Oral evidence: National Audit Office 2016-17 estimate, HC 878

Oral evidence, 2 March 2016.

Witnesses

Sir Amyas Morse, Comptroller and Auditor General, and Michael Whitehouse, Chief Operating Officer, National Audit Office, gave evidence.

Chair

Today we have two sessions. Our first is the National Audit Office estimate for 2016-17. We have a standing witness of ours, Sir Amyas Morse, who attends all our Committee meetings, but this time he will be quizzed directly about the spending, budget and future plans of the NAO. We also have Michael Whitehouse, who is the NAO’s chief operating officer. I want to kick off, Sir Amyas, by noting that you are of course no longer going to be auditing the United Nations. That means you are losing £3 million, and I just want to be clear: is that £3 million of income? How exactly was that funded, and what is the actual gap in your budget?

Sir Amyas Morse

Well, it is £3 million of income, but we charge on a full absorption cost basis so in time our costs should reduce to match that loss of income. There is a significant timing difference about this, though. We will receive our last payment from the UN in April and we will continue work on the UN audit, putting it to bed and handing it over to those who are succeeding us on the court of audit of the UN up until almost the turn of the calendar year—so through most of the fiscal year. We will be planning which members of that team come back and become integrated into the team here, or whatever—we are certainly going to have to shrink the numbers. For that reason, while I believe that over time it will be, so to speak, a wash, right now it is not a wash. Right now we have lost the income and still have the cost associated with the income in the year’s estimates that I am putting forward to you at the moment, but I think that will unwind itself over time, probably during the next year.

Chair

How many staff from the NAO are based in and working on the UN programme?

Michael Whitehouse

At any one time, we have a director and a manager based in New York;the remainder of the team fly in and out as needed. I cannot remember the exact number. In the year, I would say about 20 to 25 people—

Sir Amyas Morse

I think it is about 26 full-time people.

Chair

But it is a full cost recovery payment that you are getting from the United Nations?

Michael Whitehouse

Yes.

Chair

So there is not a profit made?

Michael Whitehouse

No.

Chair

Out of interest, who is taking over from the National Audit Office in auditing the UN?

Sir Amyas Morse

Well, Germany is coming on to the court of audit.

Chair

So they come on and you go off?

Sir Amyas Morse

Yes, that’s right. That is because there are broadly representatives of different world zones, so there is a European representative an Asian, an African and an American representative. It works on a rotational basis.

Chair

Apart from that, what are the particular changes in your work programme? I want to come on to the issues around local government and new audit arrangements later—I am not asking about that particularly. What other issues are you going to be looking at differently, taking on or dropping over the next year?

Sir Amyas Morse

The first thing to say is that we are taking on more work. It looks as if we are going to be appointed to the audit of UK Asset Resolution. We will not necessarily start auditing immediately, but we will have to start preparation work on that immediately. You know that we are newly appointed to Network Rail, and therefore we have substantial costs there. I notice that we remain visible—we were in the Green Paper—on the BBC audit, and I don’t think it is impossible that we might be appointed there. If we were in the White Paper, I would take that as a signal that I needed to start doing some preparatory work, and we have put nothing in the budget for that so far.

Stephen Phillips

On the BBC point, we had a strong hint, as you will have noticed, on Monday from the permanent secretary at the Treasury that there is going to be more parliamentary oversight, and naturally the NAO appointment as the auditor of the BBC would go hand in hand with that, so that seems to be very likely. How significant are the costs associated with becoming responsible for auditing the BBC’s work?

Sir Amyas Morse

Quite significant. It is a large body and it has some foreign subsidiaries that we would need to subcontract—that is the arrangement at the moment—so there would be some costs associated with that. It will be quite a significant amount of costs when we are in—I am not going to try to estimate them now.

Stephen Phillips

But are we talking about hundreds of thousands or millions of pounds, Sir Amyas?

Sir Amyas Morse

I think we are certainly talking about hundreds of thousands. In addition to that, there would be what I would call build-up costs. In other words, there is a lot of knowledge and an approach to be devised. This is not something you are going to be suddenly surprised by: you will see a build-up cost being incurred in the next fiscal year, and by then you will have a much clearer estimate—and we will too—of what it would cost us to do the work.

