SCPA/S4/11/2/A
SCOTTISH COMMISSION FOR PUBLIC AUDIT
AGENDA
2nd Meeting, 2011 (Session 4)
Tuesday 4 October 2011
The Commission will meet at 10.00 am in Committee Room 4.
1. Audit Scotland Annual Report and Accounts for the year to 31 March 2011 and Auditor’s Report on the Accounts: The Commission will take evidence from—
Robert Black, Auditor General for Scotland, Russell Frith, Assistant Auditor General, and Diane McGiffen, Chief Operating Officer, Audit Scotland;
and then from—
Andy McBean, Senior Partner, and David Jeffcoat, Audit Manager, Alexander Sloan Chartered Accountants.
2. Audit Scotland’s Autumn Budget Revision 2011-12: The Commission will take evidence from—
Robert Black, Auditor General for Scotland, Russell Frith, Assistant Auditor General, and Diane McGiffen, Chief Operating Officer, Audit Scotland.
3. National Public Bodies Directory: The Commission will consider correspondence from the Cabinet Secretary for Finance, Employment and Sustainable Growth regarding the National Public Bodies Directory.
4. Written agreement on the budget process: The Commission will consider a revised written agreement between the Finance Committee and the Scottish Commission for Public Audit.
5. Work programme: The Commission will consider a paper from the Secretary on its work programme following the business planning event.
SCPA/S4/11/2/A
Fergus D. Cochrane Secretary to the Scottish Commission for Public Audit Room T3.60 Tel: 0131 348 5205 Email: [email protected] SCPA/S4/11/2/A
The papers for this meeting are as follows—
Agenda Item 1
Audit Scotland’s Annual Accounts and Report for the year to SCPA/S4/11/2/1 31 March 2011
Agenda Item 2
Audit Scotland’s Autumn Budget Revision 2011-12 SCPA/S4/11/2/2
Agenda Item 3
Correspondence between the Cabinet Secretary for SCPA/S4/11/2/3 Finance, Employment and Sustainable Growth and the Scottish Commission for Public Audit
Agenda Item 4
Note from the Secretary SCPA/S4/11/2/4
Agenda Item 5
Note from the Secretary SCPA/S4/11/2/5
SCPA/S4/11/2/1
Scottish Commission for Public Audit
2nd Meeting 2011 (Session 4), Tuesday 4 October 2011
Audit Scotland’s Annual Accounts and Report for the year to 31 March 2011
Purpose 1. Audit Scotland’s Annual Report and Audited Accounts for the year to 31 March 2011 have been laid before the Parliament. The document is also available on the SCPA webpage.
2. The Commission will take evidence on the Annual Report and Accounts from the Auditor General for Scotland and representatives of Audit Scotland. Following that evidence session, the Commission will take oral evidence from Alexander Sloan, the external auditors appointed by the SCPA to carry out the annual audit of Audit Scotland.
Background 3. The Annual Report and Accounts document is attached to this paper (Annex A). Members will note that it contains the following—
Management Commentary Remuneration Report Foreword to the Accounts Statement of Accountable Officer’s Responsibilities Statement on the System of Internal Control Summary of Resource Outturn Statement of Comprehensive Net Expenditure Balance Sheet Cash Flow Statement Statement of Changes in Taxpayers Equity Notes to the Accounts Accounts Direction
4. It also contains the Independent Auditors’ Report by Alexander Sloan. At the conclusion of the report, Alexander Sloan states that it has nothing to report in respect of the various issues it considered during the audit. In addition to that report, also attached (Annex B), is the Audit Management Letter produced by Alexander Sloan. The purpose of this letter is to provide feedback on the internal controls in place in Audit Scotland. It is designed to provide added value to the audit process.
Conclusion 5. Members are invited to consider the attached documents. They may wish to raise any questions or seek clarification on any points arising from the audit with the witnesses from Audit Scotland and then from Alexander Sloan.
Secretary to the Scottish Commission for Public Audit, 28 September 2011
Annual Report and Accounts Year ended 31 March 2011
List of Contents Page
Management Commentary 1
Remuneration Report 25
Foreword to the Accounts 29
Statement of Accountable Officer‟s Responsibilities 31
Statement on the System of Internal Control 32
Summary of Resource Outturn 33
Statement of Comprehensive Net Expenditure 34
Balance Sheet 35
Cash Flow Statement 36
Statement of Changes in Taxpayers‟ Equity 37
Notes to the Accounts 38
Accounts Direction 53
Report of the Auditors 54
Management Commentary
AUDIT SCOTLAND ANNUAL REPORT 2010/11
Chair’s message
Welcome to Audit Scotland‟s annual report for 2010/11.
With Scotland‟s public sector heading into the toughest financial conditions in living memory, the sound management of public money has never been more important.
We are working hard to support the Auditor General and the Accounts Commission and, through them, public bodies, to push improvements in performance and efficiency. We have also reviewed our own business to make sure we are continuing to operate effectively, efficiently and transparently.
We have been heartened to receive support for the work we do and the role we play from the Scottish Commission for Public Audit (SCPA). In a recent report on our budget, the SCPA said it was “keen to stress the ever increasing importance of rigorous independent audit of public funds at a time of budgetary restraint”.
Our work with public bodies ranges from the day-to-day support, advice and scrutiny we provide to our thematic national reports. You will see throughout the report, and in the case studies, examples of how we help bodies improve their performance and save money
We have continued working with the Accounts Commission and other partners to streamline public sector scrutiny in Scotland. This includes the launch of a new system for scrutinising local government during 2010/11. By working with other agencies, we have reduced duplication and ensured scrutiny is proportionate and focused on where it is most needed.
A key theme in our work and in our own business over the past year has been the role that leadership and governance has in this economic climate. We produced specific reports on this subject covering central and local government and the NHS, as well as addressing it in many of our audits.
We have taken major steps to improve our own governance and the transparency of our costs.
In December 2010, I was appointed by the Scottish Parliament as chair of the Audit Scotland Board. I succeeded John Baillie, who stepped down after three years as chair. On behalf of Audit Scotland‟s staff and board, I would like to thank John for the enthusiasm, time and energy he has given to the role.
Ronnie Cleland Chair of Audit Scotland Board
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Management Commentary
Accountable Officer’s report
These are difficult economic times for the public sector in Scotland and likely to remain so for many years to come. All public bodies are under pressure to reduce costs while maintaining the quality of what they do. Audit Scotland is at the centre of efforts and initiatives to assist organisations to improve their effectiveness and the same pressures and constraints apply to Audit Scotland itself.
In 2010/11, we reduced the costs of our work and subsequently the fees we charge public bodies. We implemented a 5.5 per cent real terms reduction in fees compared with 2009/10. Overall, we aim to cut the cost of audit by at least 20 per cent by 2014/15. We will be reducing our staff numbers by 42, or 14.4 per cent, by 2014/15. By careful workforce planning, we are already about half-way towards our target.
We are pleased to say that, as we would expect of other public bodies, we have maintained and improved our performance despite these tough times. Survey results show increased satisfaction with the quality of our financial audit work. Our performance and Best Value work continues to support improvements in public services and the efficient use of public money. One example is our audit of the services provided to children in residential care which resulted in several far-reaching initiatives and developments. Our recommendations aim to achieve a measurable impact; for instance, our finding that the NHS in Scotland could save £6 million a year on locum doctors.
Our latest National Fraud Initiative (NFI) has enabled public bodies to identify £26 million worth of fraud, overpayments and errors, which they are working to recover. The cumulative impact of the NFI in Scotland is now £63 million.
This year our total expenditure was almost £26.9 million, with most of this on staff and appointed auditor costs. Our income was £21 million, meaning we needed just under £5.9 million in direct funding from the Scottish Parliament. Our results were also affected by a £6.3 million non-cash credit against our pension liabilities, following the UK Government‟s decision to change the basis of inflation increases for pensions from the Retail Prices Index to the Consumer Prices Index.
During the year we also received greater than expected income from staff secondments and a small increase in the amount of audit work completed, as well as spending less than planned on external support for audit work. We made efficiency savings of £1.6 million, against a target of £540,000, and we also completed the appointment of auditors to public bodies for the five years from 2011/12, which will bring future savings.
We continually review our work programme to ensure it is addressing the issues that really matter in the public sector. We intend to keep improving what we do at a time when the Scottish Parliament and the public bodies expect us to continue providing a high-quality independent public audit regime.
Robert W Black Accountable Officer and Auditor General for Scotland
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Management Commentary
Audit Scotland
Who we are Audit Scotland is a statutory body that carries out audits and investigations for the Auditor General for Scotland and the Accounts Commission. The Auditor General for Scotland secures the audit of the Scottish Government and other public bodies in Scotland, except local authorities. He investigates whether bodies achieve the best possible value for money and adhere to the highest standards of financial management. The Auditor General is independent of the Scottish Government and the Scottish Parliament. The Accounts Commission secures the audit of local authorities and fire and police boards, and investigates whether they spend public money properly and effectively. It is independent of both central and local government. Commission members are appointed by Scottish ministers.
What we do We help the Auditor General and the Accounts Commission to ensure public money in Scotland is used properly, efficiently and effectively. We do this by carrying out financial and performance audits of various aspects of how public bodies work. We audit public bodies, with a total spend of £45 billion a year, and audit the majority of devolved public services in Scotland.
Our vision On behalf of the Auditor General and the Accounts Commission, we will provide assurance to the people of Scotland that their money is spent appropriately and we will help public sector organisations in Scotland to improve and perform better.
Our objectives Holding to account We will conduct excellent risk-based audits of the public sector and report on them in public. Helping to improve We will systematically identify and promote good practice to help public bodies to improve.
Our priorities Maximise our contribution to the improvement of public services. Deliver more streamlined audit in partnership with other scrutiny bodies. Increase the impact of our work. Become a centre of excellence for public audit. Improve the transparency of our costs and governance arrangements.
Our stakeholders The Scottish Parliament The people in Scotland The Scottish Government All Scottish public organisations
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Management Commentary
Our resources
275 whole-time equivalent staff as at 31 March 2011. £21 million from: public bodies for audits of their financial reports; bank interest; and miscellaneous income. £5.9 million direct funding from the Scottish Parliament. Eight private firms of accountants appointed to carry out about half of the annual audits on behalf of the Auditor General for Scotland and the Accounts Commission.
Our history
Audit Scotland was established in 2000 under the Public Finance and Accountability (Scotland) Act 2000. This followed devolution from Westminster to Scotland and the establishment of the Scottish Parliament in 1999.
Highlights of 2010/11
Implemented four-year plan to reduce audit fees by 20% Reduced 2010/11audit fees by 5.5 % 212 final annual audit reports produced 26 performance and Best Value audits published 99.5% of audits completed on time 610 separate reports produced for the 212 public bodies audited 94% of health and 100% of further education bodies think our auditors provide „a high-quality audit service‟ Presented to 68 seminars, conferences and training events Served on 53 external bodies and working groups £63 million cumulative impact of the National Fraud Initiative A new board chair appointed by the Scottish Parliament
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Management Commentary
Our work
The Auditor General and the Accounts Commission
We carry out performance audits across the entire public sector to help public bodies improve the quality of their services, do more with their money, and find lower-cost ways of working to the same or better standards. We do these on behalf of the Auditor General or the Accounts Commission or both. We publish reports on the audits to provide assurance to the public and to decision-makers that public money is being spent properly. In 2010/11, we published reports on 26 national and Best Value performance audits. These were: • 5 Across-government audits • 5 Central government audits • 3 NHS audits • 9 Best Value in local government audits • 4 Local government audits.
Our reports carry recommendations for public bodies to help them improve, and we publish good practice checklists and case studies. They also identify potential savings. For example, Using locum doctors in hospitals found the NHS could save £6 million a year, about 15 per cent of the £47 million it spends annually on locums, through better planning and procurement. Maintaining Scotland’s roads called for a national summit on how to deal with the £2.25 billion maintenance backlog. The Scottish Government announced a national review, including such a summit, as well as providing an extra £2 million to repair potholes. Public bodies face major financial challenges over the next few years, and a key theme of our work has been the need for strong and clear leadership during this time. The boards of public bodies are central in making difficult decisions about spending priorities. To help in this area, we published The role of boards in September 2010. It made recommendations to clarify the role of boards and help them improve performance. Since publication the report has been downloaded over 4,000 times from our website. We have received invitations to speak at a number of events on this topic, including a CIPFA conference, Scotland‟s Colleges‟ annual conference and two follow-up seminars, a Scottish Government event for non-executive board members, and a number of individual audit committees. Parliament and Accounts Commission The Scottish Parliament‟s Public Audit Committee held evidence sessions on eight of our audits: Edinburgh trams; National concessionary travel; The role of boards; Getting it right for children in residential care; Emergency departments; The Gathering; Review of orthopaedic services; and Overview of the NHS in Scotland’s performance 2008/09. The committee called relevant Scottish Government accountable officers to give evidence and answer questions about issues raised. It also asked for written evidence from accountable officers for two other reports published during the year, as well as two Section 22 reports and four audits from the 2009/10 year. The committee published 10 reports during 2010/11 on issues highlighted in our work over 2010/11 and 2009/10. The Accounts Commission produced findings on nine of our audits: North Ayrshire Council; Grampian Police and Grampian Joint Police Board; South Ayrshire Council progress report; Scottish Borders Council; The Highland Council; Angus Council; Northern Constabulary and Northern Joint Police Board; East Ayrshire Council; and An overview of local government in Scotland 2010. Assessing our impact We have a framework for assessing and reporting on the longer-term impact of our work, which provides a wider picture of the value of audit. The four areas where we expect our work to have an impact are: assurance and accountability; planning and management; economy and efficiency; and effectiveness and quality. We routinely prepare impact reports, and published 12 in 2010/11.
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Management Commentary
This year our reports and podcasts were downloaded 244,471 times from the Audit Scotland website, www.audit- scotland.gov.uk. We supply reports and findings in various formats.
Highlighting issues from accounts We bring significant issues arising from the annual audits to the attention of the Scottish Parliament and Accounts Commission. This helps ensure effective scrutiny of the use of public funds. The Auditor General issues reports to the Scottish Parliament under Section 22 of the Public Finance and Accountability (Scotland) Act 2000. We presented two Section 22 reports to the Scottish Parliament: on the Scottish Government Consolidated Accounts and the National Library of Scotland. The Controller of Audit issues statutory reports on local authorities to the Accounts Commission and produced four reports in 2010/11: two on The Highland Council and one each on Shetland Islands Council and Strathclyde Partnership for Transport. In June 2010 the Accounts Commission held a two-day hearing in Lerwick into the Shetland Islands Council. This came after statutory reports from the Controller of Audit about a number of issues at the council, including qualification of the council‟s annual accounts for the fourth year in a row, and the appointment and subsequent departure of the chief executive. More than 40 people gave evidence at the hearing, including the Controller of Audit and other Audit Scotland staff, councillors, senior officers, the former chief executive of the council, trade union representatives, COSLA, an MSP, an MP and members of the public. The Commission produced findings and Audit Scotland continues to monitor progress at the council.
Quality All of our national performance audit reports are subject to a detailed quality assurance framework. We also seek independent comment and external scrutiny of our work. Each performance audit has a project advisory group involving experts in the subject area. In addition, we work with other UK audit agencies – the National Audit Office (NAO), the Wales Audit Office (WAO) and the Northern Ireland Audit Office (NIAO) – and a selection of our audit reports are submitted for peer review with them each year. Improvements identified by these reviews are applied to future work. During 2010/11, we set up a new benchmarking project with the other UK audit agencies. This will make sure that we continue to drive improvements to our efficiency and effectiveness.
Number of performance audit reports published in 2010/11 - 26 Number of S22s in 2010/11 - 2 Number of Controller of Audit reports in 2010/11 - 4
Case study one: maximise our contribution to the improvement of public services Scotland has about 1,600 children and young people in residential care. They are among the most vulnerable members of our society and many have complex and challenging needs. We published Getting it right for children in residential care on 2 September 2010. The audit found more than £250 million is spent a year on these services but councils cannot demonstrate that they are achieving value for money. Although professional practice and work is often good, not all children get the best-quality care and support. Many go on to have major problems later in life. The report contains 21 recommendations for the Scottish Government, councils, COSLA and NHS boards, on planning and management, and a self-assessment checklist. Around £150,000 is spent per child a year. The audit recommends that councils have to be sure they achieve an appropriate quality of service for the costs. It also highlights the need for stronger leadership and direction from the government. These issues and the poor outcomes for many children in care were highlighted in the 53 items of media coverage immediately following publication. The report was downloaded 5,713 times in its various forms during 2010/11.
