Official Report: Minutes of Evidence

The Chairperson (Mr Chambers): We are joined by officials from the Northern Ireland Audit Office (NIAO): Dorinnia Carville, Rodney Allen, Brian O'Neill and Anu Kane. You are very welcome to the meeting this morning.

Ms Dorinnia Carville (Northern Ireland Audit Office): Thank you very much, Chair, and thank you to the Committee for the opportunity to present to you today on our requested budget.

I am joined by colleagues Rodney Allen, chief operating officer; Brian O'Neill, director; and Anu Kane, audit manager. We have provided a tabled paper, and Rodney will take you through the details of that. We will then be happy to answer any questions.

Mr Rodney Allen (Northern Ireland Audit Office): Thank you, Dorinnia. Good morning, Chair and members. I am joined by Brian, who, as you will know from previous occasions, is the director of corporate services, and Anu, who is the manager of corporate services.

The Chairperson (Mr Chambers): You are all very welcome.

Mr Allen: Thank you. I am very conscious, Chair, that I wrote to you on 7 October with what was a high-level estimate of our anticipated budgetary needs for 2025-26. Subsequently, the Clerk, quite rightly, asked us to provide more detail. We have prepared that detail, but, unfortunately, due to the tight time frame, you received it only yesterday afternoon and may not have had a chance to look at it in great detail. If you are content, I would like to take a few minutes to talk you through that paper.

The Chairperson (Mr Chambers): Yes.

Mr Allen: Thank you. On page 2, we have drawn attention to paragraph 3 and the fact that we have a new corporate plan. We have highlighted our three key corporate priorities for 2024-29. That will set some context for why we are here talking about our budgetary needs for next year: it is a budget to support us in the delivery of that plan. I will not repeat the details, but we have put a copy of the plan in the pack, along with a copy of our annual business plan for the current year, again to provide you with a bit more detail.

Figure 1 on page 3 is simply a repeat of the table that we set out in our correspondence on 7 October. Below is a bit of context — what we do with the resources that are allocated to us — more as a reminder to members, given that we have been with you before. Our staff costs take up about 70% of our budget, and 13% of our remaining costs go to what we call "contracted out", which are private-sector firms that have procurement arrangements with us and undertake a lot of our financial audit business on our behalf. Of the balance, around 15% is the overheads — the central running costs of the office — so that leaves us with about 2% for non-cash costs for running the organisation and depreciation.

On how we allocate resources to the office, 65% goes on financial audit. Although it is the biggest bit of the business, it sometimes sits a wee bit below the radar, because it is all the regulatory work that is done annually when we undertake the audits of about 150 public bodies, and Dorinnia expresses the opinions on those accounts every year. That represents about 65% of our business.

About 25% goes on what we call public reporting. In my old language, that is value for money (VFM). Essentially, those are our value-for-money reports, which is work that, in the main, goes to service the Public Accounts Committee. Of the remainder of our resources, about 7% goes on overall good governance and anti-fraud in the organisation and on how we interface with relevant stakeholders in our audited bodies, with a remaining very small slice to support wider stakeholders, including, at times, handling specific MLA enquiries.

Circling round to the meat of today's session and why we have come to you asking for a 6·4% increase in our budget for next year, figure 4 in the paper sets that out in a bit of detail and breaks it down. You will see that our income costs have fallen by £200,000. We have provided a bit of narrative for each of the figures. The National Fraud Initiative (NFI) is a biennial thing for us, so we will not have the income from it in the 2025-26 year in the way that we have in 2024-25. Likewise, our costs drop off, so it is an in-and-out scenario: there are decreases in income and in our other expenditure associated with that. Other small decreases in income are because we no longer do work on behalf of the National Audit Office (NAO) on European agriculture funds and the National Lottery accounts.

Turning to staff costs, we have a fairly intensive programme of training our own trainee accountants and apprentices, and we want to continue with that. Indeed, we anticipate increasing our intake of trainees in the year ahead. Our requested staff base — the funded staff base that you provide — of over 130 full-time equivalents (FTEs) is what we consider crucial to meet the Assembly's expectations of us in 2025-26. It should be stressed that we are operating in a difficult recruitment market. I have talked to the Committee about that in the past. It continues to be difficult, so we have vacant posts to fill even in the current year before we can staff up fully in the next year. However, our forecast takes account of that and a cost-of-living increase, subject to negotiations with trade unions.

