The
Committee consisted of the following
Members:
Bailey,
Mr. Adrian
(West Bromwich, West)
(Lab/Co-op)
Blizzard,
Mr. Bob
(Lord Commissioner of Her Majesty's
Treasury)
Bone,
Mr. Peter
(Wellingborough)
(Con)
Buck,
Ms Karen
(Regent's Park and Kensington, North)
(Lab)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Eagle,
Angela
(Exchequer Secretary to the
Treasury)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Malins,
Mr. Humfrey
(Woking)
(Con)
Osborne,
Sandra
(Ayr, Carrick and Cumnock)
(Lab)
Pugh,
Dr. John
(Southport)
(LD)
Robertson,
John
(Glasgow, North-West)
(Lab)
Roy,
Lindsay
(Glenrothes)
(Lab)
Tipping,
Paddy
(Sherwood)
(Lab)
Wood,
Mike
(Batley and Spen)
(Lab)
Young,
Sir George
(North-West Hampshire)
(Con)
Rhiannon Hollis, Committee
Clerk
attended the
Committee
Fourth
Delegated Legislation
Committee
Wednesday
25 February
2009
[Hywel
Williams in the
Chair]
The Government Resources and Accounts Act 2000 (Audit of Non-profit-making Companies) Order 2009
2.30
pm
The
Exchequer Secretary to the Treasury (Angela Eagle): I beg
to
move,
That
the Committee has considered the draft Government Resources and
Accounts Act 2000 (Audit of Non-profit-making Companies) Order
2009.
It
is a pleasure to serve under your chairmanship this afternoon,
Mr.
Williams.
The
draft order is made under the Government Resources and Accounts Act
2000 and is intended to give the Comptroller and Auditor General public
audit responsibility for 26 non-departmental public body companies and
NDPB subsidiary
companies.
Hon.
Members may recall that in 2003 the Government implemented key
recommendations made by Lord Sharman on audit and accountability in
central Government. In particular, the Government responded to concerns
expressed in Parliament by strengthening the statutory powers of the
Comptroller and Auditor General in two ways. First, the CAG was made
the statutory auditor of certain non-company NDPBs where he was not
already the statutory auditor. Secondly, the CAG received greater
powers of access to documents held by bodies in receipt of grants or in
relation to contracts with organisations of which the CAG is the
statutory auditor. Since then, we have ensured that all non-company
NDPBs are subject to the audit of the CAG, either through their
establishing legislation or through orders made under the Government
Resources and Accounts
Act.
The
Government also accepted Lord Sharmans recommendation that
company NDPBs should be subject to CAG audit, but until recently
company law created obstacles to the CAG auditing companies. Provisions
in the Companies Act 2006 clear the way for him to do so with effect
from the 2008-09 financial year. There are separate provisions in the
Companies Act for profit- making and non-profit-making NDPB
companies. The draft order is concerned only with the non-profit-making
companies.
In
that context, section 482 of the Companies Act allows non-profit-making
companies to have a public audit by the CAG under the Government
Resources and Accounts Act, instead of the requirements of a statutory
company audit. To take advantage of the exemption, non-profit-making
companies must have been designated in an order made under the
Government Resources and Accounts Act. The purpose of the draft order
is, therefore, to make the companies listed in the schedule subject to
public
audit.
To
take advantage of the exemption, further conditions are set out in the
Companies Act. The company must be non-profit-making; where the company
is a parent company or a subsidiary of a parent company, every group
undertaking must also be non-profit-making; and the balance sheet must
contain the statement required by
section 475(2) of the 2006 Act that it is exempt from the requirements
of part 16 under section 482 of the Acta rather technical
definition of non-profit-making for those
purposes.
All
26 NDPB companies listed in the draft order are companies limited by
guarantee. Each has confirmed that it is non-profit-making, is not part
of a group that contains profit-making companies and is willing to
include a statement in its balance sheets to that effect. By making
those non-profit-making companies subject to public audit by the CAG,
the Government are delivering the greater public accountability that
Lord Sharman recommended for such companiesthat is, the
Government are ensuring that it is for Parliament, not the company or
the relevant Minister, to decide whether a body is to be audited by the
CAG. I hope all hon. Members will welcome
that.
Strictly
speaking, there was no need to carry out an impact assessment to
accompany the draft order, because the costs fall below the £5
million threshold. However, we believe that NDPB companies are
substantially similar to ordinary executive, non-company NDPBs, and
that giving the CAG public audit responsibilities for NDPB companies
constituted a step change in his responsibilities, so it seemed
sensible to revisit the assumptions made in the regulatory impact
assessment that accompanied the Government Resources and Accounts Act
2000 (Audit of Public Bodies) Order 2003, which gave the Comptroller
and Auditor General audit responsibility for the first batch
ofcompletely coincidentally26 non-company executive
NDPBs. We felt that that would provide a useful template for the likely
impact of the requirement for CAG audit of NDPBs in general.
The impact
assessment, which is included in todays papers, included a
survey of the executive NDPBs covered by the 2003 order. The results of
the survey show that most were happy to have the CAG as their
auditor. They believed that he provided a professional
service and good value for money, and that CAG audit fees were
generally comparable with those charged by private audit firms, partly
because many audits have been put out to tender. NDPBs told us that
putting audits out to tender enables the CAG to benefit from best
practice in the private sector, too. The results of the survey show a
positive view of the CAG and his staff, and we have no hesitation in
endorsing the policy that the CAG should be the auditor of all NDPBs,
as the Sharman report suggested.
Sir
George Young (North-West Hampshire) (Con): Will the
Minister clarify when the order will come into effect? Article 1 says
that it
comes into
force on the day after the day on which it is made.
