Finance Committee

Our second item this morning is papers to note. It's a letter that we actually saw last week; it's to note it for the record. Unless anybody wants to say anything about that, then we'll note that, if that's okay. I'm seeing nods.

So, our first substantive item this morning is item 3, which is scrutiny of the annual report and accounts for 2022-23, and the annual plan for 2024-25, with Audit Wales. I see that we have our witnesses with us: Adrian, Katherine, Kevin and Ann-Marie. Croeso cynnes. Would you just introduce yourselves and your roles, just for the record, please? Adrian.

Adrian Crompton, Auditor General for Wales.

Diolch yn fawr.

I'm Kate Chamberlain. I'm the chair of the board of the Wales audit office.

Diolch yn fawr.

I'm Kevin Thomas. I'm the executive director of corporate services at Audit Wales.

Ann-Marie Harkin, executive director of audit services.

Okay. Thank you very much. Welcome to the meeting.

Welcome. So, we'll—. Rhianon's here. Hello, Rhianon. Good. Can you hear us?

All good.

Yes. Brilliant. Excellent. Fantastic. Right. Great.

So, we'll dive straight in. We've had the paperwork from you. Thank you very much for that. It made for some interesting reading. I'd like to start—. It's your first report as chair. Could you give us your impressions of how you found the process, and given that you were appointed relatively late in this particular year that we're talking about, how did you seek assurances about what the annual report and accounts contain?

Thank you very much. I'm pleased to be here. It's nice to be at my first committee meeting. As you say, I'm relatively new in post. I joined in March, and, actually, since being appointed I have been doing a lot of information gathering and holding meetings with as many people as possible, because I think it's really important not to start from assumed knowledge.

So, having observed a couple of the board meetings before I took up my substantive position, since then, I have led a development day, a number of formal and strategic board meetings, and I've attended as many of the committee meetings of the audit office as I can. Whilst not being formally on a committee yet, I have been attending both the audit and risk committee and the HR and remuneration committee meetings. So, this initial period has been very much about getting to know people and getting to know the organisation. I've met individually with every board member, with every member of the executive leadership team. I've also been seeking to meet individually with each of you to get some external perspectives, and I've asked to be able to hold introductory meetings with the leaders of the main parties in Wales, and those are going into my diary at the moment.

I’ve also been taking opportunities to meet directly with staff, both as part of team meetings—particularly directors and heads of service meetings—but I also have been attending, with the executive leadership team, a number of the series of roadshows that they’ve been holding, in which to engage directly with teams across Wales, and we are in the process of holding the second of that series of roadshows at the moment. In fact, I’ve been to one of those already, and I think I have two or three later on today. So, for me, certainly, being able to hear directly from staff, given some of the challenges that are facing the organisation, is particular important.

The assurance that I’ve been seeking really has been through testing what I’m being told through those direct conversations with others, seeing to what extent it tallies with the information that is coming before us at board meetings, and making sure that we’re able to ask the right questions in the right time. And I’m sure Adrian and his colleagues will say they get plenty of between-meeting queries about matters that are keeping me interested at the weekends, shall we say.

I just wonder if it might be worth me sharing some of my observations from the first six months in post, just to maybe set some of the scene for the rest of this committee. I think it’s worth reflecting very briefly on the role of the board, and first and foremost I think our role is to protect the independence of the auditor general. But having said that, we do have a duty to monitor the way in which the auditor general undertakes his functions, to provide advice where necessary, and particularly to make sure that he has the resources that he needs to do that, and that is something I think we will return to at a number of points during this morning’s meeting.

If I reflect on what the organisation does, I think it is a very professional organisation. It clearly takes quality incredibly seriously, and I think in the work that it does holding others to account, whether it’s the Welsh Government or town councils, it’s clear that it’s open and transparent and challenging in the way that it goes about its work. And I think it’s also clear from the recent stakeholder survey that there is a lot of value placed on the work that the audit office does.

If I give you some of my personal reflections on some of the challenges, my personal early thoughts, I think it is clear that the organisation places a very important focus on efficiency. I have in the back of my mind that a lot has already been done in terms of working on the efficiency of the organisation, and I will be looking in future to challenge to make sure that we don’t go too far with that, because it’s essential that we are able to provide a good and robust public audit service, and clearly we need to be able to have the resources to do so. I think it’s also clear to me that the Wales audit office places a very strong emphasis on quality, and it’s essential that it retains the trust and confidence of its stakeholders, but actually the learning that needs to take place in terms of external reviews and the emphasis that is placed on implementing new quality standards for audit as they come through also places demands upon the organisation and demands upon staff, and those demands also need to be recognised.

