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SCPA/S3/08/4/A SCOTTISH COMMISSION FOR PUBLIC AUDIT AGENDA 4th Meeting, 2008 (Session 3) Wednesday 17 September 2008 The Commission will meet at 11.00 am in Committee Room 3. 1. Decisions on taking business in private: The Commission will decide whether to take item 3 in private, and whether to consider the evidence heard and discuss draft reports on its review of the corporate governance of Audit Scotland in private at future meetings. 2. Corporate governance of Audit Scotland: The Commission will take evidence on its review of the corporate governance of Audit Scotland from— Tom McCabe MSP, Member of the Scottish Parliamentary Corporate Body, Paul Grice, Clerk and Chief Executive, Scottish Parliament. 3. Corporate governance of Audit Scotland: The Commission will consider the issues arising from the evidence heard to date, in order to inform the next stage of its review. Mark Brough Secretary to the Commission

Transcript of The Scottish Parliament Archive - SCOTTISH COMMISSION ......Scottish Parliament Information Centre...

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SCPA/S3/08/4/A

SCOTTISH COMMISSION FOR PUBLIC AUDIT

AGENDA

4th Meeting, 2008 (Session 3)

Wednesday 17 September 2008

The Commission will meet at 11.00 am in Committee Room 3. 1. Decisions on taking business in private: The Commission will decide whether

to take item 3 in private, and whether to consider the evidence heard and discuss draft reports on its review of the corporate governance of Audit Scotland in private at future meetings.

2. Corporate governance of Audit Scotland: The Commission will take evidence

on its review of the corporate governance of Audit Scotland from—

Tom McCabe MSP, Member of the Scottish Parliamentary Corporate Body, Paul Grice, Clerk and Chief Executive, Scottish Parliament.

3. Corporate governance of Audit Scotland: The Commission will consider the

issues arising from the evidence heard to date, in order to inform the next stage of its review.

Mark Brough

Secretary to the Commission

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SCPA/S3/08/4/A

The papers for this meeting are: Agenda Item 2 SPICe Briefing Correspondence from Chair of Audit Scotland 26 May 2008 Correspondence from Chair of Audit Scotland 1 September 2008 The Public Accounts Commission, Review of the National Audit Office’s Corporate Governance (previously circulated to members) The Public Accounts Commission, Corporate Governance of the National Audit Office: Response to John Tiner’s Review (previously circulated to members) Briefing paper [PRIVATE- for Commission members only] Correspondence from Murdo Fraser MSP

SCPA/S3/08/4/1 SCPA/S3/08/4/2 SCPA/S3/08/4/3 SCPA/S3/08/4/4 SCPA/S3/08/4/5 SCPA/S3/08/4/6(P) SCPA/S3/08/4/7

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PUBLIC AUDIT STRUCTURES IN THE UK ROSS BURNSIDE

This briefing has been produced for the Scottish Commission for Public Audit (SCPA). It compares and contrasts the public audit structures in Scotland with those in England, Wales and Northern Ireland, primarily focusing on the governance structure of the respective Auditors General and Audit Offices. Members should note that there is proposed legislative change to the UK National Audit Office which is likely to be included in a forthcoming “Constitutional Renewal” Bill (Ministry of Justice 2008) at Westminster. This briefing outlines the current situation in each of the jurisdictions of the UK.

SPICe briefing

10 September 2008 08/45

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Scottish Parliament Information Centre (SPICe) Briefings are compiled for the benefit of the Members of the Parliament and their personal staff. Authors are available to discuss the contents of these papers with MSPs and their staff who should contact Ross Burnside on extension 86231 or email [email protected]. Members of the public or external organisations may comment on this briefing by emailing us at [email protected]. However, researchers are unable to enter into personal discussion in relation to SPICe Briefing Papers. If you have any general questions about the work of the Parliament you can email the Parliament’s Public Information Service at [email protected]. Every effort is made to ensure that the information contained in SPICe briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes.

www.scottish.parliament.uk

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CONTENTS INTRODUCTION ..........................................................................................................................................................3

BASIC PUBLIC AUDIT STRUCTURE OF UK, SCOTLAND, WALES, NORTHERN IRELAND................................3

AUDIT STRUCTURE OF THE UK ...............................................................................................................................4 COMPTROLLER AND AUDITOR GENERAL.......................................................................................................................4

Appointment Process ...........................................................................................................................................5 Remuneration.......................................................................................................................................................5

NATIONAL AUDIT OFFICE.............................................................................................................................................5 National Audit Office Structure.............................................................................................................................6 Management Board..............................................................................................................................................6 NAO Audit Committee..........................................................................................................................................7 Appointment to the Management Board ..............................................................................................................7 Remuneration of Management Board..................................................................................................................7

AUDIT STRUCTURE OF SCOTLAND.........................................................................................................................8 AUDITOR GENERAL FOR SCOTLAND .............................................................................................................................8

Appointment Process ...........................................................................................................................................8 Remuneration.......................................................................................................................................................8

AUDIT SCOTLAND .......................................................................................................................................................9 Audit Scotland Board ...........................................................................................................................................9 Sub-committees ...................................................................................................................................................9 Appointment of Board ........................................................................................................................................10 Remuneration of Board ......................................................................................................................................10

AUDIT STRUCTURE OF WALES..............................................................................................................................10 AUDITOR GENERAL FOR WALES ................................................................................................................................10

Appointment Process .........................................................................................................................................10 Remuneration.....................................................................................................................................................11

WALES AUDIT OFFICE ...............................................................................................................................................11 Wales Audit Office Partnership Board and Management Committee................................................................11 Audit and Risk Management Committee ...........................................................................................................11

AUDIT STRUCTURE OF NORTHERN IRELAND.....................................................................................................12 NORTHERN IRELAND COMPTROLLER AND AUDITOR GENERAL .....................................................................................12

Appointment Process .........................................................................................................................................12 Remuneration.....................................................................................................................................................12

NORTHERN IRELAND AUDIT OFFICE ...........................................................................................................................12 Northern Ireland Audit Office Board...................................................................................................................13 Appointment of the NIAO Management Board ..................................................................................................14 Remuneration of the Board................................................................................................................................14

SOURCES ..................................................................................................................................................................15

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INTRODUCTION The UK Parliament’s Public Accounts Commission has recently undertaken a review of the National Audit Office’s (NAO) Corporate Governance arrangements and made the following recommendations (Public Accounts Commission 2008a):

“The NAO should be formed as a body corporate with a governing board comprising a majority of independent non executive directors. Its main functions should be to set the strategy of the Office, support and oversee the work of the Comptroller and Auditor General (C&AG), ensure the Office (including the C&AG) conducts its business in an economic, efficient and effective way and satisfy itself that the systems of governance and internal controls operate effectively and to the highest standards. The Board should have a Remuneration Committee and an Audit Committee comprised entirely of non-executive directors. The Chief Executive (who would be styled the C&AG) should have complete personal discretion as to the audit judgements he reaches and the presentation of those judgements to the Public Accounts Committee and other committees of Parliament as may be necessary. Both the Chairman and Chief Executive of the NAO Board would be appointed by Her Majesty the Queen on a motion from the House of Commons. The Chairman and the other non-executives should be appointed for a term of 3 years renewable once. The Chief Executive should be appointed for a fixed term of 8 years which cannot be renewed.”

