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House of Commons

Friday 22 March 1991

The House met at half-past Nine o'clock

PRAYERS

[Mr. Speaker-- in the Chair ]

Orders of the Day

Local Government Finance (Publicity for Auditors' Reports) Bill

Not amended (in the Standing Committee), considered.

Order for Third Reading read.

9.35 am

Mr. Michael Mates (Hampshire, East) : I beg to move, That the Bill be now read the Third time.

Part III of the Local Government Finance Act 1982 established the Audit Commission as an independent body to appoint external auditors to certain bodies, including local authorities, and to help those bodies to ensure that they provided their services economically, efficiently and effectively. The commission's role was extended to cover the national health service from October 1990 by the National Health Service and Community Care Act 1990.

The Local Government Finance Act imposes certain duties on an auditor of a local authority or other body, which he discharges in accordance with the published code of audit practice, independently of both the Audit Commission and Ministers. A copy of the latest code of audit practice, approved by both Houses of Parliament late last year, is now on the book.

In carrying out an audit, the auditor must satisfy himself as to the propriety and regularity of the accounts, and must satisfy himself that the body concerned has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. But auditors are precluded from making general judgments about the merits of particular policies and programmes.

The key to all this is of course the independence of auditors in carrying out their duties, so that they can do so without political interference in the affairs of the local authority or body concerned.

Under section 15(3) of the 1982 Act, the auditor is also required to consider whether he should make a report on any matter that comes to his attention while carrying out the audit, so that it may be considered by the body concerned or brought before the attention of the public. Such reports are known as auditors' public interest reports, and the auditor is required to consider whether they should be prepared and sent to a body immediately- -an auditor's immediate report--or at the conclusion of the audit.

Section 18(3) to (6) of the 1982 Act set out the arrangements for consideration of the public interest report and its disclosure. Essentially, the procedure is that the report is sent by the auditor to the authority concerned, and the authority must then take the report


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into consideration as soon as practicable. The authority is required to include the report among the documents open for inspection by the public before the meeting at which the report is to be considered. Section 18(5) of the 1982 Act also provides that the report shall be open to the public for inspection for six years after that meeting.

The main problem with the existing law is that, because the present requirement is that an immediate report shall be taken into consideration by the body only as soon as practicable, that effectively means that the contents of the report may not be publicly available until some months after its issue. Even then, it is published only in the sense that it comprises part of the papers for a council meeting. The fact that an immediate report has been produced may not be widely known and, in extreme cases, may not be known at all.

The committee of inquiry into the conduct of local authority business, the Widdicombe inquiry, considered the arrangements for the publicity of auditors' public interest reports. The inquiry's report made a number of proposals for improving publicity. In particular, it was recommended that the chief executive of the local authority should be placed under a duty immediately to notify all members of the body of the receipt of a report in the public interest ; to provide a copy of any such report to members on request and to make copies available to the public for inspection.

In the White Paper "The Government's Response to the Widdicombe Report of Inquiry", the Government proposed to go further and to make legislative changes to require that on receipt of an auditor's report, the chief finance office must forthwith send copies to all councillors ; copies must be available immediately for public inspection at times and places to be advertised ; the auditor must take such steps as he considers necessary to publicise his findings and finally, he must also make copies available to the public for a suitable fee and send copies to councillors if, for any reason, the chief finance officer does not act as required under the previous recommendations.

Those proposals have been further revised in the light of recent experience and following discussions with the Audit Commission. It is now proposed that the duty to publish a public interest report should be placed on the body concerned rather than on the chief finance officer, and that is what the Bill sets out to achieve. The reason is that not all such bodies are formally required to have a chief finance officer, and there may be cases where the report is critical of the chief finance officer. In that case, he would not be the most appropriate person to be given such responsibility.