Stephen Phillips

There is no provision, presumably, in the £63.4 million you are asking for to do that.

Sir Amyas Morse

No, none.

Stephen Phillips

Is there a mechanism for that sum to be increased so that it does not detract from the remainder of your work if, as seems likely if not inevitable, the BBC is made properly accountable to Parliament through the NAO?

Sir Amyas Morse

Yes, we can apply to you for an interim revisal.

Stephen Phillips

And we would have then to look at this again, would we?

Sir Amyas Morse

Well, TPAC would have to—

Stephen Phillips

Yes, TPAC would have to approve it, but we would look at it as well.

Chair

What about the Bank of England audit arrangements? What plans are there for funding that?

Sir Amyas Morse

We will be doing value-for-money work at the Bank of England, and I am not sure that we have a separate sum for that.

Michael Whitehouse

We took the assumption that we can do the value-for-money work for the Bank of England within our existing budget. That is an assumption; as always, we would look to see what the evidence told us when we had completed the work. If we had to come back to the Public Accounts Commission, we would do so.

Chair

It just seems that there are a lot of variables here—extra responsibilities—and we haven’t even got on to the new audit arrangements that have obviously already, to a degree, embedded.

Sir Amyas Morse

But that is the way we tend to always do this. The choice would be to go in with an excessively large estimate, and these things have a habit of sticking. If you remember what we did when we took over the local government responsibility, we really only estimated what we were quite sure we would need, and that was a very conservative estimate. I remember being challenged at the time about why we were not asking for more and I said, “Well, I believe we can do it for this, and if we need more, we’ll ask you.” That is our preferred way of doing it, rather than the other way round, and I think it is more prudent in terms of managing public money to do it that way.

Chair

I can see dangers in both ways, but I hear what you say.

Sir Amyas Morse

Well, at least we are consistent. This is the way we normally do it, so we are not chopping and changing between one thing and another. We will normally be doing it in this rather conservative way.

Chair

Okay. You mentioned the local government work—the change in audit arrangements during the last Parliament. Can you give us an idea of where you have been successful, and if you think there are still gaps as a result of that change of legislation and change of your responsibilities, where they are?

Sir Amyas Morse

Where I think we have been successful and have had very positive responses from local government has been, first of all, in building up our dialogue with local government. We have a panel where we sit with the leadership of local government and talk about what our planned work is—

Chair

That is the Local Government Association.

Sir Amyas Morse

That’s right. We have very good discussions with them. What we have been able to do different from what was accessible, probably, to the Audit Commission is to stand on the bridge between local and central Government and provide some much more informed commentary on the effects of the interaction between the two. I think that has been a valuable contribution, which local government have found uniquely valuable compared with what they had before, perhaps. That takes nothing away from the Audit Commission; it’s just in a different place. I think that has worked very well. The studies we are doing that succeed what the Audit Commission used to describe as national studies—that is to say, cross-cutting studies across local authorities—have been well received also. You will remember that those have included financial sustainability of local authorities, which has been found to be particularly relevant, and the work we have done on the interaction between health and social care and how that impacts on local government budgets. You will remember that quite often we address a Report to this Committee, and at the same time we produce a Report off the same work base but addressed directly to local government, and we publish that separately. I am very happy with that part of our work. We are getting a good response from local government.

Mr Bacon

I wanted to ask you about the Local Audit and Accountability Act, which gives you the power to conduct these examinations into the economy, effectiveness and efficiency of local government if you doing so for what the Act calls “all relevant authorities, or…particular descriptions of relevant authorities”. That is plainly by design to cause you to do thematic studies that relate to groups of local authorities, rather than do a deep dive into one local authority. Am I right in hoping that the definition gives you enough scope? For example, if you wanted to do a thematic study into a particular problem facing local government that might not be universal but might be quite broadly found, plainly you would not do it into all relevant local authorities; it would be into a “particular description”, according to the Act, of relevant authorities. Do you interpret that to mean that you have to find every single local authority that might fit or that you can, as it were, take a sampling approach by having a representative group that fits the requirements of the Act? You get the point that I am trying to make.

