National Audit Office (United Kingdom)
The National Audit Office (NAO) is an independent Parliamentary body in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 which is responsible for auditing
Financial audit
A financial audit, or more accurately, an audit of financial statements, is the verification of the financial statements of a legal entity, with a view to express an audit opinion...

 central government departments
Departments of the United Kingdom Government
Her Majesty's Government of the United Kingdom contains a number of Cabinet ministers who are usually called secretaries of state when they are in charge of Government departments called ministerial departments...

, government agencies
Executive agency
An executive agency, also known as a next-step agency, is a part of a government department that is treated as managerially and budgetarily separate in order to carry out some part of the executive functions of the United Kingdom government, Scottish Government, Welsh Assembly or Northern Ireland...

 and non-departmental public bodies
Non-departmental public body
In the United Kingdom, a non-departmental public body —often referred to as a quango—is a classification applied by the Cabinet Office, Treasury, Scottish Government and Northern Ireland Executive to certain types of public bodies...

. The NAO also carries out Value for Money (VFM) audit into the administration of public policy.


The NAO is the auditor of bodies funded directly by the Parliament of the United Kingdom.

The NAO reports to the Comptroller and Auditor General
Comptroller and Auditor General
Comptroller and auditor-general is the abbreviated title of a government official in a number of jurisdictions, including the UK, the Republic of Ireland, India, and China....

 who is an officer of the House of Commons
British House of Commons
The House of Commons is the lower house of the Parliament of the United Kingdom, which also comprises the Sovereign and the House of Lords . Both Commons and Lords meet in the Palace of Westminster. The Commons is a democratically elected body, consisting of 650 members , who are known as Members...

 of the Parliament of the United Kingdom
Parliament of the United Kingdom
The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body in the United Kingdom, British Crown dependencies and British overseas territories, located in London...

 and in turn reports to the Public Accounts Committee, a select committee of the House of Commons. The reports produced by the NAO are reviewed by PAC and in some cases investigated further.

The NAO has three main streams of work:
  • Financial Audits
  • Value For Money (VFM) audits
  • Good Governance
    Good governance
    Good governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...

Financial audit The NAO’s financial audits give assurance over three aspects of government expenditure: the truth and fairness of financial statements; the regularity (or statutory validity) of the expenditure, and; the propriety of the audited body’s conduct in accordance with parliamentary, statutory and public expectations. Financial audits are carried out in much the same way as private auditing bodies and the NAO voluntarily applies the International Standards of Auditing (ISAs).

Value for Money (VFM) audits are non-financial audits
Performance audit
Performance audit refers to an examination of a program, function, operation or the management systems and procedures of a governmental or non-profit entity to assess whether the entity is achieving economy, efficiency and effectiveness in the employment of available resources...

 to measure the effectiveness, economy and efficiency of government spending. Roughly sixty of these reports are produced each year, the most notable from recent years being the reports on MRSA
Methicillin-resistant Staphylococcus aureus
Methicillin-resistant Staphylococcus aureus is a bacterium responsible for several difficult-to-treat infections in humans. It is also called multidrug-resistant Staphylococcus aureus and oxacillin-resistant Staphylococcus aureus...

, which led to an increase in public interest in the topic, the report on the rescue of British Energy
British Energy
British Energy was the UK's largest electricity generation company by volume, before being taken over by Électricité de France in 2009. British Energy operated eight former UK state-owned nuclear power stations and one coal fired power station....

 and the report in the Public Private Partnership
Public-private partnership
Public–private partnership describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies...

 to maintain the London Underground
London Underground
The London Underground is a rapid transit system serving a large part of Greater London and some parts of Buckinghamshire, Hertfordshire and Essex in England...

. The remits of the NAO and the Public Accounts Committee do not allow them to question the policy itself and so VFM reports only examine the implementation of policy. The responsibility for questioning policy is left for other select committees and debating chambers of Parliament, but this has not prevented the PAC being named committee of the year in 2006.

Good Governance is a smaller but increasing area of work for the office and is somewhere in between VFM and financial audit work. The work tends to produce shorter, quicker reports than VFM and includes briefing documents and papers for select committees. The work also includes Section 2 Reports which examine the collection of taxes by HM Revenue and Customs
Her Majesty's Revenue and Customs
Her Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes and the payment of some forms of state support....

 and the DVLA.

Parliamentary links

The NAO produces a number of briefings for select committees, but its key audience is the Public Accounts Committee. It also has a strong relationship with the Public Accounts Commission that oversees the work of the NAO and approves its budgets.

