Experiences in the Audit of Large Scale Privatisations

By Bourn, John | The Government Accountants Journal, Winter 1995 | Go to article overview

Experiences in the Audit of Large Scale Privatisations


Bourn, John, The Government Accountants Journal


* This article is the context of Sir John Boum's remarks on privatisation which he presented at AGA's 43rd annual Professional Development Conference, June 15, 1994.

Privatisation may be defined as transfer by a government business and its assets n state to private ownership. In the last 10 to 15 years, the United Kingdom government has transferred public businesses into private ownership on a large scale.

This paper describes the privatisation programme and outlines how these sales have been reviewed by the National Audit Office and the Public Accounts Committee of the United Kingdom Parliament. It explains the role of the National Audit Office and the Public Accounts Committee in the United Kingdom system of government and considers the impact of their scrutiny of large scale privatisations.

The privatisation programme

At the end of the 1970s, the major nationalised industries in the United Kingdom accounted form almost nine percent of gross domestic product (see Table 1). By the end of the 1980s, largely as a result of the Conservative Government's privatisation programme, this share of gross domestic product had dropped to some 3.5 percent. By mid-1994, only coal, posts and railways of the major nationalised industries remain in public ownership and major sales are underway or planned in each of these industries.

The government's key overall objectives for their privatisation programme can be summarised as follows:

* improving the efficiency of the businesses concerned;

* promoting the development of a market economy;

* increasing individual share ownership:

* reducing state debt: and

* increasing state revenues.

To date, the privatisation programme has involved the sale of over 200 businesses and raised equity proceeds of some L55 billion.

Role of the National Audit Office

The National Audit Office is the external auditor of central government departments in the United Kingdom. It carries out two main functions:

* the financial audit of the accounts of government departments and certain other public agencies; and

* value for money examinations of particular programmes of public expenditure.

The work of the National Audit Office helps make government more accountable to Parliament. The provisions of the National Audit Act of 1983 ensure that the National Audit Office acts independently of government. Reporting directly to Parliament, the National Audit Office has full rights of access to government departments, papers, officials and appointed advisers to enable it to fulfill its audit function.

The National Audit Service and Public Accounts Committee

The National Audit Office publishes about 50 major VFM reports j each year. To date, the National Audit Office has published over 20 reports on the government's privatisations. Some of the reports have covered a number of sales in the same industry. For example, the National Bus Company report dealt with the sale of 62 companies, the water report, 10 companies, and three electricity reports, 17 companies.

By convention, the facts contained in the reports are agreed with departments before publication to ensure an orderly examination of the evidence at any subsequent hearing by the Public Accounts Committee. The majority of reports have led to a hearing, at which members of the Committee, who are all members of Parliament, take evidence from the department sponsoring the sale and generally also from their specialist advisers. The Public Accounts Committee agrees and publishes its own report following a hearing and makes recommendations to the government, to which the government responds in due course.

Scope of National Audit Office examinations

The National Audit Office does not question the merits of the government's policy objectives in its reports. This is expressly prohibited by the National Audit Act of 1983. …

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