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Management Commentary
We presented the report to the Scottish Parliament‟s Public Audit Committee in September. The committee held an inquiry and took evidence at two separate sessions, from the Children‟s Commissioner, two councils and the government‟s Education Director-General. The Scottish Institute for Residential Child Care submitted written evidence. In February 2011, the committee published a report on its inquiry, calling for better data on the outcomes of children and young people in care. It also asked the Scottish Government for more information on: how it was supporting councils, NHS boards and service providers to work together; how it aimed to support public services to prevent children going into care, while also meeting the costs of those already in care; and its evaluation of a Loughborough University model of understanding on the full costs of residential care. The Scottish Government welcomed our report, saying it was an opportunity to raise the profile of this area, particularly in improving outcomes for children and young people in care. There are a number of improvement initiatives underway. The Scottish Government and COSLA set up a group to produce a new approach to commissioning, focusing on outcomes. This group has produced a draft national contract and specifications for secure residential care. A new national commissioning officer for children‟s services and a new regional child care commissioning officer in Renfrewshire and the Clyde Valley are developing, testing and supporting commissioning and contracting. Other developments include the Scottish Government:
setting up a strategic implementation group on looked-after children, looking at five areas: culture change in care planning; improving health outcomes; improving learning outcomes; workforce issues; and commissioning considering using a costing model to identify the full costs of residential child care services to help councils make decisions announcing in February 2011 the creation of a new centre of excellence on improving the lives of looked- after children, providing specialist training, consulting children and young people, and supporting universities and colleges.
Best Value We have supported the Accounts Commission in introducing a new regime for auditing how well local authorities deliver Best Value in their public services. For the first time, these Best Value audit reports contained two specific judgements to summarise the assessment of councils. These reports are put before the Accounts Commission, who can also make findings that include key points of progress and areas for improvement.
Under this programme, we work with other scrutiny bodies to assess risks, coordinate our work more effectively and reduce the amount of time and data requested from councils. In 2010/11, the Commission published reports based on this new system, on four councils; Angus, East Ayrshire, Highland and Scottish Borders. We also published the final report from the first round of Best Value, a progress report on South Ayrshire Council. As part of the new system, the Commission also produces joint reports with other scrutiny bodies. In 2010/11, they published two joint audit and inspection reports in partnership with Her Majesty‟s Inspector of Constabulary for Scotland (HMICS). In April 2010, they published a pilot report on Northern Constabulary and Northern Joint Police Board, and in February 2011, a report on Grampian Police Force and Grampian Joint Police Board. Drawing on what we have learned since the first Best Value report was published in 2004, the Accounts Commission also launched a new series of publications to help councils manage the financial pressures they face. Our aim for the new series, How councils work, is to stimulate change and improve performance in Scotland‟s councils.
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Management Commentary
The first of this series, Roles and working relationships: are you getting it right?, was published in August 2010. The report looked at the relationships between elected councillors and council officers, and provided checklists and good practice examples. The next report in the series, due in Summer 2011, will focus on key issues for councils when delivering services through Arm‟s-Length External Organisations (ALEOs). Now that the new approaches to Best Value in councils and the police are being introduced, the Accounts Commission is ready to take forward its long-standing commitment to introduce the Best Value audit into fire and rescue services. In February 2011, the Scottish Government launched a consultation on the future structure of police and fire services. Our Best Value audit work on police and fire will focus on the key characteristics of efficient and effective service delivery, and the principles of governance and accountability that need to be considered whatever the future structure of the service. We are also working with the Equality and Human Rights Commission Scotland and the Accounts Commission to develop how we examine equality and diversity in Best Value audits.
Case study two: deliver more streamlined audit in partnership with other scrutiny bodies
By coordinating our work and focusing on the key issues at each council, we have been able to cut the time we spend in councils on strategic scrutiny work by 36 per cent compared with 2008. Visits and inspections are generally quicker, more focused, and involve fewer inspectors. The scrutiny activity within each council is more proportionate and risk-based than in the past. In 2010/11, we helped the Accounts Commission introduce this new streamlined scrutiny system for local government in Scotland. In July 2010, we published the National Scrutiny Plan for Local Government 2010/11, in which Scotland‟s scrutiny agencies jointly set out the strategic work we would do in councils during the year. The publication of the national plan was the result of work carried out since the Accounts Commission was asked in 2008 to take on a coordinating and gate-keeping role for local government scrutiny. Audit Scotland has supported the Commission and worked with Her Majesty‟s Inspectorate of Education, Social Work Inspection Agency, Scottish Housing Regulator, the Care Commission, Her Majesty‟s Inspectorate of Constabulary for Scotland, and NHS Quality Improvement Scotland. In the past, when we planned and undertook scrutiny of a local authority, we did this alone, with the Audit Scotland team setting out the work we would be doing around that public body. Similarly, across Scotland, other scrutiny agencies could be undertaking the work on that same authority. Under the new system, the scrutiny bodies share information and come to an agreed view on the areas where scrutiny is needed to provide public assurance or facilitate improvement in each individual council. We refer to this as identifying the scrutiny risk, and the process is known as Shared Risk Assessment (SRA). From that, we set out individually tailored plans for scrutiny at each body, known as Assurance and Improvement Plans (AIP). In 2010/11, we published AIPs for all 32 councils, setting out in detail the planned activity at each council and the reasons behind it. For us, it means we can prioritise and focus our resources and time and can avoid duplication of effort. For the local authority, scrutiny work is better coordinated; its own evidence of performance and improvement influences the assessments made; it has a clear picture of what will be happening during the year; and understands why that work is prioritised.
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Management Commentary
Delivering the audit The Auditor General and the Accounts Commission were responsible for 212 annual audits for the audit year 2009/10, carried out by a mix of appointed auditors from Audit Scotland and private firms of accountants.
Number of Sector annual audits
Central Government 73 NHS 23 Further Education 39 Councils 32 Joint Boards 44 Water sector 1
Auditors completed 99.5 per cent of all the audits of health, central government, further education and local authority bodies on time (compared with 100 per cent overall in the previous year). With the public sector facing financial pressures unprecedented since devolution, we are working to reduce the fees we charge public bodies for our audit work. We began this in 2010/11, with a 5.5 per cent real terms reduction in fees compared with 2009/10. Overall, we are aiming to reduce the cost of audit by at least 20 per cent over the four years to 2014/15. We are satisfied that this can be achieved while maintaining the quality of our work. Public sector auditors provide assurance on financial statements as well as professional views on matters such as regularity and legality, propriety, performance and use of resources. We also provide advice and assistance to public bodies and identify areas for improvement (see case study on page 10). In 2010/11, our auditors attended 265 audit committee meetings of public bodies across Scotland. Annual audit reports cover the full range of audit work done in the year, providing clients and stakeholders with a comprehensive and independent view of financial management, governance and performance in public bodies. These reports can be found on our website. The majority of opinions given by appointed auditors are unqualified. However, there are situations where auditors may disagree that an organisation‟s financial statements offer a true and fair view of its financial position or where they may wish to refer to any limit of scope of that opinion. In these cases the auditors will qualify their opinion. This year we published two audit qualifications: on Shetland Islands Council and the National Library of Scotland. We brought together auditors working in the same sectors six times during 2010/11 to share experiences, keep up to date with policy developments and discuss technical auditing matters. We continue to focus on improving how effectively and efficiently we deliver the audit. Following a pilot of electronic working papers in 2009/10, we have rolled out the package to all our auditors for 2010/11 audits, along with training and ongoing support. We have already started to see a considerable reduction in paper records at audited body sites. This should significantly reduce future document storage requirements. We will carry out a post-implementation review during 2011/12.
Quality and impact Audit Scotland remains committed to delivering a public audit service that is valued and supports sound governance. Our Audit Strategy Group is responsible for setting the standards expected of all public sector auditors through our code of audit practice. During the year, we further developed and introduced arrangements for assuring the quality of our work. We fully revised our audit guide, and we carried out reviews of a sample of audits.
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Management Commentary
We regularly collect feedback from audited bodies to help us measure the quality of the audit service and to continue to drive up standards. This year we asked health and further education bodies to tell us what they thought of the service provided by our auditors during the 2009/10 audits. Bodies were also asked to comment on whether the audit had made, or will make, a difference to them in the four areas defined in our corporate impact framework. A summary of the responses received is shown in the table below. These results compare favourably with previous surveys.
Positive responses Quality survey responses Health Further education Overall quality of service 94% 100%
Area of impact of the audit Assurance and accountability 94% 100% Planning and management 87% 100% Economy and efficiency 71% 90% Effectiveness and quality of services delivered by audited bodies 64% 89%
Ethical standards We have adopted the principles of the ethical standards for auditors issued by the UK Auditing Practices Board across all our work. We also provide our staff with guidance about the application of the standards to public sector audit in Scotland. The independence of public audit helps ensure its effectiveness. Audit Scotland expects the highest ethical standards to be applied by all our staff and appointed auditors. The Assistant Auditor General undertakes the role of ethics partner and provides advice on the application of the standards.
Case study three: increase the impact of our work
Audit Scotland is uniquely placed to share intelligence about developments across health, local and central government and further education areas as we cover the whole of Scotland‟s public sector. It also allows us to address issues that affect all public bodies. Our annual audit reports and our national publications are public documents and are the most obvious examples of the work we do to help drive improvement. However, they do not tell the full story of what we do behind the scenes, on a daily basis, with public bodies which impact in big and smaller ways on their effectiveness and efficiency. Below are just two examples. Shared Services Sometimes our impact is local and specific. For example, our auditor appointed to NHS 24 is familiar with the body‟s contact centres, which provide a well-established call handling, clinical triage and advisory service for the whole of Scotland, primarily during the out-of-hours period. The national technology and telephony infrastructure which supports NHS 24‟s services is a significant public sector asset. The same auditor has also observed that several local authorities have been investing in call centres, some of which were operating below capacity. The auditor felt that more consideration could be made of whether councils could use NHS 24's existing technology and telephony infrastructure, and has subsequently shared this observation with NHS 24 and formally reported on it.
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Management Commentary
An NHS 24 representative has since joined a committee considering the shape of shared services across eight councils in the Clyde Valley area. This committee was formed following the publication of a report by Lord Arbuthnott into shared services in the west of Scotland. Supporting Change Some of the work we do is to address issues across a wide range of bodies and sectors. For example, over the past two years central government and NHS bodies have prepared their accounts under International Financial Reporting Standards (IFRS) for the first time. This was the most significant change in the basis of preparing public sector accounts for many years. IFRS is the globally recognised „gold standard‟ set of accounting standards in both the public and private sectors, and enables consistency and comparability on a scale not previously achieved. The UK decided to adopt these standards for public sector accounts in order to be seen to stay at the forefront of transparency and quality of financial reporting. Some of the new standards were complex and a significant amount of preparatory work was required. A two-year transition process was devised, including the preparation of shadow accounts for 2008/09 and their review by external auditors. We worked to support public bodies through this transition process. We set up an IFRS working party which provided training to our auditors and produced audit programmes, checklists and template reports. Our auditors carried out timely reviews of opening balance sheets and shadow accounts, and gave feedback to audited bodies on the progress they were making to deliver accounts that complied with the new standards. When the first full sets of IFRS-based accounts were produced, the benefits of the disciplined transition arrangements, the considerable effort put in by audited bodies and the audit reviews of progress became clear. There were no qualifications of audit opinions relating to the implementation of IFRS in Scotland.
National and international Identifying fraud and errors Audit Scotland oversees the National Fraud Initiative (NFI) in Scotland, a programme which brings together auditors and public bodies to help identify public sector fraud and error. We compare information from councils, health boards and other public sector bodies and from a range of areas, such as housing benefits, payrolls, public sector pensions, disabled parking permits and council tax records. This helps bodies recover money and stop overpayments made through fraud and error continuing. Effective fraud arrangements act as a deterrent. During 2010/11, the participating audited bodies continued to follow up data matches from the 2008/09 exercise, and in May 2010 we published the results. At that point, public bodies had identified fraud, overpayments and errors valued at £21 million. This has since increased to £26 million, and the cumulative total since the NFI started in 2000 is now £63 million. We also launched the 2010/11 NFI exercise, under which we will use new powers for data matching that came into law in October. We have been able to expand the number of bodies taking part, and to cross-border data- match with other UK audit agencies. We published a Code of data matching practice in November 2010, following consultation with the UK Information Commissioner and other stakeholders. We continue to streamline the scrutiny of the devolved housing and council tax benefit services as part of the annual audit of councils. In 2010/11, we performed risk assessments at 10 councils. They have since put action plans in place and we will monitor progress through our audit work. We introduced a new system of risk assessment, enabling our scrutiny to be proportionate to the risks, an approach councils have strongly supported.
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Management Commentary
Learning and knowledge sharing Audit Scotland staff presented at 68 seminars, conferences and training events, as well as to four groups of overseas visitors to Audit Scotland. We also served on 53 external bodies and working groups. Bodies included the Auditing Practices Board, the Financial Reporting Advisory Board, Scottish Government‟s technical accounting group, UK audit agency efficiency forum, CIPFA exam panel and CIPFA pensions panel. Presenting at external events and supporting groups and organisations helps us share our knowledge, increase the impact of our work, and learn from those managing, delivering and using public services. Technical support and education Audit Scotland supports improvements in accounting, financial reporting and auditing in the public sector. We do this through our technical guidance. We provide this guidance not only to auditors but also to financial professionals across the Scottish public sector. We frequently contribute to external seminars, conferences and working groups. Our objective is to make sure that the technical knowledge of auditors and public sector finance professionals is comprehensive, relevant, reliable and up to date. 2010/11 was particularly challenging as there was a significant number of technical developments. The biggest of these has been the continued implementation of the International Financial Reporting Standards (IFRS) across the public sector. For more on our work on IFRS, see the case study on page 10. We published four technical bulletins during the year which explain relevant developments, and provide guidance on major risk areas and their implications. We also published 15 notes for guidance to provide more in-depth and extensive guidance on specific matters. We added 342 documents to our online technical reference library, and responded to 857 technical enquiries from auditors and stakeholders.
Technical assistance – performance against target response times
2010/11 2009/10 2008/09
Total number of enquiries 857 856 1,006 Routine enquiries 99% 99% 97% Complex enquiries 100% 95% 100% Other enquiries 99% 99% 99%
International work The work of Audit Scotland is of interest to other countries and this is reflected in requests for assistance and visits from overseas organisations. We always give priority to our core audit work in Scotland and strictly limit the work on international assignments, for which we generally recover the full costs from various funding sources. In 2010/11, we worked with seven organisations but turned down eight other requests. Our work with other countries has traditionally focused on the European Union (EU) accession countries, the Balkan states, and nations on the periphery of the EU. We carry out this work in partnership with other audit agencies including the UK National Audit Office (NAO) and Support for Improvement in Governance and Management (SIGMA) who reimburse us for this work. During 2010/11, we have undertaken assignments in Ukraine and Kosovo. A new area of activity has been our work on the United Nations audit - see the case study on page 13.
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Management Commentary
We hosted four visits from overseas audit and local authority delegations from Japan, Finland, Moldova and China. Visitors were interested in our role in public scrutiny and devolution, among other topics. These visits are also an opportunity for us to learn from others and to identify where we can improve our own work to achieve our aim of being a world-class audit institution. We have produced a separate report on our work with other countries which is available on our website.
During 2010/11, we were also approached to take on formal positions working in other countries. In September, the UK Department for International Development appointed Deputy Auditor General Caroline Gardner to a 12- month secondment as Chief Financial Officer of the Turks and Caicos Islands. In early 2011, the Welsh Assembly asked us to carry out the external audit of the Wales Audit Office accounts for 2010/11, following the resignation of the existing auditors.
