Y Pwyllgor Cyllid

Finance Committee


Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Huw Irranca-Davies MS Yn dirprwyo ar ran Rhianon Passmore
Substitute for Rhianon Passmore
Mike Hedges MS
Peredur Owen Griffiths MS Cadeirydd y Pwyllgor
Committee Chair
Peter Fox MS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru
Auditor General for Wales
Ann-Marie Harkin Archwilio Cymru
Audit Wales
Lindsay Foyster Cadeirydd, Archwilio Cymru
Chair, Audit Wales
Nicola Evans Archwilio Cymru
Audit Wales

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Leanne Hatcher Ail Glerc
Second Clerk
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met in the Senedd and by video-conference.

The meeting began at 09:30.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Bore da, bawb, a chroeso i'r cyfarfod yma y bore yma. Croeso i'r Aelodau sydd wedi ymuno efo ni y bore yma, a chroeso i'r rhai sydd wedi ymuno efo ni i roi tystiolaeth i ni y bore yma hefyd. Rydyn ni wedi derbyn un ymddiheuriad, gan Rhianon Passmore, ac rydyn ni'n nodi hynny ac yn gobeithio y bydd hi'n teimlo'n well, ac yn diolch yn fawr i Huw Irranca-Davies am ymuno efo ni fel eilydd. Dwi jest yn gofyn yn ffurfiol a oes yna unrhyw fuddiannau angen eu datgan, ac yn nodi bod y clustffonau yn yr ystafell yn gweithio o ran cyfieithu.

Good morning, everyone, and welcome to this meeting of the Finance Committee this morning. I welcome the Members who have joined us this morning, and I also welcome those who have joined us to give evidence this morning. We have received one apology, from Rhianon Passmore, and we note that and hope that she feels better soon, and we thank Huw Irranca-Davies for joining us as a substitute. I would like to ask formally whether Members have any interests to declare, and note that the headsets are available in the room for the interpretation service.

2. Papurau i’w nodi
2. Papers to note

Felly, os ydy pob dim yn iawn felly, mi wnawn ni symud ymlaen i'r papurau i'w nodi. Dwi'n meddwl y gwnawn ni wahodd ein bod ni'n derbyn y papurau i gyd—o 1 i 6. Dwi eisiau tynnu eich sylw chi at bapur 7. Mae yna lythyr wedi dod gan y Gweinidog ynglŷn â'r fframwaith polisi trethi a'r cynllun gwaith polisi trethi ar gyfer 2021-26. Beth dwi'n ei ystyried, ac os ydyw'n dderbyniol gan y pwyllgor, ydy ein bod ni'n gofyn i'r Gweinidog ddod i drafod hyn efo ni ar ôl y gyllideb, so tua mis Mawrth, a gofyn i'r clercod drefnu hynny efo ni, os ydy pobl yn gytûn.

So, if everyone's content with that, we'll move on to the papers to note. I think we'll accept the papers en bloc, 1-6. But I want to draw your attention to paper 7. There's a letter from the Minister about the tax policy framework and the tax policy work plan for 2021-26. If the committee is content, I'll ask the Minister to come and discuss this with us after the budget, so in about March, and we'll arrange that with her, if everyone's content with that.

If everybody is content with that. And am I okay to note all those papers?

Ocê. Gwych. Diolch yn fawr iawn.

Okay. Excellent. Thank you very much.

3. Archwilio Cymru—Craffu ar Amcangyfrif 2022-23 a'r Adroddiad Interim: Sesiwn dystiolaeth
3. Audit Wales—Scrutiny of the Estimate 2022-23 and Interim Report: Evidence session

Felly, fe wnawn ni symud ymlaen i eitem 3.

So, we'll move on to item 3.

If we move on to item 3. Welcome to the Audit Wales team, and Adrian Crompton—welcome. We've got a number of papers that you've supplied to us, so thank you very much. But could I ask you initially to introduce yourselves for the record, please?

Of course. If I go first, I'm Adrian Crompton, I'm the Auditor General for Wales. Lindsay.

I'm Lindsay Foyster, and I am the chair of the Wales Audit Office Board.

I'm Ann-Marie Harkin, director of audit services, Audit Wales.

I'm Nicola Evans. I'm the head of finance at Audit Wales.

Lovely. Thank you very much, and welcome, and thanks for your time this morning. We've had your letter providing the update of the review of the travel scheme, and you're seeking the support of the committee on the supplementary budget. So, we're looking at those things today. We'll explore this, and today we'll look at the estimate and the interim report. So, without further ado, I'll start directly with a few questions, if I may. I'd like to understand a little bit about how the estimate for 2022-23 was prepared. In her letter to the committee, the Minister for finance noted uncertainty about the future funding and challenging backdrop for the Welsh Government budget, and potential UK plans for substantial efficiency savings by 2024-25. In preparing this estimate, what activities have you undertaken to consider and account for the likely trends in audit bodies' budgets?

