Examination of Witness (Questions 461-519)
AMYAS MORSE
4 APRIL 2011
Chair: Good afternoon.
Amyas Morse: Good afternoon.
Q461 Chair: Welcome to our
final session on the audit and inspection of local authorities.
For the record, could you introduce yourself and say what organisation
you represent?
Amyas Morse: Certainly. My name
is Amyas Morse. I am the Comptroller and Auditor General. I am
also in charge of the National Audit Office.
Q462 Chair: Thank you very
much for joining us. For the sake of clarification at the beginning,
could you tell us whether you're here this afternoon expressing
personal views, or has any formal position been taken by the Public
Accounts Commission, to which I understand you report on these
matters?
Amyas Morse: I report to the Public
Accounts Commission for funding purposes, so I'm not here expressing
a view that it might take.
Q463 Chair: So you're simply
expressing a personal view at this stage, in your capacity as
Comptroller and Auditor General.
Amyas Morse: That's right.
Q464 Chair: The Government
made their announcement about the abolition of the Audit Commission
on 13 August. Were you consulted about that beforehand or did
you learn about it from the media, as I did?
Amyas Morse: I was aware of it
shortly beforehand, yes.
Q465 Chair: Aware but not
consulted?
Amyas Morse: In a way consulted,
in that there was some visualised role for us and obviously we
were asked whether we were able to carry out that role.
Q466 Chair: But the consultation
was purely—specifically—on that narrow issue about
the possible role for the National Audit Office?
Amyas Morse: It wasn't on the
policy issue.
Q467 Chair: Have you had discussions
subsequently about the particular role that the National Audit
Office might perform with the Secretary of State or the Minister?
Amyas Morse: I have only met the
Secretary of State once, the day before the announcement, but
my team, mainly, and I from time to time, have met officials.
My team have played a part in a steering group where the Audit
Commission was also represented and have regularly met officials,
talking about the shape of the consultative document and how all
that might be organised.
Q468 Chair: I understand there
may be particular roles for the National Audit Office to perform,
but as the person who might be seen as the country's senior auditor,
you must have a view about the whole approach to the abolition
of the Audit Commission and whether the decision was taken in
line with the arrangements for best audit practice and value for
money.
Amyas Morse: Just for a moment,
if I may, I'll explain why I haven't given you a written submission
or anything of that sort. It's because I'm an Officer of Parliament
and, in order to do our job, we very much are enjoined not to
get involved in policy and political issues, so normally I would
not want to be on either side of a debate. In this case, it was
pretty clear, as soon as we became aware of this, that it was
a policy-driven decision. It wasn't a question of merit or demerit.
Then if I add my private comment to that, while I have a lot of
respect for and good relationships with many in the Audit Commission,
I think that both the Audit Commission arrangements have pluses
and minuses to them and, as a matter of fact, I think that the
proposals being put forward are also practicable—different
but practicable.
Chair: Okay. We'll probably explore those
in a little more detail as we go along.
Q469 George Hollingbery: I
am intrigued by the idea that this was a policy-driven decision.
It may have been a decision taken in isolation from evidence by
the Secretary of State. Does that make it policy driven?
Amyas Morse: What it means is
that, as I have always understood it, it was to do with the consideration
of wanting to decentralise the arrangements—not to have
a large Government body running them and so forth. I took that
to be a policy-type decision. I didn't understand it to be a scorecard;
I understood it to be a decision to have a different set of arrangements.
Q470 George Hollingbery: As
a matter of interest, let's say that the Secretary of State had
come to you with a question about value for money, about how much
was being spent, about efficiency and about what the Audit Commission
had done and had produced. Did you have any evidence or research
that you could produce that would have told him about that?
Amyas Morse: I would have only
had evidence of what I had been able to observe, which wouldn't
have been systematic.
Q471 George Hollingbery: So
no systematic undertaking of any research by the NAO on what the
Audit Commission had done in its how many years of auditing?
