Paragraph 8: Amendment to Part 7 of the Constitutional Reform Act 2005 - Section 139

234.     Paragraph 8 amends section 139(4) to make explicit that information obtained during the appointments or disciplinary process of certain judicial office holders can be disclosed to the police for the purposes of a criminal investigation or criminal proceedings, or for the purpose of preventing crime without the necessity for a court order.

Paragraphs 7 and 10: Amendment to Chapter 3 of Part 4 of, and Part 2 of Schedule 14 to, the Constitutional Reform Act 2005

235.     Magistrates were included in Schedule 14 (under the title of Justices of the Peace) as it was originally intended that recruiting and selecting for the role should be a part of the Judicial Appointments Commission’s remit. By removing Magistrates from Schedule 14, Paragraph 10 removes them from the list of offices that comprise the statutory recruitment and selection remit of the Judicial Appointments Commission. This follows an agreement between the Lord Chancellor, the Judicial Appointments Commission, the Lord Chief Justice and the Magistrates’ Association that the Judicial Appointments Commission will not in future take responsibility for the recruitment and selection of magistrates. This function will remain for the foreseeable future with the Lord Chancellor’s Advisory Committees on Justices of the Peace.

236.     Paragraph 7 amends section 118 to ensure that even though Magistrates have been removed from Schedule 14 they will remain within the scope of the disciplinary powers exercised by the Lord Chief Justice and the Lord Chancellor.

PART 7: NATIONAL AUDIT

Clause 37: The office of the Comptroller and Auditor General

237.     This clause provides for the office of Comptroller and Auditor General (“C&AG”) to continue. It carries forward the appointment process of section 1 of the National Audit Act 1983 (“the 1983 Act”) under which the C&AG is appointed by Her Majesty by Letters Patent following an Address of the House of Commons. The Prime Minister moves the motion for that address with the agreement of the Chairman of the Committee of Public Accounts. Because by convention the Chairman of the Public Accounts Committee is from an opposition party, this requirement means that the choice of C&AG requires cross-party agreement. Subsections (7) and (8) limit the term of office to a single ten-year appointment instead of an unlimited term, as now.

Clause 38: Status of the Comptroller and Auditor General etc

238.     This clause sets out the status of the C&AG as a corporation sole and officer of the House of Commons. The C&AG may not be a member of the House of Lords; is not to be regarded as a servant or agent of the Crown, and may not hold any other position which is appointed by or on the recommendation of the Crown. Subject to other statutory provisions, the C&AG is to have complete discretion in the carrying out of the office’s functions.

239.     Subsection (8) sets out some specific limitations to the C&AG’s powers and in particular signposts the provisions in the Bill that affect how the C&AG carries out the functions of the office.

Clause 39: Provision of services

240.     This clause sets out the broad framework within which the functions of the C&AG are to be carried out. It gives the C&AG a general power to enter into agreements and arrangements to provide services in the United Kingdom and elsewhere. This power is additional to specific powers which the C&AG has under other legislation.

Clause 40: Remuneration package of the Comptroller and Auditor General

241.     This clause provides for the determination of the C&AG’s remuneration package.

242.     Subsections (1) to (2) provide that the C&AG will have a remuneration package that may include an annual salary, allowances, provision for a pension and other benefits. To preserve the independence of the C&AG, the remuneration package has to be agreed by the Prime Minister and the Chairman of the Committee of Public Accounts (“PAC”) before the C&AG is appointed.

243.     By subsection (3), the C&AG will continue to be eligible for a pension under the Principal Civil Service Pension Scheme. Alternative pension agreements may also be agreed as part of the remuneration package. These provisions are simplified from the current arrangements under section 13 of the Superannuation Act 1972.

244.     Together the powers in this clause allow some flexibility over the terms and conditions which may be offered to the C&AG, to suit the requirements of different possible appointees. As happens for the Directors of Public Prosecutions and of the Serious Fraud Office, the Bill does not specify the level of remuneration itself. The remuneration package may include arrangements for automatic uprating during the term of the C&AG’s appointment, for example through a formula or a link to an established uprating mechanism. However, by subsection (4), performance-based incentives are not permitted since they could constrain the operational independence of the C&AG.