Thank you, Chair. Well, I think, this year, in preparing the estimate—[Inaudible.]—have had to balance a number of competing pressures. I think, like any organisation, we face our own inflationary pressures, but we're also constantly striving to work more efficiently. And as Audit Wales, given our remit, we take that particularly seriously. We are very conscious, as the Minister's letter says, of the pressure that audited bodies are under, and the wider state of the public purse, and that's why, for several years now, we've managed to keep our fees pretty static and to minimise our draw on the related fund.

In response to the issues that you've raised, we have set some very challenging savings targets for the year ahead, and we are also, as you know, undertaking what is a pretty painful exercise internally to reform our travel and subsistence arrangements for staff and that will deliver some significant savings for us. At the same time, though, we also know that funding and associated risk for the public sector has increased very significantly through the pandemic and the scale and the nature of that funding is what shapes the audit work that we have to do if we're to provide you, the Senedd, and the wider public with the necessary assurance on the use of public funds.

And finally, at the same time, I think you'll be aware of the high-profile failures in some areas of corporate and local public audit in England primarily. Those have triggered a series of UK Government-led reviews of the audit profession that are now driving increased expectations and standards of the audit profession at large. And we have to respond to those if we are to maintain the strength of public audit in Wales. So, in a nutshell, the estimate that we've made before you today attempts to balance all of those competing considerations.


Thank you very much. So, without exploring the detail regarding specific increases requested, because I think we'll look at those a little bit later on, overall, staff costs are due to increase by 3.9 per cent and almost double for short-term contract staff. Can you confirm whether this increase in cost is associated with existing staff or if they relate to recruitment of additional staff?

Sure. Nic will correct me if I'm wrong, but I would say it's a combination of the two. So, within that uplift in our costs, we've assumed a relatively prudent 2 per cent increase for pay and price inflation next year, plus the increase in national insurance contributions. We will need too to add some capacity to the organisation to address significant new demands arising from new auditing standards and quality expectations that I've mentioned.

And finally, and we may come on to this later, we've allowed £200,000, within the estimate as a whole, of additional resource linked to a change in case law around travel time for our staff. Now, for the estimate purposes, that is shown as increased contractor time rather than permanent staff, but I suspect that, in reality, that balance will change over time as we understand more about our future travel pattern requirements and also the reality of how that change in practice bites.

So, with the increase in capacity then, that's predominantly going to be using contractors rather than increasing capacity using permanent members of staff.

At the moment, our staff are not really travelling anywhere at all. So, the impact of the change in our practice is necessarily limited, so it will only start to bite once we start to return to more usual travel patterns. Our easiest way, short term, to respond to that sort of change, is to call on the contractor market, but if it settles into a regular pattern, then it would make more sense, I suspect, to change our permanent staffing structure.

Thank you very much. The net cash requirements in the estimate is an increase of 8.5 per cent. This accounts for two non-cash adjustments, including £750,000 for movements in working capital, which increases the cash sought from the Welsh consolidated fund. Can you provide further information on this non-cash adjustment and why it varies so significantly from the previous year?

That sounds like quite a technical question and I will ask the expert to respond to that, if I may, Cadeirydd. Nic, could you pick that one up?

Yes, thank you, Adrian. We make a non-cash adjustment in every year's estimate, and this is to allow for movements in working capital. So, that's the difference between our debtors and our creditors at year end. It's notoriously difficult to estimate, so we usually allow a non-cash adjustment of £500,000 to allow for that movement. Obviously, any unused cash gets returned to the consolidated fund.

For next year, we've increased that by £250,000 in anticipation of the supplementary estimate for the T&S buy-out. So, although we would need the additional resource cover in the current financial year, we won’t need the cash until next year, and we won’t need as much because we’ve already got, within the estimate, budget for, effectively, one year’s payment of the travel allowance. So, if everybody took up the buy-out, then we would need double. We’d assumed the buy-out wouldn’t be as much as that.


Okay. Thank you very much. You've included the National Fraud Initiative funding outside of your headline change in the Welsh consolidated fund funding. Can you confirm that the additional £80,000 for National Fraud Initiative pilots is also outside that headline increase, as well as what that funding is for and whether it is a biannual charge or it will recur annually?

Yes. So, yes, it is outside the main body of the estimate, and that is how we have requested biannual funding for the National Fraud Initiative historically. The additional £80,000 that we’ve requested for next year is to enable us to roll out some Wales-specific enhancements to the UK-wide NFI work. Specifically, we’re looking to enable public bodies to undertake bank verifications and trading status checks on organisations that have applied for COVID business support funding. Pilot work of that elsewhere in the UK has identified some very significant volumes of error and fraudulent applications. So, within the £80,000, that would include a one-off cost of £35,000, but then an ongoing annual request of £45,000 to keep that element of the work going on an annual basis. Just as a general point on NFI, it delivers an incredible return on investment—something like 20 times. Three exercises we’ve conducted since 2015 have identified fraud and overpayment of around £18 million, and that’s on the basis of an £840,000 cost to the WCF. So, it really is, in my view, extremely well spent.

That's right.

That's right, you would see that on an annual basis, and you would continue to see the biannual request for the main body of NFI work, as in previous years.

Okay. Thank you very much.

I'd like to move on to explore the request for increased funding for 2022-23. Audit Wales has included £74,000 for increased costs to audit work. There's limited specific information in the estimate as to how this figure has been reached. How has Audit Wales calculated the figure? What will the £74,000 specifically fund? And how much is being met from efficiencies?

