|David Rees AM|
|Jane Hutt AM|
|Neil Hamilton AM|
|Nick Ramsay AM|
|Simon Thomas AM||Cadeirydd y Pwyllgor|
|Alison Gerrard||Aelod o'r Bwrdd, Swyddfa Archwilio Cymru|
|Board Member, Wales Audit Office|
|Ann-Marie Harkin||Arweinydd Archwilio Ariannol ar gyfer archwilio cyfrifon Comisiwn y Cynulliad, Swyddfa Archwilio Cymru|
|Financial Audit Lead for the audit of the Assembly Commission’s accounts, Wales Audit Office|
|Anthony Barrett||Archwilydd Cyffredinol Cynorthwyol, Swyddfa Archwilio Cymru|
|Assistant Auditor General, Wales Audit Office|
|Manon Antoniazzi||Prif Weithredwr a Chlerc y Cynulliad|
|Chief Executive & Clerk of the Assembly|
|Martin Peters||Pennaeth Cyfraith a Moeseg, Swyddfa Archwilio Cymru|
|Head of Law and Ethics, Wales Audit Office|
|Nia Morgan||Cyfarwyddwr Cyllid, Cynulliad Cenedlaethol Cymru|
|Director of Finance, National Assembly for Wales|
|Nicola Evans||Pennaeth Cyllid, Swyddfa Archwilio Cymru|
|Head of Finance, Wales Audit Office|
|Suzy Davies AM||Comisiynydd|
|Ben Harris||Cynghorydd Cyfreithiol|
|Gareth Howells||Cynghorydd Cyfreithiol|
|Georgina Owen||Dirprwy Glerc|
|Leanne Hatcher||Ail Glerc|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Deddf Archwilio Cyhoeddus (Cymru) 2013: Sesiwn dystiolaeth (Swyddfa Archwilio Cymru)||3. Public Audit (Wales) Act 2013: Evidence session (Wales Audit Office)|
|4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o eitem 5 ac eitemau 8-11||4. Motion under Standing Order 17.42 to resolve to exclude the public from items 5 and items 8-11|
|6. Ymchwiliad i Danwariant Penderfyniad y Bwrdd Taliadau: Sesiwn dystiolaeth 1 (Swyddfa Archwilio Cymru)||6. Inquiry on the Remuneration Board’s Determination Underspend: Evidence session 1 (Wales Audit Office)|
|7. Ymchwiliad i Danwariant Penderfyniad y Bwrdd Taliadau: Sesiwn dystiolaeth 2 (Comisiwn y Cynulliad)||7. Inquiry on the Remuneration Board’s Determination Underspend: Evidence session 2 (Assembly Commission)|
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.
Dechreuodd y cyfarfod am 09:31.
The meeting began at 09:31.
Bore da a chroeso i gyfarfod y Pwyllgor Cyllid. Croeso i Aelodau. Mae gyda ni ymddiheuriadau gan Steffan Lewis a Mike Hedges. A oes gan unrhyw Aelodau ddatganiad o fuddiant o gwbl? A allaf i eich atgoffa chi hefyd i dawelu unrhyw ddyfeisiau electronig gan eu bod nhw'n gallu amharu ar y cyfieithu? Mae'r cyfieithu ar sianel 1 a'r sain gwreiddiol ar sianel 0. Ac, wrth gwrs, mae cyfieithu ar gael: defnyddiwch y Gymraeg neu'r Saesneg fel y mynnwch.
Good morning and welcome to this meeting of the Finance Committee. I welcome Members. We have received apologies from Steffan Lewis and Mike Hedges. Does any Member have any interests to declare? I remind you also to ensure that any electronic devices are on silent because they can interfere with the interpretation. The interpretation is on channel 1 and the amplification is on channel 0. Please feel free to use the Welsh or English languages as you prefer.
Os caf i ofyn i'r Aelodau yn gyntaf i nodi y papurau sydd ger eich bron. Mae yna bapur yn ymwneud â llythyr gan Ysgrifennydd y Cabinet dros Gyllid at y Cadeirydd ynglŷn ag adroddiad blynyddol Horizon 2020, llythyr gan Ysgrifennydd y Cabinet dros Gyllid ataf i ynglŷn â bondiau buddsoddi cyfalaf—rwy'n tynnu eich sylw chi yn arbennig at hynny achos mae wedi bod yn fater y mae'r pwyllgor â diddordeb ynddo fe, bondiau a chyhoeddi bondiau, ac mae hwnna i'w nodi—dau set o gofnodion y dau gyfarfod diwethaf, a hefyd rydym ni wedi derbyn yr adolygiad capasiti a wnaed gan y Comisiwn, sydd yn bapur cefndirol ar gyfer y cwestiynau ar gyfer y sesiwn nesaf y byddwn ni'n ei gael gyda swyddfa'r archwilydd a'r Comisiwn ei hunan. Pawb yn hapus i nodi'r papurau? Rwy'n gweld eich bod chi. Diolch yn fawr iawn.
If I may ask Members first of all to note the papers that are before us. We have a letter from the Cabinet Secretary for Finance to the Chair about the Horizon 2020 in Wales annual report, a letter from the Cabinet Secretary for Finance to me about capital investment bonds—and I want to draw your attention particularly to that because that has been an issue that the committee has been interested in, bonds and the issuing of bonds. So, that is to note. We also have two sets of minutes of the two previous meetings, and we have also received the capacity review that has just been undertaken by the Commission, which is a background paper for questions for the next session that we will have with the Wales Audit Office and the Commission itself. Is everyone happy with the papers? I note that you are. Thank you very much.
Felly, a gaf i droi at Swyddfa Archwilio Cymru, gan groesawu'r tîm sydd ger ein bron? Fe wna i jest ofyn i chi am eich enwau a'ch swyddogaethau ar gyfer y cofnod, os gwelwch yn dda.
We will move on to the Wales Audit Office and welcome the team who have come before us. If I may just ask you for your names and your roles for the record, please.
Good morning. I'm Anthony Barrett, assistant auditor general.
I'm Alison Gerrard, non-executive member.
I'm Martin Peters, head of law and ethics.
I'm Nicola Evans, head of finance.
Diolch yn fawr. Croeso yn arbennig i'r rhai ohonoch sydd ddim wedi bod ar gyfyl y pwyllgor o'r blaen, a chroeso nôl i'r rhai ohonoch chi sydd wedi. Yn y sesiwn cyntaf yma, wrth gwrs, rydym ni'n troi at y gwaith roeddech chi wedi bod yn ei wneud yn yr hydref—wel, yn arwain hyd at yr hydref—ynglŷn â'r cynllun ffioedd a rhai agweddau eraill o waith swyddfa'r archwilydd cyffredinol. Yn anffodus, oherwydd anawsterau a digwyddiadau anffodus yn ystod yr hydref, cawsom ni ddim cyfle o gwmpas y gyllideb i edrych i mewn i hyn, felly rydym ni'n dychwelyd nawr. Rydym ni'n ymddiheuro am hynny, ond yn ddiolchgar i chi am ddod i mewn yr ail dro. Rydych chi wedi cyflwyno papur ar hyn o'r blaen, wrth gwrs, ond jest er mwyn rhoi cefndir i'r pwyllgor, a fedrwch chi jest roi amlinelliad i ni o sut mae'r cynllun ffioedd yn cael ei weinyddu yn fewnol gyda chi, ac yn ymarferol, lle rydych chi'n gweld problemau yn codi oherwydd y ddeddfwriaeth yn benodol?
Thank you very much. I particularly welcome the people who have not been before the committee before, but also welcome back the people who have. Now, in this session we will turn to the work that you had been undertaking in the autumn in relation to the fee regime and some other aspects of the work of the auditor general. Unfortunately, because of difficulties and unfortunate events during October, we didn't have an opportunity to look into that, so we return to it now. We do apologise for the situation but we are grateful to you for returning for a second time. You have introduced these papers before, of course, but just to give the committee some background, can you please outline how the fee regime is administered internally by you, and practically where you see problems arising because of the legislation specifically?
Perhaps I can just put some context before we go into the detailed questioning. So, firstly, I just wanted to express the board's thanks, really, for the opportunity to be here today and just perhaps provide a few words to help set the scene. So, firstly, the board very much appreciates many aspects of the Public Audit (Wales) Act 2013 because it really does set a very strong governance framework, by which we've achieved our reputation as a well-run and respected organisation. And in this respect, I would like to pay tribute to the auditor general for his leadership as chief executive, and also to the staff at the Wales Audit Office who are passionate about their work.
What our case for change paper is about is an aspect of the legislation that has proved even more difficult in practice than anticipated when we saw the draft—specifically, this requirement to charge no more than the cost of a function. It's so restrictive that it causes uncertainty in our charges, administrative bureaucracy and a disincentive, in fact, to be more efficient in the way that we undertake our audits.
So, after the Finance Committee recommended in March 2016 that the Act be amended to clarify the audit fee regime, we looked to consult with our stakeholders on such a change. We issued a discussion paper last June and received support from across the bodies in which we audit to seek simplification in how the audit regime works. Except for the use of some notional fees, we really have gone as far as we can now to make the changes within the confines of the existing legislation, and our case for change proposals set out what we need to do, really, to change the legislation to overcome the remaining complexities.
My colleagues here today all have detailed knowledge of the operational complexities of this work and I hope our attendance will be helpful.
If I could set out how we go about setting our fees at the moment and where the complexity comes. We set our fee rates as part of our estimate process, so when we bring the estimate to you in the autumn, we include within that a draft fee scheme. Our rates are set to cover all of our costs other than those that are met directly from the consolidated fund, bearing in mind the anticipated chargeability of our audit staff, so the amount of their time that they actually spend working on chargeable work.
We have a fairly complex cost model that's audited by our own external auditors. So, they're content with that. I think that part of the process—the requirements of the Act—actually give us a good structure to work within, and that makes that part of the process more straightforward. Where the complexity comes in is that when we—. That's how we set our fees, so we look at what time we think our auditors will take and what skills mix is needed on each audit. But then, to actually charge the fees, we ask our auditors to complete time sheets to say how much time they've actually taken on those audits. The complexity comes at the point that the audit is closed and where it may have cost a little bit more or a little bit less than we've actually said. We've set ourselves a de minimis level, because we think the average cost of an actual transaction is about £200, but anything more than £200 we refund to an audited body, or, in some cases, we would bill on to the audited body if we think that they have been the reason why our charges are higher. And it's that process of issuing refunds and additional charges where the complexity lies.
One of the things I think Alison Gerrard mentioned was this 'function' terminology. Could you just say a little bit more about that and explain to the committee how that operates and is a difficulty for you?
Sure. The essence of the problem is that there is no completely clear definition of 'function' in this situation. There's no definition in the legislation, in the 2013 Act, to say what 'function' means. So, we fall back on normal legal interpretation, which is that it means a duty or a power. Now, the issue is that there are lots of duties and powers in relation to our work. So, if we take, for example, the audit of local government bodies, we have a duty to audit the accounts under section 13 of the 2004 Act. But as part of that, we also have several duties, such as ensuring that the accounts have been prepared in accordance with regulations, in accordance with statute, and in accordance with proper practices. We also have a duty on the auditor general to be satisfied that proper arrangements have been made for securing economy, efficiency and effectiveness. Then, alongside that, you have duties under the Local Government (Wales) Measure 2009, where the auditor general has to undertake an audit of improvement planning and has to do an improvement assessment. Now, those are lots of functions, and to add further complexity to that, the same piece of work may inform several of those functions. So, for example, with the 2009 Measure, work that relates to the value-for-money conclusion will also inform that work. So, actually keeping track of all these individual little functions, many of which are closely related, is quite a task. And that's just the problem of the word 'function'.
We then have the issue that we can't charge more than the full cost of each function at each body, so we're subdividing each charge to a very fine level, and that means, for example, that if, say, we've overestimated the cost of undertaking the audit of the accounts and underestimated the cost of, say, doing the performance work, which is the stuff around the local government Measure, we can end up in this situation with the same body where we might have to provide a repayment and ask for further money because the fee has been inadequate.
