National Assembly for Wales

If I move on to item 2, which is the papers to note—we've got six papers to note there. Unless anybody has any comment on any of them, I propose to note those for the record. That's great. Okey-dokes. 

So, our substantive item this morning. Welcome. 

And the Auditor General for Wales. I just wondered if you'd introduce yourself and the team for the record, please. 

Certainly. I'm Adrian Crompton, the auditor general. I'm joined by Kate Chamberlain, the chair of the Wales Audit Office board, Kevin Thomas, who's our director of corporate services, and Ann-Marie Harkin, who's the director of audit services. 

Wonderful. Thank you very much and you're very welcome this morning. Our item this morning is a scrutiny session on your estimates and interim report. Obviously, as I said just now, there will be a copy of the transcript there for you to check for accuracy afterwards. We've got quite a few questions to get through so we'll crack on. The first question I've got, and we're just trying to understand the overall levels of cash and resource that you're requesting in 2024-25: in your estimate, it notes the pressures on public finances and refers to the Minister for Finance and Local Government's letter to this committee outlining a very tight budgetary situation. How does your estimate for 2024-25 reflect those pressures?  

Diolch, Cadeirydd. If I kick off with that one, and if I may just set the scene for the budget, the proposal before you is for an increase in our baseline funding of 5.9 per cent resource, and I’m conscious that, if you read the estimate this year, it has a slightly different tone and focus to previous years. That, in part, is very much reflective of the Minister’s letter. We’re very cognisant of the pressure and context that she describes, and, indeed, you’ll see in the estimate that we’ve delivered some very significant cost reductions and efficiencies in the last few years, and we continue to do so.

It is that wider pressure on the public finances I think that makes the work that we do all the more essential. There has never been a more important time for us to be gaining value for money out of every pound of public money that we spend, or for you as Senedd Members to have the assessment that we can provide on how finances are being managed in the public sector, and wider governance issues as well. I’m also conscious that, as your auditor general, it’s part of my responsibility to make sure that we explain what it costs to provide that sort of public audit service, and importantly, the implications of not being able to do so. If we can’t deliver our work, the Senedd and the people of Wales will very quickly start to see weaknesses and failures in public organisations where the costs will far outweigh the costs of Audit Wales. And this is not a theoretical risk. If you want to see what that looks like, you need only look across the border into England, where the system of public audit for local government and the NHS is in crisis. We’ve touched on some of that in our report, and you will have seen it manifesting itself in the collapse of numerous local authorities in England.

In Wales we are in a much better position, I’m proud to say, but we’re not complacent, because we’re undoubtedly behind where we want to be. It feels to me as though we’re kind of clinging on a bit by our fingertips at the top of a pretty greasy slope, and of course we are seeing the cost of some of those failures in Wales as well—reference our work in Betsi Cadwaladr as an obvious example, but today I’m also publishing a public interest report into events at Amgueddfa Cymru, the national museum.

The solution, as it were, that we propose in our estimate is a relatively straightforward one, because everything that we do is reliant on our staff—85 per cent of our cost base. We are struggling to recruit, retain, to motivate and train the high-quality staff that we require, and that, in part, reflects that the pay uplifts we’ve been able to give to our staff—4 per cent this year and 3 per cent last—have lagged way below inflation but, importantly, considerably below other parts of the public service in Wales and our counterpart audit agencies elsewhere in the UK.

So, you’ll see in the estimate a big driver for us is the need to give our staff an increase in their pay next year, but our estimate too is requesting some investment in the future. So, one thing that is keeping us above water at the moment is our trainee schemes. So, our apprenticeship and graduate trainee schemes now account for 60 out of about 280 of our staff. It’s a very significant part of our workforce, and having that regular flow of newly trained, qualified staff is essential to us. So, you’ll see in the estimate we’re proposing a further enhancement of those schemes to broaden them and strengthen them. The benefits from that will not be immediate. Indeed, I will not be the auditor general by the time people come out of the other end of the scheme. But it would mean that I would be able to hand on to my successor and to the next Senedd a more resilient workforce model. I hope that’s helpful to set the scene.

Thank you. Probably a good question for Kate, then—how does Audit Wales obtain assurance that the budget is reasonable? So, what challenge have you as chair and the board provided to the auditor general, and are there any contentious areas that you've looked at in the preparation of the estimate?

Just to summarise very briefly, then, it's the board's role to ensure that the provision of resources required for the auditor general is sufficient. It's our job to monitor the way in which those functions are being delivered and it's our job to provide advice about those functions. But we have to do that in a way, clearly, that doesn't compromise the independence of the auditor general in going about his role. 

But I think it's important to recognise that this estimate is a joint estimate. It's submitted by myself as chair, it's submitted by Adrian as the auditor general. And in arriving at this, during its preparation we've had discussion of this formally at board meetings previously, and informally outside of board meetings. We have an opportunity as a board to contribute to the direction of travel, but also to explore some of the assumptions that underpin the final estimate as it's prepared, to make sure that we're comfortable with the estimate so that I can sign it confidently in terms of presenting it to you. 