Case study four: become a centre of excellence for public audit
In 2010/11, Audit Scotland staff joined a number of UK auditors appointed to the United Nations Board of Auditors for a period of six years. The placements are coordinated by the National Audit Office (NAO), the audit agency that audits the UK government and its departments. The NAO approached Audit Scotland when putting the UK team together, reflecting the expertise and reputation of our staff. A major part of the contract is to audit the UN headquarters, which has a budget of US $8 billion. The approach to auditing the UN HQ is to divide the organisation into smaller, manageable units. UN regulations mean that biennial accounts are prepared and this means that the audit is stretched over a two-year period instead of the usual annual accounts and audit reporting process. Audit Scotland audit manager Carol Hislop is responsible for the political affairs, conference management and disarmament departments, based at the UN headquarters in New York City, USA. She visited in October 2010 and March 2011, and will make another two trips to New York over the next year to test systems and conclude the financial statements audit process. Carol has also been assigned to the audit of the Capital Master Plan, which is the project for the refurbishment of the UN building in New York. This has involved meetings with the project director, various engineers and the UN budget director. Audit Scotland portfolio manager Mark MacPherson is leading the audit of management issues in five UN organisations: the environment programme (UNEP); the human settlements programme (UN Habitat); the office on drugs and crime (UNODC); and the Nairobi and Vienna offices (UNON and UNOV). The majority of the work is based in Nairobi (Kenya) and Vienna (Austria), although UNEP, UN Habitat and UNODC have a large number of field offices located throughout the world. Mark will augment his visits to Nairobi and Vienna with a small number of trips to field offices. The work is challenging, often being performed to tight timescales. This is encouraging the teams to develop efficient and effective working practices. The work also allows us to learn and share with colleagues in other audit agencies, and bring that learning back to invest into Audit Scotland. The work is fully funded by the United Nations.
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Management Commentary
Our organisation Our people We strive to make Audit Scotland an excellent place to work where people are valued, as shown by our „Two Ticks‟ accreditation and our retention of Best Companies „One to Watch‟ status. Workforce planning We work hard to ensure we retain and recruit high-quality people and invest in continuing development of all our people. Staff turnover is inevitable and this was slightly higher than normal in the past year. We are proud that many of those people were leaving to take up key roles in the public sector both in Scotland and abroad. Like other public bodies, we face financial pressures. We implemented a pay freeze this year, and are reducing our staff numbers by 42, or 14.4 per cent, by 2014/15. Through careful workforce planning, including a recruitment freeze, we are already about half-way to our target. Developing and engaging our staff Our Performance Appraisal and Development (PAD) scheme is central to helping our staff maintain and develop their skills in order to improve our overall performance and efficiency. PAD meetings between staff and their line managers set work, performance and development objectives. We continued to invest in providing high-quality training and developmental support for our staff, in areas ranging from obtaining professional qualifications to technical and specific skill updates. During 2010/11, our staff received an average nine days each of training and personal development. We had 26 trainees and staff working towards CIPFA and ACCA qualifications. Delivery of these qualifications changed from traditional block release to IT-enabled modules and assistance through a „virtual‟ classroom. This change will ensure access to the qualification no matter where the trainee is based, reduce our overall cost per trainee by more than 11 per cent and allow training time to be better planned to fit with business needs. Five trainees successfully completed their qualifications during the year, and one won the prize for achieving the highest marks by a person working in public audit. This year we retained our status as „One to Watch‟ in the Best Companies review of public sector workplaces. We engage with our staff through a range of methods, such as monthly team briefings, our in-house quarterly magazine abacus, face-to-face meetings and through our intranet site Libro. We also have a partnership forum for regular consultation with staff trade unions. We are carrying out a number of projects to further improve our staff engagement and are replacing our intranet. This will allow better information and knowledge sharing. More focused management and professional medical support was devoted to staff well being and attendance this year, resulting in a reduction in our staff sickness absence. In 2010/11, our sickness absence was on average 4.89 days per employee, down from 8.82 days in 2009/10 and compared with a public sector average of 9.6 days. Diversity and equality Our Single Equality Scheme outlines our commitment to diversity and equality. It sets out how we intend to demonstrate this commitment, both through how we work as an organisation and in the way we carry out our audit work. Following an Equality Impact Assessment of our project management framework, we revised our booklet Building diversity into our work to support our staff in making sure that equality and diversity are considered during our national performance audits. In January 2011, we received „Two Ticks‟ accreditation from Job Centre Plus. This is given to employers that make a commitment to supporting people with disabilities. We are also using our new eHR system to collect information about our staff to help us monitor our progress in advancing equality and we have updated our online training for staff to reflect the duties of the Equality Act 2010.
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Management Commentary
Audit Scotland‟s website was re-awarded the Shaw Trust „Accessible Plus‟ accreditation for its high level of accessibility for people with disabilities. A full report on our diversity and equality work is available on our website and highlights progress against our Single Equality Scheme.
Our demographic profile as at 31 March 2011
Audit Scotland Scotland (working population) Gender Males 49% Males 48.9% Females 51% Females 51.1% Ethnicity White 97.5% White 96.3% Minority ethnic 2.5% Minority ethnic 3.7% Disability Staff with no declared disability 95% People with no declared disability 89.6% Staff with a declared disability 5% People with a declared disability 10.4% Age 16-24 2.8% 16-24 18% 25-34 25.5% 25-34 19% 35-49 44.5% 35-49 33% >50 27.2% >50 30%
Staff 2010/11 2009/10 Staff numbers 275 WTE* 293 WTE Turnover 8.2% 5.26% Average sickness absence per person 4.89 days 8.82 days
Source: Audit Scotland / Annual Population Survey October 2009 – September 2010, ONS
*Correct as of 31 March 2011.
Our business
Managing our resources This year we have continued to work hard to be more effective and efficient, and to reduce the cost of public audit. In September, we submitted budget proposals for 2011/12 that will reduce our costs by seven per cent in real terms, or £1.9 million, compared with 2010/11. This will in turn reduce the money we are requesting from the Scottish Parliament towards our running costs. We will continue to seek ways of driving down the cost of audit. In 2010/11, we began the tendering process for the new audit appointments for the next five years. This will result in further savings in future years.
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Management Commentary
In 2010/11, we delivered £1,570,000 of efficiency savings, against a target of £540,000. This was 5.7 per cent of our overall budget, exceeding the Scottish Government target of 2 per cent. We compare our performance in a wide range of business areas against public sector benchmarks to help us improve and become more efficient.
Correspondence and information regulations Audit Scotland receives enquiries from a wide variety of people, raising issues of concern to them about the public bodies we audit. These cover a range of subjects and vary in financial value, significance and complexity. Where appropriate, we may carry out further audit work in response. In 2010/11, we received 230 items of correspondence, compared with 250 last year. We met our target of acknowledging correspondence within ten working days in all but one case, and in 98 per cent of cases we provided a full response within one month of acknowledgement. In 2010/11, we received nine complaints about how Audit Scotland‟s staff have dealt with members of the public. In all cases we provided a full response within our 20 working day target. We value openness and transparency and we recognise the public interest in the information we hold. This year we strengthened our information governance arrangements by establishing an Information Governance Group. This group has responsibility for a number of our information governance areas such as our policies and procedures on the Freedom of Information Act, Environmental Information Regulations, the Re-use of Public Sector Information Regulations, and the Data Protection Act. A wide range of information is available through our publication scheme, which is on our website. We receive many routine requests for information on a daily basis. This year, 12 Freedom of Information (FOI) requests required consideration by an internal panel to determine whether all the information requested could be released. There were five data subject access requests under the Data Protection Act, but no Environmental Information requests. The Public Services Reform (Scotland) Act 2010, which came into force on 1 October 2010, places duties on public bodies to provide and publish information on certain expenditure and exercise of functions. We welcomed the legislation; see the case study on page 20 for more details.
Items of correspondence by sector 2010/11 Correspondence received per sector Local government: 137 Central government: 84 Health: 9 Further education: 0
Response times for correspondence 2010/11 2009/10 2008/09 Number received 230 250 235 Acknowledgements 99.5% 100% 100% Full response 98.0% 97.0% 94.5%
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Management Commentary
Improving business systems We continue to innovate and invest in new technology to simplify and improve the way we work, strengthen security, and reduce costs. This included implementing an automated system for managing and engaging staff about our policies, improving our network connection with fixed audit sites, and upgrading our IT firewalls to improve security and increase network speed. In February 2011, our new electronic purchasing system went live. This system aims to strengthen our purchasing process and improve our performance and management of our suppliers‟ invoices. We rolled out our new electronic working papers system to all Audit Services staff, and we started a programme to implement SharePoint technology across the organisation to improve how we share, manage and store information.
Sustainability and environmental impact Over the past five years we have implemented a wide range of measures to reduce our impact on the environment, including promoting the use of public transport and increased recycling. The focus of our work is now shifting to areas where greater effort is required to achieve significant reductions in emissions. With the support of the Carbon Trust we have set an ambitious target of reducing our carbon footprint by 20 per cent by 2014. Internal audit and risk management Most internal audits in 2010/11 achieved „substantial assurance‟, the highest standard available, from our internal auditors RSM Tenon. The follow-up report said we were making good progress in implementing previous recommendations. Audit Scotland‟s audit committee supports our board in its responsibilities for risk, control and governance and associate assurance. The committee met four times in 2010/11 and considered 11 internal audit and advisory reports (see below for report subjects).
Internal audits and advisory work concluded in 2010/11 Human resources IT security Controls Communications advisory report Business continuity plan Carbon management Assurance map Electronic working paper system benefits realisation plan Key financial systems Medium to long-term financial planning Publications process Follow-up report on previous internal audit recommendations
Our governance and management Our board Our board oversees Audit Scotland‟s work and seeks to ensure high standards of governance and management. The board has an audit committee which appoints our internal auditors and receives our annual accounts and internal audit reports. The board met eight times during the year and the audit committee four times. The board also has a remuneration committee which sets and reviews the salaries of senior staff (excluding the Auditor General for Scotland whose salary is set by the Scottish Parliamentary Corporate Body) and the main terms and conditions for all staff.
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Management Commentary
The board has agreed on a framework which sets out the principles of partnership working between the Auditor General for Scotland, the Accounts Commission and Audit Scotland. The framework is designed to make sure that the three parties work together to deliver their vision for public audit. Ronnie Cleland - Chair of the board Chair of Scottish practice of Odgers & Berndtson. Member of NHS Greater Glasgow and Clyde Board (until March 2011). Non-executive adviser to Scottish Football Association. Member of Court of the University of Strathclyde. Former partner at Thomson Partners Ltd. John Baillie - Chair of the Accounts Commission Former partner of KPMG Scotland and London. Recently retired member of the Competition Commission. Visiting Professor of Accountancy, and former Johnstone Smith Professor of Accountancy at the University of Glasgow. Robert Black - Auditor General and Accountable Officer for Audit Scotland Robert Black is the first Auditor General for Scotland and was appointed in 2000. He was Controller of Audit with the Accounts Commission from 1996 to 2000, and previously chief executive of Tayside Regional Council and Stirling District Council. He has degrees in economics, planning and public policy, and honorary degrees from the University of Aberdeen and Queen Margaret University. Caroline Gardner - Deputy Auditor General and Controller of Audit (until October 2010) Caroline Gardner was appointed Deputy Auditor General when Audit Scotland was formed in 2000, and became Controller of Audit in 2004. She previously worked for the Accounts Commission for Scotland, and the Audit Commission in England and Wales. She trained as a chartered public finance accountant with Wolverhampton MBC, and has an MBA from the University of Warwick. In September 2010, Caroline began a 12-month secondment as Chief Financial Officer of the Turks and Caicos Islands Government. John Maclean - Independent non-executive member Former deputy chair of Court and former chair of Glasgow Caledonian University audit committee. Former non- executive director at Bank of Scotland, HBOS plc, Bank of Western Australia, and SVM Global. John started his term at Audit Scotland in October 2009.
Scottish Commission for Public Audit Audit Scotland is held to account by Parliament through statutory arrangements put in place by the Scotland Act 1998 and through the Public Finance and Accountability (Scotland) Act 2000. The Scottish Commission for Public Audit (SCPA), is central to these arrangements. The SCPA consists of five MSPs and meets in public. It appoints our non-executive members, scrutinises our budget, annual report and accounts, and produces reports on these. It also appoints our external auditor, and in 2010/11 it appointed new auditors, Alexander Sloan Chartered Accountants.
SCPA membership in 2010/11: Angela Constance (Convenor of the SCPA until December 2010) Robert Brown Derek Brownlee George Foulkes Hugh Henry Stewart Stevenson (from January 2011) www.scottish.parliament.uk/s3 /committees/scpa/index.htm
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Management Commentary
Our senior management Our senior management team oversees the day-to-day operations of Audit Scotland‟s work, with each member taking responsibility for a specific area. In 2010/11, following the secondment of Deputy Auditor General Caroline Gardner to the Turks and Caicos Islands, we undertook an interim restructure of our management team.
Robert Black See biography on page 18
Caroline Gardner See biography on page 18
Diane McGiffen - Chief Operating Officer Diane McGiffen was appointed director of Corporate Services in 2000, and became Chief Operating Officer following a management restructure in 2010. She previously worked with the Accounts Commission, and before that worked in urban regeneration and local government. She has an MSc in social and public policy from the University of Edinburgh. Russell Frith – Assistant Auditor General Russell Frith was appointed director of Audit Strategy shortly after Audit Scotland was formed in 2000 and became Assistant Auditor General in 2010. He was previously director of Financial Audit in the National Audit Office in Edinburgh. Prior to that, he worked in the private sector in audit and corporate finance roles as well as being a finance director in the financial services sector. He qualified as a chartered accountant with KPMG. Fiona Kordiak - Director of Audit Services Fiona Kordiak was appointed as a director of Audit Services in 2007 and for Audit Services as a whole following a management restructure in 2010. She joined the Accounts Commission as a trainee in 1987, having previously worked as a finance trainee in the Scottish health service. She is a chartered public finance accountant and has an MA in history and sociology. Lynn Bradley - Director of Corporate Programmes Lynn Bradley joined Audit Scotland as a director of Audit Services in 2005 and became director of Corporate Programmes in 2010 following a management restructure. She previously held senior posts in local government, consultancy and Scottish Homes. Lynn qualified as a chartered public finance accountant with the National Audit Office and as a chartered accountant with Ernst & Young. Barbara Hurst - Director of Performance Audit Barbara Hurst was appointed director of Performance Audit in 2000 and has worked in audit for the past 16 years. Before that she worked in the public, private and voluntary sectors in a variety of roles, including teaching English as a foreign language, managing college library services, rape counselling, freelance consultancy and providing information services to national voluntary organisations. Barbara has an MSc (Econ) in social research methods from the University of Cardiff. Fraser McKinlay - Director of Best Value and Scrutiny Improvement and Controller of Audit Fraser McKinlay was appointed director of Best Value and Scrutiny Improvement in April 2010. Before joining Audit Scotland, he worked for 10 years as a management consultant in Edinburgh and London at firms including KPMG and Eglinton. Fraser joined Audit Scotland in 2005 as an assistant director and later led the Best Value audit team. He was appointed as Controller of Audit in September 2010 for the term of Caroline Gardner‟s secondment.
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Management Commentary
Case study five: improve the transparency of our costs and governance arrangements
Over the past year, we have continued to improve our governance and the transparency of our costs. The Public Services Reform (Scotland) Act 2010 (the Act) introduced changes to strengthen the independence and transparency of our governance. The Act gave the Scottish Commission for Public Audit (SCPA) the role of appointing our board chair and non-executive members. In December, the SCPA appointed Ronnie Cleland, an existing non-executive, as chair. Ronnie had joined the board in 2008 and was followed in 2009 by John Maclean, both recruited through open competition. In March the commission appointed Katharine Bryan as our third non-executive member, with her role taking effect on 1 April 2011. All three are joined on the board by Auditor General Robert Black and Accounts Commission chair John Baillie. Transparent and strong governance in the public sector is important at all times, but even more now given the challenges ahead. The progress we have made at Audit Scotland has been important in both making sure we have the appropriate balance and scrutiny in our own affairs, and in helping us promote good practice across the public sector. In September, we submitted our four-year cost-reduction plan to the SCPA. This outlines the reductions in our staffing levels and operating costs to the end of 2014/15 and the subsequent reductions in the audit fees that we will charge public bodies. This, and our budget proposals, are available on the Scottish Parliament‟s website. Audit Scotland publishes information on directors‟ and board members‟ expenses as well as hospitality and gifts received. The Act also places a duty on public bodies to provide and publish information on certain expenditure: spending relating to public relations, overseas travel, hospitality given and external consultancy payments which exceed £25,000 staff earning more than £150,000 details of our work in achieving sustainable economic growth improvements in efficiency, effectiveness and economy.