Thank you very much for that comprehensive view of your take on your first few months. That's helpful to put a bit of context into some of the things that we've read and some of the things that we'll discuss, going forward. So, thank you very much for that.

Adrian, you mentioned in the annual report that this is the first of your five-year strategic plan. Can you talk us through some of the progress that's been made in delivering those strategic ambitions, and what that means practically for Audit Wales? What's the main difference between Audit Wales in 2022-23 and Audit Wales a year earlier in 2021-22? What progression is happening? Is it stagnating? What's happening?

Certainly. Diolch. As you say, the annual report you have in front of you is the first produced within the five-year strategic plan. I'd say we've made good progress in that first year. Significant developments of note in that period have been the development, for the first time, of a coherent plan for all of our audit work, which is built around four big strategic themes. Those are themes that I feel are amongst the most important challenges facing Wales, and also where we, as Audit Wales, can add some significant value. So, those themes are: tackling the nature and climate emergencies; tackling inequalities; and then, two that are in a more traditional space for an audit agency around building resilience and accessing public services and well-managed public services.

So, for the first time, we have published our work programme for a three-year period, which goes beyond my tenure as auditor general, setting out our thinking on the specific pieces of work that we will brigade within those four themes. And that, in the early days, has been very well received by our stakeholders, to have that strategic clarity. Also, in the first year, as Kate alluded to, we have a constant focus on the quality of our work, and that feeds very directly into one of the themes of our five-year strategy, which is around increasing our ability to influence and have impact through our work. And I'm pleased to say that, in that first period, we've successfully invested in Ann-Marie's team in building our internal capacity to drive up quality in all the work that we do.

So, good progress in the first year, I would say. We report into our board on a quarterly basis on progress against the strategy, so that they can monitor and assess. So far in this year, looking at the key objectives we're aiming for, most are at green, a few are at amber, none are at red. So, still making good progress. Those that are amber are generally related to the resourcing pressures that Kate has mentioned. So, for instance, our desire to improve our position in terms of the timeliness of delivery of our audit, which is reflected in some of our key performance indicators, we're struggling on that front because of the resourcing pressures that we face, and some other areas around our people survey scores, which we're looking to improve. We know that there's a lot more work to be done there, so we're holding it at amber at the moment.

Okay. Thank you very much. I'll pass over to Peter.

Thank you. Good morning, all. KPIs are obviously a theme that we want to look into a little bit more. I know, Kate, you will have explored with employees some of the issues around that, but I've got some specific questions around KPIs, because you've achieved fewer KPI targets than last year. You, again, require significant improvement in your employee engagement and experience targets. What are the issues that are leading to consistently missing the target?

On employee experience?

Yes, and on employee engagement.

Sure. The results a year ago, Peter, were really disappointing for us, and so you won't be surprised that we invested quite a lot of time and effort in trying to get under the skin of that with staff through further conversations. A whole package of reasons: a general theme shared by more or less everybody in society, I think, about the personal and professional changes and pressures that were bearing on people coming out of the pandemic; some undoubted concerns around pay and remuneration—so, in that year, we had been able to give staff a 3 per cent pay raise, and that was just when inflation was really kicking off and staff were seeing that and also some higher rates in other sectors—but probably the single biggest theme was around resourcing. We have a very significant backlog of work that built up through the pandemic. We can only catch up and get ahead of that if we have the staff in place to tackle that work, and, unfortunately, we have struggled on that front. We have some serious difficulties in recruiting and retaining staff, and, of course, every time a member of staff leaves, that adds pressure on those who remain. So, that cocktail of issues, I think, was underlying those staff concerns, along with a sense that the senior leadership of the organisation was not sufficiently engaged and sighted on tackling those things.

So, since then, we have—our leadership team and the board—focused in on three big areas: one around leadership, one around resourcing and one about building pride in the organisation. We've done a raft of things on all those fronts. On leadership, Kate alluded to one thing: to increase our clarity of leadership and leadership message. We're in the second tranche of a big wave of staff engagement events. On resourcing, we undeniably still face a lot of pressure, but we have recruited as best we can. We've looked to develop and promote staff from within, and we've shuffled our resources around internally to bring staff from performance audit and corporate teams to support their colleagues in accounts work where the statutory deadlines primarily meet. And then, finally, on the theme of trust, we have a new staff newsletter, which is predominantly focused on sharing staff stories of success, and also, of course, we've celebrated the results of the stakeholder surveys that Kate alluded to, which reflect really positively from an external perspective.