On our contracted-out costs, there is a movement from £1·6 million to £1·8 million. That is solely the additional contracted costs year-on-year that we have with private-sector firms from when we went out to open procurement for all that work. We have some reductions in our general admin expenditure (GAE) associated with the NFI, a little increase in the inflationary costs that we incur and a very small capital request for £40,000 to support our IT capital equipment and some of our other overheads in running the business.

Our paper details opportunities in 2025-26 and beyond. Paragraph 12 refers to a strategic review of how we deliver financial audits, and that relates to the volume of work that is undertaken by the contractors in the private sector that I referred to. That is significant. The review is at an early stage, but it may generate the potential to further increase our FTE staff base, alongside delivering efficiencies and, indeed, enhancing the quality of our work.

We have talked before about our organisation's strong focus on quality and innovation. As set out in paragraph 13, we believe that there are areas that we can still tap into, including artificial intelligence, to support, enhance and deliver efficiencies in how we go about our business. That investment is very important in keeping us relevant.

As I mentioned earlier, we have fairly extensive engagement with the Public Accounts Committee, sometimes weekly, but we are at the preliminary stage of engaging with other Assembly Committees, and you have provided us with funding for that. That is an area that we anticipate will grow significantly.

In summary, we are asking for your support for a net increase of 6·4%. We believe that that would enable us to provide the Assembly with the professional, independent public audit function that you anticipate, meet your needs in the 12 months ahead and deliver proper scrutiny of public finances across central and local government public services.

There is one small caveat that we have been talking about in-house. We have not built it into the paper in any form or fashion, but everybody is aware that the Labour Government will make their first budgetary announcements in a couple of weeks. We have not factored any possibilities into the paper. There is some discussion about the potential for increased employer National Insurance contributions, for instance, but we have not put that into the calculations that are in front of you.

Finally, thank you for giving me so much time. We are very appreciative of the support that the Committee has given us to date and in the current year. It has been absolutely critical in helping us to deliver the vision that we are striving for. If there are questions, we will happily try to answer them.

The Chairperson (Mr Chambers): Thank you very much for that. We appreciate the work that you carry out on behalf of the public. What difference would the proposals that you outlined for next year's budget have on the services that you can provide to the public?

Mr Allen: I will take that question, and others may wish to come in behind me. The services to the public are, essentially, services, first and foremost, to the Committee and the Assembly. Without that budget, we will not deliver the accountability that you would expect. It will enable us to come forward very regularly to the PAC. It will also enable us to service the other Committees, which are very keen to look at the reports that the PAC is not taking. That gives us the best opportunity to achieve an outcome in a way that we would want and in a way that would make the best impact in the public domain.

A budget of less than our requested figure would mean our having to cut our cloth in different places. For instance, I would have to say to Dorinnia, "Auditor General, we probably have to do less VFM work and less performance auditing", because we have a financial audit portfolio that must be serviced. That is 65% of the business, and she must give her opinions on that annually.

It is an interesting question that you have thrown at me. Without that budget, the impact of the Northern Ireland Audit Office would, I think, be significantly diluted.

The Chairperson (Mr Chambers): What impact will your new engagement strategy with Assembly Committees have on your levels of work?

Ms Carville: When we came in front of you asking for our 2024-25 budget, we had anticipated, with a return of the Assembly, that we would be called upon to service other Committees. You will appreciate that, pre summer recess, our focus was very much on the Public Accounts Committee being the primary Committee that we support in the early days of its work by supporting its inquiries.

Over the summer, we produced departmental guides for each Department, and we issued those to the Chairperson of each Statutory Committee in the first week of September. Those guides are a landscape overview from our perspective. Importantly, they contain any reports that the Public Accounts Committee has released: any reports on which the Public Accounts Committee has determined that it does not wish to hold an inquiry within that Committee structure. It is quite recent, but that allows our departmental Committees to consider whether they want to take forward any work on the basis of those reports.

Just two weeks ago, Kyle, who is our Assembly liaison officer, met each of the Clerks to the Committees to explain our work and reinforce our willingness to engage with the Committees. Just last week, Kyle and I had a really useful meeting with one of the senior Clerks where we agreed a process whereby we all respect the primacy of the Public Accounts Committee and ensure that our work continues to service that Committee, as it should, but it allows us to work with other departmental Committees as well. It was a really useful meeting.

We have had some early written engagement with some of the Committees. We are really keen to support them, and, from early engagement with Clerks in particular, there is an appetite for the Committees to engage with us. It is something that we want to do, and we think that it would enhance our work and enhance public accountability, but engagement is in the very early stages.

