You should use a small triangular file. Your local hardware store may even stock a Nicholson Auger Bit file. Using the file to sharpen a ship auger only sharpen under the cutter and on the inside of the side lip.
To identify these two parts hold the auger bit with the screw point pointing up. Rotate the bit until you see the single horizontal cutting edge. Looking at the cutting edge, the side lip is at the left hand edge of the cutting edge jutting down.
You should only sharpen under the cutting edge and on the inside part of the side lip. Now that you have located where to sharpen the easiest way to sharpen those areas is to hold the auger with the screw point pointed down and stuck into the corner of a wooden bench or board. You can lean the bit backwards and sharpen with the file those two areas. Try to maintain the same angles that were ground on from the factory.