Mr. James Arbuthnot (Wanstead and Woodford) : I am grateful to my hon. Friend the Member for East Hampshire (Mr. Mates) for the clear and helpful way in which he is setting out the terms of the Bill. He is doing that with the care that I would expect from someone who knows as much about local government as my hon. Friend does. My hon. Friend said earlier that there are certain things that the auditor is precluded from investigating and he is now describing the publication of immediate public interest reports. Should the auditor be precluded from considering those things that he is precluded from considering? Would publication of some of those things which the auditor is precluded from considering be a good thing in the public interest?


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Mr. Mates : My hon. Friend has made a valid point, but that point ranges much wider than this narrow and simple proposal, as befits such a modest Bill that came 14th in the ballot. I do not want to open up what might be a more controversial subject.

With regard to local authorities, it is the auditor's job to examine what has been done and judge whether it has been done properly, efficiently and in the public interest. It is not his job to look behind what has been done to the policies. That is what we elect councillors for. If the auditor had to give an opinion, that would probably remove his complete independence from the politics of local government which is probably his most valuable asset as he moves from local authority to local authority examining what is happening and deciding whether the money has been well spent or wasted. He does not move from authority to authority asking himself whether he would have decided to spend money in the way that the authority has spent it. That is a wider issue and it touches on the heart of the independence of local auditors and of audit in central Government, through the National Audit Office.

The auditors consider whether a particular project has been handled properly ; they do not consider the politics behind it. If I had included that wider examination in the Bill, I would have been speaking to a rather larger audience, and I also doubt whether the Bill would have passed through Standing Committee with the facility that my hon. Friend the Under- Secretary of State for the Environment and I managed to achieve so skilfully.

In the interests of defining the scope of the Bill as tightly as possible, and preventing boarders to a Bill with a wider scope, I must stress that it applies only to auditors' immediate public interest reports. It does not apply to them in general. Where the auditor chooses to await the completion of the audit before making a public interest report, he will do so because the need for action and disclosure is less pressing. In other words, if the Bill is enacted, the auditor will have to judge whether the situation that he finds during an overall audit is so urgent and glaring that he must report on it immediately, or whether he decides that it can wait until he produces the main body of his report. The immediate report does not fall within the scope of the present law, perhaps because the circumstances were not properly foreseen ; that is the narrow point which the Bill addresses.

The existing provisions of the 1982 Act are considered sufficient for an overall report. If the auditor considers it appropriate, he can make a report immediately, whereupon the changes that I am proposing in the Bill would apply. The Bill is designed to entitle the public to see an auditor's immediate public interest report, to copy it and to be supplied with a copy at reasonable cost. It requires the body concerned upon which the auditor has reported to advertise the report and provide for sanctions comparable to those in the current provisions of the 1982 Act--if the local authority concerned fails to comply with what I hope very shortly will become law. It also gives the auditor some fallback powers to ensure that, even if all those provisions fail, he can make his report known. There is much talk about open government, and over the past 11 years we have, little by little, achieved rather more open government that we had before. The Bill is a small, modest but very necessary step towards providing more opportunities for the public to know sooner rather than later what the independent scrutineers of local


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authority action--and sometimes inaction-- are examining. I am happy to say that after discussions with the Opposition Front Bench and the hon. Member for Sheffield, Brightside (Mr. Blunkett) the Labour party is in full agreement with this small, but fairly significant, step towards open government. In the spirit of co-operation that is newly rife in the House on many local government matters, I am delighted to commend the Bill to the House.

9.48 am

Mr. John Greenway (Ryedale) : I congratulate my hon. Friend the Member for East Hampshire (Mr. Mates) on securing his place in the ballot-- it is three places above mine--and on introducing this important Bill, which has reached this advanced stage after only two minutes' scrutiny in Committee. That tells us two things. First, as my hon. Friend said, there is complete agreement on the need for and merit of the measure. Secondly, it is valuable to consider Bills on Report on Fridays when there is an opportunity to talk a little longer about measures. I stress the word "little" to assure my hon. Friend, because he has a train to catch.

