Select Committee on Welsh Affairs Minutes of Evidence


Examination of Witnesses (Questions 140-154)

Wednesday 11 June 2003

MR JAMES STRACHAN, MR CLIVE GRACE AND MR MARTIN EVANS

  Q140  Mr Williams: Is there any way in which the draft Bill could be changed to ensure the continuation and the encouragement of the partnership approach?

  Mr Grace: It may be that the advisory board that has been mooted can perform a number of functions. Some of them have been mentioned. One of its functions would clearly potentially be to help keep the Auditor General's office in touch with these currents of opinion. The Auditor General of course could always speak directly with relevant bodies and so on, but this would be an additional formalised mechanism for doing that, a structured way of doing it, so I think that advisory board could perhaps help to underpin the partnership approach.

  Q141  Dr Francis: If we could move on to inconsistencies between central and local government, Clause 50 of the draft Bill restricts the disclosure of information by the Auditor General for Wales in respect of local government audit work. There is no similar restriction on the disclosure of information by the Auditor General for Wales in respect of central government. Why do you wish to remove this clause from the draft Bill?

  Mr Evans: We are arguing for the retention of Clause 50 in the Bill. Clause 50 in the draft Bill replicates Section 49 in the legislation under which the Commission and its appointed auditors operate. It is often misunderstood. There is nothing in that clause that prevents auditors from reporting in public the findings of their work or sharing information that they come across in the course of their work where it is consistent with their statutory functions. What the clause does is protect the integrity of the audit process. You have to remember that in local government auditors have duties to members of the public. In particular they have to consider and determine objections that local electors may make to items or transactions reflected in the accounts. In the course of determining those objections they may have to share information with members of the public at a draft stage and it would in our view be quite unhelpful for the audit process, unhelpful for the auditor in particular, and for the audited body if that information were to leak out or to appear inappropriately in the press, and that is why this clause is in our legislation. Interestingly, the only time that it has been invoked in living memory was when a journalist leaked some information about the auditor's investigations at Westminster City Council and was tapped on the shoulder and invited to come to Charing Cross police station and be reminded of the provisions of Section 49, so we think it is an important safeguard for the integrity of the audit process. It is not about restricting the auditor's right to report or the public's right to know what auditors have found.

  Q142  Mr Caton: Why do you think it is necessary in local government but not in central government?

  Mr Evans: In local government auditors do have this range of responsibilities to local electors and to members of the public which they do not have in relation to other public bodies. There are other safeguards in place in central government. I do not know the details of them, but clearly there are safeguards which prevent leaking of NAO reports on central government departments before they are published.

  Q143  Mr Williams: On Monday several of our witnesses agreed that Clause 11—which gives statutory effect to the recommendations made by Lord Sharman to increase the Auditor General's access rights to follow public funds—could be extended to local government. Would you welcome this move?

  Mr Evans: We do, and in so far as local government auditors are concerned those powers are reflected in Clause 18 of the draft Bill. They replicate the powers in our current legislation, Section 6 as it is known, which I think was the model for Sharman's recommendations. Local government auditors in particular have always enjoyed stronger rights of access than historically the NAO has in central government.

  Q144  Mr Caton: Schedule 1 of the draft Bill confers on the National Assembly the power to extend or disapply best value authorities in Wales. Why is it necessary for the Assembly to have the power to disapply best value authorities?

  Mr Grace: I do not know that it is an absolute requirement that they do need that power. Obviously, there is quite a shift going on in relation to best value. The original best value framework that was set out in the Local Government Act 1999 and the particular form it took over the first couple of years has gone through quite a change both in England and in Wales, in England through the creation of the Comprehensive Performance Assessment, in Wales through the Wales Programme for Improvement. I suppose it is conceivable that at some stage it would be thought that the particular duties and requirements of the 1999 Act, particularly Section 10, might not any longer be as relevant and so they might sensibly be decoupled from that legislation. In my view if that were to happen some compensating requirement or duty upon local authorities to continue to pursue continuous improvement would still be necessary.

  Q145  Mr Caton: Can you think of an example off the top of your head where that circumstance might arise?

