Official Report: Minutes of Evidence

The Chairperson (Mr Chambers): I welcome the delegation from the Audit Office. It is represented this morning by Dorinnia Carville, the Comptroller and Auditor General; Rodney Allen, chief operations officer; and Brian O'Neill, director of corporate services. You are very welcome this morning. We look forward to hearing what you have to tell us, so please carry on and brief the Committee.

Ms Dorinnia Carville (Northern Ireland Audit Office): Thank you, Chair. Good morning, members. Thank you for the opportunity to address you all and to present our budget proposals for the next three- to four-year period. We have provided you with a written brief, which is in your packs, but, if you do not mind, I want to set out the context of our request, reflecting on what we have achieved over the previous year and our ambitions for the future. We will be happy to take any questions that you may have.

The Audit Office has been on quite a journey since we were last in front of you. You will appreciate that, when we were here in the past, we talked to you about the difficult environment that we were operating in with regard to recruitment and retention. We were very much facing significant sectoral recruitment challenges, which were impacting on our delivery as an office. With your continued support, we have invested significant time, resources and effort in raising the profile of the Audit Office and the work that we do. We have been working directly with universities and colleges, widening our engagement and providing information and opportunities to work with us, and also creating new and innovative roles within the Audit Office. I am pleased to report to the Committee that this has seen great success over the past year, and we now have almost a full complement of staff within the office, which will really pay dividends for us going forward.

Over the past year, we have also seen an increased interest in the work of our office, which is really positive and something that we continue to focus on with a wider programme of comms and engagement. Our core focus remains on delivering our statutory financial audit work, which is around 70% of the work of the office. To put that into context, every year, we audit over 150 sets of financial statements across the public sector. That provides assurance to the Assembly on over £30 billion of public money. We also continue to prioritise servicing the Public Accounts Committee, and that starts with ensuring that we have sufficient public reports to inform its scheduled work programme. Since 2023-24, we have published 38 public reports, nine of which have been selected by the PAC for inquiries to date. We are also dealing with ad hoc inquiries that arise from that Committee. We have seen our direct contact with MLAs increase over the period, responding to queries and assisting them as requested. We were also requested to attend the Committee for Infrastructure to give evidence and the Northern Ireland Affairs Committee at Westminster to speak about the fiscal framework for Northern Ireland as part of that inquiry. Our reports are routinely highlighted in the Assembly Chamber, which we welcome, and recent surveys that have been conducted independently of members have evidenced increased satisfaction in our work, and we have received increased scores from our external quality reviewer on improvements in the quality of our work.

That said, members, we cannot stand still. I am not saying that we are the finished product. We have high standards to maintain and build upon. We come today seeking a budget that is required to deliver on our corporate plan objectives, to continue developing as an organisation, to continue investing in our staff, to drive those high-quality financial and performance audits and, ultimately, to help us drive improvements in public spending and in public services.

Thank you, members. That was a high-level context. I will now pass to Rodney to provide a little more detail.

Mr Rodney Allen (Northern Ireland Audit Office): Thank you, Dorinnia. Good morning, Chairman and members. I will take just a couple more minutes, if I may. Chairman, my letter to you of 8 September summarised our financial requests, with a more detailed document attached, which is in the pack for members this morning. In summary, we are asking the Committee for its support for net resource budget increases in the region of 6%, 5% and 3% in each of the three planning years through to 2028-29. We have a very small capital budget — typically, it is £40,000 — and we are proposing small increases over the four-year capital planning budget up to £50,000 per annum.

Before I outline the main reasons, I will give a quick reminder of how we spend the existing budget that you have given us. Around 70% goes on direct costs to our staff — payroll costs, essentially. Approximately 14% of the budget goes on contractual arrangements with the private sector for delivering audits on our behalf in partnership with us. The remaining funds go on the very small administrative costs of running the Northern Ireland Audit Office. Pages 6 to 8 of our document contain the detail around why we are asking you for an increase in our budget. In these opening comments, I will focus on the two main areas of expenditure that make up 84% of that budget.