Finally, just very briefly, we've been touching base with people in these engagement events that we're in the thick of now just to get a bit of a temperature check. What I'm seeing at the moment is some positive sign that staff are recognising the efforts that the organisation is making, which is great to hear, but that concern about resourcing and workload is undeniably still there.

Thank you, Adrian. You've pre-empted my follow-up question, really, because we were concerned about some of the results that were commenting on how well change is managed, and you've obviously picked up on that and interventions are already happening and possibly some positive feedback. You've just implemented that significant change, with the move to the Cardiff office. Have you sought specific feedback on that process as well, and what's that feedback like?

Can I ask Kev to respond to that?

Yes, so, as you say, it was probably one of our biggest change projects during the year, and we had a real focus on staff engagement as part of that process. So, for example, we took 30 members of staff, drawn from all parts of the business, to look at the shortlisted properties. Once we'd decided on the property in Capital Quarter, we held a series of design workshops to work out what sort of spaces staff wanted, so, as well as the sort of traditional banks of desks, we got a range of other perhaps more creative spaces—pods, breakout rooms, et cetera—very much responding to how staff needs are evolving.

We also had input from our well-being champions to the design of the new space—so, as well as focusing on the hard-end business side of things, a place that would support our staff's well-being. So, we had an all-staff team session as well to explain what was happening, to gather further views, so it's been an ongoing dialogue, so I think staff have felt rather than the office move being done to them, it has been done with them.

We've certainly sought feedback from staff following the office move and the feedback has been extremely positive, both about the new environment—so, really positive about the way it supports our business need—but also the way in which it was done, the way in which we engaged with staff, and that's something that we've taken the learning from and we've applied it to a smaller move, which has just happened in north Wales when we moved our office from Abergele to Llandudno Junction.

So, one of the things that worked particularly well was, for example, a welcome pack for staff—so, information about security, about parking, about local amenities, all of these things—helping people to transition to a new office, because, obviously, change is quite challenging for a lot of people, so we've done all we can to smooth that process, and, as I say, the feedback has been really positive.

Yes, and we experienced your new office as well, and I thought there was a good feel about the environment, so I can see why staff would be positive about that. You also launched your staff well-being strategy last year. Has that been well received?

Yes, it has, yes. It's been in place just about a year, and it's centred around three key themes: live well, work well and mean well. We've got individual pieces of work under each of those themes, and a key part of our approach—so, we've got the strategy and a delivery plan—is the use of well-being champions. These are staff drawn from all parts of the business, in terms of the disciplines they follow, but also in terms of where they're located geographically, and they provide one-to-one support, they attend team and patch meetings to promote the kind of range of well-being activities that we have in place. So, there's stuff that we've got in-person and online—things like vlogs, seminars, training—we hold an annual carol concert for Miss Tilley's, which is a charity supporting young people with additional needs. So, there's a whole range of activity that we have in place.

As well as that, the well-being champions—I think I mentioned it—have been involved in the design of the new office. They've also been involved in the review of our smarter working policy to see what impact that's had on staff's well-being and how we could support well-being even better through developments and changes to that smarter working policy.

I've talked a lot about the well-being champions; of course, it doesn't just sit with those 17 people. It's really important that we all have a responsibility in terms of well-being, and we've just launched a people-manager development programme in response to a number of issues that have come out in previous staff surveys, and well-being is a theme running right through the seven modules of that training.

So, as I said, we've been in place a year; we think it's a good time now to take stock, so we're just about to start formally engaging and consulting staff and the well-being champions to identify what's worked well, what could perhaps be strengthened further, and we're due to report back to our remuneration committee in March of next year.

So, hopefully, that's a good picture of engagement over well-being so that should have a direct impact on that KPI, which was showing there was a bit of a weakness in engagement, so that's really positive.

We certainly hope so. And if I can share with the committee I think today it's been announced that Audit Wales for the first time is being named in the top 10 organisations across the UK for supporting working families. The Senedd Commission, I know, has been in the top 10 for a couple of years. We've been up there but not quite before, so we're delighted with that and I think it reflects really positively on the work that Kev and the team have done.

Yes, great. So, moving on then, there’s been a large drop in the proportion of trainees achieving first-time passes in their exams. I just wanted to know what are the reasons for this and what are the implications for your workforce planning as a result.

Ann-Marie.

