HL Deb 23 March 2000 vol 611 cc486-8

8.30 p.m.

Lord Whitty

rose to move, That the draft code laid before the House on 9th March be approved.

The noble Lord said: My Lords, this is a new Code of Audit Practice for local authorities and the National Health Service in England and Wales.

The code is the Audit Commission's document. As statute requires, it has been prepared by the independent commission to be used by the independent professional auditors which the commission appoints to audit local government and National Health Service bodies.

In essence the code is two codes. First, it replaces the existing Code of Audit Practice, which ceases to have effect on 21st July, and the new code prescribes the way in which external auditors must carry out their financial audit tasks. Secondly, it is a code that deals with best value and the responsibilities of local authority auditors in relation to the audit of the new best value performance plans and the best value regime.

In preparing the code, the commission has taken account of wider audit developments. It reflects the increased risk-based approach to audit, auditors' new responsibilities in relation to regularity in NHS bodies, increased emphasis on work related to standards of financial conduct within audited bodies and the new duty to audit best value performance plans.

The code covers all aspects of auditors' responsibilities and sets out the general principles to be followed by auditors; the audit framework within which auditors will carry out their responsibilities; and auditors' responsibilities in relation to reviews on the financial aspects of corporate governance, the audit of the accounts and reviews of aspects of performance management.

It is the responsibility of audited bodies to put in place suitable arrangements to ensure the proper conduct of their financial affairs. Auditors must review those systems to ensure that they are adequate to maintain the legality of transactions and that the financial standing of the body is soundly based.

The code also sets out auditors' responsibilities for reviewing the aspects of performance of audited bodies. Auditors review and report on the arrangements in place to secure economy, efficiency and effectiveness in the use of resources. From 1st April auditors in local government will audit the new best value performance plans which all bodies must prepare and publish.

The code will come into effect once approved by this House. It will apply to all audits currently in progress and to the audits for the financial year commencing on 1st April 2000. A transitional annexe sets out the guidance for audits currently in progress. Essentially, that is the guidance from the existing code that is being re-approved for this transitional period to provide continuity for work in progress. I beg to move.

Moved, That the draft code laid before the House on 9th March be approved [13th Report from the Joint Committee].—(Lord Whitty.)

Lord Brabazon of Tara

My Lords, we broadly welcome this. It is the first time that a document like this has been introduced as an order, which must be good. Again, I have prepared a speech which I shall not make in view of the lateness of the hour and the events that have taken place this evening. I am sorry that there are not more noble Lords in the House to take account of this great event. Nevertheless, we have to put up with what we have. Perhaps I should rephrase that.

Baroness Hamwee

My Lords, I believe the noble Lord is looking for words such as "feel the quality"!

Lord Brabazon of Tara

My Lords, never mind the quality feel the width! I am told that there is a national shortage of auditors. It could be said that one of the Government's lasting achievements will be that they have created a massive increase in the auditing industry. However, we support the order and we support the document. It covers not only local government but also the National Health Service. With all the promises that have been made for the National Health Service, it will be even more important that this is taken forward.

Baroness Hamwee

My Lords, we too support the order. I make one comment. I note that in the section dealing with best value performance plans, paragraph 74, the statement is made that, Auditors should meet this responsibility by reviewing, and where appropriate examining evidence relevant to … the adequacy of the systems that the audited body"— local authorities, by and large— has put in place to collect and record specified performance information". As we said during the passage of the Local Government Act 1999 which introduced best value, we believe that it is important that the performance indicators that are applied are not so standardised that they become inappropriate to different local circumstances. We believe that best value should be a means of local authorities developing the appropriate indicators for their own circumstances. We hope that the Audit Commission will be a helpful part of that process rather than a process of standardisation that may fail to recognise what is truly best value in different circumstances.

Lord Whitty

My Lords, I am grateful to the noble Lord, Lord Brabazon, for recognising the historic importance of this small assembly here tonight. It is important that the code of practice receives parliamentary approval and it is important that we note that it covers the National Health Service and the introduction of the best value provisions. In relation to the National Health Service, the Audit Commission is clearly carrying out a task on behalf of Parliament, and therefore it is slightly different from the audit situation in relation to local government.

The noble Lord claims that there is a shortage of auditors. There are some difficulties in the private sector in auditing private companies, but I believe that by organising its work effectively the Audit Commission will be able to carry out these tasks.

In relation to the point raised by the noble Baroness, Lady Hamwee, about the nature of the indicators, we believe that the best value regime will allow a degree of flexibility of indicators in a way in which past regimes perhaps have not and which, therefore, will be responsive to local circumstances. Nevertheless, they will press on local authorities the need to achieve best value in all their endeavours. The way in which the Audit Commission develops its regime should help local authorities to develop their own internal targets and indicators of their performance.

Therefore, I hope this is the basis of a constructive relationship between the Audit Commission, the local authorities and National Health Service bodies.

On Question, Motion agreed to.