Clause 8 - Procedure for appointment

Local Audit and Accountability Bill [Lords] – in a Public Bill Committee on 7th November 2013.

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Amendment proposed (this day): 96, in clause 8,  page 6, line 20, at end insert—

‘(1A) A relevant authority must have an audit committee, which may be instructed by the relevant authority to appoint the auditor panel to advise on the selection of the local auditor in accordance with section (7).’.—(Andy Sawford.)

Question again proposed, That the amendment be made.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

I remind the Committee that with this we are discussing the following:

Amendment 97, in clause 8, page 6, line 26, at end insert

‘and the term of appointment’.

Amendment 98, in clause 8, page 6, line 33, leave out paragraph (b).

Amendment 99, in clause 8, page 6, line 34, leave out subsection (4).

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

Thank you, Sir Edward. Amendment 96 would require relevant authorities to have an audit committee and allow the authority to instruct its audit committee to appoint an auditor panel. The amendment builds on discussions on the matter in the other place. I understand that the hon. Member for Corby may be of the view that audit committees should be made a statutory requirement for local authorities. The Government believe that such a requirement would be unnecessary and overly prescriptive. We do not think there is a clear case for imposing statutory audit committees on local government. Under the accounts and audit regulations, local authorities are already required to ensure that a committee or meeting of the whole body reviews arrangements for internal control and the effectiveness of internal audit. They must also approve the annual governance statement, consider and approve the statement of accounts, and consider the annual audit letter from their auditor.

Photo of Paul Blomfield Paul Blomfield Labour, Sheffield Central

Will the Minister develop his point a little further? Several Opposition Members are confused by the failure to recognise our case for statutory audit committees. There  has been some discussion about the burden that that would place on councils, but it is important to recognise that we are not proposing a one-size-fits-all model; there would be scalability appropriate to the size of an organisation. Does the Minister agree that having an audit committee at the appropriate level is sensible, prudent and key to accountability for all local authorities?

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I intend to expand on my argument in the next few minutes, so the hon. Gentleman has been somewhat psychic in his request. I understand that more than 80% of local authorities—the hon. Member for Corby suggested that it was more than 90%—already have audit committees that fulfil those functions, usually led by back-bench councillors. However, the Government are not, and do not intend to be, prescriptive about the precise structure that local bodies use to meet the requirements. I am not clear what the hon. Gentleman thinks a statutory duty would achieve in practice, apart from requiring a number of authorities to restructure and perhaps rename their existing committees. I know that he is a committed localist, as am I, and I would expect him to support the idea of giving local bodies flexibility to determine their own arrangements and governance structures.

The amendment may also reflect concerns that local authorities should not be required to have a separate auditor panel if they already have an audit committee. I can reassure the hon. Gentleman that under schedule 4, an authority may nominate an existing committee to act as its auditor panel, provided that the committee already meets, or can meet, the requirement for a majority of independent members and an independent chair. If the authority does not wish to use an existing committee to act as the auditor panel, it may set up a small, separate auditor panel. Again, we are providing the flexibility for authorities to put in place whatever arrangements suit them best locally.

During the debate in the other place, some concerns were raised about how audit committees and auditor panels would work alongside each other when they are in place, and about the potential for confusion or duplication over their roles. I recognise that there are important links between the role of an auditor panel and an audit committee. However, the functions of the panel are clearly focused on the independence and appointment of the auditor, so I do not think that duplication or confusion are inevitable. In practice, authorities may wish to ensure some cross-membership, with a member of the audit committee also sitting on the panel. That would help to ensure they work effectively together. We would be happy, in due course, to consider whether any guidance would be helpful in clarifying how the two should work together, and I would be happy for the hon. Member for Corby to contribute ideas.

Amendments 97, 98 and 99 would make changes to the notice that an authority must publish in relation to the appointment of its auditor. They would require the notice to include the term of the auditor’s appointment, and they would remove the requirement for an authority, if it does not have a website, to publish the notice in a way that the authority thinks is likely to bring it to the attention of relevant local persons.

I will first deal with the proposed requirement for the notice to include details of the auditor’s term of appointment. It may help if I re-clarify the two main  purposes of the notice. First, it simply confirms that an appointment has been made and the name of the auditor. Secondly, and more importantly, it ensures transparency over the authority’s decision on whom to appoint. In particular, the notice includes any advice from the auditor panel, and if the auditor authority has not followed that advice, the reasons why. I do not think that adding a further requirement to include the term of appointment is necessary. It will not make the notice serve those purposes any better. However, I appreciate the hon. Gentleman’s point that there may be a way of doing this without further regulating authorities. If he will withdraw his amendment, I am happy to look at this matter and get back to him before Report, so we can find something we agree on that will satisfy his concerns.