First, the significant increase for direct staff costs in 2026-27 is attributed to our full-time equivalent (FTE) numbers finally being at the level that we need. That is something that Dorinnia has referenced to you, and something that we have talked to the Committee about at length in the past, so it is really good news. It is slightly higher than the support that we have asked the Committee for previously, because we had the additional staffing resources associated with auditing the Department for the Economy and the disclaimed audit opinion, which is attached and will be attached for a few years. You are seeing that in the ask before you today. We have also included an inflationary uplift, in line with the advice given by the Department of Finance to the wider public sector. You will also see that staff costs for the subsequent two years have essentially been increased for inflation.

Secondly, we have a fairly significant increase in our contracted commitments with private-sector partner firms in 2027-28, because the existing contracts come up for procurement at a point next year, and we will have the full impact of the estimated new costs in that year. There has been considerable movement in market rates, and experience suggests that we will have significantly increased costs, compared with when those audits were originally contracted back in 2021.

In summary, the request equates to £11·9 million, £12·5 million and £12·9 million over the three years for a net resource budget. If you approve that, it will enable us to deliver independent and objective assurance over what are the fairly significant amounts of public money that are being spent across Northern Ireland. Our proposal aims to strike, in the most efficient manner, a careful balance between audit delivery, quality, managing risks and, of course, employee well-being in our organisation.

The Chairperson (Mr Chambers): Thank you very much. I have a couple of questions, and then I will ask members whether they have questions. I note that depreciation decreases by 18%, 11% and 6% for each year of the proposed budget. What is driving that reduction?

Mr Brian O'Neill (Northern Ireland Audit Office): I will take that one, Chair. We get our building valued every year by the professionals in Land and Property Services. That is undertaken as part of our preparation of the annual report and accounts. As we have now been in our refurbished building for the past three years — since August 2022 — the capital spend has decreased and, accordingly, the depreciation has decreased. The figures that we have projected are our best estimate of what the depreciation will be over the next three years, and that will be clarified by Land and Property Services when it comes in to do its valuation of the building on 31 March every year.

The Chairperson (Mr Chambers): While the capital budget forms a small part of your overall costs, do you expect to fully utilise this year's £40,000 capital budget? Will you take us through the basis for a 12·5% increase in 2026-27, a zero increase in 2027-28 and an 11% increase in 2028-29?

Mr Allen: I will come in first. Thank you for that question. On the first part, we hope to fully utilise it. There is a degree of uncertainty around that, because it is difficult to pin down exactly what we want to use that budget for. It is very modest — in and around £40,000 — but it enables us to look at new and efficient ways of keeping the excellent building that you gave us a few years back in the form and fashion that it is in. We are also conscious of the things that we can do on net zero. I will maybe hand over to Brian in a second so that he can give you a sense of how we anticipate that capital expenditure increasing, year-on-year. I cannot say, hand on heart, that we will definitely utilise it all, but we will do our best.

Ms Forsythe: Thank you very much for coming to speak on this. I am pleased to hear that you are up to the staff complement that you bid for. You were here a couple of times over the past year when you were bidding for that, and you had a plan for what staff you needed because of the increased demand for work and to keep up the quality. Throughout the previous year, you had bid for it, we had approved it and you had underspent. Given that it has increased for 2026-27, will you remind us how much was underspent when you had the vacancies in the previous years?

Mr Allen: It was quite significant. In 2024-25, we gave back around 9% of our budget, but you will recall that we were very clear to the Committee because we needed its support to surrender, that we would surrender as early as possible so that the rest of the system could use the finance. The underspend was in the region of 9%. This year, there is a very different position because there was a lot of lag in filling the posts, so we were not dealing with the full-year costs. This year, we are dealing with the full-year costs. We have an internal KPI in our business plan to bring our budget, which is modest, in within 2%, and we are just about on target. We will not surrender anywhere near what we have put into the system in recent years, because it is a very different position, and we are delighted to be in it.