The UK Government white paper The Governance of Britain – Constitutional Renewal (Ministry of Justice 2008) published in March 2008 accepted the recommendations of the Public Accounts Commission report. It stated:

“On 6 March 2008, the Public Accounts Commission reported on the future governance of the National Audit Office (NAO).The Government accepts the Commission’s recommendations and will legislate to implement them. Accordingly the Constitutional Renewal Bill as presented for introduction, will seek to restructure NAO.”

The Public Accounts Commission has since published the draft clauses for inclusion within the forthcoming Constitutional Renewal Bill (Public Accounts Commission 2008b). This briefing looks at the public audit structures within the constituent parts of the UK as they currently stand.

BASIC PUBLIC AUDIT STRUCTURE OF UK, SCOTLAND, WALES, NORTHERN IRELAND The overall audit structure of the constituent parts of the UK is described in the figure below. All four have largely similar audit structures, with an Auditor General appointed by the Crown, and a corporation providing support. The main difference lies in audit of local authorities with England and Scotland having an Accounts Commission to perform that function, and Wales and Northern Ireland having the role commissioned by the respective audit offices.

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UK Scotland Wales Northern Ireland The Comptroller and Auditor General (C&AG) audits matters reserved to the UK Government, and all other spending by central government departments in England. The C&AG is also responsible for auditing payments of the block grants to the devolved administrations, and direct expenditure by the Scotland Office, Wales Office and Northern Ireland Office. The C&AG is supported by the staff of the National Audit Office. The NAO does not audit local government spending in England, which is done by the Audit Commission. The C&AG reports to the UK Parliament and his work is considered by the Public Accounts Committee.

The Auditor General for Scotland audits or appoints the auditors to the bodies funded by the Scottish Parliament. Audit Scotland provides support to the Auditor General and the Accounts Commission, which is responsible for the auditing of local authorities, fire and police boards. The Auditor General for Scotland reports to the Scottish Parliament and his work is principally considered by the Audit Committee.

The Auditor General for Wales audits the bodies funded by the National Assembly for Wales. The Auditor General for Wales has overall responsibility for audit standards across the public sector in Wales, including audit and value for money studies of NHS bodies and the appointment of auditors to local government and other public bodies in Wales. The Auditor General for Wales is supported by his staff and together they form the Wales Audit Office. The Auditor General for Wales reports to the National Assembly for Wales and his reports are considered primarily by the Assembly’s Audit Committee.

The Comptroller and Auditor General for Northern Ireland (NIC&AG) is responsible for the audit of Northern Ireland Departments and their Executive Agencies, NDPBs, health and personal social service bodies and other centrally funded public bodies. The NIC&AG is supported by the staff of the Northern Ireland Audit Office. Certain Northern Ireland Audit Office staff are designated by the Department of the Environment as local government auditors. The NIC&AG reports to the Northern Ireland Assembly and his reports are considered primarily by the Assembly’s Public Accounts Committee.

The remainder of this briefing looks in more detail at the existing governance arrangements for public audit in each of the constituent parts of the UK.

AUDIT STRUCTURE OF THE UK This section outlines the existing situation in terms of the UK audit structure.

COMPTROLLER AND AUDITOR GENERAL The post of the Comptroller and Auditor General (C&AG) in its modern form was created by the Exchequer and Audit Departments Act 1866. The National Audit Act 1983 established the post as an Officer of the House of Commons to be appointed by the Crown but in consultation with the Chairman of the Public Accounts Committee (PAC). The National Audit Act 1983 also established the National Audit Office in its current form (see below) to support the C&AG and provided the C&AG with directly employed staff, rather than civil servants. The 1983 legislation also gave the C&AG complete discretion over the discharge of functions although in determining to carry out an audit examination, the C&AG must take into account any proposals made by the

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PAC. The current Comptroller and Auditor General is Tim Burr, who holds the post on a temporary basis.

Appointment Process The appointment of the C&AG is made by the Crown on a motion of the House of Commons moved following agreement between the Prime Minister and the Chairman of the Public Accounts Committee. There is currently no limit on the number of years a C&AG may serve in office. The C&AG can only be removed by a resolution of both Houses of Parliament. The most recent C&AG, Sir John Bourn, was appointed in 1988 after being confirmed in Parliament following recommendation by the then Chairman of the PAC to the Prime Minister, with no formal recruitment procedure, no advertising and no open competition. This reflected the then practice, which predated the creation of an impartial public appointments procedure following the Nolan reforms in 1995 (Committee on Standards in Public Life 1995). Sir John Bourn announced his retirement from the post of C&AG on 25 October 2007 and his term of office ended in January 2008 at the age of 73. He was replaced on a temporary basis by Tim Burr, who is expected to step down from the post once new corporate governance arrangements have been put in place via the Constitutional Renewal Bill.

Remuneration The current C&AG’s remuneration is linked to that of a High Court judge, although the Tiner review does not believe this

“benchmarks the position of the Auditor General against the appropriate peer group in seeking to attract high quality candidates to the position. I would favour the Chief Executive’s remuneration being set by the Public Accounts Commission based on advice by the non-executive members of the NAO Board, which itself would take advice from its Remuneration Committee. The Remuneration Committee would provide an evaluation of the performance of the Chief Executive in the management and leadership of the office and should seek expert external advice on relevant benchmarks in both the public and private sectors” (Public Accounts Commission 2008a).

The salary of the C&AG in 2007-08 was between £165,000 and £170,000 and is met directly from the Consolidated Fund (National Audit Office 2008).

NATIONAL AUDIT OFFICE The National Audit Act 1983 also created the National Audit Office (NAO) in its current form. The NAO employs around 850 staff and supports the C&AG in auditing the accounts of all government departments and agencies and reports the results to Parliament. Audit and inspection rights are vested in the C&AG, with staff in the NAO carrying out these tasks on his behalf. The NAO, on behalf of the C&AG audits matters “reserved” to the UK Government, including defence, foreign affairs, social security and central government taxation, and all other expenditure by central government departments in England. The C&AG, with support from the NAO, is also responsible for auditing the payment of the block grants to the devolved administrations and direct expenditure by the Scotland Office, Wales Office and Northern Ireland Office. In addition, the NAO also conducts audits and / or value for money examinations

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of a number of public bodies whose functions are not reserved by Westminster, but nonetheless operate across the UK. Separate audit arrangements exist for each of devolved administrations (see below). The NAO does not audit local government spending in England, which is done by the Audit Commission, which is also responsible for auditing health services. The Audit Commission in England was established in the Local Government Finance Act 1982.