Public Accounts Committee

The NAO and Public Accounts Committee (PAC) form the key links of the Public Audit Circle which has the following sequence:
  • The NAO performs financial and VFM audits and makes its reports public
  • The PAC has hearings based on NAO reports wherein failures in meeting regularity or propriety requirements are apparent.
  • The PAC provides a report with recommendations based on PAC hearings.
  • The Government responds to the PAC report in a Treasury Minute.
  • The NAO publishes a reply to the minute and there may be an NAO/PAC follow-up study.

Public Accounts Commission

The Public Accounts Commission
Public Accounts Commission
The Public Accounts Commission is a body created under the National Audit Act 1983 to audit the National Audit Office, i.e., to watch the watchers.-Composition:...

 (TPAC) annually approves the NAO's corporate plans and budgets. It also receives value for money reports on the operation of the NAO. These are written by private sector audit firms in much the same manner as the NAO reports on Central Government.

History and establishment

The NAO developed from the former Exchequer and Audit Department (founded in 1866) in 1983 as the auditor for central government
Central government
A central government also known as a national government, union government and in federal states, the federal government, is the government at the level of the nation-state. The structure of central governments varies from institution to institution...

 (including most of the externalised agencies and public bodies) as part of an "appropriate mechanism" to check and reinforce departmental balance and matching of quantitative allocation with qualitative purpose (as set out by public policy). The existence and work of the NAO are underpinned by three fundamental principles of public audit:
  • Independence of auditors from the audited (executives and Parliament)
  • Auditing for: regularity, propriety and VFM (Value for Money)
  • Public reporting that enables democratic
    Democracy is generally defined as a form of government in which all adult citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal participation in the proposal, development and passage of legislation into law...

     and managerial accountability
    Accountability is a concept in ethics and governance with several meanings. It is often used synonymously with such concepts as responsibility, answerability, blameworthiness, liability, and other terms associated with the expectation of account-giving...

The basic need for the NAO arises from these three fundamental principles, in that, as Parliament votes on public expenditure of various activities by public bodies, they need auditors that are independent of the body in question, the government and/or opposing political parties; while auditing for compliance and legal spending by departments on the activities voted for by Parliament, in a transparent and public forum.


The campaign for New Public Financial Management (NPM) has been the driving force behind the technological and functional development and change in the scale and scope of the NAO’s work. Determined to emulate the managerial efficiencies of the private sector, which is driven by profit-maximisation goals, NPM provided public sector audit with the moving goal that is VFM-maximisation: which is achieved by maximising economy, efficiency and effectiveness (3Es).

VFM/performance audits have widened the scope of audit work beyond financial concerns and provided the “customer-based” approach that was lacking in the public sector. The research methodology referred to in the appendices of most VFM studies (carried out by the NAO) reflects on the use of a wide-range of market-research techniques such as focus groups, customer-interviews, expert panels, commissioned research, longitudinal studies. The NAO uses these to measure and verify the results and effectiveness of service provision, and to better understand customers and competitors, in order to evaluate performance and to provide relevant and constructive recommendations.

Having predominantly taken what Pollit & Suma (1997) call the “managerial” approach to self accountability, the NAO has tended to put an emphasis on the benefits it provides as justification for its existence. And this is possibly explained by two things, the first and more positive view, is that the NAO is applying similar VFM criteria to itself as an example and form of assessment; the second view is that the NAO being financed by public funds is also under a pressure to exhibit a need for its existence and the derived usefulness.

The NAO works under pressure to meet statutory and public expectations, playing multiple roles: as auditor, evaluator and guide.


The NAO is based in London and Newcastle and has a staff of 900.

Part of the NAO's London Office is listed building, originally built for Imperial Airways
Imperial Airways
Imperial Airways was the early British commercial long range air transport company, operating from 1924 to 1939 and serving parts of Europe but especially the Empire routes to South Africa, India and the Far East...

 as their "Empire Terminal". The building has recently undergone a £60m restoration and refurbishment.


Following the controversy over a previous C&AG’s expenses, see the critisims, the governance arrangements of the NAO were overhauled and Board was put in place to oversee the running of the organisation. The Board is made up of
  • Non-Executive Chairman - Professor Sir Andrew Likierman
  • Comptroller and Auditor General
    Comptroller and Auditor General
    Comptroller and auditor-general is the abbreviated title of a government official in a number of jurisdictions, including the UK, the Republic of Ireland, India, and China....

     - Amyas Morse
  • Chief Operating Officer responsible for the day-to-day running of the NAO - Michael Whitehouse
  • Three other Executive Directors
  • Four non-Executive Directors


Some of the criticisms that have been levelled at the NAO include the following:
  • It is not sufficiently accountable. Although the NAO publicly scrutinises other public bodies, the scrutiny that it is subjected to is not fully transparent. Its reports are subject to external review both before and after publication by teams of academics from Oxford University and the London School of Economics
    London School of Economics
    The London School of Economics and Political Science is a public research university specialised in the social sciences located in London, United Kingdom, and a constituent college of the federal University of London...