Amyas Morse: We are auditors of
the Audit Commission, so we've obviously audited its accounts
and to some extent we look at that, but that's a different question
from, leading up to this decision was some evaluation done? No.
Q472 George Hollingbery: So
not on its effectiveness or efficiency at all. You had done nothing
of that sort. You had not undertaken any Audit Commission-type
review of the Audit Commission?
Amyas Morse: Have we prepared
some unannounced report on our evaluation of the efficiency of
the Audit Commission? No.
Q473 Mark Pawsey: With regard
to the audit of local authorities, which is the issue we're investigating
currently, does it matter if the auditor is appointed by the local
authority? In your view, would that make the auditor less impartial
than if he was appointed by the Audit Commission, as has been
the case?
Amyas Morse: The independence
of the auditor is very important and is one of the fundamental
principles of public audit, which we support. I think it's quite
practically achievable to get independence of appointment through
arrangements that involve having an audit committee with strong
non-executive and external elements in it. I think it's achievable
to get a suitably independent appointment through that means.
The reason I think that is that I've seen it quite a lot in the
commercial world and therefore I'm not amazed by the idea that
you could do it.
Q474 Mark Pawsey: But does
the audit of a Government body necessarily have to be carried
out by a Government organisation? Is it appropriate for the audit
to be carried out by a private sector body?
Amyas Morse: It is a question
of the quality and the surrounding buttressing, not of the inherent
nature of whether the body is private or public.
Q475 Mark Pawsey: Would you
say that there is no reason why a private sector body should not
be capable of auditing a local authority?
Amyas Morse: No, I cannot see
an inherent reason why.
Q476 Chair: You are absolutely
certain that the measures, as proposed, can safeguard the independence
of auditors? That seems absolutely crucial.
Amyas Morse: Let me, Chair, be
as clear as I can. Like many things, it is not a question of what
is being proposed. Can it possibly do it? Yes, it can. The question
is, will the safeguards be put in place and will they be enforced
rigorously? In other words, it is as much about implementation
as about concept, and, actually, the implementation needs rigorous
attention. So, yes it can be done, but it needs a strong approach,
not just a bit of lip service to it.
Q477 Chair: This is a fundamental
change, isn't it? Going back—well, as long as anyone can
remember—local government and councils have not appointed
their own auditors. I think that the last major look at this was
the Layfield commission, which recommended that that principle
should stay. So, this is quite a change of principle, isn't it?
Amyas Morse: The principle is
independence. I have thought carefully about this, because I guessed
that you might ask me these questions—and quite rightly,
too. In my view, the question is, is the appointment independent?
That is the question. It is not a principle that it must appointed
by a public or an external body. If you get the right arrangements
in place, I believe it is possible to get independent appointment,
because through the consultation process we could come to a viable
set of independent appointment criteria.
Q478 George Hollingbery: What
is your recommendation to the Committee for ensuring that this
is an independent process? Is it statute? Is it direction from
Government? How does that work? As a new MP, I am afraid that
I am not familiar with the potential processes.
Amyas Morse: First, there is a
proposal that it should be compulsory that there be an audit committee.
If you do not have an audit committee and you don't have it also
laid down on a statutory basis that there must be a significant
balance of independence in the appointment activity, setting aside
what you might do for the rest of the audit committee's supervisory
activities, I think it is essential that, for the appointment
activity in particular, there must be a very clear, demonstrable
independent majority—that would be my view, personally—to
be sure of getting independence.
As we go through the debate, it may be possible
to buttress that further and further, but it is important that
it be clearly demonstrable that that committee does not have a
majority of those involved in the council in detail for that function.
If you get it right in that way, it is feasible to have demonstrably
independent appointment. That would be my view.
Q479 Mark Pawsey: How would
you enforce that? How would you make sure that that happened?
Amyas Morse: If you have a clear
set of duties on the audit committee, and they are clearly set
forth in statute, you are in a position where it is a public duty
that is either carried out or not carried out. There are clearer
responsibilities and they can be called to account by the Department,
or whichever body is nominated.
