top stories

AUDIT AND ACCOUNTABILITY IN THE PUBLIC SECTOR IN NORTHERN IRELAND

Consultation Paper by Department of Finance and Personnel

Comments from the Association of Chartered Certified Accountants

November 2001

Executive Summary

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the Department of Finance and Personnel's consultation paper, Audit and Accountability in the Public Sector in Northern Ireland.

These comments have been prepared in consultation with members of the ACCA's Public Sector Forum, a group of experienced accountants working in the public sector in Northern Ireland and the Republic of Ireland.

ACCA welcomes this paper as an important contribution to the fundamental review of the overall framework of audit and accountability in the public sector in Northern Ireland.

We support the proposal to give the Northern Ireland Audit Office (NIAO) the responsibility for public audit in central government (including health bodies) and district councils. This should provide a firm basis for creating a high quality and well respected independent audit facility for the province. ACCA believes that there should be an assumption that most public sector audit in Northern Ireland should be provided by staff from the NIAO.

More generally, we believe that further improvements and optimisation of corporate governance arrangements should enhance the accountability of public sector entities in Northern Ireland. This should include ensuring that all such entities are required to introduce and maintain:

• effective and appropriate risk management processes
• annual statements on internal control signed by the Accounting Officer
• audit committees which follow best practice principles
  and 
• adequately resourced internal audit functions which comply with the relevant standards or codes.

Responses to specific questions included in the consultation paper

Questions in relation to central government departments

Is the general approach to audit of central government satisfactory? Are there any changes which would improve the way in which Departments and Agencies are held to account by the Assembly?

1. Yes, ACCA believes the general approach to the audit of central government is satisfactory. The wider remit of public audit should, however, be clearly recognised and be based firmly on the principles of the Public Audit Forum (established in 1998 by the UK national audit agencies as a focus for development thinking about public audit). These emphasise the independence of public sector auditors from the organisations being examined, the wide scope of public audit and the ability of auditors to make the results of their work public.

2. Further improvements and optimisation of their corporate governance arrangements could improve the accountability of Departments and Agencies. This should include ensuring that all such entities are required to introduce and maintain:

• effective and appropriate risk management processes
• annual statements on internal control signed by the Accounting Officer
• audit committees which follow best practice principles
  and
• adequately resourced internal audit functions which comply with the Government Internal Audit Manual (HM Treasury).

What quality improvement issues are there for the auditing profession in relation to central government bodies?

3. ACCA considers the proposals in the consultation document should help to develop and maintain an audit institution for the public sector in Northern Ireland with the critical mass and quality processes which are necessary to provide a high quality audit service to the Assembly.

4. A certain staff size threshold is necessary to ensure that the Northern Ireland Audit Office (NIAO) can achieve the independence, status and credibility it requires to be effective. This critical mass is also necessary to provide the training and career opportunities which will attract and retain the highest calibre of staff and enable it to sustain the specialist services which are required.

5. The NIAO should also develop within the context of it being part of the audit function of the UK government as a whole. The Public Audit Forum has been successful in developing co-operation between the national audit agencies across the UK. We believe that this success should be built upon. This could include, for example, the establishment of:

• systems of mutual quality reviews of each of the agencies involved
• areas of expertise and specialisms within each national agency which can be utilised by other audit agencies across the UK
• joint training programmes and systems of staff secondments between the agencies
  and
• joint working on appropriate value-for-money studies which could be extended beyond the jurisdictions of a particular agency.

6. ACCA considers that this system of co-operation should also be extended to include the development of more effective links between the NIAO and the National Audit Office in the Republic of Ireland.

Is any improvement needed in working arrangements between public and private auditors?

