NAO manager - Karen Taylor - won Central Government category at the Public Servants of the Year Awards Comptroller and Auditor General appointed as auditor of the Learning and Skills Council and the Postal Services Commission Hosted major good practice conferences on: hip surgery, further education, PFI, and risk management.

key factor in securing improved value for money in the public sector is to study and learn from success. Public sector auditors are well placed to play an important role in this. The wealth of information we collect during the course of our work allows us to identify the hallmarks of success, develop guidance on best practice and prompt improvements in public services. This approach maximises the benefit from our core audit work which is designed to assess whether public money has been spent wisely and properly. Emulating success is increasingly important in our work. In professional football we look at the leaders of the Premiership if we want to learn, not at those struggling in the Third Division. In business, we learn from high-performing companies not those heading for insolvency. But the public sector has tended to concentrate on failure. In the National Audit Office we have been putting a greater focus on studying successful programmes and endeavouring to pull out key factors that have made the difference. It is encouraging that there are so many success stories in the public sector from which we can learn. Two examples from the past year illustrate the point. In our study on construction procurement we highlighted an imaginative primary school building project where, through greater integration of the design and construction stages, a high quality, sustainable school has been built that has met with enthusiastic approval from users. Secondly, in looking at the Radiocommunications Agency's joint venture with the private sector we found it to be a bold and innovative partnership leading to better delivery of services and allowing advantage to be taken of wider markets. As well as seeking to identify the characteristics of success, we have also looked afresh at how we ensure the messages arising from our work are heard by the people delivering public services, the people who can make changes happen. Our work on risk management is a good example. In our

focusing on success
The Comptroller and Auditor General's Introduction
Report for Parliament published last year, we identified the key requirements of risk management, each of which we illustrated with examples of where this had been done well. In doing this we drew out success factors from specific cases in the Home Office, Highways Agency and Public Record Office. We followed this up by organising a conference on the subject earlier this year, which was attended by top officials from across government. Thinking about success in a slightly different context, it has certainly been an excellent year for the National Audit Office. We have audited accounts covering 650 billion of income and expenditure, and produced 53 value for money reports. The financial savings that we have achieved over the past three years have risen to 1.4 billion which means that we have, again, more than met our target of saving 8 for every 1 that the office costs to run. The sections in this report illustrate the breadth of our work and the impact we achieve. For example, we have produced two major reports on the UK response to the conflict in Kosovo: one on the financial management of the military operation and the other on the humanitarian assistance provided by the United Kingdom. In carrying out this work we saw at first hand the magnificent contribution that our military and aid personnel had been able to make in Kosovo. In a different sphere of our work we produced, in quick time and under an intense media glare, the first comprehensive analysis of the problems experienced at the Millennium Dome. The breadth and impact of our work bear testimony to the skills and commitment of our staff. I am delighted that Karen Taylor, a manager on health value for money studies, won the Central Government award at the inaugural Public Servants of the Year Awards. Karen's work on hospital acquired infection has led to significant improvements in the way the NHS deals with this problem. It is a good illustration of how our work can bring about improvements for the citizen as well as save money. In order to do this we recruit and train talented people from a wide range of professional backgrounds. We carry out our work at a time of rapid and constant change in the way public services are delivered, but this year we have seen the successful implementation of a seismic change in the financial accounting and reporting of central government activity. The new, more commercial-style, resource accounts represent real progress and the complexity and significance of the change should not underestimated. I am pleased that our team of over 400 professional accountants and trainees working on financial audit were able to play a very positive part in bringing this change about. The next major challenge is to consolidate these into a single account for the whole of government and we are helping with preparations for the 2001-02 'dry run' central government account. Our own role came under scrutiny in the past year when the Government commissioned Lord Sharman to carry out a review of central government audit and accountability. The report was published in February and it makes important recommendations for the future. We will do all that we can to implement the review in full and we look forward to the Government's response to it in due course. One of Lord Sharman's recommendations was for the National Audit Office to be appointed automatically as the auditor of all newly-created executive nondepartmental public bodies. We are pleased that this has been happening in practice, for example we were recently appointed as the auditors of the Learning and Skills Council and are working with the management of this new body, and others such as the Postal Services Commission, to prepare for the audit of their first set of financial statements. In the coming year our priority will again be to present Parliament with high quality work that adds real value to the accountability process whilst also providing those we audit with the best possible service. We always aim to make our contribution as constructive as possible and to make recommendations that will make a real difference to the quality of services delivered to citizens. We will do this by continuing to be very keen students of success and proponents of good practice.

our work
The accountability process
NAO report
Our reports are presented to Parliament and published

Our independence
The C&AG is an Officer of the House of Commons, appointed by the Queen on an address proposed by the Prime Minister with the agreement of the Chairman of Public Accounts Committee and approved by the House of Commons. He appoints the 750 professional staff of the NAO (Award winning staff, page 20) who are not part of the civil service. Our budget is set by Parliament and the Public Accounts Commission appoints our auditors and scrutinises our performance (Quality and efficiency in the NAO, page 22). We have comprehensive, statutory rights of access to the bodies we audit.

PAC hearing

The Committee of Public Accounts (PAC) holds evidence sessions on most of our reports at which they question the senior officials responsible

PAC report

The Committee publishes its detailed recommendations which are aimed at ensuring lessons are learned and mistakes not repeated

Our role
We audit all aspects of central government spending and provide a detailed insight into the performance of public services. In doing so we provide assurance to Parliament and prompt savings for the taxpayer (Accountability and performance improvement are complementary, page 6).

Government Response

The Government publishes its response to each of the Committees recommendations

NAO/PAC Follow Up

We monitor the implementation of NAO and PAC recommendations

as Parliaments watchdog
Financial audit
The C&AG, with the NAO's support, is responsible for auditing the financial statements of all Government departments and agencies and reporting the results to Parliament. We also audit a range of international agencies (A presence on the world stage, page 18). Each year we audit some 550 accounts. In 2000-2001 we also audited 90 Departmental Appropriation Accounts which are being phased out as a consequence of the transfer of central government accounts to more commercial-style resource accounts. At the end of each audit we form an opinion about whether the financial statements are free from material mis-statements and whether the transactions in them have appropriate Parliamentary authority. If we identify material mis-statements, the C&AG will issue a qualified opinion. In 2000-2001 we qualified our opinion on 20 of the accounts we audited. When the C&AG's opinion on an account is qualified, or when there are other significant matters arising, we prepare a report for Parliament. And in all cases we write to the audited body at the end of the audit to outline our findings and where improvements in their systems could be made. (Working to provide the best audit service, page 10). Such 'management letters' often lead to significant changes (Securing change, page 14).

