§ 8.5 p.m.
§ Lord Rooker
rose to move, That the draft Code of Audit Practice laid before the House on 27 January be approved.
The noble Lord said: My Lords, in moving this code of practice, I shall speak also to the Code of Audit Practice for Local Government Bodies (2005).
A new code of audit practice for local authorities and the National Health Service in England has been prepared by the Audit Commission and is now presented for approval by this House.
The commission has prepared separate codes for local government and the NHS. They are designed primarily to reflect the increasingly divergent accounting, corporate governance and performance management frameworks in the two sectors. The codes are the Audit Commission's documents. They have been prepared by the independent commission, as required by statute, to be used by the independent professional auditors which it appoints to audit local government and National Health Service bodies.
The codes prescribe the way in which external auditors of local authorities and NHS bodies carry out their statutory audit duties. The Audit Commission Act 1998 requires the commission to review the code and gain approval by affirmative resolution of both Houses of Parliament every five years. The current code was approved in March 2000, and alterations to that code—to introduce a "lighter touch" audit for small parish councils—were laid before Parliament in 2002. The end of the five-year period for the current code remains 28 March—that is, this month.
Previous codes have applied to both England and Wales. Legislation that has gone through the House in the mean time has created a new system and in Wales a new code is being prepared by the Auditor General. So these codes apply only to England.
In preparing the two codes, the Commission consulted widely, engaging key organisations that represent local government, the health service, the accountancy profession and the national audit agencies at each stage. It has worked collaboratively with the Commission for Healthcare Audit and 820 Inspection, known as the Healthcare Commission, and consulted recognised representatives and associations of audited bodies on the key issues and options for change.
The commission has agreed with the Healthcare Commission those parts of the NHS code which relate to auditors' local value-for-money work at NHS bodies. This is a requirement of the Health and Social Care (Community Health and Standards) Act 2003.
This collaborative, inclusive approach has been key to producing the high-level documents before us today. A wide consensus among all concerned provides the assurance that they present an effective contribution to the accountability framework. The codes reflect significant changes in the operating environment of local government and NHS bodies and in auditing standards and practice since the current code was prepared. The move towards the strategic regulation, described in the commission's strategic plan 2004–07, has governed the commission's objectives in revising the code. A more streamlined, risk-based approach to audit, targeted to areas where auditors have the most to contribute to improvement, has been the principal aim under strategic regulation, along with a stronger emphasis on value for money and clearer reporting of audit results.
The codes will come into effect once approved in this House and transitional provisions set out in Appendix 2 to each code apply to relevant audit work that relates to the financial years ending on or before 31 March 2005, completed before 31 December 2005. These transitional provisions will lapse with effect from 1 January 2006.
The codes have been. drafted in the context of our continuing reform and modernisation agendas for local government and the National Health Service. Effective external audit is an essential part of the scrutiny regime in local government and is central to the development of a modern, patient-focused healthcare system for the NHS. The code provides assurance that an effective independent audit will be carried out.
The codes are very important documents. They are key elements of the accountability framework for local government and the National Health Service. It is through audit that everyone can be assured that resources are being used effectively and for the purpose for which they were intended. I beg to move.
Moved, That the draft Code of Audit Practice laid before the House on 27 January be approved. (Lord Rooker.)
§ Baroness Hanham
My Lords, I thank the Minister for dealing with both these codes of practice at the same time. As far as I can see, they vary very little between one and the other, except for the implication for the National Health Service and foundation trusts—now coming into focus more and more—and the risk element, which is now a great part of the regulator's interest in what is being done in the health service. 821 There is nothing very much that I want to ask about this, except to say that there is a refreshing clarity about the codes. At least they are written in a way that we can all read, and there seems to me to be a commendable lack of jargon. I am glad to note that one of the requirements under this is that the auditors' report should replicate that, and there should be a refreshing lack of jargon there. It says that it should be in a "clear narrative style", and that is good.