245.     Subsection (6) provides that the remuneration package will be charged on and paid out of the Consolidated Fund, as now, with no need for the resources to be voted annually by Parliament.

246.     Subsection (7) allows the Treasury to make regulations to give supplementary effect to any agreed pension arrangements under this clause by disapplying or modifying other statutory provisions. Such regulations are subject to annulment by the House of Commons, by subsection (9). A similar power currently exists under section 13(10) of the Superannuation Act 1972.

Clause 41: Resignation or removal of the Comptroller and Auditor General

247.     This clause sets out the procedure for the resignation or removal of a C&AG from the office. Subsection (1) provides that a C&AG may resign from the office by giving written notice to the Prime Minister. Subsection (2) carries forward the procedure from section 3 of the Exchequer and Audit Departments Act 1866 by which the C&AG can be removed from office following Addresses to The Queen of each House of Parliament.

Clause 42: Employment etc of a former Comptroller and Auditor General

248.     This clause creates restrictions on the public sector employment of former C&AGs. These restrictions apply to former C&AG’s who have been appointed under the provisions of this Bill.

249.     Under subsections (2) to (3), a former C&AG will have to consult a person specified for that purpose by the Public Accounts Commission before taking up any other office or position, or entering into an agreement or other arrangement of a type specified by the Commission. This arrangement would allow the Commission an opportunity to make its views clear in public if a former C&AG should ever contemplate employment it considers inappropriate after leaving office.

250.     Subsections (4) to (6) provide a stricter regime to prevent conflicts of interest during the two years immediately after a C&AG’s term of office ends. A former C&AG must not within two years of leaving office hold any Crown office or position, or provide services to persons acting on behalf of the Crown or a body whose accounts are required to be audited by, or are open to examination and inspection by, the C&AG.

251.     There is an exception in subsection (7) which allows former C&AGs to hold office as Auditor General in Wales or Scotland, or as Comptroller and Auditor General in Northern Ireland during the two years after they leave office.

Clause 43: Incorporation of the National Audit Office

252.     This clause establishes a new corporate body, the National Audit Office (“NAO”). Further detail of the new NAO’s constitution and functions, including rules on membership and status and the appointment of members and staff are set out in Schedule 6.

253.     The existing NAO is not a corporate body. Instead it is composed of the C&AG (who is a corporation sole) and the staff appointed by the C&AG. The new corporate NAO will be a separate legal entity with a newly-established governance structure and constitution, and functions which include providing resources for the C&AG. These structures are based on established good practice, adapted for the unique role of the C&AG.

Clause 44: Interaction between NAO and the Comptroller and Auditor General

254.     This clause introduces Schedule 7, which provides more detail on the relationship between the NAO and the C&AG.

Clause 45: NAO’s expenditure

255.     This clause sets out the arrangements for the NAO’s expenditure and approval of its estimates.

256.     The new NAO will be funded from money voted annually by Parliament for that purpose. There are three exceptions to that. The remuneration packages of the C&AG and the chair of the NAO will both be paid directly from the Consolidated Fund (under clause 40(6) and paragraph 6(2) of Schedule 6 respectively, as will any sums necessary to pay for the indemnities given under clause 47(1) in respect of liabilities for audits, examinations and inspections carried out as part of the C&AG’s functions.

257.     Subsections (2) and (3) provide that the NAO must prepare an estimate of the resources it requires for each financial year. That estimate must in particular cover the resources that are required for C&AG functions, as set out in paragraph 2(1) of Schedule 7.

258.     Subsections (4) to (6) provide that the chair of the NAO and the C&AG must jointly submit the estimate to the Commission. The Commission must review the estimate and lay it before the House of Commons with any modifications that it thinks appropriate. In doing this, the Commission must have regard to any advice given by the Public Accounts Committee or the Treasury.

