Private Members Comptroller and Auditor General (Amendment) Bill 2012
The Private Members Bill put forward by Deputy McGuinness provides for the Comptroller and Auditor General to audit local authority accounts, local authority audits and local auditor reports and the accounts of the Housing Finance Agency. There is also a provision concerning the timeframe for responses from Accounting Officers to requests from the Committee of Public Accounts. Having considered the various provisions and their impact on the process of external audit of public expenditure, the Government does not support this Bill.
Support for the Principle of the Bill
However, before discussing the Bill in any detail, let me say that while the Government does not support this Bill, it does support the underlying principle of the Bill, in terms of greater scrutiny of public money. As the House is aware, The Programme for Government envisages and is delivering on a renewed focus on a range of reform issues, including legislative change to facilitate more open, transparent and better government, an increased focus on eGovernment and shared services, giving citizens greater choice and input into service delivery, improving regulatory design and practice, and a more empowered, skilled and focused Public Service to deliver these changes. Against this background of reform and in the context of enhancing the scrutiny of public expenditure, the Government is also reviewing the scope and structure of the external audit process of public money.
Public Service Reform requires a commitment from the whole of government to become more transparent, accountable and efficient. On of the key deliverables in this regard is the radical streamlining of State Bodies. The Public Service Reform Plan provides for the critical review of a range of state bodies, including the Office of the Comptroller and Auditor General and the Local Government Audit Service. This review will include representatives from those two bodies, the Department of Environment, Community and Local Government; the Department of Finance; the Department of Public Expenditure and Reform and Local Authority management expertise.
The Government recognises the potential of a merger of the Office of the Comptroller and Auditor General and the Local Government Audit Service. The critical review of the merger of these two organisations will inform the future development of external audit at local and central government level. While there are challenges to the integration of the central and local government external audit process, there are benefits to be explored from the synergies of agency rationalisation, greater scrutiny of public money, common audit standards and enhanced accountability. Any integration must, of course, take account of the respective positions of local and central government and the local government reform agenda which, amongst other things, will seek to strengthen the role of elected members in relation to oversight of local authority performance.
Detail of the Bill
We have been asked to adopt this Bill as proposed by Deputy McGuinness. As I have outlined earlier, the Government supports the principle of greater scrutiny of public money, but the delivery of this principle must be within the context of public service reform. The Government is driving Public Service reform to continually improve and deliver services faster, better and more cost effectively. Innovation, flexibility and the delivery of streamlined services are at the heart of a reformed Public Service. This is the context in which change must be delivered and this is the difficulty posed by Deputy McGuinness’ Bill. The Bill while it promotes the principle of greater scrutiny of public expenditure which is to be welcomed, is a missed opportunity for reform, as it does so without regard to value for money in the delivery of the external audit process.
Looking at the detail of the Bill in relation to Local Authorities, across Sections 2 to 6, the Bill provides for the Comptroller and Auditor General to audit local authority accounts, to audit local authority audits and also to audit the reports produced by local government auditors. The impact of the Bill would be to create an additional layer of audit by the Comptroller and Auditor General, duplicating the work of the Local Government Audit Service. Apart from the resource implications of this approach, this duplication of activity is contrary to the Government’s approach to a streamlined and flexible approach to the delivery of public services. The delivery of external audit, no less than any other activity in the public service, must be delivered in line with these principles.
Work of the Local Government Audit Service
In considering this duplication of audit, it is useful to look at the work of the Local Government Audit Service, which provides independent scrutiny of the financial stewardship of local authorities. Its role is to:
- Carry out audits of local authorities and other bodies in accordance with its Code of Audit Practice, thereby fostering the highest standards of financial stewardship and public accountability;
- Promote the achievement of value for money in authorities by undertaking Value for Money (VFM) audits and publishing reports thereon.
The Local Government Audit Service audits the accounts of 34 city and county councils, 80 borough the town councils, 10 regional authorities and regional assemblies and 55 other bodies.
Local Government Audit Procedures
The Local Government Act, 2001 sets out the legal basis for the audit of local authorities which includes:
- The Appointment of a Director of Audit to organise, direct and allocate resources and assign audits to particular local government auditors
- Audits carried out by local government auditors (all professionally qualified accountants) who are independent in the performance of their professional functions
- All audits carried out in accordance with a Statutory Code of Audit Practice (section 117 of Act) which embraces best professional practice for the LGAS and provides for:
- The responsibility of auditor to form an independent audit opinion on the financial statements.
- The discharge of audit responsibilities with integrity, objectivity and independence.
- The exercise of due professional care and impartiality.
- The audit approach which prescribes the way in which auditors should perform their functions in the light of statutory and other responsibilities imposed on them.
The Local Government Audit Service also issues an annual Activity Report which summarises the main issues arising in the audits of local authorities and allows comparison across a range of issues. This report is presented to the Oireachtas Committee on Environment, Transport, Culture and the Gaeltacht, as recommended in the Report of the Local Government Efficiency Review Group.
Local Government Auditors are strategically based around the country and have extensive local knowledge, which is invaluable when carrying out their work. This is very compatible with the principle of Local Democracy as articulated in Better Local Government, that services are best provided as close to the public as possible. All assignments take account of cost control and audit efficiency.
Special formalities attach to a range of issues including the serving of notices of audit; the deposit by bodies subject to audit of their books and draft annual financial statements for public inspection immediately prior to audit; the closing of audits; and the availability to the public of copies of the audited annual financial statements and any associated audit reports.
