Wednesday 23 April 2008 at 9.30am in Speaker's House
Sir Stuart Bell MP
Nick Harvey MP
David Maclean MP
In the absence of the Speaker, Mr Nick Harvey MP was called to the chair.
The Committee met with Cath Hardaker, partner responsible for management consultancy, PKF (UK) LLP
Cath Hardaker said that a distinction had to be drawn between technical audit and providing assurance to the public. Even if the first procedures were good, there was no guarantee that outsiders would have confidence in them. The first issue is whether the rules were open and unquestionable. If so, it was relatively straightforward to get technical solutions. In both public and private sectors rules on expenses were not always clear cut because it was impossible to cover every eventuality. The spirit of the rules had to be expressed in terms of guidelines and guidance and backed up by some sanctions.
In discussion the following points were made:
- In the House of Commons there are three tiers of audit controlinternal checks on claims, internal audit checks of the system and NAO overall audit of the accounts and processesbut there were no checks which went behind the Member's signature.
- In the private sector the key issue on expenses was the purpose for which they were being paid. Staff who had to work away from their home or were relocated could be expected to receive reasonable expenses. Claims would always be authorised by another personand even a chief executive officer would have his claims authorised by someone else such as the chairman of the company. There were two approacheseither benefits in kind (which were taxable) or reimbursement (against receipts) so that the individual was 'not out of pocket'. A company might well compensate a peripatetic employee by supplementing their salary (subject to tax) for instance. The London allowance for MPs was analogous. This would be subject to some prior analysis of the costs of living such a dual working life and a test of reasonableness would be applied to the level. In general these matters were discretionary rather than prescriptive.
- In relation to claims and audit, in the private sector all claims would always have to be authorised by a senior person. In an accountancy or professional services firm the first test would be whether the client would regard the expense as reasonable and would therefore be willing to reimburse the expense and secondly whether the partner authorising would regard the expense as reasonable given that it is not re-chargeable to a client. In this case the authorisers would have to justify their own decisions. Some spot checking would take place before signing off. In most businesses, expenses were a fairly small part of the total costs and would not be a big feature in audit not least because the reputational risk was relatively low. In practice it would be the tax rules that would be the main controlling factor.
- Submission of receipts looked impressive but in practice does not prove a great dealthe real question is what the money was actually spent on. There was a risk that excessive prescription would create work without much benefit.
- Although contracting out the checking of claims might appear attractive, in practice any private firm doing this would refer problems back to the organisation itself to make value judgments but there might be benefits of such independent controls in terms of public reassurance. NAO audit was really only testing systems rather than checking actual cases. Sampling tended to reveal weaknesses in the process rather than individual faults.
- In the private sector, where there was some criticism from shareholders about high salaries, it was often not worth taking the reputational risk of making unreasonable claims. The proprietor of a small business would be subject to control by the Revenue and Customs.
- There was no easy solution to the problem of finding a higher authority than an MP to authorise claims so some other means of providing assurance was needed. Partners in a firm would be concerned about the risk to the firm's reputation and would not sign off on a process which could not be justified to clients, for example.
- The House ought to follow best practice in the public and private sectors and seek independent checks of systems and indeed of the rules and how they are applied. There would still be a problem about how to deal with individual failures in the system.
Nick Harvey thanked Cath Hardaker for her advice.