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the National Audit Office (NAO) reviews the efficiency of the ombudsman service, as it gears up to face further unprecedented demand for its services

The independent review into the Financial Ombudsman Service by the National Audit Office (NAO) has yesterday been published in full.

The review follows a six months' assessment by the NAO of the efficiency of the ombudsman service's operations. It was commissioned by the board of the Financial Ombudsman Service – in line with its voluntary commitment to periodic independent reviews of the service. The review involved a team from the NAO having complete and open access to people, resources and information at the ombudsman service.

The NAO's review – Efficient handling of financial services complaints – contains an overview of the changing nature of financial services complaints and the impact this continues to have on the ombudsman service. It also examines how the service monitors its efficiency as part of its wider approach to "performance measurement" – especially in terms of managing its major "change programme", launched in 2010 to transform and modernise all aspects of its operations in the light of rapid and unpredictable growth in demand for its services.

On the key efficiency challenges facing the Financial Ombudsman Service, the NAO's review concludes that:

• having to cope with volatile demand is a key test for the ombudsman service;
• with more than half of the service's total workload over the last decade relating to just three issues – mortgage endowments, bank and credit-card charges, and payment protection insurance (PPI) – large surges of so-called "mass claims", and the way in which financial businesses deal with them, give rise to major operational challenges;
• the total costs of settling disputes at the ombudsman service has risen by 214% in real terms since 2001 – but the complaints workload it has handled over this period has increased by 376%;
• the programme of changes introduced in 2010 to modernise operational processes and IT (including the "e-enablement" project) has already begun to realise benefits – and while some aspects of project management should be strengthened, the programme is being managed well with good progress made to date.

As part of its review, the NAO makes five specific recommendations – including more detailed work to assess how the current case-fee charging-structure affects the service's cash-flow and funding; and quantifying more precisely the impact of a range of variable factors on the service's "unit cost".

The chairman of the Financial Ombudsman Service, Sir Christopher Kelly, welcomed the review's findings and recommendations, saying:

"Working with the NAO team over the last six months has given us an invaluable opportunity to challenge and test out every aspect of our extensive plans for developing an ombudsman service that's fit for the next decade. As the review concludes, the biggest challenge we face is in dealing with demand that's highly volatile and difficult to predict – while continuing to provide a service that's efficient and value for money, as well as responsive to the needs of our users and stakeholders.

We're currently consulting on how to gear up to be ready to deal with a further substantial increase in our workload next year – as a result of the rising volumes of payment protection insurance (PPI) complaints and the impact of the tough economic times on consumers and businesses alike. Faced with the challenge of resolving a quarter of a million cases next year – a ten-fold increase since we were set up in 2000 – we very much welcome the insight and rigour of this independent review of the efficient handling of financial services complaints".

• The NAO's review:
  Efficient handling of financial services complaints

The review published today by the NAO follows two previous independent reports commissioned and published by the board of the Financial Ombudsman Service – Lord Hunt of Wirral's report on the accessibility and openness of the ombudsman service (in 2008) and the report on the service's case-handling procedures and systems carried out by Bristol University's Personal Finance Research Centre (in 2004).

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