Examination of Witnesses (Questions 128-139)
Wednesday 11 June 2003
MR JAMES
STRACHAN, MR
CLIVE GRACE
AND MR
MARTIN EVANS
Q128 Mr Caton: Mr Strachan, thank
you very much for attending the Welsh Affairs Select Committee
as part of the pre-legislative scrutiny that we are undertaking
of this particular Bill. Would you like to begin by introducing
yourself and your colleagues to the Committee and I think you
would like to make an opening statement as well.
Mr Strachan: Indeed. Good afternoon
to all of you. I am joined on my left by Martin Evans, who is
the Director of Audit Policy and Appointments at the Commission
and, on my right, by Clive Grace, who is Director-General of the
Audit Commission in Wales. I would like to make a number of opening
comments. I would like to put our comments on the Bill itself
in a slightly broader context first, but I will do that quite
briefly, and that is in terms of what we see as the fundamental
purpose of public sector regulators, including, of course, the
National Audit Office, who you have just seen. This is very much
the movement that has taken place over the last few years, and
which we are trying to accelerate, from being primarily about
assurance to being about assurance but actually even more about
improving public services, because we believe quite strongly that
while we have pronounced vigorously over the years on other people's
value for money, it is fair to say that a number of regulators
could perhaps ask themselves with the same degree of rigour what
their own regulatory value for money is. In my view we should
not be spending the amounts of money involved unless we can see
some demonstrable improvement in public services. That is very
much the backdrop. We have tried to conceptualise some of this
into strategic regulation, which I am not going to describe at
great length, just to say that this approach is almost as much
about deregulation as regulation; less can actually be more. Regulators
will of course continue to protect the taxpayer against fraud,
against corruption, against waste, especially looking at protecting
vulnerable groups, but the real focus should be on improvement,
the public sector's capacity to maximise the value of its funding.
It should focus heavily on the needs of service users, the public.
It should leave the high performers relatively alone by taking
a strategic approach where we are saying we want to devote our
resource to those parts of public services where the room for
improvement is greatest, and leave those bodies who are performing
extremely well in relative terms relatively alone. The last point
that I would make is that does alter slightly the relationship
between the regulated and the regulator because while it needs,
on the one hand, to clearly avoid any remotest glimmer of regulatory
capture, at the same time there is a need to work more in partnership
than public service regulators have in the past if we are truly
to extract improvement from the process. The second part of what
I would like to say is looking specifically at Wales, obviously
the Audit Commission has a lot of experience historically looking
at both England and Wales and comparisons between the two show
quite a mixed picture with Wales stronger, in fact, in education
but with a lot more problems in housing, in health and in social
care. The picture within Wales is even more mixed in that there
are some outstanding examples of services which have actually
transformed themselves but there are many more which are failing
to serve the people as they should, in our view. It is a very
challenging agenda in Wales for a regulator, for an auditor, for
an inspector. We believe that the proposals that have been put
forward in terms of rationalising, modernising, audit arrangements
for Wales are very good. We are fully aware of the desire to facilitate
a fairly smooth parliamentary passage and we acknowledge that
what has been proposed has that very much in mind. We think there
are certain refinements that could strengthen what is being proposed
and, although we highlight this in some detail in our written
submission, before we open this further I would just highlight
three key areas. The first one is comparison. We do believe strongly
that there is a need for continued comparison between England
and Wales. We believe that is very much in the interests of the
Welsh public service user and, indeed, the Welsh taxpayer. There
is a need perhaps even to widen that comparison to Scotland and
Northern Ireland, but the purpose of the comparison, let us be
clear, is in order to share best practice, to learn from other
people's successes but also from their mistakes, in order to improve.
Of course, as you well accept, the natural and logical consequence
of devolution is increased variation and divergence in practice,
not of necessity but I think we would all accept that is very
likely. Wales has clearly taken a different approach from England
in terms of targets, in terms of naming and shaming. However,
we do think the learning needs to flow in both directions. The
solution that we would propose is that there is actually a statutory
duty on the Auditor General to collaborate with his or her regulatory
counterparts specifically to facilitate comparison, the sharing
of information, and—I would stress this point too—avoid
a sharp divergence of methodologies because although, on the one
hand, from the political perspective there may clearly be very
different policy objectives, the ease with which you can compare
will be made even more difficult if the underlying methodologies
are diverging at the same time. Although one cannot be very specific
at this point, because clearly the Bill is going through Parliament,
one only has to look at health in that respect where CHAI, the
newly proposed health regulator, has an England and Wales remit.