I have given a sense of our FTEs in the table on page 8. The Committee has given us that support, and I want to give you a clear understanding about where we have got to. I am delighted that there are people in the Public Gallery with us today who are some of the new faces in very important positions in the Audit Office.

Ms Forsythe: Absolutely. I remember you coming before the Committee at different times and going through the different challenges and recruitment pieces. It is hard to recruit professionals in the current climate, and it is good to see that. I know from the work that you do across other Committees and the queries that you receive that MLAs are very aware of your profile and status. Maybe I have missed it, or perhaps it was in your annual report last year, but I remember there being a headline figure about the public spend savings generated by the NIAO. I cannot remember how many hundreds of millions it was, just to put into perspective what we are spending to run your organisation versus the quantified savings. Was that in the annual report, or where did I see that?

Mr Allen: Yes, it was in our annual report, and we have a long history of hard quantifiable savings impacts, where the work of the office and the recommendations that go into the wider system deliver hard savings to the public purse. Over a long timeline, we can show a trend. Traditionally, over a 20-year timeline, it averages out at somewhere around 3:1 or 4:1. It is spiky, and there are some years when it has been considerably higher than that and others when it has been less. Over a long period of time, we are well and truly wiping our face, so to speak.

Ms Forsythe: It is really important to have those numbers, because we are looking at the budget and looking for a return on investment. The numbers for the savings are huge.

Mr Allen: The numbers are very big, and we have built in some important efficiency measures as well. We have not just been glib and expected to be given everything we want. We have tried to be as efficient as we possibly can be. Where we can do it is limited, but we have built them in. You are quite right: it is the big recommendations that, ultimately, go through the Public Accounts Committee that can make real savings and improvements for the public purse.

Mr O'Neill: Diane, you will also notice the quantitative impacts in our annual report and accounts. Over the years, as Rodney has highlighted, they have amounted to substantial amounts. Some years, the savings have been in the region of multiple tens of millions. There are spikes in what we can do, and we report on it where we can.

Mr Mathison: Thank you for your presentation. I echo Diane's comments, and it is good to see that recruitment has been a success since you were last in with us. Linked to that, the contracting-out cost seems to be an ever-rising trajectory. On a general level, to what extent has your recruitment impacted on the cost? Should we not see a reduction in those figures if you have got your internal staffing levels right?

Mr Allen: Essentially, the internal staffing levels are enabling us to do the 75% of the financial audit workload that still sits in the Audit Office. We spoke separately to the Committee last year and said that we had been taking a strategic look at the contracting-out costs. I drew your attention to it, and you quite rightly asked about the costs, but the market has moved very significantly, and we have done quite a bit of work on that. You will appreciate that it is commercially sensitive. I am more than happy to talk to the Committee about it, but if we are doing so, it would be helpful if we were in a closed session before we give more detail around that. We are looking very closely at that at present. There are real benefits in working in partnership with the private sector. This goes way back, as you will know, to 2001, when Lord Sharman did his report on the National Audit Office (NAO) and advocated for the 25% of NAO, and indeed, Northern Ireland Audit Office business to be with the private sector to reap the benefits, benchmark, and look at the efficiencies from working in conjunction with it.

The world has changed over that time. The professional standard of auditors has increased. We believe that we have a very efficient, modern audit methodology within the office, so we are looking very closely at the best way to deliver that within the Audit Office and try, perhaps, to reduce that 25%. Other audit agencies have been in a similar position. Audit Wales, for instance, took it all in-house a number of years back, so it no longer has any of its work contracted with the private sector. We know from consultations with the National Audit Office that it is in a similar position to us and, indeed, probably just a little bit further ahead of the considerations that we are giving to this.

