Staff numbers at public-spending watchdog the National Audit Office have increased by 17% over the past four years as a result of expanding workloads and the increasing cost of outsourcing audit work to the private sector, MPs have been told.
NAO head Gareth Davies was quizzed about the organisation's expansion from around 863 staff to a projected 1,010 for 2024-25 by members of parliament's Public Accounts Committee yesterday.
Davies said that the biggest driver of the need for increased headcount was the fundamental change in the regulation of accounts and audit over the past four years that required "significantly more audit work" .
He added that the NAO had also taken on "significantly more audits" over the four-year period, including the creation of an additional department in last year's machinery of government changes.
Davies said other work taken on included auditing the companies that form part of the Nuclear Decommissioning Authority group, such as Sellafield and Magnox.
"We have always audited the NDA itself, but not its subsidiaries," Davies said. "Quite tellingly, those subsidiaries have been unable to find a private-sector auditor. When their contracts came up for retender, nobody was prepared to do their audit at what those companies regarded as anything like a reasonable rate, or in fact any rate at all."
Davies said the situation was a "worrying indication" of capacity in the wider audit market.
"In this case, we think there is a public interest in the NAO picking up those audits, because it will make our audit of the NDA group more efficient overall," he said. "We will get better assurance on the very large liabilities that the committee knows sit within that group of audits. But that is an indication of the pressures on capacity in the audit market."
The NAO head told MPs that returning audit schedules to pre-pandemic levels and the increasing cost of outsourcing audit work to the private sector were the two other main drivers for the organisation's expansion.
He said the NAO's target was to certify audits of annual accounts from big government departments by the start of parliament's summer recess – roughly three months after the end of the accounting period that the figures relate to.
Davies said that before the pandemic the target was being hit for just under four out of five of big departments, but fell to 41% in the year Covid-19 first hit. The NAO head told MPs the organisation had been "clawing back" from that point and was now at 60%. But he said that bringing audits forward essentially involved doing more than 12 months' work in the space of a year.
Davies said the final reason for NAO's headcount growth was the considerable growth in cost of outsourcing work to the private sector. He said that while there were good reasons for outsourcing work, including getting access to specialist expertise, it was increasingly hard to justify on price grounds.
"The trend in the prices that we have been receiving from the firms to do that work has been sharply upwards," he said. "So much so that we have carried out a value-for-money review."
Davies said the NAO is looking to reduce the proportion of work it outsources from the current 20% to "the teens" over the next few years.
"We think that just that change in the level of outsourcing will save the taxpayer about £1.5m," he said.
"It is cheaper to have our staff doing that work than to outsource it by about that level. It may not always be so, so we will keep that under review and change the balance again in the future, if necessary.
"We often recommend that government departments scrutinise their procurement and make sure that it is the best available value for money, so we are taking our own medicine."