|
SCHEDULE 7: THE NATIONAL AUDIT OFFICE
302. 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
303. Paragraph 1 provides for the NAO to have nine members consisting of five non-executives, the C&AG and three employee members.
304. 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
305. Paragraph 3 provides for the NAO to have a non-executive chair. The appointment process follows that for the C&AG in clause 42. 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.
306. 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.
307. 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.
308. Paragraph 6 deals with the remuneration of non-executive members.
309. 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.
310. 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.
311. 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.
312. 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.
313. 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.
314. 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
315. 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
316. This part of the Schedule provides for the appointment, terms and termination of the three employee members of the NAO.
317. 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.
318. 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.
319. 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.
320. Paragraph 15 provides that an employee member may resign by giving written notice to the non-executive members.
321. 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
322. 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
323. Paragraph 18 requires the NAO to make internal procedural rules.
324. 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.
325. 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
326. This part deals with a number of miscellaneous provisions for the carrying out of NAO functions.
327. 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.
328. 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.
329. 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.
330. Under sub-paragraph (4) the following exceptions to the general power of delegation apply:
- the preparation of resource estimates under clause 50(2);
- making rules for regulating NAO procedure under paragraph 18 of Schedule 7;
- the appointment of the NAO’s auditor under paragraph 25(1) of Schedule 7;
- the preparation and review of NAO strategy under paragraph 1(1) of Schedule 8
- approval of, and the resources to be given to the C&AG to carry out services under paragraph 3(1) or (3) of Schedule 8;
- 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 8;
- the preparation of an annual report under paragraph 9(1) of Schedule 8; and
- with the C&AG, the responsibility under paragraph 10(1) to (5) of Schedule 8 to prepare, review and revise the code of practice.
331. 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.
332. 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.
333. 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.
334. 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.
335. 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.
336. 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.
337. 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.
SCHEDULE 8: INTERACTION BETWEEN NAO AND THE COMPTROLLER & AUDITOR GENERAL
338. Schedule 8 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;
- 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
339. 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.
340. 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 8. 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.
341. 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.
342. Sub-paragraph (7) 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
343. 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 8. 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.
344. For the activities that are set out in paragraph 3(2) of Schedule 8, 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 8) and by the resources voted by Parliament to NAO for the year under clause 48. 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.
345. 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 8. 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.
346. 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;
347. 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
348. 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).
349. 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
350. 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.
351. 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
352. 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
353. 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.
354. 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.
355. 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
356. 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.
357. 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
358. 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
359. 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.
360. 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 43(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.
361. 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.
362. 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.
363. Sub-paragraph (9) requires the NAO and the C&AG to comply with the code.
364. 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.
365. Paragraph 12 sets out a non-exhaustive list of what is to be covered by the code.
366. 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 8;
- the way in which estimates for NAO resources under clause 50 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 8;
- the way in which the NAO monitors the C&AG functions under paragraph 4 of Schedule 8;
- the way in which advice is to be given by the NAO for the purposes of paragraph 5 of Schedule 8;
- the way in which the C&AG charges fees under paragraph 8 of Schedule 8; and
- the extent of the delegation of NAO’s functions to the C&AG under paragraph 23 of Schedule 7.
367. 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.
368. 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.
| 