Thanks, Peter. So, there has been a drop-off in terms of first-time passes at the professional and advanced stage examinations of the Institute of Chartered Accountants in England and Wales. I think there is a myriad of reasons for that. I think a lot of these trainees now that are doing their professional, and certainly the trainees that are doing their advanced level, examinations joined at what was a difficult time. It was during the pandemic. I think it would be fair to say that I don’t think they’ve had the training experience that any of us would have liked for them. I think a lot of the study was obviously provided online, which was good but probably not quite as good as it had been previously—we’d been very clear we wanted face-to-face tuition with the providers, but of course, like everybody else, like the universities and schools, the training providers went online.

And I think also they were working at home, and there were periods when we had to work at home, but, even now, as Kate said, we’re trying to establish that new normal. And I think there is something about are they getting the working experience maybe that we would have liked them to have. I think there are pros and cons with the hybrid. I think it’s whether or not they’re going out to clients as much, because a lot of our clients work in a hybrid manner as well, so the finance teams aren’t there. There’s nothing quite as interesting, when you’re an auditor, as actually being in a room with the finance person and saying, 'Oh, by the way, I don’t really follow how that adds up' or whatever. So, I think there’s a reason for that. There are obviously other reasons as well, people who don’t work quite as hard.

What we are doing is we’ve completely reviewed the scheme to see if there’s something we need to do differently: we might be staggering the exams a little bit more at professional stage. So, we’re actually looking at the scheme, we’re engaging with the trainees, we’re asking them—. Because I would not want pass rates like that really, so we have to look at what we need to do differently.

This is really, really important for us in the context, especially, of the resourcing challenges that we face. So, without our pipeline of trainees, we would be in a far worse position, because it’s very, very difficult to recruit externally in the current market. So, growing our own talent that we hope to keep at Audit Wales—but, if not at Audit Wales, some go into the wider public sector in Wales—is really important. So, the changes that Ann-Marie outlined are really significant, but we need to focus in my mind too on strengthening initial intake so that we really are drawing the brightest and the best that we can find into the profession.

No, I can absolutely see how it's fundamental to your workforce planning to get and retain those guys, yes.

Moving on then, in 2022-23, you used an independent research company to gather stakeholder feedback. Those indicators linked to stakeholder views show a decrease compared to the previous year. What's your assessment of why?

So, the approach we took last year was brand-new for us. So, historically, we have gathered stakeholder feedback that was fed through into the KPIs through face-to-face interviews, conducted by our engagement directors with chief finance officers and the like in audited bodies. And I guess, from this committee and from the board, there's always been a nagging question in the mind, 'Well, do you get everything you need from interviews like that? Do people say to auditors in that environment exactly what they think?' So, we wanted to sense-check that by doing third party, completely independent research, which is what we've done this year. The results are marginally down on that previous approach, but I'm not surprised by that for that reason. So, giving people the chance to respond entirely anonymously is going to lead to a slightly different set of results. But we were delighted by what they showed, because they are still exceptionally high levels in respect of the quality of work, the credibility of our work.

The one area where we were slightly down, and I think we do need to put more thought, is in our work adding insight. So, a lot of our work, our stakeholders told us, is not really about adding insight, it's just about getting core assurance, which is good, it's what we're here to do, but we'd like to address that insight piece as well. So, next year, we'll revert to the old approach. We'll repeat this third party independent approach in a few years' time, but I think it's, I guess, triangulated well with the results we've seen.

Great. Thanks for that. I'm going to move on to a few questions around the work programme and the quality of the work delivered in-year. Last year, you spoke about a technical issue to do with accounting for infrastructure assets at local government bodies, which may have impacted on your ability to meet statutory deadlines for audits. Your KPIs show a drop of 14 percentage points in that KPI. Is this all down to that issue and, if so, how were you able to resolve it?

If I kick off and then my expert friend will pick up the pieces, I'm sure. I think that KPI around delivery against the statutory deadlines is absolutely key. It's one that you should be asking about and it's an area of concern for me. In the year in question, I think there were probably two main drivers for the lower performance. One is the infrastructure assets issue that you alluded to. That was completely outside our control and was affecting the whole of the UK, not just Wales. The second is the inevitable consequence when issues arise on any given audit. The most obvious example that you'll be familiar with is our audit of Betsi Cadwaladr health board. Some very significant issues uncovered there required us to do an awful lot more work, it takes more time and we miss a deadline. So, in that sense, I'm not concerned if we miss deadlines for those reasons, but I think what the infrastructure assets issue did was actually to mask the pressure that we're under to meet deadlines. This year, I don't think we will meet all of our deadlines for local government. We will miss many by several months. And that goes to the heart of the resourcing pressures that we're under. Bluntly, it comes down to staff. If we haven't got the staff, we can't do the work.