We publish this information on our website as soon as possible after the financial year end. On a half-yearly basis we will also publish details of spending where individual items are below £25,000 but combined spending with one organisation exceeds £25,000. We have always published details of the remuneration of our senior management in our annual accounts
Our budget proposals for 2011/12 are available online at www.scottish.parliament.uk/s3 /committees/scpa/index.htm
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Management Commentary
Our finances
Financial summary
Audit Scotland is required to produce annual accounts detailing the resources acquired, held or disposed of during the financial year and the way in which they were used. The Auditor General has been appointed as Accountable Officer and is responsible for the preparation of these accounts. Audit Scotland‟s accounts are independently audited on behalf of the Scottish Commission for Public Audit (SCPA), which appointed Alexander Sloan Chartered Accountants to carry out the audit. The following section provides a summary from the accounts. The full accounts are published on pages 29 to 56 and are available on our website. A summary of income and expenditure The task of auditing Scotland‟s public bodies has expanded greatly since 2000. In 2010/11, Audit Scotland spent £26.9 million on services for the Auditor General and the Accounts Commission; this is less than 0.1 per cent of the £45 billion spent by the bodies that are audited. The majority of these costs are recovered through charges to these organisations, with the balance received as direct funding from the Scottish Parliament. 2010/11 Financial Results The financial statement for the year ended 31 March 2011 shows a net surplus of £496k compared with an estimated net resource requirement (budget) of £7,295k provided by the Scottish Parliament. The difference was largely due to a significant non cash credit of £6,349k arising as a result of the UK Government‟s decision to change the basis of inflation increases for pensions from being based on the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). This change reduces the amount of Audit Scotland‟s overall pension liabilities and the resulting net gain is accounted for in the Statement of Comprehensive Net Expenditure for the year. In 2010/11, income earned from audited bodies and miscellaneous income was £21,003k. Expenditure (excluding pension adjustment) was £26,856k with the resulting Operating Costs totalling £5,853k. These costs which are met from funding received from the Scottish Parliament were £1,442k less than the agreed budget of £7,295k. This level of under spend was mainly as a result of Audit Scotland making better than anticipated progress towards its four year cost reduction target. This was particularly the case with staff costs which net of secondment income were £784k lower than budget mainly as result of the recruitment freeze introduced at the start of the year – staff numbers at March 2011 were 18 w.t.e. lower than at March 2010. Fee income was £508k higher than budget as a result of an increase in the amount of audit work completed in year. Further savings were recorded in all overhead categories the most notable of which were consultancy and legal charges £436k, stationery and printing £116k, staff training £152k and staff recruitment £80k. A provision of £776k made to meet the costs of 17 staff who have accepted voluntary early retirement and severance terms partly offset the cost and income benefits. Income in 2010/11 was £576k more than recorded the previous year. While there was little movement in total fee income, miscellaneous income was £220k higher due to increased levels of staff secondment income. The balance of the increase was due to a movement in other finance income (IAS19 pension returns). Expenditure in 2010/11 was £374k lower than in the previous year. Reduced staff numbers (13 fewer w.t.e. were employed on average during 2010/11 than in 2009/10) contributed cost reductions of £571k. These reductions were more than offset by the £776k provision for severance and early retirement. Fees and expenses paid to appointed auditors were £153k less than in the previous year with the balance of the reduction attributable to lower consultancy and legal expenditure £180k, recruitment costs £125k - recruitment freeze in operation, staff training £81k and printing and stationery expenditure £57k - new printing contract awarded during 2010/11.
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Management Commentary
Sources of income
Most income is from charges to audited bodies and can be broken down as shown in the table below.
2010/11 2009/10 Income £000 % total £000 % total Fees paid by local authorities 13,429 64 13,183 65 Fees paid by health bodies 4,523 21 4,525 22 Fees paid by Scottish Water 205 1 222 1 Fees paid by further education colleges 560 3 578 3 Fees paid by Scottish Government & 1,814 9 2,036 10 sponsored bodies Bank interest 5 - 4 - Miscellaneous 506 2 286 1 Other finance income (pensions)* (39) - (407) (2) Total 21,003 100 20,427 100
* Other finance income is comprised of income from expected returns on the local government pension scheme assets less the interest payable on the scheme liabilities.
Analysis of expenditure
In 2010/11, 81 per cent of expenditure was spent on staff and fees to auditors. This compares with 80 per cent in the previous year.
2010/11 2009/10 Expenditure £000 % total £000 % total Staff and members‟ costs 15,501 58 15,295 56 Fees and expenses paid to appointed 6,255 23 6,408 24 auditors Buildings, rent and depreciation 2,223 8 2,278 8 Operating costs 2,877 11 3,249 12 Total Expenditure 26,856 100 27,230 100 Prior Year adjust. – property dilapidations - 428 Pension adjustments – past service (6,349) - Total resource requirement 20,507 27,658
Net Operating Surplus / (Cost)
2010/11 2009/10 Direct Funding from Parliament Required Available Required Available £000 £000 £000 £000 Net Operating Surplus / (Cost) 496 (7,295) (7,231) (7,479) Pension adjustment – past service (6,349) - - - Adjusted Operating (Cost) (5,853) (7,295) (7,231) (7,479)
Our full accounts for 2010/11 are available on our website, www.audit-scotland.gov.uk
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Management Commentary
Appendix - Reports published in 2010/11
Across-government reports Maintaining Scotland‟s roads : a follow-up report The cost of public sector pensions in Scotland Edinburgh trams: interim report Improving energy efficiency: a follow-up report Getting it right for children in residential care
Central government reports Management of the Scottish Government's capital investment programme The Scottish Police Services Authority National concessionary travel The role of boards The Gathering
NHS reports Financial overview of the NHS in Scotland 2009/10 Emergency departments Using locum doctors in hospitals
Local government reports An overview of local government in Scotland 2010 Physical recreation services in local government How councils work: an improvement series for councillors and officers - Roles and working relationships: are you getting it right? National Scrutiny Plan for Local Government 2010/11
Best Value reports North Ayrshire Council: Best Value 2 audit Grampian Police and Grampian Joint Police Board Best Value in Police evaluation: Tayside and Northern South Ayrshire Council: progress report Scottish Borders Council: Best Value 2 pathfinder audit The Highland Council: Best Value 2 pathfinder audit Angus Council: Best Value 2 pathfinder audit Northern Constabulary and Northern Joint Police Board East Ayrshire Council: Best Value 2 pathfinder audit Annual audits 212 annual audits (details are on our website)
Section 22 reports The 2009/10 audit of the National Library of Scotland The 2009/10 audit of the Scottish Government Consolidated Accounts
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Management Commentary
Local government statutory reports The Highland Council : Caithness Heat and Power (CHaP) Strathclyde Partnership for Transport Shetland Islands Council: Commission findings and CoA report The Highland Council: Caithness Heat and Power (CHaP) follow-up
Other publications Code of data matching practice Priorities and Risks Framework: A national planning tool for 2010/11 NHS Scotland audits Quick Guide to Audit Scotland, the Auditor General and the Accounts Commission Consultation on revised code of audit practice and audit appointments strategy Audit Scotland Annual Report and Accounts 2009/10 Audit Scotland‟s annual report on working with other countries 2009/10 Accounts Commission Annual Report 2009/10 Health and community care bulletin Audit Scotland Equality Annual Review Accounts Commission Equality Annual Review The National Fraud Initiative in Scotland 2008/09
Impact reports 12 impact reports ( details are on our website)
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Remuneration Report
Remuneration Committee
The remuneration of senior managers is determined by Audit Scotland‟s Remuneration Committee. The membership and remit of the Committee are set out in Standing Orders as follows:
The Remuneration Committee will consist of a member or members of the Board who are not employees of Audit Scotland. The Board may appoint persons who are not members of the Board to be members of or advisers to the Remuneration Committee, and may pay them such remuneration and expenses as the Board decides.
The purposes of the Remuneration Committee are:
To keep under review and make recommendations to the Board on
arrangements for the fixing of levels of remuneration and conditions of service for all employees of Audit Scotland general adjustments to remuneration and conditions of service affecting all employees fixing of annual salary and other conditions of service of the Deputy Auditor General and Management Team Directors.
Although the salary and pension contributions of the Auditor General for Scotland are paid by Audit Scotland, they are set by the Scottish Parliamentary Corporate Body.
The members of the Remuneration Committee during the year were:
Chairman – R Cleland Member – J Baillie Member – J Maclean Member – R W Black
In setting salary levels the Remuneration Committee has regard to the following considerations:
the need to recruit, retain and motivate suitably able and qualified people to exercise their different responsibilities the performance of individual managers regional/local variations in labour markets and their effects on the recruitment and retention of staff Government policies for improving the public services including the requirement to meet the output targets for the delivery of services the funds available subject to any expenditure limits other relevant Government policies or targets.
The Committee takes account of the evidence it receives about wider economic considerations and the affordability of its recommendations.
The information on pages 26 to 28 is covered by the audit opinion
Audit Scotland Board
Under the provisions of schedule 2 of the Public Finance and Accountability (Scotland) 2000 Act the Auditor General, the Chairman of the Accounts Commission and any employee of Audit Scotland or member of the Accounts Commission are not entitled to any remuneration in respect of their membership of the Audit Scotland Board.
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Remuneration Report
The Audit Scotland Board now has three independent members following a third appointment made on 1 April 2011. The annual remuneration for independent members of the Board fell within the band £5,000 to £10,000 (2009/10 £5,000 - £10,000). All independent Board member appointments are part-time and non-pensionable.
On 15 December 2010 Mr R Cleland was appointed as Chair of the Audit Scotland Board replacing Mr J Baillie. Mr Baillie remains a member of the Audit Scotland Board in his capacity as Chair of the Accounts Commission for Scotland.
Senior Management
The Management Team was revised during the year following the secondment of the Deputy Auditor General to the Department of International Development. The secondment commenced on 19 September 2010 and the Management Team now includes all directors of Audit Scotland. The salaries (including any overtime, but excluding employer‟s superannuation and national insurance contributions), benefits in kind and pension entitlements of the Management Team are shown in the following tables. Information is presented for the whole year to 31 March 2011. Further information on the pension payable to Audit Scotland staff, including the senior management, can be found in Audit Scotland‟s Annual Accounts (see Note 3).
2010~11 2009~10 Benefit in Benefit in Total Total Salary kind Salary kind Remuneration Remuneration Remuneration note (i) note (i) Note £000 £ £000 £000 £ £000
Robert Black 145 - 150 - 145 - 150 145 -150 - 145 -150 Auditor General for Scotland
Caroline Gardner (ii) 130 - 135 - 130 - 135 130 -135 - 130 - 135 Deputy Auditor General
Russell Frith (iii) 105 - 110 - 105 - 110 95 - 100 - 95 -100 Assistant Auditor General (from 19 Sept. 2010)
Diane McGiffen (iv) 95 - 100 3,800 100 -105 90 - 95 3,700 95 -100 Chief Operating Officer (from 19 Sept. 2010)
Lynn Bradley (v) 90 - 95 2,100 90 - 95 90 - 95 - 90 - 95 Director of Corporate Programmes (from 19 Sept 2010)
Barbara Hurst 90 - 95 - 90 - 95 90 - 95 - 90 - 95 Director of Performance Audit
Fiona Kordiak 85 - 90 5,400 90 - 95 85 - 90 4,600 90 - 95 Director of Audit Services
Fraser McKinlay (vi) 80 - 85 - 80 - 85 note (vi) note (vi) note (vi) Director of Best Value & Scrutiny Improvement
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Remuneration Report
Accrued Accrued Real Real CETV at CETV at Real pension at lump sum at increase in increase in 31 March 31 March Increase 31 March 31 March annual lump 2011 2010 in CETV Pensions 2011 2011 pension sum note (vii) note (vii) note (viii) £000 £000 £000 £000 £000 £000 £000 Note
Robert Black 20 - 25 60 - 65 0 - 2.5 2.5 - 5.0 445 443 31 Auditor General for Scotland
Caroline Gardner (ii) 35 - 40 105 - 110 0 - 2.5 0 - 2.5 590 640 7 Deputy Auditor General
Russell Frith (iii) 20 - 25 60 - 65 0 - 2.5 0 - 2.5 361 362 9 Assistant Auditor General (from 19 Sept. 2010)
Diane McGiffen (iv) 20 - 25 55 - 60 0 - 2.5 0 - 2.5 324 341 6 Chief Operating Officer (from 19 Sept. 2010)
Lynn Bradley (v) 25 - 30 70 - 75 0 - 2.5 0 - 2.5 392 438 6 Director of Corporate Programmes (from 19 Sept 2010)
Barbara Hurst 20 - 25 55 - 60 0 - 2.5 0 - 2.5 440 443 16 Director of Performance Audit
Fiona Kordiak 25 - 30 70 - 75 0 - 2.5 0 - 2.5 385 408 10 Director of Audit Services
Fraser Mckinlay (vi) 5 - 10 10 - 15 note (vi) note (vi) 60 note (vi) note (vi) Director of Best Value & Scrutiny Improvement
Notes (i) The estimated value of benefits in kind relates to the provision of vehicles. Values to the nearest £100. (ii) Audit Scotland has fully recovered all salary and pension costs of Caroline Gardner from 19 September when her period of secondment began. (iii) Director of Audit Strategy prior to 19 September 2010. (iv) Director of Corporate Services prior to 19 September 2010. (v) Director of Audit Services prior to 19 September 2010. (vi) Fraser McKinlay was appointed Director of Best Value and Scrutiny Improvement on 1 April 2010. From 19 September 2010 he also has taken on the role of Controller of Audit. (vii) The actuarial factors used to calculate CETVs were changed in 2010/11 due to changes in demographic assumptions and the move from RPI to CPI as the measure to uprate public sector pensions. The amounts reported for March 2010 are based on the factors applying to 2009/10 and are as reported in last year‟s accounts. (viii) This reflects the increase in CETV effectively funded by the employer. It takes account of the increase in accrued pension due to inflation, contributions paid by the employee and uses common market valuation factors for the start and end of the period.
27
Remuneration Report
Service Contracts
Unless otherwise stated below the senior managers hold appointments which are open-ended until they reach normal retirement age. Early termination, other than through misconduct, would result in the individual receiving compensation.
The Auditor General for Scotland is not an employee of Audit Scotland but is a Crown appointment following nomination by Parliament. His salary is determined by the Scottish Parliamentary Corporate Body.
Accounts Commission
Members of the Accounts Commission who are appointed by Scottish Ministers are not employed by Audit Scotland and details of their remuneration are not required under the policy outlined in the Financial Reporting Manual. The following details are included for information and to assist the reader of the report.
The average number of Members of the Commission throughout the period was 11 (2009/10 – 11) and their remuneration was as follows:
Remuneration Banding
2010/11 2009/10 £000 £000 Chairman – J Baillie 40 - 45 40 - 45 Depute Chair – I Low (until 30th September 2009) Nil 0 - 10 Depute Chair – D Sinclair (from 1st October 2009) 15 - 20 10 - 15 Commission Members 0 - 10 0 - 10
All Commissioner appointments are part-time and non-pensionable.
R W Black Auditor General Accountable Officer
15 June 2011
28
Foreword to the Accounts
Statutory Background
Audit Scotland was formed on 1 February 2000 (and commenced operations on 1 April 2000), following the transfer of staff and property from the Accounts Commission and National Audit Office, under the Public Finance and Accountability (Scotland) Act 2000. Part 2 of the Public Finance and Accountability (Scotland) Act 2000 established Audit Scotland as a corporate body.
Basis of Accounts These are the accounts of Audit Scotland for the year ended 31 March 2011. The accounts have been prepared in compliance with a direction given by the Scottish Ministers in accordance with section 19(4) of the Public Finance and Accountability (Scotland) Act 2000.
Sources of Funding Audit Scotland may, under Part 2 of the Public Finance and Accountability (Scotland) Act 2000, make reasonable charges to audited bodies in respect of the exercise of its functions. Audit Scotland must seek to ensure that, taking one year with another, its charges for certain types of work are broadly equivalent to its expenditure. Any expenditure not met from charges is payable out of the Scottish Consolidated Fund.
Post Balance Sheet Events There were no important events occurring after the year-end which fall under the definition of a post balance sheet event.
Pensions and Early Departure Costs Details of the organisation‟s pension and early retirement costs are included in the notes to these accounts.
Board and Management Details of the Board and Management Team are in the Management Commentary and the Remuneration Report.
