My Lords, the amendment amends the requirement that a local auditor must notify a relevant authority’s auditor panel before making a public interest report and requires the notification to be made when the report is made. There was a very strong recommendation from the pre-legislative committee that an auditor should be able to raise a public interest report without prior reference to the audited body’s auditor panel or audit committee. This amendment would fulfil that recommendation in the knowledge that the Bill is an improvement on the draft, which required consultation with the auditor panel.
Public interest reporting is, of course, a vital part of public auditing and assurance. There is a statutory requirement in the Audit Commission Act and the Bill that we are considering. Under Section 8 of the Audit Commission Act 1998, the appointed auditor is required to consider whether to issue a report in the public interest of any significant matter coming to his or her notice in the course of an audit and to bring it to the attention of the audited body and the public.
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Public interest reports have been an effective tool, causing local public bodies to act on concerns which have been raised by auditors. Of course, many local authorities have gone to some lengths to stop them being issued.
Auditors have, I think, issued the following public interest reports in recent years: in 2013-14, one to date; in the previous year, two; the year before that, one; the year before that, two; in 2009-10, one; in 2008-09, four; and in the year before that, three—that is, principal bodies’ public interest reports. The majority of public interest reports were issued to parish councils; for example, I think that 62 were issued in 2011-12 and 58 in 2010-11.
There have been no public interest reports issued for foundation trusts—which, of course, now appoint their own auditors—since they came into being in 2004, even though there have been significant financial management and governance failures in the sector. Concerns were expressed by the pre-legislative committee that this is indicative of auditors being in a more exposed position. The committee report made reference to the argument of the noble Lord, Lord Heseltine, that the pressure to be reappointed and the fear of being branded as a difficult firm might compromise the auditor’s independence.
The Audit Commission has stated publicly that it is not appropriate for the auditor to consult an audit panel before making a public interest report. In our view, the provision in the Bill to notify the auditor panel is an improvement on the draft Bill, which required the auditor to consult the panel. However, it agrees that Amendment 17B, which changes “before”
to “when”, is helpful in that it does not give the impression that this is a hurdle to be jumped before the auditor does work on the public interest report. This does not, of course, preclude the local auditor from discussions with the audit committee or the auditor panel, but it does not require it.
The pre-legislative committee also referred to indemnities for auditors raising public interest reports. Schedule 7 makes reference to the recovery of reasonable costs arising from determining whether to make a public interest report and reasonable costs in actually making one. Can the Minister explain the position in relation to legal and court costs? Although we are in a different era now, few will need reminding of the 14 years it took to resolve the Westminster City Council case. We are bound to say that we are sceptical of limitation of liability agreements but we wonder whether there might be a role for indemnities, perhaps on a case-by-case basis.
Amendment 17C calls for the National Audit Office to provide advice and support to auditors both during and before a public interest report process. This is to replace the part currently undertaken by the Audit Commission as the sounding board for auditors contemplating a public interest report.
It is accepted that the process of issuing a public interest report will be covered in the audit code, which, it is understood, will become the responsibility of the National Audit Office, but this amendment requires explicit acknowledgement that the NAO should be empowered and resourced to support local auditors during the process. I beg to move.