Q480 Mark
Pawsey: So you would enshrine it in law, rather than leaving
it up to the individual local authority to decide what is best
for them.
Amyas Morse: Yes. I do not think
it should be open to them to decide what is best for them in matters
of independence of that kind.
Q481 Chair: May I take this
further? You talked about independence of the audit committee,
but as I understand it in the Government's consultation document
the audit committee would not have a veto over the appointment
of auditor and, probably even more importantly, would not have
a veto over an authority's decision to sack an auditor. Is that
something you would want to see strengthened?
Amyas Morse: Forgive me, Chair,
but I am going to keep on saying that, rather than picking individual
pieces of the arrangements, we have to be satisfied that the overall
result is that this is an independent appointment process. So,
whatever the combined elements that are put together as we go
through consultation and go towards finalising the proposal, what
has to be absolutely clear is that it is demonstrably independent.
That, I would say, would be true whether we were doing that or
whether we were looking at unchanged arrangements through the
Audit Commission. You have to be able to demonstrate independence
of appointment.
Q482 Chair: If the final decision
rests with the whole council, which is the council effectively
being the auditor, will that process be demonstrably independent?
Amyas Morse: As you have described
it, I would not be automatically sold on it. I would be looking
for something that had a strong external voice in the appointment
process.
Q483 Simon Danczuk: Are you
comfortable with the new responsibilities that the Government
are proposing for the National Audit Office following the abolition
of the Audit Commission?
Amyas Morse: Largely, yes.
Q484 Simon Danczuk: In terms
of the capacity and skills within the National Audit Office, do
you think that it is capable of delivering what is required?
Amyas Morse: For the most part,
yes. There may be some specialist skills that we need to have.
We would not say that there is nothing we should learn, but as
we sit here, yes, I think so.
Q485 Simon Danczuk: There
has been a big debate about savings around the abolition of the
Audit Commission. Do you expect some funds to be transferred from
the Audit Commission to yourselves or do you expect to deliver
it all within your existing £95 million annual budget and
900 staff?
Amyas Morse: First, I would not
want to receive any funding from the Government. I am funded by
the Public Accounts Commission, and I have been very open with
it. So far, I have not asked it for any additional money, because
I did not know exactly what we would be asked to do, and I still
don't. Once we get to the end of the consultation process and
these matters become firm, I will go back to the Public Accounts
Commission if any additional funding is required. It is certainly
not my ambition to have any material change in the size of my
organisation as a result of this, but obviously there may be something
that I need to do.
Q486 Chair: May I pick up
on one phrase you used? It is worth me trying to dissect the answers
just to dissect the accounts. When you were asked about the capacity
of the National Audit Office to carry out the suggested work,
the word "largely" came in.
Amyas Morse: I am only being prudent.
It is not because I have some special secret flaw in mind. We
deliver a substantial number of studies that take account of local
delivery. However, if there are a significant number of things
you are being asked to do—which, on the face of it, you
think you can do—it would be a bit foolish to say that there
is nothing else that you need until you have precise responsibilities
and understand the task properly.
Q487 Simon Danczuk: Does that
not make it difficult for the Government to predict what sort
of savings they are likely to make? They have been talking about
£50 million a year savings. How can they reach that figure
if they don't know what funds you may or may not require?
Amyas Morse: The amount of resources
that I would require for this would be quite marginal. I am just
trying to avoid making a statement that I regret later on.
Q488 George Hollingbery: I
ought to know, but don't know, where your funding is derived from
and where it is voted from. Can you tell me exactly?
Amyas Morse: I am going to get
this right, so I may have to turn round to my team. We propose
a budget to the Public Accounts Commission. It is voted directly
from Parliament, so it is a direct vote, and you will see it as
a separate line in the requisitions of the parliamentary vote.
We propose a budget every year, and we appear before the Commission
twice yearly—once to propose a budget and once to report
on how we are doing. We are quite tightly controlled. For what
it's worth, we are in the process of reducing our costs by 18%
over three years.