I congratulate my hon. Friend also on the timing of this further stage, because the whole world, let alone the whole country, must be aware that we have a little difficulty within Parliament with regard to the future structure and financing of local government.

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key) : Surely not

Mr. Greenway : My hon. Friend the Minister says, "Surely not." There is a matter of interpretation of the "we". I made the point that there was all-party support for the measure, and there is an all-party problem about how to pay for local government. We in Parliament have a little difficulty. I assure my hon. Friend the Minister that I was not referring to the Government in isolation. Interestingly enough, my constituency annual general meeting is to be held tomorrow morning. I recall the occasion last year when we were about to implement the community charge as a means of introducing more accountability in local government. Some of my constituents and Conservative party activists were a little nervous about what the community charge was likely to do for our electoral fortunes. I said to them that there is no soft option on how to pay for local government. I tell my hon. Friend the Member for East Hampshire that there is no soft option, either, on how to make local government more accountable. His Bill is one of many steps in achieving that accountability.

Mr. Arbuthnot : My hon. Friend the Member for Ryedale (Mr. Greenway) may have been extremely concerned, as I was, by the intervention yesterday by our right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) when he referred to the statement of our right hon. Friend the Secretary of State for the Environment being made on the Ides of March. The point that concerned me is that the Ides of March is 15 March, not 21 March. When I was at school I learned the rhyme, "March, July, October, May makes nones the seventh, Ides the fifteenth day." If our right hon. Friend was incorrect in that respect, would he also be incorrect in other parts of his intervention?


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Mr. Greenway : My hon. Friend is absolutely right, and I am grateful to him for raising that point. Some people may say that our right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was wrong about one or two other matters as well.

Mr. Mates : Hear, hear.

Mr. Greenway : My hon. Friend the Member for East Hampshire gives a loud chorus of support. I congratulate him also not only on securing the passage of this measure, which the House will wholeheartedly support today, but on nearly persuading me back in 1987 and early 1988--one of our conversations was in a London taxi in a traffic jam--that there was a fatal flaw in our community charge arrangements and that we should put something into the system that would take account of people's ability to meet the demands of local government finance. I was not persuaded of his argument then, because I felt that his suggestion would not work.

However, my hon. Friend deserves congratulations on having raised that matter and on contributing to the argument that has brought the measure to this stage. It is to the credit of the Government that we were positive in introducing a measure that was designed to improve the accountability of local government and to broaden the base of those who should pay for local government. I am in no doubt that those two measures have been successful. I do not believe that anybody wants to return to a system in which a small number of people pay for local government while many people who enjoy the benefits of local government pay absolutely nothing.

As this measure and the 1982 legislation, which the Bill would amend, contribute to local government accountability, we should take the opportunity to remind ourselves that accountability works at two levels. First, it works at the level of the electorate. If a local authority achieves economy, efficiency and effectiveness, that should be visible in the charges that it levies on its electorate when it sets a charge, whether it be the community charge, the new local services tax or whatever--even the old rating system.

It is quite interesting--this is a partisan point--that in my part of the world, north Yorkshire and east Yorkshire, North Yorkshire county council is levying, through the districts, I accept, a community charge of £140 less than in the neighbouring county of Humberside, which is a Labour authority. That is notwithstanding that the Government, in their infinite generosity, have given the people of Humberside a larger grant than they have given the people of North Yorkshire. It cannot be said against us that we have fixed the figures in favour of North Yorkshire. Indeed, members of my district council in Ryedale say that the figures have been firmly fixed against part of North Yorkshire. Year after year, even under the old rating system as much as under the community charge, we have seen Government grant scraped from the shire districts and put into inner- London areas and boroughs such as that of my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot), where there is a greater need to spend.

Mr. Arbuthnot : My constituents would be most concerned to hear that they had been moved to inner London. Many of them prefer to consider themselves in Essex.


