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SCHEDULE 7: INTERACTION BETWEEN NAO AND THE COMPTROLLER & AUDITOR GENERAL

302.     Schedule 7 contains provisions that govern the relationship between the NAO and the C&AG. These include:

  • the preparation by the NAO and the C&AG of a national audit strategy;

  • the obligation of the NAO to provide resources for the carrying out of the C&AG’s functions;

  • the need for the C&AG to obtain the approval of the NAO to perform certain services;

  • the NAO’s duty to monitor and provide advice to the C&AG;

  • the ability of the C&AG to delegate functions;

  • the arrangements for dealing with vacancy in office or the incapacity of the C&AG;

  • powers to charge fees;

  • the obligation to prepare an annual report; and

  • the preparation and contents of a code of practice to deal with the relationship between the CA&G and the NAO.

Strategy

303.     Paragraph 1 provides for the preparation and approval of a strategy for the exercise of the national audit functions. The strategy will serve as the business plan for the NAO and the C&AG. By sub-paragraph (1), the NAO and C&AG must jointly prepare a strategy for the national audit functions. Those functions consist of the NAO’s functions and those of the C&AG. The strategy must be reviewed and revised at least once every 12 months.

304.     Sub-paragraph (2) provides that the strategy is to include a plan for the use of resources. In addition it must specify the amount of resources which the NAO will provide for the C&AG functions for the purposes of paragraph 2(1) of Schedule 7. In particular, for each financial year covered by the strategy, it must specify a maximum amount of resources which the NAO is to provide to the C&AG.

305.     Sub-paragraphs (3) to (6) require the strategy to be approved by the Commission. The process for achieving that is for the NAO chair and the C&AG jointly to submit the strategy to the Commission. Before approving the strategy, the Commission must review and may modify it. In doing so, the Commission must have regard to any advice given by the Treasury.

306.     Sub-paragraph (8) requires the NAO and the C&AG each to carry out the strategy.

NAO to provide resources for the Comptroller and Auditor General’s functions

307.     Paragraph 2 gives the NAO a duty to provide the resources to the C&AG that that C&AG requires to carry out the functions of the office. A maximum level of resource will be agreed by the NAO and the C&AG, and approved by the Commission, under paragraph 1(2) of Schedule 7. The resources that are thus available for the C&AG’s functions fall into two categories:

  • those whose allocation is at the discretion of the C&AG; and

  • those for services which require NAO-approval.

308.     For the activities that are set out in paragraph 3(2) of Schedule 7, the C&AG will determine the level of resources that are required without needing approval from NAO. In such cases, the NAO must provide the resources that the C&AG asks for. These functions are mainly those which the C&AG is given by statute, including services as Comptroller of the issue of public funds, as auditor of government departments and many other public bodies, and in the exercise of powers under Part 2 of the National Audit Act 1983 to carry out value for money examinations. The C&AG will be bound by the maximum resource provision set out in the strategy (under paragraph 1(2) of Schedule 7) and by the resources voted by Parliament to NAO for the year under clause 43. Subject to that, the C&AG’s independence will be guaranteed by giving the C&AG the final say in setting the resources required for these functions.

309.     For other activities, including audit and consultancy services provided by agreement, for example to international bodies and other countries, the C&AG will require the NAO’s approval before providing such services. For these “NAO-approved” services, the NAO (not the C&AG) will be responsible for setting the maximum resource provision, under paragraph 3(3) of Schedule 7. The NAO must work within the maximum headroom set by the strategy and the annual provision voted by Parliament. In addition, those resources whose allocation is at the discretion of the C&AG have a prior claim.

310.     Sub-paragraph (2) gives the NAO responsibility in particular for:

  • employing staff to assist in carrying out the C&AG’s functions;

  • buying in services to support the functions;

  • holding information; and

  • keeping records.

311.     Sub-paragraph (3) limits the maximum amount of resources that the C&AG may require under sub-paragraph 1 in any financial year to the maximum amount set out in the strategy for that year.

