The National Citizen Service Trust (NCS)’s 2019-20 annual report and accounts published last month contains a report addressed to the Houses of Parliament from Gareth Davies, the Comptroller & Auditor General (C&AG) and head of the National Audit Office (NAO), concerning NCS’ management of public funds during the year ended 31 March 2020. 

NCS was established in 2009 as a community interest company and granted a Royal Charter in 2018 as an arm’s length body of the Department for Culture, Media and Sport (DCMS) following the National Citizen Service Act 2017. It works with a variety of delivery partners to provide subsidised summer programmes for 16 and 17-year olds with the aim of bringing together young people from different backgrounds to work on projects that benefit society and develop their leadership, communication and teamwork skills.

NCS’s funding in 2019-20 primarily consisted of £158.6m of grant-in-aid from DCMS, with the majority of its other income of £3.5m coming from the small fees paid by participants on NCS programmes. Expenditure totalled £156.4m, of which £119.3m were programme delivery costs. Cash at £33.4m was the largest component of the £38.7m total assets in the balance sheet at 31 March 2020, while £31.2m liabilities consisted mostly of current trade and other payables.

The supplementary report from the C&AG concerns the failure of NCS to comply with its Accounts Direction from the Secretary of State for Culture, Media and Sport, which includes a requirement to follow the guidance set out in HM Treasury’s Managing Public Money. This sets out the principle that public bodies should maintain cash balances in line with operational requirements to minimise government borrowing requirements on any given day, as well as keeping interest costs down. Managing Public Money requires arm’s length bodies, such as NCS, not to draw down funds in advance of need as this increases the amount their sponsor Department needs to draw down from the Exchequer.

The C&AG reports that NCS maintained a cash balance significantly greater than operational requirements during 2019-20 and did not adjust the draw down requests it made of DCMS. For example, NCS continued to draw down funds in September and October 2019 when it had a bank balance of over £50m and its average monthly cash expenditure was only £13.2m.

Unlike other irregularities subject to these types of reports, which tend to involve payments contrary to Parliament’s intention to a third party that are difficult to recover, NCS have been able to reduce their cash balance after the auditors raised the issue. They have also taken steps to strengthen their cash forecasting and overall cash management. The losses to the taxpayer have been the additional interest charges borne by the Exchequer from unnecessary borrowing but the C&AG concluded these were not material to his audit opinion.

The C&AG will also have to make a judgment over whether to modify his regularity opinion on the 2020-21 accounts for breaches of Cabinet Office spending controls on marketing and communications after the 2019-20 reporting period disclosed by NCS in their governance statement, although NCS does not disclose the value of the breaches. The C&AG will consider both quantitative and qualitative factors when deciding whether any breach is material to his opinion but we will have to wait for the 2020-21 accounts to find out his decision. This may be some time, given that the 2019-20 financial statements were delivered almost twelve months after the balance sheet date.

Another critical matter disclosed in the financial statements for 2019-20 was a material uncertainty over the ability of NCS to continue as a going concern. This is because funding has not been guaranteed beyond 2021-22 and there is uncertainty in the outcome of a government review into youth services that could result in changes to the services currently delivered by NCS. 

Oliver Simms, Manager, Public Sector Audit & Assurance for ICAEW, commented: “The Comptroller & Auditor General’s reporting powers are a valuable tool, as they allow him to report issues to Parliament even if an issue is not material to his audit opinion. The National Citizen Service Trust has reacted positively and already taken steps to reduce their excess cash balance and to strengthen cash management.

“The reported breach of Cabinet Office spending controls in 2020-21 suggests that the Trust has more work to do in strengthening financial controls to ensure that adequate processes are in place to comply with applicable guidance and ensure it uses taxpayers’ money effectively.”