Local Audit and Accountability Bill [HL]
Lord McKenzie of Luton Excerpts(11 years, 5 months ago)
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Lord McKenzie of Luton
My Lords, Amendment 14F is quite a narrow probing amendment. At the start of our deliberations today, perhaps I should just make clear that although we have some concerns about the fragmentation of the new local audit regime—an amendment to cover this will be forthcoming on Wednesday—we accept the broad technical means by which the Government seek to implement its framework, drawing on the Companies Act 2006 and the Audit Commission Act 1998. Our probing should be seen in that context.
The Companies Act 2006 sets out who may be treated as holding an appropriate qualification for the purposes of acting as a statutory auditor. A Secretary of State can include in this persons who are qualified to audit accounts under the law of a foreign country and someone who holds a professional qualification in a specified foreign country. For these purposes, an EU state is not treated as a foreign country. These provisions are specifically excluded from operating under the Bill, so can the Minister please confirm, under the local audit regime, what is the position of individuals qualified in an EU country regime, especially given the broader nature of local bodies’ audit? What is the rationale for excluding other foreign qualifications, which are included in the Companies Act? I beg to move.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, the Government believe that the Bill provides for sufficient suitable qualifications to be recognised for the purposes of local audit. As the noble Lord said, this amendment seeks to find out about the qualifications and, in particular, the approval of overseas qualifications from non-EU countries for the purpose of statutory audit. It also sets out the conditions that will need to be satisfied relating to the assurance of professional competence of those holding an overseas qualification.
Section 1221 provides for approval of all those in a specified country who are qualified to audit accounts or only those who hold specified qualifications in that country. In the case of the latter, the Secretary of State may specify any additional requirements to be satisfied. The section allows the Secretary of State to recognise an overseas qualification only if there is comparability and/or equivalence of treatment of United Kingdom qualifications in the country in question.
For local audit, an auditor will hold a suitable qualification if it is one recognised under Part 42 of the Companies Act 2006 or if it is another qualification recognised under the Bill. If a third-country audit qualification has been recognised for company audit through the application of Section 1221 of the Companies Act 2006, it would be deemed an appropriate qualification for local audit. I must stress that we would expect anyone employed under those circumstances to have experience of local audit as carried out in this country. I hope that will help the noble Lord and that he will feel able to withdraw the amendment.
Lord McKenzie of Luton
I thank the Minister. I may have missed it, but what provision allows the Secretary of State to take account of a third-country qualification? I ask because the Bill specifically omits the provisions of the Companies Act which permit that. I was trying to spot the precise bit of the Bill that allows that to happen. I think it is entirely appropriate that it does—if it does—but if the noble Baroness could give me the particular reference, that would be good. Presumably for EU nationals, the position has not changed. Whatever EU directive applies, they would be entitled to be considered, as indeed someone with a UK qualification would be in Europe.
Baroness Hanham
My Lords, EU auditors may be subject to an aptitude test if they practise local audit in the United Kingdom on a permanent basis. Under all these provisions, the expectation is that people would be qualified, as they are in the United Kingdom, to carry out local audit. We shall come to that further on, because it is the qualifications that will matter. We would not see any dilution of the competence of auditors, whether they come from here, the EU or non-EU countries. Have I still not answered the noble Lord’s question?
Lord McKenzie of Luton
Perhaps we might deal with it in correspondence. I was just trying to see the particular reference that allows back in the approval of those with third-country qualifications. I can see the provision that takes it out of the starting point, which is the Companies Act 2006. I think there may be something else coming from the Box.
Baroness Hanham
My Lords, it is blindingly obvious—the provisions in paragraph 8 of Schedule 5 to the Bill, which amend the Companies Act. Why did I not think of it immediately?
Lord McKenzie of Luton
My Lords, I think I am grateful for that follow-up. I shall read the record to see that it remains blindingly obvious. From what the noble Baroness has said, I do not disagree and am supportive of the provisions and facilities made in the Bill. It is important that there is no lessening of standards, whether a qualification is an overseas one or a UK one. For the time being, I beg leave to withdraw Amendment 14F.
Lord McKenzie of Luton
My Lords, this amendment relates to Schedule 5 again, which relates to the new regulatory framework for auditors of local public bodies. It draws heavily, as we have discussed, on the framework contained in the Companies Act 2006, the provisions of which, as I have said, have our broad support. Schedule 5 applies Part 42 of the 2006 Act to local audits, as it does to statutory audits, but with some exclusions. The purpose of this amendment is to understand the exclusion of Section 1215(2) to (7) of the Companies Act.
Section 1215 takes us back to the subject of independence, and requires a statutory auditor to resign immediately on becoming prohibited from acting because of lack of independence, and this requirement is imposed similarly on local auditors. However the legal sanctions which underpin the failure to comply with this requirement for statutory auditors appear to have been omitted in the case of local audits. Doubtless the Minister will tell me that it is blindingly obvious and covered somewhere else. Could she draw my attention to a specific provision? I beg to move.
Baroness Hanham
My Lords, we may need to explain to Hansard that I was joking. The new audit framework sets out robust arrangements to provide confidence in the independence of the local auditor. This amendment seeks to replicate the criminal offences in Section 1215 of the Companies Act 2006 in the local audit framework, as the noble Lord explained. We have chosen not to replicate these particular criminal offences as we consider that there are other, more suitable mechanisms to do so—in short, the disciplinary powers of the recognised supervisory bodies and the ethical standards raised by the Financial Reporting Council.
The rules and practices that the recognised supervisory bodies will put in place will cover the independence of the auditor. They will also outline the disciplinary sanctions that could be applied if the independence requirements were found to have been breached. This could ultimately include the withdrawal of registration, and other sanctions could include that the firm responsible for the audit would not be able to accept new audits or particular types of audits, that a person may no longer be a responsible individual and that a specific employee may no longer be involved in audit work.
The Government have also been mindful of not introducing any new offences unless there is a compelling case to do so. Even though these offences are in the Companies Act 2006, they would be considered as new offences if applied to the provisions in the Bill.
That is the explanation. I hope that the noble Lord will be happy with it and that he will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am certainly going to withdraw the amendment. If I understand the position correctly, there will be a difference of approach between local audit and the Companies Act provisions, where private sector auditors will continue to be subject to this regime. In a sense, they will still be subject to the supervisory requirements for local auditors that the noble Baroness outlined. Is that correct?
Baroness Hanham
My Lords, I think it is correct. As I suggested, the Financial Reporting Council issues ethical standards for auditors, and those cover the integrity, objectivity and independence of auditors, and it applies in the audited financial statement. Therefore, I think that we are covered from that point of view. We have also been working with regulatory partners, including the Financial Reporting Council, to decide how these may need to be applied to auditors of local bodies. Therefore, I think that some discussion is still going on about the matters that the noble Lord has raised.
Lord McKenzie of Luton
I will not dwell on it but I thought that one of the objectives of the current exercise was to align local audit with private sector audit arrangements. This seems to be creating a divergence. However, I am not sure that there is going to be further fruitful discussion on this. I hear what the Minister has said and I beg leave to withdraw the amendment.
“( ) The requirements must in particular take full account of the need to understand the wider scope of public audit covering the audit of financial statements, regulatory, propriety and value for money.”
Lord McKenzie of Luton
My Lords, as we discussed, Schedule 5 is concerned with the eligibility and regulation of local auditors. It covers independence requirements, the qualification requirements, the monitoring of audits and the inspections. The requirements that may be specified to be an appropriate qualification, enabling a person to act as a local auditor, include their qualification experience, practical training, examinations passed and so on. However, this amendment specifically requires that, in evaluating whether somebody has an appropriate qualification, regard must be had to the need to understand the wider scope of public audit. In fact, this is an issue that also runs for the Financial Reporting Council, which is of course to be the overall regulator.
The scope of public sector auditing was raised at the pre-legislative scrutiny committee—in particular, during the exchange with Mr Steve Freer, the chief executive of CIPFA. On 20 November 2012, he said in response to Question 378:
“Over the past 20 or 30 years—the period in which the commission has been in operation—we have seen that the entry of firms into this market”—
that is, the public sector market—
“is quite difficult. That reflects the fact that the transition from private sector auditing, which firms are clearly extremely good at, to public audit is not straightforward; it is very challenging and difficult”.
He went on to explain that the firms currently involved in public audit work would tend to set up specialist divisions. The responsibilities of auditors in the public sector include not only statutory functions in relation to financial statements but statutory functions in relation to being satisfied that there are proper arrangements for securing economy, efficiency and effectiveness in the use of resources.
It is clearly vital that an understanding of and an ability to undertake this wider role is part of an appropriate qualification for local auditors. The Minister will doubtless tell us that it is implicit in the requirements that may be specified in paragraph 8(5) of Schedule 5, but the amendment would make it explicit. It gives us the chance to probe the Government’s assessment of how many firms are likely to be in the market for local audit work, certainly for principal body audits. We are told that there were just 13 firms which prequalified when the Audit Commission outsourced its in-house practice, although only seven firms were appointed. Schedule 5 provides for the register of auditors of be maintained. When is it expected that the register will first be published and when might we have sight of the draft regulations? In particular, can the Minister say something more about the Government’s assessment of how many firms are likely to be in the market for local audits, and will they be appropriately qualified and have an understanding of the wider role of public audit? I beg to move.
Baroness Hanham
Too eager, perhaps. I say at the outset that we are absolutely clear that the auditors must be competent, appropriate and steeped in local government finance. We should start there, with that as the interest common to us all, to make sure that any changes are made in the most appropriate way so that we can be sure of getting the same high standards of auditing that taxpayers expect and to which they have been accustomed.
The Bill sets out a pretty robust regulatory regime. The National Audit Office will have to develop the underpinning code of audit practice and produce supporting guidance that will set out how auditors perform their role. What this means, essentially, is that the boards going for public audit will not change. In addition, the future local audit framework will require all auditors to be suitably qualified and competent to carry out local audits.
The Bill requires auditors to hold an appropriate qualification. This is either a qualification recognised under Part 42 of the Companies Act 2006, for a statutory audit, or another qualification recognised under this Bill. The Secretary of State will be able to make regulations setting out the minimum requirements that other qualifications will need to meet in order to be recognised for the purposes of local audit.
It is clearly crucial that local auditors are, as I have said, suitably qualified, that they attain an appropriate qualification and that that demonstrates that an individual understands, among other things, auditing standards, accounting standards and audit procedures. These standards and skills must be applied to audit assignments regardless of whether they are in the public or private sector.
However, while holding an appropriate audit qualification is necessary, it is not sufficient in itself for those individuals within firms assigned responsibility for signing audit reports of local bodies. What is important for local audit is that auditors have the skill and experience of local audit, which includes understanding the wider scope of public audit. As such, we believe that the amendment is unnecessary as the Bill requires all individuals to have this appropriate level of competence to carry out local audits, regardless of whether they hold a qualification under Part 42 of the Companies Act 2006 or another one recognised under the Bill. This critical requirement regarding competence is set out in paragraph 27 of Schedule 5. The amendment would apply only to the other qualifications recognised under the Bill, and not those recognised under Part 42 of the Companies Act.
It maybe helpful for me to outline briefly how the framework works for the companies sector and then explain how the framework for local audit will ensure that all local auditors understand the wider scope of public audit, thus removing the need for this amendment. Under the Companies Act, it is for the recognised supervisory body to set out the requirements for approving those individuals who will be responsible for signing audit reports for companies. The requirements established by the recognised supervisory bodies are subject to agreement and oversight by the Financial Reporting Council. Once an individual has been approved to sign an audit report of a company, it does not follow that they could sign such a report for any company. That individual would need to be competent to sign the audit report of the specialism of that particular company; they would need to have the relevant skills, experience and knowledge of the relevant subject matter of the company or industry in which they work.
We are replicating this framework for local audit. The recognised supervisory bodies for local audit will have responsibility for approving the individuals nominated by its member firms for signing the audit reports of local bodies. This will also be overseen by the Financial Reporting Council. Under rules that it will agree with the Financial Reporting Council, a recognised supervisory body will approve an individual to take a key responsibility in the audit of a local body only if that individual has an appropriate level of competence to carry out local audits. A firm that cannot demonstrate that a nominated person has recent experience of auditing a local body and understands the wider scope of local audit will not be considered competent and therefore cannot be approved by the recognised supervisory body.