Looking back at the Act that has set up this regime and has these specific words that are creating some of the problems in it, what do you feel was the original intention of such a fee regime, and is it that the wording was imprecise or had a meaning perhaps in the Chamber that it doesn't have outside in a strict legal context, or is it that there wasn't a need for a fee regime in the first place? What's your kind of take on where that came about and why it came about in that particular way?
I think the original driver behind the Act was the concerns about how, for example—well, it was a former auditor general who was spending money on matters that it wasn't clear there were proper reasons for. There was training for a former chief operating officer that was provided—expensive training—when he was leaving the organisation, and it wasn't clear that that was a proper use of money. Now, I think there was an eagerness to put as many controls in as possible, and I think the fee issue was part of that.
I think there also had been some really rather historic concerns, dating back to Audit Commission times. It wasn't always clear that the money that was raised in fees was being applied to the work that was planned. It may have been moved around. Certain projects had been favoured over others, that kind of thing. I think that's where it stems from. I think that, in a way, what I would call the 'over-prescription' stemmed from a genuine concern to make sure that those kinds of problems didn't occur again. But I'm not sure that the full implications of these things had been quite thought through.
But obviously you're working through them now. Just before we get into the further detail, can I just ask—? You've mentioned, and of course it comes up in your papers as well, the idea of notional fees, but I find it difficult quite to understand what that was, from my perspective. So, I don't know whether you can give a quick layman's definition of how you operate those and what they are exactly.
How they operate is that we'd still determine what the cost would be for them to do the audit, and we provide the organisation with a notional fee—'This is what it's going to cost.' The difference is that that would be funded to us through the consolidated fund rather than paid by the individual body.
I think there's certainly no loss of transparency in there. What it, in effect, does is just stop the money necessarily going round in a circle.
Yes, I mean, we'd still assess what the fee is. There's a slight risk that you could have a situation where an audited body thinks, 'Well, this is just a notional fee now. We're not actually paying it. So, maybe we won't try as hard, preparing the accounts. The auditors can sort it out. It will cost a bit more, but that's not our problem.' The reality is that, where a body isn't delivering what it's supposed to to us in terms of the quality, we will continue to report on that and raise that as quite a serious issue.
Can we just follow up exactly what the nature of the legal problem is here, because I don't fully understand it myself? I've looked at sections 23 and 24 of the Public Audit (Wales) Act 2013. They refer to the various things that you do, for which you either may or must charge a fee. Just extracting them from the section, they include an examination, a certificate, a report or a study—some of them undertaken at the request of the party for whom you're doing the work. Or 'services' is another word, which is in there:
'services provided or functions exercised under section 19'.
Then, the subsection under fees says that they
'may not exceed the full cost of exercising the function to which the fee relates'.
Now, that's the nub of the problem as you see it. What I don't really understand, looking at it from a lawyer's perspective in statutory interpretation, is why it's not immediately obvious that that word 'function' applies to the words that are earlier in the section—'examination, certification or report', 'provision of services'. Isn't it obvious that that's what it refers to, because the foregoing actually give you the meaning of the subsequent word over which you think there's some ambiguity?
The formulation may not exceed full cost. It's repeated throughout all our provisions in relation to—
It's not just there, no, but it is just that form of words that's the problem. So, whenever we have a fee-charging provision that 'no more than full cost of exercising the function' applies. There aren't any exceptions to it.
We know what you do—that's all set out maybe in other sections of the Act that I've not looked at as well—but the actions that you perform—let's use a different term—which are listed there, you can charge for, or must charge for. Isn't that what this word 'function' applies to? I don't see what the ambiguity is.
Well, the ambiguity is that, as I explained with local government audit, you've got section 13, which sets out an audit of the accounts. That's clearly a function. Then you've got section 17, which says that, as part of undertaking an audit, you've also got these duties. Well, each of those duties is also, arguably, a function. Now, a further problem is that—
Well, what's the problem in that, then? If you've got to perform these, and you either may or must, depending on the section under which these services are performed charge, then that's just added to everything else you're doing.
It's a practical problem because, in terms of local government audit, we have—I think it's at least 15 functions in play, and it can rise up to over 20, depending on whether we have things like public interest reports and that kind of thing. So, practically, you're having to keep track of a lot of stuff, some of which may be informed by the same work, so—
If you've charged for it already, then you can't charge for it again.
That kind of thing, yes.
In effect, it's administratively cumbersome, and kind of doesn't fit with our idea of being an efficient organisation et cetera, where we've got to be looking at potentially very small amounts across different functions and making refunds, et cetera. So, I'll be absolutely clear: we currently comply with the legislation, but it's administratively cumbersome and we think there is a smarter way of achieving, if you like, the same intent in the legislation.
Just to be clear, following on from Mr Hamilton's point, what problem does this give to your customers, if you like—the people you're auditing? Do they also—? I mean, you did undertake a consultation with them, but is that something that's raised by them or is it something you've gone to ask them about? There's a difference between the two.
To all intents and purposes, the audited bodies are kind of protected from the cumbersome nature of some of our administrative procedures. The overall fee is usually an issue to audited bodies; they'd like it to be less, et cetera. Sometimes, they're a bit bemused when we give them a refund of £234. At the same time, we might be looking at charging them extra on something else. So, no direct impact, but perhaps not looking like the kind of organisation we want to be to them in terms of the way we administer our fee setting.
Thank you, Chair. Just to clarify in my own head again: administratively burdensome, I can understand, but it does make it quite clear as to where the money is being claimed for, effectively, on each of the functions. I understand functions and duplications. So, in that sense, there's nothing wrong with that, because you're actually seeing and calculating the actual work being done. So, that's the right thing.
I suppose the question that comes then is about the billing, because if you're functioning—. If you're doing the functions and you're costing each function, what you're saying is that, actually, you can't do a totality of those things to say, 'Well, actually, this function costs us a little bit less, that costs a little bit more; for the overall total— .' It can seem strange if you have to bill for each function rather than bill for a total audit, in one sense. So, does the legislation require you to bill for each function, or simply cost each function and put it towards them?
This is where there is some ambiguity. In practice, we do aggregate closely related functions, because it just becomes unmanageable. And we've had legal advice on that. And, similarly, offsetting between years, because very often it's a time issue, in that an overcharge may not become apparent within year; it may not become apparent until well into a subsequent year, because audit work often spans more than one year.
Our advice is that, essentially, we keep good records, we take a reasonable approach, but at the end of the day, if an authority wanted to demand money as soon as it was apparent that a refund was due, then we would probably have to provide it, rather than, say, offsetting between functions and between years. So, to some extent, we are at the mercy of people being reasonable themselves. So, we're taking a reasonable approach, but if someone wanted to be very awkward, I think they could create quite a lot of trouble.
No. Anthony mentioned an example of giving a refund of £234. And there was a conversation I overheard from a member of my team just last week, when she was on the phone explaining to a joint committee why we had refunded to them £234. They really didn't want it, because they're a joint committee, they'd accounted for their audit fee, and they were then going to have to do transactions to share that refund back amongst the parties to the joint committee.
Which is auditable, as is our compliance with the legislation as part of our own regularity audit; our own auditors look back through each of the projects that we've completed and check that we've treated any underspend or overspend accordingly. And you can imagine, for a small-ish organisation, when we raise an additional bill and they haven't budgeted for that, that can cause them problems as well.
Have you had discussions with the Welsh Government then, as a consequence of these changes, to see whether the Act needs to be amended or how you can work within the Act, or maybe regulations could be put in place?
Yes, we've certainly, over recent years, had discussions, right back to 2012 when it was a Bill, and, most recently, in November, the auditor general and the chair of the Wales Audit Office met with the First Minister and raised our concerns. The First Minister acknowledged those issues and said that the Finance Committee was the way in which that should be progressed, through amending legislation.
Okay, that's interesting. So, it's down to us now.
You also came to us with proposals for changes to the fee regime back in the previous paper, and I just wondered—obviously, because of circumstances—whether you've done any further work on that.
Our legal advisers told us that what we can do is, effectively, offset one year with another, with an audited body, and the way that we do that is we don't actually physically issue a refund, we issue a credit note. But the processes behind coming to that conclusion and issuing the credit note are as complex as physically issuing a refund, so, whilst it's helpful that there's no cash actually changing hands, it doesn't really overcome the overall problem.
The key thing is to amend the 2013 Act, particularly the phrase that occurs in section 23 of the 2013 Act, and every instance of it elsewhere. That would really solve the problem.
Sorry, say it again.
The no-more-than-full-cost rule, yes. That needn't go completely. We could have a similar provision in section 24 saying that we should set our fees so as to aim to charge no more than full cost. That would retain the discipline of not charging over the odds, but it would end the strict liability to provide refunds where they were due.
Would you accept also that there would therefore need to be some proviso? You said 'aim'. The English language is wonderful; you can interpret things many different ways. But there would have to be some proviso there to ensure that—you are a non-profit organisation, in that sense—to ensure that any fees you charge are not intended to make a profit, but simply to cover your flexibility, effectively.
Well, this is where the regularity audit would come into play, in that, if we can't demonstrate that we're aiming, we don't—. If we can't provide calculations that show that we are setting the fee so as to meet our best estimate of the need to break even, then that would be a regularity opinion issue.
Just to pick up your conversation with Welsh Government, and, of course, the governance does come through the Assembly, not through the Government, so that's clear. However, if there were to be any legislation, in effect, it can't proceed without the Government giving—. The obvious example is that a Government Minister has to move the financial resolution on any legislation, so I don't know whether that was part of your conversation, or whether you were able to garner any sense of whether the Government would be likely to look favourably on any amendments to the legislation.
Certainly, that's the impression I've had, that the Government would look favourably, and is expecting the Finance Committee to do the hard work in coming up with it, which is absolutely fine—as you say, that's the proper process. But, certainly, my expectation is that the Government would look favourably upon that.
I still don't fully understand the nature of the problem, because, fundamentally, you're charging for your time, an hourly rate. That's the same as any solicitor or lawyer. At the bar, I would encounter problems that were in the same sort of area of legal dispute many times. I would have done the initial work on one case, which I wouldn't then have to replicate and do again. No. 1 in the queue would have paid for the time that was used in that case. I don't see that there's a problem in applying a similar kind of methodology for the fees that you charge, because if you're charging for your time, the later cases will take you less time than the earlier cases, presumably, because you wouldn't just be duplicating the work, you'd be taking advantage of work that was done earlier.
I think there is an equity issue in terms of what's charged to individual authorities. By that analogy we'd be charging the first authority that, say, was subject to a new performance audit project more than subsequent ones.
What's wrong with that, if you're spending less time on the subsequent one?
Well, I think the authorities would have a problem with that. They do talk to each other.
I think we overcome that to an extent in that some of the funding that we get from the consolidated fund is actually for the research and development. So, when we're rolling out a new piece of, particularly, performance audit work, that is funded from the funding that we get from the consolidated fund, so the cost isn't borne by the individual authorities. So, we overcome that to some extent.
I think there's tremendous scope for argument in that situation. If we're charging the first authority much more than subsequent ones, the first authority could say, 'Well, that doesn't properly reflect the full costs of the work that you did with us. You should have averaged it out across the authorities', and that would generally be our approach. But any kind of argument like that is time-consuming and expensive, and I don't think it's efficient to be engaging in that kind of thing.
I'm not convinced by this, but nevertheless let's proceed on the basis that you're right and just explore some of the other issues that are involved. When did this become apparent as a potential problem? Was this after the Act had actually been put on the statute book, or was it something that occurred to you during the consultation period?
It occurred to us during the consultation period and we raised some concerns, but the practical issues around those concerns didn't arise until we were actually in position, doing it, and then found that it was more complicated, even, than we'd originally anticipated.
You say you received legal advice on this. Clearly, any legal advice is arguable, or most legal advice is arguable, anyway. In the advice that you've received, did your specialist adviser indicate that there was any kind of flexibility, or was this very strong advice that you needed to have the Act amended, or was this just something that was a good thing to do if the time and everything else was available? How vital is this? The answer to David Rees was, 'We haven't actually had any awkward customers as yet', so are we just worrying about a problem that is to all intents and purposes illusory?
