My Lords, this group of amendments would in essence delete the requirement to have an auditor panel and require that each relevant authority had an audit committee. The audit committee would undertake the role envisaged for the audit panel under the Bill. Other amendments in the group are consequential, substituting “audit committee” for “audit panel”, although I acknowledge that more of these would be necessary in practice. Our following amendment, Amendment 14BB, would require that any audit committee must have a majority of independent members and be chaired by an independent member.
The role of audit committees in the public and private sectors is well understood. It would be good to hear from the noble Lord, Lord Palmer of Childs Hill, who has particular experience in chairing his local audit committee. In the private sector, the audit committee has become one of the main pillars of corporate governance. Its aim is enhancing confidence in the integrity of processes and procedures relating to internal control and corporate reporting, and it has a key role in providing oversight of the work of the external auditor.
Equally, in the public sector, audit committees are an essential element of good governance. They help to raise the profile of internal control, risk management and financial reporting, as well as providing a forum for the discussion of issues raised by internal and external auditors. They can enhance public trust and confidence in the financial governance of an organisation.
The CIPFA guidance is that audit committees should be chaired independently of executive and scrutiny functions. CIPFA has issued non-statutory guidance that draws on best practice, including that issued by the FRC. That practice makes clear that audit committees should consider the effectiveness of the auditor’s risk-management arrangements, the control environment, and associated anti-fraud and anti-corruption arrangements. They should seek assurances that action is being taken on risk-related issues identified by auditors and inspectors. They should be satisfied that the authority’s assurance statements properly reflect the risk environment and any actions required to improve it. They should approve internal audit strategy and plan, and monitor performance. They should review summary internal audit reports and receive the annual report of the head of internal audit. They should consider the reports of external audit and inspection agencies. They should ensure that there are effective relationships between external and internal audit, inspection agencies and other relevant bodies, and that the value of the audit process is actively promoted. They should also review the financial statements, external auditor’s opinion and reports to members, and monitor management action in response to the issues raised by external audit.
We will discuss the matter of audit committees for health bodies in our debate on a subsequent amendment, but the Government’s intent, in Paragraph 32 of the Explanatory Note to the Bill, seems to be that the existing audit committees of health service bodies, which already satisfy the independence requirements, will be the auditor panels for a health service body; so we are half way there. Audit committees in local government are not currently mandatory, although most authorities have one, or an equivalent.
This would seem an ideal opportunity to rationalise matters by requiring all local authorities, certainly principal ones, to have independent audit committees and to subsume the proposed narrower role of audit panels within this. Although the Bill allows for an audit committee to act as a local audit panel, the position could end up with an authority that has an auditor panel and an audit committee, just an auditor panel, or an audit committee that is properly constituted. This is a recipe for overlap and confusion. Has the
time not come when we should require principal bodies at least to have a proper audit committee independently organised, following CIPFA guidance? I beg to move.
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