The hon. Gentleman might be concerned that authorities can enter into extended terms of appointment, which could compromise independence. However, the Bill already requires local authorities to make a new appointment every five years. I will happily work with him on this issue over the next few weeks.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the Minister sincerely for his offer to look at this issue. However, we are motivated less by our concern about the length of appointment than by our belief that it would be helpful to the public to know the term of the appointment. It would also ensure that there is lively competition with other potential bidders, who would know when a contract is to come up for renewal.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I appreciate the hon. Gentleman’s comment. Obviously the public can ask about the term of appointment, but I appreciate his point about making the length of term readily available. I am happy to look at this matter, and hopefully we can come to an agreeable conclusion by Report if he withdraws his amendment.

I turn to the amendment about the publication of the notice. I can reassure the hon. Gentleman that the purpose of subsection (4) is simply to provide for authorities that do not have a website. I understand that a number of small authorities do not have one. In the context of our wider discussions about statutory notices, I can reassure the hon. Gentleman that subsection (4) will apply only if an authority does not have a website. The authority will be left to decide the best way to publicise the notice. With those assurances, I hope the hon. Gentleman will withdraw the amendment.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the Minister for his response. First, I will address his remarks on the argument that all authorities should have an audit committee. The contribution of my hon. Friend the Member for Derby North on the items that the audit committee considers in his local authority showed the importance of the committee’s role, and went beyond my more limited examples about their core role. Although we do not seek to be prescriptive about the role that audit committees will play, I hope all hon. Members will accept, from the examples we have heard and from their knowledge of how their local authorities work, that they play a vital role around the country.

As the Minister has said, very few local authorities do not have audit committees. Our view is that authorities should be required to have a proper audit committee  that the public can identify with and see in operation. The committees will, for example, play a clear role in the implementation of the Bill, and will carry out important core functions—ensuring sound internal audit and that any recommendations from external auditors are taken up in the authority, and looking at wider issues raised—from one week to the next in larger authorities and from one quarter to the next in smaller authorities.

My hon. Friend the Member for North Tyneside gave an interesting example of how her audit committee evolved. She highlighted the role of its independent chair and vice-chair. She said it has played a growing role in the authority, and has safeguarded the independence of the audit in the council. That chimes with some of the principles of the Bill that the Minister has set out, which we will debate later, such as independence. We are not persuaded by the Minister’s relaxed attitude to whether councils have audit committees, because we consider them to be vital. In the spirit of localism and not wanting to encumber local authorities with unnecessary statutory provisions, we are quite happy not simply to offer a one-for-one-deal; in fact, we think that many areas of the Bill impose unnecessary burdens on local authorities.

We think that it is far more important for Parliament to make clear its belief that local authorities should have an audit committee than to prescribe how a local authority should run its publicity and communicate with its electorate. Extensive provisions in the Bill impose wholly unnecessary burdens on local government, and we are simply asking for one small amendment to signal to councils that they must have an audit committee. Most will welcome that, because they will see that local authorities operating without a proper audit committee are missing out. We will press the amendment to a vote, because we feel very strongly about the matter.

I welcome the Minister’s willingness to look at the term of appointment. We think that that is a helpful addition. This is not a party political debating point, but it might help the public and other auditors to know the term of their appointment. I welcome the Minister’s offer to look at the matter and I look forward to seeing what further consideration he can give it.

The Minister has assured us that subsection (4) will apply only to local authorities that do not have a website. In the interests of keeping the Bill neat, tidy and not over-prescriptive, I have to ask how many local authorities large enough to require independent audit—provisions are made for very small authorities not to have independent audit—will not have their own website. I find that an extraordinary suggestion. What concern has motivated his Department to spend time drafting such extensive provisions in primary legislation for authorities that may not have a website? It seems wholly disproportionate. Given its relative significance to the audit committee, we urge the Minister and his officials to think again about whether that prescription is necessary.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 11.

Division number 2 Decision Time — Clause 8 - Procedure for appointment

Aye: 6 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Clause 8 ordered to stand part of the Bill.

Clause 9 ordered to stand part of the Bill.