Responding to New Demands

Sharman Report

The 2001 report 'Holding to Account' by Lord Sharman of Redlynch reviewed a range of issues on audit and accountability for central government. The report recommended the need to pursue strong systems of internal control in departments, to ensure well-resourced and independent internal audit, and to introduce formally constituted audit committees with independent outside members. The report also emphasized the importance of continuing to improve risk management, with more research needed into the benefits of incentives and rewards. There were recommendations to encourage innovation and change and to foster 'joined up' working within and between departments. The report also commended the move towards regular performance reporting by departments, with the external validation of key published data to assure Parliament and the public that published information was reliable.

Sharman recommended that, as a matter of principle, the C&AG should be appointed the auditor, on behalf of Parliament, of all non-departmental public bodies. The provisions of the Government Resources and Accounts Act 2000 were to be used to allow this to happen as existing audit contracts expired. Consideration should also be given to removing the then present obstacles to the ability of the C&AG to be appointed as an auditor under the Companies Act. This would significantly widen the range of publicly funded bodies, or bodies supported by departments in other ways, where the C&AG would then be eligible to be the appointed auditor. The necessary legislation was later provided in the Companies Act 2006. However, it has taken time for a significant number of bodies to be brought within the C&AG's audit. The Sharman Report saw strong grounds for formalizing many of the C&AG's rights of access and inspection, which were based on negotiated agreements or convention. Access should be made statutory in appropriate cases, using existing legislation. The Report also recommended that the C&AG should have statutory rights of access to bodies such as grant recipients, registered social landlords, train operating companies, and private finance initiative contractors. Possibly the most controversial recommendation was that, unless there were strong arguments to the contrary, the C&AG should also be given rights of access to the BBC.

Recognizing the importance of making the most of audit activity, the Report suggested that public auditors should be involved in government-wide reviews, with further development of high-level overview reports by the NAO and the PAC to draw lessons from reports on similar subjects. (A similar issue was previously raised in the US.[1]) The Report further suggested that the

NAO should publicize its findings in a wide range of ways in addition to its published reports. The C&AG should also be provided with the resources to brief other Select Committees annually on significant financial issues, without in any way undermining the key relationship between the NAO and the PAC. In this same context the government subsequently invited the C&AG to validate departmental data systems used in reporting on performance against Public Service Agreement targets, as a further step towards improving parliamentary accountability.

The recommendations of the Sharman Report made a valuable contribution not only to stronger departmental financial controls but also to continuing developments in the C&AG's role and remit. The emphasis on relationships with departments and other audited bodies, and on closer involvement with the private sector accountancy and audit profession, sought to strengthen the contributions of the C&AG at a time of great change for the accountability of governments. The government accepted nearly all the recommendations of the report in May 2002.

  • [1] Concerns on the need for more across-the-board examinations were being voiced by the USGeneral Accounting Office (now the Government Accountability Office) in the early 1980s.
 
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