Shall I come in on that one, Adrian?

Lindsay, do you want to pick that one up?

Yes, I'll pick that one up, and then if there is any more specific detail, then I'm sure Nic can come in on that. I think Adrian’s already said how, in the estimate for the next year, we’ve set what the board appreciates is a very stretching savings target. That’s requiring us to make in-year savings of over £1.4 million to balance the budget and, of that, about £940,000 is from expected staff turnover, and a further £0.5 million comes from other cost reductions. So, when we think about the £74,000 figure, that reflects the proportion that’s funded, through WCF, of our audit work, covering the rising cost of audit work—the rising staff costs that we face—that we can’t meet, even after meeting those substantial savings targets. As Adrian’s already mentioned as well, for many years, we’ve held our fees static. But, of course, the highest proportion of our expenditure is going on our staff, so there’s a limit, really, in terms of our ability to absorb inflationary costs by cutting elsewhere. So, the board's very clear that, unfortunately, the inflationary pressures we face have to be reflected in the request to WCF as well as, proportionately, in fees to audited bodies, whilst we're also doing all that we can to absorb additional costs internally as well.


Thank you very much. The largest individual increase is £80,000 relating to audit quality. This is a programme over the next two years. What is this funding for? Is it training, staffing or other resources? How will progress be monitored and are the new audit quality arrangements a statutory requirement for auditors?

This is a really important element of the estimate this year, Peredur. I'll ask Ann-Marie, who is the head of our audit operation, to give her expert view on this.

Thank you, Adrian. The £80,000 is a proportionate increase for the WCF, really, but the total funding that we're putting into this area is around £230,000, and it's mainly to fund additional temporary staff posts to deliver on these major audit change programmes. We are having to respond to significant changes in audit quality arrangements and two new auditing standards, and it's really important, I think, that we do that. So, we are having to invest in that area and put additional temporary staff resources into that area.

The other thing that I've been doing is increasing the amount of external scrutiny of our audit work as well, responding, again, to, I think, some of the issues that there have been, mainly in the corporate sector that Adrian referred to earlier. I think it's important that we can justify or prove the good quality of our work. So, we're doubling the amount of external quality reviews that we have undertaken by the Institute of Chartered Accountants in England and Wales to check the quality of our accounts work, and we're also, for the first time, going to be using them to look at the quality of our performance audit work as well. So, there's an awful lot of work going on in this area, but it's really important, I think, to be able to respond to these new quality requirements and changes in auditing standards.

It's two posts. One will be working on our accounts side of things, looking at the auditing standards and the quality arrangements there, and the other will be working on the performance audit side. We're implementing International Organization of Supreme Audit Institutions standards, which are good practice across performance audit.

They are at audit lead level—so, below manager.

Okay. Thank you very much. I'll invite Peter to ask some questions.

Oh, hang on. Sorry, have I—? Sorry, Mike. Yes, sorry, it is Mike. Sorry, I missed a page.

Diolch yn fawr, Peter. My first question is: £70,000 of additional funding is requested due to the changes to travel-to-work practices, which have been deemed unlawful. Is there more coming in from historic—? Will there be historic costs on that? And why can't you net it off with savings in travel, which are occurring at the moment, with people working effectively from home?

Thanks, Mike. To take the first part of your question about the historical liability, our legal advice is that the risk is very low. So, historically, we have asked our staff to absorb the first and the last hour of travel to client sites in their own time. We were aware, though, of some developments in case law around the working time directive, and so we sought external legal advice to see if that was relevant to us. It advised that we should indeed change our practice so that travel to sites other than to our main offices would be in work time—something that's affected all of the national audit bodies in the UK. So, the risk is low because, firstly, we have proactively sought that legal advice, and so our legal advisers indicate that any tribunal would be pretty sympathetic to an employer who adopted that practice. And we've also moved swiftly, in collaboration with our trade union partners, to implement a change to policy, which they support. Your second question, Mike, was—

Netting off those costs against current savings in travel.

Yes. Nic, could you pick that up?

We've already assumed some savings in travel in our estimate; our current budget for travel and subsistence is about half of what it was a couple of years ago. What we don't know is what our future travel patterns are going to look like. There is pressure to start returning to audit sites, and if that's the case, then we won't have those savings. Obviously, if we do make savings in the year, that will be returned to the consolidated fund, but at the moment, we really don't know that that travel will stop.


On travel, I was surprised at what you said. I used to work in a college, and your travel was netted. I live in Swansea; if I went to Bridgend, I got no travel, because I was travelling less far than I would do to go to Pontypridd. It was only when I went further than I did to go to my base site that I actually got travel. Do you work on the same rules, or would somebody living in Swansea who was auditing Swansea Council get travel to Swansea, even though they didn't have to travel to your centre?

Shall I pick that up, Adrian?

Thanks, Nic.

Under our current travel scheme, in terms of reimbursement of travel costs, it's on a 'lesser of' basis. So, yes, if they travel a shorter distance than they would from the office, then they would only get reimbursed for that travel distance. The legal advice we've had on travel time is that it is for the entirety of the journey, unless they're going to our audited sites. Obviously, we'll put practices into place to minimise the impact of that, but until we fully understand what the future demand will be for travelling to audited bodies, it's really difficult to estimate.