Value for money work

Value for money examinations look in detail at specific central government programmes and activities in order to assess performance, identify good practice and suggest ways in which public service could be improved (A real concern for the citizen, page 12). They involve consideration of economy (minimising costs), efficiency (maximising the ratio of outputs to inputs) and effectiveness (actual outcomes compared to what was intended). Our work assesses the way Government policies are implemented but cannot question the policies themselves. We identify topics for examination by carefully monitoring and analysing the risks to value for money across the whole range of central government spending. A key factor is where most value can be added by our scrutiny. The C&AG decides which studies should go ahead and, in doing so, he takes into account the views of the PAC. Our study programme is continually evolving and flexible - subjects can be added at short notice if there is thought to be a good case (Fast track work as events unfold, page 8). We seek to ensure that our reports are balanced and fair. We therefore discuss our emerging findings and draft reports with the bodies concerned to ensure the accuracy and completeness of the evidence on which we base our conclusions and recommendations. In this way we make sure that Parliament has the benefit of a report based on agreed facts for the PAC to take forward.

Tackling Obesity in England

As part of this major investigation we: brought together a panel of eminent experts to advise us; consulted a wide range of voluntary bodies; used leading academics to provide the first authoritative estimates of the human and financial costs of obesity; surveyed all health authorities, 1,200 GPs and 1,200 practice nurses; and took a cross-government look at the issues involving all the departments concerned. This gave us a comprehensive understanding of the issues enabling us to report a strong, clear and authoritative set of findings Parliament. This included assessment of how well, and consistently, the problem is tackled across the NHS, and how well Government departments including those dealing with education, sport, transport and food standards - are working together on the issue. This knowledge was the basis for a series of recommendations. For example we recommended that the Department of Health draws up guidelines for the management of overweight and obese patients in primary care and we provided an outline of what we think should be in the guidelines. Another recommendation was that the Department should lead a new crossGovernment strategy to promote the health benefits of physical activity. Our obesity team (l to r): Natasha Walton, chartered accountant; Rob Prideaux, health expert and chartered public finance accountant; James Robertson, health expert and economist.
6

accountability and improvement are

n essence our role is twofold: reporting to Parliament on government spending and revenue collection, and bringing about beneficial change in public services. While at first glance it might appear that these are entirely distinct, in fact we find they complement each other very well. Much of our work involves an in-depth look at a particular spending programme. In doing this we require a comprehensive understanding of the processes involved and of the wider environment in which the activity is taking place. Often we look at how other organisations public sector, private sector and from overseas - approach similar activities to gain a wider perspective on what constitutes good practice. All this puts us in a position to make an informed and intelligent assessment for Parliament of how well the resources are being used. But, as part of making this assessment, we invariably are able to identify a range of practical improvements that could be made to the programme concerned. Our work on obesity is a good example of how our two roles combine very well.

Financial impact
As a result of our 20 reports on a wide range of Private Finance Initiative contracts and a general report, Examining the Value for Money of Deals under the Private Finance Initiative, the OGC has agreed that overall savings to date from improved approaches to subsequent PFI deals arising from the NAO's work total 173 million of which 124 million arose in 2000. This is based on a methodology which we developed jointly with the OGC in 1999. Our reports have been widely read by the public sector officials engaged in taking forward PFI projects. An example of this was our report on the refinancing of the Fazakerley PFI Prison which has raised important issues for the public sector to consider on the sharing of refinancing gains. The OGC has continued to draw on our experience in developing new guidance for departments on refinancing, contracts terms and other PFI matters. We have also run a programme of seminars for departments to help them derive benefits from our PFI reports.

performance complementary
A further case in point is our report on the Radiocommunications Agency's joint venture with the private sector to establish a radio spectrum consultancy. This innovative arrangement was the first of its kind and therefore in making judgements about it we took account of the absence of other experience on which the Agency had to draw. The focus of our report was on drawing out lessons for future joint ventures. The switch to a new form of accounting in central government resource accounting - has been a major focus for us and the bodies that we audit over the last few years. Again our approach has showed how we can combine our two roles well. As the auditors of central government we give an independent assessment of whether the financial statements are "true and fair". At the same time we have been advising audited bodies at all stages on accounting and reporting matters as well as what we, as auditors, will be expecting from them. In many organisations our input has been vital in enabling them to establish sound systems for producing the new accounts.

We take opportunities to make a helpful contribution to the running of government where we can do this without compromising our independence. For example we were pleased to put our name, along with the Treasury, Cabinet Office, Audit Commission and Office for National Statistics, to the recent Framework for Performance Information which promotes the coherent development of better performance information across government, and hence better public services. Another good example is our work with the recently-created Office of Government Commerce (OGC). Our financial auditors have been working with them to ensure that the right systems are in place to ensure financial control and the production of reliable accounts. Meanwhile we have produced three value for money reports - on procurement, construction and professional services - which complement the OGC's modernising agenda. And we have commented on their draft guidance and participated in key working groups, such as that seeking to improve the way public bodies work with suppliers to improve the success of government IT systems.
7

The Millennium Dome

The Millennium Dome was funded by a combination of lottery grant, sponsorship income and income from an expected 12 million visitors. Each year since 1997 in our reports on the annual accounts of the Millennium Commission, we had drawn attention to the Commission's exposure to the risks inherent in the Dome project. It was clear from early in the Millennium Dome's year of operation that trading was not going as planned. An additional grant was required in February and even the revised, smaller target of 10 million paying visitors over
8

the year was proving over-optimistic. The Dome's trading income was nearly 30 per cent below budget by the end of April. A second additional grant was required in May and we decided to prepare an early report for Parliament which we published in early November. Our study focused on the financial performance of the project since the Dome opened and looked at changes in the overall cost and income assumptions - in particular how far visitor numbers and revenues were lower than forecast and than required. During the course of our

fast track work as events unfold

e tailor the scope of each report to ensure that we add value at the right time. Generally, our value for money studies are complex, requiring the undertaking of extensive research, careful evaluation of evidence and analysis, and wide consultation with departmental officials and other agencies. Many of our reports therefore take up to a year to complete. But we are also alert to developments in the bodies within our remit. On occasion an opportunity can arise for us to examine and report on an issue very quickly so that we can make an important contribution to parliamentary accountability and performance improvement. Fast track studies tend to be very precise in scope, a good example being our report on The financial analysis for the London Underground Public Private Partnerships. We had already signalled our intention to examine these Public Private Partnerships (PPP) after contracts had been signed. Following a select committee recommendation and general public and parliamentary interest, we decided to bring forward one component of this work: an examination of the public sector comparator exercise carried out by London Underground to help it decide on the value for money of the options for funding the Tube infrastructure.