I can give you and the Committee plenty of assurance that it is a very live strategic and operational issue for us in the office. There are challenges. If we were to bring more of that work in-house, to manage the peaks and troughs, that would predominantly involve people who work in financial audit, and you would almost say, if they are doing that work to certain timetables, as they are at present, that would be very demanding, which is fine and we can recruit for that. However, at other times, we might have staff for whom there is no work available. There is a conundrum there that we are trying to work through.

Mr Mathison: Essentially, if I am hearing you right, the contracting out is going to stay in some form. It is necessary to deliver your work.

Ms Carville: There are a couple of things here. As Rodney has said, we are looking at it from both a cost perspective and a timetable perspective, to try to deliver all our financial audits within the timetables laid down in statute or agreed with audited bodies. The ultimate accountability and transparency is to the Assembly. That said, the bid is a live issue. The bid that we have in front of you today reflects our current contractual commitments, and we typically contract with the market on a three-year basis with the opportunity of extensions. What we have in front of you is an as-is position. We are working on our current contractual arrangements in the longer term, and we will maybe want to have another conversation with you in more depth, in closed session, in the future.

Mr Mathison: With your permission, Chair, I will ask an extra question about the budget ask.

The Chairperson (Mr Chambers): Yes, go on ahead.

Mr Mathison: This is an as-is ask, so are you confident that those figures cover the rising costs? Are you likely to be hit with costs rises from your contracted-out services? Or is this largely fixed?

Mr Allen: We have estimated what we think the market rates will be, but only when we go to procurement in the months ahead, Nick, will we know. Hopefully, our estimates are reasonable, but we might find ourselves in a position where we might have to put our cards on the table and come back to you to say that the market has moved beyond even where we anticipated that it would be. That segues right back into the conversation that we have just been having about what the future should look like.

Mr Blair: My question is on the same theme: the contracted-out costs. Thanks for the information. Apologies for my lateness, which was due to traffic, by the way. I gave my colleague a quick call on the way here to explain that.

Just to further clarify the contracted-out cost increases forecast for 2027-28 and 2028-29, is that purely related to expected increase in the costs of those services? Secondly — I will give you both questions at once — if this goes ahead as planned, with those increases, will it result in an increase in the number of audits that are done? Is there any forecast, at this stage, of what that increase in the number of audits might be?

Mr Allen: Again, I will kick off, Chairman. Thank you, John. On the first point, the increase in costs in those two years is — you are quite right — solely to do with our anticipated additional costs at the existing contracts. It is solely that.

To your second question, the simple answer is no. No additional audits will be done. That said, at the moment — we referenced this briefly in the paper — there is one new audit that will come to the Audit Office under legislation in the period ahead. It is not a particularly big audit but it is a new one, for which we are not asking for additional resources, so it is another one of our efficiency measures. That is slightly tangential, but the key point is that the additional costs are solely to do the existing work — no additional financial audit work.

Mr Blair: With your permission, Chair, I will ask an extra question. That therefore suggests that we should not expect — I think I know the answer to this, but we will get clarification anyway — that any increase in the number of audits requested or expected does not necessarily immediately mean a request for increased funding. Some of those will be managed with the resources that you have.

Mr Allen: Yes. We will do our best, but if particularly significant audits came on stream, we would probably have to have a different conversation with you. That is one of the efficiency measures that we try to take.

Miss Dolan: Thank you for coming in and presenting to us. Nick and John have covered most of my questions on the contracted-out work. On staff retention and recruitment, what steps have you taken to ensure that you will be able to recruit and retain staff, given the issues with recruitment and retention in the past?

Mr Allen: Thank you, Jemma. First, I am really delighted — I cannot emphasise this enough — with our training programme. I have talked to the Committee, and one of your party colleagues in particular, about it before. It is really important that we maintain our training programme for graduates and higher-level apprentices in the period ahead. We have built in steps. We have estimated attrition. We still expect some people to leave us, but the rate of leaving has dropped significantly. The market has really changed out there, but people will leave. In tandem with that, we have a succession planning challenge in the office, because, like me, one in five of our staff is a person of a certain age. I do not want to be ageist; you and I are good friends, John. I am not being frivolous, but the point is that we have to plan for that. That is really important in the years ahead. We will continue to see a good bit of change.