National Audit Office Structure

Management Board The NAO is headed by the C&AG. There is no separate Chairman and Chief Executive and no formal board. The C&AG is supported by a Management Board, comprising the C&AG as Chairman, the Deputy C&AG (currently unfilled), the seven Assistant Auditor Generals (AAGs) and a non-executive who is also Chairman of the Audit Committee of the NAO. The Management Board now meets monthly (until recently it met quarterly). The current Management Board members are as follows:

• C&AG, Tim Burr1 • Non-executive member, Steve Freer

And the following Assistant Auditor Generals:

• Gabrielle Cohen • Ed Humpherson • Wendy Kenway-Smith • Caroline Mawhood • Jim Rickleton • Martin Sinclair • Michael Whitehouse

The role of the Management Board is to consider the NAO’s business strategy and corporate plan in order to make recommendation to the Public Accounts Commission on future resource requirements. It monitors progress in the delivery of the NAO’s work programme. Pending implementation of changes in the corporate governance recommended by the Public Accounts Commission, the C&AG, from 1 February 2008, introduced Management Board meetings on a monthly basis, and established three new functional committees, replacing a Management Committee which had operated up to that date:

• Audit Practice and Quality Committee, focusing on the integrity of the NAO’s products; • Operational Delivery Committee, focusing on resources and infrastructure; and • Staff Performance and Remuneration Committee, focusing on staff management.

1 The Deputy C&AG post is currently unfilled.

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NAO Audit Committee The NAO Audit Committee is a committee of the Management Board, and its Chairman is a non-executive member of the Management Board. Steve Freer, Chief Executive of the Chartered Institute of Public Finance and Accountancy (CIPFA) is the current chair. As well as the chair, the other two non-executive members are currently Sir Michael Davies and Christine Freshwater. The Audit Committee provides the C&AG with advice and assurance on the adequacy of internal control and risk management within the Office, including the framework of internal control, risk management processes, and the quality and reliability of financial reporting. Under the arrangements set out in the Public Accounts Commission’s 13th Report, issued in July 2007, the Chairman of the Audit Committee also has a responsibility for reviewing the planned expenses of the C&AG and may discuss any issues arising with the Commission.

Appointment to the Management Board There is currently no formal or consistent procedure for either executive or non-executive appointments to the Management Board. Previous appointments to the position of AAG have sometimes been made on the basis of open competition, and at other times the individual has simply been appointed. The non-executive member of the Management Board has been appointed with no open competitive process. All appointment are by the C&AG, and the balance of executives to non-executives on the Management Board is currently 8:1.

Remuneration of Management Board The latest NAO Annual Report (NAO 2008) states the following on the remuneration of the Assistant Auditors General:

“For 2007-08, the Deputy Comptroller and Auditor General made recommendations for the remuneration levels of Assistant Auditors General, to the Comptroller and Auditor General, which were based on an assessment of the individual’s contribution relative to his/her peers. The Comptroller and Auditor General determined the remuneration level of each Assistant Auditor General on the recommendation of the Deputy Comptroller and Auditor General. In the case of the Deputy Comptroller and Auditor General’s remuneration, the Director of Human Resources made a recommendation to the Comptroller and Auditor General who determined the appropriate remuneration level.”

The salaries of AAG’s in 2007-08 ranged from £110,000 to £155,000 (NAO 2008, p60). Steve Freer was the non-executive chairman of the Audit Committee and a non-executive member of the Management Board. During this period CIPFA, his employer, was paid £7,050. He received no benefits in kind and no pension entitlement.

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AUDIT STRUCTURE OF SCOTLAND

AUDITOR GENERAL FOR SCOTLAND The post of Auditor General for Scotland (AGS) was established by section 69 of the Scotland Act 1998. It is a Crown appointment, made on the recommendation of the Scottish Parliament. The AGS has complete discretion in the performance of his role and has access to Audit Scotland (see below) and professional audit companies to support him. The current Auditor General for Scotland is Robert Black.

Appointment Process Scottish Ministers have no formal role in the appointment process. The appointment of the first and so far only AGS was led by the Presiding Officer and a committee supported by the Clerk / Chief Executive. However, there is no formalised appointment process in place in terms of how the Scottish Parliament comes to an AGS recommendation, and it is unclear what the process will be for recommending future AGS appointments to Parliament. The AGS is currently appointed for an unspecified period “on such terms and conditions as the Parliamentary corporation may determine” and may be removed by a two-thirds majority vote of Parliament.

Remuneration The salary, allowances and other terms and conditions of the AGS are determined by the Scottish Parliamentary Corporate Body (SCPB) and paid by Audit Scotland. The annual salary increases for the AGS post are currently based on the pay system for the senior civil service, which is determined at a UK level on the basis of recommendations from the Senior Salaries Review Body. In its recent report to the SCPA, commenting on the proposals by the UK Accounts Commission on the National Audit Office, the Audit Scotland Board said the following regarding the salary of the AGS:

“The framework within which the salary of the AGS is determined or reviewed is not entirely clear. The Scottish Parliamentary Corporate Body does not have a remuneration committee or remuneration advisory panel. Although the AGS audits the accounts of the SCPB and the Clerk / Chief Executive is the Accountable Officer for these accounts, the office of the Clerk / Chief Executive advises the SPCB on the salary of the AGS. This arrangement does not accord with good governance.

The identification of a comparable post within the senior ranks of the civil service for the post of AGS, would help to ensure objectivity, impartiality and transparency in the salary determination.”

The salary of the AGS in 2007-08 was in the band £135,000 to £140,000. The salary of the Deputy Auditor General in 2007-08 was in the band £125,000 to £130,000 (Audit Scotland 2008).

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AUDIT SCOTLAND Audit Scotland was established as a corporate body in April 2000 under section 10 of the Public Finance and Accountability (Scotland) Act. It was formed by the merger of the Scotland division of the National Audit Office and the staff of the Accounts Commission for Scotland. Audit Scotland provides support to both the Accounts Commission2 and the AGS, allowing them to provide assurances to the Parliament and Ministers that public money is being spent appropriately. Audit Scotland has around 290 staff and it conducts, or commissions external auditors to conduct, the audit of around 200 public bodies in Scotland. It is the responsibility of the Scottish Commission for Public Audit (SCPA) to appoint a qualified person to audit the accounts of Audit Scotland, and the SCPA appointed the AGS as the accountable officer from April 2000.

