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AUDIT AND ACCOUNTABILITY BILL

EXPLANATORY AND FINANCIAL MEMORANDUM

INTRODUCTION
  1. This Explanatory and Financial Memorandum relates to the Audit and Accountability Bill. It has been prepared by the Department of Finance and Personnel in order to assist the reader in understanding the Bill and to help inform debate on it. It does not form part of the Bill and has not been endorsed by the Assembly.
  2. The Memorandum needs to be read in conjunction with the Bill. It does not, and is not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.
    3. BACKGROUND AND POLICY OBJECTIVES
  3. The proposed Bill is designed to reform and update existing audit arrangements for public sector bodies in Northern Ireland.
  4. The proposed Bill follows on undertakings given during the passage of the Government Resources and Accounts Act (NI) 2001 and forms an integral part of the Executive's response to the recommendations of the Sharman Review of Audit and Accountability in UK Central Government.
  5. The main aims of the Bill are fourfold:

    6. a. To transfer the audit of a residual number of statutory Non-Departmental Public Bodies (NDPBs), of which the Comptroller and Auditor General (C&AG) is not already auditor, to him.

    b. To grant the C&AG statutory access to documents held by certain third parties for the purposes of his audit and value for money (VFM) work.

    c. To reorganise the structure of health service and local government audit in Northern Ireland.

    d. To make provision for the Audit Committee of the Northern Ireland Assembly to appoint the Auditor and Accounting Officer of the Northern Ireland Audit Office.

    CONSULTATION
  6. A consultation was launched in September 2001. The closing date for written responses of November 2001 was extended to 4 January 2002. A total of 56 written responses were received, including replies from Northern Ireland government departments, district councils, voluntary and community organisations, professional bodies and individuals.
    7. OPTIONS CONSIDERED
  7. During and subsequent to the consultation, consideration was given to whether and what legislation was needed to move forward in relation to the recommendations of the Sharman Review and the undertakings given during the passage of the Government Resources and Accounting Act (Northern Ireland) 2001. It was determined that legislation was necessary in relation to the four main aims identified above.
  8. Three further proposals were considered which are not included in the Bill. The first is that the Comptroller and Auditor General be given power to audit companies in the public sector. While desirable, this goal is not presently achievable, for reasons of incompatibility with EU law. Officials in the Department of Enterprise, Trade and Investment are working with colleagues in London to determine a way forward.
  9. The second proposal relates to performance validation arrangements for central government departments. The Sharman Report recommended that there should be external validation of departmental information systems as a first step in a process towards validation of key published data. The Report, and the response of the UK Government, agreed that a programmed step-by-step approach is necessary. As a first step in the programmed step-by-step approach in Northern Ireland, the C&AG may be invited to take responsibility, under his existing powers, for the validation of systems used by Departments to report on published Public Service Agreement (PSA) targets, where the measurement of performance depends upon data.
  10. The third proposal relates to internal audit obligations and arrangements for government departments and public bodies. It has been determined that legislation is not at this stage the most appropriate way forward on this issue. The Executive will put on record its expectation that all public bodies subject to financial audit by the C&AG should have audit committees, whose remit should include advising on risk management and governance issues as well as on direct internal and external audit issues.
    11. OVERVIEW
  11. The Bill has eleven clauses and three Schedules. Clauses 1 and 2 deal with access to information from certain third parties in relation to audit and VFM studies of bodies audited by the C&AG. Clause 3 changes the audit arrangements for a number of major statutory NDPBs, which will in future be audited by the C&AG. Clause 4 transfers responsibility for Health Service Audit to the C&AG. Clause 5 amends the Department of the Environment's responsibilities in relation to Local Government Audit to reflect the fact that local government auditors will in future be employed by the Northern Ireland Audit Office. Clause 6 transfers Health Service Audit and Local Government Audit staff to the employment of the Northern Ireland Audit Office. Clause 7 transfers from the Department of Finance and Personnel to the Assembly's Audit Committee the power to appoint the Accounting Officer and auditor for the Northern Ireland Audit Office. Clause 8 is interpretative and clauses 9 - 11 and Schedules 1 - 3 contain the necessary technical and transitional provisions to implement the substance of the Bill.
    12. COMMENTARY ON CLAUSES

    Clause 1: Access to information for purposes of audit by Comptroller and Auditor General

    Clause 1 provides that, in the course of a statutory audit or VFM study of any body the Comptroller and Auditor General shall have a right of access to documents relating to the accounts of the body, which are held or controlled by the body, certain of its agents, or certain third parties. These are defined as bodies which have received financial assistance from the audited body, or are in a contractual or sub-contractual relationship with it. A catch-all order-making power is provided for the Department of Finance and Personnel to provide for cases not falling within the ambit of the legislation, on consultation with the Comptroller and Auditor General and having regard to the views of the Public Accounts Committee.

