Local Audit and Accountability Bill (HC Bill 101)

Part 1 Abolition of existing audit regime

1 Abolition of existing audit regime

(1) The Audit Commission ceases to exist.

(2) 5The Audit Commission Act 1998 is repealed.

(3) Schedule 1 (abolition of Audit Commission: supplementary provision) has
effect.

(4) In that Schedule—

(a) Part 1 makes some arrangements in connection with the abolition of the
10Audit Commission, and

(b) Part 2 contains consequential repeals and revocations of Acts and
instruments that amend the Audit Commission Act 1998.

(5) In this section and that Schedule “the Audit Commission” means the Audit
Commission for Local Authorities and the National Health Service in England.

Part 2 Basic concepts and requirements

2 5Relevant authorities

(1) In this Act “relevant authority” means a person or body listed in Schedule 2.

(2) The application of this Act to a relevant authority is subject to any note forming
part of the entry for that authority in Schedule 2.

(3) The Secretary of State may by regulations amend Schedule 2 by adding,
10modifying or removing an entry relating to a relevant authority.

(4) Regulations under subsection (3) may add an entry relating to a person or body
to Schedule 2 only if that person or body exercises functions of a public nature
in relation to an area which is—

(a) wholly in England, or

(b) 15partly in England and partly in Wales.

(5) The Secretary of State may by regulations or order make provision about the
application of this Act or provision made under it to a person or body that
comes to fall within Schedule 2 (whether or not as a result of regulations under
subsection (3)).

(6) 20The power in subsection (5) includes power—

(a) to amend this Act or provision made under it in its application to that
person or body, or

(b) to make provision for this Act or provision made under it to apply to
that person or body with modifications.

3 25General requirements for accounts

(1) A relevant authority, other than a health service body, must keep adequate
accounting records.

(2) “Adequate accounting records” means records that are sufficient—

(a) to show and explain the relevant authority’s transactions,

(b) 30to disclose at any time, with reasonable accuracy, the financial position
of the authority at that time, and

(c) to enable the authority to ensure that any statements of accounts
required to be prepared by the authority comply with the requirements
imposed by or under this Act.

(3) 35A relevant authority, other than a health service body, must prepare a
statement of accounts in respect of each financial year.

(4) In this Act “financial year” means a period of 12 months ending with 31 March.

(5) The Secretary of State may by regulations—

(a) make provision for the financial year of a relevant authority, other than
40a health service body, for the purposes of this Act to be such period as
is specified in the regulations;

(b) make provision for any requirement in this section not to apply, or to
apply with modifications, in relation to the relevant authorities, other
than health service bodies, specified or described in the regulations.

(6) Regulations under subsection (5)(a) may—

(a) 5amend this Act or provision made under it in its application to a
relevant authority to which the regulations apply, or

(b) provide for this Act or provision made under it to apply in relation to
such a relevant authority with modifications.

(7) Regulations under subsection (5)(a) may make provision in relation to—

(a) 10all relevant authorities (other than health service bodies);

(b) the relevant authorities specified or described in the regulations.

(8) Section 31 enables the Secretary of State by regulations to make further
provision about accounting records and statements of accounts.

(9) In this Act “health service body” means—

(a) 15a clinical commissioning group;

(b) special trustees appointed as mentioned in section 212(1) of the
National Health Service Act 2006 (special trustees for a university
hospital or teaching hospital) for a hospital in England (referred to in
this Act as “special trustees for a hospital”).

4 20General requirements for audit

(1) The accounts of a relevant authority for a financial year must be audited—

(a) in accordance with this Act, and

(b) by an auditor appointed by that authority in accordance with this Act.

(2) This section is subject to Schedule 3 (further provision about appointment of
25local auditors) and provision made under it.

(3) In this Act, references to accounts are to be construed in accordance with the
following subsections.

(4) In relation to a relevant authority which is not a health service body, “accounts”
means—

(a) 30the authority’s accounting records, and

(b) the authority’s statement of accounts.

(5) In relation to a clinical commissioning group, “accounts” means—

(a) the annual accounts of the group prepared under paragraph 17(2) of
Schedule 1A to the National Health Service Act 2006 (accounts and
35audit of clinical commissioning groups);

(b) any accounts of the group prepared under paragraph 17(3) of that
Schedule in respect of which a direction has been given under
paragraph 17(5) of that Schedule.