If the underpinning methodologies in the two different countries
are very divergent that will make some of the useful cross-country
comparisons extremely difficult. The second point is independence.
Concern has been expressed by others, as you well know, regarding
the governance structure proposed in the Bill whereby existing
powers that are conferred at the moment on both the board of Commissioners
and a Crown appointment are transferred to a single Crown appointee.
Certainly we agree, as you would expect, that independence, and
indeed the perception of independence, is the very lifeblood of
effective regulation. The advantages which flow from the very
close working relationship which the size and governance of Wales
make possible might perhaps blunt the edge of the independence
and objectivity which regulators must also have if we are to be
of lasting value. Our solution in terms of the independence point
is that while, I am sure like you, we have the highest respect
and total confidence in Sir John Bourn, the current Auditor General
for Wales, however if we are to look at the future there have
been suggestions that an advisory board would provide useful Welsh
input and, indeed, constructive independent challenge to the work
of the office of the Auditor General. We would certainly endorse
further examination of such a proposition. My third and final
point is integration. I have talked already about the inherent
divergence that results from devolution. One of the challenges
is that specifically focusing on health in Wales the Bill as drafted
does not provide for the all-important local value for money remit
in health which, of course, as we operate at the moment, is very
much part of the Audit Commission's remit in health. I would say
wholeheartedly that it is very much at the core of our ability
to make useful statements both at a local level but also to underpin
some of our national studies. If we lose that we think that we
will be losing quite a significant item. While I think this is
not a point of contention in terms of discussions with officials,
we do feel strongly about the concept of an integrated local audit
and that that should be maintained and, therefore, the remit of
the Auditor General should be extended to include local VFM in
health. That really ends all that I want to say by way of opening
remarks.
Q129 Mr Caton: Thank you very much,
Mr Strachan, that has set the scene very well. I have to apologise,
I think there is going to be a vote in a very few minutes and
I will have to suspend the meeting when that comes, but we will
press on for now.
Mr Strachan: I am used to that.
Q130 Mr Williams: When we took evidence
from Sue Essex, who is the Assembly Minister for Local Government,
she told us that this draft Bill was one of three options for
reorganising the audit functions in Wales; the other two being
"do nothing" or following the Scottish or Irish models,
which included an Accounts Commission. Is there any other way
in which the audit functions could have been reorganised for Wales?
Mr Strachan: I think I will ask
Martin if he would like to respond to that.
Mr Evans: I think those are the
main options available to the government. In putting together
our thoughts about the future arrangements for public audit in
Wales we did look at those and we do think that the model being
proposed in the Bill is better than the model that applies in
Scotland where you have retained the equivalent of the Commission
with responsibility for local government audit. We do think bringing
it together in one body is consistent with the whole thrust of
the modernising agenda in public services, joining up services
across organisational, and sectoral boundaries. Of the options
available, we think this is the right one.
Q131 Mr Williams: So the strength
of this solution is integration?
Mr Evans: I think so.
Q132 Mr Williams: We would like to
move on now to the role of the Auditor for Wales and the abolition
of the remit of the Audit Commission in Wales. Your memorandum
promotes the establishment of an advisory board, as you have mentioned
already. What powers should be conferred on to such a board?
Mr Strachan: We feel that should
probably be a fairly light touch advisory board or panel in the
sense that it would provide a combination primarily of two things,
one of very valuable local Welsh input in a way that by formulating
that process you would get a greater value from it than merely
being able to say you are open to stakeholders putting views to
you, that would be on the one hand, and, on the other hand, nothing
to do specifically with the Welsh context, simply a group of motivated
independent individuals who would provide a consistent level of
external challenge. We all accept that the reason that this structure
is being proposed is a function of history, it is not necessarily
quite the structure that if you said parliamentary time was not
at a premium one would create off a blank sheet of paper. I think
governing that it would be healthy to have some formalised mechanism
which provided that independent external challenge but without
going so far as to try to create a very different governance structure
on top of what is a Crown appointment, which would get us into
all kinds of legal wrangles.
