Reports issued by the National Audit Office (NAO) during the course of January have covered a range of topics from improving the quality of financial modelling in government, devolved income taxes administration, project and programme management, and how the government is doing in improving outcomes for women in the criminal justice system. This is in addition to external audit opinions issued on central government departmental and public body financial statements.
NAO reports issued during January 2022 comprise:
- Good practice in annual reporting
- A framework to use in reviewing and auditing financial models
- How well the government is doing in improving financial modelling
- Administration of Scottish income tax 2020/21
- Administration of Welsh rates of income tax 2020/21
- Progress update on the restoration and renewal of the Palace of Westminster
- A framework to review programme portfolios
- The decommissioning of the AGR nuclear power stations
- Improving outcomes for women in the criminal justice system
Several audit opinions were issued on 2020/21 financial statements, including:
- Ministry of Defence (MoD): qualified audit opinion
- Department of Health & Social Care (DHSC): qualified audit and regularity opinions
Key findings by the NAO include (for example) continuing to find weaknesses in financial models such as limited or poor-quality data, unrealistic assumptions and optimism bias, and inadequate sensitivity and scenario analysis.
Gareth Davies, the Comptroller & Auditor General and Head of the National Audit Office, qualified his audit opinion on the MoD accounts for non-compliance with IAS 17 on leases, and the DHSC audit opinion for lack of inventory records and support for onerous contract provisions and related transactions, insufficient evidence on accruals, and a £2.2bn unrecognised impairment in opening balances. He also qualified the DHSC regularity opinion for spending £1.3bn in breach of the requirements of Managing Public Money and for insufficient evidence concerning the level of fraud in COVID-19 related expenditure. Gareth Davies also criticised the MoD for delays in issuing its departmental accounts.
The NAO’s interactive guide Good practice in annual reporting identifies four principles to support high-quality financial reporting: supporting accountability; transparency; accessibility; and the need for reports to be understandable.
Applying the four principles should result in annual reports that provide a fair and balanced ‘story’ in plain English, quantify the risks and performance measured and provide concise summaries of key points while highlighting key trends in the financial statements.
The guide draws in examples of good practice from within each section of an annual report, such as strategy, risks, operations, governance, measures of success and financial performance. A new section was added this year to cover ‘external factors’, reflecting the increasing importance of disclosing the impact of drivers such as COVID-19, climate change and EU Exit.
The NAO says the examples are not exhaustive but are presented to provide ideas for all bodies to think about in planning for the 2021/22 reporting season. They also highlight other best practice examples provided by HM Treasury, which can be found here.
Good practice examples provided under each section of an annual report include:
- Strategy – depiction of value creation; linking old and new strategies
- Risks – escalation of risk diagram; changes in risk profile at a glance; risk appetite by area
- Operations – delivery through stakeholders; innovative depiction of group structure
- Governance – strength and skills of the board; honest narrative around board diversity
- Measures of success – KPIs for financial and non-financial measures
- Financial performance – clear explanation of an underspend; directly relatable to the user
- External factors – visually engaging sustainability reporting; response to climate change
Although aimed at the public sector, many of these examples will also be of interest to preparers of annual reports and financial statements in the private and not-for-profit sectors.
The NAO is currently working on reports on the child maintenance system, the roll-out of the COVID-19 vaccine in England, an investigation into lessons from implementing IR35, an investigation into the government’s contracts with Randox, and an investigation into the government’s management of COVID-19 contracts, among many others as set out in the NAO’s work-in-progress list.