Audit Scotland Board The work of Audit Scotland is overseen by a board which meets around 6 times per annum to consider audit plans and the organisation’s strategic direction. The board is chaired by the Chair of the Accounts Commission, and also comprises the AGS and three other members appointed directly by them. The current Audit Scotland board members are:

• John Baillie, Chair of the Accounts Commission (board Chair) • Robert Black, Auditor General for Scotland • Caroline Gardner, Deputy Auditor General for Scotland • Phil Taylor, independent, non-executive board member • Isabelle Low, member of the Accounts Commission

The main function of the Audit Scotland Board is to consider and approve the Audit Scotland corporate plan, the budgetary submission to the Scottish Commission for Public Audit (SCPA) and the annual report. Section 10 of the Public Finance and Accountability (Scotland) Act 2000 (asp 1) allows for directions to be given to Audit Scotland by the AGS and the Accounts Commission “for the purpose of or in connection with the exercise of Audit Scotland’s functions”.

Sub-committees The board of Audit Scotland has two sub-committees – a Remuneration Committee and an Audit Committee. The remuneration Committee is composed of board members who are not Audit Scotland employees and sets and reviews the salaries and terms and conditions of senior staff (excluding the AGS). The current chair of the Remuneration Committee is Phil Taylor. The Audit Committee consists of board members who are not employees of Audit Scotland – under Audit Scotland Standing Orders, the AGS is not a member of the Audit Committee but may attend the Audit Committee. The Audit Committee appoints its internal auditor through open competition. In 2007, the Audit Scotland board undertook a competitive tendering process for internal auditing services. RSM Bentley Jennison was appointed by Audit Scotland’s Audit Committee as the sole provider of internal auditing services until 2010.

2 The Accounts Commission is responsible for securing the audit of Scotland’s 32 local authorities (and joint boards) and the audit of their “Best Value” and Community Planning functions.

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Appointment of Board The Chair of the Accounts Commission is, by convention, the Chair of the Audit Scotland board. This is to ensure that the Chair of the board has a degree of independence from the AGS in the oversight of Audit Scotland’s management arrangements. The Chair of the Accounts Commission is appointed by Scottish Ministers, therefore, the Parliament has no role in appointing the chair of the Audit Scotland board. The Audit Scotland board contains two members drawn from the Accounts Commission and a third member appointed by open competition – currently Phil Taylor – in what Audit Scotland describe as a “narrow non-executive majority” (Audit Scotland Board 2008). This is line with a recommendation of the Financial Issues Advisory Group (FIAG) which considered Accounts Commission representation on the board as necessary to safeguard the service provided by Audit Scotland to the Accounts Commission (Scottish Office 1998). The Executive members are the AGS and the Deputy Auditor General. The board has a secretary who is a part-time employee of Audit Scotland.

Remuneration of Board Under the provisions of schedule 2 of the Public Finance and Accountability (Scotland) 2000 Act the Auditor General, the Chairman of the Accounts Commission and any employee of Audit Scotland or member of the Accounts Commission are not entitled to any remuneration in respect of their membership of the Audit Scotland Board. The remuneration of the independent member of the board (Phil Taylor) fell within the band £5,000 to £10,000.

AUDIT STRUCTURE OF WALES

AUDITOR GENERAL FOR WALES The office of the Auditor General for Wales (AGW) was established under the Government of Wales Act 1998 and continues in existence under the Government of Wales Act 2006. It is a Crown appointment, made on the nomination of the National Assembly for Wales.3 The AGW has complete discretion in the discharge of his functions and has access to the Wales Audit Office to support him in his functions. The current Auditor General for Wales is Jeremy Colman, who was appointed on 1 April 2005 on a five year term. Under the 2006 Act, the AGW is the accounting officer for the Wales Audit Office (WAO) and his duties are specified by the Assembly’s Audit Committee.

Appointment Process Jeremy Colman was selected by an interview panel comprising four members of the Welsh Assembly’s Audit Committee, the Director of the Welsh Local Government Association and the

3 The Assembly is required to consult with representatives of local government in Wales prior to making such a nomination. This is because the AGW appoints auditors to and undertakes performance audits and inspections of local government bodies which are constitutionally independent of the Assembly.

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Auditor General for Scotland. The nomination was made to Her Majesty after a confirmatory plenary resolution of the Welsh Assembly. One significant difference between the AGW and his UK counterparts is that the Welsh Assembly determines the terms and conditions of his appointment. The current AGW is appointed for a term of 5 years and there is no bar on renewal. The existing AGW’s post is due to expire on 31 March 2010, and the position post 2010 is currently under consideration. The AGW may be removed from the post by a two-thirds majority vote of the Assembly.

Remuneration The Welsh Assembly has decided to follow the UK C&AG salary example by linking the AGW’s salary to that of a High Court judge. The salary of the AGW in 2007-08 was £165,575 and is met directly from the Welsh Consolidated Fund.

WALES AUDIT OFFICE The WAO, a merger of the National Audit Office in Wales and the Audit Commission in Wales, was established under the Public Audit (Wales) Act 2004, and is headed by the AGW. The AGW has overall responsibility for audit standards across the public sector in Wales. The AGW’s remit is the financial audits and value for money examinations of bodies funded by the National Assembly for Wales. This includes the Welsh Ministers (or Welsh Assembly Government (WAG)), National Assembly for Wales Commission (the SCPB equivalent), WAG sponsored public bodies and NHS bodies. This work is either undertaken “in-house” by the Wales Audit Office or is contracted out to accountancy firms. The AGW also appoints auditors to local government bodies in Wales and undertakes performance studies and inspections. Appointed auditors for local government audit may be in-house staff or accountancy firms.

Wales Audit Office Partnership Board and Management Committee The Partnership board reports directly to the Auditor General, advising on matters of the strategic direction of the Wales Audit Office. They provide advice to the Auditor General and the Management Committee on Business Strategy and the development of audit projects. There are nine members of the Boards who are all employees of the Wales Audit Office. The Management Committee consists of the Auditor General, Chief Operation Officer and four other partners and oversees the day to day operation of the Wales Audit Office.

Audit and Risk Management Committee The AGW has set up an Audit and Risk Management Committee comprising three members external to the Wales Audit Office. It has the powers to have direct relationships with both internal and external auditors and the Chairman of the Committee has access to the Chairman of the Audit Committee of the Welsh Assembly.4 The members of the Audit and Risk

4 The establishment of such a committee and access to the Chair of the Audit Committee now forms part of the AGW’s duties as Accounting Officer as specified by the Assembly’s Audit Committee.

