DEPARTMENT OF FINANCE AND PERSONNEL
Accountability and Accountancy Services Division Room G2.1 Rathgael House Balloo Road BANGOR BT19 7NA
: Fax: : 028 9185 8203 (68203) 028 9127 7690 (69090) derek.lynn@dfpni.gov.uk
DAO (DFP) 27/03 20 August 2003 Dear Accounting Officer LORD SHARMAN’S REPORT ON AUDIT AND ACCOUNTABILITY: IMPLEMENTING GOVERNMENT COMMITMENTS ON AUDIT AND ACCESS Introduction 1. On 1 April 2003 and 30 April 2003 two Statutory Instruments concerning the Comptroller and Auditor General’s (C&AG's) statutory powers of audit and access came into effect. These Orders implemented commitments given in the UK Government's response to Lord Sharman's report on audit and accountability in central government and undertakings given by the Northern Ireland Assemby’s DFP Minister during the debate on the Government Resources and Accounts Act,(Northern Ireland) 2001.The purpose of this letter is to clarify the main provisions of the Orders and the actions needed to be taken by departments and their relevant NDPBs The two Orders can be viewed on www.dfpni.gov.uk or on www.aasdni.gov.uk.
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Action Required 3. Departments are asked to draw this letter to the attention of relevant officials in their department and to the attention of those NDPBs, agencies and public bodies which they sponsor.
The Audit and Accountability(Northern Ireland)Order 2003 (The Principal Order) 4. The Audit and Accountability (Northern Ireland) Order applies to the audit of accounts for a financial year commenced on or after 1 April 2003 and to value for money (VFM) studies commenced on or after that date. While the Order does not make major changes to the public audit regime in Northern Ireland, it does increase the C&AG’s powers and remit in several significant ways. As part of its response to the Sharman Review of Audit and Accountability in Central Government, the Northern Ireland Executive expressed the view that it is good practice for the C&AG to be appointed statutory auditor of NDPBs, where the body’s financial affairs are not so miniscule as to make a full statutory audit regime inappropriate. He is usually but not always, the auditor of other NDPBs. This Order makes the C&AG the statutory auditor of the 13 additional NDPBs listed in Article 5 of the Principal Order with effect from the first full financial year commencing on or after 1 April 2003. As part of the arrangements being instituted by the C&AG in connection with the extension of his audit responsibilities for NDPBs he will liase with departments and other relevant stakeholders including the NDPB itself on who – the NIAO itself or a commercial auditor – will undertake the audit on his behalf. As noted above the Northern Ireland Executive has expressed the view that, in line with Sharman recommendations, the C&AG should normally be the statutory auditor of an NDPB. If you are creating a new NDPB therefore, you should discuss the proposed audit arrangements with DFP and the C&AG (GANI 45.5.15 refers). There should be a presumption that the C&AG will be the statutory auditor of the new body, unless it is a limited company or its finances are de minimis. In addition, if your Department is responsible for NDPBs for which the C&AG is not presently the statutory auditor, you should review the audit arrangements and discuss them with him. The C&AG will also, subject to prior agreement with the sponsor department and the NDPB, provide sponsor departments on request with additional information and reports on NDPBs’ activities. Reports may cover information arising from the audit, or they may be special reports on matters such as financial control systems and
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use of grants. These arrangements are intended to cover all NDPBs audited by the C&AG, not just those covered by the Order. The arrangements are described more fully in Section 3A of the Government's response to Lord Sharman's report. Rights of Access by the C&AG 10. For the purpose of his audit of the financial accounts of Government departments and NDPBs the Principal Order will, subject to the provisions of paragraph 12 below, extend the C&AG's statutory right of access to relevant documents held by certain third parties. The documents in question are those which are relevant to statutory audits or value for money studies being carried out by the C&AG on public bodies of which he is the statutory auditor. The third parties in question include:
Those in receipt, from the public body, of grants, loans or financial assistance by way of the taking of an interest in property; contractors; and subcontractors
In large measure, these statutory access rights replace access previously available by agreement. In addition to the exclusion referred to in paragraph 12 below, this right of access does not apply to bodies which are audited by the C&AG at Westminster. 11. The C&AG should therefore have access to documents held by the bodies identified above for the purpose of his VFM studies of departments and NDPBs. Where making payment of a grant, or drawing up a contract, a public body should ensure that it includes a clause which makes the grant or contract conditional upon the recipient or contractor providing access to the C&AG in relation to documents relevant to the transaction. Where subcontractors are likely to be involved, it should also be made clear that the requirement extends to them. Audit and Accountability (Northern Ireland) Order 2003 ( Statutory Right of Access: Exclusions) Order ( Northern Ireland) 2003. (The Supplementary Order) 12. The Principal Order gives the C&AG statutory of access to certain documents held in the course of a statutory audit or VFM study of a
public body of which he is auditor. The Supplementary Order provides that this statutory right of access shall not apply to social security and similar payments of support to under the terms of various pieces of legislation. The relevant pieces of legislation are listed in Article 3 of the Supplementary Order. Code of Practice
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The Principal Order does not give the C&AG the general right of access to all documents held by third parties. He can have access only to those which are relevant to his statutory audits or VFM studies of public bodies. The Order does not change the C&AG’s practice significantly, but simply formalises the arrangement and puts in on a legislative footing. The Northern Ireland Audit Office expects that this power will only be used in exceptional cases and has drawn up a Code of Practice which will govern use of the power. A copy of the Code of Practice in attached as Annex A.
NDPBs which are companies 14. In its response to Lord Sharman’s report the UK Government also accepted that NDPBs which are companies, together with the subsidiaries of NDPBs, should be audited by the C&AG, and that the barriers in the UK Companies Act which currently prevent this should be removed, as long as such arrangements are in line with European legislation in this area. These matters are being taken forward by the Department of Trade and Industry in consultation with the National Audit Office and any changes will be applied in Northern Ireland. Transfer of health service staff 15. The Principal Order also transfers responsibility for health service audit from the Department of Health, Social Services and Public Safety (DHSSPS) to the C&AG, and accordingly transfers staff from DHSSPS who were employed in health service audit work to the Northern Ireland Audit Office. This came into effect on 1 April 2003.
Transfer of local government audit staff 16. While responsibility for local government audit remains with the Department of the Environment, provision is made in the Principal Order for the Local Government Audit staff to transfer to the Northern Ireland Audit Office, in the interests both of structural
independence and greater career development prospects. also came into effect on 1 April 2003. Contact points
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17. Please direct any enquiries on this letter to Jim Drennan (jim.drennan@dfpni.gov.uk or Ext 69087) or Paddy Hoey (paddy.hoey@dfpni.gov.uk or Ext 68208).
Derek Lynn
DEREK LYNN Deputy Treasury Officer of Accounts