Sir Amyas Morse

Yes. I think the study we did on local waste disposal installations, in which you had an interest, precisely fits that description. We are able look at subsets of authorities that have particular characteristics. That is how we are interpreting the charge. We interpret it quite fluidly so as to look at authorities with shared characteristics when it is relevant to look at them as a group. Essentially, the point is that you have findings that are meaningful to the group, not just to individual authorities.

Mr Bacon

Imagine that you had a case involving a problem of overpayments or duplicate payments by local authorities that cumulatively might run into many billions of pounds. Would you be able to do a study that looked at that issue by taking a group of local authorities representative of the rest where that problem might occur in order to draw out thematic lessons that would be applicable to other authorities that you had not specifically looked at?

Sir Amyas Morse

I would add a test to what you have suggested: I would have to be satisfied that there was some evidence that it was, in fact, occurring in more than one authority; otherwise that would simply be a stalking horse. I would have to be quite satisfied that this was genuinely a generic problem being caused by some condition suffered or present in a number of local authorities. That is really the test, to be clear about the logic.

Mr Bacon

So as long as you satisfy that test, you might be able to—

Sir Amyas Morse

Then it is perfectly possible to look at it.

Chair

But under the new audit arrangements there is potentially a gap, because the NAO did not take over all the responsibilities of the Audit Commission. Have you done or are you planning to do any assessment of that? You are doing the thematic reviews, but if there is a problem in a particular authority, we are relying on the existing auditors to flag things up, which is sort of the way the Audit Commission worked, but there is a potential gap. Do you have any concerns about that and have you made any representations to Government or to anyone else about that?

Sir Amyas Morse

I have not, if I properly understand the issue about which you are asking. Remember that I cannot produce the whole footprint that the Audit Commission had because it was itself the auditor of a large number of local authorities and it subcontracted a minority of local authorities’ audits to the private sector with the same guidance that we now produce. We have been able to reproduce and to do a good job, I think, of setting the standards and providing the annual guidance—all that is all going well—but we do not have the same on-the-ground experience of auditing local authorities that the Audit Commission had. I am not sure it is necessary to replicate it, but in honesty I have to recognise we don’t have that. On the other hand, rather to our benefit, we do not find ourselves trying to carry out any regulatory activities. I think it is probably fair to say that most of those type of activities were not desperately popular with many local authorities. So it is different—there are things we are definitely doing differently. Whether you call them gaps or not is a matter of judgment. I am not seeing something badly wrong with the system at the moment. I do not regard it as having some obvious hole. I would be much more worried if we found ourselves in a few years’ time, as we move towards transitional funding arrangements, with less from the centre and more reliance on business rates. That is when I think the whole of the local authority funding model is going to be tested rather severely. At that point, it will be very important to make sure that we have adequate coverage and arrangements in place. My forward planning and any representations I make will be around that transition point. I think most of us would regard it as a rather crucial transition, but not for a couple of years or three years yet, I think.

Chair

Have you had any auditors for local authorities flag up concerns to you directly at the NAO?

Sir Amyas Morse

We have had dialogue with them, I would put it that way. We have had dialogue with some local authority auditors about issues that we have been informed of to check that they were on inquiry. We have done that.

Stephen Phillips

Could we look at figure 2 on the estimates? I would like to go through some of these lines with you. Can I begin by asking you about establishment costs, which are proposed to reduce by £100,000 this year? You own the building in Buckingham Palace Road, don’t you? What are the costs associated with that? How does the £9.5 million split between Newcastle and London?

Michael Whitehouse

Newcastle is relatively small. We have a lease and we rent the property up there. I think the costs of running the Newcastle office are in the region of about £300,000 a year.

Stephen Phillips

So where does the other £9.2 million go?

Michael Whitehouse

The £9.2 million is business rates for the business in London; it is the security costs that we have; we have a catering contract—it is the general running costs of the organisation. Then there will be things like—

Stephen Phillips

So the appalling coffee that we get when we come to Buckingham Palace Road. If I may say so, it is quite an expensive location. I know you own the building, but has the NAO given any consideration to whether relocation might provide a way of reducing its establishment costs, which are 20% of the staffing costs, so fairly significant?