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Mr. Greenway : I am grateful to my hon. Friend for putting me straight on that matter. The surburban sprawl of London, as my hon. Friend the Member for East Hampshire said, causes us to be a little hazy about geography and where county boundaries start. In the light of what my hon. Friend has said, the people of Wanstead and Woodford are extremely fortunate to be in the county of Essex rather than in the borough of Haringey, which is not much further down the road. They can see, just as people in Wandsworth and Lambeth can see, that economy, efficiency and effectiveness--the prerequisites that local authorities should set out to achieve--are very visible in the charges that are levied from one borough to the next. That is a formidable argument for moving towards a form of unitary authority. In North Yorkshire, we are likely to have an interesting debate about whether we should be run by North Yorkshire county council or the district councils.

Without widening the debate, if it turned out that the county council was abolished, I would urge my hon. Friend the Minister to resist tinkering too much with district council boundaries. Many of my constituents in rural Ryedale would not take kindly to their local affairs being dominated by the urban needs of York or of Scarborough. It would be a worry were we to carve up the district council map in North Yorkshire.

I said that there are two levels at which accountability is achieved. One is the electorate, and the second is clearly the proper scrutiny of local authority accounts. We cannot expect the ordinary man in the street to do that. That is why it is right for independent auditors, who make no judgment on the policies that are being implemented, to have a duty to ensure that everything has been done that should be done to secure economy, efficiency and effectiveness. There is one area in which the Audit Commission, in an umbrella sense, and the individual independent auditor who is looking into the affairs of a local authority, can build on Government policy over the past two or three years, and where such scrutiny is crucial. I refer to competitive tendering. As my hon. Friend the Minister knows only too well, many allegations have been made, right across the country, that local authorities have fixed the competitive tendering process in favour of their in-house labour forces, and have not given outside or private firms a fair crack of the whip.

I must stress that I am not bringing any evidence to my hon. Friend that that practice exists in my constituency, because I believe that Ryedale district council has been one of the authorities that have led the way in implementing Government policy. It built a Chinese wall within the district, saying, "We shall have a team from the authority to scrutinise what the in-house capability is doing, and another team to scrutinise what the private-sector firm is doing." That policy has been largely successful. From his reaction to what I have just said, it appears that my hon. Friend has taken that important point firmly on board. No organisation apart from the independent auditor is capable of checking that practice. It is vital that any adverse report should be brought out into the public domain immediately. That is why the Bill is so important, and why I am glad to have the opportunity of supporting it this morning. I congratulate my hon. Friend the Member for East Hampshire once again on his Bill.


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There is, of course, so much more that one could say about the future of local government at this important time because it is at a watershed. For many years, we have heard the cry that local authorities have been spending more than they should and have been involving themselves in affairs that are beyond their purpose. The local government commission, which my right hon. Friend the Secretary of State for the Environment referred to yesterday, which will consider the structure of local government and what the local authorities should deliver, is the right approach.

The open way in which my right hon. Friend has shown that he is prepared to consult not only the parties in the House, but as many local authorities and local authority organisations as possible is an admirable approach. The local authority organisations and the electorate will be asked, "Tell us what you want from local government. Tell us how you want it structured." My right hon. Friend has decided what needed to be decided--that, in two years, we shall have a different system of paying for local government. In the meantime, there will be a greater sense of fairness about community charge payments, because they will have been substantially reduced by the bold measure that my right hon. Friend the Chancellor announced in his Budget statement on Tuesday.

However, none of that is enough, because underlying all those things must be a proper structure for the professional scrutiny of what local authorities do. Whether we have a community charge, a local services tax or any other scheme that another political party may suggest, there must be proper scrutiny. The independent auditor has a part to play. If something wrong or untoward is found, it should be brought out into the open at once. That is why the Bill is so important for the future of local government.

10.4 am

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key) : If the atmosphere in the Chamber is not as charged thimorning as it was 18 hours ago, we are nevertheless discussing another aspect of local government finance with sober diligence. I congratulate my hon. Friend the Member for East Hampshire (Mr. Mates) on successfully steering his Bill through its various stages to its Third Reading today. Although it is a short Bill, its shortness should not blind us to its importance.

