Local Auditors

July 7th, 2014 by James Goudie QC in Non Judicial Control

The Local Audit (Auditor Resignation and Removal) Regulations 2014, SI 2014/1710 (“the Regulations”) made pursuant to the Local Audit and Accountability Act 2014 (“the Act”) make provision about the resignation and removal of a local auditor appointed under Part 3 of the Act. Local auditors audit the accounts of relevant authorities (as to which, see Section 2 of, and Schedule 2 to, the Act). Most relevant authorities are required to have an auditor panel to advise on the selection and appointment of its local auditor (see Section 9 of, and Schedule 4 to, the Act in relation to auditor panels).

Regulation 2 makes provision about the application of the Regulations in relation to relevant authorities that are policing bodies (by virtue of Section 9(2) of the Act those authorities are not required to have an auditor panel). Regulation 3 sets out requirements on an auditor when resigning from office as a relevant authority’s local auditor and steps that must be taken by the authority in question. Regulation 4 requires the auditor panel of the authority to investigate following the resignation of a local auditor.  The panel’s statement is required to be published.

Regulations 5 to 7 make provision about the removal of a local auditor from office, including the way in which such a decision must be taken, the process the relevant authority must follow prior to removal of the auditor and the steps it must take after that removal. Regulation 8 requires a relevant authority to notify certain bodies that the local auditor has ceased to hold office. Regulation 9 requires a relevant authority to appoint a new local auditor within three months and contains provision enabling the Secretary of State to appoint, or direct the authority to appoint, a replacement auditor where the authority has failed to do so.


Local Auditors

June 30th, 2014 by James Goudie QC in Non Judicial Control

Regulations have been made under the Local Audit and Accountability Act 2014 (“the Act”).  The Local Audit (Professional Qualifications and Major Local Audit) Regulations 2014, SI 2014/1627 make provision about professional audit qualifications under the Act, which requires “relevant authorities” to appoint their own “local auditors”.  Schedule 5 to the Act applies, with modifications, provisions of the Companies Act 2006 in relation to the eligibility and monitoring of local auditors.  The Local Audit (Liability Limitation Agreements) Regulations 2014, SI 2014/1628, make provision about agreements (liability limitation agreements) to limit the liability of a local auditor appointed under the Act Pt 3 in respect of any negligence, default, breach of duty or trust in relation to a “relevant authority”.  Regulation 2 sets out a restriction on the duration of an agreement: it cannot cover more than the financial year or years to which the appointment of the local auditor relates.  Regulation 3 prevents the agreement from limiting the local auditor’s liability to less than such amount as is fair and reasonable in all the circumstances of the case.  The Public Interest Reports and Recommendations (Modification of Consideration Procedure) Regulations 2014, SI 2014/1629, provide for paragraph 5 of Schedule 7 to the Act to apply with modifications in respect of certain relevant authorities listed in Schedule 2 to the Act.  Paragraph 5 of Schedule 7 to the Act sets out the procedure for the consideration by relevant authorities of public interest reports or recommendations.  Relevant authorities must consider the report or recommendation at a meeting within one month of receiving it under paragraph 5(5).  The Regulation modify the application of this sub-paragraph so that certain relevant authorities may consider a report or recommendation as soon as is practicable, rather than within one month of receipt.


Local Government Ombudsman

March 27th, 2014 by James Goudie QC in Non Judicial Control

In R (Nestwood Homes Developments Limited v South Holland District Council [2014] EWHC 863 (Admin) the Council successfully defended a judicial review claim by a developer against the Council’s decision to comply only partly with the Local Government Ombudsman’s (“LGO”) recommendations that it pay compensation for maladministration of over £250,000.  The authority paid £50,000 plus interest.  Applying R (Gallagher) v Basildon DC [2011] PTSR 731, Sales J rejected claims of irrationality, pre-determination and procedural unfairness.  He said that the authority was entitled to take into account the financially straitened circumstances in which it operated in deciding how to respond to the LGO’s recommendations, and had reached a rational conclusion.

Sales J observed as follows, from paragraph 54.  The LGO has power to investigate a complaint of alleged maladministration in connection with a local authority’s administration functions, under sections 24A and 26 of the Local Government Act 1974. A report by the LGO is sent to each person concerned: section 30(1). It can include recommendations to remedy injustice suffered as a result of maladministration: section 30(1A). Where the LGO reports that there has been maladministration, the local authority should inform the LGO of the action it has taken or intends to take: section 31(2). If the LGO is not satisfied with the action proposed by the local authority, then he shall issue a further report and make recommendations: section 31(2A). Where the authority still fails to comply with the recommendations made by the LGO, he can require the authority to publish a statement in two local publications, setting out his recommendations and any other material he requires: section 31(2D), (2E) and (2F). However, the notice need only contain the authority’s reasons for not complying if the authority so decides: section 31(2E)(c). Where the LGO issues a report which makes findings of maladministration, injustice and loss suffered as a result, those findings are binding on the authority unless successfully challenged by way of a judicial review claim.The authority is not obliged to accept and act on the recommendations as to remedy made by the LGO. The authority’s decision how to respond is governed by usual, general public law requirements of good faith, rationality, fairness and so on. The rationality of a proposed response has to be assessed taking account of the binding findings of maladministration, injustice and loss which have been made. The statutory scheme providing for public notice to be given if the LGO is not satisfied with remedial steps taken by an authority indicates that emphasis is placed upon political sanctions and pressure, as opposed to imposition of a simple legal obligation to act upon the LGO’s recommendations. A finding of maladministration does not have the same effect as a finding of breach of some public or private law duty, in relation to which binding legal remedial consequences may be imposed by order of a court. By contrast, “even though a recommendation as to remedy made by the LGO requires to be taken very seriously by an authority to which it is directed, it leaves scope for that authority to have regard to other pressing aspects of the public interest in deciding whether to accept and act upon the recommendation”. There is no statutory duty to give reasons for rejecting a LGO’s recommendation. However, where the authority does provide reasons for rejecting a recommendation, the Court is entitled to examine carefully whether the authority has, first, taken into account relevant considerations and, secondly, has weighed those relevant considerations in a way that a reasonable council should have done. Local authorities decline to accept and act on recommendations regarding remedy made by the LGO in only a tiny proportion of cases. Whilst this serves to emphasise the seriousness with which a local authority should approach a LGO recommendation as to remedy for maladministration, it does not in itself indicate that an authority is required to treat itself as bound to accept and act upon such a recommendation.