No, I think it's a real problem in terms of the amount of work that we have to do in order to raise invoices and keep track of things like offsets. We've had several pieces of advice. Initially, the line was very firm that we had to stick very rigidly to the limits in terms of no more than full cost of each function at each body. It was—. Coming back to what Anthony was saying about how we raised concerns in 2012, we did raise concerns about the each function issue back then. What we didn't realise at the time was quite how complex that got when you divide it by each body. You've got to remember that, for example, we've got 650 community councils to deal with, each of which has to be billed or treated separately.
But in terms of the advice, we got subsequent advice that indicated that there was case law that would support us if we took an approach that was aimed at maintaining an efficient operation despite the constraints of statute. But, there is no particular case law that supports our particular position. So, we're relying on cases that relate to other matters, like local authority licensing and that kind of thing.
You say this has caused you a great deal of complexity—and complexity, of course, has cost attached to it as well. Can you give us any idea what sort of money that you're talking about in the course of a year, from your bottom line, that's consumed by this, so that if we amended the Act to remove the problem, are we talking about a sum that is meaningful or not?
We didn't commit to figures in our case for change, because we can't evidence them. It's more that we're aware that there's a large amount of a number of people's time being taken in addressing these issues.
And you've got some ballpark figure in your mind about the complex billing work that you need to undertake in the course of a year to ensure that you've charged the right amount for the right function, or for the cost of the refunds and all this kind of thing, or—.
We don't have a figure in mind, because it's part of a lot of people's time. It's just what we see on the ground is the amount of effort that is going in, not necessarily in actually giving the refund, but in agreeing what that refund is. So, we—
And how many extra staff do you think you need to employ for this purpose?
We didn't actually employ any additional resources—
—to address—. We haven't committed to figures. It is more a feeling of a lot of people being involved in a process that's detracting from other priorities, rather than—
Yes, because it's not just a few people in finance who are having to keep track of how time is being spent, people on every audit team are having to grapple with the issue of, 'Which function is this that I'm performing at the moment?', to the extent that, sometimes, people need legal advice on what work they're doing—I mean, that's absurd.
I can see it's an inconvenience for you, even if you can't actually quantify properly what the cost is. You say in your discussion paper that there are risks in the current process to audit independence, which again I didn't fully understand. Perhaps you could outline what you meant by that.
I think there's always a danger when audited bodies take issue with fees. One of the mainstays of auditor independence is that the independent auditor in the public sector determines the work to be carried out, determines the fee for it, and there is a statutory obligation on the audited body to pay that fee. It is, I would say, probably a relatively small risk, but where the risk to auditor independence comes in is where there is challenge on fees, and where there is any concern that, actually, if we do this work, we've given it our best estimate, there might need to be a refund at the end—and that's absolutely fine—the audited body could quite legitimately say, 'Why don't you just reduce the scope of the work? Why don't you delay the work for a bit?' Whilst I would expect audit staff to resist that, nonetheless, there is that risk that they will seek to accommodate changes in the fees that wouldn't be appropriate.
I see. Okay, I understand that. The last question I've got relates to the agreement work that is commissioned by other parties—the kind of commercial work that you're doing, if I can put it that way. Can you give us an idea of why you think the amendment to the legislation is required, and why this kind of work is essential to the running of your office, rather than just a desirable add on because you can earn fees from it?
Indeed, we can earn additional fees from it, and that can either be invested in our people and our organisation, or it can be surrendered at the end of the year to the consolidated fund. So, if we were to remove the 'no more than full cost' rule, it would avoid the effort needed as well in assessing and providing refunds for what is essentially commercial-type work, for which we've already agreed a fee.
There is one very good example where we tendered for some work; it was grant certification for a university—European grants. My understanding is we were the lowest tender, based on the tender documents and our approach to grant certification, because we have a lot of experience in grant certification. When we actually came to do the work, we found it was less complex than the university expected. We were able to do it for less. The legislation required us, even though that was a commercial relationship, in effect, to refund them—£12,000, I think it was—when, in any other sense, that is, in effect, profit. We were more efficient, et cetera, so we retain that for investment or return it to the consolidated fund. In returning it to the university, the university would then have returned it to Europe, because it was all part of the European funding.
You've just said the right word. [Laughter.] Can we move on with Jane Hutt, who may know something about this fee kind of thing?
Oh, yes. I feel very responsible, I'm afraid. [Laughter.] I think perhaps a few more of us around this table were involved as well—in different roles, of course. So, it was really helpful having Martin's reflections earlier on about a bit of the history about why we're here. But it's still—. We've obviously got to address this issue.
I think the key thing, and the first thing I wanted to ask, was about the response of stakeholders. Clearly, you've made a case for change. You've come here, and we're the right place to be scrutinising your proposals. But, your stakeholders, you need to have them on board. Can you say something about what they feel?
Firstly, you've commented to a certain extent about whether they have got a view about the processes now around the fees, and whether that is an issue, but I think we really need to know what their views are. Or, really, are they just concerned about what they're paying—the level of fees?
I think their overriding concern is the overall level of fees, and that's always going to be the concern to them. To a certain extent, as I say, they are shielded from the internal machinations within the office around our fee setting. But, as has been demonstrated, particularly with some of the smaller bodies, they can find it very difficult to deal with refunds and to deal with additional fees. We kind of have no choice but to charge them the cost of doing the work, whereas, in a slightly different regime, we could look at spreading that, we could look at perhaps even doing some other work to support them. But it is largely around the total level of fees where their concern lies.
But, in terms of your consultation, you say consultees were broadly supportive of the proposal to amend the 'may not exceed the full cost' constraint and replace it with provision as we've discussed. You also say that—. So, do you feel confident that this will have to be managed? If changes are made, that they will—. Back to the level of fees, that they have been—you've engaged stakeholders, you've given them an opportunity to comment.
Yes, we have. And we would continue to look to deliver the work for the lowest possible cost and fee. And we continue to be committed to do that, as is the board, in terms of our overall fee regime. And we do, by and large, enjoy the support of our audited bodies in terms of making things more efficient and more effective.
So, you also say that you're working to simplify, you're exploring how you can work within the current fee arrangements, and maybe you see this as an interim basis. So, do you believe there could be a solution without requiring legislation?
There isn't a complete solution, no. We can proceed with offsetting, as we've done, but we face a risk, and offsetting still requires very detailed checking and recording of activity. So, it's only a partial solution, it's not a complete solution. To really solve the problem, we need legislation.
Okay. I think there's a question in terms of fees, if the legislation was changed. You do suggest in your case for change that we possibly would see a saving in terms of cash-saving subsequent estimates—or would these efficiencies really be non-cash? Obviously, this point about productivity and what it means for the staff in terms of priorities is a key issue as far as this outcome would be concerned, but do you see any cash savings as a result of this?
I don't think we'd want to quantify cash savings at present, but, as part of our overall efficiency agenda, where we're looking to work as efficiently as we possibly can, and our long-term workforce planning, the less complexity that we have to deal with, the more efficient we can be. I think, over time, we would expect to see our costs reducing.
Yes. I think something that we perhaps haven't sufficiently covered is that the 'no more than full cost' rule is not just administratively cumbersome, but it's actually a deterrent to working more efficiently. That's because if, for example, an audit team find that, 'Oh, internal audit, their work looks quite good, we could put more reliance on them and do less direct testing', that could mean that they could do the audit in less time, but there's no incentive to do that because, if they do that, they are going to have to deal with the authority in terms of providing a refund and all the confusion that that causes.
And also, if they do the audit in less time—. Well, you could try laying them off, but that wouldn’t really be practicable, because that in itself would be quite an expensive process. But their time needs to be paid for. We could put them on to some other work, such as some study work that's funded from the consolidated fund. But, at the end of the day, it is an active disincentive to working more efficiently. So, that's very hard to quantify, because clearly nobody wants to admit to not acting as efficiently as they could. But, nevertheless, we have to recognise that there is that disincentive in place.
I mean, it's internal and external, isn't it? So, one would hope that you could see the outcome as better service provision for stakeholders.
Indeed. Indeed. That's another side of the coin, yes.
Because, you know, you've got to win the case with them, as well as with us, really, haven't you?
Yes. The point that Martin's making, you know, in terms of—. We have to cover our costs, and particularly fixed costs. In-year, our fees are designed to cover that. So, if we have to make a significant number of refunds in-year, that causes us a huge financial difficulty. Beyond a year, we can manage that through our workforce planning, and we can look and say, 'Well, actually, look, this is coming down, we're getting more efficient. So, next year, we can reduce the fee and, therefore, we don't need to recruit as many people next year as we were planning to, et cetera.' But it's that lack of in-year flexibility, really, that causes us some difficulty.
I think one of the differences as well that the Act brought in was the rigour of the board in terms of our actual fee setting. So, there's a lot more rigour now at the point that we set our fee rates as part of the estimate. We're discussing with the board, from the summer onwards, what we think our fee rates need to be, and there's a lot of rigour that comes with that. So, there's a huge amount of emphasis coming from the board about reducing our rates and our overall fees to audited bodies. I think that's the difference that the Act has brought in, which almost does away with the complexity of being needed of the 'no more than full cost'.
Diolch. You've said that the 2013 Act as drafted can lead to a lack of incentive to drive efficiency in audit delivery at ground level. Can you expand on what you mean by that?
Yes. It's very much as Martin indicated there. At it's most simple: what is the point in us being more efficient, delivering the audit quicker, if we have to make refunds, thereby losing income that we need to cover our fixed costs in-year? I wouldn't want to give the impression that we're not looking to make reductions, but, when it happens in-year, that becomes quite difficult for us. As Martin said, we still have to pay the auditors in-year. We can affect that through workforce planning issues, and indeed we have long-term strategic workforce planning that looks ahead to who we're going to need, how many people we're going to need, what skills we are going to need in future years. But the difficulty arises in-year. Knowing that the that totality of our fees is designed to cover the totality of our costs, if we don't deliver that income, we don't meet our costs in-year.
Do you think that there's risk of a loss of transparency with more audit work funded from the Welsh consolidated fund?
I don't think so. It seems to work very well for the National Audit Office in London. I wouldn't see any loss of transparency. The fee is still publicised. If that fee were to change based on our assessment of the work that's needed, we would still need to explain, and the audited body would need to explain, why that's gone up or down. If it's gone down because they are being more efficient, giving us better working papers, then that's good and that's reflected. If, however, it's the opposite, where they think, 'This isn't real money now; it's just notional', then there is the risk that we have to do more work, but then the notional fee in effect goes up in the subsequent year to say, 'Well, you're not doing this very well; you're not giving us what we need'. So, I wouldn't see any lack of transparency in that.
Okay. You touched on this, but can you provide any examples of agreement work that you are involved in where the current legislation has held you back?
Work we're currently involved in—. I can think of three pieces that we're currently involved in, and these are examples that haven't held us back. So, we do the audit of accounts for the Government of Anguilla, we are providing some training support to the National Audit Office of Malta, and we've just been asked to provide some capacity building and support to Montserrat. So, those are areas where it hasn't held us back.
What it does potentially hold us back is in areas where—. So, for example, I don't think it's specifically related to the fee regime, but we can't do work directly for the United Nations, for example, because the United Nations is not a public body as defined. So, if we do any work, we have to do it through another public body, or an institution, or whatever. And there are issues around the full cost of this work and whether we can use marginal fees or full rates. This work is very useful to us in a number of different ways. One is that it gives development opportunities for our staff to do different work in different organisations, sometimes in different parts of the world, which is very good for their development. It raises our profile—and we get asked to do this sort of work; this isn't work that we're necessarily bidding for. And it just helps to demonstrate that although Wales is a small country, it punches above its weight in so many different areas, and governance and accountability and public audit is just one of them.
So, if that description or if that part of the law was changed, would you then be able to directly work for bodies like the United Nations?
Yes. If section 19 of the 2013 Act were amended so as to provide a broader definition of the bodies that we could work for, that would enable us to do that. As Anthony says, it's not actually a fee issue in itself that prevents us from working for the UN. It's somewhat—
Well, essentially, it's a club of nation states. A public authority is an emanation of a state, but the UN is not that kind of thing, because it's a group of them.
