An NAO spokesman said last night that the inquiry was expected to begin later this year. It will concentrate on the Millennium Commission, the National Heritage Memorial Fund, the Charities Board, the Sports Council and the Arts Council.
The National Heritage Memorial Fund provoked a storm last year when it bought the Churchill Papers for pounds 12.5m, provoking accusations that Winston Churchill MP would receive a slice of the proceeds, and when it made a pounds 55m grant to the Royal Opera House. The awards were criticised for going to a cultural elite.
A senior member of the Commons Public Accounts Committee, which has the power to quiz officials on the NAO's findings, welcomed the probe. Alan Williams, MP for Swansea West, said: "It is good the NAO have grasped the nettle so early and I hope the public will be reassured, knowing the thoroughness with which the NAO carries out its inquiries."
Mr Williams added: "The fact this is happening is a good discipline for those allocating the lottery money, and a reassurance for the public, who, after all, provide the funds in the first place."
Pressure for the NAO investigation has been growing, following growing criticism of the lottery, notably from Dennis Vaughan, who conceived the idea of a non-profit-making draw. He said it had been hijacked by Camelot, the operator, and by exclusively London- based arts organisations.
Opposition politicians have also claimed the lottery money is being used as a substitute for public expenditure. Labour maintains people who play the lottery ought to be consulted on the allocation of grants. The Prince of Wales said plans for the millennium celebrations, which are largely being funded by the lottery, lacked spirituality.
The NAO confirmed yesterday that once it had completed an inquiry into whether lottery funds were flowing smoothly and the draw was being policed properly, it will turn its attention to the more sensitive issue of the distribution of grants.
NAO investigators will focus on another sensitive area - conflicts of interest between the people making the grants and the bodies receiving them.
The watchdog is examining whether all lottery proceeds are being collected and handed over to the Government for passing on to the grant-making bodies in time. That inquiry, which is concerned with the flow of funds through the system from the sellers of tickets to the grant-making bodies, is expected to be completed soon. "After that, we will get to the more interesting inquiry," the NAO spokesman said.
Confirmation of the inquiry came after Sir John Bourn, the NAO head, appeared before the Commons Public Accounts Committee yesterday, to present a report on the sacking last year of the director of the National Heritage Memorial Fund.
Georgina Nayler was fired in June last year after it was discovered she awarded computer consultancy contracts to a company run by her boyfriend.
The first contract to his firm, Simno Software Services, was worth pounds 3,000 and the second, pounds 35,000. Hayden Phillips, Permanent Secretary at the Department of National Heritage and Anthea Case, director of the fund, had been called to the committee to explain her sacking. They admitted that Ms Nayler had received a pay-off worth pounds 35,000.
It was also disclosed she had been allowed to keep her job for a further six weeks on full pay, despite the facts being known to officials at the department. Mr Phillips said he had to make a judgment as to whether it was wise to dismiss her immediately, which would have coincided with the first announcements of grants from the fund, or wait while inquiries were made. He chose the latter, but denied making a "cosy decision".
MPs demanded to know how it was that when Ms Nayler had allowed the conflict to arise, she got any pay-off at all. Mr Phillips said she received the money on the advice of the Treasury Solicitor, who said pounds 35,000 was what she could expect at an industrial tribunal.Reuse content