National Audit Office
NAO Strategy 2020‑21 to 2024‑25
We are the UK’s independent public spending watchdog.
We support Parliament in holding government to account and we help improve public services through our high‑quality audits.
The National Audit Office (NAO) helps Parliament hold government to account for the way it spends public money. It is independent of government and the civil
service. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether government is delivering value for money on behalf of the public, concluding on whether resources have been used efficiently, effectively and with economy. The NAO identifies ways
that government can make better use of public money to improve people’s lives.
It measures this impact annually. In 2018 the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £539 million.
Links to external websites were valid at the time of publication of this report. The National Audit Office is not responsible for the future validity of the links.
This report can be found on the National Audit Office website at www.nao.org.uk
For further information about the National Audit Office please contact:
National Audit Office Press Office
157–197 Buckingham Palace Road Victoria
London SW1W 9SP
Tel: 020 7798 7400
At the beginning of the Comptroller and Auditor General’s 10‑year term, we decided to carry out a wide‑ranging review into the role and purpose of the National Audit Office (NAO). There are significant changes affecting public service provision and the use of public resources. These include: the public spending implications of the government’s ambitious infrastructure programme; the plan to achieve net zero emissions; the use of big data and artificial intelligence in public services; and the changes flowing from the UK’s exit from the EU. In addition, there are substantial changes affecting the auditing profession which we must also respond to.
Our review involved wide‑ranging engagement with our stakeholders. Parliamentarians, civil servants, those running local public bodies and members of the public all provided perspectives on how we can best fulfil our remit and prepare for the challenges ahead. Our people also provided valuable contributions based on their extensive experience of financial and value‑for‑money auditing.
Our strategy will build on our proven strengths. We will continue to respond to Parliament’s responsibility for scrutinising how well government departments and public bodies use public resources and whether they deliver in line with policy commitments. We have developed the capacity to carry out quicker, more responsive reviews when needed.
We will continue to work closely with the audit committees and management of the bodies we audit, providing the assurance they require and highlighting areas for improvement.
We will show greater ambition where Parliament, civil servants and the public have said we can do more. We will further deepen our capabilities to provide our expert perspective on the issues that matter. As well as reporting on individual departments and organisations, we will bring together what we have found on important topics in a new series of ‘lessons learned’ reports. We will update how we report and communicate so our work is accessed and used as widely as possible. We will embed new data analytic technology in our financial audit and value‑for‑money methodologies to generate new insights and improve our efficiency. We will ensure our audit of government’s financial statements keeps pace with the rapid developments in audit quality and regulation in the wider economy.
We aim to be an exemplar organisation, meeting the high standards of performance, efficiency and sustainability we expect of those we audit.
By retaining our existing strengths and investing in these new areas, we are confident the NAO will be well‑placed to play its vital role in providing independent assurance and supporting improvement.
Gareth Davies Lord Michael Bichard KCB
Comptroller and Auditor General Chairman
Our five‑year strategy
1 Following the arrival of the new Comptroller and Auditor General (C&AG) in
June 2019, we considered the big challenges and opportunities facing the public sector. We thought through how we can best service Parliament and respond to changes in the external environment that affect us as well as the bodies we audit. Our work is held in high regard, but we are not complacent. We know we can achieve more and that there are areas where we need to adapt to ensure our work remains relevant and effective.
2 The UK faces new opportunities and demanding challenges in the 2020s. The government is forging a new relationship with the EU and the rest of the world and is working to achieve net zero emissions by 2050. It has ambitious plans for
improving national infrastructure; demographic changes will continue to drive higher demand for health and social care; and technological innovation will continue to reshape whole industries and public service delivery. Greater devolution of powers and responsibilities from Whitehall will mean new accountability and governance arrangements being put in place.
3 This sets a demanding agenda for the National Audit Office (NAO) in supporting Parliament’s scrutiny of how government’s policy objectives are being implemented. Our new strategy, covering the next five years, ensures we continue to provide effective support to Parliament in scrutinising public sector performance while making our insights available to those responsible for public services (Figure 1 overleaf). Our work will address the cross‑cutting nature of many of the government’s priorities, as well
as the performance of individual departments. We will use our remit across all public spending to provide high‑quality and objective evidence and analysis for Parliament.