It's a relatively small part of our work, but it is an area where we have had to say 'no' in the past where there might have been opportunities to, in effect, generate some additional income, which, again, could be invested or surrendered at year end.
Yes. Again, it's not a fee issue, but we are pretty much—. Probably every time now there's a European regional audit institutions meeting, we're asked to present and speak, because we've got something of value to the rest of Europe on particular issues, or pieces of work that we're doing, or the ways in which we are working.
Jest i gloi, os caf i godi beth ŷch chi newydd gyffwrdd â nhw, sef rhai agweddau eraill ar y ddeddfwriaeth bresennol sydd efallai wedi dod i'r fei, fel diffygion neu bethau sydd ddim yn berffaith yn y ffordd maent yn cael eu gwneud. Mae un mater wedi codi o gyfrifon Cyfoeth Naturiol Cymru a'r angen i adrodd o fewn cyfnod terfynol, o bosibl. Rydych chi hefyd, rwy'n gwybod, gan fod y pwyllgor yma'n mynd â'r Bil Ombwdsmon Gwasanaethau Cyhoeddus (Cymru) drwodd, wedi tynnu ein sylw ni at y diffyg yma yn y cyd-destun hwnnw hefyd. A fedrwch chi amlinellu tipyn bach am yr anawsterau sy'n codi yn arbennig yn y cyd-destun hwnnw, ac a fyddai eto gwella i ddeddfwriaeth yn gymorth yn yr ystyr yna?
Just to close, if I may, following on from what you've just touched on, namely some of the aspects of the current legislation that have arisen as being deficiencies or are perhaps imperfect in the way that they are carried out. One issue that has arisen from Natural Resources Wales's accounts is the need to report within a final period, possibly. You also, I know, because this committee is bringing forward the Public Services Ombudsman (Wales) Bill, have drawn our attention to some deficiencies in this area also. Could you outline a little about the difficulties that arise particularly in that context, and whether there would again be assistance from improving the legislation there?
The issue of deadlines I think this is, at heart. I think the simplest thing would be to omit deadlines for the laying of audited accounts. They're not really the main driver of us doing work in a timely fashion. The main driver of that is meeting the administrative deadlines for producing whole-of-Government accounts. But if, however, there's a concern that there's some laxity around this, I think that could be addressed perhaps by having a requirement to—. In a way, this would reflect what happens in Westminster. If we had a requirement for the auditor general to notify the Assembly that he thought that there was a substantial risk of a deadline being missed, and then perhaps have a mechanism for the Assembly to extend the deadline, that would be very helpful.
So, as we saw with Natural Resources Wales, there's no flexibility at the moment.
No. In theory there is, but it just doesn't work because of the timescales that are required for making orders and things like that.
When we looked at this earlier in the autumn, you also mentioned some other governance issues that were around interim reports—quorums and things like that—which I don't think the committee has particularly looked at, but this is an opportunity for you to say and conclude in the round other issues that you think might need addressing. We've concentrated on the fees regime.
I'll cover those. There are three aspects, really, that would make quite a big difference. The first one you mentioned is the statutory quorum rule. As you know, the board currently consists of five non-executive members, the Auditor General for Wales and three employees. So, that creates a ratio of 5:4. It does mean that if one non-executive member isn't able to be in attendance, we're automatically non-quorate, which sometimes impedes on decision making at a board meeting in terms of just a practicality. So, if that could be amended and we could set our own quoracy rule, it would be more practical. That would be really helpful, because we don't want to be inquorate for lack of one person.
The second issue you mentioned was about the interim reports, which we do actually believe are disproportionately resource consuming given the relatively low level of interest in them. We do estimate that each report costs about £20,000 to produce, and we do feel that actually isn't a really good use of public money, because there doesn't actually seem to be a major amount of interest in them. Certainly, when we've prepared them for the Assembly, they've generally been noted but there has been no real in-depth discussion. When we put them on our website, in 2015-16, I think we had 12 page visits. It was slightly better the following year with 37, but actually that includes internal hits as well, so that probably isn't public interest. So, it is quite a lot of money for a low level of interest. I know you've got some statistics—.
If I just reflect on the other documents we produce—so, the annual report and accounts, the annual plan, estimate—we have a lot more interest. The timing of those is such that they tend to be spread out over the year, so there's an opportunity to scrutinise what we're doing. Our last annual report and accounts, for example, had almost 700 visits to the interactive summary. So, much more interest in those documents, which are equally holding us to account, if you like.
And then the third area really is about the laying of reports and accounts at the year end. The requirement at the moment is for the auditor general and the WAO to report on our performance, which has to be laid. We also have to produce a similar report as part of our accounts, as part of the Treasury requirements and the FReM—to actually produce an annual report. The way we get around that is actually to produce one report, but actually, we lay it twice. So, it's laid once by the auditor general and the chair, and secondly, then, by our external auditors—both laying the same report. So, just in terms of bureaucracy, if we could just simplify that requirement, that would also be helpful.
They are quite technical, these issues, and we are very happy to send a more detailed note on those proposals and on what would need to be changed in the legislation to enact those proposals, if that's helpful, Chair.
Diolch yn fawr. Os nad oes unrhyw gwestiynau eraill, a gaf i ddiolch ichi am eich tystiolaeth yn y sesiwn yma? Wrth gwrs, bydd trawsgrifiad ichi ei wirio—os oes yna eiriau wedi cael eu colli neu beth bynnag. Mewn eiliad, byddaf yn gofyn i'r pwyllgor gyfarfod yn breifat am rhyw 10 munud. Wedyn, byddwn yn eich gwahodd chi yn ôl ar gyfer sesiwn arall ar bwnc gwahanol—rwy'n gwybod hynny.
Thank you very much. If there are no other questions, if I may thank you for the evidence in this session. Of course, the transcript will be made available to you to check if any words are missing or something similar. In a second, I will ask the committee to meet in private for some 10 minutes. Then, we will invite you back for another session on another topic—I know that.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o eitem 5 ac eitemau 8 i 11, yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from items 5 and items 8 to 11, in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
Os caf i ofyn i'r pwyllgor: a ydych chi'n hapus inni gyfarfod yn breifat ar gyfer yr eitem nesaf ac eitemau 8 i 11? Pawb yn hapus. Felly, fe awn i mewn i sesiwn breifat, ac fe welwn ni chi mewn rhyw 10 munud. Diolch yn fawr.
If I may ask the committee: are you happy for us to meet in private for the next item and items 8 to 11? You are happy to do so, I see. Therefore we will do that and we will see you in some 10 minutes.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 10:31.
The public part of the meeting ended at 10:31.
Ailymgynullodd y pwyllgor yn gyhoeddus am 10:44.
The committee reconvened in public at 10:44.
Diolch yn fawr a chroeso'n ôl i'r Pwyllgor Cyllid felly a chroeso'n ôl i Anthony Barrett, yr archwilydd cyffredinol cynorthwyol. Os caf i ofyn i Ann-Marie Harkin ddatgan ei henw a'i swyddogaeth, jest ar gyfer y cofnod os gwelwch yn dda—.
Thank you very much and welcome back to this meeting of the Finance Committee and welcome back to Anthony Barrett, the assistant auditor general—but if I could ask Ann-Marie Harkin just to state her name and function for the record.
I'm Ann-Marie Harkin, and I'm one of the financial audit directors. I'm the engagement director for the audit of the National Assembly Commission's accounts.
Diolch yn fawr iawn. Os ydych chi'n hapus, mi wnawn ni gychwyn gydag unrhyw gwestiynau. A fedrwch chi jest rhoi amlinelliad i ni o'r prosesau cyfredol ynglŷn â'r ffordd y mae penderfyniad y bwrdd taliadau yn cael ei wneud gan y Comisiwn ac a ydych chi'n teimlo bod hon yn ffordd effeithiol yn y ffordd y maen nhw'n rhoi'r gyllideb at ei gilydd?
Thank you very much. If you're happy, we will move straight to questions. Can you just give us an outline of the current processes around the way in which the remuneration board determination is made by the Commission and do you think that's an effective way of planning that budget?
The current process is for the Commission to budget for the maximum potential costs of the remuneration board every year—the total of the determination. One of the practical issues is that the determination is not confirmed until after the budget and estimate is set. So, for example, the 2017-18 determination was produced in May 2017 and similar timing for the earlier years. And then any underspends against the determinations and any other areas of the Commission's budget are allocated to an investment fund, which is then used to fund other things, and there is an investment and resources board that looks at business cases for projects and approves them or otherwise. From the Commission's point of view, I'm sure that they would say that it's an effective way to plan and budget their activities, and, probably, if I was in their position, I would probably do something similar. If I had that ability to be that flexible, that would work well for me. There probably are issues perhaps that we might explore later on around transparency and some of that, but, certainly from the Commission's point of view, it's an effective way of managing their resources in-year.
O safbwynt archwilio cyfrifon y Comisiwn, a oes yna anfanteision yn y ffordd maen nhw'n gwneud hyn? Mae'n amlwg bod yr hyblygrwydd ar y mwyaf i'r Comisiwn, felly rydw i'n deall pam maen nhw'n ei wneud e hefyd, ond, o'ch safbwynt chithau fel archwilwyr, a oes yna anfanteision yn y ffordd maen nhw'n gwneud hyn?
From the point of view of auditing the Commission's accounts, are there any disadvantages in the way that they approach this? Clearly that flexibility is great for the Commission, and I understand why they do it like that too, but, for you as auditors, are there disadvantages in the way that they carry this out?
I don't think there are any particular disadvantages. We don't audit the budget process per se; we audit their accounts. And, actually, their accounts go into quite some detail. So, I don't think that causes us any particular problems. Ann-Marie, are you aware of any?
No, no, no problems at all. We find the audit itself very straightforward actually, and we get very good co-operation from the finance team.
Well, obviously, looking at the wider issues—and you mentioned transparency, we'll go on to that in a minute—do you feel that this is the most efficient use of public funds—because it is public funds—the way that they're managing their budgeting system?
I think it's very difficult to say. It depends ultimately, I guess, on your view of how the Commission uses the un-needed determination moneys. And I am aware that the Commission has put forward two alternative budgeting methods, neither of which would actually result in a reduction in the amount of funding that they would request from you, but those two options—. The first, I understand, is to initially budget for 100 per cent of the determination, as it does now, and to actually then refund any underspend via a supplementary budget. In practice, actually, I'd consider that to be more of a budget update than a supplementary budget, but that's probably just semantics, really. And then there would be a corresponding increase to the operational budget. It would eliminate, from their perspective, I guess, the risk of an overspend on the determination, which appears to be one of the other concerns, and it would allow you to oversee proposals to re-allocate the moneys. I know, however, that the Commission consider that it would add complexity and draw attention, maybe, to underspends of Assembly Members' costs each year. The alternative is to initially budget for a lower amount for the determination and ask straight off for an increase in the operational budget.
As I say, neither alternative is a reduction in the overall funding requested, but it does mean that, in the first case, you're asking for the full amount or the maximum possible amount of determination; in the second, you're saying a lower amount of a determination. The other risk in asking for a lower amount of the determination would be, of course, that they might need to subsequently return to you for that to be increased, should, for example, there need to be more money in the unfortunate case maybe of death in service, or something like that.
And I think, as Anthony's mentioned, the way they're managing underspend at the moment is to use their investment fund to finance projects, particularly estates and facilities management, but, obviously, there still is the point—and it is being fleshed out by this inquiry—about risk and prediction and forecasting, because to fund the projects through unknown underspends also can cause question marks and difficulty in terms of managing those projects. So, do you feel that there's anything that can be done to address this? If you have got an investment profile of projects, it's also very uncertain, and, if you really need to spend something, because of security or what have you, you don't necessarily know when you'll be able to get the funding to do that.
I think the key point you've made there is funding things through unknown underspends, and, if you look at the practices across the UK, they are different. There are different practices. So, for example, the Scottish Parliamentary Corporate Body reallocates underspends against Members' costs for use on other projects without any further approval—so, similar to the Commission here. The Northern Ireland Assembly and the Independent Parliamentary Standards Authority do not reallocate such underspends, so they follow a different practice. So, there is no clear, it would seem to me, right and wrong answer across the UK on this. I think that there is—. Well, I was going to say there is a lack of transparency. I think there has been a lack of transparency in the current practice. In most cases, organisations will bid for additional funding for specific projects, and, if you look at our own estimate, we've set out some specific projects there, such as data analytics, which are important; we want them to be properly funded. We've made a case and we will be held accountable for delivering that.
