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Delegated Legislation Committee Debates

Draft Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2003 and Draft Government Resources and Accounts Act 2000 (Rights of Access of Comptroller and Auditor General) Order 2003 and Draft Government Resources and Accounts Act 2000 (Audit of Health Service Bodies) Order 2003

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Second Standing Committee
on Delegated Legislation

Wednesday 7 May 2003

[Mr. John Cummings in the Chair]

Draft Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2003

2.30 pm

The Paymaster General (Dawn Primarolo): I beg to move,

    That the Committee has considered the draft Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2003.

The Chairman: With this it will be convenient to consider the draft Government Resources and Accounts Act 2000 (Rights of Access of Comptroller and Auditor General) Order 2003 and the draft Government Resources and Accounts Act 2000 (Audit of Health Service Bodies) Order 2003.

Dawn Primarolo: Good afternoon, Mr. Cummings. Over the years, Members of this House, and members of the Public Accounts Committee in particular, have expressed concerns about the statutory powers of the Comptroller and Auditor General. That is why the previous Chief Secretary, my right hon. Friend the Member for Oxford, East (Mr. Smith), invited Lord Sharman to review these matters.

As the Committee will know, the Government's response to Lord Sharman's report accepted the key recommendations on audit and accountability in central Government and the response received a warm welcome from the PAC. In particular, the Government set out their intention to respond to the concerns of Parliament by strengthening the statutory powers of the Comptroller and Auditor General in two ways: first, by making the CAG the statutory auditor of certain non-departmental public bodies where he is not already the statutory auditor and secondly, by giving the CAG greater powers of access.

The first and second orders are intended to deliver these new powers to the CAG. They are being made under the Government Resources and Accounts Act 2000 and were laid on 3 April. The third order was laid on 2 April. It, too, is being made under the 2000 Act and is intended to make the CAG the statutory auditor of special health authorities, including for this purpose the Dental Practice Board, which is treated as an SHA. In conjunction with an accompanying negative resolution order, also laid on 2 April, the third order will ease the audit burden on SHAs and the Department of Health, while maintaining full parliamentary accountability. I am grateful for the assistance we received from the National Audit Office throughout the preparation of these orders.

Let me say a word about the first two orders. The first, the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2003, provides for the CAG to be made the statutory auditor of those non-departmental public bodies—other than NDPBs incorporated under the Companies Acts—that are

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required by or under statute to be audited by auditors appointed either by the Minister or by the NDPB itself. The order includes a schedule listing the NDPBs affected and sets out the legislation that is being amended and the amendments to be made.

The intention is that the CAG will become statutory auditor of the NDPBs on the dates shown in the order. Of the 25 NDPBs affected, five are already audited by the CAG by agreement. The remaining 20 are audited by private sector auditors and the dates shown in the order for these NDPBs reflect the expiry dates of the auditing contracts. The CAG is the statutory auditor of most NDPBs already.

The Government Resources and Accounts Act 2000 (Rights of Access of Comptroller and Auditor General) Order 2003 extends the CAG's statutory access rights for the purpose of his financial audit of all Government Departments and non-departmental public bodies. Statutory access is extended to: grant recipients other than individuals receiving social security and similar grants; registered social landlords and train operating companies; and, bodies contracted or subcontracted to provide goods and/or services to the Government or NDPBs. The order also provides access to Entrust, which is the regulator of the landfill tax credit scheme. In the main, the order makes statutory the administrative arrangements already established or likely to have been established in the future.

As the Government's response to Lord Sharman's report makes clear, the CAG has given assurances about how he will use the new powers under the two orders. In particular, he has undertaken to consult the audited NDPBs and the sponsoring Departments on key aspects of the audit and to minimise any potential burdens on the bodies subject to statutory access, most of which are in the private sector. The Government welcome those and the other assurances given by the CAG. They address the concern, which Lord Sharman recognised in his recommendation, that any new arrangement should be the subject of protocols and other arrangements on maintaining service levels and minimising any extra burdens.

As is customary, a regulatory impact assessment accompanies the orders. The RIA sets out the impact that the orders are expected to have on the parties potentially affected. In the light of the RIA, the Government conclude that the new audit and access arrangements add up to a clear and continuing net gain for Parliament and the public.

I also reiterate the Government's intention that the CAG should have access to the bodies covered by the second order for the purpose of his value-for-money studies. Although such access will not be statutory, it will be implemented through contract, grant conditions or other appropriate means. For the avoidance of doubt, I should make it clear that such access would be exercised solely in connection with the CAG's statutory value-for-money examinations of public sector bodies. It would not be for the purpose of conducting a value-for-money examination of the accessed bodies themselves, most of which are in the private sector.

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The Government Resources and Accounts Act 2000 (Audit of Health Service Bodies) Order 2003 deals with the audit of the special heath authorities and has been prepared in consultation with the Department of Health. The SHAs are listed in the annexe to the order. At present, SHAs prepare their own annual accounts, which are audited by auditors appointed by the Audit Commission. Those accounts are submitted to the Department, which uses them to prepare separate NHS summarised accounts for each SHA. The Department makes changes to ensure consistency of presentation across all NHS organisations and to reflect events that come to light and affect the accounts after the underlying accounts have been completed. The CAG then examines and certifies the summarised accounts and lays them before Parliament with his report on them.