To provide further assurance on this issue, I should also say that there are established standards and professional obligations with which firms must comply regardless of whether they are appointed to a company or a local public body. In particular, the international standard on quality control requires all firms to have policies and procedures that ensure that individuals have the right knowledge and experience to undertake a specific engagement. For local audit, this would mean that a firm could not put forward an individual to be responsible for a local audit if that individual did not understand the wider scope of public audit. If it did so, it would be in breach of its obligations and would risk breaching the terms of its registration with the recognised body.
The noble Lord, Lord Tope, raised the question of CIPFA and the discussions that have taken place. It may be helpful for noble Lords to know that I recently saw and had discussions with CIPFA about this, and it is being closely involved in discussions that are going ahead with the council, so its views are well taken into account. We recognise that it is probably one of the very few bodies with qualifications that continue to exist for auditors who will be required to do this work.
The register will be published when we see the draft regulations, which will be available at the next stage in the Commons. The register will be published in 2016, in time for the local appointment of auditors. We have discussed the question of how many firms will be able to do this, and I remember saying earlier that we hope and anticipate that smaller local firms will be able to get their staff qualified, if they do not have that qualification, so that they can bid for contracts. We expect that the smaller, new contracts will open up the market to smaller firms. We are anticipating that this will not just be the big four or the bigger four and three bidding—which I think got us to seven before—and that there will be increasing competition. We believe that there should be plenty of smaller companies available, once local authorities start to appoint their own auditors.
I hope that has picked up the points on the register and those made by CIPFA. I know that it is involved in what is going on to ensure that these regulations and qualifications are satisfactory.
Lord McKenzie of Luton
I thank the Minister for a very full reply. It is very helpful to have that on the record. I also thank the noble Lord, Lord Tope, for his support for this line of enquiry. I note that the register will not be available until 2016, but it is good that the draft regulations will be available when the Bill goes into the Commons. I think we shall have to see the outcome of that and how many local firms end up in a competitive position in the market. One of the fears is that those firms that are active in the local audit market currently do it through specialist divisions. They have the financial clout to invest in the training in these sorts of arrangements. I think we would have common cause in wanting there to be a number of firms in the market—certainly it should be expanded from the existing base. I am somewhat sceptical about whether that would be achieved. In the mean time, I beg leave to withdraw the amendment.
Lord Wallace of Saltaire
My Lords, this amendment removes an unnecessary provision from paragraph 16 which is a supplement to paragraph 15 of Schedule 5. Paragraph 15 substitutes Section 1248 of the Companies Act 2006, with which I am sure noble Lords are all familiar. It enables the Secretary of State to direct a relevant authority to retain an auditor to carry out a second audit in certain circumstances.
Paragraph 16 substitutes Section 1249 of the Companies Act 2006 and inserts supplementary provisions about second audits. Subsection (3) states that a direction given to retain a second auditor may be enforced by injunction, which exactly replicates the wording in Section 1249 of the Companies Act. However, given that all public authorities, unlike companies, are subject to judicial review, we now wish to remove subsection (3) which refers to the use of an injunction; this is clearly not necessary. Should a relevant authority fail to comply with the direction relating to a second audit, an action could be brought for judicial review. This is currently the way in which local public bodies are brought to account. This is a minor and technical amendment that removes an unnecessary provision. I beg to move.
Lord McKenzie of Luton
I thank the noble Lord, Lord Wallace of Saltaire, for the explanation of this amendment, and I have no problem with it. My question was about what alternative the Government had in mind by deleting this enforcement by injunction. The Minister dealt with that; it is by judicial review. As to being familiar with the Companies Act 2006, I have a great affection for it; it was the first piece of legislation I ever worked on. I spent days carrying the bag of the noble Lord, Lord Sainsbury, around committee rooms on it, although do not ask me what is in it. I support this amendment.
Lord McKenzie of Luton
My Lords, Clause 20 covers the general duties of auditors of a health service body and sets down the areas on which the auditor must be satisfied. These include that the body has made proper arrangements for securing economy, efficiency and effectiveness in the use of its resources. Clause 20(4) precludes the auditor’s opinion on the accounts making any reference to this requirement unless he is not satisfied in that matter, so the auditor cannot positively state that he is satisfied that the body has made proper arrangements for securing economy, efficiency and effectiveness in the use of its resources. Obviously, an informed reader of the auditor’s report would be able to interpret what appears to be silence on this, but it seems an odd restriction. Perhaps someone could explain its purpose. I beg to move.
Baroness Hanham
My Lords, either my noble friend Lord Wallace or I will reply to the amendments. In this case it is me.
The amendment would remove the provision for auditors to report on value for money only when they are not satisfied that the authority has made arrangements for securing value for money. This would result in every audit report containing a specific conclusion on value-for-money arrangements.
I hope that it will help the Committee if I start by setting out why the Bill provides for value-for-money conclusions to be included only where the auditor is not satisfied about the arrangements. The provision relates only to the reporting of the results of the audit. The local auditor will still be required to carry out work to confirm that the arrangements for securing that value-for-money arrangements are made. The technical standards for that work will be set out by the National Audit Office in the code of audit practice that it will produce.
The report of the auditor is a detailed and technical document. The Government are of the view that for health bodies—in this clause we are referring only to health bodies—the audit report should contain those matters that are most important to the reader. We consider them to be: the opinion on the true and fair nature of the accounts; for those bodies that are directly funded from resources provided by Parliament—which includes all bodies that are now part of the health service—to confirm that the funds have been used for authorised purposes; and any cases where arrangements to secure value for money are not appropriate. This approach would provide for greater focus and attention where value-for-money arrangements are not in place.
The provision in the Bill also aims to bring consistency for all health bodies. Currently, the audit opinions of health commissioning bodies and NHS trusts contain a specific opinion on value-for-money arrangements. The audits of foundation trusts do not, so we are taking the opportunity to bring all reporting into line and to improve the clarity of auditor reporting in the health service. I stress that the work carried out by the auditors is the same, whatever the reported opinion.
I hope that that provides greater understanding of what we are doing and that the noble Lord will withdraw his amendment. If not, I look forward to what he is going to say.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister, as ever, for her explanation. I remain somewhat bemused about why there could not be positive reporting in this area, although it is not a matter that I intend to pursue. I accept that, whatever the outcome, the nature of the work and the task in hand would be undertaken in any event.
The Minister said that the opportunity had been taken to align foundation trusts and other health bodies’ provisions, presumably, from what she said, in favour of the foundation trust formulation. Is that right?
Baroness Hanham
Yes, my Lords. At present the other parts of the health service are required to have value-for-money audit reports. Foundation trusts do not. The noble Lord is correct that it is being amalgamated under the foundation trust umbrella.
Lord McKenzie of Luton
I am grateful for that further explanation. I am bound to say that it did not give me much greater comfort. Given what has gone on with some foundation trusts—I think we will come on to them later—and how many reports there have been about the nature of their financial circumstances, they do not seem to be a good precedent on which to focus an alignment of practice. Perhaps we will pick up that issue later in our proceedings. In the mean time, I beg leave to withdraw the amendment.
“(d) a person who fell within any of the provisions under paragraphs (a) to (c) at a time to which the information or explanation required by the local auditor related.”
Lord McKenzie of Luton
My Lords, this is another quick one, I expect. This amendment relates to an offence under Clause 22. Clause 21 provides for an auditor’s right to documentation and information. Clause 22 makes it an offence without reasonable excuse for a person to obstruct the process or to fail to comply with any requirement of a local auditor. A person guilty of an offence can be subject to a fine on summary conviction. A local auditor can recover reasonable expenses in connection with proceedings alleged to have been committed by certain persons from the relevant authority. Those persons include, for example, a member or officer of the relevant authority. The amendment seeks to makes certain that the right to recovery runs, albeit that the person committing the offence is no longer a member or officer of the authority. This raises the issue of when an offence might have been committed when it includes, for example, continuing failure to provide information or explanations by somebody who has ceased to be a member or officer and perhaps put themselves in that position deliberately. This ties the position back to Clause 21(8)(f), which brings such individuals within the scope of those from whom the auditor can seek information. We do not want anyone to escape by jumping ship or, indeed, for the recovery of costs to be precluded in those circumstances. I beg to move.
Lord Wallace of Saltaire
My Lords, Clause 21 gives auditors a right to access documents and information that they consider necessary for them to exercise their functions under this Bill. Clause 22, as the noble Lord has just explained, provides that a person who obstructs the auditors’ rights under Clause 21, without reasonable excuse, commits an offence. Clause 22 enables the auditors to recover their expenses from relevant authorities in connection with offences committed by members or officers of the authority.
This amendment enables me to highlight two improvements we have made to the Bill since we published it in draft. First, we have included former members and officers of a relevant authority within the duty to provide information and explanation as required by the auditor. Secondly, we have increased the provisions supporting the auditors’ recovery of their costs. Auditors will be able to recover reasonable costs from the authority being audited for their time. We expect that the contracts between the auditor and relevant authority will also enable this, but to remove doubt, the Bill includes specific provisions to enable the auditors to recover costs or expenses for specified functions.
As I have set out, Clause 22 enables the auditors to recover reasonable expenses incurred from the authority as a result of any offence committed by a member or officer of the authority or a person within a connected entity of that authority.
This amendment would extend the provision set out in this clause to enable auditors also to recover expenses regarding offences committed by former members or officers of an authority from the relevant authority. This is a matter to which we gave some thought when we were strengthening the provisions supporting the auditor to recover costs and expenses incurred in undertaking its functions. We concluded that there are some circumstances under which it would not be right for a relevant authority to be required to fund these costs automatically; for example, where a person was a member or officer at the time to which the information or explanation relates but commits the offence of obstructing or not complying with the auditor after they have left the position. Rather than legislating to provide for such rare situations, we consider that it would be preferable for the relevant authority and auditor to agree via their contracts how the auditor’s costs and expenses would be covered in such an unusual situation. I hope my explanation allows this amendment to be withdrawn.
Lord McKenzie of Luton
I am grateful to the noble Lord. I think his explanation confirms what I thought was an issue about somebody who was involved and who had committed an offence but subsequently left the organisation. In those circumstances, if I understand the explanation, that precludes the recovery of the auditor’s reasonable expenses. Did I understand that correctly?
Lord Wallace of Saltaire
My understanding is that it means that the recovery of the reasonable costs does not automatically fall to the authority. If the person who had left the employment of the authority was unreasonably obstructing the provision of the information—refusing to give it—there are circumstances in which the reasonable costs might indeed fall on him or her; that would be a matter to be agreed in the contract between the auditor and the authority.
Lord McKenzie of Luton
I am grateful for that. I missed that part of the explanation originally. If we are not saying that the costs are not going to be recovered, if it is not the audited body, it is going to be the individual. I am grateful for that explanation, and I beg leave to withdraw the amendment.
Lord McKenzie of Luton
I speak briefly in support of my noble friend’s amendment concerning freedom of information. He has opened up a very important area of discussion. My understanding—as he said—is that the Audit Commission, as a public authority, is subject to freedom of information but that those private sector firms appointed to undertake local public audits are not. The purpose of the amendment is to put them in a position where they would be subject to freedom of information. My noble friend made a good case for this.
As I understand it, there was a consultation on that in 2011 and the Audit Commission’s response was that it was sensible for auditors to be brought within the Freedom of Information Act, adding that it would be necessary to make it clear that freedom of information requirements applied only to information held in support of the functions of local public auditors. My noble friend made a good case.
In relation to Amendment 17, I am not quite clear about the extent to which my noble friend wishes this to proceed. It talks about the audit documents from private companies to which the local authority has contracted services. It is sometimes, possibly frequently, the case that it is not just one entity that is providing services. There is a whole range of sub-contractors in the chain and I am not sure quite how it would work in those circumstances. However, I believe that my noble friend has raised a very important point and, like him, I look forward to the Minister’s reply.
Lord Wallace of Saltaire
My Lords, I recognise the importance of this transparency issue. I suppose that I should start by declaring an interest as someone who has received a number of parking tickets from Wandsworth Council. It strikes me as odd that I have never received any parking tickets from Bradford Council. London councils must be sharper on the draw on this, and of course they use private contractors rather more than do councils in Yorkshire and, for all I know, councils in Newcastle.
There was considerable consultation on this issue, and I regret to tell the noble Lord that one thing that came back most strongly from it was a fear that this sort of provision would increase audit fees.
Amendment 17 seeks to give auditors a right of access to the audit documents of companies with which local authorities have entered into contracts and a duty to publish those documents. Following consultation, we believe that the Bill provides sufficient powers for local auditors to access all documents and information that they need in order to undertake the audit and that they have powers to publish those documents, and that therefore the amendment is not needed.