I think the current approach in the Commission whereby there is some uncertainty about the underspends suggests to me that some of the possible projects to be funded are probably nice-to-haves, rather than absolute essentials. I'm sure the Commission management might have a different view on that, but that's how it would appear to me: 'if we can get the money for this, it would be good to do this' type of thing. So, I think there is less transparency there, but I do note, from the most recent budget, that they have determined the likely underspends in a number of areas and they've identified the projects they want to do. I think that's a hugely positive move on the part of the Commission to provide that greater transparency to the committee and others.
Just on that point, obviously from your point of view of looking at the accounts, you're not necessarily interested in the transparency. You're interested in the accounts and how the money's been spent, and nobody's doubting that the money's been appropriately spent. What we're trying to get at, I suppose, is the transparency in making the decision to spend that money, which isn't necessarily what you do as auditors, I understand, in that regard. But you would—. Just to build on the point that Anthony's just made, to have that in the newest iteration, where it's very clear the prioritisation is there, that's something, in your general perspective as auditors, you would welcome.
Certainly from the budgeting point of view—and Ann-Marie can probably talk in a bit of detail—the Commission is very transparent in its annual accounts, to the extent that we might almost say that they provide too much information; they could provide less and still meet the accounting requirements. In a world where we're trying to make accounts smaller, we sometimes put pressure on organisations to say, 'Well, look, you can take some of these notes out.' But, actually, the Commission, for very good reasons, want to be transparent about that.
I would agree with that. When I picked this audit up three years ago, I was surprised, actually, if I'm honest, at the level of detail in some areas. Very early on in the accounts, they set out outturn against budget, which is not something that ordinarily we would see in a set of accounts, but I understand the reasons for that—their wish to be transparent. What I would say is we do look at the budgeting process. We need to know that that is robust, as auditors, and I have noticed that the budget for this year, the estimate that was brought to you, does contain a lot more information than in previous years. In annex 3, they do set out what they anticipate will be the funding released during 2018-19 and what they would then use it for. So, that information is available this year where it hasn't been in previous years, and I think that is very helpful.
Can I just ask a simple question? I understand that you're auditing the accounts, and, as the Chair said, it's the end-of-year accounts and you're looking at how it works. One of the things I'll be asking the Commission when they come is the timing of decisions of spend. For example, there's an underspend projected. Now, when do you—? Do you actually check when spend is actually made? Because, for some of these projects, they're not short-term projects—some of them roll on. So, when do they actually make the decision to spend the underspend they haven't yet got, if you get me? Do you look at that?
What we would do is we are aware of the investment board, so we do know the IRB operates and we do know that at the beginning of the year they have a list of projects that, if they have funds available for, they would like to use that funding for. They, during the course of the year, then—I do know they have very robust budgeting arrangements, outturn against budget, and they are looking constantly to see how much money might be available at the end of the year, and they would spend it when they felt comfortable, would be my anticipation, that they would not then result in an overspend at the year end. As you'll know, an overspend on the accounts is qualification territory—regularity opinion—so they would look at that. We do look at the spend, when it is incurred and when it isn't incurred, because if it's incurred after the end of the financial year then it can't relate to that financial year. So, that would be a key test that we would do and we do a lot of work around the year end—so, for example, to check that expenditure that actually relates to 2017-18 is incurred in 2017-18. We do check that.
But you don't necessarily check when a decision to spend on a project that may cost £0.5 million starts, so to be comfortable that there are sufficient funds, because one of the concerns we have is the unforeseen circumstances in the determination, which, therefore, may shorten the underspend and reduce it, which could then have a knock-on effect on your overspend, because all of a sudden you've committed to a project that you might not be able to fund towards the end of it.
Yes. I think, in that situation, either the Commission would overspend, which would be an issue for us as auditors, or they would have to alter the project so that they didn't spend as much money on it in-year and then the question is: has it delivered the outcome they want to deliver for that project? It may be perfectly acceptable for that project to span two years and that could be managed, but we wouldn't specifically look at the timing of that; we'd look at the year-end spend.
—they've been covered, yes. The Commission operates through the investment and resourcing board to allocate its investments fund each year. Have you made any assessment of the governance arrangements for that?
We look at how the board makes decisions in terms of the process. So, the process is: the board assesses potential projects—I don't know if we know what the criteria are they use for assessing those projects, because that obviously is a key factor in the assessment—and, if the projects are deemed satisfactory, they agree a proposed business case except for mandatory projects such as meeting the requirements of legislation, which are, in effect, automatically agreed and funded, and then, later, officers present formal business cases that the board can then deny, defer—if they want more information—or approve. I don't know—I don't know if you know—whether the board has denied projects in the past. We wouldn't look at that level of detail, but that might be, in terms of the way the board operates, a useful question perhaps to ask the Commission in terms of—. There isn't really a set mechanism as far as we're aware for consideration of business cases by the IRB, but the Commission are developing a more structured process around that and, again, that might well be something that the committee wants to hear more about. We would only report on processes and procedures insofar as they have a material impact on the accounts, so we haven't had to report on any of the processes or procedures at the Commission.
So, you won't be aware or interested in the projects that have been rejected, or the process by which it was decided what would go forward and what wouldn't?
Not from a statutory accounts, audit point of view, no.
Just to follow on from the other question, in the sense of the unforeseen circumstances and the flexibility that is being claimed to address those things, are you concerned about the flexibility being discussed?
Flexibility, to a certain extent, is a good thing. You don't want to overly constrain organisations or management in what they do. So, it does give them flexibility to respond to unforeseen events. I think that a couple of the drawbacks are that money can be reallocated from determination underspend to other projects without any further scrutiny. That's flexibility, but the question is: do you want more scrutiny there? And there's that uncertainty about how much money will be available to fund those projects. It comes back to my—you know, are these 'essential that we do this' or 'nice to have' kinds of things? So, I think those are the kinds of drawbacks of having that kind of system, but equally there are advantages in having that flexibility and being able to respond to changing circumstances without necessarily having to come back and ask for more money or the reallocation of funding.
I would assume, therefore, that the flexibility must be such that, at the end of the year, there must always be some underspend in that budget to ensure that you've got flexibility up to the very end, so if you come to the last month and say, 'Oh well, there's £0.5 million left in that; we'll spend £0.5 million', you're not giving yourself flexibility for the last month.
I don't know how the Commission operates that flexibility in practice. Clearly, at the year end, they are on the button in terms of their overall spend that we, as auditors, look at.
When you examine—. To date—although it's changed this year because we have an indicative look at what might be allocated for this year—. In the past, when we've looked back what has actually been spent from the underspend, if you like, to reflect on Anthony Barrett's points, some of that spend looks to be nice to have, but some of it looks to be absolutely essential. Some of it looks to be essential maintenance, essential health and safety and things that you would expect to see reflected actually in the main accounts, if you like. As auditors, do you have a view about the way, in a budget, things are allocated in that sense? Obviously, you have a view at the end of the budget process when you look back, but are we at all to be concerned that what looks to be actually essential spending for an organisation is being funded from a potential underspend, even though the underspend does happen every year and has happened so far every year?
I think it probably comes back to what the underspend is being used to fund. Clearly, the Commission operate the system very well in terms of making sure they deliver the things they have to deliver, and then the other projects—maybe there's more flexibility around which ones go ahead or not. I suppose that, from a pure budgeting point of view, I probably would expect to see statutory obligations reflected specifically in the budget and not being subject to flexibility, but I think the reality is that those would be prioritised and, given that there has always been an underspend, those will get delivered. Again, it's just the Commission operating that flexibility to its best advantage.
As an auditor, do you express concern about the risk of putting a maintenance fund—? A particular example we've got is the ropes on the lifts, for example, which I would assume is essential maintenance. Do you express a concern that that's a risk that is based upon flexibility and the projected underspend rather than an essential inclusion in the budget in mainstream funding?
I would be concerned if there are vitally important or urgent projects that, on the face of it, are subject to underspends. What I don't know is how else, if the underspend doesn't materialise, the Commission would look to have that work funded, if it is essential to be done.
It is, yes. I mean, there is always a risk. History will say, 'There's always been an underspend, so we're okay', but there will just be that one year where something different will happen and there isn't as much of an underspend, and then there is a risk, certainly as I would perceive it, that something urgent, vital, statutory wouldn't get done because there wouldn't be the money. I'm sure you will ask the Commission that. They will probably come back and say, 'Well, we now need more funding for this.'
You’ve already mentioned what happens elsewhere in the UK and, as a committee, we also wrote to other Parliaments as well and had some information from similar Parliaments—you know, Commonwealth, common law kind of organisations. You’re quite right, of course, it varies enormously, and they all have different patterns around this. Is there anything, from the other public bodies, however, that you're auditing in Wales? Are there any other examples of good practice, or different practice, that you think we should look at when we consider how this might be addressed in the future?
I think, from my perspective, it comes back to what Anthony said earlier on, in that most of the bodies that we would audit, where they needed additional funds for priority projects, they would be set out early on, and the case would have been made when the estimate was considered. So, this would be unusual and, certainly, in my experience, it's the only body that I can think of where you have that. Having said that, the only alternative would be to have two control totals, essentially, so that you would put that limit on the determination and it could only be used for the determination, so that in order to spend it on anything else, it would require the permission to come back to you and seek approval for that. That may or may not be something that you want to consider. But even that would be different to most of the bodies and the direction of travel now for most organisations, where there is this overall control total and a certain degree of flexibility within that total.
You suggested two potential solutions to the current problem, one of which is to carry on as we are but have additional reporting, and an estimate of what the determination is likely to spend in-year, a level of contingency, and then more information about how that underspend, if there were one, would be spent on, what the projects are and so on. The alternative is to have separate resource control totals, as you've just been talking about, unusual though that might be. Do you think the level of additional reporting that has already happened, as a result of this, is sufficient? Because we’ve had a response from the Commission now, which goes at least some way—and maybe all the way—towards what you’re thinking.
I think the level of detail that's now provided in the budget—so, that's annex 3, with the likely underspend to how that’s broken down—provides the level of transparency and information that would assist scrutiny by this committee and others of the Commission’s plans, and raises some of the questions that have already been asked about funding priority projects through that mechanism. So, you now have the ability to question the Commission, through its budgeting process, on how it plans to deliver those. My view is that it does provide that—as it is currently—opportunity for the committee to scrutinise the use of the underspend in detail. Now, whether that's sufficient detail is clearly for the committee to determine, but I think that’s a very positive step forward, I have to say.
So, do you think that obviates the problem, and therefore we don’t need to consider whether we move to a system with a separate resource control total? But if we did decide to go down that option, what are the advantages, and, more particularly, what are the disadvantages that might attend that outcome?
I think the question for me is: what does the committee see as the problem or the issue here? If the issue is around allowances—Members' allowances, which is a sensitive issue and, therefore, we'd want more control over it—I would say a two-control total process would give you that extra control. If, however, the committee's concerned about the budgeting within the Commission and how it goes about dealing with this underspend et cetera, then the only thing I would say around that is that the response needs to be proportionate. We're talking about a relatively small amount of money here—I don’t know, 0.1 per cent of the consolidated fund or whatever. There's quite a lot of activity that would have to go into administering that two-control total et cetera—is that, overall, a good use of funds? My own view is that it's probably not, given the size of it, but, again, that’s for the committee to determine. The additional information that the Commission's provided gives you that lever, if you like, to say, 'Is this the best way for you to manage the finances of the Assembly Commission?'
Okay. In which case, I think that concludes our questions on this.
So, diolch yn fawr am y bore cyfan rydych chi wedi'i dreulio gyda ni. Diolch yn fawr iawn ichi. Fe gewch chi'r trawsgrifiad, wrth gwrs.
So, thank you very much for the morning that you've spent with us today. There will be a transcript made available to you, of course. Thank you very much.
Diolch yn fawr.
Gohiriwyd y cyfarfod rhwng 11:10 ac 11:20.
