Local Audit and Accountability Bill [HL]

Baroness Eaton Excerpts

Monday 15th July 2013 Lords Chamber

[Baroness Hanham]

My Lords, my noble friend and the noble Lord, Lord McKenzie, raised several issues, seeking clarification about the auditor panel. I start by reminding noble Lords how the auditor panels will operate, and how we are moving to keep arrangements streamlined and flexible in terms of whom the auditor panel is made up of. First, I want to confirm what I said in Committee, that we do not expect these auditor panels to be large. We expect them to be quite small, probably three or five people at the most. This does not exclude members of the audit committee being members of the panel, as long as they are independent members. If the audit committee has an independent member, that member can be a member of the audit panel. I do not think that there would be anything to exclude them being chair of the panel, if that is required. It would not actually preclude a member of the opposition being chair of that panel. We can see that that is how they will be made up.

Other than that, they can appoint a completely separate auditor panel outside the audit committee regime. There again, they will have to make sure that the members of that panel are majority-independent. Again, that would not preclude any member of the local authority being part of it, even though they might be considered to have some relationship with what is going on because, by definition, they were a member of the council. None the less, we think that there might be some virtue in having a councillor or councillors on the auditor panel to help with the selection.

Amendment 10 goes back to our discussions on wider issues; that is, the assessment of the independence of auditor panel members beyond direct personal links to the audited authority. I hope that I have explained that we need them to be really independent. Some concern was expressed last time, a concern which I do not think the noble Lord raised this time, about significant business relationships. By any definition, a significant relationship with a local authority, particularly on a contractual basis, would preclude somebody being a member of the panel.

We do not want to make much more regulation, but I think that we need to look at giving some guidance about who can and cannot be on an auditor panel. We will do this as the regulations are considered later in the year.

[Baroness Eaton]

Can the Minister give a bit more information about the process of selection for independence? That would deal with the point made by the noble Lord, Lord Palmer, about political affiliations sometimes not being absolutely clear. Is there likely to be a clearly defined process for how local authorities select independence? Rather than their just saying, “That is an independent person; we’ll have them”, is there going to be due process?

[Baroness Hanham]

My Lords, local authorities have due process already, as the noble Baroness knows, on how to appoint people, panels, independent committees and standards boards where independent members are required. I would not want to tie this down too firmly, other than to say that they must be pretty clear that nobody on the panel has a connection with any firm that may be applying to do the audit. If they have a political affiliation that should be declared so that, before the auditor panel is set up, it is known if they have a particular affiliation. Apart from, as I have suggested, there perhaps being one councillor on the panel, it is pretty clear that people should have some experience of audit so that they know what an audit looks like and what they might be expected to do.

We do not rule out independent members possibly being a member of a political party but it is essential that that is known so that there is transparency about it. We would hope that not more than one person, who would probably be the person off the council, would be that member.

It will be essential for members of auditor panels to declare any wider interests, commercial as well as political, and any other interests that they might feel had any relevance. Those would need to be taken into account in an appointments process that the committee undertook. If members of the audit committee were making the appointment they would have to make a balanced judgment on the balance of the panel, aligned with what I have already said. If it is an external appointment it will have to go through an external appointments process.

I think that it is clear that there should be, and be seen to be, independence in the auditor panel. I think that it is clear that local authorities have experience of dealing with external appointments. Although I understand the concern that the panels could be “stuffed” with political appointees, I think that there has to be transparency as to who is appointed. If it were found that it was just a political panel, it might be very open to question.