We are very aware of the impact of scarce financial resources on the delivery of public services and risk in the delivery of public services, and I think Adrian has described those very clearly already, so I don't want to go there. But we're also very conscious of the internal pressures, as you'd expect of the board. We are very aware of the problems with recruitment, retention, morale, the ability to staff up, to deliver to the right time. We receive regular reports on performance, on delivery and we get the chance to speak to staff and to speak to a wide variety of different interests during the course of our work. So, there has been that formal challenge through the board process. There has been the informal discussion that has let us get to the bottom of some of the challenges that face us. 

I think I can assure you that I'm satisfied that the budget proposal is reasonable in the circumstances and I certainly support the priorities that are set out in this estimate. As Adrian has very clearly said, staff have to be our priority; we have to have sufficient, highly trained, qualified, motivated staff to be able to deliver the service that we think that Wales deserves.

So, I can assure you that scrutiny has taken place within the Wales audit office. I support the estimate as it's presented.  

Okay. Thank you very much. The next question, I apologise, is a little bit long. It's trying to grapple with what you've presented to us and understanding percentages and increases and movements and—. So, here we go, let's see how we go, but hopefully you'll be able to explain it to us. 

In your supporting information, you describe your estimate as not seeking an increase in cash, but a 5.9 per cent increase in resource. However, when items outside of your baseline are included, the increase in cash terms is 5.6 per cent, and for resource it’s 11.9 per cent. If we also exclude movements in working capital for which you've had an additional £350,000 for dilapidations last year, the increase is actually 10.3 per cent in cash terms. However, if you then adjust for your baseline, this could be a cash increase of 4.2 per cent. Which one of these percentages is correct and can you explain why you've taken the approach to presenting the estimate as you have?

Well, I'll try and kick off. I'm surrounded by qualified accountants, so I'll defer to them on some of the more technical aspects. Which one is correct? I'm sure all the arithmetic is correct as you describe. By far the most meaningful one is the 5.9 per cent increase in resource that I mentioned at the top of the meeting. We have this issue each year, I think, with having to present to you what we describe as the baseline, because in any ordinary year we have the biannual national fraud initiative moneys coming in, coming out. So, we keep that below the line so as to give you a meaningful year-on-year comparison. 

For this year, below the line, we also have the adjustment from the payback that we've been making in the last two years around the travel allowance. We've kept it there for exactly the same reason. It would be misleading to have included that in the baseline over the last two years and now. From now on, it will simply be rolled into the baseline. 

On the point I think you raised about working capital and the dilapidations, I'll defer to Kev in a moment—. Yes, we had an increase in working capital adjustment last year to reflect the potential provision for dilapidations on Cathedral Road. For next year, that will drop out. So, I think there may have been some confusion there. But, Kev, could you address that? 

Yes. That's right, Adrian. We include a notional sum in the estimate each year. 

I think that was £200 million—no, £200,000 normally. 

Two hundred thousand, yes. So, it's impossible to predict at the start of the year what movements in debtors, creditors and provisions will be, so we include a notional sum of £200,000 in the estimate each year. We've done that for a number of years. For 2023-24, we increased that by £350,000, specifically because we knew that we would be releasing a significant dilapidations provision on the old office in Cathedral Road, so we'd need to make a physical cash payment to settle that. There was no impact on resource, because we'd built up that provision over a number of years during the lifetime of the lease, so that was a one-off addition that we wouldn't need in future years. So, the working capital provision in our estimate drops back down to the £200,000 again. 

Okay. So, with that then, is it appropriate to roll £350,000 of the £550,000 for movements in working capital associated with one-off costs and dilapidations into your ongoing budget? Or are you not?

We're not rolling that forward; what we're rolling forward is the £200,000, the standard notional sum. 

Right. Okay. So, coming back to—. So, you're confident that the 5.9 per cent is the figure that we should be looking at and that's the most accurate. 

Absolutely. 

Right. Okay. Thank you. Looking at—. Going back to the travel allowances and those elements, 2024-25 will be the first year following the pay back of the funding utilised to implement changes in the travel allowance. Can you then confirm that by 2024-25 you will have repaid the full £708,000 cash utilised in implementing the travel allowance changes, and that the estimate reflects the £200,000 ongoing savings associated with those changes? 

'Yes' to both of those. 

Yes. That's fine. And then could you also confirm that as you will not need to repay any funding associated with the travel allowance from 2024-25, the £354,000 of funding previously removed from the baseline in 2023-24 remains available in your overall budget? And, if so, why should this not be considered an increase in your funding?  

So, 'no' to the first part. There's no more further repayment needed. The £354,000 is not an increase in our budget. It is the sum that we have been repaying over the last two years, but there are still ongoing costs for us of the travel scheme and adjustments we've had to make in the light of that. So that has always needed to be included in the baseline figure. 