Clause 21 includes a broad power that enables auditors to access all documents and information that relate to the relevant authority which the auditor thinks are necessary to support him or her in undertaking the audit. These rights apply not only to documents and information held by the authority, its members and staff but to documents and information held by other persons—including the authority’s contractors—that the auditor thinks are necessary to undertake his or her statutory duties in relation to the audit of the relevant authority. Clause 22 makes it an offence to obstruct the auditor’s power to obtain these documents and information or to fail to comply with the duty. These provisions are very similar to those under the existing Audit Commission Act regime, which have not proved to be lacking.
In terms of publication of documents, the auditor is able to refer to information and documents from private companies in audit reports where these are appropriate to the audit of the local authority. In addition, the Government’s code of recommended practice for local authorities on data transparency encourages local authorities to publish all expenditure over £500, as well as copies of contracts and tenders. All councils are publishing spend above £500 and many provide contracts information. In late 2012, we consulted on updating the code and making it mandatory through regulations, and we will publish a government response later this summer.
Amendment 18A would amend the Freedom of Information Act so that auditors appointed by local authorities are defined as public authorities and are subject to the provisions under that Act. Auditors appointed by the Audit Commission are not currently included within the remit of the FOI Act. When we originally consulted on the future of local audit framework in spring 2011, we asked whether the future regime should bring local auditors into the Freedom of Information Act. After considering the broad range of responses to the consultation, the Government concluded that there was no compelling case to bring the auditors’ public office functions within the remit of the FOI Act.
There are two key reasons for that. First, we believe that doing so would add little to the existing provisions within the Freedom of Information Act and this Bill. Local authorities are already covered by the Freedom of Information Act, and therefore these requests could be directed at the local authority. Secondly, all respondents to the question—I stress “the respondents”, not the Government—said that they thought that bringing auditors into the Freedom of Information Act would increase audit fees.
In addition, the Bill already supports local transparency and local electorate access to the auditor in a number of ways. For example, the Bill retains all the existing rights for electors to inspect the statement of accounts and audit documents, and to raise questions and objections with the local auditor. Schedule 11 to the Bill enables an auditor to release material in response to this, unless it could prejudice the effective performance of the auditor’s functions.
I hope that that provides assurances that the new regime will support openness and transparency at all stages of the audit process. Auditors will have access to all documents and information that they consider relevant to the audit, local authorities will publish information relating to expenditure and contracts with private firms and local people will be able to inspect the accounts and raise objections with these assurances.
Having debated many previous amendments on other Bills with the noble Lord, I suspect he may nevertheless say that he is not entirely satisfied with all this. If he would like to talk to the Government between Committee and Report, we would be happy to do so, but I hope that, with those assurances, he will be prepared, at this stage, to withdraw his amendment.
Lord Wills
First, I am very grateful to the Minister for that response and for the offer to talk to the Government. I will be very happy to take it up. He is not right that I am not entirely satisfied with his response; I am not at all satisfied with his response. Indeed, I find myself rather saddened by this resiling from the fundamental principle of the importance of transparency. It is in the coalition agreement that the coalition Government are committed to greater transparency. After all the evidence we have seen from the NHS in recent months, I would have thought that the Government would have been persuaded of the importance of that commitment but, sadly, we have the same old excuses that are always trotted out when freedom of information and greater transparency are proposed.
For all that the Minister says that local authorities should be able to provide all the information needed under freedom of information, he did not address the specific examples that I gave to show why there may be cases where the current provision is not adequate in which people will not be able to gain access to the information to which they are entitled. I hope that when he and his officials read Hansard, they will look at that again before we meet so that we can examine this particular case because existing provision is not adequate and neither is the provision in this Bill.
On the question of audit fees, again I had hoped that I would have pre-empted some of these arguments but it is, I have to say, pathetic for the Government to accept this argument. This is an argument for a steady withdrawal of transparency from the public in terms of local government as more and more services are contracted out, as the Government wish, rightly or wrongly, because that is envisaged in the Localism Act. There was a lot of discussion of it when that Bill was going through. As that happens, there will, according to the argument just advanced by the Minister, be decreasing transparency. That stands to reason. The provisions in this Bill are not adequate for that, so I am very disappointed.
Finally, I shall withdraw the amendment for the time being, subject to further discussions with the Minister and officials, but I ask Ministers to reflect on this. There will be abuses of power in local government. Wherever power resides, whether in local government or anywhere else, such as in the National Health Service or in central government, power is abused. Nearly always, greater transparency and freedom of information are the key to preventing, or at least mitigating, the effect of such abuses of power. We have seen it over and over again. So at some point in the future, unless changes are made to the Bill, this Government will be in the dock for having had the opportunity to increase transparency and having refused to do so. The consequences will then be visited, perhaps on some future Government, and some hapless Minister will have to stand up, as we have just seen Health Ministers do twice in the past few months, and apologise to all those who tried to get the information and were denied it and will then have to take remedial measures. Ministers have a chance to do something now before further damage is done. I hope they will think again.
Lord McKenzie of Luton
Before my noble friend withdraws his amendment, will the Minister clarify something? I think part of his answer was that all the transparency that is needed is provided for in the Bill and the regime that we are discussing. In that case, why is there concern about additional audit fees? What extra transparency is being forgone to keep those audit fees down if they would rise if my noble friend’s amendment is pursued?
Lord Wallace of Saltaire
I take the noble Lord’s cynicism about it always being a question of costs, although costs are not entirely a negligible issue at the moment for any of us. We had better pursue through further discussions the particular examples that the noble Lord raised and the question of how far into the internal workings of private contractors one needs to go to be sure that one is getting the value for money and service that one really requires.
“Comptroller and Auditor General: prescribed persons
The Secretary of State will undertake that the Comptroller and Auditor General be added as a prescribed person for the purposes of the public interest disclosure provisions.”
Lord McKenzie of Luton
My Lords, the pre-legislative scrutiny committee reminds us that in many instances serious cases of financial or governance failure are not identified through the audit itself but are brought to the attention of the appropriate authorities by individual whistleblowers. This matter could hardly be more topical. It is vital that robust protections are available for individuals in all relevant bodies, including health bodies.
So far as whistleblowers are concerned, currently the Audit Commission is a prescribed person under the 1998 public interest disclosure provisions. Its appointed auditors are also prescribed persons. The Public Interest Disclosure Act protects from recriminations employees who make disclosures about a range of subjects. Whistleblowers can claim protection by disclosing their concerns either to an employer or, if they prefer, to another organisation authorised to receive disclosures—a prescribed person. The commission provides a confidential public interest disclosure line for employees of councils and NHS bodies where they are unable or unwilling to report internally. Once employees contact the commission, the commission alerts the relevant auditors.
The Bill makes no mention of whistleblowers, and this is an area that needs to be strengthened. We believe that, while appointed auditors should remain a prescribed person, there should also be another prescribed body which could pass on information to an auditor—for example, in cases where employees are unable to contact the auditor directly or where, as the ad hoc draft Bill committee suggested, they may not be comfortable approaching a private auditing firm that has a commercial relationship with the local body or council.
The draft Bill committee recommended that the Comptroller and Auditor-General should take on this role in the future, and that is what the amendment provides for. We may be at one with the Government on this issue and the NAO can provide a hotline for whistleblowers. If the Government are to provide this by order, what requirements will be placed on the NAO as to what it does with the information provided? The Audit Commission would currently, as I said, forward any disclosures to the relevant auditor. I beg to move.
Baroness Hanham
My Lords, I shall respond briefly, but I can also pick up some extra points that the noble Lord raised.
The Government, in response to the committee that undertook the scrutiny of the draft local audit Bill, have already indicated their intention to make the Comptroller and Auditor-General a prescribed person under the Public Interest Disclosure (Prescribed Persons) Order 1999. It is not necessary to include this in the Bill, as we intend to do it by making an amendment to the order following the closure of the Audit Commission.
On the powers of the NAO, at present it is the auditor that considers a disclosure in the context of the existing statutory powers and duties—for example, in relation to considering whether to make a public interest report on the matter. We do not think that it is necessary or appropriate to duplicate this by giving additional powers to the Comptroller and Auditor-General. This mirrors the current arrangements.
The noble Lord also asked why the Bill did not say anything about whistleblowing. We do not believe that it is necessary for the Bill to include provisions around that matter, because that is covered in other legislation. The Audit Commission and its auditors are included as prescribed persons in the Public Interest Disclosure (Prescribed Persons) Order 1999. Amendments will be made to that order to designate local auditors and the Comptroller and Auditor-General as prescribed people—that is, the people to whom whistleblowers can go. The Comptroller and Auditor-General will not necessarily have a duty to investigate those concerns as a disclosure in the context of the existing statutory powers and duties—for example, in considering whether to make a public interest report on the matter. We do not think that it is necessary or appropriate to duplicate this by giving extra powers to the Comptroller and Auditor-General, as I said.
I hope that it is clear that we are not in any way trying to reduce the role of whistleblowers or to put them under any sense of restriction from acting in such a way. There will be a very clear route concerning to whom whistleblowers can go, and they will be protected, as they are at the moment, from any retribution if they do that. I hope that that gives the noble Lord a satisfactory explanation.
Lord McKenzie of Luton
My Lords, again, I thank the Minister. I accept entirely that there is no attempt to dumb down the role of whistleblowers and that that will be fully supported. What is it that the Comptroller and Auditor-General is expected to do with information provided to it as a prescribed person which does not go to the local auditor?
Baroness Hanham
My Lords, exactly as happens at the moment, the Audit Commission directs whistleblowers to the relevant auditor, who is the person in power to take appropriate action. Whistleblowers will continue to be able to go directly to the auditor, as I said, and we extend that to the Comptroller and Auditor-General, who will refer it back again to the local auditor to take up.
Lord McKenzie of Luton
I am grateful for that and beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, the amendment amends the requirement that a local auditor must notify a relevant authority’s auditor panel before making a public interest report and requires the notification to be made when the report is made. There was a very strong recommendation from the pre-legislative committee that an auditor should be able to raise a public interest report without prior reference to the audited body’s auditor panel or audit committee. This amendment would fulfil that recommendation in the knowledge that the Bill is an improvement on the draft, which required consultation with the auditor panel.
Public interest reporting is, of course, a vital part of public auditing and assurance. There is a statutory requirement in the Audit Commission Act and the Bill that we are considering. Under Section 8 of the Audit Commission Act 1998, the appointed auditor is required to consider whether to issue a report in the public interest of any significant matter coming to his or her notice in the course of an audit and to bring it to the attention of the audited body and the public.
Baroness Hanham
My Lords, the Bill retains the auditor’s duty to consider whether there are any issues on which he or she should make a public interest report, and auditors will use their professional judgment to decide whether to do so, as they do now. The auditor must inform the auditor panel before issuing a public interest report.
These two amendments would change the auditors’ consideration of whether to issue a public interest report. Amendment 17B would require the auditor to inform the independent auditor panel at the same time as, rather than before, issuing a public interest report. Amendment 17C would place a duty on the National Audit Office to provide advice and support to the auditor, if asked, before and during the issue of a public interest report. The noble Lord made that very clear in his opening remarks.
I understand the intent behind these amendments but do not consider them to be necessary. First, regarding the requirement on the auditor to inform the auditor panel, I should explain that we have refined this requirement in the light of the pre-legislative scrutiny committee’s recommendations. The draft Bill required the auditor to consult the auditor panel before making a public interest report, but the Bill now requires the auditor only to inform the panel before issuing a public interest report.
As we have discussed, an auditor panel has a key role in overseeing the independence of the relationship between the auditor and the relevant authority. We believe that this requirement on the auditor to inform the panel supports the panel’s role in overseeing the independent relationship between the auditor and the audited body. We would not expect the panel to try to influence the auditor in the discharge of his or her functions or on whether to issue the report. In practice, auditors will often need or wish to discuss issues with persons within the relevant authority when investigating the matters under consideration to ensure a full understanding of the situation and to gather the evidence. I therefore do not believe that it is necessary or particularly desirable to make this change.
Secondly, on the role of the National Audit Office, the Bill already places a duty on the Comptroller and Auditor-General to produce and maintain the code of audit practice and provides a power to issue guidance in support of the code. These will support auditors to undertake their full range of functions under the Bill, including the issue of public interest reports. We do not believe that placing a duty on the National Audit Office to provide guidance is the right approach. Auditors are accountable for their actions and will exercise their professional judgment when deciding how to undertake their functions. Individual auditors will base decisions on their professional judgment, supported by their firms. This is how it operates now. The Audit Commission issues guidance but does not seek to influence the auditor’s judgment. I think it would be fair to say that the Comptroller and Auditor-General would stand behind the auditor. The guidance will be there, and I am certain that under it if the auditor wished to seek further clarification, it would be perfectly possible under this legislation for them to do so from the National Audit Office or the Comptroller and Auditor-General.
