Appendix 2: Paper by the Members Estimate
Audit Committee
Members' Allowances
Introduction
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.
Options
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.
Conclusion
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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