Local Audit and Accountability Bill [HL]

Lord Wallace of Saltaire Excerpts

Wednesday 26th June 2013 Grand Committee

[Lord Palmer of Childs Hill]

Let me give an example. If one is looking into housing fraud, one does not, as a local authority, look only at the housing department and benefits claims. I know that local authorities such as mine look towards the UK Border Agency, with which they have a great relationship. When they look into possible fraud, administration error and all the other things that the noble Lord spoke about, the powers already exist. I am asking whether they need to be enshrined in the Bill.

[Lord Wallace of Saltaire]

My Lords, for these purposes, I should remind noble Lords that I am the spokesman in the Lords and the Minister for the Cabinet Office and have spent long hours in this Room discussing data sharing and data matching during consideration of the Electoral Registration and Administration Act, when many similar issues came up. I must say that I had not appreciated how extensive data sharing was within the Audit Commission and local government. Central government has been approaching this matter with a rather greater degree of caution and hesitation. Perhaps I should phone the Guardian and tell it just what the Audit Commission has been doing in this regard. I am sure that that newspaper would like to make it a front-page spread.

I am very conscious that this whole issue of data matching and data sharing in the public and private sectors, given that they overlap, will occupy us all over the next three or four years. I have no doubt that at some stage, under whichever Government we have in two or three years’ time, we will be discussing some major new legislation in this area because the data revolution is moving so fast.

The possibilities for data matching and data sharing are increasing rapidly. I am conscious from my discussions around this issue within the Cabinet Office and with outside bodies, including the Information Commissioner’s Office, that national patient records are among the most sensitive issues for citizens as regards information sharing. As noble Lords will know, whether one can share limited information without allowing access to full information is one of the great issues in the area of data matching. Therefore, when one talks about data-matching success in local government—and I recognise, as we all do, that the detection of fraud and error is an extremely valuable and useful activity—we nevertheless all have to be aware that issues of privacy are very strong and powerful, and are protected by various lobbies in this country. We must therefore proceed with caution.

Discussions are well advanced on the issue of an appropriate home and we hope to be able to announce by Report stage that the matter will finally have been agreed. However, there are a number of final issues about accountability and management that still have to be settled within Whitehall.

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Moved by

[Lord Wallace of Saltaire]

18ZZA: Schedule 10, page 75, line 32, at end insert—
“Omit section 22(1) (Audit Commission).”

[Lord Wallace of Saltaire]

My Lords, in moving Amendment 18ZZA, which applies to paragraph 8 of Schedule 10, I shall also speak to Amendments 20, 21, 22 and 23, which make a range of minor and technical amendments to Schedule 12. These amendments remove redundant references to the Audit Commission and make clarifications to related provisions in existing legislation.

Amendment 18ZZA applies to paragraph 8 of Schedule 10. This is a consequential amendment to the Local Government Act 1999 to remove a reference to the Audit Commission. This has the effect of ensuring that the Audit Commission is no longer specified as having a role in relation to best value inspections.

Amendment 20 changes the definition of “local auditor” in the Social Security Administration Act 1992. This amends paragraph 23 of Schedule 12 and ensures that “local auditor” is now defined as within the meaning of the Local Audit and Accountability Act 2013—as it will be after Royal Assent—rather than simply within the context of any specific part of that Act.

Amendment 21 makes a consequential amendment to Section 125(2)(b) of the Greater London Authority Act 1999. This applies to paragraph 34 of Schedule 12 and has the effect of removing the provision allowing the Audit Commission to certify information provided by a functional body to the Mayor of London.

Amendments 22 and 23 make minor and consequential amendments to Section 212 of the Local Government and Public Involvement in Health Act 2007. These amend paragraph 66 of Schedule 12, which makes consequential amendments to that Act, and seek to clarify the Government’s intent that only the UK Secretary of State can make provision about entities connected with cross-border local authorities. These amendments also tighten the definition of “local authority” in this context.

These are minor and technical amendments that remove redundant references to the Audit Commission and make clarifications to related provisions in existing legislation. I beg to move.

Amendment 18ZZA agreed.