We are still, in Wales, in a far better position than our colleagues across the border in England. In England, in local government, the National Audit Office I think estimate that anything up to 1,000 audits are outstanding across between 300 and 400 bodies, some of them dating back to 2015. We're nowhere near that in Wales, I'm pleased to say, but I think when we start to miss our deadlines by a matter of months, it's a signal that we're at the top of a very slippery slope, and if we can't catch up and get ahead of that, then my fear is that we will slip into the space that we've seen in England. And the concern then is not about Audit Wales not meeting a KPI, it's the consequence of an absence of timely audit that you see manifested in the failures that you're seeing across the board in local government in England now.

Thank you for that. That's quite worrying, what's happening over the border. We certainly don't want to get to that.

Last year, we discussed your audit quality target, which was missed. Delivery remains below your target this year. What was the process for assessing audit quality in 2022-23 and were any of the issues identified significant?

No, I'm comfortable they weren't significant. We take a relatively small sample. There were seven reviews, and four of those related to our accounts work. Every accounts director has a review of one of their audits, and there were three performance audit reviews as well. You'll see that all of the accounts reviews met the required standard that we set ourselves, which is a 1 or a 2. A 3 in the QAD, the quality assurance department of the Institute of Chartered Accountants in England and Wales, requires improvement. And if they assess as a 3, that's where we don't count it as meeting our target.

We had one performance audit review that had a 3 in that space. Obviously, we looked at it very closely. It was simply that the review team didn't feel that it had achieved the impact that it could have done. It was a thematic review, where we undertake the same work in different local government bodies, and then we bring it together. Sometimes we produce a central study. I think it's not really working in terms of timeliness, in terms of the risk. It might be different at different local government bodies. So, what we've done is we've done root cause analysis and we are looking very carefully at how we proceed with that kind of work going forward. So, am I worried? No. I was very pleased, actually, with the results on our quality, and I think Adrian and Kate as well, as chair of our board. And our quality committee as well, I think, were comfortable as well. Certainly, they speak separately with the quality assurance department, and I think they got a very positive message.

Absolutely, and one of the most positive messages I get from speaking to QAD, after they've undertaken the reviews, is about the culture in the organisation and what they see of people's openness to review and challenge, and so a complete absence of defensiveness if QAD identify issues that they think are in need of improvement. The culture of the organisation is very welcoming of that, and that's great to hear.

Can I just come in to say as well that I think it's really important that we recognise that we're not going to compromise quality? It's the absolute bedrock of everything that we do. With this timeliness issue, quality cannot be at the expense of timeliness, so quality will always trump the timeliness, because we have to do the work properly and in accordance with standards.

Just while it's in my head, I think we ought to put a marker down that in a year's time we will see the first reviews where we have taken a fundamentally different approach in all aspects of our audit. You've heard us talk about the new auditing standards for accounts work, ISA 315. That's an enormous change that we've done for the first time. And also in our performance audit work, we've applied international standards, INTOSAI standards, for the very first time, so I would not be at all surprised if we see some issued flagged by QAD that flow from that.

One final question from me, Chair. Last year, we discussed the possibility of the quality of Audit Wales work being subject to overview of a Senedd committee. The annual report says that you have held a series of conversations with the Treasury and the Welsh Government regarding this. Can you provide any further details of the issues discussed?

The NAO now are going to be subject to scrutiny by the Public Accounts Commission at Westminster. Gareth, the Comptroller and Auditor General, is comfortable with that and that makes sense. They're in a slightly different position to us, though, as I explained last year, in that they are subject to review by the Financial Reporting Council anyway in a way that we're not. I think our position and Adrian's position is that should you wish to go down a similar route in Wales, I don't think we would have any objection to that.

No. As a direction of travel, it's almost inevitable. The time will come where this committee or another committee within the Senedd is likely to be asked to take on that role. But we're not seeing any signs of it being enforced legislatively, so I would suggest it's something that you and we just need to keep a watching brief on. It would be an enormous addition to your workload, so it's not to be taken on lightly. So, really, I don't think we should do it unless we have to do it, but we will keep monitoring the position and make sure that the committee is well sighted.

Thanks for that update. Thank you, Chair.

Thank you, Peter. I'll go over to Rhianon. Can we unmute Rhianon, please? Thank you.

Thank you, Chair, for that. So, 2022-23 was the first year of the new internal audit arrangements, and the new auditors classified one report, in relation to internal stakeholder engagement, as 'limited assurance'. What issues were identified? You've mentioned stakeholder engagement, but obviously it wasn't just that. What issues were identified and how are you solving them, please?

