Examination of Witnesses (Questions 200
- 219)
TUESDAY 1 FEBRUARY 2000
MR RICHARD
HARBORD, MR
BILL ROOTS
AND MS
LESLEY HALTON
Mr Benn
200. Mr Roots, a question for you. In Westminster,
you have had a long and, if I can describe it so, interesting
relationship with your district auditor. Could you tell us whether
you think the power of surcharge, that the district auditor currently
has, has actually got in the way of the auditor carrying out the
official functions relating to probity, regularity and propriety?
(Mr Roots) The concept of surcharge itself, where
individuals pay a personal penalty, I think that has got in the
way, and I am pleased, like many other people, that that is to
be abolished in the Bill that is going through the House at the
moment. But, in a sense, surcharge issues, looking at objections
is often tied into propriety, so I think it is quite difficult,
on occasions, to separate the two issues. But I think the point
that you are really asking me about is, does the process and the
time it takes to deal with audit objections that involve a surcharge
dissipate the energy that goes into other aspects of the audit,
and I think the answer is yes.
201. And you are happy with the proposals that
the Government currently is looking at, to replace surcharge with
the `misuse of public office' offence?
(Mr Roots) Yes, it is something that I personally
strongly believe is the right move, at this point in time. It
is an anomaly that only local government faces this particular
penalty, currently.
202. If `misuse of public office' is the right
approach and identifies specifically something that is wrong,
you said it applies only to local government. Do you think it
should apply to Government Ministers, if there is a principle
at work here?
(Mr Roots) I do.
Chairman
203. This whole question of jobbery, it was
a long-running scandal, was it not, for almost 70 years, in local
authorities; do you think that almost all of that has disappeared,
as a result, first of all, of the possibilities of surcharge,
and now with the new provisions?
(Mr Roots) I think, surcharge has been around for
a very long time, as you just indicated. I am not suggesting that
there is no corruption, fraud, abuse, in local government because
of the existence or not of surcharge. I think, generally, the
track record of local government in this country is extremely
good, and I think that is about the propriety that goes into the
system, and the fact that we are subject to external scrutiny.
I am not sure, personally, that surcharge itself adds anything,
ultimately, to that process, I think it is the process that perhaps
has brought local government to what I think, by and large, is
a high level, in this country.
Mr Cummings
204. The Committee have received some quite
damning evidence, from both West Devon Borough Council and also
the London Borough of Hammersmith and Fulham; indeed, West Devon
is quite scathing in their remarks about the District Audit. And
my question is directed to both West Devon and the London Borough
of Hammersmith and Fulham. What would be the advantages of subjecting
the audit market to more competition, and do you believe there
should be 100 per cent competition in public audit?
(Ms Halton) My belief is that, most definitely, it
should be 100 per cent competition. I am concerned that perhaps
in 2001 external firms might be discouraged from staying in the
market because they will have to compete again in a small part
of the market, just 30 per cent of the available market. I do
believe we will get better service. We are only a small council
and, actually, for some years now, our internal audit service
is delivered by an external company, and, despite the problems
of our peripherality, we get very good tender response and we
get a very good service, which compares very well with our external
audit service, and they do make sure that we are running a tight
operation, that all our controls are effective. And so I do believe
that if the market was opened up there would be plenty of interest
in the big accountancy firms.
(Mr Harbord) My point was, really, that there should
be an open and transparent process for change or review of auditors,
and that this should best be done by market testing, and I see
no reason why that should not be universally applied.
205. A question now to West Devon. You are very
critical of District Audit, there is evidence to that in your
submission; where does the problem lie, do you believe it is the
quality of staff, or just personal relationships between yourselves
and District Audit?
(Ms Halton) I think it is difficult, really, to say
what it is, because we do know that councils in other parts of
the country are quite happy with District Audit and have expressed
appreciation of the work they have done. It does seem to be a
problem we have in Devon. In fact, for two years, we did benefit
from an exceptional manager and supervisor, but, unfortunately,
they both got promoted because of their excellence and moved away.
And, just a year ago, we went through an LSVT process and we needed
technical assistance, and my background is as a commercial accountant,
a chartered accountant, in private practice, and I would expect
my clients to `phone me up about technical advice and I would
give it; but whenever we do the same sort of thing with District
Audit they will never give us any advice, and we found that really
unhelpful.
206. Again, what do you believe are the reasons
for the Audit Commission refusing to allow the Council to change
auditors?
(Ms Halton) We never really found out the reason;
we were led to believe it was all going to happen, and then just
suddenly we got a letter to say it was not going to happen.
207. Did you press the Audit Commission for
a reasoned response?
(Ms Halton) We actually wrote to the Minister for
Local Government, Hilary Armstrong; we never really got a response,
we just thought we would go with the system for a while, because
this inquiry, in fact, was being promised, so we thought we would
leave it. It might help if I actually explained something about
the background of West Devon. As you say, we wrote a very scathing
reply, but the problem is, in West Devon, we have got only a £5
million budget, we cover an area that is equivalent to the size
within the M25, there are 11 million people within the M25, we
have got 47,000, it is based all over Dartmoor. We have got two
centres to maintain. Over the last five years, we have actually
cut £1.8 million out of our £5 million budget, in order
to meet pay awards, contractual inflation, but we have driven
up our standards. I quote in my letter about how The Independent
put all our indicators together and found we were fifth out of
260, and this is because we have had compulsory redundancies,
we have had voluntary redundancies, but we have externalised a
lot as well.
