Schedule 6 - Codes of audit practice and guidance

Local Audit and AccountabilityBill [Lords] – in a Public Bill Committee at 2:00 pm on 12th November 2013.

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Question proposed, That the schedule be the Sixth schedule to the Bill.

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

We wanted to compliment the official who drafted the schedule. I encourage the Minister to ask them to cast their eye over the rest of the Bill in the same spirit: it may even have been the Minister who did it. The schedule is clear and defines its terms well. It is prescriptive where that is helpful, in the interest of the Bill’s objective of securing independent and thorough auditing of relevant authorities, but it has an appropriately light touch in places.

It is welcome that paragraph 6(1), headed “Publication of code”, states:

“A code of audit practice may be published in such manner as the Comptroller and Auditor General thinks fit.”

That is one occasion where the Secretary of State has not thought fit to make himself the public relations officer for the public audit organisations.

It is right that a Bill should not be prescriptive about how a notice may be published. We urge the Minister to consult the official who drafted the provisions—a person of great sense and good judgment—and to think about whether such a simple form of words would be much more appropriate at all the places in the Bill where the Government have been over-prescriptive about PR, with which they seem obsessed.

Will the Minister explain what the code will cover? The schedule sets out how it will be developed and may be published, to whom it may apply, and who will be consulted. All those things are important and welcome. However, the code of audit practice and guidance will be important in addressing such points as have been made by my hon. Friends the Members for City of Durham and for Derby North about the framework of public audit, and we envisage that that may form part of the code. Broadly what areas does the Minister envisage it will cover, given its significance?

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

The schedule requires the Comptroller and Auditor General to ensure that there is a code covering the audit of all types of relevant authorities audited under the Bill, as well as of foundation trusts.

The audit of foundation trusts was provided for separately by the National Health Service Act 2006, but the Bill places a duty on the CAG to prepare a code that applies to their audit. That is to ensure that there is consistency between the audit of local authorities and all local health bodies.

Before preparing the code the Comptroller and Auditor General must consult key interested parties, including associations and representatives of the relevant authorities, local auditors and their regulators, and, in the case of foundation trusts, Monitor. Clause 19 requires auditors to comply with the code and have regard to guidance, so  it is important to take the views both of parties undertaking the audit work and of those receiving and paying for the services. Following consultation, the Comptroller and Auditor General must publish a code in draft and send it to the responsible Minister, who will lay the draft code before Parliament. That process maintains and demonstrates the independence of the Comptroller and Auditor General from Government.

In keeping with parliamentary practice for statutory instruments subject to the negative resolution procedure, the draft code will be laid for 40 sitting days, during which time either House may resolve not to approve it. If either House resolves not to approve the code, it must not be published and the Comptroller and Auditor General will need to prepare another code, unless one is already in force. That important provision retains parliamentary oversight of the local public audit framework by enabling Parliament to reject a code should it see fit, demonstrating the Government’s commitment to maintaining independent, high quality audit for local public bodies, a matter that Members have been considering today.

The Comptroller and Auditor General is required to keep the code under review and make reasonable endeavours to publish a replacement code every five years. He or she may also make alterations to a code or issue a replacement within that period. That ensures that key interested parties, including Parliament, have a regular opportunity to review the code, supporting the Comptroller and Auditor General in fulfilling the duty to ensure that the code embodies best professional practice. The same processes for consultation, publication and parliamentary procedure apply to any replacement or altered codes, as applied in respect of the first code. If the Comptroller and Auditor General issues an altered code, the alterations must be clearly marked.

The schedule enables the Comptroller and Auditor General to require relevant authorities to provide information that is reasonably required to support the discharge of these functions. Clause 19 and schedule 6 require the Comptroller and Auditor General to prepare a code of audit practice and enable him or her to produce supporting guidance, independently and free from Government control. That not only meets the design principle of maintaining high standards of independent local audit, but supports auditors in applying a consistent approach. Retaining parliamentary oversight of the code demonstrates the importance with which we regard the audit of local public bodies, which together spend, let us remember, over £200 billion of public resources each year.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government) 2:15 pm, 12th November 2013

I thank the Minister for that illuminating insight into what the code may cover in the future. I also welcome the fact that the code will be subject to parliamentary scrutiny. The code will be very important, and I hope it will be brought forward in a timely way.

Photo of James Morris James Morris Conservative, Halesowen and Rowley Regis

I broadly welcome the hon. Gentleman’s remarks about how well drafted the schedule is. I want to draw attention to the fact that the schedule refers to the publication of codes rather than to a single code, reflecting the different  sorts of authorities we are talking about, from small district councils up to larger local authorities. It may be that different codes are required to satisfy the requirements of that range of different sized authorities.

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

I know that the hon. Gentleman has taken an interest in this matter, not least through his role on the Select Committee on Communities and Local Government. He certainly demonstrates a consistent insight into the range of types of local authorities—through his work with small town and parish councils, for example. My reading of the plural in the schedule was in respect of different types of relevant authority—for example, the codes would include health bodies—rather than implying that codes will be set out for different types of local council, but the Minister can correct me if I am wrong about that. The point on which the hon. Member for Halesowen and Rowley Regis and I agree is that where it would be helpful to consider how a code might apply to a smaller authority relative to a large county or metropolitan authority, we hope that the Comptroller and Auditor General would look at that.

It is important that the code is brought forward in a timely way and that there is consultation. CIPFA has been incredibly helpful in shaping my hon. Friends’ thoughts on the Bill and also informing our Committee. I hope that CIPFA will be a key consultee of the Comptroller and Auditor General and that the Minister will ensure that the code is brought forward in a timely way. When considering whether to make its own appointment or go through the joint arrangements, the local authority will be able to look at what the code of practice would entail. Given the requirements placed upon audit through the code of practice, local authorities will be able to consider whether they will be best served by opting into a joint national procurement arrangement or by procuring their own independent auditor directly, by establishing an independent audit panel.

Question put and agreed to.

Schedule 6 agreed to.