Provision of certain services by the Comptroller and Auditor General to require NAO’s approval

312.     Paragraph 3 provides for the C&AG to seek the approval of the NAO before providing certain services. These “NAO-approved services” are services other than those set out in sub-paragraph (2).

313.     Sub-paragraph (3) explains that the NAO is to set a maximum amount of resources for the “NAO approved services”. In respect of NAO-approved services, then, the C&AG’s ability to provide and resource these services is subject to the need for prior approval by the NAO board, and to the level of resource agreed by NAO.

NAO to monitor and provide advice

314.     Paragraph 4 gives the NAO a duty to monitor the carrying out of the C&AG’s functions. The NAO’s monitoring function can be expected to provide it with the information it needs as a precursor to discharging its duty under paragraph 5 to provide advice to the C&AG.

315.     Under paragraph 5 the NAO must provide such advice as it considers appropriate to the C&AG on the exercise of the C&AG’s functions. The C&AG must have regard to any advice given by the NAO.

Delegation of the Comptroller and Auditor General’s functions

316.     Paragraph 6 provides that the C&AG may prepare a scheme for the delegation of the functions of that office to NAO employees. The scheme and any revisions of it must be approved by the Commission. If the Commission approves the scheme, the C&AG may delegate functions in accordance with it. A delegation does not prevent the C&AG from doing anything personally.

Vacancy in office of the Comptroller and Auditor General or incapacity of Comptroller and Auditor General

317.     Paragraph 7 makes provision for the C&AG’s functions to be carried out by a duly authorised employee of NAO on a temporary basis if the office is vacant or the C&AG is incapable.

318.     In the case of incapacity, before NAO can authorise an employee to carry out the C&AG’s functions, a certificate from the Speaker of the House of Commons is required. Under sub-paragraph (2)(b), the Speaker would certify that in the Speaker’s view the current C&AG’s ability to carry out that office’s functions was seriously impaired because of ill health. The period of ill health starts when the Speaker certifies to the House that the C&AG is impaired and ends when the Speaker certifies to the House that the C&AG is able to carry out the office’s functions.

319.     NAO must obtain the Commission’s agreement before authorising an employee to carry out the C&AG’s functions. The temporary arrangement may last no more than six months (by sub-paragraph (6)) and is available only once during a C&AG’s term of appointment. For longer vacancies and periods of incapacities, or for repeated incapacity, therefore, the expectation is that the gap would be filled by a new appointment.

Audit fees etc

320.     Paragraphs 8(1) to (4) authorise the NAO to charge fees for audits carried out by the C&AG in accordance with a scheme prepared by the NAO and approved by the Commission. The agreement of a minister of the Crown is required if the accounts to be audited are those of a body or other person who acts on behalf of the Crown. Sub-paragraph (5) provides that those arrangements do not apply to audits that are carried out as part of NAO approved services. In such cases, the C&AG may charge fees and other amounts but only in accordance with the relevant agreement or arrangement. The fee powers in this paragraph may be used to recover the costs of providing the services in question but not to cross-subsidise other costs of the NAO or the C&AG.

321.     Sub-paragraphs (6) and (7) require that fees and other amounts received by the C&AG must be paid to the NAO and that the NAO must pay them into the Consolidated Fund.

Reports

322.     Paragraph 9 provides that NAO and the C&AG must, as soon as practicable after the end of each financial year, jointly prepare a report on the carrying out of the NAO and C&AG functions. This annual report must be submitted to the Commission jointly by the chair of the NAO and the C&AG. The Commission must lay the report before Parliament.

Code of practice

323.     Paragraphs 10 to 12 provide for the preparation, approval and content of a code of practice which is to set out the relationship between the NAO and the C&AG. The code will allow detailed arrangements for the operation of the new NAO and its relationship with the C&AG to be set in a flexible and transparent manner. The code will not be a source of further powers for either. Rather it will seek to give practical effect to the provisions of Part 7 of the Bill. It is intended to be a practical way of setting out how the powers are to be used in practice, and may be adjusted from time to time to reflect the evolving requirements of NAO’s business and the C&AG’s priorities.