However, on the front
page, Made is followed by three asterisks. When does it
commence?
Angela
Eagle: If the right hon. Gentleman looks at the list of
public bodies at the back of the explanatory memorandum or in the
order, he will see that it will take two financial years to get all 26
companies audited, although the vast majority will be done in this
financial year. It is effective
immediately.
2.37
pm
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
pleasure to serve under your chairmanship once again, Mr.
Williams.
I thank the
Minister for her explanation of the order. I have one or two questions
to ask her, which might be helpful to the Committee. This is not the
first time that the Minister and I have debated orders made under the
Government Resources and Accounts Act. We debated one about a year ago,
in March 2008. That order related to a number of NDPBs falling within
the CAG regime. I asked whether there were more bodies in the pipeline,
and the Minister responded:
We
are currently preparing a draft order that will subject between 40 and
50 non-departmental public body companiesor company
subsidiariesto audit[Official Report, Fifth
Delegated Legislation Committee, 18 March 2008;
c.6.]
However,
as the Minister said, 26 bodies are covered by the draft order, not the
40 to 50 she mentioned last year. Perhaps I am being over-precise, but
I would be grateful if she explained what has happened to the other 14
to 24. I make no criticism, but in March 2008, the Minister said that a
draft order was being prepared. Preparation has clearly been thorough
as it has taken some months to bring the draft order before the
Committee. Perhaps she could explain the reasons behind that.
I would also
like to know the response of the various NDPBs that come within the
scope of the draft order, and their response to the proposal that they
fall within the CAG regime. I note that the explanatory memorandum
makes reference to the consultation process that has been undertaken
with the companies, stating simply that they have been consulted. It
does not say whether the response to the consultation was positive or
negative. I merely speculate, but I wonder whether some of the
40 to 50 companies that the Minister mentioned last year
have been consulted and some have said more strongly than others that
they do not want to be
regulated.
Angela
Eagle indicated
dissent.
Mr.
Gauke: The hon. Lady indicates from a sedentary position
that that is not so, but I should be grateful if she
commented.
I
see that the survey of the bodies that fall within the regime noted
that the fees for smaller NDPBs were regarded as too high, as stated in
the impact assessment. Many of the companies listed in the draft order
are on the smallish side compared with some of the bodies that are
currently audited by the CAG, and it would be helpful to know whether
there is any concern that the CAG regime works better for larger
organisations. Given that the order seems to be applying the regime to
organisations that are a little smaller, has concern been expressed
about such
circumstances?
My
right hon. Friend the Member for North-West Hampshire asked when the
order comes into effect. The Minister said that the auditing of 22 of
the 26 companies by the CAG and the National Audit Office will begin
for 2008-09, and the auditing of the four remaining companies will
start for 2009-10. Is the delay in respect of the four companies due to
the fact that it will take some time before they meet the eligibility
criteria to which the Minister referred, or it is because they have
existing contracts with auditors and want to allow them to run to an
enda matter that is mentioned in the explanatory
notes?
Concern
has been expressed at various stages in the process about the
expertiseespecially relating to companieswithin the
NAO, which performs the auditing of the companies on behalf of the CAG.
It is often said
that there is some degree of contracting out, so that the CAG can make
use of private sector expertise among auditors. Can the Minister
confirm that that continues to be the case and that private sector
auditors may well, on behalf of the CAG, play a role in auditing many
of the 26 companies covered by the
order?
Last
year, when I asked the Minister about the value for money provided by
the NAO, her response was that, so pleased were a number of NDPBs with
the NAOs service that they wished to use the NAO to audit their
trading subsidiaries, which are profit-making organisations. Those
trading subsidiaries do not fall within the scope of the order, but the
explanatory memorandum makes it clear that, in addition to the
provisions of the Companies Act 2006 that apply to non-profit-making
organisations, provisions under sections 1226 to 1238 of the Act allow
the CAG to carry out company audits of NDPBs that are
profit-making companies. The explanatory memorandum says that those
companies are not covered in the instrument because they retain the
power to appoint their own auditors. I should be grateful for
clarification of the circumstances in which a profit-making company
that is a subsidiary within an NDPB can be audited by the
CAG.
Subject
to the answers to those questions, we have no objection to the order.
We look forward to hearing the Ministers
reply.
2.45
pm
Mr.
Peter Bone (Wellingborough) (Con): It is a pleasure to
serve under your chairmanship, Mr. Williams. I declare an
interest as a fellow of the Institute of Chartered Accountants in
England and Wales.
From the
notes we have been given relating to the 2003 Order, it appears that
two thirds of the audits were contracted out to private companies
anyway and that fees increased by an average of 25 per cent. If all
that the draft order does is add additional fees and bureaucracy, I am
not sure that we will achieve much.
One of the
concerns in the auditing world is about the rotation of auditors. It
has been found in a number of cases that, if the same auditor is left
in place, year after year, they get very cosy and do not spot problems,
so auditors are now rotated. However, if all these companies are to be
audited by a Government agency, there is a danger that problems will
not be spotted. What is the Ministers
opinion?
2.46
pm
Dr.
John Pugh (Southport) (LD): We are in favour of the
transparency and clarity that an SI such as this one introduces. To
some extent, this is a catch-up exercise, because all future
legislation will make clear that NDPBs that are not profit-making will
be obliged under statute to report to the CAG.
There is one
slight problem of definition. I did not hit upon it while looking at
the draft order, but the explanatory notes sent me in that direction.
Paragraph 7.3 of the explanatory notes states:
There
are separate provisions in CA 2006 for profit-making NDPBs and those
that are not for
profit.
The
phrase not for profit is used as opposed to
non-profit-making. I wonder whether there is some
subtle, metaphysical distinction that eludes
me.