In his interesting and important speech, my hon. Friend the Member for Ryedale (Mr. Greenway) raised several points which I should like to discuss immediately. As he said, we scrutinised the Bill in Committee for only two minutes. That was not because we were neglecting to do our duty, but because there was all-party agreement about what we were trying to achieve. I have had considerable discussions in Committee and elsewhere with the hon. Member for Sheffield, Brightside (Mr. Blunkett) and there is no doubt that he and all parties realise the importance of a proper audit of local authority affairs. We welcome that--

Ms. Joan Ruddock (Lewisham, Deptford) : My hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett) is sorry not to be in his place this morning. Given the momentous news of this week, I am sure that the Minister will realise that my hon. Friend has many other


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extremely important tasks relating to the debate about local government. I have been asked to stand in, and am delighted to do so. Of course, I and all my colleagues give our wholehearted support to this important Bill.

Mr. Key : I am most grateful to the hon. Lady, and very much welcome her presence in the Chamber today. I fully understand that the hon. Member for Brightside has busy commitments elsewhere--

Mr. Mates : Burying shot foxes.

Mr. Key : My hon. Friend says, "Burying shot foxes"--how uncharitable. I doubt whether there are any foxes in Sheffield, but there may be some urban foxes.

Yesterday, my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) made an important contribution to the debate on local government. Perhaps his error in suggesting that yesterday was the Ides of March had something to do with his schooling. I am, of course, entirely prejudiced in this matter, having had the pleasure and the honour of teaching at Harrow school for 14 years, but my right hon. Friend went to Eton which, I was told by my pupils, was known as "the drain in the plain", while the establishment at which I taught was known as "the dump on the hump". Nevertheless--

Mr. Arbuthnot : As I too went to Eton, I can assure my hon. Friend that education there has obviously improved since the days of my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).

Mr. Key : I am relieved to hear that. Since I left Harrow school, an enormous amount has happened under the headmastership of Mr. Ian Beer, which has been in line with the traditions of that important and influential educational establishment which still leads the way in much of British education.

I turn now to what the hon. Member for Ryedale said about Humberside and North Yorkshire--

Mr. John Greenway : I am my hon. Friend's hon. Friend.

Mr. Key : Of course--my hon. Friend.

My hon. Friend came to see me earlier this year to discuss the level of central Government grant for his area. We had an extremely amicable and detailed discussion. His constituents are lucky to be served by an hon. Member who understands the difficult details of local government finance so well. It is a rare pleasure for a local government finance Minister to have such a detailed and constructive discussion on such an important issue.

My hon. Friend said that some of his constituents may wish to choose in future whether their local government affairs should fall within the ambit of the Humberside or North Yorkshire authorities. That will be a matter for the local government commission, which my right hon. Friend the Secretary of State hopes to set up later in the year.

Mr. John Greenway : I must correct my hon. Friend. there is absolutely no question of people in North Yorkshire wanting anything whatsoever to do with Humberside, except perhaps to join the wake following the scrapping of Humberside, not only as a county council but as a concept. Many of them would much prefer their area to be called East Yorkshire. There is no question of Ryedale or any part of my Ryedale constituency, including the bits which used to be in the old East Riding, wanting


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anything to do with Humberside. The point is whether they would choose to be governed by county hall at Northallerton, by North Yorkshire county council or by their own district councils of Ryedale, Hambleton, Scarborough and so on. We are looking forward to the public debate on that.

Mr. Key : My hon. Friend is absolutely right. There should be a public debate on that issue. It is not for me to prejudge it--far from it-- but I hear the point that he has made loudly and clearly on behalf of his constituents.

Mr. Arbuthnot : While my hon. Friend is on the subject of counties, the House may remember that my predecessor, now Lord Jenkin, was instrumental in abolishing the Greater London council. I hope that, in moving towards restoring some of the old counties, restoration of the GLC will not necessarily be on my hon. Friend's agenda.

