Wednesday 4 June 2008 at 9.30am in Speaker's House
Sir Stuart Bell MP
Nick Harvey MP
Mr David Maclean MP
In the absence of the Speaker, Sir Stuart Bell MP was called to the chair.
The Committee met with Tim Burr, Comptroller & Auditor General and Paul Holland, NAO
Tim Burr recalled that, at the previous meeting on 30 April, he had suggested bringing the audit arrangements for the Members' Estimate into line with normal audit practice. He had been asked to produce a paper setting out future audit options. His paper set out two options. The firstenhanced audit to normal standardswould be greatly assisted by the reduction in the threshold for receipts to £25. The second optionpractice assurance as for the professionsalso had its attractions. The latter would not be as effective in providing full audit assurance because it would only relate to those directly affected. In addition the variety of working practices meant that assumptions could not be drawn about other Members. Concluding, he said that the NAO would be very firm in applying the FOI exemption designed to maintain the integrity of the audit process.
In discussion, the following points were made:
- Quality assurance teams would need close oversight by the Department of Resources to ensure consistency.
- If some 20% of Members were subject to QA each year, this would be a large enough sample to provide some assurance.
- Having been notified of the opportunity to put the audit arrangements on the same basis as other public bodies, the House should now do so.
- The effectiveness of an audit depends on the quality of the systems. It had been recognised ten years ago, that the then high threshold for receipts entailed a lack of evidence on actual expenditure and the scope of the audit engagement was restricted to the validity of claims.
- Practice assurance would be helped by greater consistency of working practices in MPs' offices, so better inferences could be drawn from individual exercisesthe Department of Resources could encourage the use of best practice models in, for instance, software.
- The likely cost of external practice assurance was in the range of £150k to £500k per annum but the cost could be reduced over the years as practices improved and greater use was made of in-house staff.
- A stronger Green Book and the lower receipts threshold would in themselves make a full audit opinion more attainable but it was nonetheless desirable to go behind the Member's signature to establish that resources had been properly applied for the purposes intended.
- Practice assurance would examine the purposes for which money had been used.
- Both optionsenhanced audit and practice assurancewere not mutually exclusive.
- Sample audit of MPs would continue to be by the external auditors examining an allowance or payment stream and selecting at random a number of transactions to follow through in detail, some of which might relate to the same Member. At present the process involved checking whether the claim was valid in terms of being within the permitted rulesenhanced audit would involve a further check on receipts to see what the money was spent for.
- Practice or quality assurance was essentially a management control and could be outsourcedit would be focused on the individual not the allowancethe team would examine how affairs were managed in the office and check the reliability of systemsto begin with such a process would have to be comprehensive but it could lead to a lighter touch over time.
- Reducing the receipts threshold from £25 to zero would make little difference from an audit point of view because the sums involved were so small but it would not hinder the audit, which might reveal some smaller sums for which there was no supporting evidence.
- There was currently no statutory requirement for audit of the Members' Estimate.
- Of the options for reform of the ACA, a per diem would require only proof that the claimant was an MP and that he or she had attended the House on the day concerned. Provided the system had been agreed by the House, it was not for the auditor to take a view on whether to have such a system, but HMRC would have to be satisfied that the allowance was not additional salary.
- The Accounting Officer would need to be satisfied that any money disbursed for staying away from home had some validation, otherwise it would be treated as pay. There needed to be some test of the purpose on which it was spent.
- Attendance allowances needed some proof of presencemost were taxed.
- If a regular monthly grant for housing costs was paid, the practice assurance would check receiptsthere would have to be some management controls and the external audit would have to be satisfied about the quality of the internal controls.
- In the last year audit of the different allowances had involved sampling 70 transactions on the staffing allowance, 53 on IEP, 47 on ACA, 34 on travel and two winding up.
- Practice assurance could be done internally or outsourced, and there might be a case for combined, multi-disciplinary teams to ensure consistency. Lack of consistency of advice was often a complaint from Members, sometimes justifiably.
- Any revision of the Green Book would need to be accompanied by a programme to make Members more aware of its contents.
- Practice assurance should feedback into the statement of internal control. An escalating range of sanctions would be needed to deal with minor inadvertence to serious abuse.
Sir Stuart Bell thanked the Comptroller & Auditor General and Paul Holland for their invaluable advice.