This timely exercise, completed in four months, provided analysis and comment to Parliament at an early stage of the proposed PPP. Ahead of final negotiations and the closing of any deal, it clarified the usefulness and the limitations of London Underground's analysis and the wider issues that would need to be taken into account in the decision making for the deal. The report also drew attention to wider lessons for future PPP deals. We are also sometimes able to make a contribution before we publish a report. The NHS issued a workforce planning consultation paper during the course of our work for the report Educating and training the future health professional workforce for England, published in March 2001. We were able to draw on our emerging findings to provide the NHS review team with a comprehensive response on the consultation issues.

work the financial position worsened and two further lottery grants were needed, in August and September. Our report concluded that the visitor and income targets were highly ambitious and inherently risky leading to a significant degree of financial exposure on the project. In addition, the task of managing the project had been made more difficult by the complex organisational arrangements put in place from the outset and by the failure to establish sufficiently robust financial management.

This report, initiated and delivered while the Dome was still operating, in no way precludes our further examining the project. We continue to monitor developments at the Dome and will report further as necessary. Our Dome team (l to r): Peter Langham, chartered public finance accountant; Jerry Cant, culture, media and sport expert and chartered public finance accountant; Jamie Hallams, policy analyst; Keith Hawkswell, culture, media, and sport expert.
9

working to provide the best audit service

e recognise the pressures facing the public bodies we audit and make every effort to streamline our work. We aim to minimise any demands on bodies by making our audit more efficient and co-operating with other auditors and inspectors whenever possible. This focus on efficiency and co-operation ensures that we provide an audit service that adds real operational value to those we audit. We review regularly our approach to financial audit to ensure that it continues to meet best professional practice through involvement with the standard setting bodies in the profession, contact with the leading accounting firms and a programme of subcontracting audits to the private sector. Over the last two years we have revised our financial audit approach so that it is more 'risk-based'. This approach involves developing a more comprehensive understanding of an audited body's business, the risks it faces and the controls in place to manage those risks. Taking assurance from an organisation's controls reduces the amount of testing we need to do and leads to more efficient audits. Our audit of the Meteorological Office provides a good example of how our approach can also benefit the audited body. The approach also complements current developments in corporate governance and risk management in

audited bodies and the scope for well-founded reliance on their controls increases as their systems mature. We co-ordinate our work with other audit and inspection bodies where possible in the interests of maximising the benefit of our work and minimising the duplication of effort. We do this by conducting joint studies and sharing information. In March 2001, together with the Audit Commission, we published the results of a joint project to review education and training for nurses and other health professionals. The Commission focused on existing training and development of healthcare staff while we examined education and training the future workforce. The reports were published simultaneously with the Auditor General for Wales' report on pre-registration education and training in Wales. By working together we have been able to provide a comprehensive picture of education, training and staff development in the NHS and make significant practical recommendations for improvement. We suggested a more consistent and collaborative approach to contracting with higher education institutions based on longer term commitments.

10

Financial Audit of the Meteorological Office

And to produce our report on the Implementation of the National Probation Service Information Systems Strategy we liaised closely with other auditors and inspectors. We worked closely with HM Inspectorate of Probation, undertaking joint visits to probation services and jointly interviewing key personnel and stakeholders and we also liaised with District Audit and with the Home Office's Audit and Assurance Unit. Through our combined efforts, we were able to offer the Probation Service a more comprehensive assessment of the project and provide a better understanding of the future information needs of the service. We seek to maximise, both in our audit of financial statements and in our value for money work, the work of others such as internal auditors, regulators and external auditors of related bodies. For example, when we need to investigate the use of public money within a higher education institution we work closely with the Higher Education Funding Council to draw on its knowledge and ensure that concerns raised with us are not already being investigated. In turn the Funding Council might consult with internal auditors within universities who may agree to investigate particular issues on behalf of the NAO as part of their programme of work. In this way we ensure that there is no duplication of effort as we collect the evidence we need to complete our work. We are also active members of the Forum, set up by the Funding Council with universities and other stakeholders to reduce the burden on the sector whilst ensuring public accountability. We play a leading role in the Public Audit Forum, which comprises all United Kingdom national audit agencies. The Forum has a specific remit to build on the existing co-operation between the national audit agencies to enhance the efficiency and effectiveness of public audit. Co-operation with other auditors can also transcend national boundaries. We conduct co-ordinated studies of areas of work with other overseas audit offices. For example we are currently working closely with our counterparts in France, Germany and Spain in looking at European defence projects. And in May Tim Burr, the Deputy Comptroller and Auditor General, led a joint workshop with our counterparts in Russia - the Accounts Chamber - sharing techniques and experience in our respective audits of tax and customs duties in our counties. Part of our Met Office team (l to r): Paul Eastabrook, audit technician; Helen Baxendale, chartered public finance accountant; Andy D'Souza, chartered accountant trainee; Gareth Caller, chartered accountant.

Our financial audit of the Met Office is at the leading edge. We have worked closely with them to develop our approach. The Met Office was one of the first public bodies to produce a Statement on Internal Control in line with Treasury guidance. As well as auditing this and their accounts, we also provide them with an annual opinion on whether their performance against key Ministerial targets is fairly stated. Our risk-based audit approach enabled us to complete our audit of the 2000-01 accounts within six weeks of the end of the financial year. We delivered a quality audit within this demanding timescale and in particular our revised approach gave us a clear understanding of the Met Office's business and key areas of risk which led us to focus our work more closely on those areas. Our audit approach complements the Met Office Board's desire to introduce and imbed a risk management culture that helps it deliver solutions and services to meet the needs of many communities including the general public, government and schools, broadcasters and online media and the civil aviation industry.

Working with the Ombudsman

Under the Social Security Act 1986 the amount of State Earnings Related Pension that widows or widowers were due to inherit on their death of their spouse was due to halve after 5 April 2000. However, the Department of Social Security did not publicise the change adequately , nor ensure that staff provided the public with the correct information about it. We co-operated closely with the Office of the Parliamentary Commissioner (the Ombudsman) in preparing reports looking at different aspects of the case. Our reports were published together to provide Parliament with a complete picture across a range of issues arising. In response to these reports, and other representations from within and outside Parliament, the Government announced a 2 year deferral of the change, exemption from the changes for those over pensionable age at October 2002, transitional arrangements for those approaching retirement age, wide publicity for the changes and the ability to claim compensation for those not fully protected by the new provisions.
11

a real concern for the citizen

n important part of the work of the NAO is to assess the quality of public services. As part of this we aim to produce several reports each year that look at front line delivery of services to the citizen and to make recommendations for improvement. A whole range of our work falls in this category. Several of our reports this year have been concerned to improve the service provided to applicants for compensation and benefits. For example, our report into Compensating victims of violent crime included 23 recommendations directed towards providing victims with a better service and dealing with applications in a more timely and personal fashion. We suggested in particular that a telephone call centre could improve the service to customers and help to screen out clearly ineligible applications. Our study The medical assessment of incapacity and disability benefits led to recommendations aimed at speeding up the payment of disability benefits to those entitled to them and to improving the way in which customers are treated at their medical examinations. The recommendations arising from our study on Action to improve passenger rail services were directly related to improving the punctuality, reliability and capacity of trains and to the introduction of a programme of station inspections to improve services to passengers. For example we recommended that punctuality be brought within the Strategic Rail Authority's enforcement regime, giving them powers to fine companies or hold them in default for late trains.