Auditors will still have a statutory duty to consider whether they need to make a public interest report. That will occur at the time of informing the panel or subsequently, and they do not need to do anything more than inform it and tell it they are going to do it, although they may discuss it if necessary. Their professional judgment will decide whether a public interest report is necessary. Nothing will change in that respect, and the Bill provides for auditors to recover reasonable costs.
Finally, the noble Lord raised foundation trusts, which appoint their own auditors but have a regulator. Monitor said to the draft Bill scrutiny committee that there is a rigorous monitoring system which detects problems early and tiered support and intervention from Monitor to help resolve problems before they escalate, so the system is different. Also, auditors have qualified accounts of foundation trusts which demonstrate that they are not reluctant to give bad news or to raise issues as necessary.
I hope that the noble Lord will be satisfied with those responses and will feel able to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for her reply. The point that I was trying to make was that, since foundation trusts have appointed their own auditors, the lack of public interest reporting has been equated with concerns about how independent auditors are and whether they feel that they have the strength and support to issue those reports. I take the point that some of them may well have had their accounts qualified, although I do not know on what grounds. I think that it may help to put the issue in context if we could have a note on how many foundation trusts have had their accounts qualified and in what respect.
I accept entirely that the Bill as it stands is a considerable improvement on where the draft Bill was on these issues. In a sense, the amendments that I was seeking to press are relatively minor, although I suggest that they are important. The noble Baroness made reference to the importance of the auditor panel being informed before the report is issued. I am a bit unclear as to what it is then expected that the auditor panel will do. I think that in a lot of instances there will, as the Minister said, be engagement along the way before we get to the final document. However, the difference between it being done when the report is issued and before that suggests that there is a perceived role for the auditor panel before the document is finally issued. It is another hurdle, and that is what I was seeking to avoid with this amendment.
I well understand the point about the NAO and the code of practice, and that that will be the route. However, from what has been said, whether it will replicate the sort of sounding board that the Audit Commission has and currently exercises for auditors who are contemplating developing thoughts around public interest reporting, I am not sure. I do not think that I got the sense from the Minister’s reply that that more proactive engagement was expected. If it were not, that would be a loss, but perhaps the Minister will follow up on that.
Baroness Hanham
My Lords, I am sorry if I did not make it clear that the NAO, while issuing the guidance, will also be behind the auditor, who will be able to discuss issues with it and receive support. The Audit Commission will, as in the past, provide the backbone to the auditor and clarify how to go ahead. That will not change, and I think that there will be strength in that.
We have not really covered this but the noble Lord’s amendment would effectively mean that the auditor about to issue a public interest report would not have discussed it with anybody outside. He would have to issue the report to the panel and the council at the same time. The ability to go to the auditor panel and say, “This is what we are about to do, this is what we think is wrong.”, would, first, probably just give the auditor panel responsible an opportunity to know that something was coming up which it would need to be aware of. Secondly, it would possibly give the auditor the ability to discuss a particular issue with someone independent of the council. I do not think that that would in any way be a retrograde step; it would give strength to the auditor.
Lord McKenzie of Luton
I thought that I said when moving the amendment that I recognised that in many instances there would be engagement with the auditor panel or the audit committee, or whatever the final formulation might be, but that I was keen to ensure that there was not another loop in the process at the point that the auditor concluded what he or she needed to do. There might be no engagement at all. It might be an issue that affects the relationship between the auditor panel and the authority involved. It was a case of not wanting to put in an additional loop right at the end of the process without in any way restricting or precluding the opportunity of engagement along the way, which I imagine would be the norm.
There was one other point. If the Minister covered the issue of indemnities, I was at fault and missed it. I should be interested in the Government’s view on that issue.
Baroness Hanham
The noble Lord is right that the new framework does not replicate the Audit Commission’s indemnity scheme, which funds legal expenses faced by auditors as a result of their exercising their functions. We believe that it is appropriate for private audit companies to bear the risks and costs for any consequences resulting from the exercise of their functions, covering by definition anybody who is employed by them. Furthermore, we do not believe that this will unduly deter auditors from exercising their functions. The Audit Commission’s indemnity has very rarely been called upon.
Lord McKenzie of Luton
I understand that; we have been through that before. I can see that it would not be the norm, but if there is no ability to give indemnity on some basis, what if we have a repeat of risks of the Westminster council sort, and 14 years of litigation? I accept that we are in a different era, but on technically complex issues, will that not discourage auditors from issuing that report?
Lord Beecham
If I might add to my noble Friend’s question, will that not deter smaller firms from engaging in the tendering process?
Baroness Hanham
My Lords, I am not sure that the Westminster case is very helpful now. We are a very long way down the line. As others will know, it was not a straightforward case by any stretch of the imagination. The legal action was taken to recover the surcharge, so it was not only to do with the report, but with trying to surcharge the councillors.
If the company concerned appoints an auditor, it has to stand behind them as well. That would be the expectation of indemnity in this case. I am sure it will not be unique to a company to have to do that. With regard to small auditors, the situation would remain the same. They would presumably cover themselves for the risks.
I hope the explanation is sufficient. If not, and the noble Lord has other points that I have missed, perhaps we can pick them up by correspondence.
Lord McKenzie of Luton
I am grateful for those further points. I do not think we are a million miles apart on this; our differences are perhaps fairly narrow. I shall reflect on our discussion. In the mean time, I beg leave to withdraw Amendment 17B.
Lord McKenzie of Luton
My Lords, Clause 26 draws on Section 16 of the Audit Commission Act. This allows a local government elector for an area to make objections in respect of matters where the auditor could make a public interest report, or where the auditor could seek a declaration that an item of account is unlawful. Where objections are received, the auditor must decide whether to take action under these powers.
The purpose of the amendment is to open up some debate around the circumstances where the auditor does not need to consider an objection, circumstances which do not appear to be spelled out in the Audit Commission Act. The amendment introduces a slightly higher threshold for the auditor not to consider an objection, by adding that the auditor must have reasonable grounds for considering that exemptions apply. The Minister may say that this is implied by the current wording. We have no problem with the auditor being able to ignore frivolous or vexatious objections, or indeed an objection that has already been considered. The reason of disproportionate cost is somewhat more problematic and requires potentially more refined judgment—especially when it may involve governance issues rather than considerable sums of public money. Of course, there is a get-out clause in that these provisions cannot be used to avoid the action of an auditor who has serious concerns as to how an authority is managed. Is it envisaged that there would be guidance on this matter—part of the audit code, perhaps? Would the Minister expand on the Government’s views of the parameters of this particular provision?
Baroness Hanham
My Lords, the Bill retains the rights of local government electors to question the auditor, as the noble Lord, Lord McKenzie, has said. They can raise objections, if they think that there are matters that the auditor should report on in the public interest, or items that they think constitute unlawful expenditure. The auditor can decide not to investigate an objection—and noble Lords have mentioned the frivolous or unconstitutional—if he or she thinks that it meets certain criteria.
Amendment 17D replaces the basis for an auditor not to consider an objection from “thinks that” to “reasonable grounds for considering”. This means that an auditor would be required to meet a reasonableness test before being able to decide not to investigate an objection. Following consultation, the Government decided to modify the objection process. The Bill, therefore, gives an auditor the discretion not to consider an objection in certain circumstances—where the auditor thinks that the objection is frivolous or vexatious, or it repeats an objection previously considered. The auditor has further discretion to not consider an objection if the financial value is disproportionately small when compared to the cost of the auditor’s time in investigating the issue, as long as the auditor does not think that the objection might raise concerns about serious failures of leadership or management within the organisation.
These specific exclusions are new and we think that providing the auditor with discretion not to consider objections as outlined can help to avoid circumstances where an authority—and therefore the taxpayer—incurs significant additional costs for auditors’ time in investigating an objection which is vexatious, or for the other reasons I have mentioned. Auditors will continue to use their professional judgment in exercising this discretion, as they do now for all their functions. We believe that this amendment would add an additional burden and cost in that an auditor would need to meet a reasonableness test before deciding not to investigate an objection. The auditor’s independence and professional exercise of duties is sufficient to ensure that this will be undertaken properly.
I hope that the noble Lord will accept the explanation and withdraw his amendment.
Lord McKenzie of Luton
My Lords, I will not pursue the issue. I was with the noble Baroness until the end, when the comments about a reasonableness test being an extra burden were outlined. If it is envisaged that undertaking a reasonableness test is a significant event, then that is all the more reason to have it because, presumably, it is a meaningful process. I beg leave to withdraw.
“(2A) The court may also—
(a) order that any person responsible for incurring or authorising expenditure declared unlawful shall repay it in whole or in part to the body in question and, where there are two or more such persons, that they shall be jointly and severally liable to do so;(b) if the expenditure declared unlawful exceeds £2,000 and the person responsible for incurring or authorising it is, or was at the time of his conduct in question, a member of a local authority, order him to be disqualified for being a member of a local authority for a specified period.”
Lord McKenzie of Luton
My Lords, this amendment concerns the declaration that an item of account is unlawful. It draws on Section 17 of the Audit Commission Act 1998, which contains similar provisions, although this Bill does not give the Secretary of State power to sanction an item of account which is contrary to law—unless it is tucked away somewhere else in the Bill, in which case perhaps the Minister would let us know. However, the Audit Commission Act does give power to the court to order a person responsible for incurring or authorising unlawful expenditure to repay it in whole or in part to the body affected. It can order that the person is disqualified from serving as a member of a local authority for a specified period. These powers seem to be missing from Clause 27, and the amendment simply seeks to rectify the omission by using the wording from Section 17. The Minister will doubtless say that it is blindingly obvious that these powers are covered elsewhere. If they are, it would be helpful to know where—and, if not, why the exclusion?
Baroness Hanham
My Lords, there is a sort of déjà vu about this amendment. The power of surcharge, as the noble Lord said, enables auditors to recover money from individuals whose actions caused losses to their councils, and was taken out in 2000. It was first introduced in the 19th century, and it is felt to be quite unnecessary in modern local government. In its 1997 report on standards in public life, the Nolan committee concluded that surcharge was an “archaic penalty”; what was archaic in 1997 is surely even more so today. Moreover, surcharge was unfair because of the technical difficulties in calculating the relevant sums, which could be well beyond the means of the individuals involved and bore no relation to people’s ability to pay. This could result in damage to families as property and assets were disposed of to pay the surcharge.
I note that this amendment offers no protection to those who act in the belief that the expenditure that they were authorising was lawful, meaning that, as it stands, the amendment might result in councillors or officials having to make a substantial payment as a result of a decision that they make in good faith. Following the abolition of surcharge, the Standards Board regime was introduced to prevent personal misconduct by councillors in office. Unfortunately, the Standards Board regime became a vehicle for petty and malicious complaints so, in 2012, we abolished it and put in place new arrangements for the conduct of councillors. These new arrangements include tough new rules to prevent genuine, wilful corruption, with councillors having to be transparent about their pecuniary interests. The auditor can himself, or after a concern has been expressed, raise the issue of a public interest report, as we have just discussed. We have backed up these rules with a criminal penalty for the wilful disregard of pecuniary interests, giving the courts the power to impose a fine of up to £5,000 and to disqualify a guilty councillor from office.
Surcharge is archaic but, what is more, it is unnecessary. I hope, with my reassurance and a reminder of things as they stand, the noble Lord will withdraw his amendment.
Lord McKenzie of Luton
My Lords, I think that I had better move swiftly on. I am grateful for that explanation and a bit of a history lesson, and I beg leave to withdraw the amendment.
“(d) where two or more auditors are appointed in relation to the accounts of a relevant authority, other than a health service body, the power to issue an advisory notice may be exercised by the auditors acting jointly, or by such one of them as they may determine”
Lord McKenzie of Luton
My Lords, in moving the amendment, I shall speak also to Amendment 17FA. I have now noticed that the point that it seeks to cover is, I think, dealt with in Clause 7(7). Clause 27 is concerned with advisory notices and who can issue them. Under Clause 7(7) it seems clear that, in the case of joint appointments, it can be done jointly or by either one of the joint auditors, which was the point that I sought to cover. The same point comes up with regard to who can make an application for judicial review, although I notice that, in Clause 30, the reference is to the Senior Courts Act 1981. The Audit Commission Act, unless it has been amended since, makes reference to the Supreme Court Act 1981. I ask for confirmation on those points and beg to move.