Mr. Key : The London authorities are unitary authorities. Although we shall listen to comments on the future of London authorities, it is unlikely that we shall wish to see substantial change in them. My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) intervened in the speech of my hon. Friend the Member for East Hampshire to discuss what the auditor was precluded from investigation. That is an important point. Paragraph 60 of the code of audit practice says :

"The auditor is able to form an independent and impartial view on how an authority is conducting its affairs."

Those reports are an important means of informing the public. But it is not the function of the auditor to express an opinion on the wisdom of decisions taken by authorities in the lawful exercise of their discretion. It is the auditors' responsibility to consider the effects of policy and to examine the arrangements by which policy decisions are carried out.

As paragraph 39 of the code of practice explains :

"Auditors should consider for example whether policy objectives have been determined and policy decisions taken with appropriate authority."

He has to consider to what extent policy objectives are set and decisions are based on sufficient, relevant and reliable financial and other data, with the critical underlying assumptions made explicit. He also has a duty to consider whether there are satisfactory arrangements for considering alternative options, including the indentification, selection and evaluation of such options. He must consider whether established policy aims and objectives have been clearly set out, whether subsequent decisions on the implementation of policy are consistent with the approved aims and objectives and have been taken with proper authority at the appropriate level, and whether the resultant instructions to staff accord with the approved policy aims and decisions and are clearly understood by those concerned.

All that adds up to the Government's desire that local government should carry out its duties as efficiently as possible, that local councillors should be aware of their responsibility for policy making, and that the management decisions of local authorities should be of the highest quality. The auditor has a most important role to play in all that.

My hon. Friend the Member for Ryedale mentioned competitive tendering. As part of their work, auditors examine the arrangements made by councils under the


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compulsory competitive tendering regime. Indeed, auditors have been critical of the way in which many authorities have acted. Several public interest reports have been issued by auditors on that subject. In the light of one such report, a council reconsidered its earlier decision and awarded the contract to the external private company which had submitted the lowest tender. There is an important role for auditors there.

I should perhaps make it clear that, when I refer to a local authority auditor, I do so as a shorthand expression, because the Bill will apply to an auditor appointed under part III of the Local Government Finance Act 1982. Under that Act, auditors are appointed to a range of bodies. The full list of such bodies is given in section 12 of the Act, but they range from a parish meeting through the panoply of what we normally understand by local authorities, including joint committees of them. Other bodies that are subject to the Act include port authorities and land drainage boards. Of course, as clause 1(6) makes clear, the Bill does not apply to health service bodies, but, with that exception, the Bill applies to all the bodies covered by part III of the Local Government Finance Act 1982.

Mr. Greenway : My hon. Friend has touched a chord on a matter which it has been in my mind to raise with him for some time. He referred to the auditors of parish meetings. My hon. Friend will have several parishes surrounding the fair city of Salisbury. He will know that parish councils have been a little upset at what they considered to be excessive charges levied by the auditors of their affairs. Can he assure the House that the Government take the complaints of parish councils seriously and that not only the cost of audits but the structure within which they are done will be examined, and, indeed, that parish and town councils will continue to have a substantial role to play in future under whatever structure we end up with?

Mr. Key : As my right hon. Friend the Secretary of State said yesterday, we intend to continue to rely on parishes to play a substantial and important role. It is not widely appreciated that, outside the shire districts, about 50 per cent. of the country does not have the advantage of a local parish council. Certain places have a community council. We wish to ensure that the duties of parish councils are not neglected or lost.

Like my hon. Friend, I have many parish councils in my constituency. They vary in size and character enormously. Sometimes, they cover a small number of electors--perhaps even 50 or 100. Another parish council may represent the interests of 12,000 or 15,000 people. Indeed, the largest parish councils represent some 30,000 people. So we certainly cannot ignore parish councils, and nor shall we do so.