Highlighting the government research finding that up to two million homes in England are in areas at risk of flooding, our report Inland Flood Defences stressed the fundamental importance of people in those areas being aware of the risk, and knowing what to do in an emergency. We found that until condition surveys are complete in areas at risk, defences might not be relied on to provide the levels of safety residents believed there to be. The enormous human and financial costs of clinical negligence by the NHS were underlined in our report on Handling clinical negligence claims in England. Implementation of our recommendations should provide patients with improved access to remedies, speed up settlements and cut legal costs. We aim to ensure that the public gets the most from our work and have found new ways to connect with citizens more directly, for example by extracting findings from our main report and issuing a separate leaflet for consumers. We did this most recently as part of our report on domestic electricity competition. In collaboration with Ofgem and energywatch, we produced a short leaflet for the public advising them on how to take advantage of competition. This was available free of charge from energywatch. And in our report on Hip replacements: Getting it right first time we produced a list of the key questions patients should ask their consultant before agreeing to the operation. Our Benefits Agency Medical Services team (l to r): Neil Carey, chartered public finance accountant; Jane Wheeler, social security expert and chartered public finance accountant; Antonia Gracie, chartered accountant; Susan Swingler, social security expert and chartered management accountant.

12

Financial impact
The National Audit Office report The Work of the Directors General of Telecommunications, Gas Supply, Water Services and Electricity Supply (HC 645, 1995-96) compared the different approaches taken by the utility regulators when determining the level of price controls in their industries. The Committee of the Public Accounts concluded that OFWAT should seek to reduce prices relative to inflation at their next price review, particularly where prices were higher than they needed to be because of inefficiencies in the water companies. Following consultation with the industry OFWAT reexamined the way that they set prices. This change was one of the key influences in OFWAT's determination of prices for the five years from April 2000 that will lead to a total reduction in customers' water bills of some 1.2 billion. The NAO made an important contribution to this overall saving.
13

securing change

ur work leads directly to substantial financial savings and improvements to systems. But at the same time our impact goes much wider. Bodies aware of our interest in a subject might initiate improvement regardless of whether we launch an investigation. And sometimes they might follow good practice recommendations that we have made in a report on another area. Indeed awareness of the very existence of the effective UK public audit process can often stimulate beneficial change. Whilst our teams put much effort into the production of reports with well-considered recommendations on how central government could improve its delivery of services, that is certainly not the end of the story. We understand the need following publication to take steps to maximise the extent to which those recommendations are acted on. It is one thing to suggest beneficial changes, another to seek to secure them. Over the last three years our work has generated financial savings of 1.4 billion meaning we have met our target of achieving 8 of savings for the taxpayer for every 1 in net cost of running the National Audit Office. Specific examples are highlighted within other sections of this report where relevant and more are included overleaf.

FINANCIAL IMPACTS

95 - 97 1 billion

96 - 98 1.2 billion

97 - 99 1.3 billion

98 - 2000 1.4 billion

Since our report on Sickness Absence in the Prison Service in 1999, the Prison Service has implemented a number of measures to reduce high levels of sickness absence. As a result levels of early retirement on illhealth grounds have fallen, saving the taxpayer around 5 million in 2000; and the average level of sickness absence has reduced, releasing staff resources worth a further 8 million in 2000
14

In the report A Case Study of Stores Management in the Ministry of Defence we analysed MoD's 450 million stock of hazardous items, excluding ammunition and missiles, and identified scope for reducing stocks. Since the report was published MoD had made good progress in reducing stockholdings. For example, our recent follow up work shows that the army's inventory has fallen by 87 million producing an annual saving of 5.2 million in capital charges alone.

Members of the Education Financial Audit team: Cos Manfredi, chartered accountant; Sandeep Shanbhag, chartered accountant trainee; Catherine McDonald, chartered accountant trainee; Andrew Baigent, chartered accountant; Jane Morgan, chartered accountant trainee.

Following our report and the subsequent report from the Committee of Public Accounts on the cost of premature retirements, the Department for Education and Employment changed the regulations governing the Teachers' Pension Scheme to make each employer individually liable for the extra costs of teachers' premature retirement. The Department estimates that the changes reduced expenditure from the Scheme by 145 million in 2000.

Our reports on the National Insurance Fund 1997-98 and 1998-99 expressed concern at the high level of outstanding debt from the self-employed and recommended that action be taken to clear the backlog. The Inland Revenue has committed extra resources to this task and by the end of December 2000 had recovered over 51 million net of additional costs.

15

Crucial to securing change is our formal relationship with the Committee of Public Accounts which bases its enquiries on our reports. At its hearings, which are attended by the C&AG, the Committee takes evidence from senior government officials and in turn issues its own report with recommendations. The Government issues a point by point response to these recommendations in the form of a Treasury Minute. The effectiveness of this process is shown by the fact that nearly all of the Committee's recommendations are accepted and implemented by the audited bodies. In 2000-2001 over 90 per cent of the Committee's 360 recommendations were accepted. And our follow up work shows that accepted recommendations are implemented in almost every case.

Spreading good practice

There are, however, additional ways in which we try to promote change. Following the publication of a report we consider whether there would be benefit in organising a conference to reach the key audiences more directly and spread the good practice more actively. In October 2000, over a hundred delegates from the health sector including consultants, Chief Executives of NHS Trusts, clinical directors and senior nurses attended our all day conference on hip replacements. And, in June, two hundred college admissions tutors and other senior administrative staff attended our conference on improving student retention and achievement in English further education colleges. A conference to promote the findings of our report on innovation and risk management in government departments was attended by a hundred top officials from central government, and featured sessions led by Martin Narey, the Director General of HM Prison Service and the Ministry of Agriculture, Fisheries and Food's Permanent Secretary, Brian Bender. Communicating our messages face to face to representatives of key audiences is also achieved by means of seminars and speeches to organisations, groups and societies. For instance, we have hosted a well attended seminar for audited bodies on the lessons from the refinancing of the Fazakerley PFI prison contract, led by Jeremy Colman. And Pamela Thomas, leader of the team responsible for our report Inland Flood Defences, gave a presentation to the Local Government Association on our recommendations of most relevance to them, and attended a Royal Geographical Society discussion evening on the lessons from the floods. The good practice that we identify while pursuing a particular study is sometimes of interest to a specific sector only, but often there are lessons, principles and practices that could be much more widely relevant, to many different kinds of public sector
16