So, if I was working for you—I live in Swansea—you would pay me if I went to audit Cardiff Council for travel from where I live, but if I went to your offices first and then went to Cardiff Council, I'd only have a claim from your offices to Cardiff Council.

Absolutely, yes.

I'd suggest that you start negotiating this, and if not, if the journey from your office to where people are going is shorter, then you make them come into the office first and then move on. I don't think anybody wants that, so I think there are negotiations around this that are being sensible. Being paid to go to Cardiff Council, but if you go to your office and go down the road—that does not seem sensible to me, and I'm sure not to other people. So, I think I would suggest you start negotiating around that, because, otherwise, you just have to make people come into the offices and then go on, which is not good for you, the office or the environment.

Thank you, Mike. Just to reassure you, as part of the discussions we've had around our travel and subsistence scheme, we are looking to work with our staff and our trade unions about exactly the point that you make—essentially, where staff are based for travel and reimbursement purposes—and pick up exactly the points that you make.

You will be auditing bodies that will also have potential for pay increases, but what they will do is they'll hold vacancies during the year until they make back those pay increases, because they will not be able to get the money for them. You'll be auditing local authorities; Peter's in the room and he'll say that you have these increases in pay and you just say to each department, 'Manage it.'

We do exactly that, Mike. I think Lindsay mentioned the figure earlier of over £900,000 of our savings target that we anticipate needs to be delivered in exactly that way, by managing vacancies as they arise.

Moving on to fee income, it's planned to increase by 4.3 per cent. Apart from health, I'm sure every other body you're auditing would like to be indexed against you, because—and I'm just being pessimistic here—I don't think the local authority upgrade is going to be 4.3 per cent, I don't think that the increase to most other public bodies is going to be 4.3 per cent. So, I think that that does cause me some concern—that you're going to take a greater proportion of other people's income. Do you share that concern?

I think this takes us right back to the first question of the day, really, and the balancing act that both our call on the consolidated fund and our decision around fee schemes entail. The things that are driving the increase in our fees are exactly those that we've already mentioned, namely the change in auditing standards. That means more work, and more work means more time, and, I'm afraid, more cost—general inflationary pressures, which everybody faces, I know. As Lindsay explained, we do everything that we can to absorb as much of that internally as we are able. And, in addition, there are simply new public bodies being created and requiring audit. So, we have, for instance, the new corporate joint committees. There are simply more audits for us to do that mean the fee income that we generate will be higher as well. 


You include a cost of £51,000 for national insurance contributions. Every other organisation in Wales, including the health service, will be absorbing that next year within their budgets. Everybody is going to have exactly the same pressure; why are you different?

I don't believe we are different. Nic will correct me if I'm wrong, but my understanding is that the anticipation is that the cost of the national insurance increase will be provided in full to the Welsh block. What's included in our estimate is the element of that that is proportionate to WCF-funded work. The balance we would include in our fees so that there's an appropriate balance between the two funding streams. 

And my final question is on consultation with audited bodies on fees. If the audited bodies are happy, who are we to object, because it's really a contract between you and them. Have you started consulting them, and are they happy?

We haven't yet started consultation on next year's fee scheme. We'll be doing that in the next few weeks. 

Thank you, Chair. Good morning, auditor general. Good to see you again. I'm just going to touch on the area around capital, because I note there are quite a lot of capital costs that were aligned to your future workplaces that have been delayed now to 2023-24. Do you believe there will be any impact due to that delay? 

I guess, Peter, you've touched on the major impact in terms of the estimate, namely the delay in any significant additional drawn capital from that which we've previously indicated to the committee. Just to give you a bit of background to this, we have three offices across Wales. The leases on each of those have come to an end over the last few years, and so we've set in train a programme to review our estate needs. That has been affected massively by the pandemic, for pretty obvious reasons, and one of the consequences of that is that we extended the lease on our primary office in Cardiff, on Cathedral Road, hence the delay in any potential capital request.

The pandemic, though, is obviously changing our operational model quite significantly. Historically, that has been premised on the use of what we call audit rooms. So, a lot of our staff are based routinely in accommodation provided by the bodies that we're auditing. And, obviously, every one of those bodies is going through a similar process to us and is reviewing their estate needs for the future and their own ways of working. We're in dialogue all the time at the moment with our audited bodies on exactly that issue—No.1, would they welcome us back on site as and when we are able to return, and secondly will they be able to accommodate us in exactly the same way. 

As that unravels, that is going to impact on our potential office space for ourselves, because whereas before I think we anticipated moving to smaller premises, paradoxically the loss of audit rooms might lead us actually to have rather more space than we have had in the past, if that's how we need to bring our staff together to work in teams. So, I'm afraid it's a very fluid picture at the moment; we're exploring all options actively at the moment. And so I guess that the best I can offer to the committee is just to keep you in the picture as that evolves over the coming year, so that you're fully sighted on any potential capital requirements that we might need.