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Management Committee are appointed by the AGW but selected through open competition. The Chairman of the Committee is consulted on the pay of senior staff within the organisation. The current members of the Committee are Peter Laing (Chair), Rosamund Blomfield-Smith and David Hands. In 2007-08 Peter Laing received £6,067, Rosamund Blomfield-Smith received £4,054 and Davis Hands received £4,054 (Wales Audit Office 2008).

AUDIT STRUCTURE OF NORTHERN IRELAND

NORTHERN IRELAND COMPTROLLER AND AUDITOR GENERAL The post of Northern Ireland Comptroller and Auditor General (NIC&AG) was established by the Northern Ireland Act 1998. It is a Crown appointment, made on the recommendation of the Northern Ireland Assembly. The NIC&AG is completely independent of Government and is supported in performing his function by the Northern Ireland Audit Office. The current NIC&AG is John Dowdall.

Appointment Process The NIC&AG is a permanent post and when the post becomes vacant, a selection panel is formed comprising the Speaker of the Assembly, the Chairman and Vice-Chairman of the Public Accounts Committee, the Chairman and Vice-Chairman of the Audit Committee and the C&AG of the NAO. An open competitive process is followed with the candidates assessed against a pre-determined job criteria established by the selection panel. The NIC&AG may be removed by a two-thirds majority vote of the Assembly.

Remuneration The salary of the NIC&AG in 2007-08 was £132,693, is linked to the salary payable to permanent secretaries of the Northern Ireland Civil Service, and is met directly from the Northern Ireland Consolidated Fund. The salary of the Deputy NIC&AG was £95,000 to £100,000 in 2007-08.

NORTHERN IRELAND AUDIT OFFICE The Northern Ireland Audit Office was established by the Audit (Northern Ireland) Order 1987 and supports the NIC&AG in fulfilling his responsibilities, which are as follows:

• authorising the issue of money from the Northern Ireland Consolidated Fund to enable Northern Ireland Departments to meet their necessary expenditure, and for ensuring that there are adequate arrangements for the collection of revenue; and

• the external audit of central government bodies in Northern Ireland, including Northern Ireland Departments and their Executive Agencies and a wide range of other public sector bodies, including Executive Non-Departmental Public Bodies and health and

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personal social service bodies. He undertakes financial audit and value for money audit and the results of his work are reported to the Northern Ireland Assembly, or to Parliament during the suspension of devolution.

Certain NIAO staff are also designated by the Department of the Environment as local government auditors. Local government auditors are mainly responsible for the audit of Northern Ireland District Councils and report the results of their work to the Department of the Environment.

Northern Ireland Audit Office Board The NIC&AG is supported by a board, which has recently been restructured. Until September 2007, a senior management group, made up of the NIC&AG, nine other senior managers and two non-executive members oversaw the running of the NIAO. Following a review it was decided that a more effective structure could be put in place. An examination of various other models used by similar organisations was undertaken and it was decided to implement a two tier structure. It was further decided that this should be piloted for a year and then reviewed again. The top tier consists of a Management Board whose membership is made up of the NIC&AG, the NIDC&AG (Kieran Donnelly) and two non-executives (currently Gerry Smyth from the Office of the Irish C&AG and Gary Martin from the University of Ulster). The second tier is referred to as the Management Team and membership is made up of the Deputy NIC&AG and the Assistant Auditor Generals (John Buchanan, Janet Sides (Acting) and Louise Mason), but all other directors are welcome to attend meetings in a non-decision making capacity. All senior managers in the NIAO are required to complete a ‘Conflicts of Interest’ Declaration. They are also required to disclose, on an ongoing basis, any changes in circumstances which could possibly result in an actual or perceived conflict of interest. The Management Board is chaired by the NIC&AG, meets quarterly and is responsible for the following:

• Approval of the Corporate Plan; • Budget, profiling and monitoring of expenditure in year; • Human resource planning; • Resource Accounts; • Consideration of reports from the Audit Committee and any ad hoc

committees which will be in existence from time to time; • Consideration of the risk register and the NIAO’s own corporate

governance procedures; • Equality and diversity issues; and • Ad hoc reports which the Board decides it should have sight of.

The Management Team is chaired by the DC&AG, meets monthly and is responsible for many of the same areas as the Board to whom it reports its opinion on those areas – for example budget monitoring. In addition it is responsible for:

• Personnel and Staffing; • Quality and impact; • Review of work progress by each division; and

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• IT and security. It is the intention that the new structure will be reviewed in terms of effectiveness in September 2008, one year after the new structure came into being.

Appointment of the NIAO Management Board The two non-executive members of the Management Board were appointed by the NIC&AG. In the NIAO Resource Accounts for the year to 31 March 2008, the C&AG reported that they were appointed “on the basis of their previous experience. One works [Gerry Smyth] in a similar audit institution and has a good understanding and appreciation of the environment within which the NIAO operates. The other non-executive [Gary Martin] has experience of being the Chair of the Audit Committee in another public sector body, similar in size to the NIAO and with an associated regulatory role. He also specialises in the area of governance in his post at the University of Ulster.” The Resource Accounts go on to state the following regarding the appointment of the non-executive Management Board members:

“When the non-executive directors were appointed their role and responsibilities were explained to them by the C&AG. He also provided one to one informal induction training for both of them. Given their background and previous experiences this was considered to be sufficient and appropriate. The C&AG meets periodically with the non-executives individually to provide them with information regarding issues affecting the NIAO. He also makes himself available to discuss any issue which may be of concern to one or other and on which they would like more information or have questions. Mr. Martin is also named in the NIAO’s Whistleblowing policy as a contact point to which NIAO staff may refer concerns about what is happening within the NIAO itself.”

Remuneration of the Board Under the provisions of the Audit (Northern Ireland) Order 1987, the Comptroller and Auditor General for Northern Ireland determines the level of remuneration for all employees within the Northern Ireland Audit Office, including his senior executives. Each year’s settlement is reviewed in the context of the NAO and Northern Ireland Civil Service settlements and the recruitment and wastage circumstances in the NIAO. The pay award for Senior members is a percentage uplift on basic pay. The percentage applied is based on an assessment of performance of an individual throughout the previous year. The salary of Assistant Auditor Generals in 2007-08 ranged from £65,000 to £90,000 – this is for their work as both board members and staff of the NIAO. In terms of the non-executive board members, there were no payments made to Gerry Smyth in 2007-08 and Gary Martin was paid £2,375 in financial year 2007-08.