(6) In relation to special trustees for a hospital, “accounts” means the annual
40accounts of the trustees prepared under paragraph 3 of Schedule 15 to the
National Health Service Act 2006.

5 Modification of Act in relation to smaller authorities

(1) The Secretary of State may by regulations make provision about the audit of
the accounts of smaller authorities.

(2) Regulations under subsection (1) may, in particular, provide for any provision
5of or made under this Act not to apply, or to apply with modifications, in
relation to smaller authorities.

(3) Regulations under subsection (1) may, in particular—

(a) provide for the appointment, by a person specified by the Secretary of
State, of an auditor in relation to the audit of the accounts of a smaller
10authority;

(b) make provision about the procedure for specifying a person and for a
person’s specification to come to an end in specified circumstances;

(c) make provision about the consequences of a person’s specification
coming to an end, including for the exercise of functions by the
15Secretary of State and the transfer of the person’s rights and liabilities
arising by virtue of the regulations to the Secretary of State or another
specified person;

(d) confer functions on a specified person, including power to specify a
scale or scales of fees to be payable by smaller authorities to which
20arrangements within paragraph (a) apply;

(e) require a specified person to consult smaller authorities, smaller
authorities of a specified description or representatives of smaller
authorities before specifying a scale or scales of fees.

(4) Regulations under subsection (1) may, in particular—

(a) 25make provision about the smaller authorities to which arrangements
within subsection (3)(a) apply, including provision for them to apply to
an authority that has opted into them or has not opted out of them;

(b) make provision about the procedure by which an authority may opt
into or out of those arrangements;

(c) 30make provision about the administration of those arrangements,
including for the making of payments in specified circumstances by the
smaller authorities to which they apply to a fund of a specified kind for
the purposes of meeting auditors’ costs of a specified kind.

(5) Regulations under subsection (1) may, in particular—

(a) 35make provision about the eligibility of a person to be appointed as an
auditor of the accounts of a smaller authority;

(b) make provision about the audit of such accounts.

(6) Regulations under subsection (1) may, in particular—

(a) provide that, in specified circumstances, the accounts of a smaller
40authority of a specified description are to be exempt from specified
audit requirements;

(b) make provision for an exemption under paragraph (a) not to apply or
to cease to apply to an authority in specified circumstances.

(7) In this section “specified” (except in the expressions “person specified by the
45Secretary of State” and “specified person”) means specified in regulations
under subsection (1).

6 Meaning of “smaller authority”

(1) For the purposes of section 5, a relevant authority is a “smaller authority” for a
financial year if—

(a) where that year is the year in which the authority was established, the
5qualifying condition is met for that year,

(b) where that year is the year following that in which the authority was
established, the qualifying condition is met for that year or the previous
year, and

(c) where that year is the second or any subsequent year following that in
10which the authority was established, the qualifying condition is met for
that year or either of the two previous years.

(2) The qualifying condition is met for a relevant authority and a financial year if
the higher of the authority’s gross income for the year and its gross
expenditure for the year does not exceed £6.5 million.

(3) 15For the purpose of determining, at a time when a relevant authority’s gross
income or expenditure for a financial year cannot be accurately determined,
whether subsection (2) applies or will apply to the authority, that subsection is
to be read as referring to the authority’s estimated gross income or expenditure
(as the case may be).

(4) 20The Secretary of State may by regulations make provision about the
application of this Act (including in its application by virtue of section 5) or any
provision made under it in a case where—

(a) an authority is treated as a smaller authority for a financial year, and

(b) the authority was not in fact a smaller authority for that year.

(5) 25The Secretary of State may by regulations amend this section.

Part 3 Appointment etc of local auditors

7 Appointment of local auditor

(1) A relevant authority must appoint an auditor (a “local auditor”) to audit its
30accounts for a financial year not later than 31 December in the preceding
financial year.

(2) A relevant authority may appoint a local auditor to audit its accounts for more
than one financial year; and in such a case—

(a) subsection (1) does not apply in relation to the second or any
35subsequent year for which the appointment is made, but

(b) the authority must make a further appointment of a local auditor at
least once every 5 years.

(3) Subsection (2)(b) does not prevent the relevant authority from re-appointing a
local auditor.

(4) 40The Secretary of State may by regulations amend subsection (2)(b) so as to alter
the period for the time being specified in it.