Thanks for that. And I can see the uncertainty around certain things, but can you give us an indication of how you're planning to use that future funding, which was allocated? And perhaps you could give us a hint of what you might be going to do with that £200,000 that you've scheduled into 2022-23; if you could give us some insight on that.

Sure. If we look at the future years and the more significant sum, that is a marker, really, down; if we were to move office sites to new premises, that would obviously require some significant investment in that year to prepare and make the move, make any adjustments to the property, and so forth. So, that's fundamentally why it's there. One of the options that we're still considering is whether we could remain in our existing Cathedral Road site; it's certainly large enough. It is, though, a Victorian building; it is pretty costly to maintain without some significant investment. I don't think it would be viable for us, and certainly wouldn't help with our environmental credentials. So, either way, I suspect there will be a need for some significant investment a couple of years down the line.

In terms of the £200,000 for this year, for our change programme, some of that is in exactly this space around our future workplace needs, and so, we're having to invest in the preparatory work that is necessary to explore different office options, make some investments in our existing premises to adjust it to enable us to trial new working patterns, with different furniture layouts and the like. There is also some money set aside within that for some of the other changes that we're trying to take through the organisation. So, a couple that spring to mind are a new IT platform on which to base all of our performance audit work, so we're doing a little bit of work in that space, and we're also looking at a new time-recording system for the organisation as a whole.

Thanks for that. The estimate notes that your changes in your accommodation requirements, you're not going to make the savings that you were hoping to. Could you sort of explain what the objectives of the changes are, and what are the anticipated savings in the short term?

Sure. So, when we embarked on the process of a review of our estate, the board set a target of 20 per cent savings on our estate costs. That, as I said, was pre pandemic, so for the reasons I've described, there is now some doubt at least whether we'd be able to achieve those. The targets that exist, the board hasn't revisited as yet, because the situation is so fluid.

Sorry, Peter, could you repeat the second part of your question?

No, that's fine. I was just trying to reconcile what you've been saying about the office along with some of the messaging we perhaps heard or were indicated back in September by the executive director of corporate services, who suggested because your audited bodies, because of changes there, you're going to need possibly bigger offices and I'm trying to reconcile that with what you were saying about what you were doing with your current offices in that. Which is it, if you like?

I wish I could give you a categorical answer to that. So, just to recap: initially, our intention had been to move out of our Cathedral Road office, primarily—that's the most expensive part of the estate—and probably to relocate to smaller premises, to reflect the fact that we're now working in a different way. That's been overtaken by the pandemic. The loss of the audit rooms, especially, means that there is now uncertainty about how much space we need of our own in future. If anything, it seems more likely to me now that we'll need rather more space than we previously anticipated. So, we're not certain yet, because we've not settled on the solution, but there is at least a risk, I would say, that we don't recognise those financial savings that we'd hoped for a couple of years ago. But that will only become clear over the next year or so, as we finalise our plans for our future estate.


So, if you do need those bigger offices, what sort of options are you exploring around the cost-effectiveness of those premises? What assumptions will you be basing your decisions on?

We would certainly like to make some financial savings. It's one of our biggest areas of non-staff costs, so we have to keep that as an objective if at all possible. Large premises don't necessarily mean higher costs; it depends what sort of premises we're talking about, their location and so forth. So, we're exploring a range of options. We're looking at any potential for sharing and collaboration with other bodies, if that is appropriate. We're also looking at the use of hubs elsewhere in Wales, where our staff could come together at good cost to work in an efficient way. I think most likely at the moment is that we're going to see a hybrid solution to reflect the changing work patterns that we've seen over the last 18 months.

I expect you're doing an awful lot of audit work in a hybrid way at the moment. I may have asked these questions, but this is out of interest, really. Can you manage? Does that work? Because that's key, isn't it, to any decisions on accommodation, how hybrid-ness will work going forward?

Yes, absolutely. Does it work? For 18 months now we have survived in this way, we have delivered our work phenomenally, in my view. It has come at a price, though. It is less efficient, so it costs more in terms of staff time to do a lot of the things we have to do. The more significant loss for the organisation, though, I would say, is in the ability for teams to come together. We have a large proportion of apprentices and graduate trainees in the organisation, who require a considerable amount of coaching, mentoring and training. It's very difficult to do that for long periods in this kind of environment, and of course we've lost a lot of the team spirit and cohesion that comes when staff are able to come together. So, going into the future, I'm sure we will continue to make use of virtual working in a considerable way, but as soon as possible I'd like to be able to bring staff together much more frequently.

I absolutely agree with that, and I think we did touch on that the last time we met, but it's fundamental to forward planning, isn't it? Because those are some of the key decisions we've all got to make: how does this new way of working factor into our accommodation costs going forward? Because you can make significant savings through doing things in the way we're doing this now, today, but at what cost? I think you've just highlighted that cost bit, and that's something we're going to have to wrestle with when trying to monitor the value for money of accommodation costs, but thanks for that insight.

And of course every one of our audited bodies are having similar conversations themselves, and so we need to factor that in as well, because we work with every other part of the public service. 

