Y Pwyllgor Cyllid - Y Bumed Senedd

Finance Committee - Fifth Senedd


Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Alun Davies
Llyr Gruffydd Cadeirydd y Pwyllgor
Committee Chair
Mark Reckless
Mike Hedges
Nick Ramsay
Rhianon Passmore
Rhun ap Iorwerth

Y rhai eraill a oedd yn bresennol

Others in Attendance

Alan Bermingham Rheolwr Polisi, Llywodraethau, Sefydliad Siartredig Cyllid Cyhoeddus a Chyfrifyddiaeth
Policy Manager, Governments, The Chartered Institute of Public Finance and Accountancy
Gawain Evans Cyfarwyddwr Cyllid, Llywodraeth Cymru
Finance Director, Welsh Government
Huw Thomas Cyfarwyddwr Cyllid, Bwrdd Iechyd Prifysgol Hywel Dda
Director of Finance, Hywel Dda University Health Board
Jon Rae Cyfarwyddwr Adnoddau, Cymdeithas Llywodraeth Leol Cymru
Director of Resources, Welsh Local Government Association
Lynne Hamilton Cyfarwyddwr Cyllid, Bwrdd Iechyd Prifysgol Bae Abertawe
Director of Finance, Swansea Bay University Health Board
Rebecca Evans Y Gweinidog Cyllid a’r Trefnydd
Minister for Finance and Trefnydd

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Owen Holzinger Ymchwilydd
Samantha Williams Dirprwy Glerc
Deputy Clerk

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 09:12.

The meeting began at 09:12.

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

Bore da a chroeso i chi i gyd i gyfarfod Pwyllgor Cyllid Cynulliad Cenedlaethol Cymru. Mae’n dda gweld pob un ohonoch chi. Gaf i’ch atgoffa chi fod yna glustffonau ar gael, wrth gwrs, ar gyfer y cyfieithu ac ar gyfer addasu lefel y sain? A hefyd, gaf i atgoffa Aelodau, fel dwi’n gorfod atgoffa’n hunan, i sicrhau bod unrhyw ddyfeisiadau electronig wedi’u diffodd o ran y sain? Gaf i hefyd ofyn a oes gan unrhyw Aelodau fuddiannau i’w datgan? Nac oes. Iawn. Gaf i nodi hefyd fod Alun Davies a Nick Ramsay wedi cysylltu â ni i esbonio y byddan nhw’n cyrraedd yn hwyrach y bore yma?

Good morning. Welcome to you all to the meeting of the Finance Committee at the National Assembly for Wales. It's good to see all of you. I'd like to remind you that there are headsets available for translation and for amplification. And also, could I remind Members, as I have to remind myself, to ensure that any electronic devices are on silent? Also, could I ask if Members have any interests to declare? No. I would also like to note that Alun Davies and Nick Ramsay have been in touch to explain that they'll be arriving a bit late this morning.

2. Papurau i'w nodi
2. Papers to note

Mae yna ychydig o bapurau i’w nodi. Y papur cyntaf, fel y gwelwch chi, yw llythyr gan y Gweinidog Cyllid a’r Trefnydd ar gyllideb atodol gyntaf Llywodraeth Cymru. Mi wnaethon ni holi ynglŷn ag un mater penodol, ac mae’r ateb wedi dod. Dwi’n tybio bod hwnna’n ddigon clir. A hefyd, mae yna ddau gopi o gofnodion cyfarfodydd blaenorol. Felly, ydy Aelodau’n hapus i nodi’r papurau yna? Iawn. Diolch yn fawr iawn.

There are some papers to note. The first paper, as you see, is the letter from the Minister for Finance and Trefnydd on the Welsh Government first supplementary budget. We did ask about one specific issue, and that answer has been received. I'm sure that's clear enough. And also, there are two copies of the minutes of previous meetings. So, are you content to note those? Okay. Thank you very much.

3. Trafod cynigion i ddiwygio Deddf Archwilio Cyhoeddus (Cymru) 2013: Sesiwn dystiolaeth 2
3. Consideration of proposals to amend the Public Audit (Wales) Act 2013: Evidence session 2

Reit, wel, awn ni ymlaen, felly, at eitem nesaf y cyfarfod bore yma, sef trafod cynigion i ddiwygio Deddf Archwilio Cyhoeddus (Cymru) 2013 ac estyn croeso cynnes i’n tyst cyntaf ni heddiw: Alan Bermingham, sy’n rheolwr polisi, Llywodraethau, gyda’r Sefydliad Siartredig Cyllid Cyhoeddus a Chyfrifyddiaeth. Croeso cynnes i chi aton ni. Mi awn ni'n syth at gwestiynau, os ydy hynny’n iawn.

We'll go on, then, to item 3 of this meeting: consideration of proposals to amend the Public Audit (Wales) Act 2013. I'd like to welcome our first witness: Alan Bermingham, policy manager, Governments, with the Chartered Institute for Public Finance and Accountancy. Welcome to you. We'll go straight into questions, if that's okay.

We'll go straight into questioning, and I'll kick off, if I may, just by asking about the balance around the oversight and management role of the Wales Audit Office in relation to the Auditor General for Wales. During scrutiny of the Bill, of course, concerns were raised regarding the board role and structure and how that might impact on the independence of the auditor general. I'm just wondering whether you have any comments as to how the Bill, as implemented, has either met, or otherwise, that issue.

I'd say, generally, it's worked well in that respect. I don't see any major conflicts arising from that separation of the auditor general and the Wales Audit Office and the board, and the impacts of non-executive directors and things like that. That's generally the way that audit offices around the UK work. So, in that sense, I don't see any issues, really.

There we are. I was going to ask, actually, about board structures more generally within public bodies. To what extent does the current board structure reflect good practice across the sector?


It does, yes. It does reflect good practice. I know there are issues raised by the Wales Audit Office about quorum and issues like that, and I suppose you may well come to questions about that, but aside from those issues, I think it does reflect good practice, yes.

Okay. During scrutiny of the Bill there were calls from professional audit bodies for a relationship code between the auditor general and the audit office, and of course that was included in the legislation that was passed. So to what extent do you think that plays a key role in satisfying some of the concerns around the independence issue?

I think, yes, it's important to that debate because obviously if there are disputes or issues that arise, you need some mechanisms to resolve those conflicts. Obviously that schedule of responsibilities or code arrangement between them there actually addresses that. So I think that's vitally important to that.

You mentioned the quorum earlier, then; just to come on to that, do you think it is important that the audit office has a non-executive majority quorum rule that is set out in legislation? Is that what you would expect?

Yes, it is what we would expect. I suppose the issues are, obviously, in the sense of the—

Looking at other bodies, then, where does it sit in relation to other examples that you can think of, which might be more appropriate or more effective in dealing with some of the issues that may be arising out of the quorum issue?

I would say that, as an observation, there are differences between the Wales Audit Office and, say, the National Audit Office in how they deal with that. The structure's fairly similar in terms of the level of non-execs to executive members, and it appears the Wales Audit Office are literally saying, 'Okay, if there isn't a quorum, then one of our executive members has to effectively leave', while the National Audit Office would take a slightly different approach and relegate somebody to an observer status. So, in that sense, they can still contribute to the discussion, but they're not necessarily taking part in the decisions.

I suppose the other aspect that you could look at here is the nature and make-up of the board itself. You have some elected employees that I suppose, technically, are considered executive because they work for the Wales Audit Office, but if you broke it down into constituencies and took that approach, and said, 'Well, these are elected members, these are non-executive and these are executive', you could solve that problem a different way. So it depends on how you term those elected employees—if you're terming them as executive, well, you've still got the same issue, but if you're breaking it down into a different constituency, and saying, 'These are elected members to the board'—

But it's just changing titles, effectively, isn't it? It doesn't really substantively change the governance of an organisation.

It is, but, generally speaking, I suppose they are different in the sense that they're not necessarily senior managers of the Wales Audit Office—they are employees. 

They're there for that purpose. So I think there is an argument that you could justify that that is a different constituency of the board.

If I could just ask one question on that, wouldn't another way round it be to say that the majority of votes cast should be from non-executive members? You would leave the people sitting there, but they would be unable to vote in order to make sure the non-executives were in a majority.

Exactly, yes. That's certainly, I suppose, the way the National Audit Office take it, by actually relegating somebody to an observer status rather than throwing them out of the meeting completely. So, yes, you could do that, absolutely.

Moving on to the area of questions that I'm down for, do you think that the audit legislation in Wales could be further streamlined?

I suppose, observation wise, it's not a huge piece of legislation. There probably are more points where it might be strengthened rather than streamlined. An example of that is in relation to the area of value for money. It doesn't appear in the Welsh legislation that the audit office have much responsibility for central Government bodies in that regard. They do in terms of health and local government, and I suppose from an outsider's point of view, a taxpayer/stakeholder, if you've got whatever it is—£20 billion or £30 billion—coming into the Welsh consolidated fund and then being allocated out by the Welsh Government and the Assembly, yet there isn't a value-for-money remit for the audit office over that, that seems strange. So, in terms of the legislation, I'd say it's not necessarily about streamlining from CIPFA's point of view, it's about, maybe, enhancing or strengthening parts of that legislation to support the audit office. So, I think there are areas like that to look at.