Staff Relations and Equal Opportunities Audit Scotland is committed to ensuring that recruitment and management of employees is carried out on merit on the basis of equal opportunity for all. Full and fair consideration is given to applications for employment from disabled persons where they have the skills and abilities to perform the job. Audit Scotland has a single equality scheme. Audit Scotland recognises the importance of good industrial relations and effective communication with its entire staff. Regular meetings are held with staff representatives to discuss matters of mutual interest.
Payment to Suppliers In line with CBI Prompt Payment Code Audit Scotland has a policy to pay all invoices not in dispute in 30 days or the agreed contractual terms if otherwise specified: 98% (93% 2010) of all invoices for the year were paid on or before the due date.
We also monitor our performance against the Scottish Government‟s target of payment of trade invoices within 10 days. In 2010/11 73% (63% 2010) of trade invoices were paid within 10 days.
29
Foreword to the Accounts
Auditors Accounts prepared by Audit Scotland must, under section 19 of the Public Finance and Accountability (Scotland) Act 2000, be sent to the Scottish Commission for Public Audit (SCPA) for auditing. The SCPA appointed Alexander Sloan, Chartered Accountants, as auditors to Audit Scotland for a three-year period commencing March 2011.
So far as I am aware, there is no relevant audit information of which Audit Scotland‟s auditors are unaware, and I have taken all the steps that I ought to have taken to make myself aware of any relevant audit information and to establish that Audit Scotland‟s auditors are aware of that information.
R W Black Auditor General Accountable Officer
15 June 2011
30
Statement of Accountable Officer’s Responsibilities
Under section 19(4) of the Public Finance and Accountability (Scotland) Act 2000 Audit Scotland is required to prepare resource accounts for each financial year, in conformity with the direction of the Scottish Ministers, detailing the resources acquired, held, or disposed of during the year and the use of resources by Audit Scotland during the year.
The resource accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of Audit Scotland, the net resource outturn, comprehensive net expenditure, cash flows, and movement in taxpayers‟ equity for the financial year.
The Scottish Commission for Public Audit has appointed the Auditor General for Scotland as Accountable Officer for Audit Scotland with responsibility for preparing the accounts of Audit Scotland and for submitting them for audit to the Scottish Commission for Public Audit.
In preparing the accounts the Accountable Officer is required to comply with the Financial Reporting Manual (FReM) and in particular to:
observe the accounts direction including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis; make judgements and estimates on a reasonable basis; state whether applicable accounting standards, as set out in the FReM, have been followed; and disclose and explain any material departures in the accounts; prepare accounts on a going concern basis.
The responsibilities of the Accountable Officer, including responsibility for the propriety and regularity of the public finances for which an Accountable Officer is answerable, for keeping proper records and for safeguarding assets, are set out in the “Accountable Officer‟s Memorandum” which is available at www.scotland.gov.uk/Resource/Doc/1069/0084581.doc
31
Statement on The System of Internal Control
As Accountable Officer, I have responsibility for maintaining a sound system of internal control that supports the achievement of Audit Scotland‟s policies, aims and objectives whilst safeguarding the public funds and assets for which I am personally responsible, in accordance with the responsibilities set out in the “Accountable Officer‟s Memorandum”.
Purpose of the System of Internal Control
The system of internal control is designed to manage rather than eliminate the risk of failure to achieve Audit Scotland‟s policies, aims and objectives. It can therefore only provide reasonable and not absolute assurance of effectiveness.
The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of the organisation‟s policies, aims and objectives; to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. This process has been in place for the year ended 31 March 2011 and up to the date of approval of the annual report and accounts.
The processes within the organisation have regard to the guidance to public bodies in Scotland issued by Scottish Ministers and set out in the Scottish Public Finance Manual.
Risk and control framework
Audit Scotland has a risk strategy and policy which sets out the approach to risk management. The corporate risk register, which identifies the key risks facing the organisation, the likelihood and impact of the risk crystallising, the controls in place, the way in which the risk is monitored and any actions to further reduce the risk, is regularly reviewed by management and the Audit Committee. Information risk is covered by the normal risk management arrangements. In addition Audit Scotland is committed to mainstreaming information management and security and improving our arrangement for data sharing.
Review of effectiveness
As Accountable Officer, I have responsibility for reviewing the effectiveness of the system of internal control. My review is informed by:
The work of the Board in considering the plans and strategic direction of the organisation. The Board which is chaired by a non-executive Board member met eight times in 2010/11. The deliberations of the Audit Committee in considering the risk management arrangements and corporate risk register, and the reports of the internal auditors. The Audit Committee which is chaired by a non- executive Board member met four times in 2010/11. The work of the internal auditors, who submit regular reports on the adequacy and effectiveness of the organisation‟s systems of internal control together with recommendations for improvement. Comments made by the external auditors in their management letters. The work of the Management Team which considers regular reports from the managers within the organisation on progress towards meeting the organisations performance objectives. The Management Team normally meets on a weekly basis.
R W Black Accountable Officer
15 June 2011
32
Summary of Resources Outturn Year ended 31 March 2011
Note 2011 2010 Actual Actual £000 £000
Net Operating Surplus / (Cost) 496 (6,803)
Prior year adjustment - year to 31 March 2009 15 - (48)
- year to 31 March 2008 and earlier 15 - (380)
Net Total Surplus / (Costs) 496 (7,231)
Estimate - year to 31 March 2011 (7,295)
Net Cash Requirement (see Cash flow statement ) 7,431 7,565
33
Statement of Comprehensive Net Expenditure Year ended 31 March 2011
Note 2011 2010 £000 £000
Administration Costs
People costs 2 (9,152) (15,295) Other administration costs 4 (11,355) (11,935)
Gross administration costs (20,507) (27,230)
Operating income 5 21,042 20,834 Other finance income 6 (39) (407)
NET OPERATING SURPLUS / (COST) and 496 (6,803) TOTAL COMPREHENSIVE NET EXPENDITURE
34
Balance Sheet As at 31 March 2011
Note 2011 2010 £000 £000 Non-current assets Property, plant and equipment 7 1,057 1,521 Intangible assets 8 217 265 Total non current assets 1,274 1,786 Current assets Trade and other receivables 9 2,605 2,367 Cash and cash equivalents 10 2,810 1,784 Total current assets 5,415 4,151
Total assets 6,689 5,937
Current liabilities Trade and other payables 12 4,536 4,459 Provision for early retirement 14 894 109 Total current liabilities 5,430 4,568
Non-current assets plus/less net current assets/liabilities 1,259 1,369 Non-current liabilities Deferred liabilities 13 (25) (40) Provision for early retirement 14 (1,756) (1,945) Other provisions 15 (542) (476) Net funded pension (liability)/asset 3 (7,178) (19,069) Total non-current liabilities (9,501) (21,530)
ASSETS LESS LIABILITIES (8,242) (20,161)
Represented by: TAXPAYERS’ EQUITY Net funded pension (liability)/asset 3 (7,178) (19,069) General Fund (1,064) (1,092)
(8,242) (20,161)
R W Black Auditor General Accountable Officer
15 June 2011
35
Cash flow Statement Year ended 31 March 2011
Note 2011 2010 £000 £000
Cash flows from operating activities Net operating surplus / (cost) 496 (6,803) Adjustment for non-cash items: - Depreciation 7, 8 639 658 - Pension scheme - net revenue debit /(credit) (6,115) (307) (Increase) in trade and other receivables (238) (171) Increase in trade / other payables / deferred liabilities 82 594 Increase in provisions for early retirement 596 493 Increase in other provisions 66 48 Adjustment for cash balance due to Consolidated Fund 12 (2,810) (1,784)
Net cash outflow from operating activities (7,284) (7,272)
Cash flows from investing activities Purchase of property, plant and equipment 7 (44) (92) Purchase of intangible assets 8 (83) (210) (Add) / Less movement in accrued expenditure (20) 9
(147) (293)
Cash flows from financing activities Opening Cash balance payable to the Consolidated Fund 1,784 1,136 From Consolidated Fund (Supply) 6,673 7,077
8,457 8,213
Net increase in cash and cash equivalents in the period 1,026 648
Cash and cash equivalents at the beginning of period 1,784 1,136 Cash and cash equivalents at the end of period 2,810 1,784
Net cash requirement Cash flows from financing actvities 8,457 8,213 (Increase) / Decrease in cash (1,026) (648)
7,431 7,565
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Statement of Changes in Taxpayers’ Equity Year ended 31 March 2011
Net Funded General Note Pension Fund Total £000 £000 £000
Changes in Taxpayers' equity for 2010/11
Balance at 1 April 2010 (19,069) (1,092) (20,161)
Transfers between reserves
Transfer to net fund pension liabilities 2 6,051 (6,051) 0 Net return on pension assets 64 (64) 0
Actuarial gain 3 5,776 - 5,776 Net operating surplus - 496 496
Net funding from the Scottish Parliament 11 - 5,647 5,647
Balance at 31 March 2011 (7,178) (1,064) (8,242)
37
Annual Report and Accounts 2010-11 Notes to the Accounts
1: Statement of accounting policies The Accounts have been prepared in accordance with the accounts direction issued by Scottish Ministers under section 19(4) of the Public Finance and Accountability (Scotland) Act 2000 and also in accordance with the Financial Reporting Manual (FReM) applicable for the year. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most appropriate to the particular to the circumstances of Audit Scotland for the purpose of giving a true and fair view has been selected. The particular accounting policies adopted by Audit Scotland are described below. They have been applied consistently in dealing with items considered material in relation to the accounts.
a) Basis of accounting The Accounts have been prepared under the historical cost convention. In accordance with the principles of resource accounting, the gross funding received from the Scottish Consolidated Fund is recorded directly within the General Fund and therefore is not included in the operating income received in the year in the Operating Cost Statement. In common with similar public bodies, the future financing of Audit Scotland‟s liabilities will be met by future grants of Supply and the application of future income, both to be approved annually by the Scottish Parliament. The approval for amounts for 2011/12 has already been given and there is no reason to believe that future approvals will not be forthcoming. We have accordingly considered it appropriate to adopt a going concern basis for the preparation of these financial statements.
b) Cost of capital charge From financial year 2010/11 HM Treasury withdrew the requirement to include a cost of capital charge in Operating Cost Statements. This change in accounting policy has had no effect on the accounts as no cost of capital charge was included in the accounts for the previous year as a result of the net liability position of the Balance Sheet as at 31 March 2010. Therefore no amounts in these accounts have been restated.
c) Non current assets All property occupied by Audit Scotland is leasehold. The minimum level of capitalisation for a Non current asset is £5,000 for individual or group purchases. Non current assets are held at fair value. Depreciated historic cost has been used as a proxy for fair value due to the low value and short life of the assets held.
d) Depreciation Depreciation has been provided at a rate calculated to write off cost in equal annual instalments over the estimated useful lives of assets. Asset cost is normally written off as follows:
Leasehold premises remaining period of lease (from 4 to 6 years) Furniture and fittings 5 years Computer equipment 2~5 years Software 2~5 years
38
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
1: Statement of Accounting Policies (continued)
e) Amortisation of rent-free periods The benefit of rent-free periods on leases of premises is amortised over the period of the lease or over the period to a lease break point when this is the most probable end of lease, which ever is the shorter.
f) Operating income Operating income relates directly to the audit activities of Audit Scotland. It principally comprises fees and charges for services provided on a full cost basis to audited bodies.
g) Work in Progress
Work in Progress is valued on the basis of a proportion of the agreed fee earned by the Balance Sheet date less an allowance for any foreseen losses. This calculation is based on an assessment of the amount of audit work completed by the Balance Sheet date as a proportion of the total expected amount of audit work. Payments received on account of work in progress in excess of or below the value of carrying out the relevant work are included in creditors or debtors as appropriate.
h) Operating leases The total cost of operating leases is charged to revenue in equal instalments over the life of the lease. Estimates of likely costs in respect of obligations under our property leases for dilapidations, reinstatement and property decorations are charged to revenue in equal instalments over the life of the lease or the period to a planned early termination of the lease whichever is the shorter.
i) Value Added Tax (VAT) Input tax in respect of external auditor fees and expenses incurred in the delivery of Local Authority audits on behalf of the Accounts Commission is reclaimed from HMRC. All other input tax is charged to the Operating Cost Statement. Audit Scotland is now provisionally registered for VAT as a result of increasing levels of non- statutory income which will attract output VAT. A charge of £143k has been made in this year‟s accounts to meet any output tax that may be due for the current and previous periods.
j) Pension arrangements Audit Scotland has complied fully with the requirements of IAS 19 for the year ended 31 March 2011. Audit Scotland makes pension provision for present and former employees through three pension schemes. The Auditor General has benefits provided through a scheme by analogy to the Local Government Pension scheme. Employees joining Audit Scotland after 1 April 2000 and those transferring to Audit Scotland from the Accounts Commission have benefits provided through the Local Government scheme. Employees transferring to Audit Scotland at 1 April 2000 from the NAO are covered by the provisions of the Principal Civil Service Pension Scheme.
39
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
2: People costs and numbers
People costs comprise: 2011 2010 £000 £000 Administrative Staff Salaries 11,531 12,299 National Insurance 977 1,015 Superannuation 1,952 1,939 Provision for early retirement and severance costs (see note 16) 776 - Movement in early retirement costs (168) 521 Adjustment for retirement benefit scheme costs (see below) (6,051) (613)
9,017 15,161 Accounts Commission Members Salaries 120 116 National Insurance 9 9 Travel and subsistence 6 9 135 134
9,152 15,295
The average number of directly employed whole time equivalent (w.t.e.) staff during the period was 282 (2010 – 295). The average number (w.t.e.) for agency and seconded staff used during the year was 5 (2010 – 11).
Analysis of local government retirement benefit scheme costs: 2011 2010 £000 £000 Current service costs 2,617 1,525 Past service costs (6,227) 274
(3,610) 1,799 Less: Employees‟ contributions (775) (788)
Charge to revenue (4,385) 1,011
Employer contributions (1,666) (1,624)
Adjustment for retirement benefit scheme costs (6,051) (613)
3: Pension assets and liabilities In accordance with International Accounting Standard No 19 (IAS 19) Audit Scotland is required to disclose certain information concerning assets, liabilities, income and expenditure related to pension schemes for its employees. Audit Scotland operates two main pension schemes; the Local Government Scheme, administered by the Lothian Pension Fund, and the Principal Civil Service Pension Scheme, or PCSPS. Audit Scotland is not required to record information related to the PCSPS scheme as the liability for payment of pension rests with the Scottish Government. In addition, Audit Scotland operates a “by analogy” scheme outside the two main schemes for the Auditor General for Scotland.
40
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
3: Pension assets and liabilities (continued)
a) Local government scheme
Audit Scotland has an agreement with City of Edinburgh Council under which all staff are eligible to enter the Lothian Pension Fund (the name of the Local Government Superannuation Scheme managed by the Council) in accordance with its rules. It is a defined benefit scheme providing pension benefits and life assurance for all permanent staff.
The following valuations have been provided by Hymans Robertson, the independent actuaries to Lothian Pension Fund. The financial and actuarial assumptions used for the purposes of their IAS 19 calculations as at 31 March 2011 were as follows:
2011 2010 Price increases 2.8% 3.8% Salary increases 5.1% 5.3% Pension increases 2.8% 3.8% Expected rate of return on assets 7.0% 7.3% Discount rate 5.5% 5.5%
The assumed average life expectancy for a retiral at age 65 are as follows Males Females years years Current pensioners 20.8 24.1 Future pensioners 22.3 25.7
Audit Scotland‟s estimated assets and liabilities in Lothian Pension Fund amounted to: 2011 2010 £000 £000 Assets (see below) 51,586 47,804 Liabilities (58,764) (66,873)
Net Funded (Liabilities) (7,178) (19,069)
Assets are valued at fair value, principally market value for investments, and consist of:
Long Term Return Assets at Long Term Return Assets at at 31 March 2011 31-Mar-11 at 31 March 2010 31-Mar-10 % per annum £000 % per annum £000 Equities 7.5 40,752 7.8 37,766 Bonds 4.9 4,127 5.0 3,824 Property 5.5 5,159 5.8 4,302 Cash 4.6 1,548 4.8 1,912
Estimated employer assets 7.0 51,586 7.3 47,804
41
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
3: Pension assets and liabilities (continued)
Liabilities are valued on an actuarial basis using the projected unit method, which assesses the future liabilities of the fund discounted to their present value. The valuations are based on a valuation as of 31 March 2011 by Hymans Robertson.