7. While we believe that there are benefits to be gained from using private sector audit firms to provide public audit, we acknowledge that there may be some disadvantages to this approach. These may include the facts that:

• while there are many similarities between the work of private sector audit firms and the core work of public audit, there are also some key differences - primarily in terms of the significantly wider scope of public sector audit
• public auditors' responsibilities for the audit of regularity mean that audit staff are required to have an in-depth knowledge of the regularity environment of the organisations which they are auditing; this knowledge may not necessarily be available to staff from private sector firms
• the differences in culture, values and ethos between the public and private sectors may mean that audit staff who are used to working in private sector entities may not be as effective as career public sector auditors
  and
• the NIAO needs to be of a certain size in order to attract and retain the appropriate staff and provide the range of services which are required (see paragraph 4 above).

8. We consider that there are certain circumstances in which private sector audit firms should be used to complement the work of staff of the NIAO. These may include, for example:

• allowing the facility to bench-mark with the private sector the approach, working practices and value for money of the NIAO
• using private sector capacity to overcome particular seasonal peaks in the workload of the NIAO
  and
• using private sector audit firms to provide specialist services which are necessary for the audit of particular government entities.

Do you consider that any changes are appropriate to the regulation of audit having regard to the eligibility of persons entitled to be appointed auditors or the conduct of audit in the public sector?

9. We agree with the following recommendation from the Sharman report:

"The Department of Trade and Industry and the National Audit Office (NAO) should work together to identify how best the current obstacles to the ability of the C&AG to be appointed as an auditor under the Companies Act can be removed. The aim should be for the C&AG to be the auditor of NDPBs which are companies, companies owned by a department, or companies which are subsidiaries of a NDPB audited by the C&AG."

10. The implementation of this recommendation should also ensure that the NIAO is able to be appointed as the auditor of non-departmental public bodies (NDPBs) which are companies, companies owned by a department, or companies which are subsidiaries of a NDPB. We believe that the remit of the NIAO should also be extended to include the provision of external audit to:

• educational institutions
  and
• housing associations.

11. The aim should be to ensure that the Comptroller and Auditor General (C&AG) in Northern Ireland audits directly or appoints the auditors for all public sector entities in the province. This should ensure that the Public Accounts Committee of the Assembly is provided with uniformly high levels of assurance on the regularity and probity of all public services.

Questions in relation to NDPBs

The Sharman report has recommended that as a matter of principle, the C&AG should be appointed auditor on behalf of Parliament, of all NDPBs including those where the relevant Minister currently appoints the auditor. Do you agree that this should be read across to Northern Ireland?

12. ACCA agrees that this principle should apply across Northern Ireland.

What arrangements should be put in place to ensure that there is no reduction in the level of assurance that is currently provided to departments and the coverage of the audit?

13. The C&AG should agree its annual audit plan with the audit committee for each of the organisations which are subject to audit by the NIAO. The management or audit letter arising from each audit should also be discussed with the organisation's audit committee.

The C&AG currently contracts out selected audits to private firms. If he were appointed auditor on behalf of the Assembly of all NDPBs, would it be appropriate to extend this?

14. We do not consider that the number of audits which are contracted out to private firms should be automatically extended. We believe that the costs and benefits of extending such outsourcing should be carefully considered (see paragraphs 7 and 8 above) before such a decision is taken.

Should the C&AG be the auditor of NDPBs which are companies owned by a department or companies that are subsidiaries of NDPBs audited by the C&AG?

15. ACCA considers that the C&AG should be responsible for the provision of external audit services to all central government entities in Northern Ireland whatever particular legal forms they take.

Should the C&AG become generally eligible for appointment as auditor of limited liability companies?

16. Provided that this is feasible (see also paragraph 9 above), we accept that, in some circumstances, it would be appropriate for the C&AG to audit limited liability companies. In these circumstances, a completely level playing field should be required. The C&AG should be subject to the same disciplines and conditions as his private sector opposite numbers, for example, with regard to training, continuing professional development, documentation and peer review. It may be that there are companies whose work is predominately with the public sector which would choose to have the NIAO as their external auditors. In some cases, this may enable the oversight of these companies to be undertaken more cost effectively, for example, where they are in receipt of significant levels of grant aid from the public sector.