One of the bits that does cause concern to both the audit office and some of the organisations that they audit is that each piece of work has to break even in terms of the amount of money being charged and the amount of money being spent by the audit office. That can mean money going back to organisations, but it can also mean that the audit office ends up increasing the amount it charges the organisations. Would there be an argument for saying that within each sector, be it local government or health, it actually had to break even, rather than for each piece of work for each organisation?

Yes, I think, generally, that's a constraining factor in the legislation, if you're sticking to the letter of the law, if you like. It operates differently elsewhere, so I think you're right, that is a post-implementation part of the legislation that probably does need to be looked at. Generally, what happens elsewhere is that it's balanced over a number of years, so, over a couple of years at least, if they've put more effort into it one year, they'll balance that out next year. What that does is give a bit of certainty, I suppose, to the body being audited about what the fees are, and eliminates a lot of the disputes and coming back and having to give small credits or increase the fees, which cause the audit office a lot of extra work. Really, you've got to ask what's the cost-benefit in doing that? That's the point, I suppose, the bottom line, and—

It causes them extra work, which means extra cost, and that extra cost has to be met somewhere.

Exactly, yes.

A very good morning to you. Just to gauge some of the, perhaps, differences or particular practices employed in various audit offices in the UK, you've mentioned the balance of non-execs and execs as being one difference between the WAO and the NAO. Are there any other aspects that you think work particularly well in some audit offices that perhaps aren't used in others and that perhaps it wouldn't be a bad idea to consider replicating them, because they are effective?

No, I don't think so, necessarily. I think, broadly speaking, the structures are fairly similar. It may be around the way, as I say, the Wales Audit Office operate or that quorum, to ensure that there is a quorum by actually physically kicking somebody out of a meeting—maybe one or two. The argument, I think, that they would be raising is that constituency-based argument, that, obviously, what they're going to do is chuck out the elected employee member, I would suspect. Obviously, if there are only two of them, if you chuck one out, you've basically halved that constituency. So, that's a difference between the way, as I say, the other audit bodies would operate it, by just relegating somebody to an observer status so they can still contribute in some way, so the quality of the debate might be better, but—

Can I just very, very quickly follow up on why you said 'obviously' they would be the ones to be kicked out? [Laughter.]

Maybe that's the wrong word to use, but I suspect if you're the senior members of the Wales Audit Office, you probably feel that you're needed there, shall we say, because you're the senior executive. I'm not belittling the elected employee, but I'm just saying that might be the reality of practice on the ground—

I think we've had it confirmed that that is the situation, actually. Sorry, Rhun.

That's fine. So, there are no particularly novel things going on, either in Wales or in the others. On fees and the way fees are dealt with, they vary. Other audit offices in the UK have a system where bodies have this notional audit fee funded centrally. Does that drive efficiency either for the auditor or the audited body, do you think?


I suppose it does drive a small amount of efficiency in the process, as such, because there isn't a number of other transactions going across Government in terms of cash settlements and things like that because it is a notional fee. So, in terms of administration somewhere in that wider process, you're going to save a bit of that. As to whether it drives efficiency, I suppose that's down to the quality of the scrutiny that goes with it. Now, whether it's notional or cash shouldn't detract from the point of view that it's a charge on the revenue budgets and, therefore, the relevant audit committee of the body being audited should obviously scrutinise that in the same way that they would scrutinise other costs. If there are other notional costs being charged through revenue budgets like depreciation and things like that, I'm not saying that gets the kind of attention it maybe deserves, but, nevertheless, I think evidence around the rest of the UK would say it doesn't; whether it's notional or cash, it doesn't really detract from the scrutiny that much.

So, implementing or bringing in a notional fee model might work in Wales. There might be positives to it but it's not something that you think is missing currently.

No. I would say there are generally some positives to it. I wouldn't over-egg them, though, and say that they're massive savings because it's saving some transactional work. So, there will be savings, but it's more important to ensure that your audit scrutiny is there because it's, as I say, still a valid charge to a revenue budget. So, it shouldn't detract from that.

Thank you. I'm just summarising a few of the things in my head. So, just briefly going back, the observer status you think is a sound practice, potentially, for Wales, yes? And you mentioned a best value analysis or overview at the very beginning of your narrative. Could you just extrapolate very briefly in terms of what you mean by that before I go on to my question?

Yes. I suppose I see the audit office having two clear functions: one is, obviously, the financial audits—so, auditing the accounts and signing off that everything is duly processed correctly and whatever, and that it's a true and fair view. And then, secondly, it's the value-for-money function. Now, obviously, it's not charging for that—it's getting supported from the consolidated fund to fund that—but its remit in Wales seems to be a bit limited towards local government and health only, as opposed to, say, the National Audit Office, Audit Scotland and so on, which would also have a remit for central Government.

Okay. So, you say 'a bit limited'. You mean 'limited'.

Yes. Limited.

Okay. Thank you. So, in regard to—you've already touched upon this—the fee and related processes regime, what are the current issues or examples that you can share with us in regard to how these issues, potentially, if there are any, could be addressed?

With regard to fees?

The fee regimes, yes, and the processes. Or do you feel there are no issues?

Well, there are issues in, obviously, the fees that have been referred to earlier, about the fact that they can't charge more than full cost. Obviously, that leads to a position where there's a fair amount of record and timekeeping work to make sure of that. It perhaps creates a little bit, arguably, this idea that there's a disincentive there in the sense that, from the audit office's point of view, there's not much of an incentive there for them to make further efficiencies in the process, if you see what I mean, because there's no gain for the audit office in doing that.

So, in regard to countering that limited—[Inaudible.]—if you had your magic wand, what would occur?

Well, obviously, removing that constraint—not about full cost, but to balance it over a number of years. So, what that does is—. Say the auditor's sitting down with you as a body we're going to audit, and we agree a fee. What you now have is certainty that that's the fee you're going to be charged in that year, whether we make a mess of it or not. If we make savings, obviously we're going to be open and say, 'Well, we actually spent less money on your audit than we charged you, so next year you can look forward to a slightly lower fee', or 'Here's why we spent a bit more this time. We may have to put a bit more on the fee next year, but in this year's accounts, you will have certainty on the fee you're being charged from one year to the next.' That gets over the issue of somebody coming back to you saying, 'Well, I'm not happy with that because you've come back and said the cost was more, so here are some extra charges in-year, which I wasn't expecting; I'm not happy.' And then the audit office have got to go away and do a whole load of work justifying that back to you. So, there are savings there.

I think the other thing it does is in terms of work that the audit office might tender for externally, where, as it stands, I suppose they're in the difficulty of having to go back to those clients if they've underspent and been fairly efficient and say, 'Here's some money back.' If they had the opportunity to hang on to that money in those particular jobs, they could perhaps feed that back in to drawing less from the consolidated fund or going towards some of their other value-for-money work, or whatever. So, I think if that kind of idea of having a charge of no more than full cost was removed in the legislation and something else was put in its place, it would give them a lot more flexibility. It would probably give them more incentive to actually go and be more efficient.


And in regard to the current situation with the National Audit Office and these issues, what is there?

Well, Wales is the only one that really has that clause. In Northern Ireland and Scotland, it's kind of established practice that that happens in the National Audit Office. It is in the legislation, so they balance it up from one year to the next.

Okay. In regard to what you've just discussed, yes, we're looking at altering those fee regimes, so in that regard, if there were to be pilot work, how do audit companies roll out changes without unduly affecting or impacting the audit fee of specific clients? I know you've gone into some detail around that. I mean, can you extrapolate a little bit more for me? I'm just trying to quantify.

Are you talking private sector audit companies or just generally?

The way I see it operating is, obviously, as part of the audit office estimate and budget that they seek approval for, they also have to produce a schedule of fees. So, that work is something they're used to. What we're saying is, obviously, that when they come to engage with the client and take on a piece of field work, they know what their schedule of fees is. They can set that and the client can be happy that that's what they're going to be charged—'nothing more, nothing less' type of thing. What they can do is have an open and honest discussion with the client then about what the actual cost was, and balance that up over the next couple of years.

I suppose in the private sector, obviously, fees are set in a similar way. It's broken down to, obviously, recover costs, plus profit, or whatever, which is obviously the difference between the way the Welsh audit office does it as a public body and, say, KPMG or one of the big four firms. And, obviously, if costs overrun, they'll probably be telling the client as they're going through the audit, 'Well, we're going to have to do extra work to establish this', and so on and so forth. So, the kind of burden of those extra costs is broken in as it's going through the process rather than after the event, really.

