Examination of Witnesses (Questions 320
- 335)
TUESDAY 15 FEBRUARY 2000
MS ADRIENNE
FRESKO, MR
DAVID PRINCE,
MS MOLLIE
BICKERSTAFF AND
MR EUGENE
SULLIVAN
Chairman
320. At least one of your competitors has actually
withdrawn from the market, has it not?
(Ms Bickerstaff) Yes. Two of them have withdrawn from
the market. They must speak for themselves but, as has been pointed
out earlier, they did have small shares within the availability
of what is given to firms.
Christine Butler
321. To all three of you, could I just ask you
to ponder the example of a small authority which has a large and
scattered population, a low population as well. Is the present
fee system fair to that kind of authority compared with, say,
a large metropolitan, a unitary? Do you think that fees should
be based on a different basis altogether? Do you have any ideas
to put forward towards that?
(Mr Sullivan) I believe that the present arrangements
are very fair because they are related to a programme of work
that flows from a duty that is in the statutory code of practice
and, therefore, the work that we have to do drives the budget
and then in turn that drives the fee rates. To try to move to
some sort of per capita fee arrangement would feel iniquitous
because it would distance the fee from the actual work necessary
to discharge the statutory code of practice.
322. Do you agree with that?
(Mr Prince) Yes. Could I add to that as well. I think
there is an incentive in the present fee system that the better
the control environment and the better the authority manages its
own affairs through the principles of the managed audit, then
the lower the fee. The converse applies. Within the system there
is a virtuous circle effect which certainly I felt when I was
a local authority Director of Finance and I believe they feel
it in the health sector too.
Chairman
323. Can we take you on to the question of Best
Value. Is it realistic to expect the Audit Commission to establish
a mixed supply for the inspection of Best Value within 12-18 months?
(Mr Sullivan) I think that the Audit Commission started
out with the intention of a mixed supply for inspection and is
still intending to do that but not immediately. The figure of
12-18 months is based on conversations that I have had but it
has not been officially said anywhere what the timescale is. Yes,
I think it is realistic. From the point I made earlier about a
wholly owned inhouse inspection facility and the 71 per cent internal
inhouse agency for audit, I think the earlier it moves to a mixed
supply the better.
324. So you think a 50/50 split would be fair
in this area?
(Mr Sullivan) Yes.
325. What would happen if you are both making
recommendations on Best Value and you are auditing, is there not
a possibility that there could be conflict between the two?
(Mr Sullivan) I think there is a potential but if
you have an inspector who is employed by the same organisation
as the auditor then the perception of that conflict can be that
much greater. I think it is incumbent upon professionals, inspectors
and auditors, to work with each other recognising their respective
remits. If there is conflict between them and they are employed
by the same organisation, the authority will drive at that conflict.
If there is concord between them and they are from the same organisation,
the authority will smell a rat, or may be inclined to smell a
rat.
326. You think there is a clear distinction
between what should be done under Best Value and what should be
done under audit?
(Mr Sullivan) I think inspection and audit are clearly
different. Going back to the earlier evidence about outcomes,
where inspection scores very heavily over audit is in relation
to having experts assessing professional standards and professional
competence in a way that auditors are not trained or capable of
doing.
Mr Benn
327. Do you accept the argument that your role
under Best Value may lead you into territory where you are taking
decisions that are in effect political judgments about provision
rather than auditing a process?
(Mr Sullivan) No.
(Mr Prince) No, I think not in terms of auditing the
Best Value Performance Plans. I think the requirements on auditors
have been spelt out in the Act and the auditors will not be in
that territory.
(Ms Bickerstaff) Can we be absolutely clear that there
is a difference between Best Value Performance Plan auditing,
which goes to the external auditor, and inspection. Sometimes
the words are used in a similar way. There is no difficulty in
my mind as to what auditors are being asked to do under Best Value
Performance Plan audit because it is very much compliance with
the Act.
328. Could you tell us how much of your time
is taken up dealing with objections to items in the accounts?
(Ms Bickerstaff) Very, very, very little.
(Mr Prince) I can give you some figures on that. Within
District Audit I think there are currently around 30 objections
that auditors are dealing with out of about 300 audits. On average
about four to five days of the audit is taken up dealing with
both questions and objections because not all things that start
out as questions turn into objections. As Molly says, they are
not significant. The incidence varies obviously. Again, to give
an example in District Audit, we have had one for as small a transaction
as £15 and we have had an objection that led to examining
a transaction of up to £30 million. We do have a huge range.
329. Given that it is a relatively small proportion
of the work, how do you respond to the criticisms that in some
cases it takes an inordinately long time to resolve these matters?
(Mr Prince) In general auditors do try to resolve
them as quickly as possible. Certainly in managing the Agency
that is something I am concerned about. The Audit Commission itself
monitors the amount of time taken by auditors and the money expended.