    . These reviews consider whether the methods, findings and conclusions of the reports are sound, and have on occasion found the intellectual basis of the reports to be thin. The results of the reviews are not, however, made public.
  • Its reports are neutral and cautious. This criticism stems from the normal way in which the reports are written. Initial drafts of reports are shared with the department(s) about which they are written. This begins a process of 'clearance', during which all facts are agreed between the NAO and departments. The reason for this is to give the PAC a mutually agreed report on which to base its later hearing; the hearing would be pointless if the departmental witnesses were able to disagree with the findings of the report. In practice, the clearance process is said to lead to a watering down of the initial draft, with the most contentious early findings removed at the behest of the department (and never, therefore, made public).
  • Failure to publish. In extreme cases where information is too politically sensitive, a report is not published. The often quoted case is their 1992 investigation into the Al Yamamah
    Al Yamamah
    Al Yamamah is the name of a series of a record arms sales by the United Kingdom to Saudi Arabia, which have been paid for by the delivery of up to of crude oil per day to the UK government. The prime contractor has been BAE Systems and its predecessor British Aerospace...

     arms deal where due to ongoing legal investigations the report has not been released. It refused to release a copy to investigators during the Serious Fraud Office investigation into the Al Yamamah corruption allegations in 2006 as to do so would have required a special vote by the House of Commons.
  • Its savings are not robustly calculated. The NAO claims to save the taxpayer £9 for every £1 it costs to run. These savings include reductions in public expenditure and quantifications of non-financial impacts of the NAO's work. The latter includes expenditure being better targeted and, in some cases, increased expenditure. (For example, the NAO published a report on how the Department for Work and Pensions
    Department for Work and Pensions
    The Department for Work and Pensions is the largest government department in the United Kingdom, created on June 8, 2001 from the merger of the employment part of the Department for Education and Employment and the Department of Social Security and headed by the Secretary of State for Work and...

     was making the general public aware of state benefits to which they might be entitled. Any increase in the take-up of benefits that could be shown to be directly attributable to the report would be counted as a 'saving' by the NAO.) If the definition of 'savings' were restricted to reductions in public expenditure, the amount of savings that the NAO could claim to have made on behalf of the taxpayer would be significantly reduced. The argument used to support this practice is that the NAO's remit is to examine the effectiveness and efficiency of public spending as well as the economy.
  • Some of its reports are insufficiently strategic. The NAO produces a wide range of reports on all aspects of central government expenditure, but many of these deal with marginal topics like government leaflets, countryside rights of way and railway stations. As David Walker notes, the NAO does not and cannot examine major strategic issues such as the underlying principles of the Private Finance Initiative
    Private Finance Initiative
    The private finance initiative is a way of creating "public–private partnerships" by funding public infrastructure projects with private capital...

     and the effect of class sizes on educational attainment.
  • Its reports do not deal adequately with the issue of value for money. The NAO uses a broad brush definition of 'value for money' to plan and carry out its reports. The reports do not, as might be expected, focus purely on detailed financial analysis of whether or not a particular scheme or initiative is value for money. Instead, they include qualitative analysis of costs and benefits in order to give a more comprehensive assessment. In 2005, an NAO report on NHS Local Investment Finance Trust (LIFT) was criticised by one of the PAC members at the time, Jon Trickett
    Jon Trickett
    Jon Hedley Trickett is a British Labour Party politician, who has been the Member of Parliament for Hemsworth in West Yorkshire since a 1996 by-election...

    , for its focus on qualitative analysis of the benefits of LIFT schemes and the paucity of its financial analysis. The NAO has recently published a report about the use of consultants in the public sector. Critics identify that this report did not directly answer the question of whether consultants employed by the public sector give good value for money. However, as the report highlights as one of its findings, this was not possible because insufficient information is gathered by departments. Furthemore, the report did not consider the quality of the advice given to departments by consultants.
  • Sir John Bourn's Expenses In May 2007, Private Eye
    Private Eye
    Private Eye is a fortnightly British satirical and current affairs magazine, edited by Ian Hislop.Since its first publication in 1961, Private Eye has been a prominent critic and lampooner of public figures and entities that it deemed guilty of any of the sins of incompetence, inefficiency,...

    released information obtained under the Freedom of Information Act
    Freedom of information in the United Kingdom
    Freedom of information legislation in the United Kingdom is controlled by two Acts of the United Kingdom and Scottish Parliaments respectively, which both came into force on 1 January 2005.* Freedom of Information Act 2000...

     detailing the travel expenses of the then head of the NAO, Sir John Bourn
    John Bourn
    Sir John Bourn, then an officer of the British House of Commons, was holder of the office of Comptroller and Auditor General and, as such, head of the National Audit Office. He took up his post in 1988 after a series of senior appointments in the Ministry of Defence and the Northern Ireland Office...