The Wales Audit Office has suggested to the committee that changes to the rules around their fees may allow them to move away from detailed time sheet filling for staff, and I understand that may be in line more with the commercial sector now. In past roles, more as a consultant or a lawyer than an accountant, I've had a myriad type of time recording as to whether it was minutes or hours or days that I'm doing, and I just wonder, could you say what would you see as either standard or best practice now within the commercial sector around how employees record time on projects?

Well, to be honest, I've been out of that for a fair while, so I wouldn't be totally familiar with what best practice is these days. I think, inevitably—and you'd probably agree—there's still a need to actually record what you were working on approximately, not necessarily in detail, but to be able to break down your time in that sense, because, effectively, it's time that's driving the fee and things like that. So, I can't see that you're necessarily, in all honesty, getting away, perhaps, from the detail of it, yes, to more of a kind of estimate of what your time has been broken down to, but whether that saves you a great deal of time—


Would you expect changes in the rules around fee charging to lead to changes in internal practice within the WAO as to how employees record their time?

In all honesty, no, I don't necessarily accord with that, because I still think that to set the fees in the first place and to get Assembly approval, they're going to have to look at their costs, look at the budget, look at the work plan they've got, and decide how they're going to recover those budgeted costs in that work plan. So, in that sense, there's going to be a fairly detailed analysis of who's doing what to arrive at the schedule of fees. So, in that sense, I don't necessarily see—. If there is some saving, it's small, it's not—. I can't see it.

Thank you. On another matter, we have a requirement for the Auditor General for Wales and the Wales Audit Office, as you may know, to produce interim reports as well as their annual plans, and then, in that interim report, we're looking for a work-in-progress statement about how they're doing relative to the objectives in the annual plan. Do you think that is a sensible and proportionate requirement for us to have, or is that something we could usefully review the efficacy of? I don't know the answer to that one myself; I'm quite interested in what you may say.

Well, I suppose in terms of the ongoing scrutiny of their work, it seems proportionate enough to me to want an interim view on how they're doing. I suppose, particularly, if the committee has certain priorities that it wants to see progressed, I see that as fairly proportionate, to be honest. If I could say, from picking up from colleagues and stuff in the Welsh audit office, they do seem to have some concerns about duplicate laying of accounts and things like that, but, in terms of the specifics of an interim report, I don't see that as not proportionate.

There we are. The evidence we've had suggests that—. I think they only had a dozen clicks on the relevant web page to look at the interim report and it cost £20,000, I think. So, there we are; we'll have to see—

Well, actually, there was an anticipation that some of those were internal to the audit office as well. So, yes, there we are. Anyway, we could discuss that for half an hour as well, couldn't we? Thank you, Mark. Mike.

The Wales Audit Office do work for other bodies. Do you have any problem with them doing work for other public bodies or going into private bodies? And if they're charging, should they be charging an actual cost or marginal cost, and should they be able to make a profit on either?

I wouldn't be in favour of a marginal cost approach. I understand, obviously, that they may well be recovering their costs fully in the work that they're already doing for public bodies, but I think they should always work on the basis of full cost recovery. So, essentially, I could understand it if they were a private body going in on marginal cost to fill capacity and things like that, but I don't think that same issue applies for the audit office. Allowing marginal cost may encourage them to go out and operate a bit more commercially, which, again—I'm not sure that is necessarily their full remit. So, if they are pricing externally, I would say it should be full cost recovery. What the committee might want to consider is allowing the audit office to retain some of those funds or maybe stipulate how they use any surplus they get from that operation, either to reduce their draw on the consolidated fund or to support other value-for-money work, or whatever. But aside from that, I think it's got to be full cost recovery.

Of course, if they get full cost recovery, what they've charged everybody else within their programme is now more than full cost recovery.

It is, in that sense, which is giving them the ability to earn a surplus, I agree. But if it's genuinely outside work of Government—so, in many respects, there's not a kind of quasi-cross-subsidy within Government somewhere—I think that's fine. You know, let them do that, and that can only benefit the Welsh purse in the long run. So, that's— 


And the other part of the question now: should it only be for public bodies or should you be able to do it for private bodies or some of those hybrid bodies that exist?

Yes, if you take the example of, say, social housing entities, or something like that, a sort of quasi-public body if you like, I think they should be allowed to do that. But I think it should be not government bodies per se, because I think you're into that idea that there could be questions over cross-subsidy. So, anything that's quasi-public sector and external of public sector, I think, it's fine—let them deal with that. 

Those bodies, of which there are many, who get a substantial amount of their money from the public sector, but treat themselves as private sector. 

Yes, I suppose they do, and that's always been a debate within the public sector as to where some of these bodies fall, but—. 

Exactly. [Laughter.]

I think, of course, universities and housing associations are examples of that. 

There we are. That's a very valid point. Thank you very much. We have come to the end of our short time slot this morning, I'm afraid, but thank you very much for your evidence. It's going to be really valuable to us, and we appreciate that. And you will be sent a transcript as well to check for accuracy. So, diolch yn fawr iawn. Thank you. 

Thank you, Chair. 

Okay. So, we'll invite our next panel to join us at the table. Diolch yn fawr.

4. Trafod cynigion i ddiwygio Deddf Archwilio Cyhoeddus (Cymru) 2013: Sesiwn dystiolaeth 3
4. Consideration of proposals to amend the Public Audit (Wales) Act 2013: Evidence session 3

Iawn. Wel, gaf i groesawu ein hail banel ni y bore yma atom ni? Diolch i chi am eich presenoldeb. Gaf i groesawu Huw Thomas, cyfarwyddwr cyllid Bwrdd Iechyd Prifysgol Hywel Dda, Lynne Hamilton, cyfarwyddwr cyllid Bwrdd Iechyd Prifysgol Bae Abertawe, a Jon Rae, cyfarwyddwr adnoddau Cymdeithas Llywodraeth Leol Cymru? Croeso cynnes i'r tri ohonoch chi. Mae gennym ni ryw 40 munud, felly mi awn ni syth i mewn i gwestiynau, os ydy hynny yn iawn gyda chi. A gwnaf i jest gychwyn drwy ofyn i chi efallai i amlinellu, jest yn fras iawn i'r pwyllgor, sut y mae gwaith archwilio yn cael ei gynnal o fewn eich sefydliadau chi a pha rolau efallai sydd gan yr unigolion o fewn eich sefydliadau chi i hwyluso'r broses yna pan fo'n digwydd. 

Could I welcome our second panel this morning? Thank you for attending. Could I welcome Huw Thomas, director of finance, Hywel Dda University Health Board, Lynne Hamilton, director of finance, Swansea Bay University Health Board, and Jon Rae, director of resources, Welsh Local Government Association? A warm welcome to the three of you. We have about 40 minutes, so we'll go straight into questions if that's okay with you. And I'll just start by asking you to outline, just very broadly for the committee, how the audit work is conducted within your organisations and what roles the individuals within the organisations have in facilitating the process as it happens. 

Os gwnaf i gychwyn, te, gyda'r ffordd mae'n digwydd yn iechyd ac yn Hywel Dda, mae yna dair elfen i'r archwiliad, neu dair math o archwiliad gwahanol—yr archwiliad ariannol, yr asesiad strwythurol, a'r astudiaethau gwerth am arian sydd yn digwydd yn ein byrddau iechyd ni. Os af i mewn i'r archwiliad ariannol yn gyntaf, mae yna ddwy rôl i'w chael fanna i'r archwilydd: y gyntaf, y true and fair view, ac, yn ail, y regulatory opinion ar ein gwariant ni. Ac mae'r archwiliadau yna wedi bod mewn bodolaeth ers blynyddoedd bellach. Mae'r broses yn un eithaf tynn, ac rŷn ni'n gyfarwydd iawn â'r broses yna nawr dros y blynyddoedd. Mae yna dair elfen pwysig iddi hi—y cynllunio, yr archwiliad ei hunan, a'r adolygiad. Ac, i ryw raddau, achos bod y broses yna wedi bod mewn bodolaeth ers sawl blwyddyn, ac o achos bod yr awyrgylch archwilio wedi bod yn un eithaf cadarn dros y blynyddoedd, rŷn ni'n gyfarwydd iawn â'r broses, ac mae yna ffordd o 'escalat-o' lan trwy'r adran gyllid os oes yna unrhyw ofid neu unrhyw beth sydd yn rhwystredig yn y broses. Felly, dwi ddim yn gweld hynny yn broblem o gwbl. 

O ran yr asesiad strwythurol, eto, mae hwnna wedi bod mewn bodolaeth ers sawl blwyddyn bellach. Mae hynny yn cael ei arwain gan y board secretary yn ein byrddau ni, yn ein bwrdd ni yn enwedig, ac, eto, os oes unrhyw beth sydd ddim yn digwydd yn y broses ar amser, yna mae proses i'w chael i 'escalat-o' hynny i fyny i'r board secretary neu i'r prif weithredwr. Felly, dyw hynny ddim yn broblem chwaith. Gydag astudiaethau gwerth am arian, fe fydd yna rhywun yn y bwrdd iechyd yn arwain ar hynny o ran yr executive o ran cyfarwyddwr. Felly, eto, mae'r un broses yn digwydd. Dwi ddim yn gweld hynny'n broblematig o gwbl ar hyn o bryd.

