The National Audit Office is to increase its funding for audits of government departments as part of moves to maintain its assurance work alongside monitoring how departments are handling Brexit.
The NAO set out its planned spending allocations for the next three years in a strategy document published yesterday, which said the watchdog was having to adjust it approach due to both its growing remit and the “very uncertain and challenging time for the public sector”.
“Decisions on the future relationship with the European Union and implications from the United Kingdom’s exit will affect public services for the foreseeable future,” it noted.
Brexit has been a key focus for the NAO over the last two years, during which it has monitored departments' progress on preparing for Brexit and cross-government working.
Its work has also been significantly affected by the tightening of public finances in recent years, it said – a challenge that is likely to remain a factor for the years covered by the strategy. The report said the NAO’s work was “growing in size and complexity” as government bodies sought to deliver services “in new ways and with fewer resources, through greater delegation to local bodies, complex commercial relationships with the private sector, and with digital technology”.
The NAO will spend £52.6m on audit and assurance in 2018-19 – 60% of its overall budget – according to the document. This figure is set to rise to £55.6m next year and £56.8m by 2021-22, when it will account for 62% of its £92.8m budget.
The increase should help the watchdog cope with its growing workload, which is partly as a result of it taking on oversight of the Student Loans company and four BBC production companies as well as its extra Brexit-related responsibilities.
The list of organisations the NAO regulates is likely to grow still further, it said, as new bodies are set up to regulate areas that are currently overseen by the EU. The UK will have to establish ways to replicate the work of EU bodies such as the European Food Safety Authority, the European Medicines Agency and the European Chemicals Agency, it said.
“At the time of writing, we do not have enough knowledge of what the regulatory environment will look like to plan for this with any confidence, but these could be substantial additional commitments,” the report said.
The strategy added that the NAO was having to spend more time on individual audits because tightened financial reporting standards meant accounts had become “more complicated both to prepare and to audit”. Budget pressures have left some departmental finance teams stretched, which has led to delays in reporting, in turn delaying the NAO’s work. “We need to make sure that we have the capacity to respond to these challenges.”
Part of this funding increase will come from savings the NAO has made in other areas thanks to better planning and allocation , alongside improved analytics that allow it to deploy people more efficiently.
Over the same time frame, spending on value for money work will dip from £18.1m to £16.5m before rising slightly to £17m by 2021-22.
The auditor’s spending on other areas will remain broadly unchanged, staying flat at £5.4m for its work supporting parliament and £900,000 on international relations. Its investigations and insight budget will rise very slightly in cash terms from £10.9m to £11.3m by 2021-22.
'Need has never been greater'
The strategy divides the NAO’s work over the next three years into four core objectives.
It will focus on delivering high-quality work, using modern audit techniques, to address public sector challenges, particularly concerning Brexit work; giving bodies it audits better insight into how they manage public money; supporting skills development; and putting digital technologies in place to support effective decision-making and working practices.
These objectives stem partly from an understanding of the importance of Brexit and how it will affect government departments, the strategy said. Brexit will lead to new funding streams to replace EU programmes, new regulatory and accountability arrangements, upgraded IT systems and processes, and a body of new UK legislation to replace EU law, it said.
“These changes cut across departmental boundaries and such widespread change has little to no historical precedent.
“In the uncertain environment in the coming years, the need for effective and transparent accountability for public spending has never been greater,” it added.
Writing for CSW last year, the comptroller general Sir Amyas Morse, who heads the NAO but whose ten-year term comes to an end on 31 May, said making "the right prioritisation decisions internally" had been one of the greatest challenges he had faced in 2018.
He added that Brexit would be a core focus for the watchdog in the coming year. "Many challenges remain... not least the agreement of a future trade arrangement – and it is becoming clear that the Brexit process will continue for many years yet," he wrote as part of CSW's annual permanent secretaries' roundup.
The NAO’s challenge, as ever, will be to provide an independent source of credible and insightful information for the benefit of both decision-makers in parliament and the wider public."