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SOURCES Audit Scotland. Standing Orders. Available at: http://www.audit-scotland.gov.uk/foi/docs/standingorders.pdf Audit Scotland. (2008) Annual Report and Accounts: Year ended 31 March 2008. Edinburgh: Audit Scotland. Available at: http://www.audit-scotland.gov.uk/docs/corp/2008/as_accounts_0708.pdf Audit Scotland [Online]. Available at: http://www.audit-scotland.gov.uk/ [Accessed 18 August 2008] Audit Scotland Board. (2008) Corporate Governance of Audit Scotland: A commentary based upon the Public Accounts Commission Proposals for the National Audit Office at Westminster. Edinburgh: Scottish Commission for Public Audit. Available at: http://www.scottish.parliament.uk/s3/committees/scpa/papers-08/scpap08-02.pdf Committee on Standards in Public Life. (1995) MPs, Ministers and Civil Servants, Executive Quangos. Cm 2850. London: Committee on Standards in Public Life. Available at: http://www.public-standards.gov.uk/publications/1st_report.aspx House of Commons Library. (2008) Comptroller and Auditor General. Standard Note SN/PC/04595. London: House of Commons Library. Available at: http://www.parliament.uk/commons/lib/research/notes/snpc-04595.pdf Ministry of Justice. (2008) The Governance of Britain: Constitutional Renewal. Cm 7342. London: Ministry of Justice. Available at: http://www.justice.gov.uk/docs/constitutional-renewal-white-paper.pdf National Audit Office. (2008) Annual Report 2008. London: National Audit Office. Available at: http://www.nao.org.uk/publications/corporate/annual_report_08.pdf National Audit Office [Online]. Available at : http://www.nao.org.uk/ [Accessed 18 August 2008] Northern Ireland Audit Office. (2008). Northern Ireland Audit Office Resource Accounts for the year ended 31 March 2008. Belfast : Northern Ireland Audit Office. Available at : http://www.niauditoffice.gov.uk/pubs/ResourceAccount/ResourceAccount2007-08.pdf Northern Ireland Audit Office [Online]. Available at : http://www.niauditoffice.gov.uk/ [Accessed 18 August 2008] Public Accounts Commission. (2008a) Review of the National Audit Office’s Corporate Governance. Fourteenth Report HC 328. London: House of Commons Public Accounts Commission. Available at: http://www.publications.parliament.uk/pa/cm200708/cmselect/cmpacomm/328/328.pdf Public Accounts Commission. (2008b) Draft Clauses on the Corporate Governance of the National Audit Office. Sixteenth Report HC 1027. London: House of Commons Public Accounts Commission. Available at: http://www.publications.parliament.uk/pa/cm200708/cmselect/cmpacomm/1027/102702.htm

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Scottish Office. (1998) Principles of the Scottish Parliament’s Financial Procedures: Final Report by the Financial Issues Advisory Group. Edinburgh: Scottish Office. Available at: http://www.scotland.gov.uk/government/devolution/fiag-00.asp Wales Audit Office. (2008) Auditor General for Wales Annual Report and Accounts 2007-08. Cardiff: Wales Audit Office. Available at: http://www.wao.gov.uk/assets/englishdocuments/agw_annual__report_07-08.pdf Wales Audit Office [Online]. Available at: http://www.wao.gov.uk/ [Accessed 18 August 2008]

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Agenda Item 2

Scottish Commission for Public Audit

17 September 2008 SCPA/S3/08/4/2

Address: Telephone: Website: 110 George Street 0845 146 1010 www.audit-scotland.gov.uk Edinburgh Fax: EH2 4LH 0845 146 1009

Angela Constance MSP Convener Scottish Commission for Public Audit Room T3.60 The Scottish Parliament Edinburgh EH99 1SP

26 May 2008 Dear Ms Constance The corporate governance of Audit Scotland and the proposals for the National Audit Office Audit Scotland was formed on 1 April 2000 under the Public Finance and Accountability (Scotland Act) 2000, to provide services to the Auditor General for Scotland and the Accounts Commission. The arrangements have worked well. Audit Scotland has been able to take an integrated approach to the audit of the whole of devolved government and has the critical mass to operate effectively. The Board believes that it has a strong and effective governance regime. However, eight years after its creation, the Board of Audit Scotland considers that it is right to reflect on whether the corporate governance arrangements could be further improved. In March 2008 the Public Accounts Commission (TPAC) of the House of Commons published its response to John Tiner’s review of the corporate governance of the National Audit Office. The purpose of our report is to comment on the TPAC proposals for the National Audit Office, in the context of the Audit Scotland governance arrangements. Our report comments on the appointment and role of the Chair of the Audit Scotland Board and the other non-executive Board members; the role of the Board and its relationship with the Scottish Commission for Public Audit; matters relevant to the terms and conditions of the Auditor General for Scotland; and the appointment of the external auditors of Audit Scotland I have pleasure in enclosing a copy of our report and would welcome the opportunity to discuss it with you. I am sending copies of the report to the Presiding Officer, and to the Clerk / Chief Executive of the Scottish Parliament. Yours sincerely Professor John Baillie Chair of Audit Scotland

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Agenda Item 2

Scottish Commission for Public Audit

17 September 2008 SCPA/S3/08/4/2

REPORT BY THE AUDIT SCOTLAND BOARD CORPORATE GOVERNANCE OF AUDIT SCOTLAND: A COMMENTARY BASED UPON THE PUBLIC ACCOUNTS COMMISSION PROPOSALS FOR THE NATIONAL AUDIT OFFICE AT WESTMINSTER

Introduction In March 2008 the Public Accounts Commission (TPAC) of the House of Commons published its response to John Tiner’s review of the corporate governance of the National Audit Office. The purpose of this report is to comment on the TPAC proposals for the National Audit Office, in the context of the Audit Scotland and AGS governance arrangements. In this discussion paper, each significant issue in the TPAC report is outlined in turn, and each is followed by a brief comment on the implications for the arrangements in Scotland. The full TPAC report is appended to the paper, together with the review by John Tiner. The current audit arrangements in England and Scotland TPAC at Westminster was the model for creating the Scottish Commission for Public Audit (SCPA) in the Scottish Parliament. It is quite separate from the Public Accounts Committee (PAC), which was the model for the Audit Committee in the Scottish Parliament. The role of both TPAC and the SCPA are to consider the budget requirement of the audit agency and the annual report of the agency and to make reports to Parliament in relation to these duties. The Audit Commission for England, which oversees the audit of local authorities, is quite separate from the NAO. The Chair and members of the Audit Commission are appointed by the Government. The Commission has its own directly employed staff and its own governance arrangements. The Accounts Commission in Scotland is similar in some ways to the Audit Commission, but the Accounts Commission does not employ staff. They receive services from Audit Scotland which also provides services to the Auditor General for Scotland (AGS). The Audit Commission and the Accounts Commission report to Government in Westminster and Edinburgh respectively. They do not formally report to either the Parliament in Westminster or the Parliament at Holyrood (although there are informal briefings from time to time). The role of the C&AG The TPAC report states that C&AG’s independence is an absolute requirement for effective audit and is the cornerstone of integrity in public finance. The C&AG’s independence is symbolised by the status as an Officer of the House of Commons, to which TPAC attach great importance Comment: Agreed. The independence of the AGS is generally recognised in Scotland in similar terms. It is not clear what the legal or practical advantages are of C&AG status as an Officer of the House. Three objectives for the governance of the NAO TPAC endorse the three objectives proposed by Tiner:

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i. The C&AG must have authority to form independent judgements about audits

and value for money and other studies; ii. The NAO must maintain systems of governance and internal controls

consistent with best practice, applied in ways which do not fetter its independence from government, and report publicly on these systems in its Annual Report;

iii. The NAO must conduct its work according to relevant auditing and

professional standards and best practice.

