House of Commons - Public Accounts

Select Committee on Public Accounts Fifteenth Report

Specific proposals

7. We agree with John Tiner that there is a need for an NAO Board which includes members and a Chairman with sufficient authority and independence from the C&AG to challenge him or her when necessary. There must be enough of a role for the Chairman to make it worthwhile for a person of sufficient expertise, experience and authority to take on that responsibility.

8. There is general agreement that it would be unacceptable if the Chairman were able to constrain the C&AG's audit decisions (including decisions on what audits to conduct) or to act as an alternative figurehead for the NAO, given that the Chairman would not be responsible for what the NAO actually produces, which is audit judgments. With this in mind, we agree to the proposal for a Chairman on the basis that he or she would have only an internal role, and would speak in public only about governance matters, and in particular would not comment on the audit reports or the audit programme of the C&AG. Given that the role would be largely internal, the Chairman's interventions in public would be rare. We would prefer the Chairman to be Chairman of the NAO Board rather than of the NAO, if legally possible. The C&AG would act as Chief Executive of the NAO, would lead the NAO executive, would manage the NAO's resources (as discussed below)[3] and would be the public face of the NAO.

9. Crucially, the Chairman would have access to the Commission. The Chairman would appoint the Chairman of the Audit Committee, and might well appoint himself or herself to that position. He or she would also appoint the Chairman of the Remuneration Committee, and might also chair that. One day a week would probably be an appropriate level of commitment. Remuneration would be set with reference to similar posts in other organisations. We believe that the role would be of sufficient importance to attract candidates of high calibre.

10. The Chairman should be appointed in the same way as the C&AG ? by agreement between the Prime Minister and the Chairman of the Committee of Public Accounts ? and would be a Crown appointment. In this way there would be political balance in the appointment process, as there is for the C&AG. We are content with the term suggested by John Tiner: a three-year term, subject to renewal for one further three-year term.

11. Our views on the composition and appointment of the Board are as follows:

The Board should have seven members.
There should be a narrow majority of non-executives, which means three executive members (including the C&AG) and four non-executive members (including the Chairman).
The C&AG should appoint the executive members of the Board, but such appointments should require the approval of the Board.
The non-executive members of the Board should be appointed by the Commission, on a recommendation from the Chairman.
The Chairman of the Audit Commission should attend the Board as an observer. His or her inclusion would contribute to closer co-operation between the NAO and the Audit Commission, which we would welcome, and would help to avoid inconsistent decisions. We would like this to be a reciprocal arrangement.

12. The non-executive members of the Board would not be employees of the NAO, but should be bound by the same rules relating to conduct as employees are.

ROLE OF THE BOARD

13. We have considered carefully the extent to which the C&AG should be constrained by the Board as regards the overall strategy of the NAO and control over resources. In our view it is important that the Board should not be able to prevent the C&AG conducting an audit which he or she considered necessary or oblige the C&AG to undertake an audit which he or she did not regard as of sufficient priority. For that reason, we believe the C&AG should continue to control the use of the NAO's resources for statutory audit purposes.

14. The Board should therefore set the overall strategy for the NAO, which would guide the balance of the C&AG's work programme, but the Board would not be able to prevent an audit of which it disapproved or require an audit to be undertaken. It would, however, be able to challenge such an audit or the lack of audit coverage. The inclusion of non-statutory work in the NAO strategy (for example international work) would require the agreement of the Board. We hope that there would in fact be a harmonious relationship between the C&AG and the Board, but corporate governance arrangements must make provision for possible disagreements.

TERMS AND CONDITIONS FOR THE C&AG

Term limit

15. We agree with John Tiner that the C&AG should be appointed for a single non-renewable term. We consider it essential that the term is long enough for a C&AG to establish himself or herself and gain experience. John Tiner has proposed an eight-year term. We prefer a slightly longer term, of ten years.

Appointment process

16. We agree with John Tiner that the appointment of the C&AG should continue to be by a process which involves agreement between the Prime Minister and the Chairman of the Committee of Public Accounts (as provided for in the National Audit Act 1983), and also that the principles set out in the Code of Practice published by the Office of the Commissioner for Public Appointments should be followed.

Salary

17. We agree that linking the C&AG's salary to that of a High Court judge does not link the position to an appropriate peer group. We believe the salary should instead be comparable to that of the Treasury's Permanent Secretary and be linked to that pay level, but adjusted to reflect the bonuses available to the Treasury's Permanent Secretary rather than creating a bonus system for the C&AG. In the longer term we would like the salary to be reviewed in time for the term of the C&AG after next, with particular reference to the possibility of varying the salary in order to be sure of attracting the best candidate.

Subsequent employment

18. A single non-renewable term in place of the present unlimited tenure implies that a future C&AG might undertake a different employment after his or her term. It is obviously essential that subsequent employment could not be seen as a reward for actions taken while C&AG, and for that reason there should be a lifetime prohibition on a C&AG or former C&AG accepting any post in any body which the NAO has audited or which is in the gift of the Government. Apparent conflict of interest could also arise over some other posts in the private sector, for example with defence contractors or other suppliers to the public sector, and a C&G should be required under the terms of his or her contract to consult the Advisory Committee on Public Appointments (currently chaired by Lord Mayhew) before accepting any employment whatever after leaving the post of C&AG and to abide by the decisions of that Committee.