bodies. Good practice of this more generalised kind is promoted in our publication focus which is designed to be read by, and be of practical benefit to, the wide range of public bodies we audit. This publication is supplemented by the webbased focus online (www.nao.gov.uk/guidance/index.htm) which has more detailed guidance over a range of topics. We also summarise the key points arising from our value for money work on health in a briefing for Chief Executives. The wider lessons which can arise from our work are illustrated in our report of the financial audit of the first 25 Education Action Zones. These are very small, local partnerships of schools, parents and other representatives of the local community and private sector, set up by the Department for Education and Employment to raise local education standards. The examples of good practice we found and problems which had arisen suggested wider lessons applicable to other government programmes involving the setting up of innovative new bodies. Principally, trustees must have a proper understanding of their responsibilities, secure competitive purchasing arrangements, and account properly for grants made. Possible improvements in accounting and financial control systems which we discover during financial audits are passed on in day to day contact with the management of the audited bodies. Significant issues, however, are addressed formally in management letters or reports to audited bodies. In total our financial audit work led directly to 1,240 improvements to financial accounting systems last year. And audited bodies made a further 190 significant changes to procedures as a result of our value for money work. We also make a contribution by seconding 70 of our staff to audited bodies to work on key projects, for example Steve Ecroyd, one of our Principal Auditors, is helping the Department of Health implement resource accounting and deal with accounting problems that led us to qualify their account. Furthermore Martin Pfleger, the Deputy Auditor General, has been chairing an advisory group at the Royal Victoria Hospital in Belfast helping them develop and implement a financial recovery plan and improve their clinical performance. This report has led to extra funding, a plan to generate 5 million in recurrent savings through efficiency, and significant performance improvement plans. His group is now monitoring implementation. The Education Action Zone team, based in our North West office, are pictured outside Deepdale Infants School in Preston (l to r): Steven Corbishley, chartered public finance accountant; Ian Davis, chartered accountant trainee; Judith Taylor, chartered accountant; Shazad Fiaz, chartered accountant trainee; Debbie Higson-Turner, certified accountant trainee.

17

a presence on the world stage

Assistance to countries seeking EU membership

Our programme of assistance to the national audit offices of countries seeking accession to the European Union continues to expand. The aim is to develop their capabilities in undertaking effective scrutiny of the public finances. The work is paid for by the European Union and involves seconding NAO experts to the countries concerned.
18

We have been working for some time with our counterparts in Hungary, Slovenia and Estonia and projects are soon to start in Bulgaria, Romania and Latvia. The Latvian project is ground-breaking because it goes beyond assisting the audit institution. We are leading a programme of comprehensive assistance to the Ministry of Finance and will be drawing in colleagues from the Cabinet Office and other parts of government.

he NAO's international reputation means that our expertise and professionalism is in demand across the world. We actively seek opportunities to work with other nations to improve their public audit and accountability. We are paid in full for all our international audit work. Our contribution has won many friends for the United Kingdom and provided opportunities to highlight the range of financial services available from UK firms. We also find that this work enriches our own skills and brings new perspectives to apply to our domestic responsibilities. We provide training and secondments of our staff to overseas audit offices, particularly in the developing world and in eastern and central European countries. We have been appointed as the auditor of a large number of international bodies and, through our links with the European Court of Auditors, we make a contribution to prompting improvements in the financial management of the European Union. The C&AG is the appointed auditor for the accounts of a range of major international bodies, including the International Atomic Energy Authority and the International Labour Organisation. This work brought in audit fees of 1.7 million in 2000-01. He is often appointed following competition with other audit providers. The auditors of the United Nations have traditionally rotated and the C&AG was very pleased to have recently completed three successive three-year terms on the UN Board of Auditors. This work has been led by our Director, David Woodward, who received a CMG in last year's Birthday Honours list. Since 1999 the C&AG has been Chairman of the World Bank Multilateral Audit Advisory Group. The Bank set the Group up on an experimental basis in that year to advise it on the handling of requests for reviews of the Bank's activities from the audit offices of its member countries. In the light of the success of this pilot exercise the Bank decided in January 2001

to incorporate the Group as a permanent feature of its framework for dealing with the audit offices of member countries. The Multilateral Audit Advisory Group will help the Bank respond to requests from the audit offices of member countries and at the same time ensure that the multilateral principles of the Bank are safeguarded. Sir John will continue to be Chairman of the Group. In the past year we have provided training courses and study tours for 195 delegates from overseas national audit offices, amounting to some 646 participant training days. For example we hold an annual training course for staff from our counterparts overseas. Countries represented this year included China, Mozambique, Estonia, the Turks and Caicos Islands and Vietnam. Where we are able to meet other requests for training, it is usually with specific funding from the host organisation or a UK, or European Union, aid programme. We also receive many overseas visitors, some 530 in 20002001, and we handle many other international requests for information about the audit system in the UK or about the experience from our audit work that might be applicable elsewhere. For example, one of our Directors - John Thorpe was invited to participate in a recent World Bank seminar on debt management. We participate on international bodies setting standards and encouraging the spreading of good practice in public sector audit and the C&AG is a member of the UN Panel of External Auditors which set the standards for all audits of UN organisations. We are also active within the International Organisation of Supreme Audit Institutions (INTOSAI). We chair its working group on the audit of privatisation and regulation, for example. This work ensures that we can play a significant role in the international accounting and auditing profession and enables us to help improve public sector accounting in developing nations. As the second largest net contributor to the European Community, the United Kingdom has an interest in knowing that the receipts and payments to the Community are right, they are used as intended and that standards of public spending and accountability are high across the Community. Each year we produce an annual report for Parliament on the European Court of Auditors' (ECA) Annual Report, which summarises the Court's findings and highlights those of relevance to the UK. Kate Henderson, a chartered public finance accountant who is currently leading our twinning project in Slovenia. She received an OBE in the 2001 New Year's Honours List.

Financial impacts
Last year the international organisations that we audit saved 8 million as a result of implementing our recommendations. For example, our recommendation that the United Nations Development Programme assert its right not to pay for office premises in countries where it has a representation led to savings of US $7 million in 2000.