Baroness Hanham
My Lords, the noble Lord is correct that Clause 7 dealt with this. However, I think he has a winner coming, because the amendment has raised concerns about its exact correctness. We will ask parliamentary counsel to have a look at this before the next stage. We will probably, or may, return to it and I will advise the noble Lord, in which case, which way. It clearly needs a tweak. I hope the noble Lord will be happy that he has moved us in one direction and will be willing to withdraw the amendment, although, as I say, I think we will be looking at it again at the next stage.
Lord McKenzie of Luton
I am grateful to the Minister. I knew there was some reason why I moved this amendment. Can the Minister deal with the point about the reference to the Senior Courts Act and the Supreme Court Act? What is the difference there? Something has happened along the way, I guess, to make each of those separate expressions meaningful in its context. It may be that the Ministers would wish to write on that, unless there is a meaningful note from the Box
Baroness Hanham
My Lords, I will certainly write, but I also think we will check. That seems to be the first thing to do. The noble Lord has raised yet another interesting point on this amendment and, if I may, we will come back on both those aspects.
Lord McKenzie of Luton
My Lords, this is a probing amendment concerning advisory notices. It would appear that this regime has replaced the prohibition order regime contained in the Audit Commission Act 1998, but with some key differences. Advisory notices can be served if an auditor considers an authority is about to make a decision that would be unlawful or lead to unlawful expenditure. Under the advisory notice regime, the decision or course of action would be unlawful unless the authority, having reflected, considers it appropriate to proceed. This would appear to contrast with the prohibition order procedure, whereby, unless the order revokes it, the action or decision remains unlawful subject to an appeal to the High Court. Is that correct? Presumably, the risk of proceeding when faced with an advisory notice is that the order would seek a determination from the court that the expenditure involved is unlawful, so the onus has been switched from the local authority to the auditor. Can the Government explain this changed approach?
Our specific amendment was to delete the protection given to auditors from any loss of damage alleged to have been caused by the issuing of the advisory notice, which was issued in good faith. This mirrors the protection given in respect of prohibition notices and raises the question of who is to suffer the loss if there is one. Obviously, this is not without its importance given the difficult financial times that local government is in.
Can the Minister also take the opportunity to spell out for us the difference of treatment of health service bodies where the duty of the auditor is just to refer equivalent circumstances to the Secretary of State and the National Health Service Commissioning Board? What follows from this? I beg to move.
Baroness Hanham
My Lords, my note is rather short; it is getting briefer by the minute. The Government think it is important to retain this exemption in order to support the auditor’s ability to undertake the important function according to their professional judgment without fear of facing a damages claim, which, even were it not upheld, would be costly and time-consuming to defend.
Auditors generally report on things that have happened, their opinions on the accounts and the issue of public interest reports, and apply to the court for a declaration that there has been unlawful expenditure. The power to issue an advisory notice is forward-looking, seeking to prevent the authority taking some action that could be unlawful. It is possible, therefore, that auditors will have to act quickly and action may be based on partial evidence. The limitation of liability is to give the auditor some protection to enable them to use their professional judgment. We think it would be right to continue the protection.
With regard to the noble Lord’s questions, the Audit Commission Act includes advisory notices. No major changes have been made to the power to issue an advisory notice. It is still there. This mirrors existing provisions under which the auditor can issue an advisory notice if he thinks that the authority or an officer has undertaken or is about to undertake an unlawful action: a decision on carrying unlawful expenditure, unlawful action or entering an unlawful item of account. There are detailed requirements about the contents of the advisory notice and how it should be served. Within seven days of issuing an advisory notice—this may be something that requires quick action—the local authority is going to have to serve a statement of its reasons for putting forward the advisory notice.
The noble Lord asked me about the difference from the health service. I think I may be able to answer that question—it would seem that I will be writing to the noble Lord to clarify this point on health service bodies, except that I can tell that him that the clause contains the current requirement for local authorities. An equivalent requirement for health bodies has not existed previously and is not required because the governance arrangements for health bodies are different. Health bodies are consolidated into the accounts of the Department of Health and are covered by the requirements of Managing Public Money issued by Her Majesty’s Treasury. As such, they are accountable to Parliament for their expenditure, not to local people. The difference between the two is in the process. Under those circumstances, I may not need to say that I will write to the noble Lord on health service bodies. He will tell me whether he thinks I have answered his question and the others. I hope that I have given him a satisfactory explanation.
Lord McKenzie of Luton
Indeed, the Minister has given me satisfactory explanations. It appears that my copy of the Audit Commission Act is not quite up to date because it certainly has references to prohibition orders. I imagine that, somewhere along the way, that was adjusted to advisory notices.
Baroness Hanham
My Lords, we will check the matter the noble Lord has raised. I will write to him about that. He will tell me whether he is happy about the health services bodies, in which case, I will not need to write to him.
Lord McKenzie of Luton
I can exempt the Minister from writing on health service bodies. I am happy with the explanation and to receive a note on the broader drafting point. I beg leave to withdraw the amendment.
Local Audit and Accountability Bill [HL]
Lord McKenzie of Luton Excerpts(11 years, 5 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
“(1) Unless regulations that apply to a relevant authority have been made by the Secretary of State under subsection (9), a relevant authority shall appoint an auditor (a “local auditor”) to audit its accounts for a financial year not later than 31 December in the preceding financial year in accordance with subsections (2) to (8).”
Lord McKenzie of Luton
In speaking to Amendment 14ZA, I shall speak also to Amendment 14ZC. These amendments take us back to the debate at the start of our proceedings on Monday. When speaking to Amendment 1, I indicated that we had tabled a further amendment covering the same essential point: that of retaining the capability of enabling national or central procurement. These two amendments adopt an equivalent formulation to that provided for in Clause 5 relating to smaller authorities. It provides the Secretary of State with the opportunity to specify a person to appoint auditors for relevant authorities, and potentially provides relevant authorities with the opportunity to opt into or out of such arrangements. Absent the activation of such a capacity, the provisions on a local appointment would run. The amendment is not prescriptive of the person or persons whom the Secretary of State can designate to undertake these appointments.
I do not propose to restate in detail the arguments in favour of retaining a bulk purchase capacity. These were well aired on Monday and, I believe, well supported. In fact, I think it is fair to say that they found favour with the Minister, who said:
“It has been made clear that there is some appetite for developing this national procurement arrangement. If such arrangements for this national procurement maintained choice for local bodies—which is effectively what I have said—and allowed them to take part or appoint locally then we would be willing consider the scope for allowing it under the Bill”.—[Official Report, 17/6/13; col. GC5.]
We entirely accept that the Government would need to be assured about how such arrangements would work and be effective. However, these amendments offer a framework for this, and indeed the framework on which the Government are themselves seeking to rely in relation to smaller authorities. I look forward to a favourable reply, again, from the Minister.
I will wait for the noble Earl, Lord Lytton, and the noble Lord, Lord Tope, to speak to their amendments, the thrust of which I understand. However, for the idea to be credible it would presumably require the other body appointed to be subject to the rigours of this Bill. I am sure that was the intention. I beg to move.
The Earl of Lytton
My Lords, I shall speak to Amendment 14ZAA and its co-runner Amendment 14BZA, both of which are in my name and that of the noble Lord, Lord Tope.
The principle behind these two amendments is relatively simple; they seek to allow for a measure of delegation of the duty to appoint an auditor so that the actual procurement of auditors and their formal appointment can be made by another body on behalf of the authority. The issue arises by virtue of Clause 7(1), which states:
“A relevant authority must appoint an auditor”.
This, if taken literally, could be taken to mean the direct appointment of a named auditor in person on an exclusive and non-transferrable basis. I am sure that it is not intended to be quite as tight as that. It is certainly felt by the LGA, and others who have briefed me on this matter, that this might prevent any appointment as authorised proxy by an external person or body.
In reality, a firm is appointed to the task and nominates one of its number, often a partner or director, to head up a small team to handle the matter. The appointment of an auditor, to use that singular term of art, and as a specific named individual, is in any event customarily carried out per pro the authority by this means. For instance, most small charities and similar bodies appoint a firm rather than an individual. In the realms of a collective appointment via a national or sector-led service, this becomes more important. A large consultancy firm bidding for a sector-led contract will ultimately make an appointment itself of the named auditor as overseer and signatory to the auditor’s report
The gist of Amendment 14ZAA is quite simply to provide for the procurement of an auditor by way of a duly authorised proxy, including a large firm, a sector body or other similar large concern dealing with possibly several authorities. It does not make this mandatory, simply an option.
Amendment 14BZA follows from this. If the procurement is by way of another body charged with meeting the requirements of the Bill and thus delegated from the authority, it is unnecessary, or should be unnecessary, to have an audit panel, because the oversight of the auditor is carried out in accordance with the relevant rules of engagement via the proxy. The authority always remains responsible for whatever measures it has put in place. The appointed procurer of the audit service must observe all the criteria in the Bill for that activity.
The LGA, as I said, provided a useful brief on this and it is worth picking out a few salient points. The amendments would be consonant with the authorities’ need to have flexibility to procure their audit nationally, or in some form of grouped manner. It would make collaborative audit procurement more attractive and produce, as we heard on the previous day of this Committee, the potential for significant savings. That would be to the direct benefit of local finance. Some of the reasons why this is so have already been rehearsed, including the Audit Commission’s own modelling and its calculated saving of between £205 million and £250 million over a five-year period.
The Government’s own impact assessment does not refute this. Indeed, it concedes that local appointment may not procure the level of savings secured by the Audit Commission during its last procurement round. It seems obvious to me that each authority procuring its own auditors on a recurring basis replicates a cost base. There is an opportunity to save money here.
I will not go into the other details that have been discussed before, save to say that I agree that local appointment does not necessarily increase competition or cut costs. I have no proof of this, but my hunch is probably that not many firms would undertake a municipal audit in the first place. In reality one is probably looking at one of the larger firms, a point that we have heard before. I register the point made by the Minister on Monday. A paraphrase of her words is that there will be no recreation of the Audit Commission by the back door, but if the reality of this Bill’s proposals is to create some form of suboptimal procurement with waste by duplication, I have to say that I am against that as a principle. I hope the Minister will feel that subject to any safeguards that might be necessary to eliminate the risk of a “son of” Audit Commission coming about, the principle is acceptable, in which case we can work out the detail as we go forward. I beg to move.
Lord McKenzie of Luton
My Lords, again, I am grateful to the Minister for a very clear steer on where the Government are on this. I hope that by the time we get to Report we can make progress on seeing how it is working out in practice, particularly if there is a provision in the legislation to take it forward once the Bill is enacted.
The noble Lord, Lord Palmer, made an interesting point about the handover arrangements between auditors. I am sure that it does happen. I read the other day that Land Securities changed auditors for the first time in 60-odd years. I think that PricewaterhouseCoopers went out, but I cannot remember who went in. However, it does happen, and I think that the professional arrangements of the bodies that supervise these organisations include a code of conduct that covers that. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this is a very straightforward amendment, which is intended to ensure that the Secretary of State will consult before producing regulations under paragraph 4 of Schedule 3. Perhaps the Minister will take the opportunity to share with us what the broad content of the regulations will cover, or say when we might expect to receive a draft. I beg to move.
Lord Wallace of Saltaire
Here I am acting as the Minister, jumping to my fifth subject today, although I am happy to do so. As has just been explained, Amendment 14ZD would require the Secretary of State to consult relevant authorities and representatives of local government before exercising powers as set out in Schedule 3 to make further provision about the appointment of an auditor to certain bodies.
We are sympathetic to the concerns behind the amendment, which we understand are to ensure that bodies are suitably consulted before further provision is made on auditor appointment. Perhaps it would be helpful if I clarify the scope and purpose of this power, which I understand to be the purpose of this probing amendment. The power is limited to bodies not covered by paragraphs 1 to 3 of Schedule 3. It therefore does not apply to local authorities, police bodies, or the GLA.
Schedule 3 already makes provision in relation to these bodies to ensure that the appointment process reflects their specific governance arrangements. In the case of local authorities, it prevents the delegation of the appointment decision below full council. This ensures that the appointment of the auditor is made in a transparent manner and with proper accountability. The power at paragraph 4 is simply intended to allow the Secretary of State to make similar minor provisions for other bodies covered by the Bill to support accountability. This might mean preventing the delegation of the appointment decision for other bodies as set out, as the noble Lord will know, in Schedule 2.
As set out in the statement of intent that the Government laid earlier this week, we will work with delivery partners and interested parties to consider what specific provisions are needed. With these reassurances on the scope and purpose of the clause, and on our intent to consult affected bodies, I hope that this provides sufficient additional information for the noble Lord to be able to withdraw his amendment.