Yes, I'll start with the way that it happens in health and in Hywel Dda. There are three elements to the audit, or three different types of audit—the financial audit, the structural assessment, and the value-for-money studies that happen within our health board. If I just go into the financial audit firstly, there are two roles in that regard for the auditor: firstly, the true and fair view, and, secondly, the regulatory opinion on our expenditure. And those audits have existed for many years now. The process is fairly tight, and we are very familiar with that process now over the years. There are three important elements to it—the planning, the audit itself, and the review. And, to some extent, because that process has been in place for many years, and because the environment of audit has been fairly firm over the years, we are very familiar with that process, and there is a way of escalating up through the finance department if there are any concerns or anything that is frustrating in the process. So, I don't see that as a problem at all. 

In terms of the structural assessment, again, that's been in place for many years. That is led by the board secretary in the boards, in our board especially, and, again, if there is anything that doesn't happen in the process in time, then there is an escalation process for that to the board secretary or to the chief executive. So, that isn't a problem either. With value-for-money studies, there will be someone in the health board leading on that from the executive, director level. So, again, the same process occurs. I don't see that as problematic at all currently.


A dwi'n cymryd bod y sefyllfa'n debyg iawn neu'r union yr un fath o'ch safbwynt chi hefyd.

And I take it that the situation is similar in your situation as well.

Yes. So, I would echo what Huw has said. In our health board, we follow a very similar process. The audit structure is very, very similar and, for the value-for-money performance audit, the relevant lead exec for the area being investigated would be the lead and ensure that all of the relevant staff from across the organisation were available to the auditors. But I would echo exactly what Huw has said.

Felly, ar ba bwynt mae'r ffi yn cael ei drafod a pha rôl, os o gwbl, sydd gyda chi mewn negodi neu drafod beth fydd y ffi? Ac wedyn, wrth gwrs, ar ba bwynt y mae’r ffi yn cael ei dalu?

So, at what stage is the fee discussed and what role do you have in negotiating what the fee will be? And then, of course, at what point is the fee paid?

So, in the health system, the audit fee is set nationally and it's based on a banded process, so we don't negotiate as such, but we understand the framework within which the audit fee is set and structured and the audit fee is taken through our audit committee with the audit plan, and the audit committee signs off the plan and signs off the fee, so there's full transparency. But it's not a negotiation; it's a nationally set fee structure that we understand.

So, there's no input—I mean, there's clarity around that, then. Because one of the points that the Minister makes in her correspondence is that, actually, that process of negotiation, or that process of arriving at a cost, helps the body being audited to understand maybe better what the process is. But, clearly, you have those established regimes anyway, so it's not quite relevant to you in the same respect as it might be to other organisations.

Does yna ddim rheidrwydd i'r archwilydd ymgynghori ynglŷn â'r fees sydd yn y gwasanaeth iechyd, yn wahanol i wasanaethau eraill, ond mae yna broses o graffu drwy'r pwyllgor archwilio, sy'n rhan bwysig o'r cynllunio am y gwaith, achos mae'n rhoi meincnod ar ddechrau'r flwyddyn i ni. Felly, mae honno'n broses bwysig i roi, os hoffech chi, line in the sand i ni ar ddechrau'r flwyddyn. Ac wedyn os oes yna unrhyw orwariant o ran y ffi neu danwariant, mae'n bosib dod yn ôl at hynny'n hwyrach yn y flwyddyn. Yn ein hanes ni, dŷn ni heb orwario ar y ffi, ond mae e'n bwysig cael y broses yna o graffu da, byddwn i'n dweud, drwy'r pwyllgor.

It's not necessary for the auditor to consult on the health service fees, differently to other services, but there is a process of scrutiny through the audit committee, which is an important part of the planning for the work, because it sets a benchmark at the start of the year for us. So, that is an important process to, if you like, put a line in the sand at the start of the year, and then, if there is any over-expenditure or under-expenditure in terms of the fee, you can return to that later on in the year. In our history, we haven't overspent on the fee, but it is important to have that good scrutiny process through committee.

Gwnaf i droi at Jon, felly, o safbwynt llywodraeth leol—beth yw'ch persbectif chi, te, o safbwynt y cwestiynau roeddwn i'n eu gofyn?

I'll turn to Jon therefore for the WLGA—what's your perspective in terms of the questions that I've asked?

Firstly, I should say that, as the WLGA, we're not audited—

I understand that, but you're speaking on behalf of local government and—

Yes. I did ask our local authorities some of these questions and the answers are not dissimilar to what my colleagues here from the NHS have said. Around fee consultation, some authorities came back and said that, actually, the consultation itself was pretty academic—they saw the fees, as Lynne has just said, as set nationally; they didn't think they really had much influence over the fees. Some came back to me and said that they thought the fee structure was a lot clearer now and especially for small bodies. And I think I've cited in our evidence, maybe, I think that joint committees, crematorium committees, small joint committees, liked that. So, they do find the fee structure clearer, but, in summary, they don't really feel they have much influence over it.

Okay. The auditor general and the audit office have suggested as well that surprise additional bills for additional work maybe tends to lead to audited bodies, or there's a danger that it might lead to audited bodies, putting pressure on the audit team to justify any additional work and that potentially might compromise their independence in that process. Is that something that you can associate yourselves with or is it something that you recognise as an issue? No. You're shaking your heads.


Certainly not for Swansea Bay or ABMU. It's not something that we've encountered. 

Okay. Likewise? Yes. There we are. Okay, diolch yn fawr. Nick. Bore da.

Morning. Can I ask you a couple of questions about the cost of an audit to an organisation, which is linked to the number of responsibilities? If there's a delay in an organisation providing information, there's an increase in cost, isn't there? What sort of increasing costs are there and have you got any examples?

If I start, I'm not—. There would naturally be an increase in costs if there were delays caused by the audited body in providing information. I'm not aware that that has arisen within our organisation. In fact, we've had rebates on our fees for two years now in relation to an efficient audit process.

The money's come the other way. Small values, but it represents, I guess, that it's been a very stable environment in terms of the audit environment for a number of years now. We know the information that the auditors tend to need and are able to pre-empt many of the questions. So, it's become quite a well-embedded process and it's not caused any issues for us.

And are the auditors generally on time as well? Have there been any issues the other way around, where the auditors might have had trouble doing their audit to time?

Certainly, in my experience, I would echo what Huw said. We haven't encountered a situation where there was any additional charging. Our experience, in a similar way to what Huw describes, is certainly for the financial audit it's a very, very well established process. Everyone knows their role and what to do, and it happens, for us, fairly seamlessly. Unlike Hywel Dda colleagues, in 2017-18, we had a very, very small rebate due to the quality of the papers and the fact that the auditors took less time than they had initially anticipated. So, well-established processes, good relationships, escalation to audit committee if needs be—but we haven't encountered any additional fees.

I've had a very easy set of questions. [Laughter.] Did you want to comment?

I may just have a live example for you, actually. I'm not too sure about if indeed these things do lead to increased costs, delays, et cetera—I didn't ask any of the WLGA membership about rebates—but there's a Supreme Court judgment at the minute, which I understand has led to delays in signing off some accounts. So, I can perhaps come back to you on that, actually, because it has led to delays. So, I can find out if that has led to increased cost.

Okay, if there are any examples, that would be great. You mentioned the fee earlier. How important do you think it is that the—? You seem to be relatively happy about the fee levels. How important is it that the WAO continue consulting on fees? Apparently, in the last consultation on fees for 2019-20, only seven responses were received. So, is that a sign that, actually, people are broadly happy with the fee regime?

I would say so. I think the level—certainly from a health board perspective, I would say that we don't have a particularly strong view either way. It's well established, it's known, it's understood; there's no particular issue to raise.

I think, if there were to be a significant change in the regime, it would be very well worth consulting; certainly, I'm sure health bodies would have a more positive engagement and would have a view. But at the moment it's pretty stable, so not a great deal to respond to, really.

I understand that the Wales Audit Office don't have a requirement to consult specifically on health fees. So, the consultation tends to be about local government fees and fire authority and other fees. In terms of health, I think the consultation is around the fee rates charged per hour by staff grades within the Wales Audit Office. So, it's a slightly different consultation structure for health, which probably represents the reason why health don't tend to respond, or I don't tend to respond, to consultations in regards to the fee structure, because it's not directly relevant.


I just wanted to say something on that, but you can go first.

Okay. I was just going to ask the WLGA, in terms of the fact that you're obviously in a different boat from the health sectors. I mean, what was your view in that regard?

Just that the—. I suppose it goes back to earlier. The two opinions I've had back from local government are that they really didn't feel—. Some of them thought that they didn't feel they had much influence over the fee structure, but actually those aren't always contradictory or alternative opinions. They said they were kind of happy with the fees, and that, actually, things had been made clearer for them, especially for smaller organisations—I cited the crematorium joint committees, the Welsh Church Fund as well, whatever that is.