Fine. Okay. Thank you very much. So, the estimate sets out a net cash requirement for 2024-25 of £9.127 million. This is an increase of £485,000 compared to 2023-24. In resource terms, you are requesting £9.459 million, which is an increase of around £1 million. Can you explain why the increase in resource is much larger than for cash? 

Kev. 

Sure. So, there are two factors resulting in that difference between cash and resource. The first one relates to the international financial reporting standards 16 costs associated with our new offices in Capital Quarter. This is the way in which we now account for lease assets. We account for the lease over the whole of its lifetime, over the whole 10-year period, and we equalise the costs in each of those 10 years. But, as part of the deal for the new office, we have a rent-free period in our Cardiff office, so it means we need less cash than we need resource in the first year of the lease. The second reason for the difference is the one that I've just mentioned before around the cash requirement to cover the release of the dilapidations provision to make full and final settlement following the move out of Cathedral Road. And we won't require that in 2024-25; that'll be settled.

Thank you very much. I think it gets to the bottom of this, and maybe, going forward, splitting out the movements to positive and negative movements, rather than lumping them as one net figure, might be a better way for us to be able to understand what's happening. But that's something that we might like to explore again.

Your estimate, then, outlines proposals—and I think you mentioned it earlier, Adrian—for the pay award. It outlines proposals for a 3 per cent pay award relating to a pay shortfall over the last two years, as well as a 5 per cent estimated uplift in 2024-25. It also talks about a £900 uplift from April 2024, associated with the changes to the travel allowance. What is the total cash value of the pay awards in 2024-25 for the elements funded via the Welsh consolidated fund and how have you calculated the level of increase per post?

Okay. So, the total value—. I think, if you look at the figures in appendix 1, that's where you'll see the total staff costs for the organisation. The increase is £2.4 million for the coming year. Of that, around £1.6 million will reflect the proposed uplift in salaries for next year, and the share of that that is apportioned to the WCF will be around a third, so £540,000 or so, and the remainder obviously reflected in our fees. 

Fine.

Did you ask how we've arrived at the per-post increase?

Yes.

Yes. So, I mentioned at the top that we've benchmarked ourselves against our counterpart UK audit bodies, the Welsh Government and the Welsh civil service, the NHS and local government over the last two years, and we have lagged behind all of those bodies and sectors in each of those years. I don't want to imply that this is putting our finger in the air, but I don't want to over-imply that it's a scientific exercise. We think a 3 per cent increase is a reasonable one to reflect the degree of lag over the last couple of years; it certainly wouldn't put us back at the top of that group, but it would put us more in line with them. And a further 5 per cent uplift we feel is reasonable in the current economic circumstances and what we're seeing and hearing in the wider sector, cognisant of exactly where we started this conversation—what is reasonable and affordable in the context of the overall pressures on the public purse.

Okay. Thank you. I think Peter wants to take it forward from there.

Yes. Thanks, Chair. Good morning. On the same sort of theme, then, is the proposal for the pay award across all grades and roles, or are you going to take more of a targeted approach, where you're perhaps feeling more pressure in retention?

At this stage, we've not decided that, so the proposal is for the increase in our pay budget. We've yet to receive formal requests from either of our trade unions, but I anticipate that we will, and, obviously, we'd be very interested to hear their views on exactly that point—whether their preference is to see an across-the-board uplift for all staff or to focus on particular grades or skills. Alongside that, we have commissioned some work from a specialist pay review body called QCG, who specialise in the regulatory sector, so the intention behind that is to get some further data on whether there are cases to be made for particular settlements.

Have you had any feedback from staff who are leaving on why they're leaving? Is the money a big issue, or—?

I'll defer to Kevin in a moment, but, yes, we undertake exit interviews with staff. Not all of them take it up, but we make the offer to everyone. For those who have been leaving to private sector firms, pay and career progression is undoubtedly one of the pressures. Across the wider group, it's fair to say that people leave and move on for a variety of different reasons—lifestyle choices, family pressures, caring responsibilities, all sorts of things—but pay and career progression is undoubtedly in the mix, yes.

Yes. With the shortage of staff you've got and trouble to recruit, you'd think there would be a pretty good progression opportunity through the organisation, wouldn't you? That's an aside from my—

No, you're absolutely spot on, Peter. There is an upside to so much staff turnover for those staff who benefit from it, yes. You're right.

Are you satisfied, then, that after the uplifts outlined in the estimate your staff pay is at a level sufficient to resolve some of those recruitment and retention issues?

We will not be at a level where we can compete with the baseline remuneration that's offered by some of the other firms, but, in our view, this not only will take us to a better position where staff will see and recognise, essentially, more comparability, certainly with their peers in the wider public sector, but I think for us it's also about the signal that it sends to staff about how we and the Senedd value them and value their work. Is that fair, Kate?

I think that's very fair. I've talked before, I think, in this setting about the demotivating effect of seeing others move forward, and I think this is an opportunity to reset in terms of that and make sure that staff realise they are valued and the work they do is important.

Thank you for that. You talked about the importance of the trainee scheme. How many more trainees will this additional funding in the estimate enable you to recruit and what additional resource will you need to deliver an expanded programme? Given issues around retention, will you be looking at different ways of encouraging those staff to stay?