Michael Whitehouse

I think you may be aware that nearly five years ago the building was significantly refurbished. The Public Accounts Commission gave us the money to do that refurbishment. At that time, there was a lot of consideration about whether we needed to be in London.

Chair

I am sorry, you will need to be closer to the microphone.

Michael Whitehouse

I’m sorry, I have a very quiet voice. Five years ago when the Public Accounts Commission approved a budget of more than that for the refurbishment of the National Audit Office organisation, there was quite a lot of consideration about whether or not we should be based in London or move somewhere else. At that point, the Public Accounts Commission concluded that we should stay in the current headquarters building. I would add, though—this is very much down to when Amyas arrived—we do now sublet a third of our floor space.

Stephen Phillips

You have anticipated the question I was going to ask.

Michael Whitehouse

We get nearly £2 million-worth of income from that. We have reduced the floor space that our people occupy and we are well within civil service—

Stephen Phillips

I was going to say, how does your floor space requirement compare with the civil service standard in Whitehall?

Michael Whitehouse

I have got the figure here, if you bear with me.

Stephen Phillips

Is it 7 square metres for the civil servants?

Michael Whitehouse

If you give me a moment, I will find it.

Stephen Phillips

We will come back to that in a moment.

Sir Amyas Morse

We are within that standard, and I would say that there are many civil service offices that are not. The other point I would make is that it is quite true that, in its refurbished form, we have quite good quality space and that is why we are able to sublet it. There are plenty of others who would like to sublet but who have rather unpleasant space and cannot sublet, so I don’t think it follows. Finally, as regards the service contract, there is nothing that says that because of the location we are in, the service contract would be cheaper. The only thing that I guess would be cheaper if we were in another location would be the rates.

Stephen Phillips

Yes. It is an expensive place to be in terms of rating as well.

Sir Amyas Morse

Rates are the one differentiating factor I could put my finger on, actually.

Michael Whitehouse

To answer your question specifically, the central Government target is 10 square metres by 2015. In 2015-16 we were at 8.6 square metres. Our figure has gone up a little bit because we have reduced our headcount, but we are continuing to look at opportunities—

Stephen Phillips

That feeds in nicely to the next line I want to ask about: staffing, which is obviously your largest item of expenditure. You are proposing to reduce the spend on staff by £2.5 million or 4% between last year’s estimates and this year’s estimates. That is the number, and I would like to hear from Sir Amyas that that is not going to impact the quality or indeed that quantity of the work. I have in mind that while it is for you to decide what you look at across central Government, there have been occasions on which members of this Committee have expressed interest in certain areas that do not always get looked at.

Sir Amyas Morse

Let me take that point first, if I may. It is never the case that we do not look at an area because of resourcing—unless it was something where it would simply be a misuse of resource. It is never because of limitations of available resource.

Stephen Phillips

I am going to stop you there, because I think it does feed in, doesn’t it? I have certainly asked for work to be done in relation to the Foreign Office that would have involved significant overseas travel where I have been told, “There are pressures on budgets and within the Foreign and Commonwealth Office team’s budget line that work cannot be accommodated together with everything else that we are doing.” That does feeds in, Sir Amyas, and I think it is not right to say that there is not work that is done because there aren’t budgetary constraints.

Sir Amyas Morse

You are entitled to that that view, but I do not agree with it. There is a difference between making a judgment as to what a priority in using a particular area budget area should be and what constitutes the most efficient use of that capacity. What you asked me originally, if I may, was: am I suffering limitations in the work that I can do because of the resource that I have? That is a different point. I do not want to rush away from—

Stephen Phillips

Are you being too modest? Should you be asking for more? We know from today’s Prime Minister’s questions that the Prime Minister is a fan of the NAO and almost everybody on this Committee is, I am sure. The NAO delivers a product that enables the public sector to perform in a better way and this Committee to hold Government to account and to try to ensure value for money, and it is an organisation in itself that ensures that public money is well spent. Given that you are a relatively small organisation that seems pretty lean and you are actually saying, “We’ll reduce our budget,” are you being too modest?