Q489 George
Hollingbery: But it is a fine matter, is it not, to contend
that your money does not come from the Government? It comes directly
not from Government, but from Parliament, and therefore the taxpayer.
Ultimately, that is correct, is it not?
Amyas Morse: That is absolutely
correct, but it is not a fine distinction but a very significant
distinction. Neither Ministers nor officials have any say in the
amount of our funding. I am asked by the Chair, "Have you
got the funding you need to do the job properly?" It is up
to me to say yes. I have proposed that we make a reduction in
our budget, primarily because I don't want to be in a position
of looking at and reporting on colleagues in the civil service,
and looking as if we are not practising what we preach. I wasn't
invited to do that by the Commission. So, to be clear, it is very
careful not to do anything that could be construed as interfering
in our ability to do the work we need to do.
George Hollingbery: That's a useful distinction.
Thank you very much.
Q490 Simon
Danczuk: May I ask a quick supplementary? So that I am clear,
is it not Parliament that should determine the expansion of your
responsibilities, or it is the Government and Ministers?
Amyas Morse: That's correct. I
didn't answer properly. I have a clear understanding with the
Public Accounts Commission that, before I commit to any additional
resource or activity, I will seek its agreement.
Q491 James Morris: May I press
you a bit more on the capacity of your organisation to take on
the role, for example, of producing the audit code of practice?
Doesn't that imply a high degree of specialisation and skill?
You said earlier that you didn't evaluate the effectiveness or
value of the Audit Commission's work; you were merely the auditor.
Isn't this a very specialised area? The Chair referred to your
word "largely". Isn't it underestimating the scale of
the task of taking on this new function, because it implies detailed
knowledge of how local government works, which your organisation
doesn't have?
Amyas Morse: We have people who
have worked in local government, and we've taken care to have
more of them, so we have experienced people who can be directed
at that work. If I wasn't confident of that, I wouldn't be saying
this. But there is a reason for having a fairly fluid community.
We have people with significant local government experience already.
Q492 James Morris: You don't
envisage this costing you any more? Do you have an estimate?
Amyas Morse: It may do, because
we're doing something we don't do now, so there is a certain amount
of time to allow us to see that we're doing it—
Q493 James Morris: Do you
have some estimate of what you think it will take to take on that
particular role?
Amyas Morse: No, but I am talking
about relatively small numbers.
Q494 James Morris: When you
say "relatively small", what does that mean?
Amyas Morse: Okay. Setting the
standards and, more importantly, consulting with local authorities
about standards, which, by the way, I regard as crucial to this—
Q495 James
Morris: There are quite a few local authorities to consult
with.
Amyas Morse: I don't have an estimate,
but I think it is a few million a year, not more than that. If
you want to know what a few is, it is less than five. Is that
all right? I am trying my best to be clear.
Q496 George Hollingbery: I
am sorry to return to the previous question, but Mr Danczuk has
stimulated another question in my mind, and again it is a fine
question. If you take over a role, you are not part of Government
budgets. Is that correct? You are part of parliamentary budgeting,
not part of Government budgeting.
Amyas Morse: That's right.
Q497 George Hollingbery: Therefore,
anything you take over from Government is automatically a reduction
in Government spending, and becomes someone else's problem. Is
that correct?
Amyas Morse: You may take that
view, sir.
Q498 Heidi Alexander: Under the fragmented
local audit functions that could exist in future, I wonder how
confident you feel that you will be in a position to provide assurances
that public money is being properly spent.
Amyas Morse: Well, apart from
auditors, local authorities have something to say about that.
I believe that it's feasible for us to talk about the focus of
audit, which will be governed by the practice guidance to some
extent, and to ask whether, in the opinion of the local authorities
and in our opinion as the appointed auditors, it focuses sufficiently
on the issues that really matter, even at the moment, and whether
it could focus better on them. I don't believe that the only possible
outcome of the change is that things could get worse. For example,
you could focus more on the processes for establishing value for
money through good governance statements, rather than through
VFM activity. You could do VFM work when there is a large project
or a reason for examining value for money. In other words, it
might be possible to have something rather more targeted that
looks more deeply at budgets and things of that sort.