Sales J held (paragraphs 61-66) that adequate reasons had been given; (paragraphs 67-72) that excessive weight had not been given to affordability and there had been no failure to consider relevant considerations; (paragraphs 73-80) that there had been no unfairness; (paragraphs 81-86) that there had been no predetermination; and (paragraph 87) that there had been no perversity.

At paragraph 70 he observed: “The financial constraints on the Council … were severe, and the Council was entitled to give them significant weight”; and at paragraph 84: “… some predisposition to wish to conserve the resources of the Council in order to provide services in its area was to be expected …”.


Non Judicial Control

May 13th, 2013 by James Goudie QC in Non Judicial Control

Following the Queen’s Speech, the Local Audit and Accountability Bill (“the Bill”) was introduced in the House of Lords on 9 May 2013.  The effect of the Bill would be to abolish the Audit Commission and to establish new arrangements for the audit and accountability of local public bodies (or “relevant authorities” as set out in Schedule 2 to the Bill) in England.  The Bill also amends the legislative framework under the Localism Act 2011 for council tax referendums, to provide that increases set by levying bodies are taken into account when local authorities determine whether they have set an excessive amount of council tax each year. It also contains measures relating to local authority compliance with the Code of Recommended Practice on Local Authority Publicity.

The Bill consists of seven Parts and 13 Schedules.  Part 1 (Clause 1 and Schedule 1) provides for the abolition of the existing audit regime.

Part 2 sets out basic requirements and concepts.  Clause 3 imposes a requirement to keep accounting records and to prepare an annual statement of accounts, which must (Clause 4) be audited.

Part 3 imposes a requirement (Clause 7) to impose an external and independent auditor on the advice (Clauses 8 and 9) of an independent auditor panel (Clause 10) and to publish information about the appointment.  Clauses 14 and 15 relate to limitation of auditor liability; and Clause 16 to resignation and removal of an auditor.

Part 4 relates to eligibility and regulation of local auditors.

Part 5 is concerned with the role and conduct of local auditors. The scope of the audit is set out in Clauses 19 and 20, and largely replicates existing provisions in the Audit Commission Act 1998. Clause 18 and Schedule 6 set out the role of the Comptroller and Auditor General of the National Audit Office in setting the audit standards through codes of audit practice and guidance. Clauses 23 to 30 set out the additional duties of local auditors in undertaking audits of relevant authorities, retaining the current roles in, for example, reporting in the public interest when necessary or taking questions and objections from local government electors.  By virtue of Clause 21 a local auditor has a right of access to documents and information that relate to the relevant authority and are necessary for the purpose of the auditor’s functions under the Bill. The auditor may also require persons to provide information or explanations. Under Clause 22 a person who obstructs that access or fails to comply with a requirement (without reasonable excuse) commits an offence. Clause 25 makes provision about the inspection of accounting records and any documents supporting those records. The Court of Appeal in Veolia ES Nottinghamshire Ltd -v- Nottinghamshire CC [2010] EWCA Civ 1214 found in respect of the forerunner to this provision (Section 15 of the Audit Commission Act 1998) that it should be read down so as to exclude from that right confidential information unless its disclosure was justified in the public interest so as to ensure the provision was compatible with ECHR. Clause 25 therefore makes express provision in this regard. Information may not be disclosed if its disclosure would prejudice commercial confidentiality and there is no overriding public interest in favour of its disclosure.

Part 6 of the Bill is concerned with data matching.  Apart from transferring the power to conduct data matching exercises from the Audit Commission to the Secretary of State or the Minister for the Cabinet Office, the data matching powers set out in Schedule 9 (which is given effect to by Clause 32) are largely the same as the provisions inserted into the Audit Commission Act 1998 by the Serious Crime Act 2007.

Part 7 of the Bill contains miscellaneous and supplementary provisions. These include Clause 38, relating to local authority publicity, and Clause 39, relating to council tax referendums.  Clause 38 amends the Local Government Act 1986 to provide the Secretary of State with the power to give directions requiring one or more local authorities in England to comply with one or more of the recommendations made in a code of practice issued under Section 4 of that Act (a Code of Recommended Practice on Local Authority Publicity). A direction could apply to a single named authority, to a number of named authorities, to all authorities in a particular class, or to all authorities to which the code applies. It also sets out the procedures to be followed prior to making a direction and for the withdrawal or modification or withdrawal of a direction. Clause 39 amends Chapter 4ZA of Part 1 of the Local Government Finance Act 1992 to include the cost of levies within a billing or major precepting authority’s calculation of whether its council tax is excessive, and so requires a council tax referendum to be held. In effect, this means amending the meaning of “relevant basic amount of council tax” which is the primary trigger for council tax referendums from the current definition which excludes levies, to one that includes levies.  Clause 38 comes into force 2 months after the Act is passed.  Clause 39 comes into force on the day the Act is passed.