The auditor assigned to audit the accounts of a local authority must give public notice of the opening of the audit and consider and determine any objections received from the public. At the conclusion of the audit, the auditor must enter an audit opinion on the financial statement which will be either qualified or unqualified. The audit report and opinion is sent to the local authority who must table it for discussion at the next available public meeting of the local authority. These accounts are published and are available to the public and other interested persons.
In addition to entering an audit opinion on the annual financial statement of each body audited, local government auditors may also issue associated audit reports. These public reports may provide brief commentaries on significant trends or outturns disclosed in the accounts, such as budgetary comparisons, capital projects, inter-authority transactions, reliance or otherwise with the authority’s internal audit function, revenue collection performance, residual matters from previous audits and other internal financial control issues.
Critical Review Process
The critical review of the merger of the Office of the Comptroller General and the Local Government Audit Service, will take account of the roles undertaken by each organisation. As provided for the Public Service Reform Plan, the review provides the opportunity for the enhanced scrutiny of public money in the context of the overall framework of reform. The guiding principles of the critical review process, applying to a range of potential mergers, include a citizen focus where any proposals should respect and enhance the relationship between citizens and the State. This is the key relationship in any democratic society and any organisations operating in the public service should be designed to deliver quality public services, and to contribute effectively to the business of public administration. This is a valid principle at both local and central government level.
The review process also requires an examination of the benefits of merger in terms of delivering greater democratic control, improved service delivery and/or real cash savings. Any decisions taken in the context of a critical review will be cognisant of duplication, overlapping and similarities of functions and roles of bodies, and the synergies from bringing together such separate bodies.
I am highlighting these issues to demonstrate the wider framework against which developments in the external audit of public expenditure must be considered. The narrow focus in the Bill, addressing the extension of the audit mandate of the C&AG to the Local Authorities, without regard to the overall framework of external audit, is not acceptable and would not contribute to an economic, efficient or effective external audit process.
Reports of the Comptroller and Auditor General
The Bill also provides for a number of changes in relation to provisions concerning certain reports of the Comptroller and Auditor General. Under current arrangements, when the Committee of Dáil Éireann established under Standing Orders to examine and report on the appropriation accounts – the Committee Of Public Accounts – makes a report to Dáil Éireann, following its consideration of a report of the Comptroller and Auditor General, the report is considered by Dáil Éireann as soon as possible after it has been laid before the House. The amendment in Section 5 of Deputy McGuinness’s Bill provides, in effect, for the Chairman of the Committee of Public Accounts to place a motion on the Order Paper of Dáil Éireann seeking consideration of each report. Section 5 also introduces a statutory requirement on Accounting Officers to respond to requests of the Committee of Public Accounts within 30 days and requires Minister’s to ensure compliance where Accounting Officers fail to respond.
In relation to the business of the Committee of Public Accounts, if the Deputy considers that there are issues in relation to the Dáil’s consideration of PAC reports or responses to the Committee requests by Accounting Officers, it would be preferable if these issues were explored further, before deciding that a further legislative provision is the way forward. As it stands, the 1993 Comptroller and Auditor legislation, in section 19 of the Act, provides for the giving of evidence by Accounting Officers.
The Minister for Public Expenditure and Reform, as he has previously indicated to Deputy McGuinness, is open to developments which create a more relevant timeframe for responses between Accounting Officers and the PAC and his Department and thePAC. In this regard, the Minister for Public Expenditure and Reform is happy to make officials of his Department available for further discussion on this issue.
Housing Finance Agency
The Comptroller and Auditor General is responsible for the audit of accounts across a wide range of State activities including the audit of Government Departments and Offices, Funds administered by Government Departments, State Revenue Collection and Non-Commercial State Sponsored Bodies. The C&AG, however, does not audit commercial state bodies.
The Housing Finance Agency plc. was established in 1981. The Agency provides loan finance to local authorities and voluntary housing bodies for housing and related purposes. It is wholly self-financing, not being in receipt of State funds, and in the Comptroller and Auditor General (Amendment) Act 1993, is listed in amongst those State Bodies not audited by the C&AG.
Housing Finance Agency plc. has always been audited by external auditors in recognition of its:
- quasi commercial mandate
- public limited company status
- The complex Corporate Governance requirements which include: The UK Corporate Governance Code 2010; The Irish Stock Exchange Corporate Governance Annex; Irish GAAP; The Code of Practice for the Governance of State Bodies; Stock Exchange requirements for reporting within tight deadlines.
The Agency has already completed its annual audit for 2011 and published its 2011 Annual Report at its Annual General Meeting held on 30 April 2012. The audit costs €33,000 per annum and takes three weeks field work plus a further three weeks work to complete. The Agency’s year-end is 31 December and the audit commences in the first week in February following the year end.
As an entity, not in receipt of State funding, the HFA borrows debt finance on the international markets, to allow it to lend at the finest rates to customers. The complex nature of the loan finance documentation requires periodic statements of compliance by the Agency’s external auditors to facilitate the issue of debt. Such statements are also of a particularly time-sensitive nature. The Housing Finance Agency, of course, remains willing to provide information to any Committee of the Houses of the Oireachtas.
In conclusion let me reiterate that the Government is committed to greater scrutiny of public expenditure and the delivery of streamlined and flexible public services and activities. These issues are central to the Government’s Reform Agenda. While the Bill addresses the issue of greater scrutiny, and this principle is acknowledged and welcomed, we need to take account of the overall external audit environment of public expenditure and the potential for reform.