(5) A local auditor appointed under this section—

(a) must be eligible for appointment as a local auditor (see Part 4), and

(b) must not be prohibited from acting as a local auditor of the accounts of
the relevant authority by virtue of section 1214 of the Companies Act
2006 (independence requirement) as it has effect by virtue of Schedule
5.

(6) 5Two or more local auditors may be appointed to audit the accounts of a
relevant authority, and those auditors may be appointed—

(a) to act jointly in relation to some or all parts of the accounts;

(b) to act separately in relation to different parts of the accounts;

(c) to carry out different functions in relation to the audit.

(7) 10If, as a result of an appointment under subsection (6)(b) or (c), a function under
this Act may be exercised by two or more local auditors—

(a) it may be exercised by both or all of them acting jointly or by such one
or more of them as they may determine, and

(b) references (however expressed) to the local auditor by whom the
15function is or has been exercised are to the auditors by whom it is or has
been exercised.

(8) Schedule 3 makes further provision about the appointment of local auditors;
and this section is subject to that Schedule and provision made under it.

8 Procedure for appointment

(1) 20A relevant authority must consult and take into account the advice of its
auditor panel on the selection and appointment of a local auditor under section
7.

(2) The relevant authority must, within the period of 28 days beginning with the
day on which the appointment is made, publish a notice that—

(a) 25states that it has made the appointment,

(b) identifies the local auditor that has been appointed,

(c) sets out the advice, or a summary of the advice, of its auditor panel
about the selection and appointment of a local auditor, and

(d) if it has not followed that advice, sets out the reasons why it has not
30done so.

(3) The notice must be published—

(a) if the relevant authority has a website, on its website;

(b) otherwise, in accordance with subsection (4).

(4) A relevant authority publishes a notice in accordance with this subsection if—

(a) 35in the case of a relevant authority other than a health service body, it
publishes the notice in such manner as it thinks is likely to bring the
notice to the attention of persons who live in its area;

(b) in the case of a clinical commissioning group, it publishes the notice in
such manner as it thinks is likely to bring the notice to the attention of—

(i) 40persons who live in the area of the group, and

(ii) persons who do not live in the area of the group but for whom
the group is responsible;

(c) in the case of special trustees for a hospital, they publish the notice in
such manner as they think is likely to bring the notice to the attention
45of persons to whom services are provided at that hospital.

(5) The relevant authority must exclude from the notice information whose
disclosure would prejudice commercial confidentiality, unless there is an
overriding public interest in favour of its disclosure.

(6) This section is subject to Schedule 3 (further provision about appointment of
5local auditors) and provision made under it.

9 Requirement to have auditor panel

(1) Each relevant authority must have an auditor panel to exercise the functions
conferred on auditor panels by or under this Act.

(2) This section does not apply to—

(a) 10a chief constable, or

(b) the Commissioner of Police of the Metropolis.

(3) Schedule 4 makes further provision about auditor panels.

10 Functions of auditor panel

(1) A relevant authority’s auditor panel must advise the authority on the
15maintenance of an independent relationship with the local auditor appointed
to audit its accounts.

(2) Advice under subsection (1) to a police and crime commissioner for an area
must include advice on the maintenance of an independent relationship
between the local auditor and the chief constable for the area.

(3) 20Advice under subsection (1) to the Mayor’s Office for Policing and Crime must
include advice on the maintenance of an independent relationship between the
local auditor and the Commissioner of Police of the Metropolis.

(4) A relevant authority’s auditor panel must advise the authority on the selection
and appointment of a local auditor to audit its accounts.

(5) 25Advice under subsection (1) or (4) must be given—

(a) if the relevant authority asks for it, and

(b) at other times, if the auditor panel thinks it is appropriate to do so.

(6) A relevant authority’s auditor panel must advise the authority on any proposal
by the authority to enter into a liability limitation agreement (see section 14).

(7) 30Advice under subsection (6) must be given if the authority asks for it.

(8) The Secretary of State may by regulations—

(a) provide more details about an auditor panel’s functions under any of
subsections (1) to (7);

(b) confer or impose other functions on a relevant authority’s auditor
35panel in relation to the audit of the authority’s accounts;

(c) enable a relevant authority to confer or impose other functions on its
auditor panel in relation to the audit of its accounts.

(9) A relevant authority must publish advice from its auditor panel in accordance
with subsection (10).