I think, on what Jon Rae just said there, the position is, of course, that people don't respond for one of two reasons: either they're happy or they don't believe anybody's going to listen to them. Those are the two reasons people don't reply.

The question I've got is on the fee charging regime. We've talked a lot about it. Is it transparent enough so that when you know what they intend to do, you can actually work out how much it's likely to cost you? Because that's what real transparency means: if they say they're going to come and do these things, then you can sit there and say, 'This is roughly what it's going to cost.' Is it that transparent?

I would say that there is quite a clear process. Our fee structure has been quite stable for a number of years, and we're quite clear through the audit committee, at the planning stage, what work is going to be delivered for that fee. Does it go down to, 'We need x number of hours for this piece of work'? No, it's not quite like that, but there is a process of understanding that a structured assessment will cost an organisation x amount, and that's the process we go through, then, at the audit committee, to challenge and question that.

This question, I think, may be more for Jon than for the others. Do you think the value-for-money studies are value for money?

Yes, I think, from a WLGA perspective, there is value in these VFM studies. I did get—. Some of the responses I had back from councils did query some of the—. You know, fine with financial audit. There were question marks over some of the VFM performance studies, but you know, I have to say, from a national perspective, we find them very useful.

Just finally, on the value-for-money studies, I have a view that is, as is not unusual, different to that of a lot of other people. Is there a means of calculating, then, if these value-for-money studies are value for money, how much is actually being saved by bodies from the benefit of these value-for-money studies? And the use of them as doorstops doesn't count as any financial benefit.

I think there's a very real question there around how we respond to the value-for-money studies, and I think what we would—. We take the—. There's something about needing to be very clear through the audit process in terms of the recommendations that come out: are they recommendations that we can engage with as organisations and respond to constructively, or are they recommendations that actually are very difficult for us to deliver against? I think we are growing in terms of the maturity of the dialogue with auditors to work on recommendations between us. And I think it is a collective process of recognising that there's an issue and that there's a recommendation that needs to be deliverable, and how do we get recommendations that are deliverable and manageable for us as organisations, and how do we then actively engage with those and deliver against those. That's something our audit committee takes incredibly seriously in terms of tracking the delivery against those recommendations then.


I'll stop there. I could keep going on those for some time, but I don't think you would like me to. 

No, that's okay. Go on then, Jon, if you want to come in on this. 

In terms of efficiency and economy, it's easy to quantify things like that. When you get into effectiveness, sometimes these things aren't quantifiable. They don't necessarily lead to—. Some initiatives lead to, kind of, tangible savings in that respect. It might be residents' perceptions of their services and things like that. So, it becomes difficult to quantify. 

Just bringing you back to the transparency question from Mike, I don't think we had a comment from Jon. I'll try this, even though One Voice Wales is the umbrella body for community councils, not the WLGA. Do you have—? I know there are very serious concerns at community council level about transparency in fee setting. Are there similar concerns in local authorities?

No, I'd say not. It's a different thing for community councils, given their size, what has to be done, and the fact there's over 700 of them.

Ocê. Mae'r rhan fwyaf o'r cwestiynau, dwi'n meddwl, roeddwn i eisiau eu gofyn ynglŷn â ffioedd wedi cael eu gofyn. Mae o'n rhyfedd eich bod chi ddim yn teimlo o gwbl fod ad-daliadau neu orfod codi mwy am un neu fwy o agweddau'r archwiliad yn rhywbeth sy'n codi'n aml. Dyna mae'r archwilydd cyffredinol a'r swyddfa archwilio wedi'i ddweud wrthym ni nôl yn y ddogfen 'Symleiddio Trefn Ffioedd Gymhleth'—ei fod o yn digwydd yn aml. Ydych chi'n gweld o'n od bod—? Ydych chi'n hyderus bod eich profiad chi'n rhywbeth sy'n cael ei adlewyrchu ar draws y byrddau iechyd ynteu jest chi sydd ddim yn ymwybodol ei fod o'n digwydd yn aml?

Okay. Most of the questions that I wanted to ask about fees have been asked. It is strange that you don't feel at all that rebates or having to charge more for one or more aspects of an audit is something that arises often. That's what the auditor general and the audit office told us in the 'Simplifying a Complex Fee Regime' document—that it happens often. Do you think it's odd that—? Are you confident that your experience is something that's reflected across the health boards or is it just that you're not aware that it does happen often?

Mae'r byrddau iechyd i gyd yn wahanol. Gallaf i siarad dros Hywel Dda ond gallaf i ddim siarad dros unrhyw fwrdd iechyd arall. Mae ffi'r gwasanaeth iechyd yn uchel. So, mae'n ffi ni bron yn £400,000 y flwyddyn. Felly, mae yna—dwi'n siŵr bod yna fwy o ffordd o reoli'r risg o fewn y ffi yna. Felly, os oes yna un elfen o'r archwiliad ar, dywedwch, ein cyllid ni yn gorwario, felly, a bod yna rhywbeth arall yn tanwario, efallai ei fod e'n 'net-o' i ddim byd gyda ni am fod y ffi yn gymharol uchel. Efallai bod y broblem yna'n fwy i gyrff llai lle mae'n galed i gael y rheolaeth yna. 

The health boards are all different. I can speak for my own but not for any other health board. The health service fee is high. So, our fee is nearly £400,000 per year. So, I'm sure that there is more scope to control risk within that fee. So, if there is one element of the audit on, say, our finances that leads to an overspend and then there's underpsend in another, perhaps it nets to nothing with us because the fee is relatively high. Maybe that problem is greater for smaller bodies where it's difficult to get that control.

Similar to Huw, our audit fee is in a similar range to Hywel Dda's. Our audit fee for 2018-19 was £417,000, and that's what we received a £10,000 rebate on. Again, I can't speak for other health boards, but the directors of finance of the health boards meet on a monthly basis, we exchange views, we exchange intelligence, and rebates or overspends isn't something that has arisen in our conversations or that you particularly hear about. If it were a significant issue, I'm sure it would be on the table for our regular meetings with colleagues. 

And you've already indicated that it's not something that you're particularly aware of.

Yes. In fact, just to reflect what Lynne has just said there, actually, for local government. I meet up with the treasurers executive every month and very rarely—certainly not in the past year and a half—have I heard fees raised as an issue. 

Ac un mater arall sydd wedi cael ei godi gan yr archwilydd cyffredinol, yn awgrymu bod cyrff sy'n cael eu harchwilio bellach yn gwneud mwy o gwynion am yr amser sydd ei angen i weinyddu'r gyfundrefn ffioedd. Ydych chi'n gallu dweud ai dyna'ch profiad chi? Ydy eich sefydliad chi neu sefydliadau rydych chi'n eu cynrychioli yma heddiw erioed wedi gwneud neu wedi ystyried gwneud cwyn am hyn? Na, Hywel Dda.

And one other issue that has been raised by the auditor general, suggesting that audited bodies now make more complaints about the time required to administer the fee regime. Can you confirm whether that's your experience? Has your organisation or the organisations that you represent here today ever made or considered making a complaint about this? No for Hywel Dda. 

I'm going to ask you the question; I don't think I'm going to like the answer to it. As somebody who was involved in the Public Audit (Wales) Act 2013, has it made any difference and, if it has, has it been for the better?

I would say that, actually, I'm fairly recent into my post as finance director so I haven't got the long history, perhaps, of dealing with the process in the early days after the Act, but I think there's a growing maturity in terms of dialogue. As I say, it's been a very stable landscape for us in terms of audit and financial reporting standards. So, actually, it's been a very stable landscape for us to work within.

Technology has moved on in that time as well, so there's so much now that audit teams can have direct access to. So, we don't get the old transactional queries that we used to, where invoices were being checked individually. Now, they're more value-added comments and questions about the key issues facing or driving our financial positions, let's say. So, I think there's certainly been a great maturity in the dialogue over latter years when we've gone away from looking at necessarily just the transactional level.


Yes. Thank you for the question. I would echo what Huw said. Again, I've been in the NHS only for two years, so I can't reflect on the experience going back to 2013, but certainly discussions with colleagues would suggest that, as Huw indicated, the main drivers for improvement in the audit process are really technology and the ability of the auditors to come in and interrogate the ledger personally and to do the technical work themselves, and then that frees up time for more value driving and better scrutiny, because the transactional stuff is kind of done itself through the use of technology. I would say that was the most significant improvement in the last few years, rather than necessarily attributing anything to the Act as such.

The WLGA—in fact, the former chief executive wrote to the chairman of the then Public Accounts Committee back in 2012 when we were responding to the consultation on the Public Audit (Wales) Bill. The only issue we had at the time was around governance. We were concerned about the independence of the auditor general—fears that didn't actually transpire as the governance model was, I think, satisfactory. However, has it made any impact? When I asked finance directors, they said they hadn't noticed any. [Laughter.]