Sir Amyas Morse

Let me answer that in two ways. First of all, I would say we are at a point now where we are conscious of the cost pressure—there is no doubt about that—so I am not going to suggest that we are in a position where we are very free and easy with resource. I am quite seriously aware of cost pressures, but I do not regard that as something I should be complaining about and I think it is very crucial for me to be in a position that I can put my hand on my heart when I am talking to colleagues in Government and show that I am applying as much rigour as I reasonably can commensurate with being able to do my job. I can’t have it both ways: if I said, “I want to talk to you about being cost-efficient and, by the way, when you examine me you’ll find I’m not doing anything about that,” I—

Stephen Phillips

Well, if you were increasing the number of audits by 10% and increasing your staffing costs by 5%, people might well say that is extremely good value for money because it will drive efficiencies in public spending anyway.

Sir Amyas Morse

And we will come to you with proposals like that when we actually have pieces of work. I have outlined that we try to do that in a conservative, prudent way but we will come with the detail of what we need and why. Where I believe we are now is in a position—as I say, I am deliberately not pretending that it is completely comfortable because it isn’t—where there is pressure, but on the other hand we think, considering the pressure in the public sector, that it is right that there should be some pressure on us. I do not wish to escape from that—I think it would be a poor precedent and not a great advert for the PAC either to take that line—but on the other hand, I am satisfied we can do our work, and in order to do it, we have to continually be modernising and becoming more efficient in how we do things. That is a key dependency: we have to keep improving in the way we do things, but if we do succeed in that—I strongly expect and believe we will—then we can carry out our responsibilities with the resources we have.

Chair

I can’t seem to find the figure that you produce every year for the amount of money you believe the National Audit Office has saved the taxpayer—what the trend has been.

Michael Whitehouse

We have a target of 10 to one. For 2015, the calendar year, our savings are in the region of £1,208 million, so it is 18 to one. So we do continue to generate very good savings for the taxpayer.

Chair

And that is cashable—what you identify as cashable savings.

Michael Whitehouse

Yes. And they are auditable savings. We don’t claim them unless they are subject to external analysis.

Stephen Phillips

Can I ask about the outsourcing line in this table? I think it is one of the top three in terms of expenditure. What is being outsourced? Some audits are being outsourced, which I understand.

Sir Amyas Morse

Yes, they are. I should give a little bit of historical perspective. We used to outsource about 20% of our required resource, and in the time I have been in this job we have reduced it to the level you see it at now. It is valuable to have some outsourced work. First of all, it means we do not have an even more accentuated audit peak than we would have otherwise—I will not pause to define that, as I think you all know what that means—and we get access to the skill sets of the big firms, which is quite useful to us.

Stephen Phillips

They are very expensive, though, aren’t they, Sir Amyas? Do you have a tender system where you have a list and it is only the Big Four, or do we actually have some second-rankers in there as well?

Sir Amyas Morse

Where appropriate we use others as well, and we are bringing in a system more like an auction, to try to drive down the costs as far as possible. We have an extremely sharp pencil in negotiating the costs we give to these firms.

Stephen Phillips

And that £10.5 million on outsourcing is all outsourced auditing, is it? There is no other outsourcing in there?

Michael Whitehouse

I would say about 95% is financial audits outsourced to the private sector firms. There are occasions where we might draw in expertise on a particular value-for-money study, but that has been reduced quite considerably. That has been part of a deliberate strategy to build up the skill level within the NAO.

Stephen Phillips

Do you publish the figures for what you have spent with each of the contractors to whom work has been outsourced?

Michael Whitehouse

We don’t publish them in the accounts, to my knowledge.

Stephen Phillips

Could the Committee be written to with those figures, so that we know who has got what public money?

Michael Whitehouse

Certainly.

Nigel Mills

How do you balance national pay restraint with demand for your staff and the risk of losing quality people?

Sir Amyas Morse

We have a benchmark service provided by Towers Perrin, I think, to benchmark into the private sector accounting firms so that we are aware of the leading rates for particular grades. We are also aware of what our own rate of turnover of staff is, and in some cases, I’m afraid, we are particularly vulnerable. We are in the same market. Our people are coming and training—if they are chartered accountants, they come to us as a student and they train and qualify as a member of the Institute of Chartered Accountants in England and Wales—so they are highly marketable in the private sector and they are headhunted, not only in the private sector, but nowadays, quite aggressively, in the public sector, and by no means at the salary they are already being paid. This is a source of some irritation to me, but it is true none the less, and in a way I suppose it is a backhanded compliment to our people. So I am already under pressure. We try to keep not all the way up to the level of the accounting firms, but somewhere between them and the public sector, so that the gap is not so great that people just feel they have to walk out the door. That is what we are always trying to do.

