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NAO guidance: questions audit and risk committees ask

29 June 2020: The National Audit Office (NAO) has issued guidance to help audit and risk committee members examine the impact of the COVID-19 outbreak on government organisations.

All organisations have been affected by COVID-19, and many government bodies have been on the front line, supporting either the economy, community or individuals. The NAO has issued a Guide for audit and risk committees on financial reporting and management during COVID-19 to help audit and risk committee members discharge their responsibilities and to examine the impact the pandemic has had on their organisations. 

The guidance is split into four sections: annual reports; financial reporting; the control environment; and regularity of expenditure. In each of these sections, there is a series of questions to help audit and risk committee members understand and challenge the operations. The guidance is not intended to provide an exhaustive list of issues to consider, and any unique circumstances peculiar to an organisation will need to be taken into account.

Key areas are addressed, helping audit and risk committee members to probe issues that are particularly impacted by COVID-19, such as:

  • whether expenditure was in line with parliamentary authority (regular);
  • whether entities were able to meet their objectives;
  • valuations of assets and the probability of those valuations being accurate;
  • completeness of liabilities and details on estimations;
  • whether events after the reporting period are appropriately reflected in the annual reports; and
  • fraud and error in expenditure.

There are perhaps several additional topics that could have been included. In relation to going concern and scenario planning, government should also be ‘reverse stress testing’ - evaluating circumstances which might render a business model unworkable. The guidance could have included more detail on future cash flow modelling since this is integral to scenario testing and evaluating risks. A delay to existing and planned capital projects on top of changing cash flows could have significant knock-on effects.

Nonetheless, the guidance is an excellent starting point to help scrutinise those charged with governance of public sector organisations.

Alison Ring, director for public sector at ICAEW said: “This guidance will no doubt contribute to the scrutiny of government’s response to COVID-19. It provides an excellent foundation for audit and risk committees to discharge their duty of holding departments to account.

“I wonder how well equipped the audit and risk committees are in evaluating the responses. The next step for the NAO is to assist in assessing the responses to some questions being posed. We will work with the public sector financial reporting and audit community to offer further guidance and support in making complete assessments of the responses received.”