Thank you. We spent a long time going through that too, for it to not make much difference. [Laughter.] The other question I've got is: are there any further changes you'd like to public audit legislation that you think would be of benefit?

I think this may come back to the previous question as well, because one thing that I think has been notable over a number of years is the stability of the audit environment we are working in and the landscape. So, I wouldn't want to dismiss, necessarily, the work that was done, because that's given us a very stable basis on which to work. So, I've got nothing burning personally where I feel there need to be significant changes to audit legislation.

Nor us. I would expect those kinds of conversations to come through our audit committee, and that intelligence doesn't feature in our discussions.

I think we looked at the Wales Audit Office paper, 'The complex public audit fee regime in Wales—a case for change'. I think there are some good suggestions in there. We set that out in our evidence. I suppose one thing, both for the NHS and for local government, is that the regular feature that is value-for-money work is built into the legislation, and that's not the case for central Government, and I would have thought that what's good for the goose is good for the gander. Perhaps that's something that could be looked at.

Changes to the fee regime could include the removal of the requirement for fees to be payable to the WAO by the person to whom the function being exercised relates. Now, do you think that could be a helpful change, potentially, for example, allowing the equalisation of certain costs among certain bodies?

I think any change of that nature would fundamentally change the relationship between the auditor and the auditee, and there could be unintended consequences from that. So, I'd want to be very mindful of the potential for unintended consequences, because I think having a fee where there is a possibility of additional fees being incurred if the audit isn't conducted efficiently is a helpful lever to make sure that there is an efficient audit process. And because of the level of scrutiny we have through audit committees, I would suggest that's probably a helpful process, both for the audited body in terms of transparency and for the auditor in terms of ensuring that efficiency.


Are you saying your body might not be quite so proactive in terms of anticipating the requirements of the auditors and making sure you've got all your information ready that allows you to save some fees at the moment if there wasn't that same link?

I'm not saying that our organisation would be any different, but there is clearly a hypothetical risk there that organisations would behave differently.

Yes. I wouldn't expect that the organisation would not be diligent in providing the materials, but I do think there would be a fundamental break in the relationship between the value of the auditor-auditee relationship if we did break that relationship between costs and plan and delivery. I think there's something quite important about that relationship.

Potentially related, the Auditor General for Wales and the Wales Audit Office are considering, I understand, arrangements for notional fees for central Government bodies, including the NHS. What would be your views around such a notional fee system being available?

I'm personally not sure what that changes, because for us the transactional cost of paying real fees to the auditor isn't significant. They're probably pennies, small pounds, nothing more than that, so I don't see any issue in terms of the transactional cost. So, I'm not sure what we would gain from a notional fee structure that we don't currently have, but there is a change and a shift in terms of that relationship that we would have with our auditor that may have those unintended consequences that I mentioned. So, I personally have no issue with the status quo in terms of the fee charging arrangements on the basis that, in the totality of the funding available to organisations, clearly, the functions of the Wales Audit Office need to be funded appropriately. So, there wouldn't be a change to the public purse, as such, from any arrangement.

We've both spoken, Huw and I, about the transparency of the cost profile and the audit plan, and I would have concerns that the notional fee might risk breaking that transparency between the plan and the cost. And I think if that model were to be pursued, I think we would need an awful lot more information about how it was actually going to be operationalised and what it meant for corporate governance and financial governance if it were implemented.

Jon, would you have any concern about the divergence, if this was coming, between the approach being applied to central Government bodies such as the NHS and the different, presumably as-now approach to local government bodies?

Again, I didn't think there was strong opinion coming back from finance directors on this. I'm just thinking about what Huw said there about high transactional costs. For the Wales Audit Office, there must be a high transactional cost if you're going out to a large number of small organisations. So, again, it goes back to the question raised by Rhun ap Iorwerth. Again, I'm not the representative body for the community councils, but going out to 700 of these organisations—I suspect that's a big job for someone; chasing the fees is a big job for someone in the Wales Audit Office.

Thank you. Have you any view or opinion on whether the Wales Audit Office or Wales's auditor general should have more flexibility or control with regard to its terms and conditions for non-statutory work? For instance, should it be able to make profit on such work following a competitive tendering process?


I'm quite relaxed about the Wales Audit Office being able go through a competitive tender process and win work and make a contribution on that basis, absolutely, if it gives them more flexibility, as long as it doesn't detract from the core work in terms of the core statutory functions that it has to provide.

I would certainly agree with that, and I think if they were to go down that direction, I think we would want assurance about insulation within the organisation of particular functions to ensure that there were no conflicts of interest. Because if the Wales Audit Office were doing commercial work, certainly you would have to ensure that they weren't doing commercial work for an organisation that they were then doing the statutory audit for. So I think there would have to be an awful lot of work done to ensure that the different teams and different functions were insulated, and quite a lot of due diligence and governance around that. That could also have—just in terms of management, resource deployment and career development would have to be looked at really, really carefully in that model, if it was doing the dual role.

Okay. I'm going to come to the governance structures around that, but in regard to the overall opinion of you as to whether or not they should or shouldn't be able to make any profit.

My personal view is that if there were all of the checks and balances in place, it's a reasonable proposal, but only if the checks and balances were in place. 

I think the key phrase there was 'relaxed about it'. As I said, when we looked at the case for change, I think we were quite happy with the proposals in there. To some extent, it just reflects what's happening elsewhere. We're all being more commercial. Indeed, as local government we have to look for more powers to be more commercial, which is why for a long period we've looked for a general power of competence, the so called GPOC. So, yes, we'd certainly support that for the auditor general as well, subject to what Lynne said, of course, about having the appropriate checks and balances. 

So in regard to Welsh local government opinion around the document, did you get responses back on it, or is this just a collective opinion from WLGA? Because I find it interesting, the difference between—

Yes, I didn't get any direct opinion back. Actually, that's not true; I beg your pardon. I did see a couple of chief executives had come back separately to one of my colleagues and said they had no problem with what the auditor general was proposing, and I presume that was the case for change. So, yes, it was certainly the view of some of my colleagues in the WLGA that they were quite happy with that.

Okay. So, I understand Lynne's position in terms of pursuance of non-statutory work compared to the status quo. So, in terms of just a quick comment from yourselves in regard to that.

In terms of the checks and balances that we'd need to have in place?

In terms of the going after non-statutory work element.

I guess it's just making sure again that the right Chinese walls are in place, the right protections are in place to make sure that the independence isn't compromised. 

Okay. And in regard to that being important, in your view, when you say 'the right checks and balances', could you briefly outline, if it's that important, what it should look like?

I guess there is something about if there is a commercial process being put in place for certain elements, it comes back to the role of advising an organisation versus then auditing the advice that's been given, and that's where the independence issue could become a conflict. So provided that there is sufficient independence put in place—

How could that work in practice? Because obviously that's a very important dividing line. It's a bit unfair for me to ask you, but it's just your view.

I think it's either that the auditor general isn't auditing similar bodies to which they've provided advice, so that would be a clear segregation, but where they are auditing similar bodies, that there is a clear difference between the teams providing an advisory function on a commercial basis and the audit team that is then providing a statutory process. There is clearly then a reputational issue if the auditor general offers a different opinion to the work that's been done in an advisory capacity or in a commercial capacity.


The big accountancy firms mitigate that kind of risk. Actually, some people may argue, do they mitigate it? But if you work on the principle that the big firms do that kind of work and they mitigate that kind of risk to an extent, when you think about the scale of the big firms, they can do that separation of duties and insulation. My personal view would be: is the Wales Audit Office of a scale that would enable it to implement the necessary checks and balances in terms of career development and cycling its expert personnel through the different functions? It would be a question of: could the scale deliver the checks and balances that we would expect?

Okay. So there is an element of concern around that. Okay. From local government?

I couldn't really add much to what's been said there. I think it is a matter of roles and being transparent about the separation. I'd be a bit wary about learning lessons from the big accountancy firms because they're in a bit of trouble at the minute, but it is possible. 

In fairness, I think you've made the point that, in principle, you know where you stand, and I don't think we would have expected you to apply yourselves to the practical application of that, because clearly it's for the auditor general. 

I also accept that, but in regard to the fact that you feel there is some concern around that. Okay. Finally, then, in regard to any potential for removing the requirement for interim reports. I don't know if you've got any concern or not.

The terminology of 'interim reports' isn't actually a terminology that in Swansea Bay health board we would recognise. But if we talk about draft reports, so, for the statutory financial accounts, an interim report or a draft report would normally take the form of an issues log rather than a formal report, which would be examined during the course of the audit. That's a really important piece of work. 

So for clarification, if I may, Chair, in your context it would take a different definition in terms of that, and that would be very helpful, and therefore to take that away you would not be supportive.

Exactly, yes.