The movement in the funded part of the net pension liability for the year to 31 March 2011 is as follows:
Movement in defined benefit obligation 2011 2010 £000 £000 Opening balance at 1 April 66,873 37,806 Current service cost 1,842 737 Interest cost 3,465 2,624 Contributions by members 765 774 Past service costs / (gains) (6,227) 274 Acturial (gains) / losses (6,642) 25,975 Estimated benefits paid (1,312) (1,317)
Closing Defined Benefit Obligation 58,764 66,873
Movement in fair value of employer assets 2011 2010 £000 £000 Opening balance at 1 April 47,804 34,583 Expected return on assets 3,529 2,318 Contributions by members 765 774 Contributions by the employer 1,666 1,624 Acturial (losses) / gains (866) 9,822 Benefits paid (1,312) (1,317) Closing fair value of Employer Assets 51,586 47,804
Closing Net Pension (Liabilities) at 31 March (7,178) (19,069)
History of Gains and Losses 2011 2010 2009 2008 £000 £000 £000 £000 Fair value of employer assets 51,586 47,804 34,583 43,355 Present value of defined benefit obligation (58,764) (66,873) (37,806) (40,042) Surplus / (Deficit) (7,178) (19,069) (3,223) 3,313 Experience (losses) / gain on assets (866) 9,822 (12,853) (4,366) Experience gains / (losses) on liabilities - - 1,321 (2)
Actuarial (losses) / gains on employer assets (866) 9,822 (12,853) (4,366) Actuarial gains / (losses) on obligation 6,642 (25,975) 5,568 10,115 Actuarial gains /(losses) 5,776 (16,153) (7,285) 5,749
42
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
3: Pension assets and liabilities (continued)
The sensitivities regarding the principal assumption used to measure the funded scheme liabilities set out below.
Approx.% increase to Approx. monetary Sensitivity Analysis at March 2011 Employer Obligation amount £000
0.5% decrease in real discount rate 12% 6,847 1 year increase in member life expectancy 3% 1,763 0.5% increase in salary increase rate 4% 2,546 0.5% increase in pension increase rate 6% 3,789
During the year ended 31 March 2011, Audit Scotland‟s contribution to the pension fund represented 17.3% (2010 – 16.5%) of contributing employees‟ pensionable pay. Under Superannuation Regulations contribution rates are set to meet 100% of the overall liabilities of the Fund. In their valuation as of December 2008, Hymans Robertson recommended employers‟ contributions be increased for three years from 2009/10 (2009/10 – 16.5%, 2010/11 – 17.3%, 2011/12 – 18.0%).
The significant reduction in net liabilities was mainly due to the move from RPI to CPI as the measure to uprate public sector pensions. There was also an increase in the real discount rate used to value the pension liabilities. Improved investment returns and increased asset values have also contributed to the lower net liabilities.
b) PCSP Scheme Employees of the NAO transferring to Audit Scotland on 1 April 2000 have pension benefits provided through the Principal Civil Service Pension Scheme (PCSPS). Audit Scotland makes payments of superannuation contributions to PCSPS at rates set by the Government Actuary.
The PCSPS is an unfunded multi-employer defined benefit scheme; however Audit Scotland is unable to identify its share of the underlying assets and liabilities. A full actuarial valuation was carried out at 31 March 2007. Total liabilities at 31 March 2007 were estimated at £128.8 billion. Further details may be found in the separate scheme statement of the PCSPS (www.civilservice-pensions.gov.uk).
During the year ended 31 March 2011, Audit Scotland paid an employer's contribution of £273k (2010 - £286k) into the PCSPS at rates between 18.8% and 24.3% of pensionable pay (2010 – 18.8% to 24.3%). Audit Scotland has been informed that contributions in 2011/12 will remain at the rates paid in 2010/11. Employer contribution rates are reviewed every three years following a scheme valuation by the Government Actuary. The contribution rates reflect benefits as they are accrued, not when costs are actually incurred, and they reflect past experience of the scheme.
c) By analogy scheme The Auditor General for Scotland, R W Black has benefits provided by analogy to the Local Government pension scheme. Contributions are paid to the Scottish Consolidated Fund. During the year ended 31 March 2011, Audit Scotland paid an Employer‟s contribution of £23.1k (2010 - £23.1k) into this scheme. Accrued pension values have been calculated in accordance with the provisions of Local Government Pension in Scotland and are reported in the Remuneration Report.
43
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
3: Pension assets and liabilities (continued)
Early Departure Costs Certain costs arising from the early retirement of staff are payable by Audit Scotland. These relate to the early payment of pensions, which employers must make to the pension fund and severance costs.
4: Administration costs
2011 2010 £000 £000 £000 Fees and Expenses to appointed audit firms: Local authorities 2,796 2,703 National Health Service bodies in Scotland 1,643 1,661 Scottish Water 208 219 Further education colleges 574 579 Scottish Government and sponsored bodies 1,034 1,246
6,255 6,408 Other Costs: Rent and rates 965 964 Other accommodation costs 619 656 Travel and subsistence 871 893 Legal and other professional fees 614 794 Stationery and printing 205 262 Training 314 396 Staff recruitment 70 195 Communications (telephone, postage) 58 85 Insurance 107 106 Information technology 399 389 Internal Audit 30 32 External Audit - financial statements 27 25 Other 182 72 Non-cash items: Depreciation - tangible assets (see note 7 ) 482 543 Depreciation - intangible assets (see note 8 ) 157 115
5,100 5,527
11,355 11,935
Rent and rates includes £721k in respect of property leases (2009/10 £703k) - see note 16.
44
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
5: Operating Income
2011 2010 £000 £000 Fees and charges payable: - by Local authorities 13,429 13,183 - by National Health Service bodies in Scotland 4,523 4,525 - by Scottish Water 205 222 - by Further Education Colleges 560 578 - by Scottish Government and sponsored bodies 1,814 2,036
20,531 20,544
Bank interest 5 4 Miscellaneous income 506 286
21,042 20,834
6: Other finance income
2011 2010 £000 £000
Expected return on local government pension scheme assets 3,529 2,318 Interest on pension scheme liabilities (3,568) (2,725)
(39) (407)
45
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
7: Property, plant & equipment
Leasehold Furniture Computer Total premises and fittings equipment Cost £000 £000 £000 £000 At 1 April 2010 1,698 164 1,098 2,960 Additions - - 44 44 Reclassified as software in year (note 8 ) - - (41) (41) Disposals - - - 0
At 31 March 2011 1,698 164 1,101 2,963
Depreciation At 1 April 2010 717 103 619 1,439 Charge for the year (note 4) 214 24 244 482 Reclassified as software in year (note 8 ) - - (15) (15) Depreciation on Disposals - - - 0
At 31 March 2011 931 127 848 1,906
Net Book Value At 31 March 2011 767 37 253 1,057
Analysis of Asset financing Owned 767 37 253 1,057
Leasehold Furniture Computer Total premises and fittings equipment Cost £000 £000 £000 £000 At 1 April 2009 1,699 164 1,874 3,737 Additions - - 92 92 Disposals (1) - (868) (869)
At 31 March 2010 1,698 164 1,098 2,960
Depreciation At 1 April 2009 503 78 1,183 1,764 Charge for the year (note 4) 214 25 304 543 Depreciation on Disposals - - (868) (868)
At 31 March 2010 717 103 619 1,439
Net Book Value At 31 March 2010 981 61 479 1,521
Analysis of Asset financing Owned 981 61 479 1,521
46
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
7: Property, plant & equipment (continued)
Non current assets are held at fair value. Depreciated historic cost has been used as a proxy for fair value due to the low value and short life if the assets held.
8: Intangible assets
Software 2011 2010 Cost £000 £000 At 1 April 554 344 Reclassified from computer equipment in year (note 7 ) 41 - Additions 83 210
At 31 March 678 554
Depreciation At 1 April 289 174 Reclassified from computer equipment in year (note 7 ) 15 - Charge for the year (note 4) 157 115
At 31 March 461 289
Net Book Value At 31 March 217 265
9: Trade and other receivables
2011 2010 £000 £000 £000 Amounts following due within one year: Trade receivables: Central Government bodies 93 80 Local Authorities 1 8 NHS bodies in Scotland - - Bodies external to government 105 8 199 96 Work in progress 1,888 1,640 VAT 24 118 Prepayments 494 513
2,605 2,367
There are no Trade and other receivables due after one year
47
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
10: Cash and cash equivalents 2011 2010 £000 £000
Balance at 1 April 1,784 1,136 Net change in cash and cash equivalents 1,026 648
Balance at 31 March 2,810 1,784
The following balances at 31 March were held at:
Commercial Banks 2,810 1,784
11: Net funding from the Scottish Parliament 2011 2010 £000 £000
Opening Cash Balance payable to the Consolidated fund 1,784 1,136 Funding received from the Consolidated fund 6,673 7,077 Closing Cash Balance payable to the Consolidated fund (2,810) (1,784)
Net Funding from the Scottish Parliament 5,647 6,429
12: Trade payables and other current liabilities 2011 2010 £000 £000 £000 Amounts falling due within one year: Trade payables: Central Government 1 42 Local Authorities 4 - NHS bodies in Scotland - 3 Bodies external to government 317 94 322 139 Cash balance payable to Consolidated fund 2,810 1,784 Deferred income 355 621 Other taxes and social security costs - 331 Superannuation - 241 Accruals 383 671 Staff benefits - untaken holidays 651 657 Rent free period on premises – current liability (note 13) 15 15
4,536 4,459
The cash balance payable to the Consolidated Fund is based on the accounting conventions adopted for resource-based supply.
48
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
13: Deferred liabilities Audit Scotland rents premises in various locations in accordance with its operational requirements. During the year ended 31 March 2003 various leases were negotiated with rent-free periods.
2011 2010 £000 £000 Opening balance at 1 April Current 15 16 Deferred 40 55 55 71
Additions - - Released during year (15) (16)
Closing balance at 31 March 40 55
Whereof: Current 15 15 Deferred 25 40
40 55
14: Provision for early retirement and severance The provision represents the actuarially computed liabilities for early retirement added years, pension strain and severance liabilities. The movement during the year was as follows:
2011 2010 £000 £000
Opening balance at 1 April 2,054 1,561 Additions 776 - Utilised in year (118) (108) Revaluation (62) 601
Closing balance at 31 March 2,650 2,054
Payable within 1 year 894 109 Payable after 1 year 1,756 1,945
2,650 2,054
Discount rate used 5.5% 5.5%
49
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
14: Provision for early retirement (continued)
Early Retiral and Severance During January to March 2011 Audit Scotland offered staff access to voluntary early release arrangements as part of a four year business restructuring programme. The terms of the arrangement offered staff a termination payment and/or early access to pensions. As at 31 March 2011, 17 staff had accepted terms to leave Audit Scotland in the period April to December 2011. A provision of £776k has been made to meet the costs of the early departures.
Former Local Government Ombudsmen Prior to establishment of the Public Services Ombudsman‟s office Audit Scotland provided support services including payroll and finance for the Local Government Ombudsman. The related liabilities were assumed to transfer to the new Ombudsman following the enactment of the Scottish Public Services Ombudsman Act 2002. However following a review of the implementation of the Act it was determined that the liability for pensions of former Local Government Ombudsmen and their staff did not transfer to the new Ombudsman‟s office. Since 31 March 2007 Audit Scotland has recognised the pension liability for staff previously employed by the Scottish Local Government Ombudsman. The liability as at 31 March 2011 was £416k (31 March 2010 £351k).
15: Other provisions Other provisions comprise property dilapidations. Amounts due after one year are:
2011 2010 £000 £000 Opening Balance at 1 April 476 428 Provided in year 66 48
Closing Balance at 31 March 542 476
Property Dilapidations Audit Scotland leases six properties across Scotland. Each lease contains provisions in respect of obligations for property dilapidations, reinstatement and decoration. Estimates of likely costs in respect of obligations under our property leases for dilapidations, reinstatement and property decorations are charged to revenue in equal instalments over the life of the lease or the period to a planned early termination of the lease whichever is the shorter. This accounting policy was adopted with effect from 1 April 2009 and in the year to March 2010 prior year adjustments were made. The prior year adjustment was £428k (2008/09 £48k, 2007/08 and earlier £380k).
50
Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
16: Commitments under leases During the period to 31 March 2011 the amounts charged to revenue in respect of operating leases for premises and vehicles were as follows:
2011 2010 £000 £000
Premises (note 4) 721 703 Vehicles 463 458
1,184 1,161
Obligations under operating leases - total minimum amounts payable for each of the following periods
2011 2010 £000 £000 Premises - lease expiry Not later than one year 706 697 Later than one year and not later than five years 1,909 2,280 Later than five years 81 330
2,696 3,307
Vehicles - lease expiry Not later than one year 297 400 Later than one year and not later than five years 217 230 Later than five years - -
514 630
Audit Scotland has no finance leases
The amounts payable in the next financial year in respect of premise leases noted above exclude any amounts that might fall due in respect of the rent review that remains outstanding for Osborne House, Edinburgh.
17: Related party transactions Audit Scotland is a statutory body funded by the Scottish Parliament. The latter is regarded as a related party. Audit Scotland‟s income arises principally from audit fees and charges levied on public sector bodies. During the period none of Audit Scotland‟s management staff has undertaken any material transactions with related parties.
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Annual Report and Accounts 2010-11 Notes to the Accounts (continued)
18: Capital commitments and contingent liabilities At 31 March 2011 there were no contracted capital commitments payable in 2011/12. There were no contingent liabilities.
19: Segmental reporting Audit Scotland is considered to have just one operating segment and therefore no segmental information is produced.
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Direction by the Scottish Ministers In accordance with section 19(4) of the Public Finance and Accountability (Scotland) Act 2000
1. The statement of accounts for the financial year ended 31 March 2006 and subsequent years, shall comply with the accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual (FReM) which is in force for the year for which the statement of accounts are prepared.
2. The accounts shall be prepared so as to give a true and fair view of the net resource outturn, resources applied to objectives, recognised gains and losses and cash flows for the financial year, and of the state of affairs as at the end of the financial year.
3. This direction shall be reproduced as an appendix to the statement of accounts. The direction given on 25 April 2001 is hereby revoked.
Signed by the authority of the Scottish Ministers
17 January 2006
53
Independent Auditors’ Report To the Scottish Commission for Public Audit (Under section 25(3) of The Public Finance Accountability (Scotland) Act 2000)
AUDIT SCOTLAND We have audited the financial statements of Audit Scotland for the year ended 31 March 2011 which comprise the Summary of Resource Outturn, Statement of Comprehensive Net Expenditure, Balance Sheet, Cash Flow Statement, Statement of Changes in Taxpayers‟ Equity and the related notes 1 to 19.We have also audited the relevant disclosures in the Remuneration Report as required under the direction of the Scottish Ministers. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, and as interpreted and adapted by the 2010/11 Government Financial Reporting Manual (the 2010/11 FReM) and directions made by Scottish Ministers. The report is made solely to the Scottish Commission for Public Audit, as a body, in accordance with Section 25 of the Public Finance and Accountability (Scotland) Act 2000. Our audit work has been undertaken so that we might state to the Scottish Commission for Public Audit those matters we are required to state to them in an auditors‟ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Scottish Commission for Public Audit as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor As explained more fully in the Statement of Accountable Officer‟s Responsibilities, set out on page 31, the Accountable Officer is responsible for the preparation of the financial statements in conformity with the Directions of Scottish Ministers and for being satisfied that they give a true and fair view. The Accountable Officer is responsible for the propriety and regularity of the public finances, for keeping proper books and for safeguarding assets, as set out in the Accountable Officer‟s Memorandum. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. We report to you on the matters set out in section 22(1)(a) and (b) of the Public Finance and Accountability (Scotland) Act 2000 and our opinion as to whether the Resource Accounts give a true and fair view and are properly prepared in accordance with section 19(4) of that Act. We also report to you if, in our opinion, the Foreword and the Management Commentary are not consistent with the accounts, if the organisation has not kept property accounting records, or if we have not received all the information and explanations we require for our audit, or if information specified by the Scottish Ministers regarding all the information and explanations we require for our audit, or if information specified by the Scottish Ministers regarding the remuneration and other transactions is not disclosed. We read the other information contained in the Statement on the System of Internal Control, and consider whether it is consistent with the audited accounts. As auditors we are not required to consider whether the Accountable Officer‟s statement on internal controls cover all risks and controls, nor are we required to form an opinion on the effectiveness of the risk and control procedures. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the accounts. Our responsibilities do not extend to any other information.