It will probably intensify over the next few months.

The Chairperson (Mr Chambers): Thanks for that. I will bring members in. John, you were first.

Mr Blair: Thanks, all of you, for being here and for the detail in the report. I note the 6·4% increase overall. I totally understand, of course, the staff increases, yearly salary increases and those matters. My question might have been partly answered at paragraph 12, to which you referred. The contracted-out costs increase is over 10%, so it is out of kilter with the 6·4% increase. Does that need further examination, or is a review process already in place to keep checks on that during financial years as well as when preparing for financial years?

Mr Allen: The contracts that we have with private-sector firms are generally on a three-year commitment, with a rolling one plus one optional after the initial three years. What you see are the commitments that we have to make payments under the contracts that we have entered into with them. They are all subject to annual increases in line with CPI. There is a staggered approach, in that they are not all on the same timeline. We have some that have been in place and are already into optional years, and others are just in year 2 because they were procured only two years ago. It is a committed figure from which we cannot extract ourselves. If we tried to extract ourselves from it, I suspect that we would end up in litigation with the private-sector firms.

That having been said, you flagged paragraph 12. Along with sister audit agencies in other regions, the cost increase has got us thinking strategically about that position, because around 25% of the financial audit business that we do is in contract with those private-sector firms. We have to ask ourselves whether that is the best use of the resources that you have given us. That has been the traditional position for many years. It goes way back to a report that Lord Sharman produced quite some years ago, which advocated that. However, fresh thinking questions whether the benefits that were foreseen at that stage are still realistic in today's environment. At the minute, we are doing a strategic piece to look at whether that is the right way in which to continue to operate the business in the future. We will, obviously, come back to the Committee on that in due course. We have prepared some internal papers and will talk to our board about it. Then, in the period ahead, depending on what the best options are, we may well come back to you and articulate the case.

Essentially, we would be converting the hard cash, to put it crudely, that goes out at the moment into more members of staff. There is a tension around that in light of what I said to you about where we are and the difficulties that we are incurring in acquiring the staff whom we actually need, but, over the strategic period ahead, there may well be some scope there.

Mr Blair: Thanks for that. I assume that there is a best-value element to the contracts that are awarded on a three-year basis when they are tendered or advertised.

Mr Allen: We have fully open procurement. We use the services of Construction and Procurement Delivery (CPD) to guide us through that.

Mr Blair: OK. Thank you.

The Chairperson (Mr Chambers): Thanks, John. The next member to indicate was the Deputy Chair, Diane.

Ms Forsythe: Thanks, Chair. Thank you very much for being here to discuss this. The increased application is on the back of the increase that was approved for last year. Looking at the budget allocated for 2024-25 and the ongoing staff vacancies that you talked about, what is the 2024-25 out-turn likely to be?

Mr Allen: You used to work in our office, Deputy Chair, so you are very insightful in your questioning. That is a very good question. Thank you, Diane. I anticipated that it would come up. We are underspending. In our most recent submission — or, certainly, our August submission — to the Department of Finance, we indicated that we would have in excess of £600,000 of an underspend on our budget this year. I was speaking to the Committee Clerk about this in recent days, and, just last week, we received from the Department of Finance a request for October monitoring, so we will now look more closely at what we should surrender. Last year, when we talked to the Committee, we flagged at that time — you supported us in the way in which we did — that, because of the time lag, it would probably be a bit ambitious for us to spend the full budget that you had allocated to us.

If you wish, I can give you a sense of where we are on staffing and the FTE numbers that are heavily influencing that. All roads lead back to staffing. We operate in a situation where 65% of the business, which is financial audit, is driven by regulation and regulatory standards. In so doing, we need to have the right people in the right place at the right time, and we need high-quality people. Around 85% of those in our organisation are qualified or part-qualified accountants.

Curtail me if I am going on too much, members. To give you a sense of why we are ending up in this underspend situation, I wrote down the numbers earlier. Back in April, we commenced the year for which you gave us funding at around 116 full-time equivalent members of staff. We are gradually growing that number. Last month, we were up to 120. We have just run some more recruitment competitions. We have run 10 this year alone — 10 since April — trying to recruit the right people. We forecast around 125 FTEs for December. We need to grow more. You have funded us for 130 FTEs for the full year, and that is, ideally, where we want to be, so that gap is very much driving the underspend.