In terms of interim report, provided that issues are raised in a timely manner, and that the Wales Audit Office has a presence on our audit committee and is able to raise those issues in a timely manner, the fact that they're not issuing an interim report doesn't stop good governance from progressing. I think we can still deal with the issues in a timely way. So I'm fairly relaxed about that. A draft report is a clear, important part, though, of our final sign-off and monitoring process, so it's a part of the audit that is important. 

And in fairness, the interim report that we're focusing on in our inquiry is the auditor's interim report—the auditor general as part of his annual process. It's not your individual report. Because there are concerns that, for the cost of producing that interim report vis-à-vis the public interest, then there's an issue maybe around what value that adds, really, in terms of the process. 

Okay, thank you. Actually, we are out of time. 

So, gaf i ddiolch ichi am eich tystiolaeth? Mae'r negeseuon yn glir ac yn gyson, dwi'n credu, o safbwynt y sesiwn ddiwethaf yma. Felly, diolch yn fawr ichi am hynny. Mi fyddwch chi'n derbyn copi o'r trawsgrifiad o'r cyfarfod jest ichi gael tsiecio bod hynny yn gywir. Felly, gaf i ddiolch o galon ichi am eich presenoldeb? Diolch yn fawr iawn. 

So, could I thank you for your evidence? The messages are very clear and consistent, I think, in terms of this last session. So, thank you very much for that. You will receive a copy of the transcript of the meeting just for you to check that it's factually accurate. So, could I thank you very much for your attendance? Thank you very much. 

5. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o ran o'r cyfarfod (eitemau 6, 7, 8, 9, 11 a 12)
5. Motion under Standing Order 17.42 to resolve to exclude the public from part of the meeting (Items 6, 7, 8, 9, 11 and 12)


bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 6, 7, 8, 9, 11 a 12 yn unol â Rheol Sefydlog 17.42(vi).


that the committee resolves to exclude the public from the meeting for items 6, 7, 8, 9, 11 and 12 in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

Mi wnaiff y pwyllgor nawr symud i sesiwn breifat. Felly, yn unol â Rheol Sefydlog 17.42(vi), dwi'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitemau 6 i 9, ac eitemau 11 i 12. Ydy Aelodau i gyd yn fodlon â hynny? Iawn. Diolch yn fawr iawn. 

The committee will now move into private session. So, I propose, in accordance with Standing Order 17.42(vi), that the committee resolves to exclude the public from items 6 to 9 and items 11 to 12. Are Members content with that? Yes. Thank you very much.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 10:24.

Motion agreed.

The public part of the meeting ended at 10:24.


Ailymgynullodd y pwyllgor yn gyhoeddus am 11:10.

The committee reconvened in public at 11:10.

10. Trafod cynigion i ddiwygio Deddf Archwilio Cyhoeddus (Cymru) 2013: Sesiwn dystiolaeth 5
10. Consideration of proposals to amend the Public Audit (Wales) Act 2013: Evidence session 5

Croeso nôl i'r Pwyllgor Cyllid. Rydym ni'n croesawu Rebecca Evans, y Gweinidog Cyllid a'r Trefnydd, a Gawain Evans, cyfarwyddwr cyllid atom ni ar gyfer eitem olaf y cyfarfod y bore yma, sef, wrth gwrs, i barhau i drafod y cynigion i ddiwygio Deddf Archwilio Cyhoeddus (Cymru) 2013. Mi wnaf i gychwyn, os caf fi, drwy fynd yn syth i gwestiynau, ac i ofyn, yn syml iawn, pa mor fodlon ŷch, Weinidog, gyda'r ddeddfwriaeth archwilio sydd gennym ni yng Nghymru.

Welcome back to the Finance Committee. We welcome Rebecca Evans, the Finance Minister and Trefnydd, and Gawain Evans, finance director, for the last item of the meeting today, which is continuing the consideration of proposals to amend the Public Audit (Wales) Act 2013. I'll start, if I may, by going straight into questions, and to simply ask you how content are you, Minister, with the audit legislation that we have in Wales.

Diolch, Cadeirydd. I think we can be pleased with the way in which our audit legislation is working here in Wales. That's not to say that we shouldn't take the opportunity to assure ourselves it's working to the best effect, and to recognise that this particular piece of legislation was crafted in a particular set of circumstances, and I think that we are in a different place now. So, I'm pleased that the auditor general has taken a close look at the legislation and identified some ways in which he thinks it could be improved to better allow the functioning of the office, and also to improve the governance arrangements. 

Okay. The former Auditor General for Wales suggested that there was a second part to the Act back in 2013 that was initially planned to look more broadly at simplifying and bringing more consistency in relation to audits in Wales. I'm just wondering: has the Welsh Government considered further whether you think that streamlining of public audit legislation in Wales is required?

I'm not familiar with plans for a second piece of legislation. But, that said, if there is a need for streamlining the legislation that has been identified by the auditor general, we would be interested in exploring that further. I know that there were a number of areas in a paper that he prepared for committee that identified ways in which improvements could be made. There was only one area, really, where we had some concerns, and that was in relation to notional charges, but I know that the Wales Audit Office has since reviewed their views on that and decided that it's not a road that they particularly want to go down. So, beyond that, I think that we're comfortable with all of the suggestions that have been made in terms of improving the legislation. 

Okay. You said earlier that you were pleased with the way that the current legislation is operating, and that it is important that we assure ourselves that, clearly, it's working as best as it could, or indeed as it should. There was, in the explanatory memorandum for the 2013 Bill, of course, a suggestion—or I think it was explicit, actually—that there would be some sort of post-implementation review developed as the new arrangements were being agreed as part of the implementation process. So, I'm just wondering whether that has happened, whether a post-legislative approach or review has been agreed in terms of how that is done, or indeed whether it has actually been carried out. 

There hasn't been a review of the legislation thus far. I think that the Finance Committee probably has the most important role to play in terms of scrutinising the WAO, including the funding it receives, and looking to see whether the legislation remains fit for purpose. I know my two predecessors in this role have both been quite clear that Welsh Government shouldn't be seeking to fetter the independence of the auditor general or the Wales Audit Office. And both have been very keen to avoid defining the duties or the direction of the audit office. And I think that that perhaps is why we have taken quite a hands-off approach, but equally recognising now that the time is right to listen to the auditor general's views on improvements that might be made. 

I've heard what you've said. I've also heard what your predecessor said in terms of discussion on this. But I also realise that there are time constraints on Government legislation, which may be further increased by what happens in October or doesn't happen in October, depending on where we are. If we were to support a short Bill, have you had any discussions with the auditor general about what would be in it and what actually would constitute 'just a short Bill'?


We engaged in and responded to the consultation that the Wales Audit Office undertook. I haven't had any direct conversations with the auditor general on this, but I'd be more than happy to meet once the committee has considered the evidence that it receives in terms of any outstanding issues that there might be. I think that, as you say, our Government timetable is very full in terms of our legislative ambitions between now and the end of this Assembly term. We have all of the challenges with Brexit as well. You'll recall that the public ombudsman Bill, which the committee took through before, was something that Welsh Government officials and Welsh Government lawyers were able to support and feed into, and even though it didn't involve the kind of work that we would normally undertake if it was a Government-led Bill, it was nonetheless quite labour intensive and we'd have to bear all of that in mind. I think it's unlikely that we'd be able to offer a great deal of support, given the pressures that there are. And the FM, I think, next Tuesday will be outlining the legislative programme for next year.

I'm glad you mentioned the ombudsman Bill, because that was an interesting Bill in that it started off in the fourth Assembly, and we did an awful lot of work on it under the excellent chairing of Jocelyn Davies, but we reached a stage where we knew that we weren't going to be able to get it through in the fourth Assembly, and we carried it over to the fifth Assembly. Do you foresee that being the situation we are in with this—that if we want a Bill on this, we might do the work in this Assembly and we might want to carry it forward and let whoever's chairing the committee in the next Assembly then take it forward?

I think that sounds like a very sensible and reasonable approach, definitely. 

We're not asking for that; we're just wondering—. There was a previous commitment from the previous First Minister that a short Bill would be doable—

But if it isn't—. I'll express an opinion and ask the Minister if she agrees. Wouldn't it be better, if we can't get it through in this Assembly term, to carry it forward to the next Assembly term rather than for it to fail in this Assembly term?

A straight question and a straight answer. There we are. Thank you. Nick. 

Thanks, Chair. Minister, in 2014, the then auditor general told the Finance Committee of the fourth Assembly that he believed that the issues of the fee regime were an

'unintended consequence of a drafting error.'

How would you respond to his comment and have there been any unintended consequences of this legislation?