That is something that, in dialogue with local
authorities, was seen to be very valuable, yet, on an objective
basis, we felt we could support. If different firms were applying
that code, you would have to make sure that they all understood
the code, and that the authorities understood it and were making
sure it was being applied properly. That is not a difficult task.
Q499 Heidi Alexander: There
are quite a number of changes in terms of the provision of future
services. The Government talk a lot about making sure that different
providers can get involved in the provision of local authority
services—whether that is community, voluntary or third-sector
organisations. There has been a lot of talk about community budgets
and the reduced audit requirements for smaller bodies. In light
of those changes and the changes to the audit regime, what is
your thinking on the overall assurance that you can give about
the expenditure of public money—whether it is value for
money and whether it is being used in the best way possible—given
your national responsibilities?
Amyas Morse: You are quite right
to talk about my national responsibilities, which are primarily
to Parliament, to follow taxpayers' money and ensure that we have
reasonable assurance that it is being used efficiently and effectively
and that it is being applied as intended. You are right about
that. Some of the changes on localism have nothing to do with
what is happening with the audit arrangements. If you look at
some of the proposals for community budgets and so forth, what
they hold out is an opportunity in some cases for the more efficient
use of resources. If there is enough information for those who
are carrying out the activities to be in reasonable management
control of them and know what's happening—what's being done
with the resources and what's being delivered—there should
be enough information to get assurance on it.
I am not appalled by the fact that there may
be different and more flexible models locally. It is possible
to obtain assurance on those just as much as if you have a very
formulaic model. It is possible to do so, yet you need to adapt
to that. Auditors are capable of and used to adapting to that,
so it can be done. If I can add to that, the important point is
that the audit approach should focus on what really matters in
a particular area. If nothing much is happening and you have a
fairly simple set of services, the main issue is, as pressure
comes on in terms of the scale of funding that you've got, the
main focus should be on the adequacy of budgeting and on the financial
sustainability of the body. If there are no major projects and
nothing much is going on that needs to be examined for value for
money, perhaps we should allow ourselves to focus our efforts
on where the action is. That is not a bad way of going. It is
a slightly more flexible approach that involves focusing on what
really matters in a particular local authority.
Q500 David Heyes: In the consultation
papers, the Government envisage an NAO role in value for money
studies in local government, which is work currently undertaken
by the Audit Commission. Is that another area that you feel largely
comfortable about in terms of your ability to undertake it?
Amyas Morse: In many ways, the
Audit Commission does a good job on that. However, to be clear,
it is not territory that is unknown to us. I shall just name a
few of our many studies on services and local delivery. In the
past year or so, we have done work on tackling the problems of
drug use and seeing how that impacts locally. To take another
example, we have looked at how people with autism are supported
and how that works through different communities. I have about
20 such examples.
It is not as if all we ever do is look at central
Government activity. We're quite accustomed to looking at applied
programmes to see how they have worked. I believe that there's
quite a lot we can do to help as we take up this role. In particular,
I think we'll be able to look at how cost reduction is being carried
through, and how it is being managed. We'll look at financial
resilience across the population and at different delivery models.
It is interesting to look back from local government
at central Government and see how heavy a burden central Government
place on local government and how they interact with it. We're
already developing a study at the moment on whether local government
gets a huge volume of communication, different guidance and directives
from central Government, and whether there's a more organised
and more cost-efficient way of giving that guidance that doesn't
place the same cost burdens on local government.
Q501 David Heyes: Indicative
figures suggest that the Audit Commission spent about £5
million last year on 20-odd value for money studies. That's the
kind of work that I guess you're expected to take on. If it cost
£5 million to conduct those studies, it will be a considerable
demand on your current resources. Is it something that you'll
be able to do?
Amyas Morse: We do 60 reports
a year at the moment. We'd have to assess how much we could fit
in with the scope of our existing capacity, and to what extent
would we need any new resource to do that work.