324.     Paragraph 10 provides that the NAO and C&AG must jointly prepare a code of practice dealing with the relationship between the NAO and the C&AG. The code is required to reflect the principle enunciated in clause 38(6) and (7) of this Bill that, subject to any other statutory provision, the C&AG has complete discretion in carrying out the C&AG’s functions.

325.     Once it has been prepared, the code must be reviewed regularly by the NAO and C&AG and revised as appropriate. In preparing and revising the code, they must consult the Treasury. They must also consider any proposals for revision made by the Commission.

326.     The code requires the approval of the Commission. The chair of the NAO and C&AG are jointly to submit the code or any revision to the Commission. If the Commission approves the code, it must lay it before Parliament.

327.     Sub-paragraph (9) requires the NAO and the C&AG to comply with the code.

328.     Paragraph 11 provides that the code must be approved by the NAO at a meeting of NAO. Approval can only be given if at least one-half of the non-executive members present and voting vote in favour.

329.     Paragraph 12 sets out a non-exhaustive list of what is to be covered by the code.

330.     By sub-paragraph (1), the code must deal with:

  • the way in which the strategy is to be prepared, reviewed and revised, and the matters and the periods it should cover;

  • the way in which resources are to be provided for the C&AG functions under paragraph 2(1) of Schedule 7;

  • the way in which estimates for NAO resources under clause 45 are to be prepared;

  • the way in which the NAO makes decisions on approving and setting resources for NAO approved services under paragraph 3 of Schedule 7;

  • the way in which the NAO monitors the C&AG functions under paragraph 4 of Schedule 7;

  • the way in which advice is to be given by the NAO for the purposes of paragraph 5 of Schedule 7;

  • the way in which the C&AG charges fees under paragraph 8 of Schedule 7; and

  • the extent of the delegation of NAO’s functions to the C&AG under paragraph 23 of Schedule 6.

331.     The code must also place restrictions on the public comments that a NAO non-executive member may make in relation to the carrying out of the C&AG’s functions.

332.     Sub-paragraph (2) sets out some other matters that may be dealt with in the code. These are:

  • the way in which the annual reports required by paragraph 9 are to be prepared;

  • the matters about which the NAO and/or the C&AG are to consult the Commission from time to time; and

  • any standards of corporate governance.

Documents and information

333.     Paragraph 13 provides a general power for the NAO to receive information on behalf of, and from, the C&AG. By sub-paragraph (2), information held by NAO on behalf of the C&AG will be treated as being held by NAO for the purposes of section 3(2) of the Freedom of Information Act 2000. This means NAO will be responsible for discharging obligations under that Act both for itself and for the C&AG.

SCHEDULE 8: TRANSITIONAL PROVISION

334.     This schedule makes transitional provision to preserve the continuity of rights and obligations between the old NAO and the new. In particular, it provides for the transfer of property rights and employment obligations. While obligations under audit contracts are expected to remain with the C&AG, the intention is that all other property, rights and liabilities will transfer to the new NAO whose responsibility it will be to provide and manage the resources that the C&AG requires.

Transfer of property etc

335.     Paragraph 1 provides for the C&AG to determine which property, rights and liabilities of the C&AG are to be transferred to the NAO as a consequence of this Bill and to prepare a scheme which describes that property and those rights and liabilities. The scheme has to be approved by the Commission. At the appointed time, (which by sub-paragraph (12) is a date set for that purpose by the Treasury), the property, rights and liabilities described in the scheme are transferred to the new NAO.