Thanks, Rhianon. It was a really useful report, probably the most useful of the ones the new internal auditors delivered during the course of the year. And you're right—it is relevant to what we were previously discussing around our KPIs, around staff engagement. The auditors made quite a large number of recommendations, but probably the three that stand out were around the way in which the senior team is communicating and engaging with colleagues across the organisation. For example, after each of our executive leadership team meetings, we were producing blogs. Simply, they weren't hitting the mark with staff. The auditors had a survey of a number of staff as part of their work. What staff were after was something much shorter and sharper, so we're now producing short e-mails with key messages after each of the executive leadership team meetings, and those are going down far better with staff. They're giving them what they want in the format that they want it.

The second key thing that the auditors picked up was around the way in which we are communicating information and guidance around audit work, and how we're communicating issues around corporate work. They felt that we could be a lot more streamlined, a lot more joined up in the way that we did that. And, importantly, alongside that, addressing cultural issues where there was a potential for silo working. We've been developing our approach now to address that and to move on with the auditor's recommendations.

The third thing that they highlighted—which, I think, probably, we found quite assuring in terms of our approach around the staff survey—was that the approach we'd previously taken with the civil service people survey, again, wasn't giving us the sort of richness of information that we needed, the timeliness of information we needed, to really respond to and to address staff concerns. And this was just around the time that we were out tendering for a new staff survey provider. So, what we've now got with our new staff survey is an approach that is far more dynamic, it's a lot more focused, and will allow us to tailor the survey much better, keeping the same baseline KPIs for reporting purposes, but enabling us to delve much more into what is really concerning staff, so that we're in a stronger position to address that.

The auditors have an action tracker, which they bring along to each meeting of the audit and risk assurance committee. We've committed to addressing each of the actions that they've put in their report. As I say, we've already addressed a number of them, and our audit committee will be monitoring further progress through that action tracker.

Thank you; that's useful information. In regard to articulation of what the risks that are highlighted are, some are 'likely' and one is 'major', of impact as identified, whereas, previously, I don't think there were any in those categories. Can you provide more information on those risks, and also what you're doing to mitigate them? Because, obviously, the self-assessment internally that your organisation has carried out in a number of areas hasn't identified any of those areas of concern. I know they're different—chalk and cheese, to a certain extent—but it would be useful to know what those risks are.

We monitor our strategic risks routinely as a leadership team, and through the board. We provide the board with something called an 'integrated performance report'. That is built from the risks and the issues that they flag. And, right now—and it's been this position throughout this year—the No. 1 strategic risk for us is around resourcing and staffing. So, every other risk, I think, is in some way linked to that.

How we're mitigating that risk in terms of resourcing, I've already touched on some of the steps we've taken to try to divert—

Sorry to interrupt you, auditor general—

Sorry, Rhianon.

So that I'm clear, the major risk that you've identified is resourcing. And, then, can you just articulate what the likely risks are before you talk about the mitigation around resourcing?

So the other risks on our risk register?

Yes. I'm just trying to get clarity on what is the major risk that's been identified, and I believe that's resourcing. I need you to clarify that, and, then, can you articulate what the likely risks are before you talk about the mitigations?

Resourcing and things linked to our staffing and workload position are, unquestionably, the highest risk that we face. On our risk register also, we have some issues around audit quality, which Ann-Marie has already touched on, and pretty standard risks around cyber security and information security. Those are things that are rightly on the risk register but are not of such significant concern for us at the moment.

And so, in regard to mitigations, briefly, because I've got a number of other questions, outside of the resourcing issues, which you've gone through, the issue around audit quality—obviously, you've made the comments, previously, in terms of what's happening across the United Kingdom—how are you mitigating that?

We produce an annual report on audit quality, which will give a fuller picture—it’ll come to the committee—but we have a whole framework of measures that we take to try to ensure audit quality. It begins with our recruitment and development and training of our staff. It builds on that through the tools that we ensure are available to staff to ensure that they're following best practice in their work. And, finally, it also has a layer of assurance built in from the scrutiny of our audit quality committee, the board and the leadership team. So, it's a complete framework that is designed to ensure that our audit work is of the highest possible quality.

Okay. In regard to that list of mitigations, these are ongoing or are they being beefed up now in regard to the concern around audit quality?

They're always there for us. Audit quality is fundamental to what we do. Ann-Marie, do you want to—?

So, on that, is there anything additional—[Inaudible.]?