54
Independent Auditors’ Report (continued) To the Scottish Commission for Public Audit (Under section 25(3) of The Public Finance Accountability (Scotland) Act 2000)
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to Audit Scotland's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by Audit Scotland; and the overall presentation of the financial statements.
Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of Audit Scotland as at 31 March 2011 and of its net resource outturn for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union, as interpreted and adapted by the 2010/11 FReM; and have been properly prepared in accordance with the Public Finance and Accountability (Scotland) Act 2000 and Directions by Scottish Ministers issued thereunder; and
Other matter The financial statements of Audit Scotland for the year ended 31 March 2010 were audited by another auditor who expressed an unqualified opinion on those statements on 15 June 2010.
Opinion on Regularity In our opinion in all material respects: the expenditure has been incurred and the receipts have been applied in accordance with section 22(1)(a) and (b) of the Public Finance and Accountability (Scotland) Act 2000; the sums paid out of the Scottish Consolidated Fund for the purpose of meeting the expenditure shown in the financial statements were applied in accordance with section 65 of the Scotland Act 1998.
Opinion on other matters In our opinion: the information specified by Scottish Ministers on Remuneration and other transactions has adequately been disclosed. the information given in foreword and the management commentary is consistent with the financial statements.
55
Independent Auditors’ Report (continued) To the Scottish Commission for Public Audit (Under section 25(3) of The Public Finance Accountability (Scotland) Act 2000)
Matters on which we are required to report by exception We are required to report to you if, in our opinion: adequate accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit; or The Accountable Officer‟s Statement on Internal Control contains any apparent misstatements or material inconsistencies with the accounts.
We have nothing to report in respect of these matters.
Alexander Sloan Chartered Accountants Statutory Auditors 38 Cadogan Street Glasgow G2 7HF
15 June 2011
56
AUDIT SCOTLAND
AUDIT MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
Report Date: 16 September 2011
AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
1. INTRODUCTION
1.1 As the external auditor of Audit Scotland, we are required by legislation to report to the Scottish Commission for Public Audit (the ‘Commission’) our findings from the annual audit of the financial statements of Audit Scotland.
1.2 The purpose of this report is to summarise for the Commission the key issues arising from our audit of the Financial Statements for the year ended 31 March 2011 and report any material weaknesses in the accounting and internal controls that have come to our attention during the audit.
1.3 A copy of this letter was sent to Audit Scotland’s management team and the Audit Committee for review prior to submission of the report to the Commission.
2. AUDIT OBJECTIVES
2.1 The main objective of the audit is to form an opinion as to whether the Financial Statements of Audit Scotland give a true and fair view of the state of affairs of Audit Scotland at 31 March 2011 and of its net resource outturn for the year, and confirm that the Financial Statements are prepared in accordance with the Public Finance and Accountability (Scotland) Act 2000 and Directions by Scottish Ministers.
2.2 As part of our audit we carry out the following work: Examine, on a test basis, evidence relevant to the amounts and disclosures in the Financial Statements. Assess any significant estimates and judgements made by Audit Scotland in the preparation of the Financial Statements. Assess whether the accounting policies are appropriate to Audit Scotland’s circumstances, consistently applied and adequately disclosed. Evaluate the overall adequacy of the presentation of information in the Financial Statements to ensure compliance with the Financial Reporting Manual (FReM). Report to you our opinion as to whether the Financial Statements give a true and fair view and are properly prepared in accordance with relevant legislation. Report to you if in our opinion the information contained within the Foreword and the Management Commentary is inconsistent with the Financial Statements.. Consider whether based on our audit testing the expenditure has been incurred and the receipts have been applied in accordance with section 22(1)(a) and (b) of the Public Finance and Accountability (Scotland) Act 2000.
2.3 Our audit methodology for the collection of audit evidence is based on our own Audit Manuals, which are continuously updated to reflect current auditing standards. The methodology adopts a risk-based approach in accordance with International Auditing Standards (UK & Ireland).
1 AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
2. AUDIT OBJECTIVES (Continued)
2.4 Although we are required under International Standards on Auditing to consider fraud when carrying out our audit, the purpose of our audit is not the detection of fraud. Responsibility for the prevention and detection of fraud rests with the Board of Audit Scotland who should not rely wholly on the external audit function to discharge these responsibilities. We noted no incidents of misconduct, fraud or irregularity during the course of our audit.
3. CHANGES TO ACCOUNTS AND SIGNIFICANT MATTERS
3.1 The financial statements of Audit Scotland follow the same format as in the previous year.
3.2 In the year to 31 March 2011 there has been an increase to the Provision for Early Retirement and Settlement as a result of the recognition of a provision for £776,000 arising from Audit Scotland’s Voluntary Early Release Arrangement (VERA) scheme.
3.3 Audit Scotland has included a creditor this year for VAT liabilities relating to the secondment of staff to external organisations in the current and previous years.
3.4 During our audit we have considered Audit Scotland’s assessment that the organisation is a going concern. Based on discussions with the Management team, review of budgets and as there is no expectation that funding will be withdrawn, we are satisfied that the organisation’s assessment is appropriate.
4. AUDIT OPINION
4.1 Based on our detailed audit work which is carried out in accordance with International Standards on Auditing we have been able to satisfy ourselves that the Financial Statements provide a True and Fair view of Audit Scotland’s affairs and have therefore issued an unqualified audit opinion on the Financial Statements.
2 AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
5. INTERNAL CONTROLS
5.1 In accordance with International Standards on Auditing (UK & Ireland) we have included a summary of matters which arose during the course of our audit and which we consider should be brought to the attention of the Commission.
5.2 It should be noted that the matters dealt with in this letter came to our attention only during the normal course of our audit work and is not as a result of a special review of Audit Scotland’s systems, procedures and controls.
5.3 Overall responsibility for maintaining adequate financial reporting systems and systems of internal control, as well as for the prevention and detection of fraud, irregularities, and other errors, rests with the Accountable Officer.
5.4 Please note that these comments are not intended to reflect in any way on the integrity or competence of any member of Audit Scotland’s staff from whom we have received every assistance and co-operation.
5.5 We shall be grateful if, in due course, you will advise us of the actions the Audit Committee of Audit Scotland is taking with regard to each point. If you so wish, we shall be happy to discuss any of these points further with you and assist with their implementation.
3 AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
5. INTERNAL CONTROLS (Continued)
Observation and Implication Recommendation Client’s Response
Corporation Tax - We would recommend that Audit Scotland We accept the recommendation During our audit work we identified the possibility that considers its corporation tax position. and will take steps to secure Audit Scotland could be subject to Corporation Tax on professional advice as to the their earnings from bank interest, letting income and any The organisation should take professional potential for any Corporation Tax capital gains that may arise. advice as appropriate and, if tax is due, the liability. We estimate any potential organisation should bring its tax affairs up to Corporation Tax liability at 31 HMRC published guidance in 2009 that suggests public date as soon as possible. March 2011 at less than £3,000. bodies may be liable to tax on their non-business income. Action: Corporate Finance Audit Scotland could be liable both for future taxable Manager income and also subject to back-dated corporation tax liabilities.
We acknowledge that any potential liability would not be significant.
4 AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
Observation and Implication Recommendation Client’s Response
Related Party Transactions and Disclosures – We would recommend that, in addition to the We accept the During our audit work, procedures for identifying related Notices of Interests, Board Members and recommendation. At present party transactions for disclosure in the financial Directors sign an annual declaration at the we undertake an annual statements were discussed. financial year-end stating that they were not refresh of Board Members and aware of any related party transactions in the Directors notices of interest. We note that there are no annual declarations made by year. From March 2012 we will the Board Members and Directors confirming that they ensure that Board Members are not aware of any related party transactions in the and Directors sign a financial year. year-end declaration stating that they are not aware of any related party transactions in the year.
Action: Chief Operating Officer
5 AUDIT SCOTLAND
MANAGEMENT LETTER FOR THE YEAR ENDED 31 MARCH 2011
6. FUTURE ISSUES
6.1 There are no significant future issues to which we should draw your attention.
7. FURTHER INFORMATION
7.1 If you require any further information regarding any of the issues outlined in this Management Letter please contact the Partner or Senior Manager who will be pleased to assist you:
Position Name Telephone E-Mail
Partner Andrew McBean 0141 204 8989 [email protected]
Senior Manager Steven Cunningham 0141 204 8989 [email protected]
Manager David Jeffcoat 0131 228 7979 [email protected]
Alexander Sloan Chartered Accountants & Statutory Auditors
16 September 2011
6 SCPA/S4/11/2/2
Scottish Commission for Public Audit
2nd Meeting 2011 (Session 4), Tuesday 4 October 2011
Audit Scotland’s Autumn Budget Revision 2011-12
Purpose 1. Audit Scotland has submitted proposals (attached) for the revision of the current 2011-12 budget. The Commission will take evidence on this from the Auditor General for Scotland and representatives of Audit Scotland.
Background 2. As the attached letter from Audit Scotland states, Audit Scotland is required under the Public Finance and Accountability (Scotland) Act 2000 broadly, to break even taking one year with another. It only has authority to spend the resources voted to it in one financial year and any unspent resources are lost (unless Parliament votes for the money to be carried forward to the next year).
3. Audit Scotland is requesting £945,000 of End Year Flexibility to be used to provide non-recurring fee rebates to audited bodies. A further £330,000 under spend would be retained by the Scottish Consolidated Fund.
4. Audit Scotland will give oral evidence on this budget revision proposal.
Conclusion 5. Members are invited to consider the attached budget revision letter from Audit Scotland.
Secretary to the Scottish Commission for Public Audit 28 September 2011
Autumn Budget Revision
2011/12
Audit Scotland Autumn Budget Revision 2011-12
Introduction
This paper details Audit Scotland’s proposals for the 2011/12 Autumn Budget Revision. It is presented in advance of our 2012/13 Budget proposal which will be submitted to the SCPA by 30 September 2011. Section one sets out our proposals for the Autumn Budget Revision. Section two explains Audit Scotland’s end year balances for 2010/11.
Appendix 1: explains the use of our approved End Year Flexibility (EYF) in 2010/11.
Background
Bodies funded by Parliamentary Vote, such as Audit Scotland, only have authority to spend the resources voted to them in one financial year. Any unspent resources are lost unless Parliament votes for them to be carried forward to the next financial year. This mechanism is known as End Year Flexibility (EYF) and is approved by Parliament each year as part of the Autumn Budget Revision process. Audit Scotland is required under the Public Finance and Accountability Act broadly to break even taking one year with another. Audit Scotland is not able to carry forward reserves, and EYF is the only mechanism available to enable Audit Scotland to balance one year with another. In recent years Audit Scotland has substantially reduced its use of EYF. In 2010/11 Audit Scotland introduced a number of cost reduction measures in early recognition of pressures on public sector finances. The measures, which are a key component of our four year plan covering the years 2011/12 to 2014/15, started to deliver significant cost reductions in the year to March 2011.
Summary
The underlying under-spend in the results for 2010/11 was £1,275,000. This was £590,000 higher than recorded in the previous year (2009/10 - £685,000) but was mainly as a result of Audit Scotland making better that anticipated progress towards its four year cost reduction target. Our current cost reduction plan includes a target to reduce the cost of audit by 20% in real terms over a four year period with corresponding reductions in the level of fees charged to audited bodies and support provided from the Scottish Consolidated Fund. This planned reduction in fees was welcomed by audited bodies, which are dealing with severe financial pressures. It would be possible to provide these public bodies with a further financial benefit from the funds we did not utilise in 2010/11. As a result we are requesting £945,000 of EYF to be used to provide non-recurring fee rebates of, just under, 5% of fee charges to audited bodies. In 2008-09, we provided a similar rebate of £1M to clients, using the EYF mechanism. The balance of the underlying under-spend £330,000 would be retained by the Scottish Consolidated Fund in recognition of the funding provided from that source for non- chargeable work.
1
Audit Scotland Autumn Budget Revision 2011-12
Section One - Autumn Budget Revision proposal
Summary
This year our EYF proposal is solely to fund fee rebates to audited bodies. Funding is not sought for any other projects. The proposed Autumn Budget revision therefore is for Audit Scotland to take up part of the potential End Year Flexibility arising from 2010/11 for the purpose of fee rebates. The overall proposal is:
Revenue Capital £000 £000
Original 2011/12 budget 6,820 250
Total revision - EYF 945 0
Revised total funding 7,765 250
Proposed use of EYF – fee rebates
In the year to March 2011 the underlying in-year under-spend was £1,275,000. This was achieved mainly as a result of Audit Scotland making better than anticipated progress towards its four year cost reduction target. Our recruitment freeze, our pay freeze and the fact that a number of staff took up income-generating secondment opportunities enabled us to make significant savings on our staff costs. Our current cost reduction plan includes a target to reduce the cost of audit by 20% over a four year period with corresponding reductions in the level of fees charged to audited bodies and support provided from the Scottish Consolidated Fund. Benefits to audited bodies started to be delivered in the autumn of 2010 when a minimum 2.5% fee reduction was applied to 2010/11 audit fees with some bodies receiving reductions of up to 5%. This reduction in fees was welcomed by audited bodies as was our intention to reduce fees further over the next three years. Nevertheless audited bodies continue to face severe financial pressures. It would be possible to provide these public bodies with a further financial benefit from the funds we did not utilise in 2010/11. As a result it is proposed that we seek approval to carry forward some of these funds into 2011/12 by using EYF to support fee rebates. We consider the underlying in-year under-spend of £1,275,000 applies to all sectors of our work and would be allocated in proportion to our budgets. Fee income supports around 74% of our activities with the balance being proved from the Scottish Consolidated Fund. Based on these proportions £945,000 is attributable to fee earning activity and is requested as EYF funding to be used to provide non-recurring fee rebates equating to 4.9% of the 2010/11 audit year fees.
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Audit Scotland Autumn Budget Revision 2011-12
Conclusion
Over the three years to 2009/10, Audit Scotland’s available EYF funding has reduced and the need for EYF funding to be approved has also fallen. In 2010/11 available EYF has increased but this was mainly as a result of Audit Scotland making better than anticipated progress towards its four year cost reduction target through a pay and recruitment freeze that was introduced at the start of 2010/11. The budget for 2010/11 estimated our net resource requirement at £7,295,000. Our audited accounts for the year ended March 2011 show an under-spend of £7,791,000, a revenue surplus of £496,000 compared to the budget. Details of the variances which contributed to the under-spend are provided in the table below:
2010/11 2009/10 2008/09 2007/08 £000 £000 £000 £000
In year under-spend 1,275 685 617 1,788 Prior year property dilapidations - -428 - - Pensions Items – IAS 19 6,516 -225 784 423 EYF brought forward - 216 792 997 Total Revenue variance 7,791 248 2,192 3,208 Capital variance 173 -2 177 204
Total variance 7,964 246 2,369 3,412 EYF Requested 945 246 500 2,523
The Autumn Budget Revision (ABR) proposals presented in this paper enable us to share the further benefits of our cost reduction programme with our clients and stakeholders in addition to the on-going reduction in fees set out in our four year financial plan.
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Audit Scotland Autumn Budget Revision 2011-12
Section Two – End-year balances
This section explains Audit Scotland’s balances at the end of the 2010/11 financial year. This enables the SCPA to understand the EYF potentially available and the reasons for this by budget heading.
Revenue The total amount of revenue EYF potentially available to Audit Scotland as at 31 March 2011 was £7,791,000. The results for the year to March 2011 were significantly influenced by accounting adjustments required in respect of pension accounting as dictated by International Accounting Standard (IAS) 19. In total these adjustments increased the revenue under-spend by £6,516,000. The main part of the amount, £6,346,000 was attributable to the UK Government’s decision to change the basis of inflation increases for pensions from the Retail Price Index (RPI) to the Consumer Prices Index (CPI). Leaving aside the pension adjustment, the underlying in-year under-spend in 2010/11 has increased by £590,000 to £1,275,000m (£685,000 in 2009/10). The main components of this amount are shown below:
2010/11 2009/10 2008/09 2007/08 £000 £000 £000 £000 Revenue In Year Fee income net of approved auditor 491 112 287 535 fees Staff costs incl. secondments 784 80 306 412 VERA provision -776 - - - VAT – reduced rate - 160 - - Other 776 333 23 841
Total in year EYF 1,275 685 616 1,788 Prior year property dilapidations - -428 - - Pension items - IAS 19 / FRS 17 6,516 -225 784 423 EYF available for carry forward - 216 792 997 Total Revenue 7,791 248 2,192 3,208
Fee income - net of approved auditor fees (£491,000 above budget) This represents fees earned above indicative amounts by auditors net of costs paid to approved external audit firms and also the net effect of movements in the stage of completion that audits have reached at 31 March 2011 compared to 31 March 2010. This is a timing effect. For example an audit with a constant annual budget of £100,000 might be expected to be 30% complete at 31 March each year. However if it is actually 30% complete at 31 March 2010 and 32% complete at 31 March 2011 then the income recognised for that audit in the 2010/11 accounts will be £102,000 against a budget of £100,000.