  Mr Grace: In what I might call the improvement world of public services there is now quite a mix of methodologies and approaches which to some extent overlap. The audit methodology now, for example, overlaps with the inspection methodology quite considerably to some extent. It is possible that at some stage there will be a sifting out and a sorting out so that there is one regime, let us say, for local government which brings together those drivers and stimulants for continuous improvement, and so the best value as such would in effect be incorporated in the code of practice audit regime. That is, I think, perfectly conceivable though as far as I know nobody has got any plans to do that.

  Q146  Dr Francis: In its memorandum the Welsh Local Government Association notes that the draft Bill will change the process of agreeing the Code of Audit Practice from affirmative resolution by both Houses of Parliament to that of consultation with the National Assembly. Is this a change that we should be concerned about?

  Mr Evans: I do not think so in practice. I think what is important about the code of practice is that its development follows a proper process of consultation with all the interested parties, the audited bodies themselves, other stakeholders and the accountancy profession. The key thing is the status it enjoys when it is finalised and when it is adopted, and that is, reflected in the draft Bill. Under our regime it is a statutory requirement for auditors of local government bodies to comply with the code and we think that is the key thing. I can see why you might not want the National Assembly to have the right of approving the code because that could be seen as a way of constraining the independence of the Auditor General. We have made some comments about the code, that it should be extended beyond local government, but we are less concerned about the actual process by which it gets to be approved and put in place.

  Mr Grace: The thing to bear in mind about this process is that one of the reasons it is not appropriate, for example, for the Assembly to approve the code in the same way that the House does in relation to the current one is of course because of its particular status as a body corporate itself with an undivided legislature and executive. If some of the aspirations in Wales to develop the devolved government so that there is a formal separate executive and legislature are realised, then it may be that the legislature could perform the same role in relation to the code that the Houses of Parliament do at the moment.

  Q147  Mr Williams: Going on to talk about collaboration and inspection, the draft Bill allows the Audit Commission to retain the functions of national comprehensive performance assessments of all local councils and cross border studies. Would formal joint working between the Audit Commission and the Wales Audit Office, and the publication of joint reports, offer a more appropriate method of working?

  Mr Grace: I think what the Audit Commission Chairman said earlier about comparisons is at the heart of this. It should not just be about collaboration and sharing of information. There should be active comparison for learning purposes and that learning should flow in both directions. The regimes for looking at local government, interestingly, have diverged at the moment in the Comprehensive Performance Assessment and the Wales Programme for Improvement. There are some signs that in the next phases of Comprehensive Performance Assessment it will look much more like the Wales Programme for Improvement and I think we will have to live with those divergences and make sure that there is active comparison going on both around the corporate capacity of local government but also around the key service areas.

  Mr Strachan: It is important to stress that the way we see our regulation of the public sector going forward as it becomes increasingly strategic and increasingly focused on maximising regulatory value for money is that of the 100% an increasing percentage will be focused on government structures, the framework within which services are provided, and the remainder will still focus on specific service outcomes but, as I said earlier, the focus will be very much to use resource where the room for improvement is greatest rather than to continue what has happened in the past of always creating a universal alibi across the board regardless of performance.

  Q148  Dr Francis: In your memorandum you argue for a strengthening of the draft Bill to ensure that performance comparison takes place. Would you like the Bill to prescribe a minimum number of cross border studies per year?

  Mr Strachan: It is not so much the number of cross border studies. It is more on the one hand to acknowledge that there is a very legitimate reason post-devolution for variances to exist but to say that a balance needs to be struck, not so much in terms of numbers of studies but between that on the one hand and the value that can be extracted from ensuring that that divergence has not become so great as to make comparisons meaningless on a cross border basis. Our emphasis is much more on that rather than merely citing a number of cross border comparisons because clearly if we allow that to go what value the cross border comparison in the first place?

  Q149  Dr Francis: How do you arrive at that balance then? Who decides on that balance? Is that your judgment?

  Mr Strachan: No. That needs to be ultimately a democratically based judgment, would be my first statement. Certainly we can advise in terms of input from experience but ultimately that has to be a democratically based judgment by politicians.