Ms Forsythe: I appreciate that. I was just thinking that we are looking at your reporting an underspend and then, potentially, our approving a notable increase. In the current financial climate, it is important that we have on record that our approving the ideal staff situation would relate to your currently operating under pressure with continued staff vacancies.

You mentioned that your income is reducing because some types of work are coming to an end. Is there potential for any other income for the Audit Office for work undertaken?

Ms Carville: Do you want to pick up on that?

Mr Allen: I will. On the work side, we gave a commitment to the predecessor Committee. Our hard-charging income is significant. It is not insignificant, but, of course, it is only an element of our business. Brian and his team have done an extensive piece on that, and generating more income would, in the main, require legislative change. We would, obviously, invoice some of the bodies that we only notionally charge at present.

There are pros and cons to that, some of which the Committee has looked at before. A simple argument is that it is public money going around in a circle. There is an alternative argument: you could say, "We will not do any invoicing. We will just fully fund the Audit Office and keep part-charging out of it".

The short-term answer is that there is no quick fix to generate more income on the audit side, Diane. What we can do — again, we have a commitment to do this for you, and we are doing it — is generate a bit more income on our building. You will recall supporting us substantially to refurbish. We have a wonderful building. We are very proud of it. As part of the strategy, we opened up some of that building for tenanted space, so we will, hopefully, in the days ahead, sign our first lease with our first tenant, so we will start generating an income from that. We still have some areas left and are actively looking at the potential of bringing some more tenants in to generate income from that. That is important because, if we maximise that out, it could be the equivalent of as much as the cost of two members of staff. That is what it would mean to us every single year.

In so doing, we have taken a conscious decision, and it leans back a wee bit into the question on thinking about efficiencies in the business and underspends. We have a fantastic training facility, which you have provided. In fact, we really should try to have you down some day, if that is fine. We have an excellent facility. We have been opening it up to wider public-sector use. I have to say directly that we have not charged for it. In my eyes, we have actually generated efficiency in the wider public sector by offering to many organisations that they can come in and avail themselves of it. Anu's team has been servicing that. It is really important as an indirect way of raising revenue. The Audit Office is not benefiting, but the wider public sector is.

Ms Forsythe: Absolutely, that is good to hear. It is good to hear that tenants are coming in and making good use of the premises. It is a good return on investment and capital spend.

The Chairperson (Mr Chambers): Thank you, Diane. Ciara, the floor is yours.

Ms Ferguson: Thank you, Rodney and the team, for the presentation and report. I have a question on vacancies. You have clearly set out the position, and it is good that you say that your staff numbers are on the increase. Are there any key challenges in recruitment, particularly when you are competing against the private sector? It would be useful to find that out, particularly given the increase in numbers that you hope to achieve by December. Why are some of the 130 positions available? Are you competing in a challenging environment?

Mr Allen: Thank you, Ciara. I will start. I am doing a lot of talking, but others may wish to come in. That is an important area and one that has tested all of us. There are many, many challenges. For context, I will say, first and foremost, that we put great weight on growing our own and recruiting apprentices. I am proud of what we have been doing in the apprenticeship space. We have some excellent members of staff coming through those routes, and we have other tremendous members of staff who have been with us for a long time.

I have a lot of thoughts on this. You make a point about the private sector. In recent years, we lost members of staff who decided that they wanted to take the opportunity to avail themselves of experience in the private sector. Interestingly, and refreshingly, some of those people have come back to us in subsequent recruitment rounds. We are placing great store in that too. I suppose that I have to be careful about what I say on the public record, but, when people explore some of the opportunities of working in the private sector, they find that the grass is not necessarily greener.

We are facing a real pressure in the position of financial auditor, as we call it in our world: those are our qualified members of staff. That is where we are competing against the private sector for people who may be just out of their training contracts or who have been accountants for a number of years and want to diversify. That continues to be a pressure point. We are running frequent competitions, and, in the main, we are attracting new talent to come and join us, but those numbers are relatively small when we run financial auditor competitions. That encouraged us to make a strategic change, and it is one that has enriched the range of skills in the organisation. In the past two years, we have introduced a grade that we are calling "performance auditor", which is equivalent to the financial auditor. It flexes the model a bit, in that we are bringing in skills and people from investigative, journalism and legal backgrounds. They work mainly in our VFM space and are enriching what we offer as an organisation. They are very good members of staff. We have offers out to a couple more in that space at the moment.