    . These included tickets on Concorde
    Aérospatiale-BAC Concorde was a turbojet-powered supersonic passenger airliner, a supersonic transport . It was a product of an Anglo-French government treaty, combining the manufacturing efforts of Aérospatiale and the British Aircraft Corporation...

     and stops at luxury hotels. In one instance, Sir John and his wife attended a three day audit conference in The Bahamas
    The Bahamas
    The Bahamas , officially the Commonwealth of the Bahamas, is a nation consisting of 29 islands, 661 cays, and 2,387 islets . It is located in the Atlantic Ocean north of Cuba and Hispaniola , northwest of the Turks and Caicos Islands, and southeast of the United States...

    . The conference was Wednesday to Friday. Sir John arrived on the Friday and he and his wife stayed on the island Saturday and Sunday.
  • Al Yamamah The NAO was also accused of hampering a police investigation into the Al Yamamah
    Al Yamamah
    Al Yamamah is the name of a series of a record arms sales by the United Kingdom to Saudi Arabia, which have been paid for by the delivery of up to of crude oil per day to the UK government. The prime contractor has been BAE Systems and its predecessor British Aerospace...

     deal by The Guardian
    The Guardian
    The Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...

    newspaper in July 2006. It would however have been a breach of parliamentary privilege, and hence illegal, for the NAO to have handed over the requested information.

Other Public Sector Auditing Bodies

There are several other public sector auditing bodies in the United Kingdom:
  • The Audit Commission
    Audit Commission
    The Audit Commission is a public corporation in the United Kingdom.The Commission’s primary objective is to improve economy, efficiency and effectiveness in local government, housing and the health service, directly through the audit and inspection process and also through value for money...

     - auditor of local government in England and the English NHS trust
    NHS Trust
    A National Health Service trust provides services on behalf of the National Health Service in England and NHS Wales.The trusts are not trusts in the legal sense but are in effect public sector corporations. Each trust is headed by a board consisting of executive and non-executive directors, and is...


  • The Wales Audit Office
    Wales Audit Office
    The Wales Audit Office is an independent public body which was established by the National Assembly for Wales on 1 April 2005. It has overall responsibility for auditing on behalf of the Auditor General for Wales, across all sectors of government in Wales, except those reserved to the UK...

    , Audit Scotland
    Audit Scotland
    Audit Scotland is an independent public body in Scotland which was established in 2000 and is responsible for auditing most of Scotland's public organisations. These include the Scottish Government, local councils and NHS Scotland....

     and Northern Ireland Audit Office are responsible for auditing their devolved assemblies and associated public bodies.

See also

  • Whole of Government Accounts
    Whole of Government Accounts
    Whole of Government Accounts is a transparency and accountability project of HM Treasury of the United Kingdom. It aims to provide more complete data for fiscal planning by producing consolidated financial statements. The accounts are independently audited by the Comptroller and Auditor...

  • A few other "Supreme audit institutions" (for a full list, see International Organization of Supreme Audit Institutions
    International Organization of Supreme Audit Institutions
    The International Organization of Supreme Audit Institutions is a worldwide affiliation of governmental entities. Its members are the Chief Financial Controller/Comptroller General Offices of nations.INTOSAI was founded in 1953 in Havana, Cuba...

    • European Court of Auditors (EU)
    • Government Accountability Office
      Government Accountability Office
      The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

    • Cour des Comptes
      Cour des Comptes
      The Court of Audit is a quasi-judicial body of the French government charged with conducting financial and legislative audits of most public institutions and some private institutions, including the central Government, national public corporations, social security agencies , and public services...

    • Chamber of Accounts (Greece)
      Chamber of Accounts (Greece)
      In Greece, the Chamber of Accounts is both an administrative organ and a Supreme Administrative Court with a special jurisdiction...

    • Australian National Audit Office
      Australian National Audit Office
      The Australian National Audit Office is the national auditor for the Parliament of Australia and Government of Australia. It reports directly to Parliament but is administratively located in the Portfolio of Prime Minister and Cabinet....

    • National Audit Office of the People's Republic of China
      National Audit Office of the People's Republic of China
      The National Audit Office of the People's Republic of China is the supreme audit institution in the People's Republic of China. It was established in 1983 according to the Constitution...


  • Audit, Accountability and Government White & Hollingsworth, Oxford University Press (1999)

External links

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