Accounts and Audit

February 18th, 2015 by James Goudie KC in Non Judicial Control

The Accounts and Audit Regulations 2015, SI 2015/234, which come into force on 1 April 2015, revoke the Accounts and Audit (England) Regulations 2011, SI 2011/817, and set out the detailed requirements on a “relevant authority” (other than a health service body) in relation to keeping adequate accounting records and control systems, preparing, approving and publishing a statement of accounts, and making various documents available for public inspection, and objection and questioning by local electors.  The authority “must ensure” that it has (and reviews) a “sound system of internal control”: Regulation 3.  It “must undertake an effective internal audit”: Regulation 5.  There is a new requirement to prepare and publish a “narrative statement”, commenting on the authority’s financial performance and economy, efficiency and effectiveness in the use of resources over the year.

 

Accounts and Audit (Wales)

January 13th, 2015 by James Goudie KC in Non Judicial Control

The Accounts and Audit (Wales) Regulations 2014, SI 2014/3362 (W.337), made and laid before the National Assembly on 23 December 2014, and coming into force on 31 March 2015, make provision with respect to the accounts and audit of bodies whose accounts are required to be audited in accordance with Section 39 of the Public Audit (Wales) Act 2004 (“the 2004 Act”) other than a local probation board for an area in Wales or a Welsh probation trust. The bodies who are subject to the Regulations are: county and county borough councils (and their committees and joint committees); community councils; fire and rescue authorities; National Park authorities; police and crime commissioners; chief constables; port health authorities; internal drainage boards; and conservation boards.

The Regulations replace the Accounts and Audit (Wales) Regulations 2005 which, together with amending Regulations, are revoked.

The Regulations differ in a number of respects from previous Accounts and Audit Regulations. Of particular note among the changes are the following: the bodies which are subject to the Regulations are specified on the face of the Regulations; the increase in the threshold of gross income or gross expenditure for smaller relevant bodies, from £1 million per year to not more than £2.5 million (regulation 2); changes to the procedures for approving and publishing accounts (regulations 10 and 15); the separation of procedures governing published accounts and audit for larger relevant bodies from that for smaller relevant bodies in the structure of the Regulations (see Parts 4 and 5); and it is no longer an offence to fail to comply with any aspect of the Regulations.

Part 1 is introductory.  Regulation 2 sets out the defined terms used in the Regulations.

Part 2 concerns specifying bodies so that those bodies come within the meaning of local authority for the purposes of Section 23(1) of the Local Government Act 2003. Under that Section the Welsh Ministers may make provision about accounting practices to be followed by local authorities as defined in the 2003 Act. Regulation 3 specifies internal drainage boards and port health authorities and regulation 4 identifies accounting practices for those bodies.

Part 3 concerns financial management and internal control. Regulation 5 requires relevant bodies to be responsible for ensuring that the financial management of the body is adequate and effective and the body has a sound system of internal control which they regularly review. Regulation 6 makes provision in respect of the accounting records which are to be kept, and the control systems that must be maintained, by relevant bodies. Regulation 7 makes provision for relevant bodies to maintain an adequate and effective internal audit of their accounting records and system of internal control.

Part 4 concerns the published accounts and audit for larger relevant bodies. Regulation 8 contains the requirements for the preparation of the statement of accounts for a body; regulation 9 the requirement for the statement of accounts to include notes relating to remuneration; regulation 10 the requirements for signing, approval and publication of the statement of accounts; regulation 11 the procedure for the public to inspect the accounts of a body; regulation 12 the procedure for a body to give notice of the public rights relating to the accounts and audit procedure; and regulation 13 the requirement for a body to give notice as to the conclusion of audit and the availability of its statement of accounts for inspection by local government electors.

Part 5 concerns the published accounts and audit for smaller relevant bodies. Regulation 14 contains the requirements for the preparation of accounting statements for a body; regulation 15 the requirements for signing, approval and publication of accounting statements; regulation 16 the procedure for the public to inspect the accounts of a body; regulation 17 the procedure for a body to give notice of the public rights relating to the accounts and audit procedure; and regulation 18 the requirement for a body to display a notice stating that the audit has concluded and that the relevant accounting statements are available for inspection by local government electors.