The meeting adjourned between 11:10 and 11:20.
Bore da a chroeso nôl i'r Pwyllgor Cyllid, sydd, erbyn hyn, yn trafod penderfyniad y bwrdd taliadau a chyllideb y Comisiwn. Rydym ni’n croesawu'r Comisiynydd ac aelodau’r Comisiwn. Os gwnewch chi, jest ar gyfer y cofnod, ddatgan eich enwau a'ch swyddogaethau, os gwelwch yn dda. Diolch.
Good morning and welcome back to the Finance Committee, which is now discussing the remuneration board's determination on the Assembly Commission's budget. We welcome the Commissioner and various Commission staff. If you could, just for the record, state your names and roles, please. Thank you.
Ocê. Fe wnaf i ddechrau. Suzy Davies, Comisiynydd.
I'm Suzy Davies, Commisioner.
Manon Antoniazzi, clerc a phrif weithredwr.
Manon Antoniazzi, clerk and chief executive.
Bore da. Nia Morgan, cyfarwyddwr cyllid, Comisiwn y Cynulliad.
Good morning. Nia Morgan, director of finance for the Assembly Commission.
Diolch yn fawr. Rydym ni wedi derbyn yr ohebiaeth, wrth gwrs, ac os ŷch chi’n hapus, fe wnawn ni fwrw ymlaen gyda'r cwestiynau, a chadw’r sesiwn yn daclus.
Os caf i droi yn gyntaf—mae’n amlwg, erbyn hyn, eich bod chi, Manon Antoniazzi, wedi dod ar ganol y broses yma, gyda'r cyllidebau ac ati. Rydych chi wedi cael cyfnod, erbyn hyn, i ymsefydlu yn y swydd. Roeddwn i hefyd yn gweld cyhoeddiad y bore yma, rydw i’n meddwl, eich bod chi ar fin cychwyn strwythur llywodraethiant newydd, neu wahanol newydd, y tu mewn i’r Comisiwn, o ran sefydlu bwrdd gweithredol. Mae rhai o’r pethau rydym ni wedi bod yn eu trafod yn ystod y bore yma ac yn ystod y dystiolaeth, er enghraifft, ynglŷn â’r investment board a phethau felly, yn dechrau mynd yn hen hanes. Felly, a fedrwch chi roi amlinelliad i ni o sut, bellach, rydych chi’n gweld y llywodraethu ar gyfer y broses o osod cyllideb yn gweithio, a sut rydych chi’n gweld yr hyn rydych chi newydd ei gyhoeddi’n gweithio o safbwynt defnyddio unrhyw danwariant ym mhenderfyniad y bwrdd taliadau?
Thank you very much. We've received your correspondence, of course, so if you're content, we will move on with our questions, and keep the session in order.
So, I'll turn to my question. It's evident by now, Manon Antoniazzi, that you came in in the midst of this budgeting process, but you have had time, by now, to establish yourself in your post. We also saw an announcement this morning, I believe, that you are about to initiate a new governance structure, or a different structure, within the Commission, in terms of establishing an executive board. Some of the things that we have been discussing this morning during the evidence, for example, in relation to the investment board and so forth, are beginning to turn into history. So, can you give us an outline of how, now, you see the governance of the budgeting process working, and how you see what you have just announced working in terms of the use of any underspend in the remuneration board's determination?
Diolch, Gadeirydd. Mi rydw i, bellach, bron ar ben fy nghylch blynyddol cyntaf fel swyddog cyfrifo ar gyfer y Comisiwn, ac rydw i’n meddwl bod fy mhrofiad i’n dangos, yn ystod y cyfnod yma, fod hon yn ffordd ddarbodus ac effeithiol iawn o ddarparu ar gyfer anghenion y Cynulliad.
Thank you, Chair. I have almost now completed my first cycle as accounting officer for the Commission, and I think my experience shows, during this period, that this is a prudent and effective way of providing for the needs of the Assembly.
I think in terms of the governance changes that we're making, this goes back to a report that came out of our internal audit processes last year, and looked at the function of the investment and resources board, which is a key board for controlling the expenditure of money in the course of the year. And this was a board performance report; it was a very positive report. The one improvement that it suggested that could be made was that the relationship between it and our wider management board be clarified. And so, the changes that I've introduced are more to do with clarifying where the strategic decisions are made and where the financial decisions are made, which would be in what is now called the executive board, and the function of the leadership group, which is the heads of service below that.
But returning to the point of financial management, I think that this is a way of efficiently funding planned and prioritised projects, whilst making sure that we allow for the core costs that we are obliged to spend. And that, of course, includes the entirely demand-led determination over which we have very little control.
So, er mwyn i ni fod yn glir, fel y Pwyllgor Cyllid, yn y gorffennol, rydym ni wedi bod yn ymwybodol bod unrhyw wariant yn y tanwariant—ym mhenderfyniad y bwrdd taliadau yna—yn gorfod cael ei gyfeirio trwy’r bwrdd a oedd yn cael ei alw'n fwrdd buddsoddi. Bellach, mae’r bwrdd buddsoddi yna’n diflannu, a bydd unrhyw benderfyniad nawr yn cael ei gyfeirio yn uniongyrchol at y bwrdd gweithredol newydd yma. A ydy hynny'n wir?
So, just for us to be clear, as the Finance Committee, in the past, we have been aware that any expenditure of the underspend of the remuneration board's determination had to be directed through a board that was known as the investment board. But now, that investment board is disappearing, and any decision would now be directed directly towards the new executive board. Is that right?
Ocê. Rydym ni’n ymwybodol, wrth gwrs, ac rydym ni wedi bod yn trafod gyda chi yn ystod y broses gyllidebol ynglŷn â’r ffaith eich bod chi wedi rhoi mwy o wybodaeth y tro yma yn y gyllideb ynglŷn â’r cynlluniau posib y byddech chi’n eu blaenoriaethu ar gyfer unrhyw danwariant yn y dyraniad ar gyfer y bwrdd taliadau. Jest o safbwynt eich persbectif chithau, bellach, fel y Comisiwn, a ydych chi wedi gweld hynny’n gam bositif o ran tryloywder ac atebolrwydd y tu mewn i’r Comisiwn, a’i fod e wedi bod o ddefnydd i chi, hefyd, wrth fynd drwy’r broses yna?
Okay. We're aware, of course, and we have been discussing with you during the budgetary process about the fact that you've given greater information now in the budget as to the potential plans that you will be prioritising for any underspend in the remuneration board's determination. Just in terms of what you intend to do as a Commission, have you found that to be a positive step in terms of transparency and accountability within the Commission, and that it has been useful for you in undergoing that process?
Well, perhaps I could flip that question back, really, because the purpose of the transparency was to make information about how we came to decisions more apparent to Members and the general public as well. So, perhaps I can ask you that question—whether it's been useful for you to have a bit of insight into that process. I think it's helped us, as Commissioners, because we're Assembly Members as well.
O'm safbwynt i fel clerc, mae e'n sicr wedi bod yn ddefnyddiol i rannu â chi'r wybodaeth i gyd sydd gyda ni. Mae wedi bod yn galondid mawr i gael dyfarniad positif gan Swyddfa Archwilio Cymru ar ein rheolaeth gyllidebol. Felly, mae hynny wedi rhoi hyder i fi. Yn sicr, rydw i'n teimlo nad oes gyda ni broblem mewn rhannu gwybodaeth ychwanegol gyda chi, ond ein bod ni'n ychwanegu'r cafeat bob tro bod y rhain yn symiau sydd yn cael eu hamcangyfrif—amcangyfrif yn ôl prosesau gofalus, ond amcangyfrifon o hyd—ac, wrth gwrs, mae yna ffactorau allwn ni ddim eu rhagweld yn dod i mewn, a gallwn ni fod yn eich diweddaru chi ar y rheini yn ystod y flwyddyn.
From my perspective as clerk, it has certainly been useful to share with you all the information that we have. It's been very encouraging to have a positive opinion from the Wales Audit Office on our budgetary management. That's given me confidence. I don't feel we have any problem in sharing additional information with you, but that we do always add the caveat that these are estimated sums—according to very careful processes, but they are still estimates—and there are unforeseeable factors that may emerge, but we can update you on those during the year.
Os nad ŷch chi'n ymwybodol, fe wnaethom ni gymryd tystiolaeth gan Anthony Barrett, yr archwilydd cyffredinol cynorthwyol, cyn i chi ddod i mewn, ac roedd e wedi datgan wrth y pwyllgor ei fod e'n meddwl bod hwn yn gam cadarnhaol o ran tryloywder. Felly, roedd e'n croesawu hynny hefyd. David Rees.
If you're not aware, we received evidence from Anthony Barrett, the assistant auditor general, before you came in, and he stated to the committee that he thought that this was a positive step in terms of transparency. So, he welcomed that also. David Rees.
Diolch, Cadeirydd. I can tell you I think it's more positive than what we had before as well, because we are seeing far more than we used to see. However, I've still got some concerns. Your predecessor as chief executive actually quoted to this committee previously that the process previously was 'mature and sophisticated' and 'transparent and efficient' when compared to the potential alternative of a more precise estimation process, which might result in 'less good use of public funds'. That's a question I worry about. Why would it be 'less good use of public funds'? Do you now, therefore, have a different view to that? Do you agree that the processes now will allow you good use of public funds?
I do agree. I think there are two parts to the answer. I think that, certainly, having an investment fund that we manage very closely during the year means that we can release funds in good time to get best value for them in the course of the year, as we become more comfortable with our ability to manage our core commitments. I think also, in terms of the possibility of having to come back to you for supplementary budgets during the year, that is a resource-intensive process and it may be that my predecessor had in mind that aspect of the commitment of the Assembly's time resources and staff resources as well.
Can I ask, then—? Clearly, you're talking about spending that underspend from the determination, effectively. We don't know the total underspend until the end of the financial year, clearly. Therefore, you're possibly spending or projecting underspends. Do you have any rules that you decide upon as to when you decide to spend? So, in other words, if you start a project that is £0.5 million and you've got a £600,000 underspend, you are basically committing yourself to all that underspend—you may not have reached it yet. So, do you have any rules that identify when you commence a project and how much of that underspend you allocate to particular projects at a particular point in time?
Well, what we do is manage it very closely during the year. Certainly, we will have a round of project planning that is associated with any particular project. And, when we bring forward feasibility studies, outline business cases, and then full business cases, it is a subject of close scrutiny by the investment and resources board what the affordability of the project is over the long term. We're talking about a relatively small proportion of discretionary spend, of course, within the Commission's entire budget, because a lot of our budget is committed for salaries, and for overheads, and for contracts, and for matters that we are committed to spending.
So, in terms of the other projects, we have a rolling three-year ICT programme, as you know, and a 10-year estates programme. So, there is flexibility there to move things forward into years where the underspend is greater, or to defer them from years where the underspend is larger [correction: smaller]. Now, how we estimate the underspend—and referring back to your previous question again—we obviously look at historical precedent. There is volatility between year and year, but, generally speaking, there is a recognisable trend in the course of a life of an Assembly about which years tend to be more fully committed and which ones are not. We take that into account.
Beyond that, trying to drill down, you are really getting into unknown unknowns, then. So, we take our best estimate and then we compare that, as we have done this year. We look at the budget every fortnight and we discuss that until we have that level of comfort that the core costs are going to be allowed for by the end of the year.
So, you do a long-term analysis to assess yourselves as to how accurate your underspend could be, effectively, based upon historical—
Based upon what is known, yes.
Okay. Again, the 2018-19 budget appears to be already not quite accurate, in the sense that you've estimated it to be almost £700,000 higher than you had forecast. Therefore, the underspend is almost £700,000 less. Any idea as to why you think you've now come to that position? FootnoteLink
It's primarily to do with salary rises, national insurance rises, and the additional pension costs, which of course weren't foreseeable when the Commission budget was laid out. Some of the decisions that we have to make in setting the budget are subject to variances that happen after the decision on what the budget's going to be is made. So, certainly, the remuneration board determination comes into that. I think some of the pension changes came in after the Commission budget was determined, and even voted on. But, in the case you mention, it's basically those costs—pay rises.
