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Government Resources and Accounts Act 2000 (Audit of Non-profit-making Companies) Order 2009

The draft order was laid before the House on 27 January 2009. I hope that it will not detain the Committee too long and that it is not too controversial. The order is being made under the Government Resources and Accounts Act 2000 and is intended to give the Comptroller and Auditor-General public audit responsibility for 26 non-departmental public body companies and non-departmental subsidiary companies. I am of course grateful for the assistance that we received from the National Audit Office, the various sponsor departments and indeed the companies themselves in preparing these provisions. This is the first time that the Treasury will be using its powers in the Companies Act 2006 to enable the Comptroller and Auditor-General to audit non-departmental public body companies and non-departmental subsidiary companies. Members of the Committee may recall that, in 2003, the Government implemented key recommendations made by the noble Lord, Lord Sharman, on audit and accountability in central government. In particular, the Government responded to concerns expressed in Parliament by strengthening the statutory powers of the Comptroller and Auditor-General in two ways. First, they made him the statutory auditor of certain non-company NDPBs where he is not already the statutory auditor and, secondly, they gave him greater powers of access to documents held by bodies in receipt of grants or in relation to contracts with organisations of which he is the statutory auditor. Since then, the Government have ensured that all non-company NDPBs are subject to the Comptroller and Auditor-General’s audit, either through their establishing legislation or through orders under the Government Resources and Accounts Act. The Government also accepted the recommendation of the noble Lord, Lord Sharman, that company NDPBs should be subject to the Comptroller and Auditor-General’s audit. However, until recently, company law created obstacles to the Comptroller and Auditor-General auditing companies. Provisions in the Companies Act 2006 clear the way for him to do so with effect from the financial year 2008-09. Section 482 of the Companies Act allows non-profit-making companies to be audited by the Comptroller and Auditor-General under the Government Resources and Accounts Act instead of the normal discipline of statutory company audit. To take advantage of the exemption, non-profit-making companies must have been designated in an order under the Government Resources and Accounts Act. The purpose of this order, therefore, is to make the companies listed in the Schedule subject to public audit. In order for a company to be included in the order, Section 482(2) of the Companies Act sets out a number of eligibility conditions. These are, first, that the company is non-profit making; secondly, that where the company is a parent company or a subsidiary of a parent company, every group undertaking is non-profit making; and, thirdly, that the balance sheet contains the statement required by Section 475(2) of the Companies Act 2006 that it is exempt from the requirements of Part 16 under Section 482 of the Act. All 26 companies in the order are limited by guarantee. Each has confirmed that it is non-profit making, is not part of a group that contains profit-making companies and is willing to include a statement in its balance sheet to that effect. Let me say a few words about the position of profit-making NDPB companies. Sections 1226 to 1238 of the Companies Act 2006 create a supervisory regime for the Comptroller and Auditor-General that allows him to carry out statutory company audits. The intention is that he will do so for NDPBs that are profit-making companies or have profit-making subsidiaries. No further legislation is required to give effect to these arrangements since these companies will remain responsible for appointing their own auditors, which is why they do not need to come within the scope of this order. By making non-profit-making companies subject to public audit by the C&AG, the Government are delivering the greater public accountability that the noble Lord, Lord Sharman, recommended for these types of company. I hope that the Committee will welcome that. In conclusion, as regards the effect on the companies themselves, strictly speaking there was no need to carry out an impact assessment to accompany this order because the costs fall below the £5 million threshold. However, the Government believe that NDPB companies are substantially similar to ordinary executive, non-company NDPBs and giving the C&AG public audit responsibilities for NDPB companies constituted a step change in his responsibilities. It seemed sensible therefore to revisit the assumptions made in the regulatory impact assessment that accompanied the 2003 order, which gave the C&AG audit responsibility for the first batch of, by pure coincidence, 26 non-company executive NDPBs following the Government’s response to the report by the noble Lord, Lord Sharman. The Government thought that this would provide a useful template for the likely impact of the Comptroller and Attorney-General’s audit of NDPB companies. The impact assessment included a survey of the executive NDPBs covered by the 2003 GRAA order. The results of the survey showed that most NDPBs were happy with the C&AG as their auditor. They believed that he provided a professional service and value for money. Also, C&AG audit fees have generally been comparable with private audit firms, partly because many audits have been put out to tender. NDPBs advised the Government that putting audits out to tender enables the C&AG to benefit from best private sector practice. In the Government’s view, the results of the survey showed a positive view of the Comptroller and Auditor-General and his staff and the Government therefore have no hesitation in endorsing the policy that the C&AG should be the auditor of all NDPBs.