17. Where a company is owned, controlled or under the influence of a department but is primarily commercial in nature, it may be more appropriate for the external audit of the company to be undertaken by a private sector audit firm under contract to the C&AG.

Should the C&AG carry out such work on behalf of the relevant governing body of the entity rather than the Assembly?

18. ACCA agrees with the Sharman report that the C&AG should be eligible to be appointed as the external auditor of a company "where a department has a substantial stake or influence (for example, through being able to appoint board members, and influence strategy, or by way of a financial investment of, for example, more than 25 per cent of the shareholding)". In such cases, the C&AG should agree the specific plans for the audit with the relevant governing body and report back the results of the audit to it. The C&AG should, however, also report on such bodies to the Public Accounts Committee.

19. We also agree with the Sharman report that:

"There may also be cases of other organisations with a 'public interest' role (eg representative bodies, or organisations which play a role in public life) where the C&AG should not be prevented from being eligible for appointment as the auditor, should he be asked to become so. If the C&AG were to become eligible to undertake such work, then such audits would be carried out on behalf of the relevant governing body of the entity, rather than on behalf of Parliament."

What are (or would be) the issues and implications in relation to any proposed changes?

20. Any changes should ensure that the responsibilities under company law of the directors of the companies concerned are not compromised.

Questions on HSS bodies

What quality improvement issues are there for the auditing profession in relation to HSS bodies?

21. In addition to the points raised in relation to central government at paragraphs 3 - 5 above, we also consider that the current arrangements for the external audit of Health and Social Services (HSS) bodies being undertaken by HSS staff could compromise the independence of this external audit. There should also be a separation of functions between the Department of HSS, which provides the regulatory and funding framework for individual HSS bodies, and the audit of these organisations.

22. The accountability of HSS bodies could be further improved with the reform and optimisation of their corporate governance arrangements. This should include ensuring that all such entities are required to introduce and maintain:

• effective and appropriate risk management processes
• annual statements on internal control signed by the chief executive
• audit committees which follow best practice principles
  and
• adequately resourced internal audit functions which comply with the Government Internal Audit Manual (HM Treasury) and use the NHS Internal Audit Manual (England & Wales) as a source of guidance.

Do you consider that the current arrangements for the audit of HSS bodies in Northern Ireland should be revised?

23. ACCA considers that these do not now represent best public sector audit practice. The external audit of HSS bodies is not clearly independent of the HSS itself.

If so what changes would you suggest?

24. We consider that individual HSS bodies should be subject to audit by staff from the NIAO. We support the proposal, contained in the consultation document, to re-organise audit in Northern Ireland so that that health audit is brought under the direct management of the NIAO and the staff transferred from the Department of Health and Social Services and Public Safety.

Should the C&AG carry out such work on behalf of the relevant governing body of the entity rather than the Assembly?

25. We consider that the audit of individual HSS bodies should be undertaken on behalf of the Assembly.

26. As with the case of companies subject to audit by the C&AG, the C&AG should agree the specific plans for the audit with the relevant governing body and report back the results of the audit to it. This should normally occur through the governing body's audit committee. The C&AG should, however, also report on such bodies to the Public Accounts Committee of the Assembly.

What are (or would be) the issues and implications in relation to any proposed changes?

27. ACCA believes that it would not be appropriate for the individual HSS bodies to bear the cost of the audit undertaken by staff of the NIAO, as the bodies would have no choice on the scope of their external audit or the entity which undertakes this work. It may, however, be appropriate for a body to pay for specific limited additional work over and above the C&AG's basic plans for the organisation. Suitable protocols should be developed for agreeing and undertaking such work.

28. We believe that external audit work is more effective if it is undertaken by specialist teams experienced with the particular environment of the bodies concerned. For this reason, we consider that the NIAO should consider establishing specialist teams of staff to undertake the audit work at HSS bodies.