  Q150  Mr Caton: The draft Bill gives the appointed auditor the power to issue an "Advisory Notice" if they discover a potentially unlawful action. Is this merely a change in terminology from "Prohibition Orders" (as set out in the Audit Commission Act 1998) or are there differences in the extent of these powers in truth?

  Mr Evans: The powers for auditors to issue Prohibition Orders were repealed in the Local Government Act 2000 and were replaced by the provisions for Advisory Notices and these have been carried across into the draft Bill so, as far as we are concerned, the current Bill reflects our auditors' current powers. There is a difference, obviously. An Advisory Notice has different status from a Prohibition Order and this reflects some of the lessons that have come out of recent high profile audit cases about the role of the auditor in relation to a democratically elected local body.

  Mr Caton: I am tempted to ask you to go further on that but it is a different piece of legislation, I appreciate, and perhaps that is for another day.

  Q151  Mr Williams: Perhaps we could turn now to the effect on staff and training of the proposed merger. The draft Bill proposes to merge two separate organisations into a single entity. What consideration has been given to integrating staff from these different organisations and ensuring that a single Audit Office ethos will be created?

  Mr Strachan: I think that is a question for Clive who of course now runs the Audit Commission in Wales.

  Mr Grace: The current position is that we are working very closely with our colleagues in the National Audit Office. We have a Joint Steering Committee which Sir John Bourn chaired the first meeting of recently. Beneath that we have a series of work streams set up, including work streams concerned with issues of staffing and terms and conditions and so on. They have got quite a long way to go but what is particularly heartening is the strength of shared commitment and the degree of collaboration which is taking place between myself and my senior colleagues, and Ian Summers and his senior colleagues in the NAO so, although it is bound to be a bit turbulent as we go along and there will be a lot to do, we think it is very positive indeed.

  Q152  Dr Francis: What impact would the draft Bill have on existing staff, and in particular what arrangements have been made in respect of existing terms and conditions and the possibility of redundancies?

  Mr Grace: The Bill provides for statutory transfer of the staff and the existing terms and conditions into the new office. It is a bit of a moot point, I think, whether we attempt to create an integrated set of terms and conditions before the new office takes place so that people start on the new set of integrated terms and conditions, or whether that would be too ambitious and it would be better to do some of that after their integration has taken place. At the minute the number of redundancies, if any, I would expect to be pretty small. We use associates whom we employ on a day rate basis and, for a variety of reasons, including the fact that this Bill is in process in draft form, we have a much higher proportion of associates than we would normally have and that gives us quite a bit of flexibility and I have no reason to think that there would be any enforced redundancies on the Audit Commission side.

  Q153  Mr Williams: At present professional accountancy training is organised from London. What consideration has been given to the provision and cost of training personnel under the proposed arrangements?

  Mr Grace: It has not been a matter that we have specifically looked at but I think that would probably fall to be considered not only in relation to this proposal but also the much wider initiative which goes under the rather unalluring title of the Public Sector Managers' Initiative which both the First Secretary and the Permanent Secretary have endorsed, and that is an initiative about building training and capacity in Welsh public service across the board, and I would certainly see training and development for the staff of the new Wales Audit Office ideally forming part of that much wider enterprise.

  Mr Evans: The actual training programmes are run by the professional accountancy institutes themselves and they offer that training around the country. Our own in-house audit agency, our Operations Directorate, is the largest single trainer of CIPFA (Chartered Institute of Public Finance and Accountancy) accountants in the country. We train around the country and they attend CIPFA centres wherever they are located.

  Q154  Mr Caton: Those are all the questions that we wanted to ask you. Are there any other points that you would like to make before we close the meeting?

  Mr Strachan: No. I think between our detailed written submission and what has been said that is everything we wanted to highlight.

  Mr Caton: Can I once again thank you for coming along and giving your evidence and giving it so well? I know you had to get away by six o'clock, Mr Strachan. We have easily beaten that deadline, thankfully, even with the hiatus. Once again, thank you.





 
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