Local Audit and Accountability Bill [HL]

Lord Wallace of Saltaire Excerpts

Monday 24th June 2013 Grand Committee

Moved by

[Lord Wallace of Saltaire]

15: Schedule 5, page 49, leave out lines 15 and 16

[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.

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[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.

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[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.

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[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.

[Lord Wills]

I am very grateful. My noble friend reinforces the point about the pathetic nature of the Government in accepting these arguments about increased audit fees. They really need not be there. These auditors are getting access to a very lucrative new stream of work and they should pay the price to the public in making information available.

[Lord Beecham]

Before my noble friend withdraws the amendment, what is the present position when a contract is let by the local authority for a particular service in terms of the audit? What is the relationship of the district auditor to a council-commissioned contract in relation to its own service? Does he have access and is he subject to the same disclosure requirements that my noble friend seeks as if the council itself were directly providing that service?

[Lord Wallace of Saltaire]

My clear understanding is that auditors do have access to the relevant accounts of the contractor, but that would probably differ a great deal from one contract to another. I therefore need to make sure that in saying that they have access I am talking about all the cases rather than some. It may well be that a number of contracts differ one from the other.

[Lord Wills]

Again, I am grateful to my noble friend, who has made an important point. We will return to these issues in private discussion and I hope that I can persuade the Government that they need to be a little more robust in responding to the consultations. They often are, but not in this particular case. In the mean time, I beg leave to withdraw the amendment