I'll defer to Ann-Marie, because she has a very strong attachment to the training scheme, so I'll hand to her.

Thanks, Peter. We're looking, with the additional funding, should we receive it, to recruit an additional three trainees and a work placement. We're trying to get people while they're at university, as well, interested in a career in public finance. The idea is that it would pay for a work placement as well. I think all the feedback we've had suggests that we're a good employer, and I think, when we recruit people, we try to recruit people who not only want to be accountants, but want to work in the public sector, and I think we carry that on through their training, which is why, historically, we've been very good at retaining trainees as qualified accountants.

We have consulted about the level to which staff are leaving on qualification, and it is obviously a concern. One of the things that we've had feedback on is that, because we appoint people on a fixed-term training contract, they lack certainty as they're coming towards the end of their training contracts. One of the things that we're trying to do now is to actually give them that certainty earlier. So, for example, for the cohort due to leave us next September, we're looking at how many vacancies will we have, and I think that's really important, because that certainly is the feedback that we're getting, that they want certainty, and I can understand that. Equally, they're on fixed-term training contracts, which is standard practice, but also because, historically, we haven't had these levels of turnover and we couldn't commit to giving 15 people who newly qualified a role every year.

Of course, one of the big benefits of this scheme is that it's collaborative, so it's in conjunction with the wider public sector, and the funding that the Senedd provided historically has enabled us to send around eight trainees a year out to other public bodies in Wales, whether that be the health service, whether that be local government, to actually undertake a stint, free of charge to those bodies, learning about what it's like to be an accountant and learning a little bit about the wider public sector and the challenges that they face—so, less as an auditor, but more as an accountant. What that has meant is that, if they don't stay with us, we would hope that they would stay with other public bodies in Wales because they've got that passion for what the public sector has got to offer.

That makes sense. Thank you for that. I’ll move on to a slightly different area. You say funding for both audit work not funded through fees and your good practice exchange is increasing in line with the proposal for fees. Why are you taking this approach?

Why are we increasing funding for GPX in line with the fees? 

Well, that's what I'm assuming the question—[Inaudible.] [Laughter.]

It's a reasonable question. I'll answer that one. [Laughter.] It's a simple answer: we treat staff who are delivering our GPX programme in the same way as other staff, where we recover the full cost, including overheads, through fees, and we treat our GPX staff in exactly the same way. So, that's why they're increasing.

Okay, that makes sense. You have included additional funding of £41,000 for work associated with the extension of the Well-being of Future Generations (Wales) Act 2015. Have you spoken to the future generations commissioner about this, and do you know if there will be additional funding made available to his office for the related purpose?

I spoke to him only this week, and we speak regularly, and certainly our offices also liaise very frequently. And on this issue, I've been talking a lot with the Welsh Government as well about the cost implications of the proposals to expand the Act.

As for the commissioner's own funding, he's funded in an entirely different way; he's funded directly from the Welsh Government. I know he will have been speaking to the Welsh Government about the cost implications for him of the extension, but I'm afraid I'm not privy to the outcome of those conversations.

No, fair enough.

Talking about other impacts on your work from other bodies, you've sent a letter to the Senedd Reform Bill Committee around the costs associated with the well-being of future generations Act. Can you talk to us a bit more about that letter and what that means in the wider sort of Senedd reform context?

Yes. It was a relatively straightforward point in relation to the Senedd reform Bill, in that I understand it proposes a reduction in the term of the Assembly from five years to four. The well-being of future generations Act requires me and the commissioner to report once in every Senedd to the Senedd on our work across all of the bodies captured by the Act. So, clearly, if I'm required to do that once every four years rather than every five, that will have a consequent impact on cost. So, I felt it important to flag that to the committee, to make sure it's included in the regulatory impact assessment.

Have you thought through how much that impact would be? What the quantum might be?

Yes, we've put a figure on it, but what that is, I'm afraid I don't know off the top of my head.

But it's in the letter.

Also in the letter, and more widely, when I reported in the last Senedd on the Act, I recommended to the Government that it do some post-legislative scrutiny and review of the Act to refresh and improve it in the light of experience. In this context, I would still encourage the Government to do exactly that, because I would say there are undoubtedly ways in which simply the duties that are placed on me could be streamlined and made more straightforward, made more effective, but also capable of being delivered at less cost.

So, basically, they're expecting you to do 20 per cent more work per year in that area.

In that space, yes.

And that would require quite a significant uplift in resource, I presume.

It is, and, until this point, we have absorbed the cost of doing future generations Act work largely into our work programme. I felt it really important at this point to draw a line under that, because, all the time I'm doing that, clearly it's restricting my ability to do other discretionary work. So, although the sum in absolute terms is not massive in this estimate, I feel it's a really important point of principle.

Yes. I've got one last formal question: 2024-25 is a year of increased costs for the national fraud initiative. In September you spoke about the funding returned for 2022-23 associated with this activity. Do you foresee any similar issues arising in 2024-25? Are you taking any additional steps to ensure that the full programme is delivered and are there any risks should this not happen? 