I do not know whether it is worth trailing this, but I wonder whether the Minister would refer to the working or the auditing of partnership bodies. One of the areas that has been changed in these new codes is to take into account the fact that local authorities and the National Health Service are, more and more, working either with each other or with other bodies—local authorities, social services, voluntary bodies. I assume that the auditing of those partnership bodies will be done separately but, if necessary, the auditors will come together with a report. In some cases, local authorities are now running combined budgets—for example, they are together putting money into a separate pot—and it seems to me that there is a greater risk where this is happening than where there is single control over a budget. If the Minister knows the answer to that, I shall be grateful. If he does not, then I should be grateful to receive a short reply about it at some stage.
I am also assuming—I think I heard the Minister say that this was correct—that one of the three current responsibilities under the codes, which are being reduced to two, is to reflect the value-for-money work that will be done by the auditors in relation not only to the resources but also to the way that they are effectively being managed. Quite often, the auditors carry out specific value-for-money projects and I am assuming that those are subsumed in the two areas, rather than being specifically mentioned, as they were in the three previously. Having said that, I think that there is nothing for me to do other than to support the codes.
§ Baroness Scott of Needham Market
My Lords, I shall speak to both codes and start by declaring an interest. I was a member of the board of the Audit Commission when the codes were drawn up, which would make it very difficult for me to offer any criticism of them, were I inclined to do so.
It is worth observing at the start that discussion about the Audit Commission and its role usually centres on inspection through comprehensive performance assessment or the reports that it produces but, in fact, the bulk of the work is the day-to-day audit process, which is little spoken of. There is sometimes a danger in debate about regulation that we lose sight of the fact that much of the work done by the Audit Commission is in the form of external audit.
I think that we would all agree that all services and organisations need some form of external audit. In some, it needs to be more closely monitored because the risk is greater. In some areas, the risk is great 822 because the organisation itself is weak; and in others, the risk is inherent in the service. By its nature, the failure of an NHS body can have catastrophic results for the people that it serves.
Therefore, from these Benches, we welcome the principles of strategic regulation that underpin the approach, because audit that is risk-based and proportionate is essential. We certainly want clear links with the inspection regime. Linking audit and inspection for local government ought not to be too difficult, because they are both under the auspices of the Audit Commission. It is rather different in the health sector, where different bodies do both jobs. The noble Baroness, Lady Hanham, also makes a powerful point about the audit of partnership bodies.
Finally, if the audits are to be meaningful to the public, it is essential that they are as understandable and free of jargon as possible. We support the approach of the Audit Commission in trying to ensure that.
§ Baroness Hanham
My Lords, before the Minister replies, I think that somewhere along the line, I should have declared an interest both as a member of a local authority and chairman of a health trust.
§ Lord Rooker
My Lords, I am again grateful to the two noble Baronesses for their comments. I agree about the function of external audit. We are dealing with vast amounts of public money, if one considers local government and the NHS, and the public has every right to be interested and involved and to have the reports and information available in a readily understandable way, in the same way as Parliament does with the National Audit Office. The noble Baroness is quite right: the vast majority of work is the unsung, daily grind of the audit that is crucial. The value-for-money reports and inspections at local government level are somewhat different and probably get a higher profile. Nevertheless, the big exercise of work is day-to-day.
I am very grateful that the noble Baroness raised the good point about partnership bodies because that gives me an opportunity to put this on record. There is more and more partnership working today. I spent about six hours today with about 20—probably more—local strategic partnerships dealing with local government right across the piece. There is more and more of that and we encourage the private and voluntary sector to be involved in that area. However, where organisations are set up and public money is going into partnerships, the auditors have the statutory power to follow that public money into partnerships.
Let me be absolutely clear, there are no no-go areas, but there are professional protocols governing all auditors for different partners to join up their work. Obviously, people coming into a partnership—for example, LSPs, although they are not delivery mechanisms—may not be part of local government. Where there are partnerships and one can be assured that public money is going into the partnership, our 823 auditors, the Audit Commission, have the power under law to follow that public money into the partnership to ensure that everything is okay.
On Question, Motion agreed to.