The present arrangements require two sets of accounts to be prepared for each SHA: one by the SHA and the other by the Department of Health. The SHA is audited twice: once by auditors appointed by the Audit Commission and once by the CAG.

The third order makes the CAG the statutory auditor of SHAs in place of the Audit Commission arrangements, removing the dual audit burden. The Dental Practice Board, which for all practical purposes is treated as an SHA, is also covered by the new arrangements. Meanwhile, a companion negative resolution order, also laid on 2 April, will discontinue the requirement for the DOH to prepare summarised accounts for the SHAs mentioned in the order, leading to a resource saving for the Department.

It is proposed that the new audit arrangements for SHAs will take effect for 2003015004 and subsequent financial years. The individual SHAs' accounts will continue to be laid before Parliament. The regulatory impact assessment on the affirmative SHA order and associated negative order records the Government's conclusion that the new arrangements for the audit of SHAs will result in a simplified audit framework, reduce audit burdens and maintain full accountability to Parliament.

The proposals represent a net gain for Parliament and parliamentary accountability and for clear access to information for the public. I commend the three orders to the Committee.

2.41 pm

Mr. Howard Flight (Arundel and South Downs): I welcome you to the Chair, Mr. Cummings. Opposition Members welcome and support the three Sharman orders, which follow on from the Government Resources and Accounts Act 2000 and the Sharman report. As the Paymaster General outlined, these measures appoint the Comptroller and Auditor General the statutory auditor of 25 non-departmental bodies of which he has not been the auditor of some 20. That comes into effect as the contracts with existing auditors expire. The Paymaster General described the background to the Sharman report and the Government's acceptance of its key recommendations.

These measures strengthen the CAG's power and give him appropriate access. The third order deals with

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special health authorities. The powers of access to third-party bodies relate to those that have received grants, those that are providers of Government services, registered social landlords and others. The regulatory impact assessment states that costs are broadly unchanged. One particular objective recommended by the Public Accounts Committee is achieved: greater consistency in NDPB audits. Hon. Members will know that, in practice, that means that the CAG takes audit responsibility, but he will appoint private sector sub-contract auditors to carry out the work.

Two orders were laid in an earlier version in February and withdrawn, I think, on 24 February. It is stated that that was in the light of comments by the Joint Committee on Statutory Instruments. I should be interested if the Paymaster General could elucidate a little more what that was all about and what changes have been made since the first drafts. It struck me forcefully that this is a classic piece of Sir Humphrey, in that one would not expect the auditors themselves to address the point, but I could find no reference in the descriptive notes and the regulatory impact assessment to a key accompanying change to the appointment of the Comptroller and Auditor General to audit NDPBs, which is that, in future, Departments will consolidate the relevant NDPB accounts into their own accounts. That indirectly raises the Red Book treatment of NDPB expenditure and borrowings where relevant, and in particular, the Government treatment of the Strategic Rail Authority and Network Rail borrowings.

The Government have already agreed that from 2004 they will consolidate the SRA and Network Rail accounts into the overall Government accounts, but the Treasury continues to argue that the Department for Transport accounts will not consolidate the SRA or Network Rail accounts and that the Red Book figures will not include Network Rail's debt.

Sir John Bourn, the CAG, and the National Audit Office remain adamant that the Department for Transport should consolidate the SRA and Network Rail accounts, and conclude that the crucial point of the key UK gap accounting tests of FRS 2 and FRS 5 is met: the Government clearly have, through the Department for Transport, a controlling equity interest and bear the equity risk related thereto.

If the CAG wins the argument there will be knock-on effects on the treatment of the debt in the Red Book. If the CAG's argument that the FRS 2 and FRS 5 tests are met is accepted, that blows out of the water the mythological argument of the national statistician that Network Rail is controlled by its 100 directors, who were included in its structure to try to keep it outside the EUROSTAT borrowing rules. If that were to happen, it would add £25 billion to Government borrowing figures, of which £21 billion is already approved and £4 billion is being raised by commercial paper sales also guaranteed by the SRA.

The orders are part of an important change, which has not been referred to, of consolidating those accounts into the relevant Department accounts in future. I hope that that will clarify where certain elements of borrowing should appear and what should

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be on the Government's balance sheet in the Red Book. I shall close by quoting Sir John Bourn. In an interview given on 16 February, he said:

    '' 'I insisted that if Network Rail needs to borrow money, because the Government will stand behind them, it is assuming risk' and 'that should be clear on the public accounts for all to see.' As far as I am concerned, when the accounts for the relevant financial year are completed, and I audit them, I expect to find recognition of this liability. And if it is not there, I shall qualify the account.''

In one sense, the orders are purely administrative, but they are important as part of the overall changes that they represent to the accounting treatment of NDPBs.

2.49 pm

 
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