TPAC suggest that the NAO’s governance arrangements give absolute priority to the first at the expense of the second, so that the checks and balances of good governance are absent. The central problem of the NAO’s corporate governance is how to achieve the second objective without compromising the first. Comment: Agreed. The proposed NAO Board and Chairman There is need for an NAO Board with a Chairman with sufficient authority and independence from the C&AG to challenge him or her when necessary. There must be enough of a role for the Chairman to make it worthwhile for a suitable person to take on the responsibility. The Chairman should have only an internal role and would speak in public only about governance matters. The Chairman’s interventions in public would be rare. The C&AG would act as Chief Executive of the NAO and would be the public face of the NAO. Crucially the Chairman would have access to TPAC. The Chairman of the NAO would appoint the chair of the audit committee and the chair of the remuneration committee. The remuneration would be set with reference to similar posts in other organisations. The Chairman should be appointed in the same way as the C&AG, by agreement between the Prime Minister and the Chairman of the PAC, and would be a Crown appointment. It would be a three year term subject to renewal for one further term. There should be a Board of seven members, with a narrow majority to non-executives. There should be four non-executive members, including the Chairman. They should be appointed by TPAC, on a recommendation from the Chairman. There should be three executive members of the Board, including the C&AG. They should be appointed by the C&AG subject to Board approval. Comment: TPAC’s aim is to create an effective board of governance led by a strong Chair, which is absent from the current arrangements at Westminster. The underlying principles are quite similar to those which apply in Scotland. There are, however some important differences between the two systems.

1. In Scotland there is the Accounts Commission, the Chair of which is a member of the Audit Scotland Board and by convention, this person chairs the Board. This ensures that the Chair of the Board has a degree of authority and independence from the AGS in the oversight of Audit Scotland’s management arrangements, including resource planning and control.

2. The role of the Chair of the Audit Scotland Board is not clearly defined. 3. The Scottish Ministers appoint the Chair of the Accounts Commission. Neither the

Audit Committee, not the SCPA, nor the Scottish Parliamentary Corporate Body,

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have any role in the appointment of the Chair of the Accounts Commission, and therefore they have no role in appointing the Chair of Audit Scotland

4. There is no formal arrangement for the Chair of Audit Scotland to have access to the SCPA. The AGS has access to the SCPA as the Accountable Officer of Audit Scotland and it is the practice of the SCPA to take evidence from the AGS at formal meetings in public

5. The proposed NAO Board is only slightly larger than the Audit Scotland Board. 6. The Audit Scotland Board consists in law of the AGS, the Chair of the Accounts

Commission and three others appointed by them. The TPAC proposal that TPAC should appoint the non-executive Board members, on a recommendation of the Chairman of the Board, would be significantly different from the arrangement in Scotland, where the SCPA has no role in such appointments.

7. In practice, a narrow non-executive majority is secured on the Audit Scotland Board by having two members drawn from the Accounts Commission and a third member appointed by open competition. The Executive members are the AGS and the Deputy Auditor General. The Audit Scotland Board has a Secretary who is a part-time employee of Audit Scotland.

8. Audit Scotland has an audit committee currently chaired by the non-executive who is a member of the Accounts Commission. The audit committee appoints the internal auditor through open competition.

9. Audit Scotland also has a remuneration committee currently chaired by the third non-executive. From time to time, the remuneration committee obtains independent professional advice to inform the reward strategy for Audit Scotland employees.

Role of the Board The C&AG should continue to control the use of the NAO’s resources for statutory audit purposes. The Board should set the overall strategy for the NAO which would guide the balance of the C&AG’s work programme, but the Board would not be able to prevent an audit of which it disapproved or require an audit to be undertaken. The inclusion of non-statutory work such as international work would require agreement by the Board. Commentary: In Scotland, Audit Scotland exists to provide services to the AGS and the Accounts Commission, both of whom may give directions to Audit Scotland. The AGS and the Accounts Commission decide on strategic matters relating to their respective audit responsibilities. The AGS is accountable to the Scottish Parliament for requesting and giving an account of the use of resources. In practice, the Audit Scotland Board has a key role in considering and approving the corporate plan, the budgetary submission to the SCPA, and the annual report. The Audit Scotland Board receives reports on international work, which is supported by a relatively small budget, and is advised in advance of any overseas activity undertaken in person by the AGS. Terms and conditions of the C&AG Term limit The C&AG should be appointed for a single non renewable term of ten years. Comment: Agreed. The Scottish Parliament initially provided that the AGS should serve until the age of 65 or beyond that with the agreement of the Parliament. The retirement age of 65 was removed by Statutory Instrument in the light of age discrimination requirements. The current situation is that the AGS holds office “on such terms and conditions as the Parliamentary Corporation may determine”. It is likely that the next appointment to the post