On my hon. Friend's point, he may be aware that there is a Bill currently before the House on the subject. The Parish Councils (Access to Information) Bill was introduced by the hon. Member for Houghton and Washington (Mr. Boyes). It would not be right for me to comment at this stage on what might happen to that Bill. The Government are aware of the importance of proper auditing throughout the local government system.

Today's Bill is particularly relevant to local authorities--using the words "local" and "authorities" in their narrow sense. But it is important for the House to realise that many organisations are involved in the work of the


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Audit Commission and local government auditors. I should like to describe something of the work of a local authority auditor so that the importance of the Bill can be seen in context against its proper background. I should also like to answer in detail some of the questions raised by my hon. Friends.

The House will recall that, on 18 January, my hon. Friend the Member for Gedling (Mr. Mitchell), whose interest in and knowledge of the matter is widely acknowledged, initiated a debate on extending the role of the Audit Commission. During my reply to the stimulating ideas put forward by my hon. Friend I had occasion to note some of the duties of appointed auditors. The three duties that I specifically mentioned at that time were, first, to check the regularity and propriety of the authority's accounts and their compliance with statutes and regulations ; secondly, to satisfy himself that the authority had made proper arrangements to secure value for money : that is, the three Es, economy, efficiency and effectiveness ; and thirdly- -to comply with the code of audit practice. I shall come back to that point.

Mr. Arbuthnot : One of the campaigns which our hon. Friend the Member for Gedling (Mr. Mitchell) has been assiduously and effectively pursuing has been to involve the National Audit Office in the work of the national health service. My hon. Friend the Minister has already pointed out that the Bill does not apply to health bodies. Would he comment on whether it should perhaps apply to them?

Mr. Key : I might be in danger of repetition of the previous debate if I were to cover that point now, but perhaps I may refer to auditing the health service before I conclude my remarks. An auditor's duties extend wider than the points that I have mentioned. He must hear objections to the accounts from any local government elector. That is not widely recognised. An auditor must certify completion of the audit and give an opinion on the accounts. He must apply to the court for a declaration where it appears that any item of account is contrary to law. He must certify, where it appears that there has been a loss caused by wilful misconduct or failure to account, the sum or the amount of loss due from the person or persons responsible. Finally, he must hold an extraordinary audit if directed to do so by the commission or the Secretary of State. Those are awesome responsibilities.

Many of those matters are covered by the code of audit practice, as it is usually called. My hon. Friends will recall that, in November 1990, I had the duty of bringing the latest version of the code of audit practice before a Standing Committee of this House. They will also recall that the commission's code--it is the commission's, not the Government's--met with approval from all parties.

The code of audit practice devotes several paragraphs, Nos. 57 to 63, to reports in the public interest. Paragraph 58 includes a dozen sub- paragraphs that deal with the sort of items that might occasion a public interest report. The list is intended not to exclude other possibilities, but to act as an indication of items that, in the commission's view, would warrant a public interest report. Over the past few years, auditors have made a number of important items the subject of public interest reports.


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They have frequently been concerned at the failure of authorities to keep arrears under control. Reports frequently highlight problems in management and financial control systems, and where there have been delays in setting rates and balancing accounts. Auditors have had a great deal to say in reports that have drawn attention to the inadequacies of authorities in preparing for the introduction of new legislation and in administering competitive tendering and housing benefit.

In particular cases, the auditor has warned of the grave financial position facing an authority. In such cases, the auditor has advised of the need to bring expenditure into balance with available resources and to avoid the use of costly creative accounting measures. Reports have also related to fraud and other special investigations. Some of those have been recurrent themes in such reports. Others have been particularly prevalent for a time, but have become less so as authorities have taken note of and acted on reports.