19

award-winning staff

he talent among our staff was well-illustrated when Karen Taylor won the central government category of Public Finance's Public Servants of the Year for her highquality work on hospital acquired infection. But the diverse range of quality work that we produce is testimony more generally to the wealth of skills and experience that our staff possess. Training and development of staff are absolute priorities in the NAO, as is investing in management skills so that we bring out the best in our people. Our financial audit staff are either qualified professional accountants or students with one of the accountancy bodies. Entrants to our graduate training scheme study for the Institute

of Chartered Accountants in England and Wales' (ICAEW) qualification. Other staff are training with other accountancy institutes such as the Chartered Institute of Public Finance (CIPFA) or the Association of Accounting Technicians. We were delighted that two NAO employees - Richard Wait and Jane Morgan - were again among the ICAEW national prize winners for their performances in particular papers. We encourage all of our auditors continually to develop their skills following completion of their accountancy training. Our IT Audit Group, for example, have a training and development package that includes study for professional qualifications recognised by the British Computer Society and the

20

Information Systems Audit and Control Association. And one of our IT audit specialists, Ian Petticrew, co-authored definitive guidance on the audit requirements of information management systems which the British Standards Institution published earlier this year. Some of our people make an important contribution to the accountancy profession more generally. One of our financial audit managers, Andrew Baigent, recently became the youngest member of the Institute of Chartered Accountants in England and Wales to gain a position on their Council. And Mary Radford, who directs our financial audit of environment, food and rural affairs, became the first person to chair the newly-created public sector sub-committee of ICAEW's Financial Reporting Committee. We are also very active within CIPFA. Assistant Auditor General, Caroline Mawhood, has been the chair of their South East Region for the past year.

example we recruited Mark Malpus, one of our health auditors, from a commissioning role at Salford and Trafford Health Authority. Others have come to us from major financial institutions to provide us with a comprehensive grip on how the City operates which is vital for our work on public private partnerships and regulation. Richard Wade, who manages value for money reviews of partnerships and joint ventures, joined the NAO after working for financial institutions such as Hill Samuel and Bankers Trust Company. As well as drawing this rich range of expertise into the NAO, we typically have 70 of our staff out on secondment at any one time. This provides our staff with hands-on experience of delivering public services and working in other organisations. And we find host organisations are consistently delighted with the contribution NAO secondees make. Examples of current secondments include Mike Reeves who is with The Prince's Trust as a Regional Operations Manager and Aileen Murphie who is seconded to the Cabinet Office as Head of the Innovation and Risk Team. We are also committed to ensuring that our staff are representative of the community we serve, bringing to their work the different perspectives of our diverse nation. Last year we appointed a Diversity Adviser to take stock of how well we are performing on this vital issue and we are now acting on his recommendations. The C&AG committed himself to the Commission for Racial Equality's Leadership Challenge which invites key leaders to take personal responsibility for valuing diversity within their organisation. And Martin Pfleger the Deputy Auditor General is now chairing our Diversity Steering Group to ensure that our policies and practices match the best elsewhere. A selection of recent entrants to our graduate training scheme and the institution they joined us from (l to r): Gareth Tuck, University of Warwick: Fiona Anderson, University of Cambridge; Roy Eke, University of Essex; Reena Malde, University of Oxford; Brian Chapman, University of Portsmouth; Hannah Collis, University of Cambridge.

Value for money skills

In our value for money work we use multi-disciplinary teams for each investigation. These might comprise economists, social scientists, accountants and statisticians as well as specialists in particular sectors. On most investigations these skills are supplemented with external expertise. And for many reports we convene a panel of external experts, representing key groups relevant to the study, to consult on all strategic issues in the investigation. For example in our work on retention and achievement in further education colleges, we used representatives from colleges, the Further Education Funding Council (now merged into the Learning and Skills Council), the Association of Colleges, the then Further Education Development Agency, and experts from the universities of Warwick and Birmingham. Our staff have practical, operational experience which they draw on when analysing how well audited bodies are using their resources. Some of our staff have been recruited from jobs where they were involved in managing public services, for

Public Servant of the Year

Karen Taylor, a manager working on health value for money studies, won the Central Government Award at the recent Public Finance Public Servants of the Year. Karen has been recognised for her work on hospital acquired infection. She managed our investigation into the subject which led to a report last year and a good practice conference attended by 500 people from across the NHS. Many of the report's recommendations are now being implemented. The judges agreed that Karen had made a vital contribution to improving the management of this problem and has therefore had a major impact on improving patient health care.

quality and efficiency in the NAO

e have vast experience of promoting accountability and efficiency within the bodies we audit. At the same time we work hard to ensure that we ourselves make the best possible use of the resources that Parliament provides to carry out our role. Over the last ten years our workload has increased by a third while our costs have risen by less than five per cent in real terms. We are continuing to move forward fast in our use of information technology. Our new human resources and finance system went live in April this year. It will provide the foundation for electronic service delivery in the NAO, as well as helping achieve internal efficiencies. There has also been a sea change in the way we carry out financial audit following the introduction of Team21, our new audit support software. As well as providing economies, this will enable us to improve our service to audited bodies and give our financial auditors a powerful tool for focusing on key areas. We use outsourcing across all types of work as part of our efficiency programme. This allows us to bring in specific external expertise, compare our costs and methods to the private sector, and manage peaks and troughs in the work. Quality review plays an important part in ensuring we make the best use of our resources. On the value for money side all our work is assessed by an external panel of academics,

currently from the London School of Economics. Their review includes evaluation of the validity of our methods and of the soundness of our conclusions. We also ask what the audited bodies that have been the subject of our reports think. We encourage them to comment in detail on the process and the outcome, inviting suggestions for how we could improve. During the review of central government audit and accountability by Lord Sharman we suggested, and he accepted, that our financial audit work should be subject to review by the Joint Monitoring Unit (JMU) of the accountancy institutes. We are already making good progress in setting arrangements up with the JMU. This will add an important external dimension to the rigorous internal quality assurance arrangements we already have in place. And we have used the EFQM Excellence Model to carry out a high level assessment of our organisation as a whole. This year we also used the model as part of our annual business planning. Two of the key players from the team that implemented our new human resources and finance IT system: Dean Musson (left), the project manager who is a chartered accountant; and Collin Richards, a payroll specialist who led the implementation of the payroll module.

Health and Safety

We continue to maintain our commitment to our staff's health and to their safety at work. In terms of health we have a comprehensive health screening service and last year carried out checks on over 200 of our staff. We carry out routine assessments of workstations and display screen equipment and run regular training on fire safety and first aid. In terms of staff safety, we hired an external consultant to carry out a global risk assessment at our headquarters building and we are in the process of implementing all the recommendations. We have also carried out a food hygiene and health and safety audit, brought in external consultants to carry out
22

environmental monitoring and reviewed our health and safety policy. All these measures will be repeated in the coming year. We were pleased to win a Regional Award from the Health and Safety Executive in recognition of the extent of our participation in the European Week for Safety and Health at Work in October 2000. We submitted details on what we did during the week together with copies of the publicity material that we used. Over 7,000 organisations took part in the week, so we were pleased to be one of the 27 Regional Award winners.