Questions on local government audit

What quality improvement issues are there for the auditing profession in relation to local government?

29. The challenge with regard to external audit of district councils is to ensure that the auditors provide adequate audit assurance to the councils themselves as well as to the Assembly which provides the bulk of the funding for these councils. There should be a separation of functions between the Department of the Environment, which provides the regulatory and funding framework for local councils, and the audit of these councils.

30. We also believe that there is a need for the staff who undertake audits at district councils to be part of a larger body which will provide the career opportunities and professional support which is necessary to attract and retain the highest calibre of staff.

31. The accountability of district councils could be further improved with the reform and optimisation of their corporate governance arrangements. This should include ensuring that all such entities are required to introduce and maintain:

• effective and appropriate risk management processes
• annual statements on internal control signed by the chief executive 
• audit committees which follow best practice principles
  and
• adequately resourced internal audit functions which comply with the Code of Practice for Internal Audit in Local Government in the United Kingdom.

How do you consider audit reporting on each council's performance could be improved?

32. We agree with the Audit Commission's suggestions that local authorities in England and Wales should be required to publish a summarised annual plan in March each year and then to produce and publish an annual report in September. The annual report should contain the financial statements and information on the actual performance of the authority against its plans. We recommend that this practice should be adopted by district councils in Northern Ireland.

33. In England and Wales, council auditors have a responsibility to review and report on:

• the arrangements which the audited body has put in place to prepare and publish specified performance information
  and
• the audited body's compliance with statutory requirements in respect of the preparation and publication of its best value performance plan.

34. We consider that these examples of good practice in audit reporting should be introduced in Northern Ireland by Local Government Audit (LGA) revising the Code of Audit Practice for district councils in Northern Ireland in the light of the Audit Commission's current Code for England and Wales.

Do you consider that the current arrangements for the audit of local government in Northern Ireland should be revised?

35. We consider that the current arrangements should be revised to reflect the democratic mandate of district councils and the fact that the bulk of their funding comes from the Assembly. Thus, as elected bodies, district councils should have external auditors which report to the councils. In addition, the external auditors of district councils should also report to the Assembly as the main provider of funds for the councils.

If so what changes would you suggest?

36. ACCA agrees with the proposal put forward in the consultation document that LGA "should be attached, for the purposes of staffing, professional development and resourcing, to the NIAO, but retain its separate legal status". This should provide LGA with the status, independence and professional credibility to deliver a high quality audit service to the district councils of Northern Ireland.

37. We do not agree, however, that "responsibility for the policy and legislative framework for local government audit [should] …remain with the Department of the Environment". We do not consider that such an arrangement would provide the necessary separation of functions between the Department, which provides the regulatory and funding framework for district councils, and the audit of these bodies.

38. A senior named member of staff of LGA should be appointed by the organisation to be responsible for the audit at each district council. This appointment should be agreed, where possible, with the relevant council.

39. This senior manager should agree the specific plans for the audit with the council's audit committee and report back the results of the audit to this body.

What are (or would be) the issues and implications in relation to any proposed changes?

40. To emphasise the differing responsibilities of the C&AG to the Assembly and of the LGA auditors to individual district councils the LGA should remain as a separate legal entity. We believe, however, that the audits which the LGA is responsible for providing directly should be resourced with staff from the NIAO.

41. ACCA believes that, given the relatively small number of district councils in Northern Ireland compared with, for example, the number of local councils in England and Wales, it would be appropriate for the LGA to establish joint working arrangements with its counterparts in other parts of the United Kingdom and Ireland.

Questions on the Sharman Report

What are your views on the recommendations of the Sharman Report set out in Annex 3 to this paper? 42. We agree with almost all the recommendations included in Annex 3 to the consultation paper. We believe that the principles contained in these recommendations should be extended, where appropriate, to apply to HSS bodies and district councils in Northern Ireland.