Q502 David Heyes: Would your
approach to this produce a lower or similar average cost per report?
Amyas Morse: I haven't made a
comparison. The cost of our reports is going down as we get more
efficient.
Q503 David Heyes: Indicative
figures that we've seen suggest that the Audit Commission reports
typically cost half of what the NAO's value for money reports
cost. Does that sound familiar to you?
Amyas Morse: That may well be;
it's a question of what you do in writing the report. While they
are valuable, many of the reports that the Audit Commission is
doing involve comparing information that is already available
on a number of local authorities, whereas our value for money
reports mostly involve going in and investigating large projects
and programmes, which entails a great deal more investigative
and research work. In many cases, the reports are different types.
If you look at the average cost, it's not strictly comparable.
My idea of it is that some of the work that we already do could
quite reasonably be redirected into doing these projects.
Q504 David Heyes: I guess
that the Local Government Association has a view on this value
for money work. Have you discussed this with the LGA?
Amyas Morse: Yes.
Q505 David Heyes: What was
the gist of those discussions? What was the outcome?
Amyas Morse: It was interested
in these systemic, value for money reports.
Q506 David Heyes: Does it
value them?
Amyas Morse: Yes, it does, and
it's clear to me why. We've done a bit of work to try to understand
it. I've personally visited two or three local authorities and
met the Local Government Association to try to get some understanding
of its views. It's clear that the LGA regards these wider systemic
reports that allow people to draw comparisons as in some way valuable.
Q507 David Heyes: Has it voiced
similar concerns to what was inferred by my question—that
you might not have the capacity to continue doing the same quantity
or quality and depth of reports that the Audit Commission managed
to do in the past?
Amyas Morse: It hasn't expressed
that. Frankly, I'm not feeling worried about that.
Q508 James Morris: May I ask
one specific question? It may be slightly tangential to value
for money, but in answer to an earlier question you said that
you have never done an evaluation of the efficiency or otherwise
of the Audit Commission. Then you talked about wanting to understand
about costs and central Government's interaction with local government.
Has any work been done that's identified the cost of compliance
for local government with the requirements of the Audit Commission
or any wider agencies? In response to the Lyons inquiry, the National
Audit Office estimated that the cost of compliance for local public
bodies is somewhere in the region of £2 billion. Is that
a number that you recognise?
Amyas Morse: The fact that I don't
doesn't mean it's not true. It may just mean that I haven't covered
it in my preparation for this.
Q509 James Morris: It's quite
surprising that the National Audit Office hasn't done any systematic
work on that, because the cost of compliance is critical to value
for money for central Government. If you evaluate the cost of
compliance, there's huge scope for saving there. Isn't it quite
surprising that it hasn't done that kind of work?
Amyas Morse: I am not very surprised
that, out of all the areas we look at, we haven't done that particular
one. If you're suggesting the subject as a future study, it may
well be a good one to do.
Q510 George Hollingbery: To
develop the line of questioning a tad further, you've had some
fantastic results, frankly, in the financial impacts that you've
achieved. We understand that £890 million in financial savings
has been made—mostly cashable, as far as I can see—across
Departments. The Audit Commission itself doesn't have any figures
on what it might or might not have saved across its remit, but
it says that with spending of £200 billion, if 1% in savings
is achieved, it is clearly worth while. Do you think the NAO will
be able to achieve similar levels of success when examining local
government in its value for money studies?
Amyas Morse: What we will be doing
in terms of direct examination will be only on studies across
local government, so I really couldn't make any prediction on
that. It should be that if we draw lessons out of such studies
generally—they affect a lot of local authorities, so they
should be of considerable value—of course that value only
comes if there is action on them.