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[Lord Beecham]

My Lords, the noble Earl has made a compelling case. We seem to be moving from the high politics of Greater Manchester and West Yorkshire to Clochmerle or Eatanswill. There is nevertheless a real issue here, of which I was certainly unaware. The ridiculous numbers involved to call a poll, the non-binding nature of the result and the financial cost all seem to add up to a pretty lethal cocktail which ought to be addressed. I hope that the Minister will give the noble Earl an indication that the Government will look at this and seek, either on the basis of his amendment or in some other way, to deal with what looks like a highly anomalous situation in which a tiny handful of people—even fewer than voted in police commissioner elections—can wreak havoc in a local community.

[Lord Wallace of Saltaire]

My Lords, I was unaware of the parish poll dimension. I say from the outset that, although we are very much on the outer edges of the scope of the Bill, the noble Earl’s points are clearly of importance for the modernisation of parish polls, which has rather fallen through the net. The questions of the threshold for triggering the poll and what a legitimate subject for a poll should be are issues to which we would be happy to give further consideration. We would happy to meet the noble Earl to discuss this further. I am rapidly turning over in my mind the question of how one deals with that. Even though this is a relatively limited area, it might be the sort of thing that is appropriate for a Private Member’s Bill in a future Session, which might be given a fair wind. It is a relatively self-contained set of issues.

We are aware of the issue of whether one could institute postal or proxy votes. Certainly, we should be lengthening the time during which a vote could be cast and modifying regulations about the threshold for triggering a parish poll. All those issues really need to be considered.

I understand that the provisions of the regulations limit the content of polls to matters which have been considered by the parish meeting, which means that the person chairing a parish meeting could rule out of order any attempt to discuss matters which are not parish affairs and so prevent parish polls on, for example, EU referendums, or whatever it may be. However, we are all conscious that different parishes and local communities are often dominated by different small groups. This is one of the problems we have with getting back to community self-government. I am often conscious that I am extremely lucky to live in the community of Saltaire, which has far too many people who are highly educated. We are overstuffed with activists, and there are other areas around Bradford which are not so blessed with local activists willing to turn up to lengthy committee meetings in the evenings and take part in local community activities. With that assurance and that offer to talk further on this small but important issue, I hope that the noble Lord will feel able to withdraw his amendment.

[The Earl of Lytton]

My Lords, it was not my intention to press the amendment, particularly as we are in Grand Committee, but I am extremely grateful to the Minister for his comments and for his offer at any rate to look into the matter further and have a further discussion. It is a narrow but important issue, and it will be even more important if what I might call the fruits of the localism agenda in terms of expanding the number of organisations that operate at this level—perhaps not in name but effectively as parish and town councils—are set to increase. I hope that it will become the model of preference at community level. The matter is not without ongoing consequence and I will certainly forward to the Minister some of my paperwork. That will do for this evening and I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, the amendment calls for a report to Parliament on the impact of the new audit regime and for this to be made within three years of the passing of the Act.

Let me acknowledge at the start the undertaking given by the Government on a post-implementation review but its objectives appear to be somewhat narrowly based and do not address some of the fundamental issues. The Bill provides for arrangements that are significantly different from the current regime whereby the Audit Commission effectively acts as regulator, commissioner and provider of audit. As the pre-legislative scrutiny committee report sets out, the new regime is more complex and certainly more fragmented. The regulation of local audit will transfer to the Financial Reporting Council, professional accounting bodies and the National Audit Office. Commissioning of local audit will transfer to local public bodies, and the provision of local audit will go to private sector firms. Research and value for money will be picked up by the NAO to a limited extent and by the sector’s own self-improvement. The National Fraud Initiative’s ultimate destination has yet to be determined, as we have discussed, and the co-ordination of grant certification remains a little vague.

Although some of the bases have been covered, potential gaps remain. Some of the bodies that are subject to the new regime are accountable to government departments other than CLG. How is this to be co-ordinated across government? Audited bodies themselves will have to liaise with government departments, the NAO and auditors because the commission will not be on hand to act as an intermediary. The role of accounting officers within departments is fundamental to the management and control of resources. They are currently able to draw on information on the outcome of audits, implementation of major initiatives and value for money outcomes analysed by the Audit Commission. How is this all to happen in the future? Unless the Minister can tell us otherwise, there appears to be no organisation that will be publishing the outputs of more than £200 billion of public expenditure.