I don't believe we anticipate the same issue.

No, we don't anticipate returning any. And the funding—the issue in 2022-23 was that we'd requested and had received funding for specific projects that didn't go ahead for external factors, but we do expect to spend the money in 2023-24, and there's work ongoing at the minute on a data-matching pilot on general practitioner registration. We're also doing some data analytical work on community pharmacy as well. And we would be looking next year to do something similar in the analytical fraud space as well. So, the short answer is, no, we're not anticipating a similar problem occurring this year and next year.

Thanks, Ann-Marie. Thank you.

Thank you, Peter. Mike. 

Diolch, Cadeirydd. You note a £90,000 increase in costs associated with a change to employer pension costs, £20,000 of which will be funded via the Welsh consolidated fund. Has the Welsh Government confirmed that funding is available to support this? 

Thanks, Mike. The civil service has announced that there's going to be a change in employer contribution rates from next April, following a revaluation of the scheme. The UK Treasury has confirmed that funding is going to be available. When we've seen similar changes in the past, that's the approach that's been taken. There's been a signal from the Treasury that the funding will be available. That's flowed through to Welsh Government and then on to bodies like ourselves. Of course, we don't know the detail yet of the Welsh Government budget, but I understand that that'll be confirmed later this month with the November budget statement. 

Thank you. In 2024-25 you are offsetting some of your request for funding through a rent-free period at your new Cardiff office. Will we expect an increase in costs for 2025-26 when the rent-free period ends and where can the committee see these movements in the estimate? 

No, we wouldn't expect a change in costs next year. Accounting treatment requires us to account for the cost of the lease in equal instalments over the lifetime of the lease—that's over a 10-year period. So, the resource budget for each of those 10 years is unchanged. I mentioned earlier that we've got these rent-free periods in the first full year of the lease, so our cash requirement is lower the first year; it'll be higher the next year. The costs of the lease remain the same for the lifetime of the lease.

So, it's one of those accounting situations where the costs are unaffected but cash is affected.

It's the timing of the cash, yes, Mike.

Last year this committee recommended that you provide a breakdown of how specific elements of your capital funding will be spent. You haven't done this for 2024-25. Can you explain how the £310,000 capital funding, requested in your estimate, will be allocated and how you know this is the amount you require? I'm very happy to receive a written answer.

I'm happy to provide that, Mike, but very briefly, of that £310,000, about £110,000 will be our ICT programme and the vast majority of that being routine replacement of laptops on a rolling basis. The remaining £200,000—we have an extremely small capital budget—is our assessment of what is reasonable to do: some further work on the estate, some of the systems development that we have in mind. 

Can I move on to the accommodation needs in Penllergaer? Penllergaer is not in my constituency, by the way, but it's just over the border, so I don't have a constituency interest, but, obviously, I have an overall Swansea interest. Can you outline what options you are exploring and whether you anticipate requesting additional funding for this purpose? 

Thanks, Mike. Yes, so, Penllergaer is the final part of our estates review and we'll be looking to board to make a decision as to what to do about our west Wales accommodation next springtime. That would allow around about a year before the move would actually have to happen. So, we'd either have to move out of Penllergaer by March 2025 or make a decision to extend, renew, that lease.

We're just starting to explore options at this point in time. One of the things that we did with the previous two moves—the one in Cardiff and the one in north Wales—was to have a great deal of engagement with staff. I think that's really important in terms of securing the right accommodation that supports both our business needs and our staff's well-being needs, and that's something that's going to happen over the next six months or so. Nearer the time, we'll be looking at whether or not we would need additional funding for that. There is that IFRS 16 adjustment that would certainly be necessary to account for such a move, but anything that we did is likely to be on the sort of scale of what happened in north Wales, which was relatively small, rather than what we saw in Cardiff, which was more substantial. 

Okay. Thank you very much. 

Is that you done, Mike?

That's me done, yes. 

Lovely. Thank you. So, can you provide further information on your movements in working capital calculation for the year and the change on 2023-24? For what purposes have you allocated—? I think we know that the £200,000 is that bit, but then is the offset—does the reduction from £550,000 to £200,000 offset the overall increase in the budget? 

The requirement itself comes about because of our funding regime, where we can't retain any cash. We have no flexibility to keep cash at year end. Anything that we have that is unused is repaid in full to the consolidated fund at the end of March. So, as I mentioned earlier, we include this notional sum to help us manage our finances, and it accounts for changes in debtors, creditors and provisions. So, by way of example, if our debtors increase at any point in time—and they can do that for any number of reasons—. So, for example, it may well be how our own audited bodies are looking to manage their own cash flows, then that means we've got less cash than expected. So, we need to provide some sort of contingency or cushion to ensure that we've got sufficient cash when we need it.

We've arrived at that notional sum. It reflects a relatively small amount, probably about 1 per cent of our total annual debtors and 4 per cent of our total annual creditors. And, of course, whatever we do, if there's unused cash at year end, it's repaid in full to the consolidated fund. So, there's no question of us retaining that for any purpose. 