Clause 46: Efficiency etc

259.     Subsection (1) requires both the C&AG and the NAO to aim to carry out their respective functions in an efficient and cost-effective manner.

260.     Subsection (2) requires the C&AG to have regard to the standards and principles that an expert professional provider of accounting and auditing services would be expected to apply insofar as the C&AG thinks it appropriate to do so.

Clause 47: Indemnification

261.     This clause provides for the liabilities of certain persons to be indemnified by the Consolidated Fund. Those persons are the C&AG; the NAO; past and present members of the NAO; and past and present employees of the NAO. The indemnity covers liabilities which are incurred by those persons for a breach of duty which arises from an audit, examination or inspection which is carried out as part of the C&AG’s functions. This indemnity is based on one currently set out in section 4(6) of the National Audit Act 1983.

Clause 48: Definitions

262.     This clause defines certain terms used in this Part of the Act.

Clause 49: Transitional provision and consequential amendments

263.     This clause introduces Schedules 8 and 9, which respectively contain transitional provisions and consequential amendments.

Clause 50: Power to make Companies Act companies subject to audit of Comptroller and Auditor General

264.     This clause amends section 25 of the Government Resources and Accounts Act 2000 (“GRAA 2000”). The Treasury can, by an order under subsection (6) of that section, provide for bodies that exercise functions of a public nature or which are wholly or substantially funded from public money to be audited by the C&AG. New provisions in section 482 of the Companies Act 2006 allow companies that have been made subject to public audit under section 25 to be exempt from the statutory audit requirements that otherwise apply to companies.

265.     These amendments provide for orders under section 25 of the GRAA 2000 to be subject to annulment by a resolution of either House of Parliament provided such an order only covers non-profit-making companies. This would provide a simpler procedure for enabling the C&AG to audit those non-profit-making companies which exercise functions of a public nature or receive substantial public funding.

SCHEDULE 6: THE NATIONAL AUDIT OFFICE

266.     This schedule is in seven parts: Part 1 sets out the membership and status of the NAO; Part 2 provides for the appointment of non-executive members; Part 3 provides for a Chief Executive; Part 4 makes provision for the appointment and termination of NAO employee members; Part 5 deals with NAO employees; Part 6 deals with the regulation of NAO procedure; and Part 7 deals with some miscellaneous matters.

Part 1: Membership and status

267.     Paragraph 1 provides for the NAO to have nine members consisting of five non-executives, the C&AG and three employee members.

268.     Paragraph 2 states that NAO, its members and its employees are not to be servants or agents of the Crown, nor to enjoy any status, immunity or privilege of the Crown. NAO property is not to be regarded as Crown property.

Part 2: Non-executive members

269.     Paragraph 3 provides for the NAO to have a non-executive chair. The appointment process follows that for the C&AG in clause 37. The chair is appointed by Her Majesty by Letters Patent following an Address of the House of Commons. The motion for the Address has to be moved by the Prime Minister with the agreement of the Chairman of the PAC. The Queen may extend the appointment on the recommendation of the Prime Minister with the agreement of the Chairman of the PAC. In the case of an extension, there is no requirement for a motion in the Commons or an address to the Queen but an extension counts towards the two term limit (see paragraph 5) so the chair can serve a maximum of six years in total.

270.     Paragraph 4 provides that the other non-executive members of the NAO are to be appointed by the Commission, following a recommendation by the NAO chair. In the event that the Commission chooses not to appoint a recommended individual, the Commission may require the chair to recommend another person until an appointment is made.

271.     Paragraph 5 provides that NAO non-executive members are appointed for a period of up to three years. They may be appointed for a second term of up to three years.

272.     Paragraph 6 deals with the remuneration of non-executive members.

273.     Under sub-paragraph (1) the chair’s remuneration package is to be jointly determined by the Prime Minister and the chair of the PAC. Sub-paragraph (2) provides for the NAO chair’s remuneration package to be paid from the Consolidated Fund rather than annually voted resources. Sub-paragraph (3) provides for the Commission to determine the remuneration packages of the other non-executives. Under sub-paragraph (4), those packages are to be paid for by the NAO from voted resources. By sub-paragraph (5,) the remuneration package of the non-executive members package may include an annual salary, allowances and other benefits, but not a pension.