Clearly, quality of audits is paramount. The role of the FRC as overall regulator and its specific role in providing quality assurance to just a few “major audits” has been the cause of some concern. We hear the government assurances on this but consider that Parliament is entitled to a more formal report on how this is working in practice. Can the Minister confirm that the reports of the recognised supervisory bodies monitoring auditor performance outside major audits will be in the public domain?

There is also the need for oversight on how this is working for all “relevant authorities”, including health bodies and smaller authorities. Many of the provisions in the Bill are not applicable to health service bodies because equivalent provision is made in other legislation. We have not thus far sought to compare or contrast these provisions with those applicable to other relevant authorities. Contemplating consolidation may give the Ministers a nightmare at the moment but the Bill does not give us a sense of how joined up this is all going to be in practice. A report to Parliament would cover this. I beg to move.

[Lord Wallace of Saltaire]

My Lords, the Government support the intention behind this amendment. Post-implementation review is acknowledged good practice. It will provide the assurances that Parliament and the general public will want that the new audit arrangements are achieving the outcomes that we expect, and it will identify how policies might be improved if they prove to be less effective than we anticipate. For these reasons, the Government have already committed to undertake such a review. This is set out in the impact assessment, at Section K.

However, I am not persuaded that the timeframe envisaged in the amendment is the right one. The commitment in the impact assessment is to a review within three to five years of Royal Assent. This is in line with the Government’s general commitment to post-legislative review. The reason for preferring a slightly longer period in the case of this legislation relates to the implementation of local auditor appointment.

Assuming that this Act is passed in early 2014, the amendment would require a report in early 2017. As noble Lords are aware, the earliest date at which local auditor appointment would begin is 2017. It would seem to make sense to include some assessment of the move to local appointment in the proposed review. This would enable a robust assessment of audit quality and auditor independence in the new regime, and of the impact of local appointment on the audit supply market.

Nevertheless, government departments, through the accounting officer, are accountable to Parliament annually for the money voted to them. Where this money is distributed to others, accounting officers need to be able to demonstrate that appropriate accountability arrangements are in place, usually through an accountability systems statement. The external audit of local bodies is one of the evidence sources that will help to demonstrate whether the system is working effectively. We will ensure that the necessary assurance can be provided to accounting officers and to Parliament.

The provisions for the audit regime of health bodies have been designed to provide at least the same level of assurance to the Department of Health accounting officer and Parliament on the use of resources by the health sector as current arrangements. All the health bodies covered by this Bill are included in the annual accounts of the Department of Health. The department reviews the outcome of the audits and annual governance statements of all health bodies and the NAO also uses these to inform its audit of the departmental accounts.

Finally, I would like to say a few words of reassurance about the scope of the proposed post-implementation review. The impact assessment explains that the review will look at how well the core objectives of the local audit reforms are being met. I remind noble Lords that these objectives are: to deliver greater localism, decentralisation and transparency; to maintain competitive audit fees; and to uphold high standards of auditing.

There does not appear to be anything in the list of specific requirements in the amendment which is obviously out of scope. The impact assessment makes a commitment that we will work up the detail of the review with representatives from local government and other interested parties. I hope that these reassurances will satisfy the noble Lord and he will be willing to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord for his response. Of course, I will withdraw the amendment.

As I said in moving the amendment, I was aware of the proposal to have a post-implementation review. I accept the point about the timeframe. If it was done within three years, we would not have had any—or certainly many—local appointments of auditors so would not be able to judge the ramifications.

I do not know whether the noble Lord can help me on a further point, or write to me on it. In considering the Bill, I do not think that we have done enough work on how the regime for health bodies and other relevant bodies fits together. They are all defined as being relevant authorities. However, a whole raft of provisions appear to apply to relevant authorities other than health bodies. We may not have an overall view of how that fits together but one would hope that any review of how the measure will work in practice would pick up what the inconsistencies and consistencies of the regimes are and what lessons can be learnt from one stream which could benefit the other. That aspect appears to have received less attention than many other aspects of the Bill. However, I accept the undertaking that there will be a post-implementation review based on consultation with relevant bodies. I accept the point about a three to five-year timescale rather than within three years. That seems to me entirely reasonable. I do not know whether the noble Lord can say anything further on the health bodies point.

[Lord Wallace of Saltaire]

I take the point about health bodies. This clearly is an important part of the arrangement. We, of course, intend to include health service bodies in the post-implementation review. If there are other matters about the health bodies that the noble Lord would like to discuss between Committee and Report, I am very happy to do so. We recognise that this is an important part of the whole shift.