Yes, we've invested significantly in our audit development and guidance team. So, you kindly provided us with some additional money a couple of years ago. I've increased the size of the team. I've also doubled the amount of external quality assurance that we are getting as well. With regard to the new audit approach, we have invested a significant amount of time in training staff—so, non-chargeable time. We've been training those staff so they really understand the new approaches. We monitor our approach. We work very closely with the other public audit agencies to make sure that our approach is consistent with theirs, and we learn from them where we can. Where we get things wrong, we learn from that as well. And, earlier this year, I ran a quality symposium where all of our staff came along. We had some external speakers, including the Comptroller and Auditor General, people from the Financial Reporting Council and the Institute of Chartered Accountants. So, for us, we are mitigating it in any number of ways. It's absolutely the focus of everything that we do.

Brilliant. Thank you so much. Next question: I hear your point in regard to staff turnover in terms of trainees and graduates, but in regard to the scale, really, of the qualified audit staff being retained by the organisation—that's up—just a little bit of detail on that would be useful.

Our staff turnover rate across the organisation at the moment is running, in the last 12-month period, at something over 15 per cent. That's way too high. It's higher than standards for the industry, generally, and for us, comparatively, it's much, much higher than we're used to. That's not unique to accounts qualified staff, but it is a very acute pressure there. So, we're seeing departures of staff to other parts of the public sector that, bluntly, pay better for their finance teams—in the NHS and local government. We're seeing pressure from some of the other audit and accounting structures within the UK, such as the FRC, again, which remunerates staff at a higher level than we're able to.

But probably of particular concern to us at the moment is the departures to the private sector. So, it's something we've talked about in the past, but we're seeing it come to fruit for the first time in a significant way. So, in the last six months or so, I think we've probably lost half a dozen or so of our best staff to the private sector, primarily, across the border in England. All these things are connected. This is a reflection of the weaknesses in the system in England finally being addressed by the UK Government investing some more money in that space. The private firms, therefore, are expanding and recruiting very aggressively.

So, out of the 15 per cent, how many of those are qualified audit staff?

Forgive me, I might need to write with specific numbers, but—

That's fine, if you could write with that, just so that we can get a sense of scale as to whether the majority would be the general flux in terms of traineeships, or whether—. I get the sense, in terms of what you've already said, that it is more serious than that.

Rhianon, forgive me for a second—I'm conscious of time, and we've got 10 minutes left of this session. I want to bring Mike in in a bit. There are a few questions that we've got that are fairly specific, and that sort of thing. Would we be able to write to you on some of these, and get an answer fairly quickly from you?

Of course.

I think they're fairly straightforward answers. Maybe, Rhianon, if you could move on to your last question, being question 12, if that's possible—

Yes, that's fine.

—and then we'll write to you on other questions, and then I can bring Mike in so that Mike can ask his questions.

Okay. So, I move on to my final question, and we'll write to you with the others. In regard to the office move and the underspend on capital that was requested, how are you going to ensure that capital requests are an accurate representation of your capital spend for 2024-25, briefly?

Thanks, Rhianon. I think, when the Finance Committee supported our Cardiff office move last year, I think one of the things that you said to us was that you'd expect us to carry out the move as cost-effectively as possible, and we very much took that on board with the move. In the end, we came in about £270,000 under budget, and we did that through a range of measures: smart procurement, an agreement of rent-free periods with the landlord, we recycled a lot of furniture and equipment from the old office, and we also vired money from our other capital budgets to the office move so that we could keep the costs down as much as possible. That's obviously resulted in a cash repayment to the consolidated fund of that £270,000. Going forward, we probably have just one office consideration for the forthcoming year. That's around the estate in west Wales. That's a comparatively small office. The majority of the rest of the spend in our capital programme is around routine things like our IT laptop replacement programme. Those things are a lot easier to control than a significant office move. So, the bid that we'll be putting in for our capital programme in the estimate later this autumn is reduced by around about £300,000. So, I wouldn't expect significant variances like the one that we've seen this year to continue. It was solely because of the uncertainties around a significant office move like that.

Diolch, Kevin.

Thank you very much.

Diolch, Rhianon. I'll come over to Mike.

Most of these answers will be 'yes' or 'no', so don't feel you have to say a lot more apart from that. Your outturn report showed the return of national insurance funding. Can you confirm the baseline for future years has been altered accordingly?

I can, yes.

Spending associated with the national fraud initiative was lower than expected. Is that because less was done, or is it because of expenditure in different years?

It's because we weren't able to do all that we had hoped to do, and so we've returned the funds that we've not used.