So, does it affect the percentage increase, then, or is it just neutral?

It doesn't affect the percentage increase, it's just simply something to help us manage our cash position during the year because of those unexpected movements that we might have. You can't predict at the start of the year what your debtors, creditors and provisions are going to look like in 12 months' time. 

Okay. Thank you.

We seem to talk a lot about working capital in this committee, and it may be that you don't see it quite so much in other bodies. I think, in part, it reflects the nature of our funding regime. With so much dependent on fees, we have a lot of potential debtors—all of our audited bodies—and we have to manage not only income in from them but also potential reimbursement if we need to pay back to them. So, our model necessarily drives quite a significant adjustment at year end. 

Okay. Thank you. Thank you very much. Rhianon. 

Thank you very much, Chair. So, just to be clear, because there's a lot of information in here, the Minister has stated that budget requests should be set in the context of the long-term financial funding situation in Wales and the funding pressures of the wider public sector. So, you are, then, requesting an increase in resource terms of £1 million and a net cash increase of £0.5 million. I'm not quite sure I caught that. It's quite difficult; there's a lot outside the baseline, isn't there? So, can you just clarify that for me? I'm sorry if I missed it earlier. 

No, not all, Rhianon. Just let me get the numbers in front of me. The 5.9 per cent increase that I talked about for baseline WCF funding for resource amounts to just over £0.5 million.

Fine, but it's £1 million more in terms of resourcing, is that correct? I'm not quite clear I got that.

No. The £0.5 million is the resource increase on the baseline WCF—so, the most meaningful year-on-year comparison. It would be £1 million if you looked at the total WCF, but that, of course, takes into account the numbers that are below the baseline, so, like the national fraud initiative funding, which only comes in and out every alternate year.

Okay. I think it's that baseline issue that's confusing the situation. Okay, thank you for that. So, moving on, in terms of the proposals for fees for audited bodies, you're proposing the average increase to 6.4 per cent. So, in terms of the reception around that, that's, I presume, different to the consulted-upon fee increase and higher than the increase projected in 2023-24, so can you just give me a little bit of detail around that? How's that going to affect people, do you think?

Certainly. I'll ask Kev to respond.

Sure. Thanks, Rhianon. So, it's the same level that we consulted on. We had 18 responses to the consultation exercise; a number of those were sympathetic to the increases that we were proposing, particularly in the context of both inflation, but also significantly higher increases that we're seeing from private sector accountancy and audit firms. Having said that, the responses also highlighted concerns around the budget pressures our own audited bodies are facing. Equally, we're sympathetic to that, and the board took a decision to increase our savings target from £260,000 to £400,000. That would have reduced the increase, but we've just talked about that increase in employer pension contributions of £90,000 that we've had to account for, so this increase in savings target has meant that we haven't had to increase fees any more, but we've had to retain them at that originally proposed rate.

Thanks. So, that's absolutely as consulted upon. So, you've also spoken about the impact of the new auditing standards on costs and that your scheme says you're going to evaluate that impact of the new way forward. So, have you factored that into your proposed increase in fees for 2024-25, and when will you know if the estimates of the increased resource requirements are accurate?

Is it okay for me to come in? Thanks, Rhianon. So, yes, you're right, we increased the costs of our audit work last year to take account of the new auditing standard, which required a higher skill mix, and therefore, the audit itself was more expensive. Our experience now that we've started to implement this revised standard has been that our estimate was pretty right, actually—we weren't far off. There are some cases where the cost of the audit has been more than we estimated; there are equally some audits where there will be a refund to the audited body because we were able to bring the audit in under the projected cost as well.

For 2023-24 audits that will be largely done in 2024-25, we're not proposing to change the audit approach; we're proposing to—. So, we've got this year, we're still taking stock of this year, we're going to keep the audit approach as it is next year, which would mean that you wouldn't expect the cost to change massively. But, as part of that, there may be some efficiencies because it's the second year that the teams are doing this, so, obviously, there's learning there as well. Of course, the beauty of the regime that we're in is that should we come in under the estimated cost, we have to refund that additional money to the audited bodies. So, I don't anticipate any huge changes for 2024-25 in terms of cost, but we are still keeping a watching brief, to the extent that if we come in under, we always return that money to the audited body.

Thank you for that. Moving on to the annual plan for 2023-24, you've suggested that there are issues in terms of meeting statutory deadlines for the 2022-23 audit work, but that there will be a carry-on possibly to 2023-24. So, could you just expand on this for the committee, but specifically, can you highlight the scale of that backlog, mentioned in the estimate? For instance, what proportion of those audits do you plan to deliver in 2023-24? And also, how does that ongoing backlog obviously impact the estimate for 2024-25? I'm happy to break that down, if needed.