In our work on central Government, in addition
to agreeing the value that has come from our work with the Departments
concerned, which is where we get our figures from, we also review
very closely whether or not, when there's been a report and recommendations
have been made and accepted by a Department, the Department then
carries them out. In many ways, I regard success in identifying
issues as when a Department does something, moves forward and
improves capacity. We really think that's the most important measure
of success—not that it should necessarily do exactly what
our findings say, but that it does something that ups its game
in that direction—because we know we're having a beneficial
effect. There is a surprisingly high correlation in that area.
Will we be able to do that in local government?
Will we be able to find correlations like that? I hope so, and
I am optimistic we can have a positive effect, but you might find
that the Audit Commission could have done just the same, if it
had correlated the evidence in that way. I'm not assuming we're
going to be miraculously better than the Audit Commission.
Q511 George Hollingbery: It's
quite an interesting juxtaposition. I have in my head the idea
of your being internal audit for national Government. That is
a truism, I guess; that is what you are, ultimately.
Amyas Morse: We are not just internal
audit. We actually carry out the formal audit of the accounts.
That is to say, we give an opinion on a true and fair view of
the regularity of the application of the funding and the statement
of internal control signed off by the accounting officer. We also
do value for money reports on Government. The value for money
piece of our activity is the one that's closest to an internal
audit.
Q512 George Hollingbery: I
remember receiving, as a little tiny councillor, lines saying,
"Action: has it happened?" and so forth. The reason
why I bring that up is that it occurs to me that, to take it down
the scale into local government, there are only so many themes
that are really large enough at your level of examination to register
on your radar. Therefore, it seems to me that there is a potential
gap between what you can provide at that level and what internal
audit can provide at the local council level. Is there not, potentially,
a gap in between, where there may be a scale of activity that
isn't examined?
Amyas Morse: I am fascinated by
trying to improve the efficiency of what happens in the public
sector. If we find there's a gap, we're not going to just sit
and look at it; we'll find some way of working with the local
authorities to see that it is addressed. I don't mean that that
will necessarily be done by us, but perhaps it would involve looking
at the remit of the local auditors, providing the auditors with
better information as to what they should be looking at or making
sure that we join up tightly with them. If these proposals go
into statute in the form that they are now, I would certainly
take that view—a positive, developing view.
Q513 George Hollingbery: I'm
very attracted by that proposition, but do you believe that the
consultation and your proposals, as they stand, give you that
authority to make different arrangements from those that currently
exist out in the field?
Amyas Morse: I think it's feasible,
through the guidance arrangements that we have, that we could
do that. Through the proposals, I think that's feasible. There's
an opportunity for regular discussion and consultation, which,
I hope, would let that happen.
George Hollingbery:
And potentially lead to solutions that are local, but inspired
by national guidance.
Q514 Simon Danczuk: Some 20%
of your audit is done by private sector auditors and 30% of the
Audit Commission's work is done by private sector auditors, and
that's going to dramatically increase according to the Government's
proposals. Why is your figure so low? Should the amount of private
sector audit work not increase?
Amyas Morse: That is a perfectly
reasonable challenge. Our percentage is low, because we use the
private sector to supplement what we do. For completeness of disclosure,
it's probably becoming even a bit less, because as we work more
efficiently and use our resources better, we find it cheaper to
work our in-house resources. So, quite honestly, on the one hand,
that's true.
Why don't we propose to use the private sector
more and act, effectively, as a commissioning house, which is
a model that you could say should be there? In our case, with
central Government, we're talking about quite a restricted number
of very large Departments. Without a substantial degree of continuity
all the way through the Departments and an awareness of the issues
that run through them—you'd be amazed how we find the same
issues occurring again and again in central Government, with people
not using information properly, not knowing what things cost and
not having strong enough financial management—we wouldn't
be able to identify all those issues and see how they run through
those very large Departments and through the non-departmental
public bodies that they set up and run. I've asked myself that
question, because it's a perfectly fair challenge. I genuinely
think there's a big difference in kind between auditing central
Government and auditing devolved local government.
Q515 Simon Danczuk: The history
of the Audit Commission shows that it took on more roles and responsibilities
and a greater work load as it developed, to the point where it
was seen as unwieldy and had to be abolished—that's one
story. Are you not worried that that's what's going to happen
to the National Audit Office?
