TPAC NATIONAL AUDIT OFFICE STRATEGY TO

Transcription

1 TPAC Sir Edward Leigh MP Chairman The Public Accounts Commission House of Commons London SW1A 0AA 5 December 2018 Dear Sir Edward, NATIONAL AUDIT OFFICE STRATEGY TO The Public Accounts Commission will be considering the NAO s proposed strategy for the years to at its meeting on 12 December. This letter offers the Treasury s advice on that proposal in accordance with our responsibilities under Section 23 and Schedule 3 Paragraph 1 of the Budget Responsibility and National Audit Act As ever, the Treasury welcomes the NAO s constructive engagement on its future spending plans. The Commission will recognise that at least some of our comments cover previously trodden, but nevertheless important, ground. The picture given by the NAO in part one of its report of the changing external environment and the recognition of uncertainties in the short to medium term is helpful. 3. In respect of the strategic objectives the proposed direction of travel for the NAO is clearly set out. The Commission may wish to probe in greater detail the areas outlined below. 4. The Commission may wish to investigate further how the NAO outsources elements of the financial audit portfolio (paragraph 2.5). This could include discussing the diversity of the providers, both in terms of outsourcing to other public sector auditors (e.g. Audit Scotland and Wales Audit Office) and to private sector auditors. This could cover the proportion of work supplied to Page 1 of 6

2 larger and smaller private sector firms. It may also be beneficial to discuss the efficiency and quality of work that results from such outsourcing. 5. The NAO has already undertaken significant work regarding departments preparations for the United Kingdom leaving the EU. The Commission may wish to enquire further into the future work programme in this area. In particular they may wish to seek clarification of any implications for NAO resourcing where long-standing funding arrangements are replaced by new models and delivery mechanisms e.g. farming. The Commission may also wish to ask for the NAO s assessment of the likely impacts on the NAO of differing outcomes in the final leaving arrangements, both in terms of spending and activity in the short and medium term. 6. Regarding local audit, the Commission may wish to seek the opinion of Comptroller and Auditor General on how radical the changes to the Code of Audit Practice due in 2020 are likely to be and any potential implications this may have for the NAO. 7. Given the wider context it is surprising that the strategy is silent on the impact of devolution. The Commission may wish to ask why this is the case. 8. The Commission may also wish to discuss the proposed strategy for Diversity and Inclusion. The NAO notes in their recent strategy there has been no significant movement in representation at senior grades (38% women at manager level and above in 2016 compared with 37% in 2018). While appreciating the NAO targets for improvement by the end of the strategy period, it may be the case that shorter-term targets may assist in accelerating the diversity at senior levels. Shorter-term targets may also assist in achieving their aims in respect of BAME candidates for promotion. 9. Turning to proposed expenditure the NAO strategy proposes a rise in net spend to 70.4 million in 21/22. This is an increase of 10% compared to the 63.9 million actual voted spend in 16/ Given the people-centric nature of the NAO the majority of the overall spend increase stems from the proposed rise in spend on wages and salary from 43.6 million in 16/17 to 49.3 million in 21/22, a 13% increase. The Commission discussed pay at the NAO supply estimate hearing in March. Given the proportion of the NAO budget that is spent on pay the Commission may wish to discuss senior level pay and pay in general. 11.An issue highlighted by the Commission at the March hearing was that pay in total for senior officials had increased due to an increase in the numbers within the senior leadership team. The explanation for this increase was a strategy to Page 2 of 6

3 allow the relatively more junior members of the NAO leadership team more responsibility as a method of transitioning them to fulfil the roles of departing senior leaders. 1 The Commission may wish to ask if the end of this transitional period is expected to result in cost savings. 12.Also in March part of the explanation given for the proposed increase in pay was that the NAO must compete for staff in an accounting market. 2 The Commission may wish to seek evidence of recruitment and/or retention issues, such as high turnover or vacancy rates, as well as benchmarking data against relevant competitors including reference to wider benefits such as access to the public-sector pension scheme. Given the 2% pay increase already applied in 18/19 and the proposed 2% increase in 19/20 it may be appropriate for the Commission to seek a more detailed level of explanation from the NAO to approve the proposed approach. In particular the Commission may wish to seek more information about need for the additional 1% contingency. 13.The NAO has flagged a potential spending pressure that may result from any increase in the contribution rate for employers for National Insurance (Paragraph 5.19). Employer NIC rates are currently under review by HMT and the results of the review will likely be published in the new year. This can be discussed in more detail prior to the consideration of the Estimate next year. 14.The NAO also highlights that they are on track to achieve efficiency savings of 3 million through its business improvement programme, consisting of 1.3 million in cash savings and 1.7 million in reduced staffing costs. The Commission may wish to discuss the proposed plans to reduce spend in Value for Money investigations without affecting levels of output (Paragraph 3.13). The Commission may also wish to investigate proposed areas for efficiency savings throughout the strategy period. 15.In relation to Capital, the NAO notes the figures included in the strategy are to cover routine purchase of IT assets and building works (Paragraph 3.28). The Commission may wish to investigate these figures and the peak in property, plant and equipment spend in 18/19 budget. 16.Finally, it may assist the Commission to request that in future strategies the NAO provides context for its proposed spending profile by also including the actual position from the previous year s spend. This should assist the Commission in assessing the areas of spending that consistently fall above or below forecasts. To assist the Commission on this occasion HMT has worked with the NAO to produce the tables at Annex A. The Commission will note 1 Q50 Public Accounts Commission Oral evidence: NAO s Main Supply Estimate for Wednesday 21 March Q23 Public Accounts Commission Oral evidence Wednesday 21 March 2018 Page 3 of 6

4 that in the 17/18 financial year the NAO had a 1.5 million underspend. The Commission may wish to clarify the nature of that underspend and if it is likely to be repeated to such a degree in future. 17.I am copying this letter to Sir Amyas Morse, the Comptroller & Auditor General. RICHARD BROWN TREASURY OFFICER OF ACCOUNTS HM TREASURY Page 4 of 6

5 Annex A Net voted spend Past Strategy Strategy 19/20 to 21/22 16/17 17/18 18/19 19/20 20/21 21/22 Net Spend ( m) Estimate Actual NAO Net Spend m 58 16/17 17/18 18/19 19/20 20/21 21/22 Strategy Estimate Actual Page 5 of 6

6 Wages and Salaries Past Strategy Strategy 19/20 to 21/22 Wages & Salaries ( m) 16/17 17/18 18/19 19/20 20/21 21/22 Salaries Staff related costs Total Wages & Salaries FTE s Estimate Salaries Staff related costs Total Wages & Salaries FTE s Actual Total Wages & Salaries FTE s Wages and Salaries m 38 16/17 17/18 18/19 19/20 20/21 21/22 Strategy Estimate Actual Page 6 of 6