274.     Paragraph 7 states that the Commission may determine terms of appointment for non-executive members that are not specifically provided for in the Bill. Those terms may include restrictions on the offices and other positions that non-executive members can hold during and after their terms of appointment. Restrictions can also be imposed on other agreements and arrangements which non-executives can be party to during and after their appointment. Those agreements might include, for example, arrangements which fall short of holding office or employment but which share similar characteristics, such as consultancy agreements.

275.     Paragraph 8 requires the Commission to consult an appropriate person who has oversight of public appointments before setting remuneration or other terms under paragraphs 6 and 7.

276.     Paragraph 9 deals with the resignation of non-executive members. Under sub-paragraph (1), the chair may resign by giving written notice to the Prime Minister. The other non-executive members may resign by giving written notice to the Commission.

277.     Paragraph 10 provides for the termination of the appointments of non-executive members of the NAO. Sub-paragraph (1) provides that the NAO chair’s appointment may be terminated following an Address of each House of Parliament. This is the same process that applies to the C&AG.

278.     Sub-paragraph (2) sets out the bases on which the Commission may terminate the appointment of the other non-executive members of the NAO. In all cases, the Commission must give the member written notice.

Part 3: Chief Executive

279.     Paragraph 11 provides for the C&AG to be the chief executive of the NAO. The C&AG is not, however, to be an NAO employee.

Part 4: Employee members

280.     This part of the Schedule provides for the appointment, terms and termination of the three employee members of the NAO.

281.     Paragraph 12 provides that NAO employee members are to be appointed by NAO non-executive members, on a recommendation by the C&AG. When there is a vacancy for an employee member, the C&AG is to recommend a person for appointment to the non-executive members. The non-executive members may appoint that person or require the C&AG to recommend someone else. That process can be repeated until an appointment is made.

282.     By paragraph 13, the terms of appointment for the employee members are set by the non-executive members. The terms may provide for an annual salary, allowances and other benefits, but not a new pension. Employee members will have the same pension entitlements as they had as NAO employees, including a pension under the Principal Civil Service Pension Scheme.

283.     Paragraph 14 provides that an employee member’s appointment shall terminate either at the end of any period set for the appointment, or in any case when the employee member ceases to be employed by the NAO.

284.     Paragraph 15 provides that an employee member may resign by giving written notice to the non-executive members.

285.     Paragraph 16 sets out the bases on which the non-executive members may terminate the appointment of employee members of the NAO. They are the same as those on which the Commission can terminate the appointments of non-executive members under paragraph 10(2).

Part 5: Employees

286.     Paragraph 17 gives the NAO a power to employ staff. The terms of employment for NAO staff are to be kept broadly in line with those of civil servants. NAO employees are barred from holding any office or position that is made or recommended by the Crown.

Part 6: Procedural rules

287.     Paragraph 18 requires the NAO to make internal procedural rules.

288.     Paragraph 19 provides that if the procedural rules set a quorum for any NAO meetings, a majority of those present must be non-executive members to constitute a quorum.

289.     Paragraph 20 allows the NAO to establish committees and sub-committees and to make rules for regulating those committees. NAO employees may serve as committee and sub-committee members. Provided no functions of the NAO are delegated to a committee or sub-committee, those committees may also include persons who are neither NAO employees nor members of the NAO.

Part 7: Other matters

290.     This part deals with a number of miscellaneous provisions for the carrying out of NAO functions.

291.     Paragraph 21 is an incidental power which permits the NAO to do anything which is calculated to facilitate, or which is incidental or conducive to the carrying out of its functions.

292.     By paragraph 22, a vacancy or a defective appointment does not affect the validity of the proceedings of the NAO, its non-executive members, its committees or its sub-committees.