6 Introduction NAO Strategy 2020‑21 to 2024‑25
Overview of the National Audit Office’s strategy 2020‑21 to 2024‑25
We are the UK’s independent public spending watchdog
We support Parliament in holding government to account and we help improve public services through our high-quality audits
Our strategic priorities
Improving our support for effective accountability and scrutiny
We provide assurance that public resources are accounted for accurately and used as intended. When this does not happen, we point it out. We will upgrade our methodology and software to deliver higher‑quality audits using data analytics. This will meet regulatory standards, provide Parliament with deeper insights to scrutinise public spending, and give those responsible
for the governance of the bodies we audit the assurance they need.
Increasing our impact on outcomes and value for money
Our work focuses on the issues that matter and we will place greater emphasis on where we can influence long‑term value for money. We will make better use of our analytical and audit expertise
to identify how public services can be improved. This will allow more insightful and practical recommendations that lead to better outcomes.
Providing more accessible independent insight
We will be known as a valuable source of knowledge on how well public resources are used and how the governance and performance of public services can be improved. We will synthesise what we know on important issues and make it easier for others to understand and apply the lessons from our work.
Our strategic enablers
We will attract, retain and develop high-quality people
Our people are proud to be part of our diverse, inclusive and healthy workplace.
We attract talented people and support them to become even better at what they do,
enhancing their careers and ensuring we have the skills and capabilities we need.
We will make more effective use of technology, data and knowledge
We use technology and analysis of data to perform our audit work more effectively and to create and communicate new insights that cannot be achieved in other ways.
We aim to be an exemplar organisation
We lead by example in holding ourselves to the high standards we expect from public bodies. We are efficient, provide value for money and focus on long‑term sustainability.
NAO Strategy 2020‑21 to 2024‑25 Introduction 7
4 Our strategy is ambitious for the positive impact we can have and the difference this will make to Parliament, the bodies we audit and the public. The changes we will make to implement our strategy:
• Developing deeper insights from our financial audit work. This will allow us to give Parliament and the public better information about how public money is being managed across government and provide the bodies we audit with fresh perspectives on their business.
• Greater focus on long-term value-for-money issues. Our work programme will respond to government’s plans with long‑term implications for public spending, such as major infrastructure projects; the impact of EU Exit; progress towards the net zero emissions target; the use of technology and data to transform services; and devolution.
• Making much better use of our knowledge. We will make it easier for others to find, understand and apply the lessons from our work and use them to improve value for money. We will publish a new series of reports that bring together what we have learned from our work on important recurring issues, such as commercial contracting and digital transformation. We will use this learning where big projects and programmes are at an early stage, such as the restoration and renewal of the Palace of Westminster, to better influence results.
• Enhancing our expertise in the skills that are a priority for government. This will allow us to focus more work on, and help improve value for money in, areas that are important to making government more efficient and effective.
These include: major project delivery; financial and risk management; commercial; people and operational management; and digital.
5 These changes will allow the NAO to be more effective and improve the quality of our work. Achieving these changes will require us to develop and improve our audit processes, systems and skills. We will invest in our financial audit software and methodology and train our staff in new audit techniques. This will allow us to provide Parliament with deeper insights from our financial audit work. It will also ensure that our work is carried out efficiently and allow us to respond to developments in auditing standards and regulation following the Kingman and Brydon reviews. We will invest
in value‑for‑money specialist expertise and skills, recruiting the necessary skills and expertise alongside training our staff in new areas of specialism. This will improve our capacity and capability to better focus on longer‑term value‑for‑money issues. We will invest in our knowledge management processes and capability, and make it easier for people to access knowledge and insights from our work.
6 We will continue to report on the most significant risks to value for money, drawing on our established expertise, such as in‑service delivery, procurement, major infrastructure projects, service transformation and the effect of regulation. Where appropriate our value‑for‑money audits will include the perspective of diverse users
of public services and examine the effects of government’s activities in different local areas and among different groups.
8 Introduction NAO Strategy 2020‑21 to 2024‑25
We are the UK’s independent public spending watchdog.
We support Parliament in holding government to account and we help improve public services through our high-quality audits.
7 In developing our new strategy, we revisited the role and purpose of the National Audit Office. Our role has not changed, but the strategy provided us the opportunity to more clearly express our purpose as the independent auditors of public spending for Parliament.
8 The C&AG and the NAO are independent of government. We have the right to choose which areas of public spending to examine and in how much detail we examine them. Our independence enables us to focus on the issues that support Parliament in holding government to account and to provide Parliament with an evidence‑based view of public spending and public sector performance.
