We live in challenging times. With each emerging political or public policy conundrum – whether domestic or international – it feels as if the next one is just around the corner. Anyone arguing that public bodies tasked with managing these complex issues have it easy is playing devil’s advocate.
In this environment, you might be forgiven for relegating the issue of accountability in central government bodies, and their compliance with requirements for running their business operations and financial reporting standards, to a matter of secondary importance at best, and at worst to an afterthought.
But stay with me. If you scratch beneath the surface – as my colleagues and I at the National Audit Office have done in our newly published report – it soon becomes clear just how vital an issue it is. Ultimately, complying with these requirements and financial reporting standards ensures that central government bodies can do their jobs efficiently while remaining accountable and transparent, which in turn protects the public purse and promotes trust. Fail to do this and the odds of making a decent fist of tackling the country’s major challenges become a lot longer.
Getting this right is felt keenly among small government bodies, who do not have the same levels of staff, expertise and resources enjoyed by their larger counterparts.
With this in mind, we decided to look at the landscape of requirements and financial reporting standards for small government bodies.
There were four main takeaways for us. First, the small bodies we interviewed genuinely value requirements and standards, as they help them navigate through the many rules and regulations in place. Even when they felt that some requirements were too burdensome to implement, they supported the intention and the spirit behind the requirements.
Second, small bodies must comply with the same financial reporting standards for filing annual reports and accounts as their larger counterparts because the UK currently operates a single, ‘one-size-fits-all’ regime in central government. No matter the size and complexity of an organisation – or the level of risk associated with its operations – one rule applies to all. This stands in contrast to small private companies, the UK charity sector, and even small government bodies in countries such as New Zealand and Portugal, who benefit from exemptions and simplified requirements.
Third, and sticking to the theme of financial reporting standards, is the recent trend of annual reports and accounts becoming longer, more detailed and more costly to audit. This is largely the consequence of heightened reporting and auditing standards. The evolution of the annual report from a (relatively) straightforward document to weighty tome has not gone entirely unnoticed and certainly is not a phenomenon exclusive to the public sector. But what our work highlights is that small government bodies – who as we have seen have more limited resources at their disposal – are disproportionately burdened by the need to comply.
Finally, on functional requirements, we found strong examples of government departments adopting innovative approaches to overseeing compliance among their arm’s-length bodies. For instance, the Ministry of Justice takes a risk-based approach to oversight and assurance of its arm’s-length bodies, which is refreshed annually. Such examples are especially pleasing to see given the head of the NAO’s championing of effective public sector innovation in his annual address in parliament earlier this year. But with oversight of compliance remaining inconsistent across government, there is still work to be done.
So where does the NAO fit into all of this? Although our enthusiastic support for public sector accountability, transparency and efficiency should come as little surprise, our remit is ultimately to audit and evaluate government spending within current standards and guidelines. We do not set the requirements with which government bodies are expected to comply. But alongside our role we recognise there is a sweet spot. And that is everyone doing their best to make requirements and standards for small bodies more meaningful and proportionate.
We recommend that government should:
- Understand the costs of implementing requirements for small bodies
- Consider whether the benefits of new requirements outweigh the costs
- Tailor requirements to organisations of different sizes where this results in a better cost-benefit trade-off
- Explain why new requirements are introduced to the organisations that are supposed to follow them
- Consider whether introducing new requirements makes it possible to withdraw or streamline existing requirements
The NAO cares passionately about achieving accountability without imposing a disproportionate burden on government bodies so that civil servants spend time working on the things that really matter. It is a sentiment that anyone interested in resolving today’s pressing policy challenges can surely get behind.
Sian Jones is a director at the National Audit Office