I'll start and you can ask me any further questions if I'm going off down the wrong track. We have delivered so far this year the health accounts and most of the central Government bodies, and we have delivered to statutory deadlines. Betsi Cadwaladr health board was a little later than the agreed deadline with the Welsh Government. That was for reasons that you're sighted of, but we still met the statutory deadline.

The position with local government is more variable, and I'm currently anticipating that of the 40 local government bodies, we will complete around 25 of those by the statutory deadline, or the deadline of 30 November, which is not where we would want to be. But for all the reasons that we've discussed—staff turnover, a new auditing standard, the backlog, still, from COVID—that's the position that we're in. In most cases—

Sorry to interrupt you, but just to touch upon a theme, how much of an issue is the staff turnover in terms of being able to fulfil the statutory duty and meet the deadlines? Just, scalicly, how much of an issue is that?

It's huge. You can imagine that it's not even the level of vacancies that you're carrying, and we're carrying more vacancies than we would want to carry, and we're struggling to recruit to those vacancies; it's who you lose, as well. What we're losing is staff with considerable experience, and of course if you start an audit, an audit could be 400 days, and if you start and you've got one audit lead, maybe, on that audit, and they do 150 days, they do the planning, they start the interim work and then they leave, there is obviously then the knock-on impact. You have to bring somebody else in, they might not have the experience, they certainly don't have the knowledge of the client, and that takes longer, therefore. So, all of this contributes. It's a combination of the number of vacancies, but also that we are losing experienced staff who are able to get the audit work done that much quicker, and we do need more experienced staff, or more of them, under ISA 315 as well. Does that help?

Okay, and I know we've touched upon that. So, in terms of the ongoing backlog impact on the estimate for 2024-25, what could you say to that in terms of the impact?

Well, we're anticipating getting the 40 bodies done now by the end of March, which is not where we would want to be. What that will mean is that we will be consequently later starting the 2023-24 audits that are undertaken during 2024-25. We are looking at ways in which we can bring in additional staff, retain the staff that are qualifying, and it might be that we're able, therefore, to move through the work a little bit faster, to catch up on some of this backlog. But as it stands at the minute, we will be starting the 2023-24 audits much later than we would like to, which will have an impact, then, on delivery timescales for next year. We need to be able to break the cycle, really.

Absolutely. I'm going to move on. So, the interim report outlines a number of activities in relation to staff and well-being, and obviously this is all linked, including a change in approach to your staff survey, which we've spoken about previously in committee. Can you briefly outline how those changes are going to support the ambition, the vision, to develop a one Audit Wales culture?

This might be a good one for Kate to address.

Yes, I'm happy to come in. There's a lot of work going on in the well-being space at the moment. There's a review of the well-being strategy, work with the well-being champions. The executive leadership team roadshows that we've been on have included a sort of temperature check in terms of how staff are feeling and the issues that they're facing. Clearly, there are discussions going on around flexible working and how we can move to new ways of working, bringing people into the offices, reviewing how the Cardiff office is working.

But if I go specifically to the new approach that we're taking to actually seek the views directly of staff, the new employee engagement survey is actually in the field at the moment. It is due to close on 17 November. It will enable us to do that benchmarking against previous surveys to see how things have moved on, but it also is going to be shorter and more punchy in the way that it does that. So, one of the things that staff have talked about before is a sort of weariness in terms of the length of some of the survey activity they had to do. It's got questions in it on how teams work together, leadership, management.

The statistician in me absolutely does not want to say what is coming out of that survey, because it is currently still open. However, one of the benefits of the survey is you can look in real time to see how the results are developing; it's not a 'wait and see until it closes'. And, certainly, I won't be held to the final results on this, but some of the early indications of the things coming out of that are: there are still opportunities to improve in terms of confidence, in leadership, leaders, and demonstrating that people are important to the organisation. And I think we've touched on that in terms of the discussions that we've had on wanting to reconvince people that they are valued and that we recognise their importance.

But there are some real positives that are coming out, with caveats, obviously, at the moment. A strong team culture. Very positively, there is a lot of support coming through for new starters, and, I think, given what we've talked about in terms of recruitment and growing our own, that is positive. And, I think, a confidence that action is going to be taken on any concerns that are being raised by staff, and I think that is one I always go to quite quickly when I'm looking at the results of these surveys.

So, I think, my sense at the moment, not having seen the full results, and having had everyone complete it, is it's going to be an incredibly valuable tool to us, and I think we're in a position as an organisation where it will provide an important baseline against which we can begin to track the impact of the activities we have been doing, and we are tackling, in terms of well-being. 

Thank you for that; that's interesting. So, finally then, obviously you've spoken about the impacts around well-being and your mitigation in terms of the staff survey. But, obviously, in terms of human resource capacity, finding the time, then, for training and continuing professional development to be built into that is even more of an issue, I would presume.

I'm going to go on to my final question, Chair. The interim report outlines 28 national value-for-money examinations and studies that are either in situ or to be started during the remainder of 2023-24. So, given the resourcing issues, how likely are those 28 to go ahead? Can you provide an update about the implications for the fee income more generally, including how projections compare with assumptions made at the beginning of the year? I can break it down if you wish.