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of AGS will be on different terms and conditions in this regard. A single non-renewable term of ten years would be appropriate. Appointment process The Commission recommend that the current arrangements for the appointment of the C&AG should continue. The process involves agreement between the Prime Minister and the Chairman of the PAC following the Code of Practice published by the Office of the Commissioner for Public Appointments. Comment: The Scotland Act provides that there shall be an AGS appointed by Her Majesty on the nomination of the Scottish Parliament. Scottish Ministers have no formal role in the appointments process. The appointment of the first AGS was led by the Presiding Officer and a committee supported by the Clerk / Chief Executive. It is not clear what the process will be for recommending future appointments to the Parliament. Salary The Commission considers that linking the C&AG’s salary to that of a High Court Judge does not relate the position to an appropriate peer group. The Commission believe that the salary should be comparable to that of the Treasury’s Permanent Secretary and be linked to that pay level, but adjusted to reflect the bonuses available to the Treasury’s Permanent Secretary rather than creating a bonus system for the C&AG. The Commission suggests that the salary should be reviewed in the longer term to make sure of attracting the best candidate. Comment: The framework within which the salary of the AGS is determined or reviewed is not entirely clear. The Scottish Parliamentary Corporate Body does not have a remuneration committee or remuneration advisory panel. Although the AGS audits the accounts of the SPCB and the Clerk / Chief Executive is the Accountable Officer for these accounts, the office of the Clerk / Chief Executive advises the SPCB on the salary of the AGS. This arrangement does not accord with good governance. The identification of a comparable post within the senior ranks of the civil service for the post of AGS, would help to ensure objectivity, impartiality and transparency in the salary determination. Subsequent employment The Commission suggests that there should be a lifetime prohibition on a C&AG or former C&AG accepting any post in any body which the NAO has audited or which is in the gift of government, in order to avoid any real or apparent conflict of interest. There should be restrictions on a C&AG accepting any employment whatever after leaving the post. Comment: There is no such restriction imposed on the AGS. Whilst it is essential to avoid conflicts of interest, it should be recognised that a former AGS is likely to have experience that could be valuable elsewhere in public life, and therefore careful thought should be given to the restrictions that should reasonably be applied. External Auditors Whereas TPAC currently appoint external auditors, they propose that the NAO’s audit committee would recommend a firm to the Board which the Board would appoint subject to approval by TPAC.

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Comment: In Scotland, the SCPA appoint the external auditor without reference to the Board of Audit Scotland. TPAC’s proposal assumes that the NAO Board has primarily a governance role in relation to the C&AG and the NAO. This model could also be applied in Scotland, provided that there was a clear understanding between the SCPA and the Chair of the Audit Scotland Board about the role of the Board. Edinburgh May 2008

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Address: 110 George Street Edinburgh EH2 4LH

Telephone: 0845 146 1010 Fax: 0845 146 1009

Website: www.audit-scotland.gov.uk

Angela Constance MSP Convener Scottish Commission for Public Audit Room T3.60 The Scottish Parliament Edinburgh EH99 1SP

1 September 2008

Dear Ms Constance The corporate governance of Audit Scotland and the proposals for the National Audit Office Thank you for your letter dated 18 June 2008 which explained that the SCPA would consider in the autumn how any of the recommendations in John Tiner’s review of the corporate governance of the National Audit Office may relate to arrangements in Scotland. Audit Scotland was established some eight years ago under the Public Finance and Accountability (Scotland) Act 2000. Earlier this year, the Audit Scotland Board decided that this was an appropriate time to review the operation of its governance framework and how it works in practice, taking account of the draft legislative proposals that have been published by the Public Accounts Commission at Westminster. The Board has now undertaken its review and agreed that I should write to you to share our thinking on some of the issues for Scotland. The proposed legislation in England introduces a Board structure and Chair role to the NAO. This proposal would be very similar, except in scale, to the arrangements that have been in place in Scotland since 2000. The Audit Scotland Board already has a one member majority of non-executive board members, as recommended in the Tiner report, and we are considering whether to bring additional non-executive expertise into the Audit Scotland Audit Committee and Remuneration Committee. We would welcome the opportunity to work with the Commission to review the protocol between the SCPA and Audit Scotland in order to set out more clearly the respective roles of the SCPA and the Board in the governance of Audit Scotland. We think that this could provide a useful opportunity to make more explicit some of the checks and balances that already exist to ensure good governance at Audit Scotland, and which are being formally introduced through legislation in England for the NAO. We think that a revised protocol could deliver greater transparency and improved understanding of the governance arrangements that apply to Audit Scotland. …2/

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SCPA/S3/08/4/7 -----Original Message----- From: Last OS (Oksana) On Behalf Of Fraser M (Murdo), MSP Sent: Friday, September 12, 2008 1:05 PM To: Brough M (Mark) Cc: Henry H (Hugh), MSP Subject: Re: Corporate Governance of Audit Scotland

TO: Angela Constance MSP, Convenor of Scottish Commission for Public Audit,

Room T3.60, Scottish Parliament, Edinburgh EH99 1SP CC: Hugh Henry MSP, Convenor, Audit Committee. Ref: B/A4/809767 12 September 2008 Dear Angela I refer to your letter of 4 September 2008 addressed to Hugh Henry MSP as Convener of the Audit Committee seeking views on the corporate governance arrangements for Audit Scotland and the Public Audit structure. I am replying as a member of the Audit Committee in relation to one point which is covered in Professor Baillie’s letter which I believe that the SCPA requires to reflect upon. This matter relates to the salary of the Auditor General. The AGS is appointed by, and accountable to, the Scottish Parliament Corporate Body. The SPCB fixes the salary of the AGS but does not have, as Professor Baillie points out, a remuneration committee nor a remuneration advisory panel. The salary of the employees of Audit Scotland and the Accounts Commission, apart from that of the AGS, are set by that organisation. I understand that this has led to the undesirable situation whereby increases in the AGS’ salary have not kept pace with increases in the salaries of his staff. For example, I understand that the gap between what the AGS earns and what his deputy earns has now narrowed substantially. I understand that this has raised concerns within the Board of Audit Scotland as to whether the remuneration of the AGS is now appropriate, but this of course is clearly a matter for the SPCB. Professor Baillie observes in his letter that current arrangements for the AGS’ salary do not accord with good governance. I would have to support that view point and would suggest that arrangements for the salary of the AGS require to be amended. Yours sincerely Murdo Fraser MSP

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-2- A Constance MSP 1 September 2008 The Board recognises that the SCPA’s key relationship needs to be with the Accountable Officer of Audit Scotland, but we would also welcome the opportunity to discuss whether it would be helpful to establish a working relationship with the Chair of the Audit Scotland Board as well. It is of course the responsibility of the Scottish Parliament to arrange for the appointment and remuneration of the Auditor General for Scotland. The Board, however has a degree of interest in these matters because the Auditor General is the accountable officer and chief executive of Audit Scotland. We recommend to the SCPA the arrangements that are proposed for the appointment and remuneration of the Comptroller and Auditor General in the United Kingdom to be overseen by the Commission and based on a non-renewable fixed term of ten years. However, whilst we recognise and accept the need to avoid any conflicts of interest, we feel that the limits proposed in England around the post-appointment activities of the postholder are too restrictive and could reduce the scope to attract the best candidate for the role. We would welcome the opportunity to discuss these issues further with you. The Board is aware that there are proposals for a public services reform bill and that this may provide an opportunity to achieve any change that requires legislative support. We think that, with the exception of issues relating to the appointment and remuneration of the Auditor General for Scotland, the changes that we are suggesting can be achieved without the need for legislation. Yours sincerely John Baillie Chair of the Audit Scotland