Public Audit (Wales) Bill [Lords]

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Mr. Touhig: Amendment No. 23 would enable the Auditor General to appoint himself in a personal capacity as the auditor of a local government body. A key objective of the Bill, which we discussed on Second Reading, is the preservation of the constitutional independence of local government in the new audit arrangements. The prohibition on the Auditor General appointing himself in a personal capacity is a key safeguard in ensuring that that is achieved.

Local government raises a significant proportion of its revenue from the local electorate to whom it is accountable. That has relevance to the position of an appointed auditor, who has specific responsibilities to the electors of a government body as well as the body itself.

The Bill preserves the right of a local government elector to inspect and copy a local government body's statement of accounts. The appointed auditor is under a duty to give an elector or a representative an opportunity to question him or her about the accounts and to make objections in respect of them. An elector may, for instance, request the auditor to declare an item of account unlawful. The auditor is under a duty to consider any such objection and to notify the objector formally of his or her decision.

In undertaking those duties, it is essential that an auditor should be impartial and, just as importantly, be perceived to be impartial both by the local government body and the electors whom it serves. The avoidance of any potential for a conflict of interest arising—for instance, from the exercise of other statutory responsibilities—is essential.

The Auditor General is the statutory auditor of the National Assembly and bodies directly accountable to the Assembly. The Assembly provides most funding for local government in Wales. If the Auditor General appointed himself or herself as auditor to individual local authorities in those circumstances, the distinctness of local government's constitutional and democratic independence would be seen to have been lost.

In practical terms, an important function of the Auditor General under the new arrangements will be to monitor the performance of auditors that he or she appoints to local government bodies, and to consider complaints that may be made against them. However, that important control would not be available if the Auditor General appointed himself or herself as auditor in a personal capacity. The Auditor General will also be responsible under clause 20 for setting a scale of fees and charges for the audit of local

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government bodies, from which he would derive benefit. He will also be responsible under clause 16 for preparing and issuing a code of audit practice, to which he would have to adhere. I hope that I have persuaded the hon. Gentleman to reflect further on amendment No. 23.

Amendment No. 25 appears to be designed to deprive the Auditor General of the discretion available to the Audit Commission to make a joint audit appointment. The Audit Commission will retain the discretion in England should the Bill be enacted, but the amendment would therefore limit the Auditor General's powers in comparison. Dual appointments, although not common, are relevant if specific skills not possessed by the initially appointed auditor are needed for particularly complex audits, or if a form of peer review is undertaken during an audit.

The infrequent use of the power does not detract from its potential value. As I have said in other contexts, the financial accountability environment in which auditors operate is becoming increasingly complex. We touched on that issue on Second Reading. It would not be appropriate to deprive the Auditor General of the flexibility that this power will give him to meet future needs.

Under amendment No. 24, the Auditor General would no longer need to consult a local government body on the appointment of its auditor. On Second Reading, I said that an audit watchdog could also be a client body's best friend. The serious point behind that remark is that the relationship between auditor and audited is, and should be, far more constructive than stereotypes sometimes convey. In an increasingly complex financial environment, the auditor is a source of valuable advice, reassurance and help on matters such as accounting systems and risk management, which is changing the whole way in which audit works.

The 2004 general report of the Auditor General for Wales refers to examples of advice sought and given to clients. High standards of financial accountability are achieved through such a positive, proactive relationship. Withdrawing the right of a local government body to be consulted on the appointment of its auditor would risk undermining the basis for a positive working relationship, and financial accountability standards could suffer as a result. I hope that, with those explanations, the hon. Gentleman feels able to withdraw the amendment.

Mr. Wiggin: The Minister's approach to amendment No. 23 is laudable, and I am grateful to him. It was far from clear, certainly to me, that the accountability of a local government audit would clash with the accountability of the Auditor General. However, the Minister made that clear, which satisfies me that we must have the right reporting functions working as he outlined.

The Minister also dealt with amendment No. 25 effectively. I have no wish to see duplication of costs and certain elements perhaps falling between two separate audits. However, his point about not tying the Auditor General's hands is a good one and I have no difficulty in not pressing that amendment to a vote.

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On amendment No. 24, I would be grateful if the Minister told us what would happen if a local authority refused the Auditor General's recommendations. Until he does so, I am unable to say that I will not press it. I hope that he replies to that point.

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Mr. Touhig: I tried to make it clear when I responded to the hon. Gentleman on amendment No. 24 that it is important for a good working relationship between the Auditor General and local government that there should be consultation about the appointment—

Mr. Wiggin: I am grateful to the Minister for giving way. I absolutely agree with him that in normal circumstances there would be no reason for a local authority to refuse the Auditor General's recommendation. However, given the purpose of the measure and the safeguards built into it, the only time it will be needed is when a local authority is up to something that it may later regret, and therefore it may wish to delay things by refusing the Auditor General's recommendation. I am pressing the Minister because I want to find out what would happen in those circumstances.

Mr. Touhig: I am most grateful for the hon. Gentleman's intervention. It has enabled me to give an answer that might satisfy him. I was talking about a consultation; the Auditor General will continue to appoint the auditor if there is no good reason not to do so. It is a consultation, and at the end of the day the power will be with the Auditor General to appoint the auditor.

Mr. Wiggin: What a tremendous response; it was just what we needed. I thank the Minister very much for his reply, which deals admirably with the whole issue. Conservative Members support the Bill; we are just trying to iron out the wrinkles. With great pleasure, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 ordered to stand part of the Bill.

Clause 15

Persons to assist auditors

Question proposed, That the clause stand part of the Bill.

Mr. Wiggin: We would prefer that clause 15 did not stand part of the Bill. There is another clause that deals with those who are approved to help the auditors, and clause 15 is less precise. Therefore, by proposing that it is deleted, we are probing the Government about why it is necessary to have a general type of person to assist auditors. It is a small question, but I hope that the Minister will be able to throw some light on the matter.

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Mr. Touhig: Clause 15 is an important practical provision. If it were not to stand part of the Bill, the Auditor General would be unable to approve arrangements for one or more persons to assist an auditor appointed to a local Government body in the exercise of his or her functions. The clause would enable an appointed auditor to seek assistance in the exercise of those duties on matters that may be of significant complexity, such as taxation or the interrogation of complex information databases. It would also enable the Auditor General to oversee such arrangements.

A newly appointed auditor would benefit from having the assistance of an outgoing auditor in respect of a specific ongoing aspect of an audit brief, such as a criminal investigation. Under the present arrangements, the Audit Commission has standing guidance on approval arrangements, which include those for the delegation of an auditor's functions under such arrangements, although the guidance makes it clear that the delegation arrangements do not diminish the ultimate responsibility of the audit supplier appointed by the commission.

The delegation arrangements specify the level below which the audit functions may not be delegated. Decisions on delegations are taken personally by the district auditor or the partner-director of any other appointed auditor. It would be open to the Auditor General to adopt these or similar arrangements.

If clause 15 were to be deleted, it would significantly hamper an appointed auditor in Wales who may need specialist support in the exercise of his or her functions. I hope that the hon. Gentleman will recognise the value of such support.

Mr. Wiggin: I was going to ask the Minister why this should not be part of new section 96C of the Government of Wales Act 1998, as inserted by clause 2. However, I may have missed the suggestion in the clause that the people in question will be of a specialist nature, with expertise that may not include auditing. I recognise that as business has become more complex, such people would be necessary. I am grateful to the Minister for his reply, which satisfies my curiosity about the clause.

Question put and agreed to.

Clause 15 ordered to stand part of the Bill.

 

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Prepared 29 June 2004