336.     Sub-paragraphs (5) and (6) provide for the continuity of employment of NAO staff. The rights and liabilities that may be transferred to the NAO include those under contracts of employment in relation to staff of old NAO (who were appointed under section 3(2) of the 1983 Act). Periods of employment with old NAO are to be treated as employment by new NAO, as are periods of employment in the former Exchequer and Audit Department (for those employees who transferred to old NAO as a result of section 3(2) and paragraph 2 of Schedule 2 to the 1983 Act). A transfer to new NAO is not to be treated as a break in service.

337.     Sub-paragraphs (7) and (8) provide for the continuing effect of things done by or for the C&AG in relation to anything that is transferred to NAO under sub-paragraph (3) so far as is appropriate. This means, for example, that actions or procedures taken by the C&AG will not need be renewed or retaken by NAO to continue their effectiveness. Things that were in the process of being done by the C&AG in relation to anything transferred (such as ongoing legal proceedings) may be continued after the appointed time by the new NAO. So far as is appropriate as a result of the transfer, by sub-paragraph (9) references in agreements to the C&AG are to be read as or including a reference to new NAO. Sub-paragraphs (10) and (11) allow a person’s employment by old NAO to be treated as employment by new NAO before new NAO comes into existence for limited purposes in connection with the establishment of new NAO.

Tax consequences of transfers by virtue of paragraph 1(3)

338.     Paragraphs 2 to 4 make provision for corporation tax consequences of the transfer. The effect is to remove tax consequences that would otherwise have arisen only because of the transfer and to provide continuity of tax treatment.

Old Comptroller and Auditor General to continue to be Comptroller and Auditor General

339.     Paragraph 5 provides that the person who is C&AG at the appointed time will continue to hold the office of C&AG and be treated as if appointed under the provisions of this Bill. Although that person will have been appointed under the old legislation for an unlimited term, sub-paragraph (2) provides for the ten year period of office of clause 37(7) to apply. The ten-year period begins from the day that person took office under the current legislation. The new remuneration arrangements under clause 40 will apply but will not cover any period before the appointed time, that is, a time appointed for the purposes of this paragraph by an order made by the Treasury. The appointment of a new C&AG designate was announced in January 2009. On 1 June, Amyas Morse was appointed as the new C&AG under the current legislation. He understands the revised terms of appointment and has agreed to accept them.

Provision of services

340.     Paragraph 6 provides for continuity of the powers under which the C&AG acts. Anything done under power which is no longer available is to be treated as having been done under the general power of clause 39, so far as necessary or appropriate.

341.     Paragraph 7 provides that existing contracts for the C&AG to provide services will not become subject to the new approval regime of paragraph 3 of Schedule 7 when that regime first comes into effect. However, the charging provisions of paragraph 8 of that Schedule will apply as if they were NAO approved services. When a current contract expires or is renewed, it would then become subject to the approval regime.

Indemnification

342.     Paragraph 8 provides for the indemnities in clause 47 to extend to liabilities that arise before the coming into force of that clause, and liabilities that arise in relation to acts or omissions that occur before then. They also cover persons who were formerly members of NAO staff. This provision is needed to ensure that there is no break in cover between the indemnity set out in section 4(6) of the National Audit Act 1983 and that in clause 47 of this Bill.

Corporate manslaughter

343.     The offence in section 1 of the Corporate Manslaughter and Corporate Homicide Act 2007 applies to both old NAO (because it is listed currently in Schedule 1 to the Act) and new NAO (because it is a corporation). Paragraph 9 ensures that new NAO will be answerable for any alleged offences committed by old NAO.

NAO’s procedural rules before rules made under paragraph 18 of Schedule 6

344.     Paragraph 10 sets out the procedural rules that apply to meetings of NAO before it has drawn up internal rules under paragraph 16 of Schedule 6. These provisions on the quorums, majorities and casting votes will apply to meetings at which the NAO prepares its internal rules and the draft code under paragraph 10 of Schedule 7.

SCHEDULE 9: CONSEQUENTIAL AMENDMENTS

345.     This schedule contains amendments which are minor or consequential on the measures in the Bill.

Exchequer and Audit Departments Act 1866

346.     Paragraph 2 repeals sections of the Exchequer and Audit Departments Act 1866 that relate to the appointment and tenure of the C&AG. New provision is made in this Bill, in particular in clauses 37, 38 and 41.