Yes. If I could just move on briefly again, we'll just touch on the new travel and subsistence scheme, or the changes you're proposing. I note that the estimate for 2022-23 does not include information on costs and savings associated with this, or the cost of any successor scheme. There may be information we've missed, mind, which might have come in some subsequent letter, so apologies if that's the case. I wonder if you could confirm how you will see the change being funded and what value of savings the removal of a fixed allowance will generate.


Certainly. Can I just caveat what I'm about to say by saying that we're right in the thick of negotiations with our trade unions about the final shape of any proposals? So, I will try to be as open as I possibly can be, but I hope you'll understand that a degree of caution on my part would be sensible.

In terms of the fundamentals of your question on the cost and savings from the scheme, the report of our external auditors that was commissioned by the predecessor Finance Committee demonstrated that were we to remove the current fixed travel allowance, and instead pay our staff standard Her Majesty's Revenue and Customs mileage rates of 45p a mile, that would save in the region of £0.5 million a year at pre-pandemic levels of travel. So, £0.5 million of savings each year. 

From the outset, though, with the support of the previous Finance Committee, our board has been clear that we need to balance those potential savings with recognition of the very real and significant financial impact that removal of the allowance will have on many of our staff, and we need to protect as best we can staff morale and retention. So, the board set aside a reinvestment fund, as it were, of £300,000 of those potential savings to put back into the system in some way. The net effect of that, once we have a new scheme in place, is to deliver savings of £1 million over five years, once we have a new scheme in place from 2024.   

Okay, thank you. My last point then, Chair. What value of salary uplift for staff is being considered and how do you intend to fund this? And what impact will a salary uplift have on fees as well as requested funding from the Welsh consolidated fund? 

Of course, and I'm sure you really will understand if I'm a little cautious about numbers in response to that question at this point in time, but if I describe the package of proposals that the board put forward for more general staff consultation earlier in the summer. We proposed a salary uplift to kick in from 2024 onwards of £750 for staff throughout the organisation. That would be funded from that reinvestment pot of £300,000 that I mentioned. So, in terms of impact on our call on the fund and on fees, there would be a reduction in our need to increase fees or the funds that we request from the consolidated fund as a result of the savings that would be generated from this change.  

I've just got a couple of questions before I move on to Huw, if I may. We were talking earlier about the difference in the working capital being £250,000; I think Nic mentioned it. How does that work in relation to what we're talking about, the £200,000 cost saving? Could we understand a bit more about the interplay there? Maybe Nic could give us a little bit more information about where that anticipation comes in, where that £250,000 comes into that.

So, the savings, we're not anticipating the savings until 2024-25, so that working capital adjustment is really about the fact that we will need to—. If it is agreed that there will be a staff buy-out this year, and subject to the number of staff who opt to take that up, that will be reflected as a cost in the current year, so the 2021-22 accounts, which is why we would need a supplementary estimate for the resource cover to allow for that to happen. We wouldn't actually make that payment out to staff until April 2022-23, so we would require the cash next year to pay for that. We would already have some of the cash in the budget for next year's travel allowance, so some of it would come from that, but there would inevitably be an increase in cash early in next year to fund that buy-out, but it's not linked to the savings.


Okay, thank you very much. On a slightly different point, how does Audit Wales intend to report on savings from the removal of the fixed allowances, and how will those savings be returned to the WCF, or will Audit Wales request to retain that funding?

I'm guessing that question links to the possible request for a supplementary budget. The first thing I'd say—part of my caveating—is that we're not certain yet whether we will or won't need to make that request. If we do, so if, as part of the proposals that we implement, staff are given the option of rather than the remaining travel allowance for the next couple of years they can opt to buy themselves out of it at the start of next year, that would mean we start to generate much more significant savings from next year onwards. The level of those savings, obviously, will depend on the level of take-up for the buy-out provision. So, if it happens, those savings will be recognised in next year's figures, and obviously we would return those to the consolidated fund either at year end, or, if they were more significant, through a supplementary budget mid year. But we won't know the most sensible way of doing that until we see the level of take-up and therefore the level of savings that start to be derived next year.

With regard to that, have you modelled through when—. If that estimate came through, have you modelled through when that break-even point would be? Is that significantly down the line, or is that fairly soon?

Absolutely. So, the supplementary would be paid back within two years.

Okay, thank you very much. And finally on this section, before I bring Huw in, you've outlined that there is a £26-a-month homeworking allowance in your letter, which has been paid to staff since early in the pandemic, which will continue as part of the T&S change. How much will this cost Audit Wales, and will it be ongoing, going forward?

From memory, Nic, I believe it costs the organisation around £90,000 a year to pay that. We have made it available to our staff since the early days of the pandemic in 2020. It was certainly a recommendation of our staff task and finish group, who drew up proposals for the new scheme, that that should continue, and the board is supportive of doing that, certainly all the time when we're working in this way. It seems an entirely appropriate allowance to be making to our staff, who are, I'm sure, incurring costs of their own at home through working in this way on our behalf.