Lord McKenzie of Luton
I am grateful to the noble Lord for that response. I certainly intend to withdraw the amendment. However, perhaps he could be a little more specific about the other bodies covered by this. I am not sure that I fully grasped his point about particular bodies. Does he have an example?
Lord Wallace of Saltaire
Schedule 2 sets out a range of other bodies. The minor bodies that are set out range from waste management boards to drainage boards to parish councils and to others but do not include the major local authorities or the GLA et cetera. Schedule 4 relates to Schedule 2. I hope that is clear.
Lord McKenzie of Luton
I am grateful for that further exemplary clarification. I have not had a chance to read the statement of intent in detail yet, which came on Monday when we were in Committee. In the mean time, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, the procedure for the appointment of auditors provided for in Clause 8 seems overly bureaucratic, but if that is the Government’s approach, I suppose this amendment simply adds to that bureaucracy. Amendment 14ZF would require that the term of the appointment be part of the notification. Indeed, it might specifically cover the point probed by my noble friend Lord Beecham as to whether it is a reappointment.
Amendment 14ZE would require that the appointment process be set down. Transparency on this matter is for the Government, not unreasonably, of high importance, and we agree. The process will have an impact on competition and pricing, so making the interviewing process clear, assuming there was one, and what firms were involved would be an indication of the relevant authority’s commitment to these issues. It might also provide an indication of the commitment to trying to open up the market, an indicator of whether local or regional firms have been included.
Doubtless the Minister will tell us that this amendment is unnecessary and will flow from the process set down. That is fine, but it would be good to have an idea of the Government’s expectations over these areas.
Lord Tope
My Lords, the noble Lord, Lord McKenzie, began by describing this process as overly bureaucratic, but then I think he went on to say that, since it is overbureaucratic, let us have an amendment that makes it even more bureaucratic. That is not the most compelling argument that I have ever heard from the noble Lord, Lord McKenzie, as I suspect he knows very well.
The amendment certainly seems to describe what is good practice and what I hope would happen in practice. I am moderately confident that that is what would happen, certainly with any good authority. Whether we need to have an even more bureaucratic process to enshrine all this in legislation, I am very doubtful, and whichever Minister is replying they will no doubt tell us that we do not want to make it too bureaucratic.
Lord Wallace of Saltaire
The Government understand and support the intentions behind the amendment—to ensure that there is transparency over the appointment of the auditor—but they are not convinced that this is the sort of thing that needs to be in the Bill. The Bill already includes a requirement for the notice to include the advice of the auditor panel, which is required to advise on the selection and appointment of the auditor. This might cover issues such as the length of the appointment and the process for appointment. Under the Bill, auditor panels must have regard to guidance issued by the Secretary of State on their functions. We expect that such statutory guidance, or wider guidance on best practice, might cover the sorts of issues that should be included in any advice from the panel.
With those reassurances, I hope that the noble Lord will be willing to withdraw the amendment.
Lord McKenzie of Luton
I am grateful to the Minister. I certainly do not intend to press the amendment. I say to the noble Lord, Lord Tope, that I did not honestly expect the Minister to rush to accept the wording; it was a mechanism to open up a debate, particularly about the process and there being transparency in the extent to which other firms are invited in—in a beauty parade or whatever the mechanism is. That may be some measure of the determination of the local authority, if it has one, to broaden and open up the market. However, I entirely accept that that will be the expectation and that it will be set down in some of the guidance that will flow from this Bill. Accordingly, I beg leave to withdraw the amendment.
“(1) Each relevant authority shall have an audit committee to exercise the functions conferred on audit committees by or under this Act.”
Lord McKenzie of Luton
My Lords, this group of amendments would in essence delete the requirement to have an auditor panel and require that each relevant authority had an audit committee. The audit committee would undertake the role envisaged for the audit panel under the Bill. Other amendments in the group are consequential, substituting “audit committee” for “audit panel”, although I acknowledge that more of these would be necessary in practice. Our following amendment, Amendment 14BB, would require that any audit committee must have a majority of independent members and be chaired by an independent member.
The role of audit committees in the public and private sectors is well understood. It would be good to hear from the noble Lord, Lord Palmer of Childs Hill, who has particular experience in chairing his local audit committee. In the private sector, the audit committee has become one of the main pillars of corporate governance. Its aim is enhancing confidence in the integrity of processes and procedures relating to internal control and corporate reporting, and it has a key role in providing oversight of the work of the external auditor.
Equally, in the public sector, audit committees are an essential element of good governance. They help to raise the profile of internal control, risk management and financial reporting, as well as providing a forum for the discussion of issues raised by internal and external auditors. They can enhance public trust and confidence in the financial governance of an organisation.
The CIPFA guidance is that audit committees should be chaired independently of executive and scrutiny functions. CIPFA has issued non-statutory guidance that draws on best practice, including that issued by the FRC. That practice makes clear that audit committees should consider the effectiveness of the auditor’s risk-management arrangements, the control environment, and associated anti-fraud and anti-corruption arrangements. They should seek assurances that action is being taken on risk-related issues identified by auditors and inspectors. They should be satisfied that the authority’s assurance statements properly reflect the risk environment and any actions required to improve it. They should approve internal audit strategy, and plan and monitor performance. They should review summary internal audit reports and receive the annual report of the head of internal audit. They should consider the reports of external audit and inspection agencies. They should ensure that there are effective relationships between external and internal audit, inspection agencies and other relevant bodies, and that the value of the audit process is actively promoted. They should also review the financial statements, external auditor’s opinion and reports to members, and monitor management action in response to the issues raised by external audit.
We will discuss the matter of audit committees for health bodies in our debate on a subsequent amendment, but the Government’s intent, in paragraph 32 of the Explanatory Notes to the Bill, seems to be that the existing audit committees of health service bodies, which already satisfy the independence requirements, will be the auditor panels for a health service body; so we are half way there. Audit committees in local government are not currently mandatory, although most authorities have one, or an equivalent.
This would seem an ideal opportunity to rationalise matters by requiring all local authorities, certainly principal ones, to have independent audit committees and to subsume the proposed narrower role of audit panels within this. Although the Bill allows for an audit committee to act as a local audit panel, the position could end up with an authority that has an auditor panel and an audit committee, just an auditor panel, or an audit committee that is properly constituted. This is a recipe for overlap and confusion. Has the time not come when we should require principal bodies at least to have a proper audit committee independently organised, following CIPFA guidance? I beg to move.
Lord Palmer of Childs Hill
Since we are not sure which amendment it is, perhaps the Committee will forgive me if I say just a word, having come in late on this section. I hope it will. I want to pick up on what the noble Lord, Lord Beecham, said about close friends. I feel that whatever legislation these Houses of Parliament pass should not be capable of ridicule. That must surely be paramount in people’s minds. Can one imagine the situation in which people vehemently deny that they are a close friend: “I am not a close friend, let me on it.”? It is quite nonsense. The idea of having to justify not being a close friend is capable of being ridiculed.
We are not putting these words into the Bill; we are trying to say that the relationship of someone in this position should not be such that they could influence the person on the panel. Imagine a court trying to decide whether this person was a close friend when they were denying it. Mr Saatchi and his wife might have problems saying whether they were close friends, given that he put his hands around her throat—he has been cautioned, so I think I can say that. It really is a worry. As I say, I understand what the Bill is trying to do and it is absolutely right to do so. However, to pick up on what the noble Lord, Lord Beecham, has said, the words are unfortunate.
Lord McKenzie of Luton
My Lords, I thank all noble Lords who have contributed to what was a wide-ranging debate in the event. I also thank the Minister for his reply, but I am bound to say that I do not feel reassured by it. There are two sorts of issues flowing through this debate. One is whether, as the amendment proposes, the audit committee could not take unto itself the role of the auditor panel. Then there is the separate but obviously related issue of composition, whether it is of the audit committee or the auditor panel, and whether that should be independent as defined, quite apart from the definition.
The noble Lord, Lord Wallace, asserted that 80% of local authorities have audit committees. I accept that. I know that it is not currently mandatory, but it is certainly encouraged and there has been a substantial development of them. Their role is not limited to internal audit, controls and processes. That is part of their role, but the CIPFA guidance makes clear that part of their role is reviewing the financial statements, the external auditor’s opinion, and reports to members, so they should already have an engagement with the external auditors and be able to take a view on how they should proceed.
“(1) A relevant authority, other than a health service body, shall determine the membership of its audit committee, provided the committee—
(a) consist of a majority of independent members (or wholly of independent members), and(b) must be chaired by an independent member;subject to sub-paragraphs (1A) and (1B).
(1A) An individual shall be ineligible to act as a member of an audit committee if that individual has any disqualifying interest.
(1B) The Secretary of State may by regulation determine interests that would disqualify an individual under sub-paragraph (1A).”
Lord McKenzie of Luton
My Lords, the purpose of this amendment is to introduce arrangements to prevent individuals with a disqualifying interest from sitting on an audit committee. In this context, the term “audit committee” is being used but, if we reverted to the context in the Bill, it would be the “auditor panel”. We have just discussed the fact that there is a requirement for the auditor panel, or auditor committee, to be independently chaired and, as we have also discussed, for there to be a majority of independent members.
However, as the Bill is currently drafted, whether somebody is independent for the purpose of being able to serve is determined broadly by whether they have been a member, officer or employee of the authority, a connected entity or, indeed, a close friend, whatever that may mean. These relationships which preclude someone from serving on the committee or panel do not appear to encompass a person with a significant business relationship with the relevant authority. This might be someone who is a major supplier to the authority—a significant landlord, for example—or a major client of one of the audit firms being considered for appointment.
We have not attempted here to define these disqualifying attributes exhaustively because it seems to me that that is a job for parliamentary counsel. However, another issue is raised about the obligation, if any, on audit panel or audit committee members, whether or not they are members of the authority, to declare any interest which, if prejudicial, would require them to withdraw from any meeting if they were a member of the authority. Obviously that could upset the balance of dependent and/or independent members. It may be that this is all closed off through other regulations but perhaps the Minister will put it on the record.
In summary, the question is whether a business relationship between an individual and a local authority could be deemed to make them not independent of the authority and how that is encompassed within the Bill? Also, what guides the activities of such members when they serve on one of these bodies and might have a conflict of interest arising from something that is on the agenda of the meeting? I beg to move.
Lord Wallace of Saltaire
My Lords, I am very happy to look at this again between Committee and Report and make sure that the definition is as clear as it can be.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that response and for the undertaking to look at this again. The points that have been made around the Committee today emphasise that there is less clarity than there should be on how this is all meant to operate and some of the nuances that could flow from just a strict reading of the legislation as it is.
I understand the point about making a judgment about whether someone was independent from an authority because of a business relationship. As the Minister said, you would seek to deal with that through guidance and it would be an issue as to whether they should be appointed to serve on the committee or the panel. In a sense, we are differentiating between someone who is not independent in that category and someone who is a relative, where they are not precluded from being appointed to the panel or committee. However, there cannot be too many of them or the requirement for a majority to be independent would break down. I am not quite sure of the logic in that. However, rather than stretch the debate this afternoon, I ask the Minister to look at that as part of the broader discussion. Maybe we could have a meeting of all noble Lords who have contributed before we get to Report because it would be difficult to repeat this discussion at Report without some interim deliberations. Having said that, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this amendment touches on something that my noble friend began to address in an earlier debate. It addresses paragraph 3 of Schedule 4, and the making of regulations about a health service bodies auditor panel. These regulations would enable the Secretary of State to determine whether any of the members of the health service bodies auditor panel must be independent and, if so, what proportion must be independent, as well as the definition of independent.
A health service body means a clinical commissioning group and special trustees for a hospital. These powers are subject to the negative procedure. The amendment would require there to be consultation with representatives of health service bodies before regulations are produced. This seems to be a significant paragraph to be dealt with by the negative procedure, particularly given the prescriptive nature of the constitution of auditor panels for other relevant authorities.
The Explanatory Note to the Bill, to which I referred earlier, states:
“The intention is that these panels will be the existing audit committees of health service bodies which will meet the independence requirements of best practice for central government audit committees”.
I took the opportunity to raise this in advance with the Bill team, and I had a helpful reply, which I have not had a chance to get my mind fully around yet. Perhaps the Minister might take the opportunity to put something on the record. If I understand the position, it is accepted that the audit committees of health service bodies, as currently constituted, which they are required to have under legislation, will serve as the auditor panels. In a sense, we have achieved for health service bodies what we have been seeking to achieve for local authorities. Therefore, it should not be too great a step to complete the journey. I should be grateful if the Minister would put something on the record generally about why there is this differentiation between health service bodies and local authorities. I beg to move.
