Select Committee on Members Estimate Committee Third Report

Appendix 2: Paper by the Members Estimate Audit Committee

Members' Allowances


1.  Governance and accountability issues about Members' allowances are a long-standing and growing matter of concern to the Members Estimate Audit Committee (MEAC).

2.  Last year, with Mr Speaker's agreement, a joint team of internal auditors from the House Service working together with the House's internal audit partner, PricewaterhouseCoopers (PwC), accordingly undertook a review of the operation of the system, including the part played by the Green Book.

3.  The audit team reported in February 2007 to the MEAC, which has since discussed the matter on several occasions, on the basis of further work by DFA.

4.  This paper informs the Members Estimate Committee (MEC) of the MEAC's emerging conclusions.

Recent background

5.  The current system has been tightened over the years, for example in response to comments from the Standards and Privileges Committee, and this tightening has provided greater scrutiny of claims and better comfort to Members that they are operating within the rules.

6.  Nevertheless, the steady increase in the number and value of allowances available to Members, which has added complexity to the rules, has been matched by regular calls from the media and other commentators for more scrutiny and more transparency. Freedom of information has now exposed Members to even more intense scrutiny.

7.  The MEAC has considered the principles, policies and procedures in the Green Book in the round, not just from a position of amending rules and guidance. It has not reviewed the overarching system of allowances, which is for the MEC and the House, in the light of advice from the SSRB.

8.  However, issues of reputational risk are squarely within the remit and function of an audit committee. The MEAC has reluctantly concluded that the negative public perception in this area is significantly damaging the reputation of the House itself, and that the present system for administering Parliamentary allowances is becoming, if it is not already, unsustainable in this respect.

Issue: Governance and accountability

9.  In their review, the auditors raised concerns about the unique governance structure for the Parliamentary allowances, which arguably obstructs good administration. They therefore suggested new processes to address the sometimes vexed question of the interpretation of the Green Book.

10.  The MEC has previously taken the view that the governance framework does not itself militate against good administration. However, the fact remains that the media and public perception of Members' actions and motives in this area is very poor. This perception has two main components, namely an apparent failure (i) by Members to lead by example; and (ii) by the House to achieve recognised minimum public service standards of accountability by installing adequate checks and balances.

11.  This perception has led to growing demands for more transparency and better accountability. To some extent, there has already been movement in this direction. The requirement for supporting information prior to payment, and DFA's more extensive scrutiny of claims, do provide some assurance (and reassurance for Members), and more than in the past. The publication of aggregated information under Freedom of Information also adds to transparency.

12.  But these measures fall well short of what needs to be done. In particular, there is extremely limited further audit of Members' use of the allowances, such as routine sample checking of actual usage of resources paid for from the allowances.

13.  Standing in the way of further improvement in this direction is the hitherto-accepted convention that, alone in the public service, Members are themselves responsible and are only weakly accountable for their use of their Parliamentary allowances, and that the House Service does not check behind the Member's signature. The Accounting Officer's responsibility for the Members Estimate is uniquely qualified by this caveat in the resource accounts published each year. The MEAC's advice is that this approach can no longer be safely allowed to continue.

Issue: the Green Book

14.  The audit review covered:

i.  'grey areas' in the Green Book that may be open to subjective judgements or misinterpretation by expense-processing staff and/or Members;

ii.  inconsistencies between the Green Book and other guidance on the administration of allowances available to processing staff; and

iii.  potential vulnerabilities or risks in the current guidance.

15.  Members have a natural desire both for flexibility in the use of the allowances and simplicity in administration. The first is achieved to some extent through a Green Book which concentrates on principles rather than exhaustive rules, and the use of qualifying language such as "normally" which allows individual circumstances to be taken into account. The second is assisted by, for example, careful use of financial thresholds below which information is not required and by putting the onus for completeness and accuracy on the Member.

16.  This relative flexibility and simplicity is gained by giving a degree of discretion to the House staff, with accompanying difficulty of decision-making for them, and uncertainty for Members. Under any system, there will always be a question about whether this balance is rightly struck.

17.  The Green Book has grown in length over the past few years, as the allowances themselves have been extended and as individual cases have highlighted a need for more detailed provisions. In consequence, some parts of the Green Book are clearer than others, and some are inevitably 'greyer'. The audit review found that the Green Book was pitched at about the right level, but that it could be improved by increasing the level of internal consistency and reducing the amount of ambiguity.

18.  The MEAC broadly agree with this assessment. The present flexibility and simplicity are advantageous to Members, and are not inconsistent with acceptable assurance. The MEAC also agree in advising ongoing work on improvements to the Green Book and its surrounding framework. However, the MEAC regard these issues as secondary. The central problem is the lack of adequate safeguards for propriety of expenditure.

Issue: DFA's approach to administration

19.  The issue here is how much scrutiny by officials is appropriate. There seems a strong case for DFA changing its approach from what is now mainly light-touch validation of claims to a different one which could, for example, include more advice to Members in advance of claims combined with sample checking of actual usage of resources paid for from the allowances. This could maintain the present level of flexibility in the Green Book and perhaps even reduce the detail, whilst improving the level of accountability.


20.  The main options appear to be as follows:

i.  Do little or nothing—carry on as now, making incremental adjustments to rules and to the organisation to match the circumstances, and reviewing the Green Book to improve clarity and consistency, but without doing more. This is a tried and tested methodology but it is coming under serious strain.

ii.  Minor improvements without substantial reform—tighten the House's approach to the allowances by a substantial re-write of the Green Book to achieve clearer, unambiguous, but more detailed, rules. Thresholds for claims and receipts could be lowered. DFA checking would remain a largely downstream, clerical activity. The use of judgement and discretion (and thus flexibility) would be reduced. 'Auditability' would improve and Member flexibility would reduce, but the safeguards for propriety would not be significantly improved, leaving the reputational risk largely unaffected.

iii.  Substantial reform—adopt the approach outlined in para 20 above, improving both accountability and flexibility. The current submission of claims and receipts would move to a system whereby allowances were paid on production of the minimum necessary claims and supporting evidence, but this would be followed up with more detailed scrutiny/audit of what the allowances were spent on.

21.  In implementing option iii, the minimum but essential scrutiny/audit might take place through visits to Members' offices rather than detailed information being submitted to, and held by, the House. The basis of such scrutiny would need to be agreed. It could result in DFA's routine payments operations being reduced, but with the proactive scrutiny work being carried out by more senior staff. There would clearly be some compliance cost for Members under this option, with a need to retain adequate records and co-operate with scrutiny visits.


22.  The MEAC are clear that the current arrangements for overseeing Members' allowances need to be significantly strengthened. They believe that option i above is unsustainable, and that option ii is inadequate. They favour option iii as the way forward to meet the challenges that lie ahead, and they commend it to the MEC.

23.  The MEAC recognise that more development work will be needed before this recommended approach can be finally approved. It needs to be fleshed out and tested against key success criteria, such as:

i.  Adequate transparency;

ii.  Proper levels of accountability;

iii.  Practicality; and

iv.  Member acceptability.

24.  Meeting these criteria will pose various challenges. However, the present system is having a corrosive effect on the reputation of the House. The MEAC invites the MEC to consider its conclusions and advice against this background.

December 2007

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