Thank you, Chair, and good morning, everybody. I'd like to turn to some of the areas of uncertainty in the budget and the year ahead that you've identified, and two in particular, relating to pay and recruitment and also the volume of work. You've suggested that you may need to actually look at a review of pay and conditions because of pressures within the market out there, the shortage of audit professionals, the increased staff turnover as well. It seems that every sector across the UK at the moment is facing staff shortages and challenges within recruitment. If you were to do this, could I ask you how you intend to fund any review of pay and reward, but also at what point would this be triggered? Have you got in your minds already clearly at what point you would trigger a review?

I'll kick off and then ask Ann-Marie to come in, if I may, Huw. This is not something that we're working on right now. There's mention in the estimate; we felt it was appropriate to start to signal this sort of pressure to the committee as soon as we were seeing it. So, there are undoubtedly some very real issues arising in the audit profession generally. We're not seeing it bite on us massively at the moment; we're possibly just seeing some early signals. So, I think it's highly unlikely that, in the coming year, we will be undertaking some fundamental review of terms and conditions, but we wanted to put an early marker down to the committee that this, potentially, is something that may be coming our way. But, Ann-Marie, do you want to say a little more?


Absolutely. Thanks, Adrian. I think, as Adrian has said, we are protected, to some extent, at the minute because we have a very successful, as you'll know, trainee and apprenticeship programme. So, I think there's an element for us of growing our own, which means, of course, that they come through and become qualified auditors and it's good, then, that we're able to offer them jobs. What we did see last year, though, with our final-year trainees, once they'd qualified, we had a higher percentage of them leaving than we would have had previously. And we're also seeing that it's not quite as easy, maybe, to recruit externally in the market, but we're not at the point yet, I think—and Adrian's right, I don't think we maybe will be over the next 12 months—where it is really biting. So, I think we're keeping an eye on it, but, at the minute, I feel quite comfortable that we've got the skills that we need in order to undertake our work.

Okay, well, that is quite reassuring, although, I know that you'll keep an eye on this, going forward, and you'll clearly want to inform not only Welsh Government but the committee as well if that changes. But, from what you're saying, there are some quite reassuring messages. Could I just ask, as to the loss of people who you've invested significant time and money in, in terms of training, to other organisations, is that because of competitive pressures in the labour market, frankly that pay and conditions out there are highly competitive and they're being snapped up?

Well, when we introduced this programme—we significantly expanded the trainee programme about five years ago now—it was never the intention for us to be able to retain all of the trainees that we recruited at that point. So, we bring in maybe 14 trainees every year, and then some apprentices as well, and on the basis of the last few years, we're able to keep about half of them. The intention was always, really, to be a bit of a pipeline for the wider public sector as well. So, the vast majority of our trainees go to other public bodies, ideally in Wales, hopefully in Wales—that's certainly one of our key performance indicators. So, I think some of the people are just wanting to develop further; they want to go and be an accountant maybe, rather than an auditor, and that's great. We aren't seeing huge swathes of our trainees yet leaving to go to private sector firms. Having said that, I am acutely aware, as I'm sure you are, of the challenges in recruiting auditors to firms in England to undertake mostly local government audit, for example, public audit, and we're just watching to see what happens. UK Government, I think, has provided additional money to local authorities in England to fund increased fees, so there is a possibility, I suppose, that the firms will start to pay more to trainees when they're newly qualified and that some of our trainees might be attracted by that. But, generally speaking, our trainees are really, really committed to the public sector and if they don't stay with us, they tend to stay in Wales and with another public body, which is great news.

Okay, thank you for that. I think the committee will probably take some reassurance from what you've said this morning.

Can I turn to the other issue that you've flagged where there's significant uncertainty, and that's in respect of the volume of work in the year ahead? You've identified that you may need to return to the Finance Committee if the work does exceed current expectations. So, could you just touch on what assumptions the current estimate of volume of work is based, how this is reflected in the increase in fee income and, frankly, can you adjust to this by prioritising other work if necessary, if this does become true?

Shall I pick that up, Adrian? The 4.3 per cent increase in fee income in the estimate is a combination of an increase in our fee rates—we think we're going to have to put our fees up next year and that's what's about to go out to consultation—and also volume of work, because we know that we've got new bodies, such as the corporate joint committees, that we've got to audit. Where there's uncertainty is if something happens during the year and we have to do significant extra audit work, which we would charge fees for, but we would also need the resources to deliver. That's currently not covered in the accruing resources figure within the estimate. We've done it in previous years, where we've come back to the committee to say, 'We know we're going to generate more income, we need to spend more money to generate that income. So, it's no additional cost to the consolidated fund, but we need to increase our recruitment resources.' We think we've allowed enough headroom for next year, but there is always a risk of something unexpected happening.

In terms of reprioritisation, we can reprioritise some work. Our audit of accounts work, though, has to be done. So, if we have to do more audit of accounts work, then we would have to charge for that and request the additional resource cover for that. 


Thank you for that. Adrian, I wonder if you can touch on the point there about the reprioritisation, because clearly, from Nic's response there, this would not mean in any way deprioritising your core work.

No. So, where we have a degree of discretion is more around our value-for-money performance audit work, where we can make choices about what we do. But, Nic's absolutely right in respect of our accounts work, which is the majority of our work and certainly the majority of our fee-income-generating work—we have very little flexibility over that, and how we go about it is very heavily prescribed by internationally agreed auditing standards that we're obliged to follow.