That is in the best traditions of following best practice, and it is encouraging to see that the number of reports that auditors have felt it necessary to make has dropped from 89 in 1985-86 to 36 in 1989-90. Over the same period, the subjects covered by reports have declined from 153 to 91. That reflects the excellent work that auditors have done in drawing attention to inadequacies in procedures and encouraging good practice within local government. Ultimately, the responsibility for acting on the findings of reports rests with the local authority concerned. Nevertheless, auditors' reports undoubtedly provide a useful way of promoting economy, efficiency and effectiveness within local government.

I cite as an example a specific case of an auditor's report on a particular council. I am not at liberty to reveal which council it is, not least because I do not know. When auditors produce these reports, they ensure that we cannot know which authority is concerned or its political control. In this particular case, the auditor reported that the council had decided that new software would be required to implement revised housing benefit regulations and had entered into an agreement for the supply of a package which failed to become operational by its original target date. Delays occurred in the delivery of specific computer programmes and in the ability of the company to rectify shortcomings in the software. Software difficulties were exacerbated by the need to upgrade the computer and to relocate the housing benefit section, a faulty computer link and the introduction of a system without full implementation of the intended controls. Consequently, inaccuracies occurred in computer processing, resulting in overpayments of housing benefits totalling £1.2 million.

The auditor reports that problems had arisen because of delays in the delivery of computer programmes, the inability of the software company to rectify faults in its programmes, the implementation of a complex computer system without adequate processing controls and the failure of the new housing benefit system to interact with the council's other accounting systems. The auditor reports that, although appropriate recovery action was taken, a bad debts provision of £375,000 had to be made as a result. The contract with the original software company has since been terminated, and the processing of future housing benefit transactions entrusted to another software company.

The auditor's report was helpful to the authority in learning lessons from the mistakes that arose and in


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seeking to avoid their recurrence. As the code of audit practice says, auditors' reports are intended to be constructive rather than condemnatory. The Bill is designed to ensure that such reports are available more quickly and that they are better publicised, so that they become an even more effective tool than at present.

One of the auditor's responsibilities is to satisfy himself that the authority has made proper arrangements for securing value for money. In recent years, when people mention value for money they often do so pejoratively. I hope that the climate in which the term is used is changing, because value for money undoubtedly means value for people. It means getting all possible value from every pound of taxpayers' money spent, whether it is raised locally or centrally. People will benefit if there is good value for money.

Where there is room for improvement, the auditor may consider that a report in the public interest is justified. I shall explain how this process of consideration of value for money within local authorities normally operates. The value-for-money study process starts with a central study on a particular topic resulting in a national commission report and an audit guide. Individual auditors then apply the report to the local circumstances at the individual authorities.

Auditors are expected to discuss their audit plans with their clients. If the particular local circumstances are such that carrying out the full study would be inappropriate, the auditors would either carry out a small- scale study tailored to the particular authority or substitute a more appropriate local project for the national study. The final judgment on whether a project is appropriate rests with the auditor, not the commission or the local authority.

In the last couple of years, the Audit Commission has produced reports concerning primary education, museums, art galleries, support for the arts, sports, parks and open spaces, urban regeneration, among others, as well as various studies relating to the police. For 1991-92, subjects to be studied include the strategic role of local authorities in housing, social services management and highways competition.

Looking further into the future, the commission is proposing to carry out major studies looking at client role management, housing benefit and rent arrears and education for 16 to 19-year-olds. In addition, smaller scale projects are planned which will examine development control, special education needs and further aspects of police work, such as traffic policing.

On 1 October 1990, the Audit Commission became responsible for the audit of the national health service. The duties of an auditor of local authorities apply in large measure to the audit of health authorities and will apply to the audit of the new NHS trusts. The Bill does not apply to health service bodies because of their different constitutional position.

Local authorities are responsible to their electors. Health service bodies are responsible to the Secretary of State, who is in turn responsible to Parliament. That difference in the constitutional position was fully reflected in the debate on the National Health Service and Community Care Act 1990. The difference is therefore reflected in the changes to the Local Government Finance Act 1982 brought about by the 1990 Act. The health service bodies are now being treated in a way consistent with the earlier debate and decision.


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