And the final question from me: RSM identify three Welsh audit office board meetings where there were issues with quorum. Are you satisfied that those meetings were conducted within the requirements of the Public Audit (Wales) Act 2013? Kate.

The actions that were taken—. One formal was not quorate, and we asked two employee members to attend only as observers, and they were not present for the decision making. So, apart from that, it was two strategic meetings; no decisions were taken. Yes, I'm satisfied.

Okay. Thank you very much. That's me done. I bet you wish I worked for the Welsh Government. [Laughter.]

There we are. From the RSM audit that you had as well, you had £225,000 of unadjusted misstatements relating to a methodology used to calculate the cost of completing open projects. Can you explain that issue, on why you didn't think you needed to make the adjustment?

Yes. Thank you. We did query this with our external auditors. They use a standard form of wording in their reports, which they're required to do, but we both agreed that this wasn't an unadjusted misstatement; this is an accounting estimate. There are different ways of calculating that cost-to-complete estimate, and we had taken a different approach to the ones that RSM would've used. We discussed this at length with them, and they were satisfied that no adjustment was required to the accounts. Although it's presented in their standard format, you'll see elsewhere in their report that they didn't require an adjustment to be made.

Okay. Thank you very much. Some items were adjusted as misstatements—one was at £194,000 and one was at £354,000. Materiality for the audit was set at £453,000. Are you concerned by those items at all?

No. There were three adjustments that they asked us to make: two were reclassifications, and one was around an additional bad debt that we'd identified during the course of the audit. They're fairly routine things that would be picked up during the course of one of our audits, for example, so I don't think there were any particular issues of concern. And we would always look to adjust misstatements wherever we can, even if they're below the materiality level.

Okay, thank you. Thank you very much. And finally from me, last year, this committee received correspondence from the unions representing Audit Wales staff that suggested they were in dispute with you over the pay award for 2022-23. Your annual plan outlines the possibility of future industrial action. Have you resolved those issues from 2022-23, and how have subsequent negotiations with trade unions progressed?

I'll come in. No, we haven't resolved those issues, I'm afraid, but, Kev, do you have something?

Yes. No, we've not. Both trade unions are still in dispute with us over the 2022-23 pay award. As Adrian set out earlier, that was 3 per cent that we awarded to staff. What they've made clear to us is that they are seeking a £1,500 cost-of-living payment, in line with what's been seen at Welsh Government and a range of other public bodies. They've said if we're in a position to make that payment, then they would suspend the industrial action. But, at the moment, we don't have the funding for that, and so we anticipate that, unless that changes, the dispute will continue. So far this year, we've had six days of industrial action between February and June. The unions have taken a combination of approaches, both strike action and action short of strikes—so, for example, working to rule, not carrying out overtime. The impact of that industrial action is that we've lost, I think, just under 200 days' worth of audit work, as a result of that industrial action, and there's an associated loss of income of about £80,000 associated with that.

Our trade unions have been directed by their regional officers not to formally engage or consult with us; they're doing so informally, but they've said to us they're not in a position to ballot or reach a collective agreement on any changes to terms and conditions until this dispute has ended. So, for example, we refer in our annual report and accounts to a review of travel centres. We've just finished the consultation process on that. The trade unions have provided feedback, but they've said they're not in a position to ballot members on any potential changes. So, a decision we will need to make, as our executive leadership team, is how best we progress that matter.

Okay. Thank you very much for that. And, as this goes on, could you give us a flavour of how you're looking to manage this issue, and to look at what mitigations you're potentially doing of—? Because it will have an impact on some of the audit work that you're carrying. What impact would we see, potentially, in your KPIs and that sort of element, basically?

Yes. As Kev alluded, we've already lost several hundred days of input from staff. We have to strike a balance. Staff have a right to take the action, and we have to respect that, but, undeniably, it does feed through into the resourcing pressures that we've discussed at length, and the knock-on impact is that it makes it harder for us to catch up, harder to meet the statutory deadlines for our work, and so forth. So, the sooner can resolve it and get back to normal relations, absolutely the better.

Okay. Thank you very much. So, we will be, hopefully, moving into private session in a second, but I take this opportunity to say 'diolch yn fawr iawn' for this session with you, and, obviously, there will be a transcript for you to be able to check that, and we will write to you with two or three questions that we'd like clarification on. We can do that in written form, but, obviously, we'd appreciate it if we could have those answers fairly quickly so that we can put them into our report on this session.

So, I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of this meeting. Are Members content? I see that they are. So, we'll go into private session.