We are keen to get out, sell our brand and make it as attractive as we can in comparison with the private sector. We have extensive senior leadership engagement, attend careers fairs at universities, speak directly to universities and use social media quite a bit to sell ourselves. I have been around here for quite some time, and we had not entered the world of social media before, but we are doing a lot of it now. We are not quite in the TikTok space, but that may come in due course.

We are mindful of the terms and conditions (T&C) required to make ourselves attractive against the private sector. We have an excellent hybrid working package. I emphasise "hybrid working"; it is not remote working. We place a lot of store on the physicality of our teams being together. We are a training organisation whose staff spend time together and then go out to audit our client base. I like to think that we have excellent public-sector T&Cs. We often undersell the benefit of the public-sector pension, which the private sector does not have. We have been trying to articulate that in a sophisticated package of benefits that we have worked up. With the support that the Committee has given us, we have to be careful in how we flex and keep our salaries attractive, to be frank. We will not and do not do some of the things with public money that the private sector can do with private money. We do not offer bonuses, for instance, but we have to think about whether we need to slightly extend salary scales in the financial auditor grade, for example, to make ourselves a little bit more attractive. All of that is in the mix.

I am sorry; that was probably a bit long-winded, but it may give you a sense of a subject that is close to our heart.

Mr Brian O'Neill (Northern Ireland Audit Office): I will add to that. Just this week, we appointed a new head of people and organisational development. That post had been vacant for most of the year, due to the previous person leaving. That will be a great benefit to the organisation in bringing new ideas on recruitment. Hopefully, we will see the impact of that in the coming months.

Ms Ferguson: My other point is on apprenticeships. I am keen to promote apprenticeships in the Civil Service. What are your thoughts on growing apprenticeship-level entry in the Audit Office?

Ms Carville: I will just come in there. Ciara, that is a space that we are very keen to grow, as Rodney said, and grow our own accountants, both the higher-level apprentices and graduate trainees. We have a pathway, whereby our higher-level apprentices can then move on to the degree and the trainee accountant programme. A lot of that is about getting our message out there and understood and touching those individuals as early as we can, in school, on their future career journeys. As Rodney said, we have been doing a lot of engagement with the universities — Queen's University and Ulster University in Belfast and Magee. We also have direct engagement with the FE colleges. Over the past two years, we have offered summer placements for students, to get them into the organisation and understand what we are about. We also offer work experience for young people to let them see what it is really like to be an accountant and that it is not that boring.

We have also been looking at what a modern workforce is and what that looks like. We are very lucky to have a lovely, modern building for our staff, but we have been doing a lot of work. Our terms and conditions are one thing, but we are really looking at our well-being offering and how we invest in our people. There are two issues at play: recruitment and retention. In some areas, we cannot compete with the private sector, but we have a huge internal focus on people. We have introduced a people strategy, well-being strategies, and learning and development strategies, and we are looking at equality and diversity. They are not just pieces of paper: there are groups and people driving change in that area and making sure that there are new leadership development courses for our staff to ensure that they are enriched in their roles.

A lot of our apprentices and younger members of staff are really enthused about and are part of these initiatives. We find that when we go out to recruitment fairs or conferences — we have a stand at the NICON conference today — we bring those apprentices and trainees because their enthusiasm and their speaking to people is much more effective than me doing it. Let us be honest, it really is. They have been brilliant. Our experience to date has been fantastic, and it is definitely a growth area that we want to continue to invest in.

Mr Allen: Very much so. Very quickly, I will add to that, Ciara. I am getting a little bit personal here, but, as someone who started their career at the tender age of 17 in the Civil Service, I am a great believer in people having different routes, and we respect that in the Audit Office. That was some 39 years ago, I hasten to add. You can work out my age now, and that is not necessarily good.

This year, we have eight trainees. Five of them are from the graduate stream and have gone through university, and three are what we call higher-level apprentices. You might think that they are, effectively, straight out of school, but, interestingly, some are not quite that. They are people who have done other things and may be slightly older. It is excellent, and they already have skills and life skills under their belt, so it is an interesting mix. It is a tremendous programme and the way that Dorinnia has articulated the strength that we put into it, alongside our overall people offering, is really important. To hark back to my earlier comments, we just need more.

Ms Ferguson: Thank you. I am delighted to hear of the excellent work that you are doing, focusing internally to retain your team and, likewise, giving those opportunities through apprenticeships. It is excellent.

The Chairperson (Mr Chambers): Are members content? Thank you very much indeed for appearing this morning. It has been very helpful. I want to place on record our appreciation for the valuable work that you do on behalf of the public. Thank you, and I wish you well going forward.