List of major reports published

April 2000 - March 2001
Title HoC No. Session

Asset Sales
The Sale of Part of the UK Gold Reserves 86 2000-2001

Culture, Media & Sport

The Millennium Dome Access to the Victoria & Albert Museum National Lottery Charities Board: Grants made by the National Lottery Charities Board Access to properties grant-aided by English Heritage The Department for Culture, Media and Sport: Maintaining the Royal Palaces 936 238 378 457 563 1999-2000 2000-2001 1999-2000 1999-2000 1999-2000

Defence
MOD: Managing reductions in the number of vacant family quarters MOD: The Risk of Fraud in Property Management MOD: Kosovo: The Financial Management of Military Operations MOD: Training New Pilots MOD: Major Projects Report 2000 MOD: Maximising the benefits of defence equipment co-operation MOD: Major Projects Report 1999 435 469 530 880 970 300 613 1999-2000 1999-2000 1999-2000 1999-2000 1999-2000 2000-2001 1999-2000

Education
Education Action Zones: Meeting the Challenge the lessons identified from auditing the first 25 Zones Improving Student Performance: How English further education colleges can improve student retention and achievement Managing Finances in English Further Education Colleges 130 276 454 2000-2001 2000-2001 1999-2000

Environment
Inland Flood Defence 299 2000-2001

General Topics
Financial Management for the Pre-Budget 2000 Report of the European Union Audit of the Assumptions
Audit of Assumptions for the March 2001 Budget Progress on Resource Accounting and the Adoption of Resource Based Supply

437

959 304 -

1999-2000 1999-2000
2000-2001 1999-2000

Health
Charitable funds associated with NHS bodies Education and Training the future health professional workforce for England The National Blood Service NHS Executive: Hip replacements: Getting it right first time Tackling Obesity in England 516 277 6 417 220 1999-2000 2000-2001 2000-2001 1999-2000 2000-2001

24

Title

HoC No.

Session

Home Affairs
The Gaming Board: Better Regulation Home Office: Compensating Victims of Violent Crime Parole Public Trust Office: Accounts for year ended 31 March 1999 537 398 456 416 1999-2000 1999-2000 1999-2000 1999-2000

International Development
Department for International Development: Emergency Aid: The Kosovo Crisis 495 1999-2000

Modernising Government
Supporting innovation: Managing risk in government departments Modernising Construction Measuring the Performance of Government Departments 864 87 301 1999-2000 2000-2001 2000-2001

Public Private Partnership - PPP

National Savings: Public-Private Partnership with Siemens Business Services The Department for Culture, Media and Sport: The Re-negotiation of the PFI-type deal for the Royal Armouries Museum in Leeds The Financial Analysis for the London Underground Public Private Partnership DETR: The Channel Tunnel Rail Link The Foreign and Commonwealth Office: The New British Embassy in Berlin The Prison Service: The refinancing of the Fazakerly PFI prison contact The Radiocommunications Agency's joint venture with CMG 493 103 54 302 585 584 21 1999-2000 2000-2001 2000-2001 2000-2001 1999-2000 1999-2000 2000-2001

Regulation
Office of the Rail Regulator: Ensuring that Railtrack maintain and renew the railway network The Housing Corporation: Overseeing Focus Housing Association Shadow Strategic Rail Authority: Action to improve passenger rail services OFGEM: Giving Domestic Customers a Choice of Electricity Supplier OFWAT: Leakage and Water Efficiency 397 741 842 85 971 1999-2000 1999-2000 1999-2000 2000-2001 1999-2000

Revenue Departments
HM Customs and Excise: Regulating Freight Imports from Outside the European Community Departments of the Chancellor of the Exchequer: HM Customs & Excise Appropriation Accounts 1999-2000 Inland Revenue: Petroleum Revenue Tax Departments of the Chancellor of the Exchequer: Inland Revenue Appropriation Accounts 1999-2000 131 25-XVI 5 25-XVI 2000-2001 2000-2001 2000-2001 2000-2001

Work and Pensions

Department of Social Security: The Cancellation of the Benefits Payment Card project The Medical Assessment of Incapacity and Disability Benefit 857 280 1999-2000 2000-2001

Trade & Industry

Department of Trade & Industry: The Acquisition of German Parcel 858 1999-2000
25

National Audit Office 2000-2001

The National Audit Office are financed from funds voted by Parliament, we are required to account for our expenses and receipts in an annual Appropriation Account, certified by independent auditors and laid before the House of Commons. The account for 2000-2001 is reproduced below. We recognise, as do our auditors, that Appropriation Accounts are a specialised form of accountability to Parliament. Such accounts provide assurance purely in relation to the cash based Estimates approved by Parliament. Whilst our Annual Report should embody our statutory account, we have provided explanatory notes going beyond the standard format

Appropriation Account, 2000-2001 Class XVIII, B, Vote 1

Service Grant 000 A2 Direct expenditure: other current A3 Direct expenditure: capital Gross Total 53,900 1,400 55,300 Expenditure 000 53,686 1,340 55,026 Less than granted 000 214 60 274 274 More than granted 000 -

Surplus of Gross Estimate Over Expenditure Deduct Estimated 000 10,600 44,700 Realised 000 10,600 44,426

AZ Appropriations in Aid Net Total

Surplus 274 274,331.83

Actual surplus to be surrendered

26

Explanatory Notes on Expenditure and Receipts

1. Expenditure Items Section A: National Audit Office [55,026,000] Current 000 41,493 12,193 53,686 Capital 000 1,340 1,340

Human resources Other running costs Capital expenditure

2. Receipts 2a. Details of Receipts

Estimated 000

Realised 000

Receipts payable to the consolidated fund: (a) Receipts of classes authorised to be used as appropriations in aid Gross Total Appropriated in Aid Net Total Actual sums payable separately to the Consolidated Fund 3. Other Notes In line with Estimates, expenditure including contracted out services is included gross of VAT. John Bourn Accounting Officer 10,600 10,600 10,934 10,934 10,600 334 333,559.01

4 July 2001

27

Statement of Accounting Officer's responsibilities with respect to the Appropriation Account

Section 22 of the Exchequer and Audit Departments Act 1866 requires the National Audit Office to prepare an account of the appropriation of the supply granted for that Office in each year's Appropriation Act. Under the National Audit Act 1983 the Public Accounts Commission have appointed the Comptroller and Auditor General to be responsible as Accounting Officer for the Vote. The account is prepared on a cash basis and in a form prescribed by the Treasury for government departments and must properly present the expenditure and receipts of the National Audit Office in the financial year. The relevant responsibilities of the Comptroller and Auditor General as Accounting Officer, including his responsibility for the propriety and regularity of the public finances for which he is answerable, and for the keeping of proper records, are set out in the Accounting Officer's Memorandum issued by the Public Accounts Commission.

Statement on the System of Internal Financial Control

This statement is given in respect of the appropriation account for Class XVIII, B, Vote 1. As Accounting Officer for this Vote, I acknowledge my responsibility for ensuring that an effective system of internal financial control is maintained and operated in connection with the resources concerned. The system of internal financial control can provide only reasonable and not absolute assurance that assets are safeguarded, transactions authorised and properly recorded and material errors or irregularities are either prevented or would be detected within a timely period. The system of internal financial control is based on a framework of regular management information, financial regulations, administrative procedures including segregation of duties, and a system of delegation and accountability. In particular, it includes:
I I I

comprehensive budgeting systems with an annual budget which is reviewed by the Public Accounts Commission; setting targets to measure financial and other performance; regular reviews by the Principal Finance Officer and the Management Board of reports which indicate financial and other performance; clearly defined capital investment control guidelines.

