Tailoring governance and audit requirements to ease the burden on small public bodies would allow the government to release resources and improve accountability, a new National Audit Office (NAO) report says.

The report says some of the government’s requirements on how public bodies should operate effectively are better suited to large organisations than to small ones, which have fewer resources at their disposal. 

The NAO says many small government bodies find the preparation and audit of their annual reports and accounts increasingly costly and time consuming. Small central government bodies have to comply with the same financial reporting requirements as their larger counterparts, even though small private companies and charities benefit from exemptions and simplified requirements. 

The NAO recommends that the government explores streamlining the requirements for small bodies and helps them more effectively comply with updated requirements. 

Statutory requirements in areas such as counter fraud, digital, human resources and security are designed to ensure that public bodies (which include departments, arm’s-length bodies and other organisations) carry out their functions with efficiency, accountability and transparency.

These requirements are important to protect the public purse and promote public trust, but complying with them involves time, effort and cost. 

In recent years, the annual reports and accounts of organisations in all sectors have become longer and more detailed, and external audits have grown in scale and cost, partly due to changes to reporting and auditing standards and to increased regulatory expectations for audit quality.

Small bodies find it hard to work out which requirements are appropriate for their operations because they often have fewer people, less in-house expertise and more limited resources than their larger counterparts.

These small bodies have indicated that they would like more support to help with compliance in the form of tailored self-assessment checklists and greater involvement in knowledge-sharing forums such as conferences and webinars. 

Although there are some examples of departments adopting innovative approaches to overseeing how their arm’s-length bodies comply with requirements, oversight remains inconsistent across government. When it comes to annual reports and financial statements, the same reporting requirements apply to most UK central government bodies, regardless of size, complexity and level of risk.

To ensure that the financial reporting requirements for small bodies are meaningful and proportionate, the government should work with departments to develop a consistent approach to deciding which bodies may be eligible for ‘light-touch’ reporting requirements where the risk to public money is low. 

The NAO has also identified five areas for the government to consider when it sets new requirements for government bodies:

• Understanding the costs of implementing requirements for small bodies; 
• Considering whether the benefits of new requirements outweigh the costs, especially for small and low-risk organisations; 
• Tailoring requirements to organisations of different sizes where this results in a better cost-benefit trade-off; 
• Clearly communicating the rationale for new requirements; and 
• Considering whether new requirements can replace or streamline existing requirements.

Gareth Davies, head of the NAO, said: “The government is implementing ambitious plans to provide greater autonomy to individual public bodies and streamline regulations to increase efficiency and productivity. 

“In doing so, it has an opportunity to review the requirements placed upon smaller public bodies to ensure that they achieve an optimal balance between accountability, transparency, efficiency and continuous improvement.” 

Alison Ring, ICAEW’s Director, Public Sector and Taxation, said: “High quality annual reports and accounts are fundamental to effective accountability, but a balance must be struck for smaller public sector entities when considering their financial reporting and audit requirements, just as it is in the private sector. Stakeholders need timely and sufficient information to hold organisations to account.”