    Clause 2: Access to documents of third parties: restrictions and exclusions

    Clause 2 provides restrictions and exclusions on the power in clause 1. The C&AG may only exercise his power where it is necessary and reasonable to do so. Documents may not be sought from individuals receiving monies by way of social security benefit or other grant for their personal support. The Department of Finance and Personnel is granted an order-making power to exempt grants for personal support not listed in the legislation. Additionally, the provision does not apply to documents held by central government or bodies audited by the Comptroller and Auditor General in London, out of respect for his jurisdiction.

    Clause 3: Additional public bodies whose annual accounts are to be subject to audit by the Comptroller and Auditor General

    Clause 3 sets out the major NDPBs which will in future be audited by the C&AG, and which he does not already audit. An order-making power is provided for the Department of Finance and Personnel, to allow it to make provision for other or future bodies funded entirely or substantially from public money to be audited by the C&AG. Such order must be laid before the Assembly and made only after consultation with the C&AG.

    Clause 4: Reorganisation of health service audit

    Clause 4 repeals and re-enacts the main statutory provisions relating to Health Service Audit. It transfers the health service audit function from the Department of Health, Social Services and Public Safety (DHSSPS) to the C&AG.

    Clause 5: Reorganisation of local government audit

    Clause 5 repeals and re-enacts the statutory provisions by which the Department of the Environment (DOE) appoints local government auditors, to reflect the fact that in future they will be the employees not of the DOE but of the Northern Ireland Audit Office (NIAO).

    Clause 6: Transfer of staff to Northern Ireland Audit Office

    Clause 6 provides for the staff currently employed by DHSSPS in health service audit or by DOE in local government audit to be transferred to the employment of the NIAO.

    Clause 7: Functions of audit committee in relation to appointment of accounting officer and auditor for Northern Ireland Audit Office

    Clause 7 provides for the power of appointment of the above persons and the associated powers currently exercised by the Department of Finance and Personnel to be exercised by the Audit Committee of the Northern Ireland Assembly.

    Clause 8: Interpretation

    Clause 8 defines certain key terms used in the Bill.

    Clause 9: Amendments and repeals

    Clause 9 provides for amendments and repeals as outlined in the Schedules.

    Clause 10: Commencement

    Clause 10 provides that, save for section 6, the Act will come into operation on 1st April 2003. Section 6 will come into operation on Royal Assent.

    Clause 11: Short title

    Clause 11 provides that the Act may be cited as the Audit and Accountability Act (Northern Ireland) 2002.

    Schedule 1: Amendments: accounts of certain bodies to be subject to audit by the Comptroller and Auditor General

    Schedule 1 amends the statutory audit provisions for the NDPBs of which audit has been transferred to the Comptroller and Auditor General by clause 3.

    Schedule 2: Amendments

    Schedule 2 sets out the other technical amendments in detail.

    Schedule 3: Repeals

    Schedule 3 sets out the repeals.

    FINANCIAL EFFECTS OF THE BILL
  12. Overall, the provisions of the Bill do not require additional public expenditure. The increased cost of staffing and workload for the NIAO is largely offset, in relation to health service and local government audit by the savings made by DHSSPS and DOE in relation to their reduced workload. DOE continues to be able to recoup the cost of audit exercises from District Councils, and is empowered to forward that money to the NIAO. DHSSPS requires a continuing residual sum in order to allow the Accounting Officer of that Department to continue to discharge his or her remaining statutory VFM functions. In relation to the additional work of auditing the NDPBs in clause 3, the increased cost to NIAO is balanced by the savings made by individual NDPBs which currently have to pay for private sector audit. There should be no increased cost to public bodies in relation to the statutory access to documents held by third parties in clauses 1 and 2, as this access is largely granted at present on the basis of agreement and negotiation.
    13. EFFECTS ON EQUAL OPPORTUNITY
  13. Equality screening has been carried out and no adverse or differential impacts have been identified.
    14. HUMAN RIGHTS ISSUES
  14. The Bill is in compliance with the Convention Rights.
    15. SUMMARY OF THE REGULATORY APPRAISAL
  15. The regulatory impacts of the Bill will be minimal.
    16. LEGISLATIVE COMPETENCE
  16. At Introduction the Minister of Finance and Personnel had made the following statement under section 9 of the Northern Ireland Act 1998:

"In my view the Audit and Accountability Bill would be within the legislative competence of the Northern Ireland Assembly."