9 The breadth of our work allows us to provide Parliament with a comprehensive view of public spending. We audit the financial accounts of public sector organisations across government and examine and report on the value for money of how public money has been spent. This allows us to support Parliament’s scrutiny across the full span of government activity.
10 We conduct our work with the interests of the taxpayer at its heart. Our work helps Parliament and the people who manage and govern public bodies improve services and make efficient use of public resources.
11 In the rest of this document we set out:
• our strategic priorities and the difference we will make by achieving these (Part One); and
• the strategic enablers and resources we need to realise our strategy (Part Two).
Our strategic priorities
1.1 This section covers how we intend to achieve our three strategic priorities:
• improving our support for effective accountability and scrutiny;
• increasing our impact on outcomes and value for money; and
• providing more accessible independent insight.
Improving our support for effective accountability and scrutiny
We provide assurance that public resources are accounted for accurately and used as intended. When this does not happen, we point it out. We will upgrade our methodology and software to deliver higher-quality audits using data analytics. This will meet regulatory standards, provide Parliament with deeper insights to scrutinise public spending, and give those responsible for the governance of the bodies we audit the assurance they need.
Financial audit work
1.2 Parliament, audit committees of public bodies, civil servants and the public expect us to produce high‑quality audits compliant with audit standards; to support government bodies in the implementation of any new accounting standards; and to keep pace with industry‑wide developments in the audit profession. To do this, we need to invest in technology and skills, and ensure our audit methodology is fit for purpose.
1.3 There are now higher expectations around the quality of audit. The audit profession’s regulatory regime is developing following the review of the Financial Reporting Council (FRC) by Sir John Kingman and the review by Sir Donald Brydon into audit quality and effectiveness. These reviews provide Parliament with the opportunity to put the right arrangements in place for the oversight of the quality of our audit work.
10 Part One NAO Strategy 2020‑21 to 2024‑25
1.4 Three new financial reporting standards were issued in recent years covering financial instruments, revenue recognition and accounting for leases. Changes to accounting for leases in IFRS 16 is the most far‑reaching for the public sector. It requires an organisation to recognise all the assets which are leased, such as property, vehicles and equipment, on the balance sheet as if they were owned, with all future lease payments as a corresponding liability. There are estimated to be more than 75,000 leases across central government affected by the new standard, which will result in an accounting adjustment of between £20 billion and £25 billion according to the latest forecasts. We will need to audit the implementation of these new standards. We have estimated that an additional resource will be required for the first two years of our strategy across our audit portfolio to do this.
1.5 Over time, Parliament has legislated to increase the portfolio of bodies we audit, recognising that we are best placed as independent public auditors to look at bodies that use public resources. At the time of writing this strategy, we know of the following additions to our audit portfolio. We have recently been appointed as the statutory auditor of the FRC and S4C (Channel 4 Wales). Our work on the BBC group will expand to include additional companies that manage UKTV and Natural History Big Pictures. The Parliamentary Buildings (Restoration and Renewal) Act passed in November
2019 granted the NAO with the responsibility to audit the delivery and sponsor bodies charged with undertaking the works for the restoration of the Palace of Westminster. The two bodies come into existence from 1 April 2020 and we will therefore start our audit work from 2020‑21. With the exception of the work on Restoration and Renewal, which is funded by Parliament, we will charge a fee for the audited bodies to recover the costs.
1.6 As part of our financial audit work, we also need to consider the changes to the UK government finances and accounts resulting from the UK’s exit from the
European Union (EU). This will affect both civil service operations and financial reporting requirements. We expect the scheme of subsidies for agriculture and rural development, which is currently administrated under the EU’s Common Agricultural Policy, to change and with it the related audit regime. While this work has grown in recent years in terms of size and scope, It is too early to say how this work will change for the remainder of the strategy period.
Investing in digital audit
1.7 We plan to invest £2 million per year in our audit work to modernise and digitalise our audit methodology and fund the associated learning and development packages for our audit staff. The role of technology and data analytics is becoming ever more important across the audit profession, with all audit firms investing in new technology and data analytics to provide higher‑quality audits, better insight and more efficient
audit processes. We need to ensure that we are in step with industry‑wide technological developments in auditing to provide the high‑quality audit service expected from us.
NAO Strategy 2020‑21 to 2024‑25 Part One 11
1.8 We must therefore invest in our IT platforms for our audits, in the further development of our audit methodology and in our learning and development activities to support our people in adapting to these new audit techniques. Modern audit software allows for better automating of audit methodologies with a greater variety of built‑in controls.