So, basically, you're estimating and preparing your budget based upon what you think currently is in place, but you do not know what changes will be made by Government—for example, some of the changes made to national insurance and pensions.
Well, the pensions is a case in point, actually. Yes. Because the pension change was quite considerable, wasn't it, Nia?
And the remuneration board, of course—who are meeting today to make some of their final decisions, and we laid our budget back in September, October, November.
And your final underspend in 2016-17 was actually £250,000 less than you initially thought. Again, how did that late change impact upon the priorities you identified? Because that means you've got £250,000 less at the end.
Yes. Assembly Members got better at spending their allowances. That was part of the reason for that.
Well, there's a serious question there as to how we or how you encourage Assembly Members to make sure they put their expenditures in on time, to make sure that you're not given any sudden surprises.
Shall I respond to that?
Yes. I just want to mention that, actually, it's one of the pieces of work that MBS, that's Members' business services, has done. All of us as Members will have recognised this; we get monthly updates on where we are in our office cost expenditure budgets.
But what impact did that have, then? Because you'd come to the end of year and all of a sudden realised you've got £250,000 less underspend than you'd thought, and the implications of that would be your priorities.
Yes. It comes back to this close management. You're right, and Suzy's quite right to point out, that we identified that issue, which was an unusual issue—it isn't an issue that we have dealt with in every year—and have been working closely with Assembly Members to try and make sure that we interrogate the forecasting very, very thoroughly.
Last year, there wasn't an impact, because there was a depreciation that was less than we had originally budgeted for. IRB were aware of that and maintained that as a buffer against this eventuality. You'll be aware that our key performance indicator is to come in within 0.5 per cent of budget, which, without a contingency line in the budget, is an extraordinarily ambitious target. But we did have that ability last year, then, to absorb the additional increases. I wonder if Nia would—
Depreciation, as you know, is a non-cash amount. With these late claims coming in in April and being paid in April, they're also non-cash amounts that are accrued for in that financial year. So, the two non-cash items could offset each other. As Manon mentioned, IRB were aware of the favourable variance on depreciation and made a specific decision not to use that favourable variance because it wasn't backed by cash. So, there was that buffer for non-cash elements then, such as these claims that came to us in April.
Has there been a trend, over the years, of this late submission of claims, and therefore there's a slump?
I don't believe so.
It is very, very difficult to—
No, no, no. It is very difficult to anticipate how you as Members use your allowances, and, because you are completely independent, and the remuneration board is completely independent, we have no influence on telling you, 'You must spend' or 'You need to spend'. So, we are very much reactive to your spending patterns. We can try to anticipate. We can try to forecast. But, ultimately, it's down to you as Members whether you decide to submit those claims on a regular monthly basis or, as happened last year, quite a substantial amount came in in April.
Can I ask, again, do you hold anything back? For example, I gave this example to the previous witnesses: one month to go before the end of year, you've basically got your projected underspend, you've decided to allocate to the priorities, you must hold something back for some unforeseen circumstance that occurs in that one month.
As Manon mentioned, we have a KPI of 0.5 per cent. To put that in context, that's £262,000. So, at the moment, we are holding a buffer of, I think, close to around £200,000. That will be our buffer for the year end, if any unexpected claims come in. There's a small element, again, of depreciation, and some against the AME budget as well that we have, some non-cash elements. So, we are very, very prudent that we want to make the best and most efficient use of the budget, but also we need to ensure that we don't exceed the budget that we're given. IRB are very prudent in their decisions to ensure that we have that buffer at the year end. It would be not acceptable to exceed that. We'd have to go for an emergency budget, then, which wouldn't be acceptable to Manon as accounting officer.
But there could be some unforeseen circumstances. Death in service, for example, could hit you hard.
Yes. But, again, the scale of those have been around—
No, I appreciate that, but it's the unforeseen circumstances, which may occur, which you have to prepare for.
But we hold that buffer of £200,000. In those instances, I'm sure you as Finance Committee—. If we came to you and said that this was the reason for it, if we had a number of other unfortunate instances like that, I'm sure we have that option of a supplementary budget.
Well, we as Finance Committee may want to ask the questions as to why what I think are some maintenance projects are actually in your underspend projects, but I'll come back to that later.
Beth roeddwn i jest eisiau gofyn yn fanna: rydych chi wedi sôn am y broses o fynd drwy'r bwrdd buddsoddi yn y gorffennol—mae hwn yn newid nawr, ond dyna sut roedd y broses yn digwydd—a ydych chi'n ymwybodol bod y bwrdd buddsoddi yna wedi gwrthod cynigion ar sail y cynllun busnes, neu ar y sail bod diffyg arian? Ym mha ffordd mae'r broses yna'n gweithio? A ydy popeth yn llwyddo, neu a oes yna rai yn cael eu gwrthod? Sut mae'n gweithio?
What I just wanted to ask there: you have talked about the process of going through the IRB in the past—that is now changing, but that is how the process took place—are you aware that the IRB has rejected any proposals because of the business case, or on the basis that there was a lack of funding? How does that process work? Does everything get passed, or are some things rejected? Can you tell us how it works?
Os caf i ateb fel cadeirydd y pwyllgor buddsoddi, mae yna nifer o achlysuron wedi bod yn ystod y flwyddyn diwethaf lle rŷm ni wedi naill ai gwrthod neu ohirio arian nes ein bod ni'n hyderus bod y cyllid ar gael. Mae yna nifer o geisiadau ar gyfer swyddi wedi cael eu troi lawr, er enghraifft, a hefyd systemau IT newydd neu ddarnau o galedwedd IT lle rŷm ni wedi teimlo nad yw'n flaenoriaeth i ddod ymlaen eleni.
If I can respond as chair of the IRB, there have been a number of occasions over the past 12 months when we have either rejected or deferred spending until we are confident that the funding is available. A number of bids for posts have been turned down, for example, as well as new IT systems or pieces of IT hardware where we felt that it wouldn't be a priority to bring those forward in this year.
Ac, o dan y drefn newydd o sefydlu'r bwrdd gweithredol yma, ai yr un canllawiau a fydd yn cael eu defnyddio gan y bwrdd gweithredol newydd?
And, under the new process of establishing this new executive board, will the same guidelines be followed by the new executive board?
Yn union yr un. Yn union yr un. Rŷm ni wedi datblygu arf i'n helpu ni i flaenoriaethu, ac mae hwnnw, yn ogystal â barn y cyfarwyddwyr, yn mynd i fod yn broses rŷm ni yn ei defnyddio i archwilio ein rhestr flaenoriaethau ni bob blwyddyn. Mae hynny'n cynnwys y ffit strategol. Mae'n cynnwys yr impact—hynny yw, y gwerth—i'r sefydliad, ac mae hefyd yn cynnwys pa mor hawdd ac ymarferol yw delifro'r prosiect o fewn cyfnod penodol.
Exactly the same, yes. We have developed a tool to help us to prioritise, and that, in addition to the views of the directors, is going to be a process that we will use to interrogate our list of priorities on an annual basis. That includes the strategic fit. It includes the impact—the value—for the organisation, and it also includes the ease and practicality of delivering the project within a specific period of time.
I wonder if you could outline to us the process that you go through to decide what comes to the IRB for decision. How do you select something to put into the list of potential uses for the underspend?
Shall I, Suzy?
Yes, because that's pre where I would come in as a Commissioner. I can talk to you about what I do when you're done.
Yes, that's right. All our projects can trace their genesis back to the goals that are set by the Commission at the start of an Assembly. And so, from this origin, the initiatives are incorporated into service plans within different teams in the Commission. Then, this is the starting point for an assessment of risks and benefits and delivery requirements. We then go into a cycle of feasibility studies and outline business plans and full business plans, which come in front of IRB—which will be the executive board—and then that is placed in front of the Commission, so the Commission can take a view as to whether this links back appropriately with the goals that we were originally set. And, then, of course, there is a process of monitoring, both during the delivery of the project, and post delivery of the project, which Suzy gets involved in.
Yes. You may remember that we've got an audit and risk assurance committee, which actually does a lot of post-delivery scrutiny, and that particular board is supported by independent advisers, who also support the Commission and the chief executive.
I'm thinking in particular of the new finance system, for example. We've got another phase of that to come, I think, but we undertook, through ACARAC—the name of the board—quite a detailed scrutiny of what had happened, the process and the value-for-money element of that, and recognised—. The adviser that we have the benefit of on that committee was also helpful and influential in helping to formulate the decisions further down the line in part of the process that Manon is talking about. So, I think you can say that there are many steps in this scrutiny, and nothing gets—. We learn lessons occasionally from this as well, but in that particular case, we were very satisfied with the process that had been gone through, the value-for-money estimates, and it gives us confidence for the next phase then.
I see. Good. Following the scrutiny of the 2018-19 budget, we recommended that you ensure that the priorities funded by the underspend are directly linked to services for Members, because, obviously, anything which is left in the pot as a result of underspends by us, if it's then diverted to other projects, is not really in line with what the anticipation was when the determination was set at the beginning of the Assembly. So, can you outline how you are managing to achieve this, or will do in future?
Okay. Well, I'll just start off by just reminding Members that any underspend from the remuneration board figure goes into the investment fund, along with underspends from the Commission's operational service activities, if you like. And that investment fund is spent for the benefit of Members. I would argue that making sure that the lift is fixed when it's actually started to go wrong during the course of the year is something that benefits Members. I think if we could just crack the temperature in the Chamber, that would be one thing that's definitely for the benefit of Members. So, you have to consider that the remuneration board underspend, and the Commission's operational underspend, are combined in order to meet the priorities that we've been talking about already. And those priorities are set according to the three strategic aims of the Commission, the first of which is to provide outstanding parliamentary support. So, everything we do is for the benefit of Members, I suppose is what I'm saying.
Yes, but the determination, in its various aspects, is supposed to provide support for Members in doing their work as Members in the Assembly, not to maintain the infrastructure of the buildings and so on. That's a different heading of investment or expenditure. And, so, if we are saying, as we have said, that if there is a significant underspend, as there was in the first year of this Assembly, on the Members' support services' part of the determination, and that is diverted to other uses, worthy though they may be in themselves, that's not really what was anticipated in setting the determination in the first place. And I gave, when you came before the committee once before, examples from my own group, and my personal circumstances, which meant that I was more squeezed than I would wish to be in this year because of my underspend last year, which was then diverted to something else. So, what I'm trying to get at is how you're going to reflect a recognition of such timing problems in your projected use of these underspends in future.
Well, I think you've partly answered your own question there, if I may say this, Neil. It's up to Members to spend the allowances that they're given, and if that doesn't happen, then it's available to go into a pot that is used for the benefit of all Members, but in a different way. As individual Members, we all have complete control over our budgets, and we should spend them, if we can, on things that matter and support what we do.
It's not necessarily always feasible, but we have some control of our budget as individuals at that stage. And as I think Nia mentioned before, you can see that there's a trend over the five years of an Assembly—I know it's been four years in the past—that actually, around this time, Members are getting better at spending their part of the determination.
So, there's less then going in from the determination. That's why the—
I was feeling my way in my first year, both as an individual Member and as a group leader, and I wasn't in a position to use the entirety of my budget sensibly because I was looking for staff of a relevant level of competence and experience, et cetera, which weren't necessarily easy to acquire, so at the end of the year, and for other adventitious reasons, which I won't weary you with, it simply wasn't possible for me to spend all the budget. I could have spent it, of course, inefficiently, in order to avoid this underspend occurring, but that wouldn't have been in the public interest or in my interest.
No, and when I say that, it's just a particularly vivid example. The Assembly's been going since 1999 and this pattern of expenditure for, even established parties here, has shown over time that we tend to spend more in these middle years of the Assembly anyway, which means that the underspend is lower during those years.
I think it's slightly misleading to say that we can control and spend what we do, because on the staffing budget, you have determined the maximum levels, and we're not always at maximum levels. What Mike Hedges is always on about is that you can predict your staffing budget for next year based upon this year's current expenditure with a little bit of flexibility. So, it's not quite right to say that we can spend all that we're entitled to because we can't, because there are certain elements that we can't spend because that's the allocation for the budget.