(10) 40A relevant authority publishes advice in accordance with this subsection if—

(a) in the case of a relevant authority other than a health service body, it
publishes the advice in such manner as it thinks is likely to bring the
advice to the attention of persons who live in its area;

(b) in the case of a clinical commissioning group, it publishes the advice in
5such manner as it thinks is likely to bring the advice to the attention
of—

(i) persons who live in the area of the group, and

(ii) persons who do not live in the area of the group but for whom
the group is responsible;

(c) 10in the case of special trustees for a hospital, they publish the advice in
such manner as they think is likely to bring the advice to the attention
of persons to whom services are provided at that hospital.

(11) The relevant authority must exclude from advice published under subsection
(10) information whose disclosure would prejudice commercial
15confidentiality, unless there is an overriding public interest in favour of its
disclosure.

(12) An auditor panel must have regard to any guidance issued by the Secretary of
State in exercising, or deciding whether to exercise, its functions.

(13) A relevant authority must have regard to any guidance issued by the Secretary
20of State in exercising, or deciding whether to exercise, its functions in relation
to its auditor panel.

11 Relationship with relevant authority

(1) A relevant authority other than a health service body must, if asked to do so by
its auditor panel, supply to the panel any documents or information held by
25the authority and required by the panel for the exercise of its functions.

(2) A relevant authority’s auditor panel, other than the auditor panel of a health
service body, may require a member or officer of the authority to come to a
meeting of the panel to answer its questions.

(3) In the application of subsection (2) to a corporation sole, the reference to a
30member is a reference to a holder of that office.

(4) A person mentioned in subsection (2) must comply with a requirement
imposed by an auditor panel under that subsection.

(5) This does not require the person to answer any questions which the person
would be entitled to refuse to answer in or for the purposes of proceedings in
35a court in England and Wales.

(6) The auditor panel of a police and crime commissioner for an area may also
exercise the functions in subsections (1) and (2) in relation to the chief constable
for the area.

(7) The auditor panel of the Mayor’s Office for Policing and Crime may also
40exercise the functions in subsections (1) and (2) in relation to the Commissioner
of Police of the Metropolis.

12 Failure to appoint local auditor

(1) If a relevant authority, other than a clinical commissioning group, fails to
appoint a local auditor in accordance with this Part, the authority must
immediately inform the Secretary of State of that fact.

(2) 5If it appears to the Secretary of State that a relevant authority, other than a
clinical commissioning group, has failed to appoint a local auditor in
accordance with this Part, the Secretary of State may—

(a) direct the authority to appoint the auditor named in the direction, or

(b) appoint a local auditor on behalf of the authority.

(3) 10An appointment under subsection (2)(b) takes effect —

(a) as if it had been made by the relevant authority, and

(b) on such terms as the Secretary of State may direct.

(4) The Secretary of State must—

(a) inform the relevant authority of the intention to give a direction or
15appoint a local auditor under subsection (2) not less than 28 days before
the direction is given or the appointment made, and

(b) consider any representations made by the relevant authority regarding
the proposed direction or appointment.

(5) But the Secretary of State may give a direction or make an appointment under
20subsection (2) without having complied with subsection (4) if the Secretary of
State thinks it is likely that a local auditor would have to exercise a function
under this Act in relation to a relevant authority within the period of 60 days
beginning with the day on which the direction is given or the appointment is
made.

13 25Failure of clinical commissioning group to appoint local auditor

(1) If a clinical commissioning group fails to appoint an auditor in accordance with
this Part, it must immediately inform the National Health Service
Commissioning Board (“the Board”) of that fact.

(2) If it appears to the Board that a clinical commissioning group has failed to
30appoint an auditor in accordance with this Part, the Board must inform the
Secretary of State of that fact by the end of 25 March in the financial year
preceding the financial year to which the accounts to be audited relate.

(3) If the Secretary of State has been informed by the Board under subsection (2),
the Secretary of State may—

(a) 35take either of the steps in subsection (4), or

(b) direct the Board to take whichever of the steps in subsection (4) the
Board considers appropriate.

(4) Those steps are—

(a) to direct the clinical commissioning group to appoint an auditor named
40in the direction given under this paragraph, or

(b) to appoint an auditor on behalf of the group.

(5) An appointment under subsection (4)(b) takes effect —

(a) as if it had been made by the clinical commissioning group, and

(b) on such terms as the Secretary of State or (as the case may be) the Board
45may direct.