The National Audit Office has identified common weaknesses in departments’ financial management and reporting.
A new report from the spending watchdog has found recurring issues in data and reporting quality, IT controls and asset management.
Each year, the NAO audits the accounts of around 500 central government organisations, with a total value of £1.1tn. For the first time, the watchdog has brought together thematic insights from its financial audits and wider assurance work to highlight opportunities to strengthen financial management and reporting in government.
The NAO said taking these lessons on board should “help improve productivity and resilience in public service delivery”.
From its audits of the 17 major government departments' 2024-25 accounts, as well as wider audit work, the watchdog found three areas with recurring issues that need improvement.
One of these areas was weaknesses in getting the basics of financial data and reporting right. The NAO said organisations should focus on “core principles of fit-for-purpose processes and controls and retaining sufficient information to ensure data are recorded correctly first time, to reduce inconsistency and error”.
The second area the NAO highlighted was weaknesses in IT controls for financial systems. The watchdog warned that these weaknesses “increase the risk of undetected fraud, unauthorised changes and operational inefficiencies”. It said organisations should focus on opportunities presented by automation and strong IT controls to enhance data quality and reduce inefficient manual processes.
The third area with common weaknesses was asset management. The NAO found a lack of understanding of asset records and how assets are valued. It said organisations should focus on improving asset records, processes and controls, to have a clearer view of the condition and value of assets and to be able to plan with more certainty.
The report also found that, despite a recent improvement in the timeliness of annual reports, “there is more to do to meet parliament’s expectations of prompt reporting”.
In 2018-19, around 76% of the relevant bodies published their audited accounts before the summer recess, reducing to around 42% in 2019-20 due to the Covid-19 pandemic. Nearly two-thirds of ARAs were published before the most recent summer recess in 2024-25.
The NAO said reporting before the summer parliamentary recess helps to free up finance teams to focus on other important activities in the autumn.
Gareth Davies, head of the NAO, said: “This report shows the progress that government has made in recovering the delays to the publication of accounts caused by the pandemic. But despite improvements by many organisations, there is more to do to secure timely and robust reporting.
“The case studies in the report demonstrate that getting government’s accounts right is not just vital for accountability to taxpayers. It also helps to drive improvement in value for money and results for citizens.”
One of the case studies looked at how HM Revenue and Customs responded after the NAO qualified its accounts in 2019-20 when an audit found a significant risk of fraud in the department’s research and development corporation tax reliefs.
The NAO said HMRC accepted its recommendations to improve the situation and took various actions, including:
- Undertaking a robust assessment of the risks that led to fraudulent or erroneous claims
- Improving the risk assessment process for claims made by taxpayers
- Introducing controls to address the risks identified, including developing a mandatory random enquiry programme (MREP) to better estimate levels of error and fraud
The NAO said the MREP introduced methodological improvements that showed error and fraud within claims from small and medium-sized enterprises was higher than HMRC had previously estimated, adding that this approach “represents good practice in measuring error and fraud”.
The watchdog said the improvements also resulted in a significant reduction in error and fraud, contributing to financial savings of £37m in 2023 and £59m in 2024. The NAO added that its ongoing work with HMRC on R&D tax reliefs was also an important factor in the NAO’s HMRC team winning the Public Finance Award for Excellence in Public Sector Audit.
The NAO said the lesson from this is that “engaging proactively with audit recommendations can drive tangible business improvements and realise financial savings”.
The watchdog said its financial audits led to more than £375m in positive financial impact for audited bodies in 2024.
Public Accounts Committee chair Geoffrey Clifton-Brown said the report is "an innovation from the NAO and consolidates significant insights and challenges facing government bodies".