Nigel Mills

I should probably say that I am a member of the institute you just referenced. In terms of your estimate of staff cost and outsourcing, are you at all concerned that in having to hold down pay, you risk losing people and will have to cover them with temporary staff, which will start a spiral of cost, as we have seen in a couple of recent studies? Do you think that what you have got here will realistically maintain enough of your staff so you can do the work you want to do?

Sir Amyas Morse

Well, it is our best estimate of what we can do. Like everyone else, we have budget considerations. The increase in employers’ and employees’ national insurance this year has given us an unwelcome bump to our staff costs without producing anything further in the pocket of the staff, so this year, unusually, we are approaching pay in a different way: we are proposing to give a pay increase which is what I call a modified flat rate. We are trying to put all of our staff in the position where they do not lose from the increase in employees’ national insurance. We don’t want anyone to find that they have had a negative pay rise, if I can put it that way, because you really would risk losing people then. With the resources available, we had a very careful discussion about it and decided that although we would prefer to target pay rises on those who are most marketable and are performing best, this year, because of this one-off step in costs and our relatively low financial capacity to pay more, we are going to do it that way. Overall, I think that will be supported by the people of the NAO.

David Mowat

If I heard you right, Mr Whitehouse, you said that your ratio is 18 to one.

Michael Whitehouse

Yes, that’s right.

David Mowat

For every pound spent, you get 18 back.

Michael Whitehouse

That’s our target.

David Mowat

Just following up from Mr Phillips, if that’s really true we should have another one of you, shouldn’t we? If those sort of spending savings can be delivered, that’s fantastic. Business cases and things are very rarely as good as that. Where’s the logic flaw? We should be coming back and saying we want to do more. Even if you’re doing the low-hanging fruit now and the rest of it is a bit harder—10 to one or something—it’s stupendous.

Sir Amyas Morse

Thank you. I appreciate that. I’m not called stupendous very often. It is one measure of showing our impact, not the only one. Favourable though it is, it would be a bit optimistic if I said, “I’ll just hang my hat on this one measure. It shows we look amazing.”

David Mowat

Well, it is, but you see—

Sir Amyas Morse

Bear in mind exactly how this is done—I’m sorry for talking over you. Where significant sums of money have been saved and we have played a significant part in that, and that part is acknowledged by the Department concerned, we agree a share of the savings that they have achieved. That is what we do. It is not necessarily true that if we did twice the number of audits, we would achieve twice the amount of savings. We might end up finding that we are thrown out of the window by the people we are trying to audit.

David Mowat

No, you are right. I don’t want to spend too long on this, but you don’t audit everything.

Sir Amyas Morse

No, you’re right.

David Mowat

Therefore, presumably there’s a lot of stuff that you don’t do, as Mr Phillips suggested.

Sir Amyas Morse

Yes.

David Mowat

If on the bits you do we get 18 to one, any other part of Government would look at that and say, “We’ll have more of that,” wouldn’t they? I suppose the other possibility is that some of it might have happened without you. I don’t know. But that’s fantastic as a business case.

Sir Amyas Morse

Well, that is the reason why we don’t expect to have 100% of such benefits. If we think it is only because of us, we want to score all of the savings—

David Mowat

So what you are saying is that your 18 to one is a conservative number, because you take only some of the benefits.

Sir Amyas Morse

No, I don’t think it is conservative; I think it is reasonably fair. If you’ll forgive me, can I offer you something different? How I really believe that we have done something valuable is when you see change in the Departments as a result of what we have done. On our own recommendations, and yours are often quite similar, I know that over 70% of them are accepted, and when the recommendations of this Committee are accepted, they are driven through into implementation. So, collectively, we are definitely a force for good in terms of driving improvement in how government is carried out.