We are constantly looking at how to provide an excellent package and terms and conditions. It is not just about payroll; it is about people's well-being in our organisation. We invest in our people. We strive for more. We belong to Investors in People. We have an excellent package. They are very talented people, and we want to retain as many of them as we possibly can. There was another thought in my head, but it has just gone. I will defer to Dorinnia, who wants to come in.

Ms Carville: As I said, we have looked at the training offering, because, when we were struggling to recruit from the external market, we thought about — pardon the expression — growing our own. We take in graduate trainee accountants, and we will continue to do that. Over the past couple of years, our higher-level apprenticeship programme has been really successful. That involves bringing in young people straight from school. During the year, we have expanded that offering across the region. We started the programme exclusively with Belfast Metropolitan College, and we are now in regional colleges more widely to try to spread our offering across Northern Ireland. That has been really useful.

We have started a programme with Queen's whereby two master's degree students have come to us for a three-month period. We have seen that play out in their seeking full-time employment with us or going back to their classmates and telling them about their experience with the Audit Office. Our first higher-level apprentice has gone right through from 17 to chartered accountant. It has been really successful. It is really important for us to be a training organisation and to continue to invest in that at all levels, because it is not just about the training programme but about the in-house experience, the in-house coaching and the learning that they get from other staff members.

On our attrition rate, in the past three years, when we have lost members of staff, we have often lost them to elsewhere in the public sector, and there is a bit of good in that. We have been a very successful training organisation, and we train high-quality individuals. In some respects, selfishly, you do not want to lose those individuals from the organisation, but I do not mind as much if they go elsewhere in the public sector and promote good accountability and good governance. In the main, that has been where we lose our staff to.

We have invested heavily in an employee people programme. We have a lovely office space that you have been to. We are really targeting the health, well-being and work-life balance of staff. We try to facilitate that where we can, but there is still a high expectation of quality audit work.

Hopefully, it is still a very rewarding place to work. We continue to work really hard and have invested in some specialist posts to support those programmes and support a diverse training and skill set across the office that is not just about audit.

Mr Allen: I have two points because you gave me nice thinking time there. Dorinnia touched exactly on the point that I was thinking of, which is that I am really proud of the fact that we have our very first higher-level apprentice. So, while I am talking to you about succession planning, it is wonderful to see, at the other end, that we have a young person in their early twenties who joined us from school and is now a fully qualified accountant. That is exactly the sort of talent that we want to grow in the organisation. It is tremendous and something that we have been hungry for for some time. There are others coming in the pipeline.

On Dorinnia's point at the very end, we can often major in it, because most of the office is made up of people who are doing front-line audit, financial auditing and performance auditing, but we should not lose sight of the fact that business is changing, and things are evolving. We have specialists in IT audit, data analytics and communications. We have a head of people and organisational development, a head of corporate services and a head of corporate affairs. Those are other posts that we have brought into the business. They are very talented people.

To go back to the start of your question, it is about keeping those people motivated to do what we want to do in public audit and to make a difference in our organisation. Hopefully, that will inspire them to stay with the Audit Office, but we will have some attrition.

Miss Dolan: You have sold it really well. You seem to have done a lot of work, so I congratulate you on that. Not many organisations would take on board the fact that although you need professionals, you need to provide a work-life balance as well. Keep up the good work.

Mr Allen: Thank you.

The Chairperson (Mr Chambers): Thank you very much for coming along this morning and giving us the briefing. On behalf of the Committee, once again, I place on record our appreciation for the important work that you do on behalf of the public.

Ms Carville: Thank you very much, members.