Q133 Mr Williams: How could you ensure
that the presence of such a body would not compromise the independence
of the Auditor General?
Mr Strachan: Because I think if
you were to give that body formal directions you would start to
compromise that independence, but if that body simply is the provider
of consistent, focused external challenges as opposed to the looser
notion of everybody can say their piece, I think that is of value.
Mr Caton: The Division has started so
we will have to suspend the meeting until we have voted.
The Committee suspended from 4.31 pm to
4.56 pm for a division in the House
Q134 Mr Williams: Still considering
the possibility of an advisory board, you argue that the Auditor
General should appoint members to such a board "after consultation
with audited bodies' national representative bodies, the profession
and other stakeholders". Would you envisage these groups
holding a veto on the appointment?
Mr Strachan: I do not think they
should have a veto, no.
Q135 Mr Williams: Just an advisory
role?
Mr Strachan: Yes, exactly.
Q136 Dr Francis: The draft Bill proposes
to draw together the two separate functions of the National Audit
Office and the Audit Commission. While there appears to be a consensus
welcoming the principle of the draft Bill, there have been concerns
about the safeguarding of local democratic accountability. Are
you satisfied that the draft Bill will provide these safeguards?
Mr Grace: There is quite a lot
of concern about that. The principal way in which the safeguards
continue is that the Auditor General would not himself audit local
government bodies in particular but would appoint auditors to
do that much in the way that the Audit Commission currently does,
so that that would help to create a degree of separation. That
should be sufficient because in effect it retains the current
arrangements that the Commission has to ensure that the relationship
between auditor and audited body has the right degree of separation.
Q137 Mr Caton: Mr Strachan, in your
opening remarks you referred to your concerns about health, and
indeed in your memorandum you state that the draft Bill would
make it "more difficult to carry out and charge for performance
audit work as part of the annual audit work at health bodies".
How should the draft Bill be changed to allow for this work to
be carried out?
Mr Strachan: In response to the
first part of that question, the power simply is not there, and
in response to the second part, we will want to see it there and
it is simply a question of an omission which I think in our discussions
with officials is something that is not contentious. It has been
realised ex post that this is an omission and it is simply
a question of putting it in. It is not complex.
Mr Evans: In practice it would
involve extending the remit of the Auditor General in relation
to health bodies as set out in Clause 56 of the draft Bill to
include the powers of the auditors of local government bodies
as set out in Clause 17 of the draft Bill. If you could bring
those together in relation to health you would achieve what we
are looking for.
Q138 Mr Caton: Professor Talbot of
the University of Glamorgan, who we took evidence from on Monday,
argues that the draft Bill should encourage the auditing of performance
targets. Would you be in favour of this?
Mr Strachan: Clearly, if we are
to look at performance audit, then an essential part of that is
to look at what the objectives or targets of particular local
bodies are. That is in effect performance auditing because if
you are auditing against something in a sense you have an aim
to the target. It is an effective form of performance audit, so
that is another way of saying, "Absolutely".
Q139 Mr Williams: Talking now about
safeguarding the democratic accountability of local government,
the Welsh Local Government Association told us of its concerns
that the "ethos" of local audit and the partnership
approach taken by the local authorities, auditors and the Audit
Commission could be lost with the amalgamation of the two audit
bodies. Do you share these fears?
Mr Strachan: I must admit I do
not share those fears. If anything it really highlights a different
approach, a marked contrast of approach, which actually, if anything,
is a slight inversion of what you have just described in the sense
that in Wales there is very much a partnership approach. Some
would argue that that creates less pressure. I think that is really
the contentious issue more than the way you described it, which
is the reverse of that.
Mr Grace: It is true that the
partnership working which does exist depends upon building up
relationships, trust, confidence, over a period of time and there
is at the moment a particular flowering of that in relation to
local government through the Wales Programme for Improvement and
the creation of the Improvement Board which is working very effectively.
I suppose institutional change and the creation of the new Wales
Audit Office could mean that that could get lost along the way.
My own view is that those arrangements are proving very successful
and there is a lot of momentum behind them. The proof of the pudding
will be if they can translate into actual improvement and change
on the ground and if they do that I think there would be overwhelming
and comprehensive commitment to maintain them, and I think that
is the best source of that continuing.
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