Exchequer and Audit Departments Act 1957

347.     Paragraph 3 repeals the Exchequer and Audit Departments Act 1957. New provision for the C&AG’s salary and powers of delegation are made in clause 40 of, and paragraph 6 of Schedule 7 to, this Bill.

Public Records Act 1958

348.     Paragraph 4 provides for the reference in Schedule 1 to the Public Records Act 1958 to be read as a reference to new NAO.

Superannuation Act 1972

349.     Paragraph 5 amends section 13 of the Superannuation Act 1972, which deals with the pension arrangements of the C&AG, so that it will not apply to a C&AG who is appointed under this Bill. New pension arrangements are provided for under clause 54. Paragraph 6 amends the entry for staff of the NAO in Schedule 1 to the Superannuation Act 1972. This allows NAO employees to continue to be eligible for membership of the Principal Civil Service Pension Scheme. Any entitlement of a member of staff of the NAO who leaves before the creation of new NAO is not affected.

House of Commons Disqualification Act 1975

350.     Paragraph 7 amends Schedule 1 to the House of Commons Disqualification Act 1975. Members of the NAO (including the C&AG) and NAO employees are disqualified from becoming members of the House of Commons.

Northern Ireland Assembly Disqualification Act 1975

351.     Paragraph 8 amends Schedule 1 to the Northern Ireland Assembly Disqualification Act to disqualify NAO members (including the C&AG) and employees from becoming members of the Northern Ireland Assembly.

Parliamentary and other Pensions and Salaries Act 1976

352.     Paragraph 9 omits section 6(3) of the Parliamentary and other Pensions and Salaries Act 1976. Its provisions on the C&AG’s salary are superseded by those in clause 40.

Race Relations Act 1976

353.     Paragraph 10 provides for the C&AG and the new NAO to be or continue to be subject to the general statutory duty under section 71 of the Race Relations Act 1976. It also provides for continuity between the old and the new structures for things done or in the process of being done.

Interpretation Act 1978

354.     Paragraph 11 amends the definition of Comptroller and Auditor General in Schedule 1 to the Interpretation Act 1978 to remove the reference to appointments made under Exchequer and Audit Departments Act 1866.

National Audit Act 1983

355.     Paragraph 12 omits a number of sections of the National Audit Act 1983 which are superseded by provisions in this Act. They include provisions on the appointment process of the C&AG (see clause 38); the status of the NAO (see clause 43 and Schedule 6); NAO’s expenditure and audit (see clauses 45 and paragraph 25 of Schedule 6). The repeal of section 3(4) of the 1983 Act does not affect staff of old NAO who cease to be members of PCSPS before the transfer of property rights and liabilities under paragraph 1(3) of Schedule 8 comes into effect.

356.     Paragraph 13 moves a requirement which is currently in section 1 of the 1983 Act to Part 2 of that Act, as a new section 7A. The requirement is for the C&AG to have regard to proposals made by the Committee of Public Accounts, in considering whether to carry out a value for money examination under that Part of the 1983 Act.

Finance Act 1989

357.     Paragraph 14 amends section 182 of the Finance Act 1989 to ensure that an existing offence for disclosing certain types of information (including tax and social security information) held by the C&AG and members of staff of NAO will continue to cover NAO and its employees under the new structure. The offence will also continue to apply to the C&AG for Northern Ireland, and the staff of the Northern Ireland Audit Office.

Social Security Administration Act 1992

358.     Paragraph 15 amends section 23 of the Social Security Administration Act 1992 to ensure that a disclosure offence which protects social security information related to particular persons continues to apply under the new structure of the NAO. The offence also continues to apply to the C&AG for Northern Ireland and the staff of the Northern Ireland Audit Office.

 
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Prepared: 20 July 2009