A Sense of History
'The student who knows no history thinks each continent new to him a continent newly discovered.'
Sir Joshua Reynolds
Public accountability is a cornerstone of democracy. This was firmly recognized in the cradle of democracy itself when Athens in the fourth century bce had well-established procedures for holding all office holders publicly accountable for their propriety and stewardship. In Britain, ensuring that the Executive—that is the government, whether elected or appointed by a ruling monarch—is held accountable to Parliament has over the centuries been a barometer of fundamental constitutional struggles between monarch and Parliament. Today it remains a key element in relationships between Parliament and the Executive.
Political power and Executive dominance were crucially dependent upon control over public finances, especially in the ability to marshal and use military force, either against external foes or to stifle internal revolution or discontent. Constitutional controls over finance were therefore a bulwark against oppressive use of Executive power. This nexus between political hegemony and public finances lay at the heart of the constitutional battles between Parliament and the Executive in the evolution of the English Constitution. John Morley, politician, biographer, and political writer, noted that 'Under other governments a question of expense is only a question of economy, and it is nothing more; with us, in every question of expense, there is always a mixture of constitutional considerations.' Prime Minister William Gladstone believed that 'finance of the country is ultimately associated with the liberties of the country____ (I)t is a powerful leverage by which English liberty has been gradually acquired.' From the late seventeenth century until the late nineteenth century the constitutional importance of Executive financial accountability provided the core rationale for reforms to government accounting and the nature and extent of parliamentary audit.
Throughout the eighteenth and early nineteenth centuries reforms of government accounting and auditing were often responses to the political crises of war and revolution and their financial demands and priorities. Repeated calls by the Executive for increased funding and greater powers over spending then jeopardized key elements of the constitution, the powers of Parliament, and the liberties and rights these protected. From these ferments came the impetus for accounting and audit reforms to strengthen constitutional safeguards for holding the Executive accountable to Parliament. In the late eighteenth century the political and economic crisis engendered by the American War of Independence (1775-83) was especially significant in prompting government accounting and audit reforms, which laid the foundations for developments in British public sector audit in the middle decades of the nineteenth century. The last decades of the eighteenth century were the crucible of modern Westminster constitutional audit.
For parliamentarian Edmund Burke the 'distinguishing part' of the English constitution was its liberty. To 'preserve that liberty inviolate', he warned, 'seems the particular duty and proper trust of a member of the House of Commons'. Indeed, the Act of Settlement in 1701 had sought to reinforce the constitutional relationship between Crown and Parliament, which had been forged in the Declaration of Rights (1689), and later the Bill of Rights, by affirming the need 'for the further limitation of the Crown and better securing the rights and liberties of the subjects'. Protection of this liberty was the 'sacred, illimitable obligation' of those who inherited the benefits of the Glorious Revolution of 1688-9. According to Burke, the 'only security for law and liberty' was a strong, independent, and vigilant parliament. The constitution would endure only so long as parliamentary sovereignty remained its keystone, especially in matters of finance.8 The people, Burke emphasized, 'took infinite pains to inculcate, as a fundamental principle, that in all monarchies the people must in effect themselves... possess the power of granting their own money, or no shadow of liberty could subsist'.9 Arthur Onslow, Speaker of the House of Commons 1728-61, confirmed that Parliament's exclusive authority to grant money was: the great and most important Right of this House____ It is a Right... that never
ought to come into doubt;it is a Right which we cannot part with the sole Exercise of, without giving up our own power, without betraying the Liberties of our constituents.
Against this background, public accountability has been a complex amalgam of institutions, practices, and requirements where patterns changed to reflect movements in the scale and distribution of public expenditure and developments in the objectives, priorities, management, and delivery of departmental programmes and projects. Although the pursuit of better accountability has been a dominant force in shaping parliamentary financial control, the evolution of modern public sector audit has been 'cautious and at times faltering', rather than following an 'orderly march towards carefully considered, defined and agreed objectives'. Improvements have often depended on a combination of opportunism and determination, against a background of wider developments in constitutional and political manoeuvring.