Baroness Hanham
My Lords, the direct answer to the noble Lord is that there are different arrangements in the various bits of legislation. As he has said, the clinical commissioning groups have governance arrangements that say that their audit committees can carry out this duty. That is how it has been set up in the health service. The composition of the clinical commissioning groups and local authorities’ arrangements are different. I want to make it clear that where local authorities have audit committees with independent members on them, it is possible for them to appoint the panel from the audit committee as long as they use the independent members. The arrangements are not and do not have to be totally different from those available as regards the health service.
I have pages of response to a question that the noble Lord has not asked. Is he reasonably happy that I have addressed the amendment? If not, I will give him the reams of pages that I have in response.
Lord McKenzie of Luton
Will the noble Baroness remind me of the question which I have not asked?
Baroness Hanham
I am tempted but I will not rise to that. If the noble Lord does not know what question he has not asked, I am not about to tell him what he might have asked.
Lord McKenzie of Luton
I shall ponder that response but I think that I would hang on to the basic point. It seems to me that the regulations that will flow from this provision will be, as has been said, a creation of the audit committees as the auditor panels. There will be only one body for health service bodies, which, in a sense, is the clarification that I was seeking as to what would flow from the broad powers set out in that paragraph. Obviously, there is a broader issue to which we will return about why that cannot be replicated for local authorities.
I am struggling to remember the question that I should have asked. Perhaps in the interim, I should beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I shall speak also to the other amendments in this group. The amendment would remove the requirement on the auditor panel to advise on the maintenance of an independent relationship with the local auditor. Indeed, it makes it discretionary. When I prepared for this debate, I could not for the life of me immediately recall why we tabled it. Obviously, the circumstances where a relevant authority ends up with an auditor panel and an audit committee, as we have discussed, would give rise to overlap and confusion, and possibly conflicting advice.
However, on reflection, we tabled it as a probe to establish a definition of “an independent relationship”. The Bill defines who is independent in establishing eligibility to serve on an audit panel and/or committee, but this definition does not appear to help in defining the parameters of an independent relationship between the relevant authority and its auditor. Is it proposed that guidance will be available, or is it expected that audit panels or audit committees will work that out for themselves? This issue is of particular relevance to the provision of other services by audit firms and how this is to be managed.
Amendment 14BJ would make a minor wording adjustment to advice related to liability limitation agreements. By referring to proposals for an authority to enter into such an agreement, it implies not that the proposal must have originated from the relevant authority but that it is more likely to have come from the audit firm.
Amendment 14BK would remove subsection (7), which seems superfluous. If subsection (6) requires the panel to advise on proposals for liability limitation agreements, why must there be the extra stricture for it to respond to requests for advice? It is not clear to me. I beg to move.
Baroness Hanham
My Lords, perhaps I may first deal with the description of “independent” which, I understand, will be a matter of consultation. There will be consultation on what “independent” means in health bodies and how it should be defined. We all need to be clear about what “independent” means, a point raised by the noble Lord, Lord Palmer, and others. This is in relation to health bodies, not local government bodies, but that consultation will be carried out. I hope that that is helpful.
On the main question about the auditor panel’s duty to advise on a proposal for an audit authority to enter into a liability limitation agreement, Amendment 14BJ would require that the panel should advise where there is a proposal for the authority to enter into such an agreement, rather than a proposal by the authority to do so. Amendment 14BK would remove the requirement that a panel must give advice on such a proposal if the authority asks for it. Amendment 14BE would require that an auditor panel “may” advise on auditor independence whereas the Bill currently states that a panel “must” advise on it.
The intention behind the amendments, to remind the noble Lord, relates to separate amendments that we had proposed to allow for a central body to appoint auditors on behalf of any relevant authority which had opted in to this structure. Where such arrangements applied, it would not be necessary for—I am sorry, something seems to have gone seriously wrong with my notes.
I will reply on the basis of the independent relationship but I am afraid that I am going to have to ask the noble Lord to come back on Report on this so that can I fulfil his right to a proper reply.
As to advising on the maintenance of the independent relationship, it is important that the panel maintains an ongoing oversight of the auditor’s relationship with the relevant local body. As in the company sector, this might include, for example, an annual assessment of the independence and objectivity of the auditor and setting policies for the provision of non-audit services.
The noble Lord asked about limited liability agreements. I ask him to raise the issue again. I shall certainly write to give him an answer. I apologise.
Lord McKenzie of Luton
I am grateful to the Minister for that response and am happy to follow up on those points. They were quite narrow points concerning the wording; they were not substantive points of principle. I am happy to send the noble Baroness an e-mail or drop her a line. I am sure that we can deal with that before we get to Report.
In relation to the definition of an “independent relationship” with a local auditor, I obviously accept the importance of the maintenance of such a relationship—I think that we would broadly understand what that means—but, as I said, I could not find a definition of it anywhere in the Bill. I think that the noble Baroness said that, certainly in relation to health bodies, that issue was going to be the subject of consultation, and presumably that would give some guidance on the definitions that would apply for the purposes of local authorities. If there is anything further that on reflection the noble Baroness wishes to follow up on, perhaps she can write to me. Accordingly, I beg leave to withdraw the amendment.
Lord True
My Lords, I need not speak at length on this because I made a relatively lengthy intervention at Second Reading setting out the reasons for my concern about the need to be assured of proper public accountability for the actions of NHS bodies. I think that public accountability is important, and there is material in the Bill about what should be done with reports, but it is essential that a body cannot just receive a report and sit on it.
Reference has been made to a case in which a primary care trust lost £28 million. At Second Reading, I described to noble Lords what happened. A supervisory body called in an auditor but the audit report was not ultimately published. Instead, a commentary was published with various recommendations—some good and some bad—but it was written on the basis that, as no one had really lost any money, we could all proceed and other bodies would make up the money. It was entirely unsatisfactory.
Since speaking at Second Reading, I have been contacted by the leader of another local authority, who thought that I was rather mild in what I said and felt that I should probably have named some names in connection with this affair. I have reflected on that. I think that my decision not to do that at Second Reading was right, and I maintain that position. Since Second Reading, I am very grateful to have had the opportunity to meet with my noble friend Lady Hanham and with officials from the Department of Health. My noble friend had very kindly drawn the attention of her colleagues in the Department of Health to this issue.
We have a fast-evolving world in health and local government, and these worlds are now encouraged to overlap. Indeed, my own authority, along with another local authority, is currently negotiating with clinical commissioning groups and, we hope, a foundation trust to set up an integrated commissioning organisation. That is the way in which the Government wish everyone to go within eight years. Alongside that, other elements of the health service will continue.
I believe that we now have the very odd situation where there is one strand of law which is semi-engaged in this legislation and which derives from the National Health Service Act 2006, as amended in 2012, and a whole strand of local authority-related legislation concerning audit and accountability. As the two empires come together, so should those two worlds come together. In my judgment, they need not necessarily be identical, but the noble Lord, Lord McKenzie, made a fair point when he said that the clinical commissioning group is being treated very differently in this Act from the way in which local authorities are treated. I do not make a case for identity but I do for accountability.
Local authorities have a public responsibility to ensure that what is done in their area is done for the good of their local populations, and that it is done effectively and openly, as we would expect it to be done ourselves. I made the point at Second Reading that there were various issues relating not only to audit but to scrutiny and its important role. I would like to think that while it may not be possible to achieve it in the short term, as I understand it from my discussions so far with my noble friend, in the time that this Bill is before Parliament—perhaps even when it is in the other place—it might be possible to think with a little more foresight about how we are going to adjust to this world and ensure full accountability. It is simply not acceptable that a body existing in an area and other parts of the health service, as happened in the case that I reported to noble Lords at Second Reading, should simply refuse to respond to questions from a public authority about the use of resources, certainly considering the scale involved.
We have to find a method somehow, whether or not it is through guidance—and there is existing guidance—although I would perhaps prefer it to be stronger than that. This Bill should provide us with opportunities, as local accountability is not just about local authorities and neither is this legislation. I am encouraged by what my noble friend has said so far. We may be able to find some improved structures, which may be simplified in some respects, as other noble Lords have said in Committee. They should be structures which ensure proper behaviour in the first place, effective independent audit and effective and open accountability. All those strands need to be addressed. If an internal audit document is published with a commentary and then scrutiny is refused, it is not a satisfactory outcome where there is evidence of large-scale ineptitude. That is a kind way of putting it regarding the use of £28 million of public resources. I am sure that there are other examples.
I am not going to repeat all the circumstances of the case but I urge the Committee to see those great public entities of local government and the National Health Service as two great elements of the state, providing vital services to our country and overlapping in many ways. We should therefore find the opportunity to construct an architecture that meets those three strands: effective and proper governance; effective and ultimately independent audit, although internal audit is vital in all those things and I do not denigrate it; and the strand of openness and, ultimately, scrutiny. This is really a probing amendment although my noble friend encouraged me to think that were this to be laid, she might perhaps be able to give some encouragement to me and to the Committee that the Government would be prepared to look at these matters in the months ahead. I beg to move.
Lord McKenzie of Luton
I would simply urge the Minister to give some encouragement to the noble Lord, Lord True, who has raised a very important point, as he did at earlier stages in our deliberations. I hope that the Minister can help him at least a bit.
Baroness Hanham
My Lords, I thank my noble friend for having introduced this amendment because it opens up the relationship that exists between local authorities and health authorities, particularly in relation to what is required of scrutiny. As my noble friend has said, the primary care trusts and the clinical commissioning groups have now come into being, while the local authorities still have a health scrutiny role since that changeover. If I may, I will refer to the duties in the health scrutiny regulations as I go through what I have got to say.
Failure to comply with a duty under the health regulations will place the relevant body in breach of its statutory duty and render it at risk of a legal challenge. The regulations provide that the local authority can require attendance of a member or employee of a relevant health service provider or commissioner to answer such questions as appear to the authority to be necessary for discharging its health scrutiny functions. It is the duty of that member or employee to comply. The regulations also require a health service commissioner or provider to provide a local authority with such information about the planning, provision and operation of health services in the area of the authority as the authority reasonably requires in order to discharge its health scrutiny functions. To focus particularly on attendance, if a local authority was to require the attendance of members of a clinical commissioning group, it could do so under the health scrutiny regulations.
On employers’ actions, we would expect employers to take the appropriate steps to ensure that the relevant member or employee complied with the local authority’s requirements. It would be highly unlikely that an NHS body, as a public authority, would refuse to take action to ensure that its members or employees complied with a request from a local authority. I think that these provisions are part and parcel of the health service legislation which recently passed through Parliament. The emphasis put on this since the noble Lord’s problem arose may have changed.
Any refusal would not be in line with the duty of co-operation that applies as between the National Health Service and local authorities. Section 82 of the National Health Service Act 2006 imposes a duty of co-operation between National Health Service bodies and local authorities and requires them, in exercising their respective functions, to co-operate with one another in order to secure and advance the health and welfare of the people of England and Wales.
As regards the attendance of particular individuals, identification of the appropriate member or employee to attend may depend on the type of scrutiny review being undertaken and its aims. To take a theoretical case, where the local authority has required attendance of a particular individual—let us say the accountable officer of a clinical commissioning group—and it is not practical for that individual to attend, or if that individual is not the most suitable person to attend, we would expect the clinical commissioning group to suggest another relevant individual. In such situations, both the local authority and the commissioning group or provider, as the case may be, will be expected to co-operate with each other to agree on a suitable person for attendance and, in doing so, to act reasonably.
Therefore, in the interpretation of the health scrutiny regulations and on the basis of the duty of co-operation contained in the National Health Service Act 2006, there are existing principles that guide how the National Health Service and local authorities conduct themselves in relation to the discharge of the local authority’s health scrutiny function.
We share my noble friend’s desire to ensure that everything works as it should in the future and, although we feel that the duties and powers already in place are correct, we believe that we can take further action to ensure that the responsibilities on NHS organisations and local authorities are clear. We shall shortly be publishing updated guidance to support the health scrutiny regulations and to emphasise these responsibilities. If my noble friend would find it helpful, I know that the Department of Health would be happy to work with him on the development of this guidance.