293.     Paragraph 23 deals with the powers of the NAO to delegate its functions. The NAO is permitted to delegate functions to members, employees or committees. Its committees may delegate functions to sub-committees. In either case, a delegation does not prevent the NAO or one of its committees from carrying out a delegated function itself.

294.     Under sub-paragraph (4) the following exceptions to the general power of delegation apply:

• the preparation of resource estimates under clause 45(2);

• making rules for regulating NAO procedure under paragraph 18 of Schedule 6;

• the appointment of the NAO’s auditor under paragraph 25(1) of Schedule 6;

• the preparation and review of NAO strategy under paragraph 1(1) of Schedule 7;

• approval of, and the resources to be given to the C&AG to carry out services under paragraph 3(1) or (3) of Schedule 7;

• authorising (with the Commission’s agreement) an employee to carry out C&AG functions in the event of a vacancy or ill health under paragraph 7(3) of Schedule 7;

• the preparation of an annual report under paragraph 9(1) of Schedule 7; and

• with the C&AG, the responsibility under paragraph 10(1) to (5) of Schedule 7 to prepare, review and revise the code of practice.

295.     The NAO is required by paragraph 24 to prepare resource accounts for each financial year. Those accounts must be of the type described in section 5 of the Government Resources and Accounts Act 2000. That is, they must be resource accounts which detail the resources acquired, held or disposed during that year by the NAO and the use by the NAO of those resources. By sub-paragraph (2), the Commission must appoint the C&AG or another appropriate person to be the Accounting Officer who is to be responsible for preparing the NAO’s resource accounts. By sub-paragraph (3), the Accounting Officer must also carry out any other functions determined by the Commission.

296.     Paragraph 25 sets out the arrangements for the audit of NAO’s resource accounts. Sub-paragraph (1) requires the NAO to appoint an auditor for each financial year. Sub-paragraph (2) makes the appointment of the auditor and the terms of the auditor’s appointment subject to the approval of the Commission. Under sub-paragraph (3), the auditor must be eligible to audit companies under chapter 2 of Part 42 of the Companies Act 2006. Sub-paragraph (5) requires the auditor to examine the NAO’s resource accounts for each financial year.

297.     Sub-paragraph (6) provides that the provisions of sections 6(1) and 25(2) of the Government Resources and Accounts Act 2000 apply to the NAO’s auditors in their examination of the NAO accounts as if it was the C&AG carrying out the examination. This means that the auditor must operate to professional standards and that it must examine the accounts with a view to being satisfied that:

• the accounts present a true and fair view;

• money provided by Parliament has been expended for the purposes approved by Parliament;

• resources authorised by Parliament to be used have been used for the purposes for which the resources were authorised; and

• the NAO’s financial transactions are in accordance with any relevant authority.

298.     Sub-paragraphs (7) and (8) require that, once the accounts have been examined, the auditor must certify them and send them, together with the auditor’s report on the accounts, to the Commission. The Commission must then lay the accounts and the report before the House of Commons.

299.     Paragraph 26 provides that the NAO’s auditor may be required to carry out value for money examinations on the use of NAO resources and send its report to the Commission. This power is a parallel one to the C&AG’s own power to carry out value for money examinations on other bodies under Part 2 of the National Audit Act 1983. The Commission must lay any value for money reports prepared by the NAO’s auditor before Parliament. This allows the Commission to satisfy itself that the NAO is operating professionally and acceptably.

300.     Paragraph 27 gives the auditor information and access powers to carry out its functions of audit under paragraph 25 and value for money examinations under paragraph 26. The auditor may require access to any document which the auditor considers is necessary to carry out its functions. Any person holding or who is accountable for any document may be required to provide any information or explanation that the auditor thinks necessary.

301.     Paragraph 28 provides that the NAO seal may be authenticated by a member of the NAO or any person authorised for that purpose by a member of the NAO. Sub-paragraph (2) provides that a document executed under NAO seal or signed on its behalf is to be received in evidence and is taken to be executed or signed in that way, unless the contrary is proven.