I'll kick off on the first bit, Rhianon, and then pass to Ann-Marie, if I may. 

Yes. 

So, the VFM study plan described in the interim report—. The interim report is only a month or so old, so, yes, it is an accurate reflection of where we think we are and can be. That said, undeniably, the resource pressure that we're experiencing in our accounts work is reflected in the areas of the organisation that deliver the value-for-money studies work. And one practical exemplification of that is that we are having to take any qualified staff in VFM studies teams out of those in order to support colleagues delivering the statutory work around accounts. So, you're absolutely right: it is squeezing our capacity, but that remains our most up-to-date reflection of what we think is reasonable to deliver in our work programme.

The vast majority of national studies are delivered through WCF funding, so they're not fee funded. So, it's a slightly simpler equation in that sense. I think you asked about where we are on current projections for overall fee income. Ann-Marie will have a handle on that. 

Yes, absolutely. So, the latest projection is that we will come in—. We've got a budget of £16.1 million this year for fee income. The business unit informed me yesterday that we'll come in about £350,000 less than that. So, around a 2 per cent underdelivery, I suppose, on our fee income. That's offset, though, by the savings on the number of staff and the vacant posts that we've got, and, actually, to be perfectly honest, it's nothing short of amazing that we are only 2 per cent under on our fee income, when we have been carrying that level of vacancy. So, I'm actually quite pleased with that. 

What's the current per cent? I don't know if you've got the figure off the top of your head. How much of a percentage are you carrying in vacancies?

How many posts have we got currently? About 20, is it?

Oh, between 20 and 30, I think.

So that's not insignificant.

No.

No.

Out of 280, did you say? So, yes. Okay. That makes a big difference.

Can I just ask, Chair, if I may, on that particular point that you've made? Obviously, in terms of a percentage of that overall figure, bearing in mind that we know that a lot of public bodies are doing this, bearing in mind your situation of capacity in terms of human resources, how sustainable is that? Because you mentioned that it's lucky that that's come in under 2 per cent—that's surely not sustainable, because you cannot carry that vacancy level moving forward.

Nail on the head, Rhianon, absolutely, and that's the fundamental point I hope is coming across in our estimate. I said at the start that it feels like we're clinging on by our fingernails. It does feel like that.

We've got steps in place. We are doing a lot of things to maximise our ability to recruit and retain and support staff in delivering as much as they can, but it's not sustainable at that level. You can ask that of people for a period, but not forever.

Okay, thank you.

Thank you very much for your time this morning. One more thing?

Could I just ask Ann-Marie to just mention one thing? Just going back to capital spend and how we present the numbers.

Yes.

To finish on a techy issue, so I apologise for that in advance, it's to bring our estimate and our accounts in line, really, with other directly funded bodies. So, the Government of Wales Act 2006 requires the Senedd to consider a budget motion for one control total, which is revenue and capital combined. And the way in which we've been presenting our estimate and our accounts almost has suggested that there are two control totals that are considered separately by the Senedd. So, what we're proposing to do is to follow the, I suppose, process or the presentation used by other directly funded bodies and just put that one control total in place. Otherwise, what you're given is—. If you're looking at it as two control totals, it seems to suggest that an overspend on one would lead to a qualification of irregularity opinion, which is not the case per the Government of Wales Act. So, we've discussed it with Welsh Government. It's very techy, as I say, but we just needed to bring that to your attention as well.

Rhianon, did you want to come in? Yes.

It's just to pick up on that. Why have we got those two separate lines?

I think what happened was, back in 2011, when our accounts were first put together in the format that they're in now, we copied and worked quite close with Audit Scotland at the time, and I think they had a different regime. So, I think what we did was that we copied that. And there's nothing wrong with that, actually. In terms of transparency, you absolutely need to see what is revenue and what is capital. I suppose the point I'm making is that, in terms of the Senedd and the budget motion, there is only one control total, which is the resources requested. So, it's just to bring that to your attention, really. But, in terms of what we bring to you, you will still be completely aware of capital, revenue and as much detail there under that you need, but it's just to say that I think we went very belt and braces in 2011, and, because I'm out auditing other bodies, I've seen the extent to which our accounts differ slightly to those other bodies. So, it's just to bring it formally to your attention, really.

Okay, thank you very much for putting that on the record. Thank you very much for your time this morning. As always, very interesting, and obviously acknowledging the work that you do and the work that your staff do, under pressure, as most other public services, if not all public services, are under an awful lot of pressure. So, thank you very much for your time and for the work that you do.

As I said earlier, you'll have a transcript to check for accuracy. And if there is any further information that you think that we need to have, I think we need to report next week or the week after, so, if we need anything, we'd need it quickly. But I don't think there's anything that we—

I think we've covered everything, but we'll speak to your team afterwards.

We'll double-check, but I think we're looking at this report next week, and we have to lay it by the following, so it's a pretty tight turnaround with this sort of element.

Therefore, I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of this meeting. Is everybody agreed? Yes. Thank you. So, we'll go into private.