I appreciate that this was very much an individual case to which my noble friend brought our attention, but it flows widely across the health scrutiny role. I hope that I have reassured my noble friend that there are requirements on people to come, that the health authority can require them to come and that they are truly expected to appear. I know that that was not the situation that he described but the regulations are there. If my noble friend is willing to give his experience and help to the Department of Health, I know that it will be very willing to take it up. With that, I hope that he may feel that he has enough to enable him to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this was a very straightforward amendment, which probes the difference between deadlines in relation to the appointment of auditors to health bodies and local authorities. One is set at 25 March and the other, as we touched on earlier—or the noble Lord, Lord Palmer, did—at 31 December. Perhaps the Minister can just give us an explanation for that difference in approach.
Baroness Hanham
My Lords, I have misled the Committee, for which I apologise. As the noble Lord said, it is the preceding year. If the clinical commissioning group fails to appoint an auditor in the preceding year at the end of March, the Commissioning Board will have to notify the Secretary of State. This gives time for an auditor to put in place the provisions for the following year. The Secretary of State has to be notified by the commissioning board by 25 March that the clinical commissioning group has failed to appoint an auditor. The provisions are intended to ensure that a clinical commissioning group has a local auditor in place in a way that is consistent with their respective roles. I agree with the noble Lord that nine months seems a long time to get someone in place.
Lord McKenzie of Luton
I thank the Minister. I am going to have to read the record on that. The potential discrepancy that I was probing was the difference between using the 25 March and the financial year preceding it. As I understand it, if the financial year ends 31 December 2014, it would be the 25 March 2013 that would count. However, the difference is between the 25 March for the clinical commissioning groups and 31 December for the relevant authority’s appointment date. Why is it 31 December in the preceding year for the relevant authority and 25 March for clinical commissioning groups? I am happy to receive a follow-up letter if that is easier. I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, in seeking that Clause 14 should not stand part of the Bill, I should say that this is a probing measure to seek government assurances about the appropriateness of facilitating the limitation of local auditor liability arrangements. The impact assessment and other documentation records that the Audit Commission currently provides an indemnity to audit firms for certain aspects of their work. This is, presumably, their statutory audit function. It also appears that it covers irrecoverable legal costs. We are told that the indemnity has been used only twice over the past five years and that auditors have faced legal action four times over a five-year period. Perhaps the Minister will let us know the amounts involved in the use of the indemnity and how much was paid.
What benefits ensue from limited liability arrangements which relieve auditors of liability in respect of negligence, default or breach of trust when conducting an audit? What are the benefits of that? The limitation of auditors’ liability has been permitted under the Companies Acts since 2008, although reports suggest that there has been little take-up. I am indebted in this regard to a Mr James Herbert, who is a corporate partner in a law firm who wrote an interesting article in Accountancy Age back in 2009. I took the opportunity of speaking to him to see whether the view he expressed then had changed. It had not.
Part of the reason for little take-up of those arrangements is attributed to issues with the SEC prohibiting UK companies registered with them from entering into those arrangements. Under the Companies Acts, any limitation must be fair and reasonable. A separate agreement is reached for each year and each agreement must be approved by shareholders. On the face of it, there is no reason why auditors should be protected from the consequences of their negligence or default in the public or private sectors. However, one of the public policy objectives was to enhance competition in the UK audit market and to address concerns about auditor concentration. As we have discussed before, the big four have deep pockets, are better able to bear the risks and have more clout with professional indemnity insurers. There are concerns that the smaller and mid-tier firms have been least able to benefit from the agreements.
Another reason for allowing such agreements might be its impact on the price of an audit. If the risk on the audit firm is less, the cost of the audit should go down. However, it is difficult to gauge whether there will be any real downward pressure on fees in the public sector, particularly given the infrequent calls on the commission’s indemnity. We can see some merit in allowing limitation of liability agreements if tightly regulated and if they can be demonstrated to help to open up the markets and put downward pressure on fees. However, we are sceptical that they will deliver that outcome. Perhaps the Minister can say when we might see a draft of the proposed regulations referred to in Clause 14 or what else might be provided in the key elements in the regulations. How do the Government propose to monitor and assess the effects of the clause?
I emphasise that in my discussions with that particular lawyer, it appeared that limitation of liability agreements have simply not taken off, certainly not in the private sector, so one wonders about the merits of introducing them to the public sector.
We might wish to return to the matter on Report, but it seems to me that, at the very least, there may be an argument for a sunset clause on the provisions, or at least a very clear process of assessment so that one can see whether what should be the benefits—downward pressure on audit fees and an opening up of the market to smaller firms—is actually achieved. We remain sceptical.
Lord Palmer of Childs Hill
We have already mentioned that the number of accountancy firms capable of carrying out these audits is quite small—five to seven, probably. The maximum would be 13, and most of those would probably not achieve those audits. All of those in the top echelon of firms of audits are now limited liability partnerships. The days of my times in practice when we were personally liable have, for the large firms that we are considering, long departed.
I ask my noble friend: if there is a liability, where should it rest? Should it rest at the end with the Government as a short-stop? Should we say, at the end of the day, if things go sour, the Government will pick up the liability? Bearing in mind that no partner of one of those firms would be personally liable, and that they are firms of great size with considerable power, I wonder whether they should not bear that liability.
We had the example within the corporate sector of Arthur Andersen, which messed up on an audit—not a local authority audit but a public audit—and that ended with the demise of that firm. Are we trying to say that, in terms of local or public health authorities, these firms should have this protection, or are we saying that these are the professionals and they must do their audits, work correctly and cover themselves? We are not talking about anyone being responsible for fraud or errors within local authorities or the health service; we are talking about them not having carried out their work properly to an extent where they can cover themselves. I ask the Minister to reconsider whether the liability should ultimately rest with the Government, or whether it should rest with these five to seven very large limited liability concerns.
Baroness Hanham
My Lords, perhaps I can pick up the questions as I go along. However, it would probably be helpful if I gave the justification for the clause and then we could look at the impact.
As in the companies sector, auditors appointed under the Bill will, by agreement with the audited authority, be able to limit the extent of their liability to the body in relation to negligence or breach of duty or trust. This clause gives the Secretary of State powers to place restrictions on such agreements to ensure that they are reasonable and proportionate.
The decision to allow liability limitation agreements in the companies sector was made following extensive consultation. Such agreements aim to ensure that auditors are not held liable for consequences beyond their control and responsibility. Under the joint and several liability principle in UK law, auditors may be held liable for damages beyond that for which they are directly responsible. The Financial Reporting Council has welcomed provision for such agreements.
Clause 14 mirrors the Companies Act 2006 by providing that any such “liability limitation agreement” must comply with certain conditions. The purpose of this clause is to ensure that the agreements do not unreasonably limit the auditor’s liability and are entered into transparently. Without such a provision, there would be no limits on an auditor limiting their liability and nothing to stop them removing all liability completely. As I said, it is right that auditors are held responsible for their actions in a fair way.
Subsection (2) requires that:
“A liability limitation agreement must comply with regulations made by the Secretary of State”.
Such regulations may address the duration of an agreement or the amount to which it may limit the auditor’s liability, or require it to contain, or not contain, certain provisions. Under subsection (5), regulations may provide that any limited liability agreement not complying with regulations is void or has effect only in so far as it complies with them. In the interests of transparency, subsection (6) allows the Secretary of State to make regulations requiring the disclosure of any such agreement. Subsection (7) excludes compliant agreements from wider provisions in the Unfair Contract Terms Act 1977, which set out similar but more general provision and conditions around limitation of liability.
With regard to the amounts of money involved, perhaps I may write to the noble Lord. I think that the amounts are very small but I will provide them to the noble Lord. As the Bill proceeds, there will be further details on the various matters that have been raised. We will, as with all new legislation, be undertaking a review of monitoring to see what the situation is.
With regard to the point raised by the noble Lord, Lord Palmer, about who should pick up the liability, the Bill includes provisions that enable auditors to recover the costs of their time in exercising their functions from the body being audited. It does not replicate the Audit Commission’s indemnity scheme, which covers the costs of auditors taking or defending legal action. We believe that it is appropriate for private companies to bear the risks and costs of that. We do not believe that it would unduly deter auditors from exercising their functions. The Audit Commission has rarely indemnified its suppliers. On the noble Lord’s question as to whether the Government should pick up liability, the answer would be no. With that, I urge that the clause remains part of the Bill.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that response. I think that we understand a bit better that the regulations will broadly follow the Companies Acts requirements and what flows from that. I found her response confusing in some respects. We are talking about something that is not beyond the control of the auditors. These arrangements are predicated on a breach in respect of any negligence, default, breach of duty or breach of trust occurring in the course of the audit of accounts, so it is a failure of an audit firm which triggers them. The noble Lord, Lord Palmer, raised a very important point. If there is a breach or damages and if that is not to be visited on the auditor, or what is to be visited on them is restricted, who bears the cost of the rest? I do not think we understand that from the Minister’s response.
I thought that the public policy issue about this was partly to do with making sure that another big four company did not go under. The ramifications of those four big beasts going down to three would be significant over a whole range of areas, as we learnt from the demise of Arthur Andersen because of Enron. I thought that a key point was to make it easier for smaller firms to enter the market because their risks were, in a sense, capped. There is no great evidence to suggest that that has happened in the private sector. We do not yet know whether it will happen in the public sector, but if it does not, that raises the question: why have these agreements in the first place? All they do is to protect audit firms. Why? These are sophisticated organisations. They have excellent training programmes, generally recruit very good staff and have been around the block a few times. If they mess up, should they not bear the consequences? If not, the question of the noble Lord, Lord Palmer, is absolutely right: who should? Part of the rationale may be that it would produce downward pressure on audit fees, but that is difficult to justify, particularly if the use of the commission’s indemnity was pretty restricted.
We may return to that issue, perhaps in terms of a sunset clause, if these things are to continue. I hope that the same arrangements as in the private sector, where I think they have to be annual contracts, will persist in the public sector in so far as they are used at all. I hope that guidance is given to firms when faced with such a request from their auditors as to how they should respond. We have probably taken this as far as we can this afternoon, but for us it is an outstanding issue to which, one way or another, we will wish to return.
“( ) the right of the local auditor to make representations to the authority’s auditor panel or supervisory body”
Lord McKenzie of Luton
My Lords, Clause 16 concerns the resignation and removal of the local auditor, and the amendment refers in particular to circumstances relating to the removal of a local auditor, although on reflection it could refer equally well to circumstances in which a local auditor resigns.
The purpose is to ensure that the procedure specifically encompasses the right of a local auditor to make representations to the auditor panel or supervisory body, or the audit committee, if that is what is in place, and that might encompass a right to make representation to members. The removal or resignation of an auditor is a serious business. Under the Companies Act 2006, an extensive process is set down where somebody is removed or resigns. These include, in the first case, the right to make representations to members when removed and a statement of circumstances when resigning. It is these Companies Act processes which the Government are seeking to import into the Bill, and we support that.
Under the current regime, there is no need for regulation on the removal or resignation of local public auditors because it is the Audit Commission that appoints and removes them. However, a change in auditor could be straightforward—arising, say, from a new potential conflict of interest—or it might be indicative of a fundamental difference of view as to the accounts, where an auditor feels that they can no longer carry out the audit effectively because of concerns over the governance of the body or a fundamental breakdown in the relationship. Ensuring that there is a right for auditors to make their case at an appropriate level is therefore very important.
The Bill includes, at Clause 16, regulation-making powers which cover a range of issues. Doubtless, the Minister will say that they are broad enough to cover the thrust of this amendment. So be it, but perhaps we can hear from the Minister what the plans are in respect of resignation and removal to cover circumstances where the appointment has been made by the local body, jointly with another body, or in transition by the Audit Commission. I beg to move.
Lord True
My Lords, the noble Lord makes an extremely important point which in certain circumstances could touch on issues of public accountability, although referred to on another matter. It may well be that he could be satisfied in that Clause 16(3)(d), at the top of page 12, allows a regulation-making power in relation to,
“the role of the relevant authority’s auditor panel or … supervisory body”.
On this issue of a right of audience, or a right to make representations, my noble friend might well be able in discussion to consider including the point which the noble Lord has raised. It is a significant one and he is right to refer to Companies Act procedures. Perhaps it could be clarified whether it is potentially encompassed in that area, which might help some of us on the Committee.
Lord McKenzie of Luton
I thank the Minister for that reply. I did not assume that she would accept the wording, but I wanted to get something on the record. I am grateful to the noble Lord, Lord True, for his acknowledgment of this issue. The Minister has dealt with it wholly satisfactorily. I beg leave to withdraw.
The Deputy Chairman of Committees
The question is that Clause 17 stand part of the Bill.
Lord McKenzie of Luton
My Lords, I think that we agreed to draw stumps at the end of Clause 16. We will get on to Clause 17 next week.