208. Do you believe that perhaps the Audit Commission
is too remote from you to recognise unique problems that exist
in your part of the country; do they respond to these challenges?
(Ms Halton) I do not think they understand our problems,
no.
209. And what efforts are you making to ensure
that they do understand the problems?
(Ms Halton) I bring them in front of councillors,
we explain our problems; there is only so much time you can invest
in that sort of thing.
210. You just keep hitting your head against
a brick wall?
(Ms Halton) Yes.
Mr Cummings: Are there any avenues you can explore
to have the matter corrected; how do you redress these problems?
Chairman
211. Let us put it in a much simpler way: what
would you like us to recommend, as a Committee, which might help
you?
(Ms Halton) We are trusted to go out for competitive
tendering on all sorts of very important services, revenues and
benefits, street cleaning, refuse collection, etc., etc. Big companies,
they can choose whichever big firm they want, of accountants,
to do their audit, however big they are. I think we ought to be
able to be trusted to select our own external auditors; it can
be from a list of accredited auditors who have been approved,
but I feel we should be allowed to do that. And I think that will
create the market, and the market will get more competitive because
of that.
Mr Cummings
212. In actual fact, you are saying you want
to work out your own terms of reference for the auditor of your
choice?
(Ms Halton) No, because I want a very thorough audit;
this is why I have external people to do my internal audits, I
want to know exactly what is going wrong in my authority and I
want it put right. So I do not want to write my own terms of reference,
except to say that I want a jolly good audit that is going to
show me where things are going wrong and tell us how we can do
things better.
213. Again, to yourselves and the London Borough
of Hammersmith and Fulham, would you welcome more advice on the
auditor before you embarked on innovative and complex projects?
(Mr Harbord) Perhaps I could start on that, as I think
partly the answer has been given from West Devon. We would welcome
that. We find that part of the strength of the external auditors
is that they are in touch with 400 local authorities, or however
many there are, and they do gain a great deal of knowledge about
best practice and about practice generally. We would find it helpful,
when faced with difficult transactions, we would like to go to
our external auditors and ask for their opinion and advice; experience
has shown that they are very reluctant to give that, very reluctant
indeed.
Chairman
214. Do you not do that regularly, to ask whether
certain forms of council expenditure would be approved or not?
(Mr Harbord) It is probably not regular, because most
of the transactions we undertake are fairly straightforward; we
have got our own legal advice, but there are certain complex matters
where we would like to have the benefit of the opinion of our
external auditors, and, as I say, they are very reluctant to give
that advice, or an opinion, in advance.
Mr Cummings
215. And yourselves, do you have any comments?
(Ms Halton) Yes. We are a very small council, I have
got only three qualified accountants, two finance assistants;
and we do everything, VAT, treasury management, closing down the
accounts, capital accounting, everything, and we have not got
the resources to have our own technical division, we have to work
out everything for ourselves. What a big council has to do we
have to do as well, and it would be really helpful if we had a
centre of expertise we could just `phone up and ask questions,
calculating the credit ceiling, are we doing it correctly, this
sort of thing; but we always feel that we are having to—we
either `phone up other authorities or we work it out for ourselves.
It is quite onerous.
216. Do you believe that the Audit Commission
is truly independent of Government?
(Ms Halton) I think what one has to say is, how independent
does one want it to be, because the Government does want to have
some sort of control over local government to make sure we operate
to the right sort of standards, that we have high standards, and
the Audit Commission is the mouthpiece for that, and I see nothing
wrong with that, that there should be that sort of control.
217. Where do you see the problem with the Audit
Commission and the district auditor?
(Ms Halton) I think my problem is just I would like
to have transparent competition, to be able to select my own auditor,
who will meet the needs of my Council.
Mr Brake
218. Can I just ask you why you think that the
Audit Commission is refusing to give you advice on certain projects;
is it because they do not have the resources to do it, or is it
because they are worried about their impartiality, have they given
you any explanation as to why they will not?
(Mr Harbord) It is the external auditors, rather than
the Audit Commission, although, presumably, they would refer major
matters back. But I think their reluctance is that they do not
see it as their job to judge whether or not transactions are being
correctly carried out at that point, they would rather wait until
there is an objection, or until they are reviewing it at the time
of audit. I have not really had a thorough explanation of why,
but they will not give advice in advance.
Mr Olner
219. The probity issue aside, the Audit Commission
very much looks at outputs; do you think the Audit Commission
ought to be saying, quite strongly, to central government that
the funding arrangements at local authorities are incorrect?
(Ms Halton) We would say that, as a small authority.
For example, just before I came here, I looked at the costs of
our external audits, and we actually pay 68 pence per head of
population; East Devon, for example, pay 32 pence per head, and
yet we have got fewer transactions, so it is quite disproportionate,
that. One of our problems is, if we were double the size we would
not need an extra chief executive, an extra treasurer, extra office
buildings. And I think an awful lot of our income comes according
to population, but an awful lot of our expenditure is fixed sums,
and an awful lot of our charges, for example, what is being talked
about with the Best Value inspection charges, a large part of
that is a fixed fee, which has no relation to our population,
and therefore our ability to pay.
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