Value‑for‑money and wider assurance work
1.9 We help Parliament to hold government to account for its use of public resources by providing high‑quality value‑for‑money reports, investigations and briefings, as
well as supporting its scrutiny of the annual reports and accounts of government departments. Our primary Parliamentary relationship is with the House of Commons’ Committee of Public Accounts. Our relationship with the Committee is important to the success of our strategy. In the new Parliament we expect to support between
50 and 65 evidence sessions for the Committee per year. We want to build on our effective relationship with the Committee and aim to provide a further enhanced service. In particular, we will continue to refine our briefings to meet members’ needs, by including more local data, making better use of technology and providing more frequent and tailored oral briefings. We will also provide greater support to the Committee in following up on recommendations from the Committee reports.
1.10 We will also continue our support for departmental select committees by identifying opportunities to contribute to their work and provide formal and informal advice and evidence to support their inquiries. We also publish annual overviews of departments
to assist committees in their scrutiny of departments’ annual reports and accounts.
1.11 We currently have nine people on secondment to select committees and to the Scrutiny Unit. Our people provide expertise to committee members as they carry out inquiries and examine the work of government. We will work closely with the House of Commons Library and the Scrutiny Unit, and we will seek to increase their awareness of our work.
1.12 More generally, we want all MPs to view us as an important source of support and advice. In the new Parliament we will seek to be more consistent with and increase our engagement with individual MPs and their staff by:
• providing briefings on our published outputs. Round‑table briefings for Parliamentarians on issues such as infrastructure programmes, health and defence spending have been well received by MPs;
• responding to MPs’ correspondence and concerns where value for money may be at risk. Since April 2019, we have provided 77 responses to correspondence from MPs;
• providing advice to MPs on examining departments’ annual reports and accounts; and
• providing information for MPs staff and Select Committee staff, particularly if they are new to their post, so they understand how we can help MPs to hold government and public services to account for the use of public resources.
12 Part One NAO Strategy 2020‑21 to 2024‑25
1.13 Over the strategy period we will maintain our programme of factual investigations and rapid reports. We will encourage MPs to raise potential subjects of investigations with us and we can respond quickly to support their scrutiny of emerging issues through timely and relevant investigations. We undertook investigations into the rescue of Carillion’s private finance initiative (PFI) hospital contracts and pre‑school vaccinations. We also recently produced a briefing on the information the Department for Work & Pensions holds on benefit claimants who ended their lives by suicide, in response to correspondence we received from a previous departmental select committee chair.
Supporting boards and audit committees
1.14 Our financial audit work is essential in providing high‑quality information and independent and objective assessments of the management of public resources for public bodies’ audit committees and boards. We help public bodies’ audit committees and boards to establish and maintain confidence in the information they have responsibility to report. We will continue to perform this function to help boards and audit committees know how confident they can be in audited information and to provide information on which they can take decisions.
1.15 We will also continue to ensure our value‑for‑money and wider assurance work provides assurance for public sector boards, audit committees and senior civil servants over high‑risk areas of public spending and key public service provisions. Over many years we have reviewed through various value‑for‑money examinations aspects of the way Her Majesty’s Revenue & Customs (HMRC) has developed its customer service. This and our other assurance work in this area has helped HMRC better understand and improve aspects of the service it provides.
1.16 The bodies we audit recognise the value of our wider assurance work in supporting them in their governance and management functions. Around two‑thirds of our audited bodies believe we bring a deep and accurate understanding about wider management issues beyond financial management and control matters. Chairs of audit committees praise our ability to make complex issues clear. The bodies we audit tell us, however, that there is more we can do. We will share more best‑practice overviews and examples, bringing together our wider expertise and experience to help public bodies learn lessons from what we have seen across the public sector.
NAO Strategy 2020‑21 to 2024‑25 Part One 13
1.17 The Comptroller and Auditor General (C&AG) has a statutory responsibility to issue the Code of Audit Practice and supporting guidance, which sets out how external auditors of local public bodies meet their responsibilities under the Local Audit and Accountability Act 2014 and the NHS Act 2006. The Code of Audit Practice must be refreshed at least every five years. We have prepared a new Code, which has been laid in Parliament and which, subject to completion of its negative approval process, comes into effect from 1 April 2020. Building on the work we undertook in 2018 summarising the findings of local auditors, the new Code puts a sharper focus on auditors’ work on local bodies’ arrangements to secure value for money, and promotes more meaningful and timely