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Information notes
Reporters, auditors and valuers What are they there for? We, the Office of Water Services (Ofwat), require water companies to provide us with information to enable us to carry out our duties. Companies' licences provide for the appointment of independent professionals to examine and test this information and tell us their opinions. Companies' licences refer to reporters, auditors, valuers and assessors, depending on the type of information to be tested. In practice the roles of reporter and assessor are combined in the reporter role. Reporters also undertake some functions assigned by the companies' licences to the auditors on levels of service information. Reporters and auditors liaise to ensure full coverage of all issues and to minimise duplication of work. What do they do? Reporters Reporters are usually consulting engineers. They examine the non-financial elements of the information that companies submit to us. As well as scrutinising individual companies' data, reporters help us to ensure that information from different companies is comparable. We give them guidance on the information that has the most impact on our regulatory decision making. As a result, we are able to compare company information to regulate the industry and to establish robust assumptions about relative efficiencies and service to customers. Reporters have two major roles: scrutinising the historical data presented in companies' annual returns (the June returns), and the forecast data presented in their submissions for periodic reviews of price limits. For the June returns, the reporters check and report on the following.
For the 2004 periodic review of price limits, reporters scrutinise and comment on the companies' information submissions. These include cost databases, draft and final business plans, and monitoring plans. They also need to fully understand the quality framework and guidelines for companies' quality investments issued by the Environment Agency and the Drinking Water Inspectorate, and to answer any questions they raise. The companies' business plans set out their proposed strategies for the years 2005-10, and detail their proposed:
Reporters scrutinise these plans and the companies' business planning process. We ask the reporters to expose, examine and challenge all material assumptions, including financial ones, underpinning the plans. They pay particular attention to the companies' allocations of projected expenditure between the different purpose categories, particularly for capital maintenance and the quality programme. They prepare a report for us, giving their professional opinions on these plans. Reporters also carry out special investigations for us on aspects of individual water company-specific performance, for example on leakage, water resource planning, procurement and companies' systems of internal controls. Auditors Auditors are accountants. They examine water companies' statutory accounts in the same way as they do for any other company. Under the licence they are also required to examine the regulatory accounts: financial statements prepared in accordance with our guidelines. These regulatory accounting guidelines (RAGs) ensure that all companies account for their activities in the same way and that the regulatory accounts give us a clear picture of water companies' financial performance. The auditors comment in the same way as they do on statutory accounts. In addition, as part of the June return, auditors are required to submit a detailed report on each company's compliance with our transfer pricing guideline – RAG5. Auditors also examine the companies' principal statements, submitted each January, and report on whether they have been properly drawn up. Principal statements contain information derived from the regulatory accounts and are used to prepare the companies' charges schemes, which we approve each year. Reporters help the auditors in those areas where their professional expertise is more appropriate, for example in scrutinising engineering contracts or non-financial June return information. Valuers Valuers are surveyors, who are involved in cases where water companies wish to dispose of land. They certify that the price obtained for the land is the best that could reasonably be achieved. What ground rules apply to their work? The companies' licences set out the framework for independent scrutiny and certification of the different types of regulatory information. For example, the companies must:
The reporters' primary duty of care is to us. They also have a duty of care to the water companies. This is set down in MD 185 – reporter protocol issue 2, March 2003 and covers the following items:
Who appoints them? Water companies appoint and pay reporters, assessors and valuers, following our approval. Companies appoint auditors under the terms and provisions of the Companies Act 1985. How independent are they? Reporters must be demonstrably independent of the company and able to provide us with a professional, independent opinion. We require them to keep confidential any information they obtain in preparing their reports. This extends to colleagues who may be employed on other projects for the same, or different, water companies. To achieve this, we put in place and check internal security measures. We appointed a team from Babtie Group to carry out an external review of the reporter process for the 2004 periodic review draft business plan. Babtie confirmed that:
For further information Send an e-mail to enquiries@ofwat.gsi.gov.uk Contact our library on 0121 625 1361 Visit our website at www.ofwat.gov.uk April 1994 (Revised December 2004)  |
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