[Lord McKenzie of Luton]

I welcome that and would like to take up that opportunity. In the mean time, I beg leave to withdraw the amendment.

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Moved by

[Lord Wallace of Saltaire]

20: Schedule 12, page 82, line 29, leave out “see Part 4” and insert “within the meaning”

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Moved by

[Lord Wallace of Saltaire]

23A: Schedule 12, page 93, line 7, at end insert—
“(1) Section 210A (extraordinary report: local authorities) is amended as follows.
(2) In subsection (1), for the words from “the Audit Commission” to the end substitute “the regulator may require the local authority to allow its accounts, so far as they relate to the provision of social housing, to be audited by a local auditor appointed by the regulator.”
(3) After subsection (1) insert—
“(1A) The regulator may not appoint a local auditor to audit the accounts of a local authority if that person—
(a) is the person (or one of the persons) appointed under or by virtue of the Local Audit and Accountability Act 2013 to audit the authority’s accounts, or(b) was the person (or one of the persons) who carried out the most recent completed audit of the authority’s accounts under or by virtue of that Act.“(1B) Sections 19(1), (2), (5) and (6), 21 and 22 of the Local Audit and Accountability Act 2013 (local auditors’ general duties and right to documents etc.) apply in relation to an audit under this section as they apply in relation to an audit of the local authority under or by virtue of that Act.
(1C) On completion of the audit under this section, the local auditor must report to the regulator about such matters and in such form as the regulator determines.”
(4) Omit subsections (2) and (3).
(5) In subsection (4) for “Audit Commission’s costs of preparing the report” substitute “costs of the audit (including the local auditor’s remuneration)”.
(6) For subsection (5) substitute—
“(5) In this section—
“accounts” has the meaning given by section 4 of the Local Audit and Accountability Act 2013;“local auditor” means a person who is eligible for appointment under or by virtue of the Local Audit and Accountability Act 2013 as an auditor of the local authority’s accounts.”(7) In the heading, for “report” substitute “audit”.
In section 249(1) (management transfer) after “section 210” insert “or 210A”.”

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[Lord Wallace of Saltaire]

Amendment 23A would add new provisions within Schedule 12. The purpose of this amendment is to include local authority social housing providers within the Homes and Communities Agency’s existing powers to require a separate audit report into social housing accounts, once the Audit Commission has been abolished.

Currently, Section 210 of the Housing and Regeneration Act 2008 gives the Homes and Communities Agency a power to order an extraordinary audit as part of an inquiry under Section 206 of that Act in respect of a private registered provider of social housing where it has serious concerns that a housing provider has mismanaged its affairs. The agency can require the registered provider to allow its accounts and balance sheet to be audited by a qualified auditor appointed by the regulator.

Section 210A applies this regime to local authority housing providers by placing a duty on the Audit Commission, if asked by the regulator, to provide a report on the local authority’s accounts, so far as they relate to the authority’s provision of social housing. Amendment 23A ensures that local authority social housing accounts continue—upon closure of the Audit Commission—to be subject to examination as part of a Section 206 inquiry by enabling the Homes and Communities Agency to appoint an auditor which is on the register held by the recognised supervisory body to undertake an extraordinary audit. I therefore beg to move this amendment.

[Lord McKenzie of Luton]

That is very clear. I am happy with the amendment.