43. We consider that the principles in paragraph 2 should be extended to include audit committees having responsibility for:

• agreeing the appointment and dismissal of the head of internal audit
• arranging a meeting with the external audit manager and the head of internal audit, at least once a year, without the presence of executive management · agreeing external audit annual plans
• receiving an annual report from the head of internal audit on the quality of the organisation's internal control system
  and
• receiving an annual letter from the external auditor on recommendations for improvement to the organisation's management arrangements.

44. At paragraph 3, internal audit should be required to comply with the Government Internal Audit Manual or the Code of Practice for Internal Audit in Local Government in the United Kingdom as appropriate.

45. At paragraph 7, we consider that the proposed protocols should be developed by the NIAO in consultation with interested parties. We do not consider that a defined de minimus rule should apply, but the protocols should make reference to materiality.

46. At paragraph 14, we consider that a similar code of practice, covering liaison between internal and external audit, should be developed by the NIAO in consultation with government internal audit sections in the province.

47. We agree that the work of the NIAO should be subject to quality review. We consider, however, that it would be appropriate for this to be undertaken by other public audit agencies (for example, the national agencies from England, Scotland or Wales) rather than just by the Joint Monitoring Unit.

48. At paragraph 20, we consider that the independent assessments should only be made available to audited bodies at the discretion of the NIAO. This should help to ensure that full and frank assessments do not undermine the professional relationship between the NIAO and its audited bodies.

49. We believe that consideration should also be given to arranging to televise suitable sessions of the Public Accounts Committee as currently happens successfully in the Republic of Ireland.

Do you have any comments or suggestions for improvement in relation to the existing arrangements for audit and accountability in general?

50. The Public Accounts Committee should have responsibility for:

• monitoring the quality of the C&AG's work including considering the views of auditees 
• recommending the C&AG's annual budget to be agreed by the Assembly
  and
• selecting and recommending to the Assembly the appointment of the C&AG.

Questions in relation to rights of access

Should the current arrangements for C&AG access be extended further? What implications might there be for the private, voluntary and community sectors? If you think there should be wider access powers for C&AG, should this be achieved through new legislation or by using the order making power in GRAA(NI) 2001?

51. We believe that the access rights of the C&AG should be extended further to ensure that public money can be followed and subject to scrutiny by public audit. The C&AG should have the access rights necessary to ensure the probity of public money and to confirm that it is used for the reasons for which it was given.

52. ACCA considers that utilising the order-making power in GRAA(NI) 2001 would allow the regulations to be developed in more detail and to be amended with more flexibility. Should fixed protocols be produced by the C&AG, the bodies involved and their regulators for the exercise of new powers and rights of access?

53. We believe that the C&AG should develop the proposed protocols in consultation with the bodies involved and their regulators.

Should a de minimis threshold be introduced as recommended in Sharman and if so, what level is suggested?

54. We do not believe that it is appropriate to define a de minimis threshold which would determine whether the C&AG would have access to private or voluntary sector organisations in receipt of public funds. The proposed protocols should, however, indicate that the C&AG will consider the materiality of the transactions involved before exercising such access rights.

Questions on validation of performance information

Do you consider that there should be external validation of departmental performance reporting?

55. An approach to external validation of departmental performance reporting should be developed. We believe, however, that this is a difficult area in which to achieve the desired goals without significantly increasing the NIAO's costs.

What are your views on how this should be taken forward and by whom?

56. We believe that the Sharman report (paragraph 8 of the consultation paper, Annex 3) provides suitable guidance for developments in this area. The NIAO should be actively involved in these developments.

How can the role of the Assembly Committees develop to secure effective monitoring of the performance of public services, complementing the specific functions of the Public Accounts Committee?

57. We believe that the recommendations of the Sharman report (paragraph 9 of the consultation paper Annex 3) provide a suitable starting point. Developments in the Scottish Parliament and the Welsh Assembly should also be monitored to identify good practice.

Back to top