The National Audit Office has an internal audit service, which operates to standards defined in the Government Internal Audit Manual. The work of the internal audit service is informed by an analysis of the risk to which the National Audit Office is exposed, and annual internal audit plans are based on this analysis. The analysis of risk and the internal audit plans are endorsed by the National Audit Office's Audit Committee and approved by me. At least annually, the Head of Internal Audit (HIA) provides me with a report on internal audit activity in the National Audit Office. The report includes the HIA's independent opinion on the adequacy and effectiveness of the National Audit Office's system of internal financial control. My review of the effectiveness of the system of internal financial control is informed by the work of the internal auditors and the executive managers within the department who have responsibility for the development and maintenance of the financial control framework, and comments made by the external auditors in their management letter and other reports.

Implementation of the Turnbull Report

As Accounting Officer, I am aware of the recommendations of the Turnbull Committee and I am taking reasonable steps to comply with the Treasury's requirement for a statement on internal control to be prepared for the year ended 31 March 2002, in accordance with DAO (GEN) 13/2000.

28

Audit Certificate and Report to the House of Commons

We certify that we have audited the financial statements on pages 26 to 27 under the Exchequer and Audit Departments Act 1921 and the National Audit Act 1983. Respective responsibilities of the Accounting Officer and Auditor As described on page 28 the Accounting Officer is responsible for the preparation of the financial statements and for ensuring the regularity of financial transactions. The Accounting Officer is also responsible for the statement on the system of internal financial control on page 28. Our responsibilities as independent auditors, are established by statute and guided by United Kingdom Auditing Standards. We report our opinion as to whether the appropriation account properly presents the expenditure and receipts of Class XVIII, B, Vote.1, and whether in all material respects the expenditure and receipts have been applied to the purposes intended by Parliament and conform to the authorities which govern them. We also report if, in our opinion, proper accounting records have not been kept, or if we have not received all the information and explanations we require for our audit. We review whether the statement on page 28 reflects compliance with Treasury's guidance 'Corporate governance: statement on the system of internal financial control'. We report if it does not meet the requirements specified by Treasury, or if the statement is misleading or inconsistent with other information we are aware of from our audit of the financial statements.

Basis of opinion
We conducted our audit in accordance with United Kingdom Auditing Standards. An audit includes examination, on a test basis, of evidence relevant to the amounts, disclosures and regularity of financial transactions included in the financial statements. It also includes an assessment of the judgements made by the Accounting Officer in the preparation of the financial statements. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by error, or by fraud or other irregularity and that, in all material respects, the expenditure and receipts have been applied to the purposes intended by Parliament and conform to the authorities which govern them. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion
In our opinion:
I

the appropriation account properly presents the expenditure and receipts of Class XVIII, B, Vote 1 for the year ended 31 March 2001; in all material respects the expenditure and receipts have been applied to the purposes intended by Parliament and conform to the authorities which govern them. 186 City Road, London EC1V 2NU 4 July 2001

RSM Robson Rhodes Chartered Accountants and Registered Auditors

29

The National Audit Office account in more detail

2000-2001 000 Receipts (Note 2) Parliamentary Contribution Income from fee audit work Other Income Less: Excess Appropriations in Aid 44,426 10,439 495 55,360 (334) 55,026 43,121 8,711 339 52,171 52,171 1999-2000 000

Payments Direct Staff Costs (notes 3,4 and 6) Consultants Removals and other direct costs Travel and Subsistence Recruitment and Training Accommodation Costs Equipment Supplies and Services External Auditors remuneration 35,041 6,452 155 2,368 2,023 3,649 1,956 1,989 53 34,251 5,888 754 2,546 1,819 3,542 1,202 1,116 45

Total Running Costs Capital Expenditure

53,686 1,340 55,026

51,163 1,008 52,171

ACCOUNTING POLICIES 1. Accounts are prepared on a cash basis, in accordance with government accounting conventions. Capital items are charged in full in the year of purchase. 2. The National Audit Office makes no charge to government departments except for audit work on accounts which are required to reflect the full cost of their operations such as Trading Funds. There are some 243 fee paying audits in the United Kingdom. The Office also charges fees to bodies audited other than on behalf of Parliament, such as United Nations Agencies. It is Office policy to recover the cost of all fee paying audits. STAFF (i) Direct staff costs 2000-2001 000 Salaries and wages Social Security costs Pension contributions (note 6) 27,704 2,369 4,968 35,041 1999-2000 000 27,122 2,312 4,817 34,251

30

The salary of the C&AG is paid from the Consolidated Fund and is not therefore included in the National Audit Office account. (ii) The salaries of the National Audit Office's Management Board were within the following bands: 20,000-29,999 50,000-59,999 60,000-69,999 70,000-79,999 80,000-89,999 90,000-99,999 100,000-109,999 110,000-119,999 4. Our staff and consultants were used as follows: 2000-2001 % Certifying and reporting on accounts Value for Money work Examining and reporting on risks to financial systems, regularity and propriety Other work for Parliament and the Public Comptroller Function 5. EXTERNAL AUDITORS' REMUNERATION This consists of: 2000-2001 000 Audit Fees Other Audit Services Value for money audit 12 8 33 53 1999-2000 000 12 8 25 45 56 25 5 13 1 1999-2000 % 57 24 5 13 1 2000-2001 2 1 3 2 1 1 1999-2000 1 1 4 2 1

6. PENSION CONTRIBUTIONS Staff are entitled to membership of the Principal Civil Service Pension Scheme; the Office meets the cost in full. In 2000-2001 rates charged to the National Audit Office were based on staff grades and ranged from 12 per cent (administrative officer and equivalent) to 18.5 per cent (senior management). Staff contribute towards the costs of providing benefits for their widows and orphans.

31

Management Board
Comptroller and Auditor General
Sir John Bourn KCB

Deputy Comptroller and Auditor General

Tim Burr

Deputy Auditor General

Martin Pfleger

Assistant Auditors General

Jeremy Colman Wendy Kenway-Smith Jim Marshall Caroline Mawhood Martin Sinclair

Director of Corporate Policy

David Corner

For further information about the National Audit Office please contact: Press Office National Audit Office 157 - 197 Buckingham Palace Road London SW1W 9SP Tel: 020 7798 7400 Fax. 020 7798 7710 e-mail: pressoffice@nao.gsi.gov.uk website: www.nao.gov.uk

32

Layout and Production by NAO Information Centre Photography by Jon Barlow Printed by Miter Press DG ref: 9551RA