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24: Schedule 12, page 96, line 2, at end insert—
“Charities Act 2011 (c. 25)99A The Charities Act 2011 is amended as follows.
99B (1) Section 149 (audit or examination of English NHS charity accounts) is amended as follows.
(2) In subsection (2) for “a person appointed by the Audit Commission” substitute “a person who—
(a) is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006,(b) is eligible for appointment as a local auditor (see Part 4 of the Local Audit and Accountability Act 2013), or(c) is a member of a body for the time being specified in regulations under section 154 and is under the rules of that body eligible for appointment as auditor of the charity.”(3) In subsection (3)—
(a) for “the Audit Commission” (where it first occurs) substitute “the charity trustees”,(b) in paragraph (a) for “a person appointed by the Audit Commission” substitute “a person who is within subsection (2)(a), (b) or (c)”, and(c) in paragraph (b) for “a person so appointed” substitute “a person who is qualified to be an independent examiner”. (4) After subsection (3) insert—
“(3A) For the purposes of subsection (3)(b), a person is qualified to be an independent examiner if (and only if)—
(a) the person is independent,(b) the charity trustees reasonably believe that the person has the requisite ability and practical experience to carry out a competent examination of the accounts, and(c) the person—(i) falls within a description of person for the time being included in the list in section 145(3), or(ii) is eligible for appointment as a local auditor (see Part 4 of the Local Audit and Accountability Act 2013).”(5) Omit subsection (4).
(6) For subsection (5) substitute—
“(5) The Commission may—
(a) give guidance to charity trustees of an English NHS charity in connection with the selection of a person for appointment as an independent examiner;(b) give such directions as it thinks appropriate with respect to the carrying out of an examination in pursuance of subsection (3)(b);and any such guidance or directions may either be of general application or apply to a particular charity only.”(7) Omit subsection (8).
99C (1) Section 151 (audit of accounts of larger groups) is amended as follows.
(2) In subsection (4)(b), for “a person appointed by the Audit Commission” substitute “a person, appointed by the charity trustees of the parent charity, who is within section 149(2)(a), (b) or (c)”.
(3) In subsection (6)—
(a) for “Subsections (4) and (6) of section 149 apply” substitute “Section 149(6) applies”, and(b) for “they apply” substitute “it applies”. 99D (1) Section 152 (examination of accounts an option for smaller groups) is amended as follows.
(2) In subsection (6)—
(a) for the words from “the Audit Commission” (where it first occurs) to “so appointed” substitute “the charity trustees of the parent charity be audited by a person, appointed by those trustees, who is within section 149(2)(a), (b) or (c); or examined by a person, appointed by those trustees, who is qualified to be an independent examiner”,(b) for “(4) to (6)” substitute “(3A), (5) and (6)”, and(c) after “section 149(3)” insert “; except that in subsection (3A)(b) of that section the reference to “the charity trustees” is to be read as a reference to “the charity trustees of the parent charity”.”99E In section 154(1) (regulations relating to audits and examinations) after paragraph (a) insert—
“(aa) specifying one or more bodies for the purposes of section 149(2)(c);”.”

[Lord Wallace of Saltaire]

My Lords, as Cabinet Office spokesman in the Lords with some responsibility for charities, this is another amendment on which I shall speak. This is, indeed, about health service charities.

Amendment 24 makes changes to the Charities Act 2011 in respect of English NHS charities as a result of the abolition of the Audit Commission. Currently, the auditors of English NHS charities are appointed by the Audit Commission, so this amendment ensures that arrangements are in place for the audit of English NHS charities’ accounts after its abolition.

The trustees of English NHS charities will be able to appoint a person who is eligible to act as an auditor under the Companies Act 2006, this Bill or regulations under the Charities Act 2011. The amendment allows smaller English NHS charities, with income of between £25,000 and £500,000 in the year in question, to opt for an examination of their accounts as an alternative to audit, which is intended to minimise costs of producing accounts to the charities. This is consistent with the way smaller non-NHS charities are treated in the Charities Act 2011.

The criteria for who may undertake such examinations are set out in the amendment. An examiner of an English NHS charity’s accounts must be independent and the charity’s trustees must reasonably believe that the person has the requisite ability and experience to carry out a competent examination of the accounts. The examiner of an English NHS charity’s accounts must also be a member of a professional body as set out in Section 145(3) of the Charities Act 2011 if the gross income of the English NHS charity is between £250,000 and £500,000 a year, or be eligible under the Local Audit and Accountability Bill, once enacted.

The amendment enables the Charity Commission to give guidance to NHS charity trustees on the selection of an independent examiner and directions as to how an examination is to be carried out. The amendment also applies the same provisions to the group accounts of a parent NHS charity as have been set out for individual NHS charities. I beg to move.

[Lord McKenzie of Luton]

I have only one question for the noble Lord which concerns his reference to an independent examiner and a person who is independent. Can he remind us which definition of “independent” we are dealing with here?

[Lord Wallace of Saltaire]

I think we are referring back to the definition as in the Charities Act 2011. Since we have batted forward and back on the question of what exactly “independent” means in this respect, I may need to write to the noble Lord just to confirm the exact definition being used here.

[Lord McKenzie of Luton]

I am grateful for that.