The earliest opportunities to strengthen the accountability of the Executive to Parliament came when reductions in the royal estates and revenues and the heavy costs of wars and other adventures meant that the King, or Queen, could no longer afford 'to live of his or her own' and had to seek parliamentary grants and aids. Additional funds inevitably came with conditions and restrictions attached. Accordingly, 'parliamentary control of expenditure was strong when the Executive was weak, as under the Lancastrians, and weak when the Executive was strong, as under the Tudors'. The King's need for additional funds was a feature of developments towards wider accountability in the fourteenth century, which were given added weight by the financial demands of the Hundred Years War. Similarly, the seventeenth-century wars against the Dutch, the American War of Independence of 1775-83, and the South African War of 1899-1902 all gave rise to successful pressure for more detailed parliamentary scrutiny of military expenditures. Although accountability was pursued with some success against the waste and extravagances of the Stuarts, there was a failure to follow this through when Parliament gained direct power following the Glorious Revolution of 1688-9.13
Public accountability was often notably absent when abuses were greatest. For example, it took many years to tackle the corruption and waste of the powerful and lucrative public sinecures that flourished amongst the Whig aristocracy until belatedly removed by reforms in the closing years of the eighteenth century with examinations and reports by the Commissioners of Audit (1780-5). Despite these improvements it was not until the middle of the nineteenth century that Parliament established a consistent system of accountability, accounts, and audit. Roseveare considered the 'arid technicalities' of public sector audit as the reason for the slow progress of audit reform. In the early nineteenth century George Harrison, of the British Treasury, referred to the 'dry and irksome details' of audit while Sir Francis Baring, who in 1861 was to become the first chairman of the British Committee of Public Accounts, thought audit's arcane details made it a 'wearying and uninteresting subject'. Along the path to improved accountability, the procedures and priorities for examining accountability, first to the King and later to Parliament, had to adjust to enormous changes in the nature and scale of public sector activities and expenditures.
Ultimately, accountability is sustained by the provision of information. Financial accountability in particular depends upon information that is relevant, reliable, and regular. It depends upon the facts and analysis provided by an annual cycle of accounts, validated by independent examination and report: an audit. Audit in turn depends on a regular cycle of accountability to give it focus and purpose. This symbiosis lies at the heart of audit in its original sense as a hearing, a bringing to account in person before a judicial court or council. Auditors themselves were sometimes vigorous in extending their independence, remit, and responsibilities while at other times they seemed reluctant to move beyond traditional roles and concerns. Advance and retreat depended not only on audit skills and determination but also on the climate of resistance in departments and other audited bodies. Whereas in the past the relationship between the auditor and the auditee was often confrontational, since the 1990s there has been a welcome recognition of the benefits of a more collaborative relationship, the importance of audit providing added value to those audited, and the need to use audit experience and findings to encourage improvements more widely across the public sector.
The emphasis on broader issues of financial accountability and not just the preparation and submission of accounts has over time produced the three main concerns of public sector audit. The overriding concern is appropriation, to ensure that funds are spent within the amounts voted and only on services and for purposes approved by Parliament. This includes verifying that expenditures have been made consistent with relevant rules and regulations. Complementing these two enduring concerns of public sector audit is the need to examine the economic, efficient, and effective use of resources—that is, achieving value for money. Appropriation and regularity are often considered together and remain central to the annual examination and certification of public sector accounts. Although value for money is today more often the focus of separate, distinct audit reports, these different elements of public sector audit are often best planned and carried through in close association, not as separate activities conducted by separate audit bodies.
There are strong links between sound financial control, accounting, and reporting systems, and economical, efficient, and effective administration. Ensuring probity, propriety, and regularity in the conduct of public business, avoiding waste and extravagance, and pursuing wider issues of value for money are common objectives. The most widely recognized single achievement after the 1866 Audit Act, the ground-breaking legislation that created the post of Comptroller and Auditor General (C&AG) and established the Exchequer and Audit Department (E&AD), was the progressive introduction of examinations of value for money in all its aspects. Starting from modest beginnings in the 1880s, it developed, without statutory authority and against strong opposition, into major reports on a wide range of programmes and projects, especially those arising before, during, and after the First and Second World Wars. Originally these audit reports were mainly about criticisms of individual failings and failures, but later reports sought to be more balanced and more positive in findings and recommendations for improvement, while retaining where necessary a critical edge.
The concerns and priorities of modern public sector audit are not new. Their discovery and rediscovery has been a feature of developments in public sector audit for at least the last 900 years. Concern for the proper conduct of public business, for accountability for resources, for stewardship and good management can be traced back beyond Parliament itself into the earliest controls over the King's revenues and expenditures. Some of the audit boards and commissioners that operated at various times before a permanent framework of audit was introduced in the nineteenth century also recognized the need to pursue waste and extravagance, although their examination of such matters was often limited, uncertain, and variable. The public sector has additional expectations and priorities that are not readily captured in the cold terms of economy and efficiency and need to be recognized when evaluating results. Social and welfare considerations, and ethical factors such as fairness, natural justice, equality of treatment, transparency, and similar values have to be taken into account when judging performance. There can be a tension between the importance of recognizing such values and pressures to be efficient and cost-conscious. Edmund Burke's warning that 'The service of the public is not a thing to be put to auction and struck down to the highest bidder' has a continuing resonance today.