David Mowat

Yes, and I understand that it is not your only measure and all of the rest of it, but what I am saying is that if an organisation or an entity like yours is capable of developing an 18 to one by looking at a relatively small subset of total Government spending, it implies, if we accept that as true, that another organisation like yours—let us call it NAO2—looking at another subset of Government spending—NAO2 might not be as good; they might only get 12 to one—it implies that it is something that ought to be done.

Sir Amyas Morse

Well, that is not completely unreasonable. I can even narrow it down further. Nearly all of this comes from our value for money work. We do excellent work in the financial audit space, which leads to investigations and to substantial improvements, but most of these type of operational savings come from value for money work, so we are actually generating it out of a relatively smaller part of our cost base. You will be aware of that.

David Mowat

I see. So, out of the cost base that does this work, it is better than 18 to one.

Sir Amyas Morse

Yes, it is. I am only adding to your argument.

David Mowat

Yes, you are.

Chair

You are almost having a bid for more funding from this side of the table.

Caroline Flint

Going back to staffing, may I ask what the gender breakdown is?

Michael Whitehouse

I am sorry; I should know this. In terms of gender breakdown, we are about 60:40, female:male. I can come back to that. The one thing I would say that I am particularly proud of is that we have been very successful in the career path for women within the NAO in terms of career progression and people getting into manager grades, and this is something that we continue to focus on. We have a leadership team of how many? Five of us?

Sir Amyas Morse

Five of us.

Michael Whitehouse

Two of whom are female. At one point, we had three. It is a really important issue for us within the organisation.

Caroline Flint

Linked to that, in terms of recruitment and the advertising of jobs, does the offer of part-time work come into that as well?

Michael Whitehouse

Yes, indeed.

Caroline Flint

How many part-timers have you got?

Michael Whitehouse

Again, I am sorry; I don’t have the figures to hand, but we have a good flexible working policy. In the planning of our organisation—

Chair

I am sorry; could you speak up?

Michael Whitehouse

We have a flexible working regime within the National Audit Office. We are very mindful of this. I am quite proud of what we are doing. I have a note on this.

Chair

What about ethnicity?

Caroline Flint

May I finish on this one? On returners—women who take time off for maternity leave—do you have an active returners’ policy for women and others who take such leave?

Michael Whitehouse

Yes, we do.

Sir Amyas Morse

Also, I want to mention diversity, because I am the diversity champion of the organisation. That is not a matter of form; I take it extremely seriously. Gaby Cohen was the diversity champion. We are a Stonewall-commended employer as well. We are very mindful of each dimension of the diversity that we can have. I chair the diversity delivery board. We have networks of many types of minorities. They all come and have a chance to express their views at that board and drive forward implementation and improvement.

Caroline Flint

How many people sit around the NAO’s boardroom table and how many of them are women?

Michael Whitehouse

The board consists of eight, of whom three are women. I have got the figures, and I probably should have had them to hand. In the most recent year, our female graduates in 2014-15 increased to 40% from 34%. We recruited 27 BAME graduates, against a target of 22%. I would like that to be a lot better. One thing you do find in the accountancy profession is trying to get more people from socially disadvantaged backgrounds. We were co-founders of Access Accounting, which has a specific remit with the big accountancy firms and ourselves to increase the number of people coming from backgrounds you would not normally expect to get into the finance community. We are very committed to that.

Sir Amyas Morse

In fact, that has been evidenced by having a significant increase in the number of non-graduate entry trainees.

Caroline Flint

You have an apprenticeship scheme as well in the system, don’t you?

Sir Amyas Morse

Yes.

Mr Bacon

You mentioned losing staff. Do you ever poach staff from the House of Commons or the offices of Members of Parliament on the PAC?

Sir Amyas Morse

What a mean question. You know very well that Adrian is sitting behind me.

Mr Bacon

He is on television.

Sir Amyas Morse

I was absolutely thrilled to have poached him and he is doing a brilliant job for us and also, I hope, for you. So I am, I am afraid, like some elderly magpie looking around for bright things, and whenever I find them, I pick them up and try and take them back to my nest. So when I meet very bright people, particularly if they are looking a little bit bored or discombobulated with what they are doing, I say to them, “Why don’t you come and talk to us about joining the NAO?” I’m afraid I do that in the Treasury, the Cabinet Office and many other places, and we have recruited from all of them.