Yes, you did, and I want to make sure that the public realise that we don't spend—
Okay, let me get this clear then: for office costs, we have complete control over how much we spend on that.
May I just come in? An interesting fact that just happens to be in front of my eyes in the file here: there is quite a bit of volatility in terms of Assembly Member support staff payroll within year. In June 2017, the total was £642,000 and in October 2017, it was only £527,000, so these things do—. There is an element of churn, as you know, and then other costs arise.
I think Mr Hamilton's question got to the heart of the inquiry, which is how we budget for these things. Obviously, we all try and use as little public money as we can to achieve our goals. But, we have to make provision for funds for you under the determination, and over time, we have discovered that this is the safest way to make the best use of it all. We know that the allowances will not be utilised fully, however, it is in some ways a little misleading to call it 100 per cent because there are things that the remuneration board can require us to spend on that are over and above that, or there may be sad circumstances such as death-in-service payments and redundancy costs. Decisions around the number and make-up of office holders by Government is also a variation to that, as are decisions that are being made even now by the remuneration board about AMSS's terms and conditions. So, all of those things vary. What we try to inject into the system is more transparency upfront as well as afterwards, as we have done this year, so that you can share our thinking about what’s coming down the road, and then obviously we will get thoroughly scrutinised by the Public Accounts Committee also afterwards, where we answer for how it's been spent.
Okay, well, I don't think we can take that any further. Can you explain why certain so-called obligatory or recurring activities are funded through the underspend, which goes back to a point that David Rees was making earlier on?
If you look at the core budget—the main budget—every year, it will contain quite a considerable amount of expenditure relating to the maintenance of the estate and the rolling three-year ICT programme. I don't want you to run away thinking that all of our funding is done through that process. As we've explained, there's a list of priorities that go through the whole process that Manon has described. During that process, certain items of expenditure on things like IT and repairs to the estate will be identified as capable of being brought forward from next year. So, it's not a case of them being critical that they are done this year because they would have been in the budget originally, but it's actually very useful to bring them forward a year, if there's space for them and the investment fund can support that. And they are items, in some cases, which are obligatory, which may have been obligatory the following year, but it's actually helpful to bring them into this year.
Within annex 3 of the budget that we laid before you back at the end of last year, within that annex, it does demonstrate that the whole of the investment fund isn't just funded from the underspend on the determination—it's made up of a capital budget that is earmarked every year, and also some operational spends [correction: underspends], which become evident where the Commission itself has some vacant posts, for example. We budget for 100 per cent Commission staff. So, a lot of the statutory and obligatory items are funded—it could be in the first instance—from our own underspends, from the Commission's underspends. So, the investment fund isn't funded wholly from the underspend [correction: the determination underspend]. So, we would never leave any statutory requirements or any health and safety requirements, for example, to be left to chance from an underspend [correction: the determination underspend].
Right, well that's the key point that I was trying to get at—to what extent there was any risk involved in this, if you were relying on the underspend or hoping that there would be an underspend in order to carry out essential maintenance or something of that kind.
And, of course, a huge amount of our planned maintenance on smaller items, for example, are within the Estates and Facilities Management service budget and a lot of the contracts, et cetera, are already included within the Commission's budget. These reflect more of the parts of the 10-year forward work plan that have some flexibility around them. Because, each year, as you can appreciate, the underspend fluctuates, so we can plan and forecast where we place our work as a result of where the underspend appears.
Yes, thank you for just making that point, Nia, about the fact that you have a capital budget, there is forecasting, and I think that you've probably answered most of my questions, in the sense of how you manage volatility in terms of underspend and the flexibility you need, not just to deliver on your capital budget, but other expectations. Also, Suzy, I do welcome the fact that again you've put on record that, as Assembly Members, it is our responsibility in terms of spending, but we're being helped by the Commission to make sure that we are reporting regularly on our spending. We might feel that we would like to have more flexibility on where our spending heads, but that's not for today's discussion—that's for the remuneration board. But I think, in terms of underspend, we understand that there's going to be—. You're already estimating £600,000 for the next financial year, for 2018-19—lower than this year and actually around the previous financial year. So, presumably, you're already aware that you might have less flexibility in terms of drawing from that underspend. Also, it shows you're spending very well, up to the mark in terms of your budget. But we haven't got there yet, in terms of next year. Any comments on that?
Merely that that £600,000 estimate is a prudent one based on historical precedent of what a third year of an Assembly typically looks like, as well as our assessment of the pattern of spend by the current cohort of Assembly Members.
That's very welcome in a way, because we want to see that we've got the right budget estimates and delivery. You've mentioned a number of reviews, including the one that's been mentioned this morning—the governance review—but in your annual accounts for 2016-17, you do outline a review of the effectiveness of the IRB. I don't know whether there's anything you can tell us from that in terms of conclusions and recommendations that perhaps have informed your current review of governance.
It's the same review that we're talking about. This was just a part of our planned internal audit programme. We looked at the board effectiveness of IRB. That wasn't a review about its spending decisions specifically, but about its governance. And as a result of that, we have clarified its terms of reference and called it something new, which I think makes more plain what its role is, and made plain its link to other management groups within the Commission's staff.
Diolch. Turning to the possible alternative processes for managing funds, in your evidence, you suggest two alternative options. Can you expand on those options, on how the options might result in more supplementary budgets and what the risks of each option might be?
Yes. I think we've given you a fairly full note in the last letter that we gave you, but effectively, we can either budget for—. Let me start at the beginning. Just because you've got these two options in front of you doesn't mean that they're options we will necessarily pursue. The Commission's going to be looking at these pretty closely in the forthcoming months, but we were very keen to respond to the Finance Committee's suggestions that we should look at alternative options, which we've done.
They're potential, but we're treating them seriously and working through the difficulties with them. We've noted before, and I think we've given evidence to you before, that they come with the risks about supplementary benefits. Again, it's a timing issue, because when you're considering about whether you will either need extra money, or to return money, actually, through a supplementary budget, it's a decision you're having to make in something like November, almost two thirds of the way through the financial year. By the time the decision is made and the application has been made to have a supplementary budget, the money that's either sought or released is, frankly, usually quite small in amount and incapable of being used usefully through other routes of the Welsh block. I mean, I personally have taken some comfort from the Wales Audit Office's view that the current system, particularly with the improvements that we've made, following on from the Finance Committee, is a good, solid and trustworthy way of reporting and budgeting, but that doesn't mean that we're not taking the other two options seriously, and there's a series of papers coming to us as Commissioners now, throughout the spring, to look more closely at that.
How viable is the idea of a reduced budget for the determination, and if you did proceed down that route, how would you estimate what level it would be set at?
As you know, we've estimated an underspend for 2018-19, and based on past trends, we would base any future underspends on a similar method, because when we set the budget, we're so far away from the start of the financial year, so we're not able to base it on the actual staff that you have in place six to nine months ahead. As Manon mentioned, the volatility within staffing, month on month, is incredible. So, these are two options that we will be looking at with the Commissioners over the next few months, but I'm also heartened by the response that you've had from WAO, which is very much in line with what we've presented to you within the budget, which is the increased transparency. We're not looking at new options because we think there's anything broken with the old way that we do things; we find that a very, very useful, efficient, flexible way of managing a five-year Assembly period, because we have estates and facilities management and information and communications technology forward work plans for 10 years and three years, so we're able to manage that flexibly. So, we're not looking to change it; we just want to be more transparent and looking at other options. But what we have found are the risks and inefficiencies associated with those models, which we'll bring to you as Commissioners.
Each of the new models, the two options that we've put in front of you, include, more than likely, additional supplementary budgets, to return funds and ask for more funds, which is not only onerous on us, but on you as a committee to have to monitor that. WAO also put in their letter that it would be
'very unusual for a legislature to exercise such detailed control over a body's budget'.
They pointed out that part of the problem is that different parliamentary bodies across the UK—they're all operating to slightly different systems. So, there is no standard model.
I wouldn't see it as a problem. I think that it's a matter of different legislatures deciding what is a culturally appropriate fit for them. I mean, it shows that there are different models of doing this. Typically, where there is more rigidity in the system, as I say, there is a greater tolerance of variation at year end and contingency budgets fitted in. I'd return to the point that we are obliged to provide for anything the remuneration board deems is necessary to pay to Members, and therefore it's about different ways of making sure that we fulfil that core obligation, but making good use of public funds so that we're not engaging in unnecessary resource-intensive supplementary budget processes or, indeed, finding ourselves at the end of the year either with money to return or money to ask for at short notice, which isn't great value for money. There was a year, I understand, a while ago, where there was a rebate from Cardiff council where money was returned. I mean, obviously, if we did find ourselves in a position where we couldn't spend money in a way that ensured best public value, then we would return that, of course.
And the new Wales reserve—would you see it as reasonable for any underspends relating to the determination budgets to go into that reserve?
Yes, we would. I suppose we would be looking for a reasonably streamlined process to do that and for the ability to apply for those funds to be returned to us at a future stage if they were necessary for Assembly use.
And are there any unforeseen consequences of holding the Commission and the remuneration board budgets separately?
As I asked that—[Laughter.] Have you seen any potential problems with keeping those budgets separate?
I think we laid it out in the letter. I mean, the consequences we can foresee—and we are perfectly happy to respond to what you think might be an appropriate model, and the Commission will be making a decision on that as it has a consideration every year of how it's going to present the budget—the risks are that we devote even more resource than is proportionate to a budget of this size, and that we're not really giving you an added benefit in terms of transparency and that we don't get best public value for the money that is devoted to our purposes.
For example, £100,000 or £200,000 is a huge amount of money in the context of the Commission budget, but not in the Welsh Government block, so we would be using your scarce resource to examine a supplementary budget for something maybe as small as £100,000 or £200,000, because that would make a world of difference to, for example, the ICT hardware replacement project—that we would have to make the effort to do that supplementary process, whereas at the moment we're able to use some of the underspend or phase things over years that we have. So, it's weighing up the costs and the benefits.
Yes it has, exactly.
Jest i nodi ein bod ni wedi derbyn cyllideb atodol gan swyddfa archwilydd Cymru eleni, er enghraifft. Felly mae'n rhywbeth rydym ni fel pwyllgor yn delio gyda fe.
Ond hoffwn i ddilyn i fyny ar bwynt ynglŷn â'r gronfa wrth gefn, achos wrth ateb i Nick Ramsay rydych chi'n dweud eich bod chi yn mynd i edrych i mewn i a oes modd defnyddio hwnna er mwyn llyfnu ar y pegynu sydd yn digwydd yn y gyllideb. A ydy hwnna—? Nid ydym ni cweit yn siŵr eto ym mha ffordd byddwch chi'n gallu iwsio fe, ac, wrth gwrs, mae rhoi mewn a dod allan yn bwysig i chi, ond a oes yna botensial bod hwnna yn gallu rhoi rhyw fath o ateb i hyn, yn enwedig rhai o'r cwestiynau sydd wedi deillio o'r drafodaeth ynglŷn â beth sydd yn y cyllidebau dros dair, pum, 10 mlynedd, a'r newid—dod ymlaen, symud ymlaen ac ati sydd yn digwydd o gwmpas yr arian o'r bwrdd taliadau yn benodol? A ydych chi'n gweld hynny fel un ateb posib? Ond yn ail, wrth gwrs, byddai'n rhaid cael tryloywder i'r penderfyniadau yna yn ogystal. Pa mor bell ydych chi wedi mynd yn trafod hwn? Dyna'r cwestiwn, yn y bôn.
Just to note that we have received a supplementary budget from the auditor general this year, so that is something that we as a committee are dealing with.
But I would like to follow up on the point about the reserves, because in answer to Nick Ramsay you said that you were looking to that and whether it would be possible to use that to streamline the peaks and troughs that we see in the budget. Now, we're not entirely sure yet in what way you would be able to use that and, of course, putting money in and taking money out is important to you, but is there potential there for some sort of solution, particularly to some of the questions that have arisen around the discussion about the budgets for three, five, 10 years and the volatility that can occur in terms of the funding from the remuneration board possibly? So, do you see that as one possible solution? But secondly, of course, we would need transparency in relation to those decisions also. So, how far have you got with the discussions? That's my question.