Until the 1866 Audit Act, for many centuries the Treasury and its priorities were allowed to dominate the audit work and auditor powers. The finances and staffing of public sector audit bodies—and even the audits to be conducted— were subject to Treasury approval. Although the 1866 Act substantially reduced the Treasury's dominance over all aspects of audit, continuing vigilance was needed to maintain and enhance the C&AG's independence by ensuring that it applied not only to statutory safeguards on appointment and removal but to all aspects of the day-to-day conduct of audits. This determination brought with it the need to ensure that necessary boundaries between auditor and auditee did not become rigid or embattled, and to respond positively to legitimate criticisms. Also, rights of access to, and inspection of, public bodies where the C&AG is not the appointed auditor have always been important to ensure coverage of all public expenditure, however dispersed. Securing such rights has not always been straightforward, but they have become increasingly necessary for examinations across the growing number of non-departmental bodies responsible for increasing levels of public expenditure, including some in the private sector.
The close relationship with, and enthusiastic support of, the Public Accounts Committee (PAC) has from 1866 been a key factor in both the effectiveness of the C&AG's reports and the effectiveness of the Committee. This close involvement was enhanced by provisions in the 1983 Audit Act. In such a close relationship there is a balance to be maintained between the views and priorities of the PAC and the powers and responsibilities of the C&AG. Though the PAC remains the main focus of relationships with Parliament as a whole, in more recent years working relationships have been developed with other Select Committees.
From the early 1970s onwards there was a growing recognition within the E&AD of the need to improve important aspects of the planning, management, objectives, and the conduct of audits. It was increasingly accepted within the E&AD, in government, and in Parliament that further and wider changes should be pursued by a reconstituted audit body under fresh legislation. The establishment of the National Audit Office (NAO) in 1983, replacing the E&AD, was a further significant development in this continuing process of challenge and change. The NAO's developments built upon and extended the legacy left by the E&AD. Similar responsibilities and objectives remain key elements in the work of the NAO today.
The creation of the NAO, with strong new powers, marked an important next stage in the development of public sector audit. The widening range of audit developments was accentuated by legislation in 2001 which replaced departmental appropriation accounts prepared on a cash basis with resource accounts on an accruals basis and, most significantly, by legislation in 2011 which fundamentally altered the organization and allocation of powers within a restructured NAO. Coincident with, and stimulated by, these changes there were shifting emphases in the NAO's range and conduct of business and also in relationships with Parliament, with the Treasury, and with departments and other audited bodies. The powers and responsibilities of departmental and other Accounting Officers are central in many of these areas. These relationships have been enduring, fundamental determinants of the independence and powers of the public sector auditor.
Changes in government policies and priorities will continue to influence the scale, range, objectives, organization, management, and delivery of government programmes and projects and require the NAO to respond to ensure a modern audit for modern circumstances. In discharging their responsibilities auditors have not been concerned with only narrow professional concerns. Rather, the issues pursued have often been an integral part of developments in democratic and constitutional accountability. On this historical timescale, many challenges had to be overcome. This book charts the progress through that odyssey to its present success.
-  Aristotle, 325 bce, Constitution of Athens. The orator Demosthenes complained that throughouthis career he had been subject to public audit in all the posts he had held.
-  Morley, 1909, p. 92.
-  Einzig, 1959, p. 3. 2 Funnell, 1996, 2004.
-  5 Edmund Burke, Speech at Bristol 1774 in Burke, 1942, p. 66.
-  6 Stephenson and Marcham, 1937, p. 610.
-  7 Burke 1790, quoted in Roberts, 1977, p. 59. 8 Dicey, 1926, pp. xvii, xviii.
-  9 Speech on Conciliation with the Colonies, 22 March 1795, in Burke, 1942, p. 92.
-  Speaker Onslow, House of Commons 11 February 1740, quoted in Thomas, 1971, p. 65.
-  Normanton, Evidence before Select Committee on Procedure (1978) First Report, p. 133.
-  Davenport, 1918, p. 34. 13 Funnell, 2007.
-  Roseveare, 1969, p. 142.
-  Select Committee on Finance (1819), Fifth Report, p. 208.
-  House of Commons debates, 24 April 1856, col. 1450;also see similar comments by theChancellor of the Exchequer on the same day, col. 1458.
-  The court structure, with associated legal powers, has long disappeared from modern audit inthe United Kingdom, as it has in other countries where arrangements are based directly orindirectly on the Westminster parliamentary system. However, the national audit courts of somecountries in Europe and elsewhere, such as the Cour des Comptes in France, the Corte dei Conti inItaly, and the Cuentas and Contralorias in Spain and Latin America, retain important judicialtraditions and powers.