Chair

I have a couple of questions in the last remaining minutes and I’m sure a colleague will want to come in on one of them. The Scotland Bill, highlighted in the estimates, was flagged up as something that could generate more work and constitutionally create some challenge. Could you amplify that and, in particular, any costs that may be associated with it? Deidre Brock might want to come in on that as well.

Sir Amyas Morse

To be honest, I am sorry to say that it is still a little bit soon to say the detail of that. I have the obligation to report to the Scottish Parliament on the Scottish rate of income tax, which of course is becoming a very live issue. That has broadened out to starting to talk to and listen to discussions of the Scottish Parliament about how they are going to identify Scottish taxpayers. That is crucial because it is going to be on a residency test. The dialogue is becoming deeper and deeper. The step where we will discover exactly what we need to do will be as the Bill passes, when we have some detailed dialogue on exactly what is to be done. I think I am right in saying that the Bill has been passed to the Scottish Parliament to look at at this time. Until all that is over, it is going to be quite difficult to assess. I know, for example, there is going to be an obligation to lay NAO Reports in the Scottish Parliament. What that will involve in terms of discussion is too early to say. I doubt it will involve zero but I just don’t know specifically what. In talking to the Treasury and others involved, I have led as far as possible in trying to get the debate moved forward as fast as possible, but we are just not at the point where we can say more than that now.

Chair

I don’t know if you can answer this question, and tell us if you cannot. If a Report is laid in the Scottish Parliament and a Report is laid in the UK Parliament, and we wanted to have you or your support on a particular day and the Scottish Parliament did, which Parliament would have precedence?

Sir Amyas Morse

I am not of this Parliament, and I do not intend to get involved in any complicated arrangements where I have a question of divided loyalties. I have made that very clear in my discussions. I think that would be an absolutely impossible situation to get into. There is no need for it because there is an excellent equivalent of me in Scotland, with whom I have good close relationships and a high opinion of. It should not occur like that. I was indebted to the Treasury for its thinking on this subject. One or other of us will be in the lead on a piece of work, dependent on where the primary accountability will lie.

Deidre Brock

You mentioned the discussion you have had with the Treasury on the subject. Could you expand on that a little bit?

Sir Amyas Morse

What I was concerned about when the Bill started to move forward was that I was finding myself in contact, however enjoyably, with the Scottish Audit Committee, and I was receiving letters with a lot of interesting ideas about how things might develop in future. It is actually not my job to decide those things. It is a matter between the two Governments to have a discussion and agree what is to be done. I was urging that the discussion should take place across Government. Since the Treasury is my liaison Department in the Government, that is the right place for me to go and push that forward.

Chair

Just one final question. This may seem a small point but, given that you have talked about making sure that you are behaving in the way that you expect those you audit to behave in looking for value for money, there has recently been some publicity about the cost of accommodation for Care Quality Commission inspectors as they travel around the country. A number of your teams will equally travel around the country and be put up in hotels—quite rightly, they have to be given somewhere to stay. Do you have benchmarks and guidance about the expected level of costs for those proper audit visits?

Michael Whitehouse

We fully comply with the civil service. We are not in any way in excess of that. The allowance per night is, I think, £25 for meals and stuff like that. We have clear guidelines.

Chair

For a hotel?

Michael Whitehouse

No, we are not that bad. The hotel allowance is very much within it. We are challenged quite frequently about how we can find accommodation.

Chair

I see some people behind you getting a little nervous that we might be making a recommendation to reduce hotel costs to £25. We are a little less hard on you than that, but it is good to hear. So there is civil service guidance, and you adhere just to that?

Michael Whitehouse

Actually, the principle is that we practise what we preach. We would not go out and audit somebody and be allowing our people to stay in accommodation that would not be allowable.

Chair

Sir Amyas, did you want to come in?

Sir Amyas Morse

I was only going to add that I don’t travel first class on trains, either.

Michael Whitehouse

Nobody travels first class. That is not our policy within the organisation.

Chair

Thank you very much indeed for your time. We are now going to switch our witnesses over and move on to our session on financial services mis-selling, which I will introduce in a moment. Oral evidence: National Audit Office 2016-17 estimate, HC 878 17