 

Local Audit

December 11th, 2014 by James Goudie KC in Non Judicial Control

The Local Audit (Auditor Panel) Regulations 2014, SI 2014/3224 (“the Regulations”) relate to the Auditor Panels who will advise on the appointment, removal, or resignation of the auditors of relevant authorities.  The Regulationsmake provision about Auditor Panels established under Part 3 of the Local Auditand Accountability Act 2014 (“the 2014 Act”) by relevant authorities (as to which, see Schedule 2 to that Act). Section 9 of, and Schedule 4 to, the 2014 Act contain provisions about establishment of Auditor Panels, and Section 10 sets out the Panel’s functions.

Regulations 2 to 6 make provision about the membership of Auditor Panels, removal of Panel Members on disqualification, allowances for Panel Members and proceedings of Panel Meetings.  Regulation 7 contains more detail about a Panel’s functions under Section 10(1) to (3) of the 2014 Act. Regulations 8 to 10 apply certain enactments relating to local authorities and local authority committees to Auditor Panels and appointments to such Panels, subject to modifications, including enactments relating to access to meetings and documents and enactments relating to political balance.

 

Non Judicial Control – Local Auditors

October 27th, 2014 by James Goudie KC in Non Judicial Control, Social Care

The Local Audit and Accountability Act 2014 (“the Act”) provides that local public bodies will need to appoint their own Auditors.  Local public bodies must also appoint Auditor Panels, with a majority of Independent Members, to advise on the selection and appointment of an Auditor.  Local Audit (Auditor Panel Independence) Regulations 2014, SI 2014/2845, amongst other things amend the definition of an Independent Member as set out in the Act.  The substituted definition, in Regulation 2(2), is as follows:-

“(2) A member of a relevant authority’s auditor panel, other than a health service body’s auditor panel, is “independent” at any given time if the following conditions are met –

(a) the panel member has not been a member or officer of the authority within the period of 5 years ending with that time (the “last 5 years”),

(b) the panel member has not, within the last 5 years, been a member or officer of another relevant authority that is (at the given time) connected with the authority or with which (at the given time) the authority is connected,

(c) the panel member has not, within the last 5 years, been an officer or employee of an entity, other than a relevant authority, that is (at the given time) connected with the authority,

(d) the panel member is not a relative or close friend of—

(i) a member or officer of the authority,

(ii) a member or officer of another relevant authority that is connected with the authority or with which the authority is connected, or

(iii) an officer or employee of an entity, other than a relevant authority, that is connected with the authority,

(e) the panel member is not the authority’s elected mayor,

(f) neither the panel member, nor any body in which the panel member has a beneficial interest, has entered into a contract with the authority—

(i) under which goods or services are to be provided or works are to be executed, and

(ii) which has not been fully discharged,

(g) the panel member is not a current or prospective auditor of the authority, and

(h) the panel member has not, within the last 5 years, been—

(i) an employee of a person who is (at the given time) a current or prospective auditor of the authority,

(ii) a partner in a firm that is (at the given time) a current or prospective auditor of the authority, or

(iii) a director of a body corporate that is (at the given time) a current or prospective auditor of the authority.”

 

Local Government Ombudsman

July 8th, 2014 by James Goudie KC in Non Judicial Control

Who can complain to the Local Government Ombudsman?  Basically, “a member of the public”: Section 26A of the Local Government Act 1974.  Who for this purpose is “a member of the public”?  An individual or “a body of persons”, whether incorporated or not, that does not come within either of the exclusions in Section 27.  The first exclusion is of a local authority or other authority or body constituted for purposes of the public service or of local government, or for the purposes of carrying on under national ownership any industry or undertaking or part of an industry or undertaking.  The second exclusion is of any other authority or body whose members are appointed by Her Majesty or any Minister of the Crown or government department or by the Welsh Ministers, or “whose revenues consist wholly or mainly of moneys provided by Parliament or the Welsh Ministers”.  The purpose no doubt of both exclusions is to avoid one public body invoking the Ombudsman to pursue a complaint of injustice which it attributes to another public body.

In The Matter of an Application by Armagh City and District Council for Judicial Review, [2014] NICA 44, the Northern Ireland Court of Appeal held that a GP partnership is a “body” for the purpose of similar exclusions in Northern Ireland legislation, but that, although the partnership was mainly publicly funded under the NHS, it did not come within the “… revenues … provided by Parliament …” exclusion of complainants from the Ombudsman’s jurisdiction.

 

Local Auditors

July 7th, 2014 by James Goudie KC 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 KC 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 KC 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 KC 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.