Where there are difficulties and delays it is frequently because
the issue requires the involvement of a number of agencies, for
example it may be an internal disciplinary inquiry, it may be
a police inquiry, it may be a decision to prosecute, it may be
a court action to go through and the auditor does need to be careful
that anything he or she does does not prejudice those proceedings.
I think in the cases that are mentioned that take a very long
time there are usually some or all of those elements in place.
In general auditors do want to manage them quickly, not least
to avoid them becoming a distraction from the ongoing audit of
the authority.
330. How would you feel about a target timetable
within which you should resolve, say, a certain proportion of
them as an encouragement to make sure that what you have just
said actually happens?
(Mr Prince) I have no problems at all with a target
for encouragement to manage them properly, provided, as I have
mentioned, the auditor has time to do the job properly. In dealing
with these things auditors do have to play fair by all the parties,
give people an opportunity to comment, observe the rules of natural
justice, and on occasions their decisions in public interest areas
are reviewed by the courts or the Court of Appeal. We have had
three in the District Audit that have been reviewed by the High
Court and the Court of Appeal and the auditor has been upheld,
but he or she has only been upheld because they have observed
very scrupulously the documentation and natural justice processes
throughout the whole of the test.
Chairman
331. You can hardly claim that the Camden example
that we heard earlier was an example of good practice where two
of the key people involved died?
(Mr Prince) The Camden case, in fact, is a case that
involved four other agencies in the decision as to whether there
should be a prosecution and included the involvement of the European
Court of Auditors as well, so I am afraid it was one of those
where there have been a number of agencies involved. It is not
an example of best practice for all of the agencies, and I know
that the Audit Commission as well as being concerned to see that
auditors make due progress is also keen that other agencies, such
as the police on issues of prosecution, are equally timely. This
is an important element of it.
Mr Benn
332. Several authorities have said that when
they are about to engage in innovative or complex projects and
they go to the auditors and say "we just want to run this
past you, we would welcome your view as to whether we are proceeding
in the right direction, can you see any difficulties", they
have had the response, "we are very reluctant to give advice,
you go ahead and do what you think is right and we will come and
audit you later on". They say this is rather frustrating
for them. Is it the case that you are reluctant to give advice
in these circumstances?
(Ms Bickerstaff) No, that is not the case.
333. It is not the case. Does that go for all
of you?
(Mr Sullivan) It certainly goes for ourselves, although
I would qualify the nature of the advice. On the one hand, if
an authority asks me about a particular proposition I would feel
that I was duty bound to come off the fence and say whether I
was minded to challenge that. Also I would give advice about due
process to make sure that they follow things like the Wednesbury
Principles. I would not give advice on the particular option that
they should choose and I would not do it in any way that fettered
the right of local government electors or my ability to hear a
case later.
(Mr Prince) I would agree with that, that is absolutely
right. I suppose the danger in this, again thinking back to my
own local authority days, is if the authority has not put the
whole of the case to the auditor and then it is said that the
auditor has endorsed the proposal then it can be difficult. The
discretion can be fettered if the auditor has to come back. In
terms of having a sensible, professional discussion, reminding
the authorities of the issues and processes each should go through,
because the fundamental responsibility is in the authority itself
to decide whether to proceed with the transaction, then I think
that is a proper part of the audit process.
334. Can you understand the frustration that
the local authorities that have put this view to us express, if
that is the answer that they get?
(Mr Prince) Yes. Again, I say yes thinking back to
my own experience because, for the very reasons Eugene Sullivan
has given, the auditor cannot up front give an absolute cast iron
guarantee that the thing is watertight such that people can sleep
at night thinking that they have laid off their risk to the auditor.
I think we are talking about two different things from a proper
focus on what the risks and the issues are on the one hand and
a cast iron guarantee on the other. If authorities are looking
for a cast iron guarantee then they cannot have that in terms
of the way the Code of Audit Practice is structured at the moment
because that does make clear that the auditor is not the financial
adviser or the legal adviser to the authority. They have their
own statutory officers to carry out both the legal and financial
functions.
335. Could that have the effect of stifling
innovation?
(Mr Prince) I do not think so. There is innovation
in local authorities and they have discussed them with auditors.
I know if we think about the early days of Best Value, the pilot
authorities generally spoke well about the support and help that
they had from their auditors in getting their initial bids up
and running quickly. That was a good example of auditors being
proactive and running with the agenda.
(Ms Fresko) Can I just come in here and say that perhaps
it is about authorities not necessarily going to the appropriate
people to get advice. I think you have heard from the professionals
here about what the role of audit is. The Commission as a whole
would very much want to encourage appropriate innovation and that
has been a very key part of its regime.
Chairman: On that note, can I thank you very
much for your evidence.
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