Okay, thank you very much. We've got limited time remaining, but if I could just touch on a couple of areas as well, and one of those is proposals around switching fee-funded work to WCF funded. Now, on that proposal, I'm just wondering what discussion you've had with the Welsh Government on this and to what extent it agrees with this potential approach.

If I may, Huw, I'll ask Ann-Marie to respond in the first instance as she's been having those discussions with Welsh Government officials.

Thank you, Adrian. Sorry about that—I'm muting myself, and I'm really sorry as I've got the dog in the background.

We've had discussions with a number of senior officials at Welsh Government and also the finance director there, and it would be fair to say, I think, that they are broadly supportive. However, what they did say was to just reiterate really that this was something, clearly, that we would want to and need to be totally transparent about and discuss with the audited bodies, and that will be something that we'll be flagging in the fee consultation, which, as Adrian says, is about to start.

So, they're very supportive. They understand and I think they are on board with where we're trying to go with this. We want to be able to do more cross-cutting work, which is not maybe confined to one sector. We want to be able to do more regional work, and I think the Welsh Government—. That's very much what they would like to see us doing in many cases. So, they're supportive, but, like us, they recognise that there are steps to go through still.

Sorry, that's clearly not a Rottweiler you've got in the room behind you. [Laughter.]

Could I just follow up that by asking, if you were to proceed with this, how you make sure that it's done in a fair and reasonable way, particularly in terms of fair deductions from audited bodies' budgets, especially if these activities are not taken on a consistent annual basis amongst all relevant bodies?

So, we have calculated what sort of work that we would be moving, essentially. So, some of the work still needs to be done locally. So, for example, proper arrangements type work and performance audits would still need to be done locally. So, it would be that work that we maybe have got discretion over that Adrian was referring to, and an element of that would move. What we would be proposing, though, would be that, for us reducing the fees, the bodies themselves and the Welsh Government would sort of hold them neutral in a sense, but it would give us that flexibility that we need in order to do a more cross-cutting, maybe more thematic type regional approach to our performance audit work.

Okay, thank you very much for that. I've got one final question, Chair. It'll need to be fairly brief, there, it's in respect—

You're all right, Huw—as long as everybody's okay, we can go a couple of minutes over. 

That's brilliant. Thank you, Chair. It's in respect of the annual plan and the interim report for 2021-22. The report notes that the audit work programme is broadly on track—98 per cent of audit products have so far been delivered by the statutory deadline as required. So, the question is whether Audit Wales sees 98 per cent as reasonable, or if this is an issue for either Audit Wales or for statutory bodies.


Do you want me to take that, Adrian?

Sure. Fire away, Ann-Marie.

Brilliant. I think it's a very challenging target would be my take, especially where we can see—the way we're having to work at the minute, you know, maybe work takes longer. So, I think it's a very challenging target, but, yes, absolutely, we think it's a fair target.

Just to sort of flag, really, that it was one audit that we didn't meet the statutory deadline with, and that was a conscious decision on our part that we chose not to issue the certificate, and that was because there was other work ongoing that we wanted to see through to the end before we issued it. So, it was a conscious decision; it wasn't that work wasn't done, it was that we took a conscious decision. So, I have to say, I'm really proud of the staff, I think, in very difficult circumstances there, meeting all of these deadlines, and that's really quite incredible. 

Can I just say that there were some smiles as I mentioned that 98 per cent, and I think those smiles are smiles born by hard experience over recent periods I suspect? But thank you for that answer, and also for the way that you have actually recognised the contribution of staff here over this period as well. Thank you, Chair. 

Thank you very much, Huw, and thank you all for your time this morning. It's been a very interesting and informative session, and we'll be reporting back in due course.

One thing I'd like to say is good luck, and continue with your work with the T&S scheme; I know it's quite a—. We've had discussions before and it's a challenge for you, and maybe, at some point in the future, if we need to talk to you about that, then we'll get you back to speak to us. But, unless you've got anything further that you might want to add, then I'll just give the committee's thanks to the witnesses this morning. 

Nothing further to add, Cadeirydd. Thank you very much for the session this morning, and thank you too for your closing remarks there, and your support. Thank you. 

4. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn a’r cyfarfod ar 19 Tachwedd 2021
4. Motion under Standing Order 17.42(ix) to resolve to exclude the public from the remainder of this meeting and the meeting on 19 November 2021


bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod a’r cyfarfod ar 19 Tachwedd 2021 yn unol â Rheol Sefydlog 17.42(ix).


that the committee resolves to exclude the public from the remainder of the meeting and the meeting on 19 November 2021 in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

Dwi'n cynnig felly, yn unol â Rheol Sefydlog 17.42, fod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod hwn a'r cyfarfod hwn ar 19 Tachwedd 2021. Ydy pawb yn gytûn? Grêt. Felly, diolch yn fawr. 

I propose therefore, in line with Standing Order 17.42, to resolve to exclude the public from the remainder of this meeting and the meeting on 19 November 2021. Is everyone content? Great. Thank you. Therefore, we'll go into private. 

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:33.

Motion agreed.

The public part of the meeting ended at 10:33.