I'm not sure it would necessarily be an unintended consequence; I think it was probably a response to the specific circumstances at the time. But that said, I think that some of the changes now that have been proposed certainly make sense. So, there is no problem in principle, for example, with supporting the charging of the entity rather than functions. I think that there's a lot of sense there, but we would obviously want to know a little bit more detail in terms of how that would work in practice. And, of course, the issue of notional charging, which was the only area really where we had a difference of views, I think, has been resolved in the sense that the Wales Audit Office now has looked at the experience of Scotland and Northern Ireland and decided that it's not something that they particularly would wish now to pursue, mostly because it would just serve to shift the administrative burden from the WAO to the audited bodies—

Sorry, I missed the first bit of what you said there. That was my mistake. You said that they're following the Scottish example—

So, looking at the way in which notional charges are made in Scotland and Northern Ireland, Wales Audit Office has changed its view in terms of—they've decided not to have notional charges because they see it as being something that would shift the administrative burden from the WAO to elsewhere within public bodies, which didn't really seem to be an appropriate thing to do. So, they've changed their view on that, and that was the only area where we had concerns. So, there's no problem in principle with the issue of charging the entity rather than the function, which is something else that they proposed to do. And also, they've proposed that we should be looking, or the Finance Committee should be looking, to allow them to audit over more than one financial year. So, I mean, we've already had that principle established within the NHS. They have a reporting period of balancing their budgets over three years. So, the principle is there, the practice has already been established. It would be, I think, for the Finance Committee to explore what you'd be happy with.


Sorry; I think Alun just wants to come in specifically on this. 

Yes. If I could ask the Minister—in your answer to two questions now you've spoken about the specific context of the previous legislation, and I wonder if you could outline to us what that context is that you have in mind and why you think that has affected the passage of the legislation and the nature of that legislation.

I think that context of the previous legislation is well documented and that there was a concern at the time that there should be tighter and clearer ways of working for the Wales Audit Office in order for the Finance Committee to satisfy itself in terms of the governance arrangements of the organisation. So, an example would be the fact that the quorum rules and the board rules are very much about giving members [correction: non-executive directors] of the organisation seats on that board, and for those meetings not to be quorate and for them [correction: not to be quorate if they are] not to be the dominant people on that board. You don't see that in any other part of the public sector. So, that was partly about the governance of the organisation and trying to improve that. Are those rules still fit for purpose? Well, the auditor general thinks that that's preventing the board from working to the optimum because you sometimes get a situation where the non-executive directors are not in the majority, so you have to ask one of them to leave in order for the board to be quorate. These things are adding, I think, to the complexity, unnecessarily, of the organisation.

Two more questions on fees. Firstly, your predecessor suggested that the AGW has 'considerable discretion' regarding the arrangements for charging fees. Do you still agree with that statement—or agree with that statement of your predecessor?

And in terms of the way that the auditor general and the audit office are interpreting the legislation when it comes to fees, specifically the line that says that the fees

'May not exceed the full cost of exercising the function to which the fee relates',

do you think that the audit office and the auditor general are interpreting that legislation correctly?

So, yes, the current Act gives the Wales Audit Office discretion in terms of fees so it can develop a scheme of fee charging related to its activities, although, as I mentioned, that, at the moment, has to be done in terms of functions. So, it looks at, for example, type of audit, value for money, grant, annual accounts and other activities and functions undertaken, rather than charging for the entirety of the work that's done. So, there is some discretion there, but, again, I think the audit office has suggested that that could be improved.

In terms of the principle of setting fees to cover the full cost of public services, well, that is a basic principle in our 'Managing Welsh Public Money' document, and it's intended to make sure that public organisations neither profit at the expense of consumers or make a loss that taxpayers would then have to subsidise. So, it is an important principle, I think, that should be retained within this area. But there's no reason why the Wales Audit Office shouldn't be looking, for example, to undertake some private sector work in order to have an income, as long as it doesn't detract from its primary purpose. 

The previous set of witnesses gave the indication that they were broadly happy with—or at least had no evidence there were any issues with—the audit office fee-charging regime, and hence they've had quite few responses to consultations on the fee setting. So, in your experience and to the best of your knowledge, do you think that there's general satisfaction with the fee-charging regime, and have you sought any legal advice on it or is it something you're quite happy with?

We haven't seen the need to take legal advice on this particular issue. I'll ask Gawain to reflect on some of the Welsh Government and Wales Audit Office relationships in terms of setting fees as far as we're concerned. 

Every year, when, for example, the annual report and accounts takes place, the WAO will put forward its fees and put forward the total cost and we will discuss that with the audit office. When it comes to finally invoicing the Welsh Government, because we do have the process of hard charging, then we'll have a look at fees and the make-up of the fees in terms of the individuals who are involved in there, the hours that have been charged to the Welsh Government, really just to satisfy ourselves that we are getting value for money from the audit.


Yes, certainly last year it was definitely the case. In fact, I think we were a couple of weeks behind—not behind, but we did discuss it at some length, the invoice, because we just wanted to make sure that it was fully transparent and that we could actually scrutinise and, if necessary, challenge. We didn't actually challenge in the end; we paid the audit fee as it was planned, because we were happy that the work, as it had been outlined, had been completed.

Thank you. You've already referenced some of the challenges in terms of the quorum and the original intention within the Bill around that. Do you feel that there is any concern that could be mitigated with regard to, for instance, the National Audit Office and their arrangement? They've got observer status, so they're able to stay in the room, there's a flexibility around that. Have you got any recognition of the fact that we may have issues around the quorum currently as it stands? 

Yes, there is an issue with the quorum in the sense of having to have a majority of non-executive directors in the room for the meeting. So, it might be the case that a meeting could start and the balance isn't right, so somebody might be asked to leave the meeting or to not take part in the meeting, which I think isn't really appropriate. The Wales Audit Office has clearly identified this as one of the areas in which improvements could be made. I know in the evidence paper that the Wales Audit Office provided to committee that it looked at the requirement for two elected members and recognised that that was a late amendment to the legislation in its passage through the Assembly, so the consequences of that might not have been fully explored or fully recognised—so suggests the Wales Audit Office, in any case. And it says that there was a debate about the possibility of creating constituencies, and that was where the interest was, rather than that quorum issue. So, again, this is something that I think is a very legitimate area for change.

I was involved when we had the Bill the first time, and the reason they wanted a non-executive majority is because the auditor general is the direct employer of everybody else in the room, and the auditor general would be able to, depending on the person involved, use pressure et cetera to get decisions out of those in the room, because they were directly responsible to him or her. That's why it came in, so that, effectively, what we were taking out was the old system of the auditor general having absolute power, moving to a system where he had to report to a board. If you make it a situation in such a board that he still has only people working for him in the majority, you're back to where we were before, aren't you?

I think this is the only organisation that I'm aware of that has this particular requirement in terms of non-executive directors. That's not to—. You can't extrapolate that and suggest then that any organisation where this isn't the case isn't working in the way in which—that it doesn't have an effectively functioning board, I don't think.

Okay. The Assembly is required to consult with the First Minister on such matters as the appointment and remuneration of the chair of the Wales Audit Office. So, does Welsh Government consider that these requirements remain appropriate or necessary, now that the governance system established by the Act has bedded in?

I think that that is a particular area where it might be best for the First Minister not to have a role in the appointment of a chair, for example, because I think that we've established an important principle about the independence of the organisation, and I think we'd be comfortable if the requirement was not there.

Going back to Mike Hedges's point in terms of the earlier intention around the Bill, there's an obvious tension there in terms of the constituency versus quorum argument. Do you feel that, if this were changed, there could be a regression back to the original default position where there was that argument placed in regard to the Bill's intention?


I don't think that that is a concern. However, this is a suggestion that has been brought forward by the auditor general himself, given the experience of the board and allowing everybody to have their opportunity to contribute to it. There are improvements that potentially could be made. So, consideration might be given, for example, to the inclusion of a trade union representative on the board. There's not one at the moment. So, there's no reason why, if we are looking at the legislation in the round and committee has given consideration to this issue, it shouldn't explore what might be possible in terms of improvement.

Mark wants to come in, if he may, on this specifically.

I think we already have provisions for the employees to elect members to the board. Why would you want them to have trade union representation when the employers are already democratically represented on the board?

Again, this isn't something where Welsh Government would be seeking to make an amendment to any future Bill, for example. It's purely a suggestion that the committee might wish to explore. I don't think that we would be seeking to direct the role of the organisation, or its direction, just giving things that might be of interest to the committee, especially in the context of the social partnership that we're trying to develop in Wales.

Diolch yn fawr iawn. Mae copi o’ch llythyr chi a’r atodlen iddo fo yr anfonoch chi at Gadeirydd y pwyllgor yma fel tystiolaeth o fy mlaen i. Dwi eisiau jest edrych ar y pwynt rydych chi’n ei wneud ynglŷn â nodi pwysigrwydd y gofyniad pedwar mis ar gyfer gosod cyfrifon, ond yn derbyn y gall fod amgylchiadau pan fod angen mwy o hyblygrwydd. Allwch chi gadarnhau mai fel hyn rydych chi’n mynd i gario ymlaen i weithredu, yn cynnwys wrth greu unrhyw ddeddfwriaeth ac ati yn y dyfodol?

Thank you very much. A copy of your letter and the annex that you sent to the Chair as evidence is before me. I want to just look at the point that you make about noting the importance of the four-month requir