Amyas Morse: My primary role is
working for and with Parliament—I don't lose sight of that
for one minute. I've been very careful to state that as my primary
role here. If you think about it, we're very careful in what we
say we'll do. I really believe in what we do for Parliament. We
need to see strong local authority audit arrangements, and we're
prepared to play a part in that, but I'm trying to stay to our
primary function of supporting Parliament in holding the Executive
accountable. If I thought anything that we were proposing might
take away from that, I would be strongly against it.
Q516 Chair: Can I pick up
on one point there? You were explaining the benefits of having
one organisation audit across Government Departments to pick up
the same problems and issues, and then you said that that doesn't
really apply in the same way to local government. But those of
us who know local government would say that exactly the same problems
and issues come up from one council to another, so you could have
learning across the piece.
Amyas Morse: Yes. I can understand
that may well be true, but I would simply say that, in central
Government, these are actually the same organisation. You get
a lot of issues in, say, the Ministry of Defence or the Home Office,
some of which are cross-Government issues, and we draw those out.
Many are particular to the particular Ministry, but common across
all branches of that Ministry. If you're in the Department for
Transport, it's really valuable to understand what's happening
across the spectrum of transport activity in order to do a good
job.
Q517 Chair: You said at the
beginning that you hadn't been consulted about the principles
involved in the Government's decision, but if you had been asked
at the beginning to design from a blank sheet of paper a system
of audit for local government in this country, would it have been
anything like that which the Government are now proposing?
Amyas Morse: That is a question
that I am really not able to answer. It's a completely hypothetical
question. As I have said, I keep out of policy questions; I've
never even allowed myself to think about it.
Q518 Chair: Right. Let's bring
you back to the world of reality then and look at the proposals
before us. I'm sure you're aware that the other day the House
of Lords Committee that has been looking at audit in the private
sector was very critical of the regulation of accounting and auditing,
which it said was "fragmented and unwieldy with manifold
overlapping organisations and functions." If it is Government
policy, as it is, to get rid of the comprehensive area assessments,
get rid of a body having a commissioning role for the audit of
local councils and get rid of a body nationally that does the
audit of local councils, a number of regulatory functions are
left and they have to be done by someone. Would it make more sense
to have those regulatory functions done by one organisation, perhaps
even the National Audit Office?
Amyas Morse: Thanks for the thought,
Chair. What's being discussed is that the Financial Reporting
Council would act as the quality regulator on the auditors. It
is, in my experience, a pretty ferocious regulator, and it is
very experienced across the whole of the audit market in the UK.
I know that, because we use it on some of our work, so I'm speaking
from personal experience. For us to set up as a regulator would
be a big new activity, and I don't fancy starting from scratch
on that.
Q519 Chair:
Are there any dangers that there might be functions of the Audit
Commission that the Government want to continue but which could
somehow fall between the cracks of the various bodies that will
be involved in this process in the future? Perhaps you will share
with us things that you have concerns about and which you feel
need addressing as part of the consultation exercise.
Amyas Morse: I understand that
the audit practice is going to be mutualised, and I understand
what's to happen on the regulatory front, but I think it's important
that with those functions of the Audit Commission that aren't
going to go somewhere else—the elements that may remain—which
are, in my view, mostly Executive activities of Government, such
as the national fraud initiative and possibly, if it were thought
necessary, some sort of management of the audit market, it would
be very significant to hear that the department really did have
the capacity and the people to carry out those functions.
You're quite right to say that in all these
changes, we don't want something to drop to the floor and we don't
want unnecessary risk to be taken. I understand and support that.
I understand your question: I am just taking stock of that range
of activities, and the ones that I've mentioned are probably the
ones that don't have a natural home and need to be taken care
of by the department itself, which involves making sure that it
actually has the capability and resources to do that. I'm sure
that it's got the capability, but the question is whether it has
got the resources.
Chair: Thank you very
much for your time this afternoon.
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