Question proposed, That the schedule be the Third schedule to the Bill.

Schedule 3 sets out the relationship between the National Audit Office and the Comptroller and Auditor General. Given that this complex architecture is being established, it was felt that a set of memorandums of understanding, codes of practice and so forth needed to be established so that the workings could be clear. The situation is becoming slightly convoluted because of the number of players involved, including the Public Accounts Committee, the Public Accounts Commission, the Prime Minister, Her Majesty, the Comptroller and Auditor General, the NAO, the chair of the NAO—Members will get the sense that this is a complex process. By and large, we can see that the code of practice that is being set up is needed.

There are a couple of points that I want to make. Paragraph 4 of schedule 3 states:

“NAO must, in such manner as it considers appropriate, monitor the carrying out of the Comptroller and Auditor General’s functions.”

Paragraph 5 states:

“The Comptroller and Auditor General must have regard to any advice given.”

That is behavioural monitoring by the NAO of what the CAG does, even though the CAG is the chief executive of the NAO. I get the sense that an organisation, subordinate to its chief executive, has a monitoring role of that chief executive. There may be some circularity of accountability there, but perhaps the Minister will elaborate. For example, I do not see any reference to the role that the Public Accounts Committee or the commission might play, although they might have been more appropriate bodies to do the monitoring; that was my first point.

My second point relates to the code of practice. There are several provisions that it might cover, but the schedule mentions a provision

“restricting the public comments that a non-executive member of NAO may make in relation to the carrying out of the Comptroller and Auditor General’s functions.”

In other words, people appointed as non-executive members of the NAO will be gagged when it comes to discussing the carrying out of the Comptroller and Auditor General’s functions. I do not know what circumstances the Minister envisages. Why would we need to restrict the making of public comments by a non-executive member of the NAO? The whole point of non-executive appointees is often to provide a challenge and a level of scrutiny to ensure that there is a balanced point of view. Essentially muffling the voice of the non-executive members seems entirely counter-intuitive. That is on page 29, line 19. Those were my only two queries about the schedule.

Schedule 3 is crucial because it sets out where and how the NAO will work with the Comptroller and Auditor General. It would probably be worth while if I explained the principles set out by the Public Accounts Commission that led to the arrangements in the schedule. The proposals by the commission were designed to balance two considerations: the CAG needs the authority to form completely independent judgments about audits and value-for-money studies conducted by the NAO, but at the same time the NAO needs to maintain systems of governance and internal control that are consistent with best practice.

The governor’s framework set out in the schedule is designed to ensure that in delivering the CAG’s independent audit judgment, the NAO and the CAG are themselves operating to the best standards of probity and efficiency. Paragraph 10(2) reflects the principle set out in clause 17(1) and (2), which grants the CAG complete discretion, subject to any limitations agreed by the commission, the NAO and the CAG.

The schedule provides for the NAO to provide resources for the CAG, but as the hon. Gentleman said, it also gives the NAO a duty to monitor, and form a relationship with, the CAG. Further details on how the relationship will work are set out in the code of practice, which is prepared by the NAO and the CAG and approved by the commission. The schedule also sets out where the Public Accounts Commission, on behalf of Parliament, has a role in regulating the relationship between the CAG and the NAO.

The hon. Gentleman asked about the potential conflict of interest that arises from the fact that although the CAG is the chief executive of the NAO, the NAO has a role in monitoring the CAG. The monitoring is really part and parcel of the NAO’s role in providing the CAG with advice and support. Ultimately, the Public Accounts Commission will hold the CAG to account. That is the point that Baroness Noakes was making when she questioned whether that had happened in the recent past. The NAO’s duty to monitor is necessary because it is a body that does things, as well as a body that advises. That is the reason for that aspect of schedule 3.

The hon. Gentleman mentioned his concern about the restriction on public comments by non-executives of the NAO. We do not want the non-executives to undermine the authority of the CAG by going public, but I can assure the hon. Gentleman that there is an opportunity for non-executives to make their point; however, that needs to be done in the meetings of the NAO board, rather than in the public domain. That is really more of a professionalism safeguard to make sure that the authority of the CAG is not unwittingly undermined.

Question put and agreed to.

Schedule 3 accordingly agreed to.

Clauses 23 to 26 ordered to stand part of the Bill.

Schedule 4 agreed to.