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Audit Scotland Autumn Budget Revision 2011-12
Staff Costs (£784,000 less than budget) Staff costs net of income received for staff on secondment to other public sector bodies were £784,000 lower than budget. This was delivered through reduced staff in post in year, our pay freeze and benefits from funded secondments of staff to other organisations.
VERA provision – (£776,000 more than budget) During January to March 2011 Audit Scotland offered staff access to voluntary early release arrangements (VERA) as part of our four year business restructuring programme. The terms of the arrangement were voluntary. Staff were offered a termination payment based on length of service. There were no compulsory redundancies. Seventeen staff accepted terms to leave Audit Scotland in the period April to December 2011. A provision of £776,000 was made in the 2010/11 accounts to meet the costs of the early departures. The 17 departures will generate net savings of £967,000 over a three year period and annual recurring savings of £590,000 will be generated from April 2012. These annual savings will be reflected in our budget proposals for 2012/13.
Other (£776,000 less than budget) Other costs net of miscellaneous income were £776,000 less than budget. This represents the net position of a number of variances. The main elements of the favourable variance are noted in the table below.
£000 External Consultancy & Professional Fees 436 Printing & Stationery costs 116 Training costs 152 Recruitment 80 Other -8 TOTAL 776
Consultancy and professional fees were £436,000 less than budget. Lower than budgeted consultancy costs contributed £282,000 to the favourable variance as a result of a reduced requirement, in that year, to source external support and expertise in carrying out our performance and best value audits. New contract arrangements for external printing and continuing contract benefits in respect stationery were the main drivers in the cost savings reported for printing and stationery. A move towards greater use of electronic publications, reduced print volumes and shorter print runs also contributed. Training in the year to March 2011 was largely delivered in house as opposed to accessing external providers. The decision to introduce a recruitment freeze in early 2010 significantly reduced recruitment activity and costs in 2010/11.
Pensions (£6,516,000 less budget) As in previous years our year end results have been impacted by accounting adjustments required under International Accounting Standard (IAS) 19 and notified by the actuary of our main pension scheme.
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Audit Scotland Autumn Budget Revision 2011-12
In total these adjustments in 2010/11 increased the revenue under-spend by £6,516,000. The main part of the amount, £6,346,000 was attributable to the UK Government’s decision to change the basis of inflation increases for pensions from RPI to CPI. Pension accounting adjustments required in respect pension accounting standards (IAS 19) have generated both favourable and unfavourable variances in our accounts over the last five years and have been a significant feature of our annual results. The values have been as follows:-
£k 2010/11 6,516 favourable 2009/10 225 unfavourable 2008/09 784 favourable 2007/08 423 favourable 2006/07 875 favourable Total 8,373 favourable
As the accounting adjustments are notional and do not generate cash movements we have not routinely sought to carry forward the sums involved. As a result the Scottish Consolidated Fund has retained the benefits. However future adjustments could be adverse and in such circumstances we may need to request additional funds through the EYF mechanism to balance our accounts. This was anticipated for 2010/11 and a request for EYF funding £246,000 was made at this time last year. The UK Government’s decision to change the basis of inflation increases for pensions from RPI to CPI meant that these funds were not required as a significant credit as noted above arose in our 2010/11 Statutory Accounts.
6
Audit Scotland Autumn Budget Revision 2011-12
APPENDIX 1 Use of Approved Revenue EYF 2010/11
This appendix explains how we have used the EYF approved in 2010/11.
Pension Charges (£246,000) EYF funding of £246,000 was approved in 2010/11 solely to meet additional pension charges. Audit Scotland is required to comply with International Accounting Standard (IAS 19) on pension accounting. The values that are recorded in our Statutory Accounts include adjustments to pension costs as notified by the actuary of our main pension scheme (Local Government scheme in Scotland) in annual reports prepared at each year end. The pension adjustments are mainly attributable to movements in pension scheme liabilities and the resulting estimate made by the actuary of the charges arising each year to meet future liabilities. A key factor in the calculation is the real discount rate (broadly, the rate of return less inflation) used by the actuary to value liabilities of the scheme. In May 2010, the local government pension scheme actuary advised us of the annual assessment of charges to be applied in 2010/11. The actuary’s assessment of the charge for 2010/11 was £2.273 million compared our budget figure prepared in September 2009 of £1.718 million. This created potential for a budgetary pressure of £555,000. Audit Scotland considered whether it could meet this additional charge in 2010/11 from the resources already approved in the 2010/11 budget. Forecasts prepared in the summer of 2010 indicated that around £309,000 could be met from the approved 2010/11 budget. The balance £246,000 was requested as EYF funding. The actuarial assessment made in the spring of 2010 was based on assumptions and scheme rules in force at that time. Subsequent to that, the UK Government decided to change the basis of inflation increases for public sector pensions from RPI to CPI. This change resulted in a significant reduction in Audit Scotland’s pension liabilities and the resulting net gain was reflected in a reduced revenue charge in our Statutory Accounts. The overall effect of this adjustment contributed £6,349,000 of the total pension variance credit of £6,516,000 reported in the 2010/11 accounts. As a result of this adjustment the EYF funding £246,000 approved for 2010/11 was not required and forms part of the pensions adjustment variance of £6,516,000.
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Scottish Commission for Public Audit
2nd Meeting, 2011 (Session 4), Tuesday, 4 October 2011
Scottish Commission for Public Audit: Removal from National Public Bodies Directory
Purpose 1. The purpose of this paper is to invite the SCPA to consider and agree a response to the letter received from the Cabinet Secretary for Finance, Employment and Sustainable Growth (Annex A) on the removal of the SCPA from the National Public Bodies Directory. A suggested response is attached (Annex B).
Background 2. Consideration of this issue arose during the passage of legislation in Session 3, where the SCPA had been included in the schedule of public bodies affected by the legislation. The then SCPA Convener (Angela Constance MSP) wrote to the Cabinet Secretary for Finance and Sustainable Growth (15 December 2010) asking whether the SCPA could be removed from the Directory to ensure that it was not ‘inappropriately’ listed in Bills.
3. The Cabinet Secretary has now written to the SCPA to suggest that it is removed from the Directory to prevent this issue arising in future and has asked whether the SCPA agrees with this proposal.
Conclusion 4. The Commission is invited to consider and agree the attached response (Annex B) to the Cabinet Secretary for Finance, Employment and Sustainable Growth.
Secretary to the Scottish Commission for Public Audit 28 September 2011
Annexe A SCPA/S4/11/2/3 Annexe A SCPA/S4/11/2/3 Annexe B SCPA/S4/11/2/3
SCOTTISH COMMISSION FOR PUBLIC AUDIT
John Swinney MSP Cabinet Secretary for Finance, Employment and Sustainable Growth The Scottish Government St Andrew’s House Edinburgh EH1 3DG 4 October 2011
SCOTTISH COMMISSION FOR PUBLIC AUDIT: REMOVAL FROM NATIONAL PUBLIC BODIES DIRECTORY
Thank you for your letter of 21 July 2011 regarding the removal of the Scottish Commission for Public Audit (SCPA) from the National Public Bodies Directory.
The SCPA considered this matter at its meeting today. The SCPA is grateful for your suggestion and concurs that it should be removed from the National Public Bodies Directory.
Yours sincerely
COLIN BEATTIE MSP Convener, SCPA
Scottish Commission for Public Audit, T3.40, The Scottish Parliament, Edinburgh, EH99 1SP Tel: 0131 348 5205, Fax: 0131 348 5088, Text Relay: 18001 0131 348 5205 [email protected]
SCPA/S4/11/2/4
Scottish Commission for Public Audit
2nd Meeting, 2011 (Session 4), Tuesday, 4 October 2011
The budget process: Session 4 agreement between the Finance Committee and the Scottish Commission for Public Audit
Purpose 1. The Finance Committee has separate written agreements on the budget process with the Scottish Government, the Scottish Parliamentary Corporate Body and the SCPA. These documents have not been reviewed since 2005 and require to be updated to reflect changes made to the budget process in the last session of Parliament.
2. The Commission is invited to consider and agree the attached (Annex A) revised draft written agreement which was agreed by the Finance Committee at its meeting on 14 September 2011. A summary of the proposed substantive changes is set out below.
Agreement between the Finance Committee and the SCPA 3. The written agreement between the Finance Committee and the SCPA has been revised by the SCPA secretariat and the Clerk to the Finance Committee. This has resulted in a shorter and simpler version which reflects current budget practices. It reflects the approach and wording, where appropriate, in the written agreement between that Committee and the Scottish Government. For the information of Members a copy of the existing written agreement is attached at Annex B.
4. The Committee is invited to consider and agree the revised draft of the written agreement between the Finance Committee and the SCPA.
5. Once agreed, the agreement will be published on the Finance Committee and SCPA webpages.
Agreement between the SCPA and Audit Scotland 6. There is a written agreement between the SCPA and Audit Scotland. This is in the process of being revised by the SCPA secretariat in consultation with Audit Scotland officials. Again, the aim will be to produce a shorter and simpler version which reflects the current practice. It will also reflect the approach and wording, where appropriate, in the written agreement between the Finance Committee and the Scottish Government and between that Committee and the SCPA. The revised draft will be brought to the Committee for consideration at its next meeting.
Conclusion 7. The Committee is invited to consider and agree the revised draft of the written agreements between the Finance Committee and the SCPA and to note that a revised draft written agreement between it and Audit Scotland will be brought forward for consideration at the next meeting.
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Secretary to the Scottish Commission for Public Audit 28 September 2011
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Annex A
DRAFT REVISED WRITTEN AGREEMENT BETWEEN THE FINANCE COMMITTEE AND THE SCOTTISH COMMISSION FOR PUBLIC AUDIT ON THE BUDGET PROCESS IN SESSION 4 OF THE SCOTTISH PARLIAMENT
Foreword 1. This document sets out a revised agreement between the Finance Committee and the Scottish Commission for Public Audit (SCPA) on the arrangements to be observed in connection with the scrutiny of the annual draft budget. It is not intended to create any legal rights or obligations on either the Committee or the SCPA.
Background 2. A separate agreement between the SCPA and Audit Scotland exists in order to help the SCPA discharge its statutory duties as set out in the Public Finance and Accountability (Scotland) Act 2000. There are separate agreements between the Committee and the Scottish Government and the Scottish Parliamentary Corporate Body setting out the arrangements for the scrutiny of the annual draft budget. The agreement between the Committee and the Scottish Government details the annual budget process.
Audit Scotland’s budget 3. The expenditure plans of any body which has a prior call on the Scottish Consolidated Fund will reduce the total amount available to the Scottish Government for inclusion in its plans. Audit Scotland’s budget falls into that category. It is therefore important that accurate information about Audit Scotland’s spending plans is provided to the Finance Committee and the Scottish Government at an early stage.
4. To this end, the SCPA, as the body responsible for examining Audit Scotland's expenditure proposals, will provide to the Finance Committee no later than the end of the first week in November each year, its report on Audit Scotland’s budget proposals for the next financial year.
5. The SCPA will also keep the Committee and the Scottish Government informed of any substantive changes to Audit Scotland’s budget in recognition
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of the fact that these would affect the Scottish Government’s expenditure plans and the Parliament’s consideration of them.
6. By convention, the Finance Committee’s consideration of the Scottish Government’s draft budget has included a discussion of the SCPA’s report which has been included as an annexe to the Committee’s report. This is in recognition of the fact that whilst the SCPA has primary responsibility for scrutinising Audit Scotland’s expenditure proposals, the Committee is responsible for scrutinising Scottish Government expenditure proposals as a whole.
7. This process creates the possibility of disagreement between the two bodies if they were to take a different opinion on Audit Scotland’s proposals. This could result in the Finance Committee’s report containing a different recommendation on Audit Scotland’s proposals from that reported by the SCPA.
8. To attempt to avoid such a scenario, the Finance Committee and the SCPA can discuss the SCPA’s report before the Committee produces its report. To assist the Finance Committee’s understanding of Audit Scotland’s expenditure plans, the SCPA will seek to answer any questions from the Committee and make information available to it.
9. If there is still disagreement between the Committee and the SCPA, the Committee can express its comments on Audit Scotland’s proposals in its report or in the motion to discuss its report. The SCPA is free to lodge an amendment to that motion which is voted on by the Parliament.
10. In situations where the SCPA’s report expresses discontent with Audit Scotland’s expenditure proposals, and the Finance Committee either has no comment to make or is in agreement, the SCPA can lodge a motion on its report and seek to secure parliamentary time to debate this. Alternatively, the Committee could, with the SCPA’s agreement, express any discontent in its report which could then be debated in the Parliament.
11. In either case, the final expenditure proposals for Audit Scotland will appear in the annual Budget Bill, which will be voted upon by the Parliament.
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Annex B
‘EXISITING’ WRITTEN AGREEMENT BETWEEN THE FINANCE COMMITTEE AND THE SCOTTISH COMMISSION FOR PUBLIC AUDIT
Foreword 1. This document sets out a revised understanding between the Scottish Commission for Public Audit (SCPA) and the Finance Committee of the Scottish Parliament, in relation to arrangements to be observed in connection with the annual budgeting process. It is not intended to create any legal rights or obligations on either the SCPA or the Finance Committee of the Scottish Parliament.
2. Under the terms of a revised agreement concluded with the Scottish Ministers the Finance Committee has agreed to participate in a biennial budget cycle with a full three-stage process in Spending Review years and a more limited process in non-Spending Review and election years. A separate administrative arrangement also exists between the SCPA and Audit Scotland.
Background 3. Scottish Ministers have undertaken to submit each year in which a Spending Review occurs to the Parliament (by 31 March or the first day thereafter on which the Parliament sits), a provisional expenditure plan This document will set out the Executive’s view on priorities for the coming Spending Review period; an initial assessment of progress against the key performance targets for each portfolio set in the previous Spending Review; and general expenditure proposals for those forward years for which aggregate figures at programme level are available. The Finance Committee can then seek views from a variety of sources including members of the public and other Committees of the Parliament.
4. Normally, the Scottish Ministers will present detailed expenditure proposals for the next financial year) by 20 September or the first day thereafter on which the Parliament sits. The Finance Committee will then produce a report in consultation with other committees of the Parliament. This will comment on the Scottish Ministers’ proposals and may include an alternative set of proposals. If it does, the total spend proposed by the Finance Committee will not exceed the total proposed by the Scottish Ministers. A plenary debate on the report will follow in which Committees and individual members will debate the Finance Committee’s report and may seek to propose amendments to the Executive’s expenditure proposals through the mechanism of tabling amendments to the Finance Committee motion. It should be noted that even if such amendments are agreed to, this does not automatically guarantee that expenditure proposals will be amended in the subsequent Budget Bill.
5. The Scottish Ministers will produce a Budget Bill by 20 January each year or the first day thereafter on which the Parliament sits.
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Audit Scotland’s budget 6. The expenditure plans of any body which has a prior call on the Scottish Consolidated Fund will reduce the total amount available to the Scottish Ministers for inclusion in their plans. Audit Scotland’s budget falls into that category, albeit that this budget forms a very small proportion of the total available resources. It is therefore important that, wherever possible, accurate information about the spending plans of Audit Scotland is provided to the Finance Committee and the Scottish Ministers at an early stage.
7. To this end, the SCPA, as the body which has responsibility for examining and reporting on Audit Scotland's expenditure proposals has agreed that it will provide to the Finance Committee and to the Scottish Ministers, by mid-March each year r, Audit Scotland’s provisional expenditure plan. The SCPA will also provide to the Committee and to the Scottish Ministers, no later than the end of the second week in November, a further expenditure plan for Audit Scotland reflecting any changes which have occurred since March.
8. The SCPA also undertakes to keep both the Committee and the Scottish Ministers informed throughout the period between March and January of any substantive changes to Audit Scotland’s budget in recognition of the fact that these would affect the Scottish Ministers’ expenditure plans and the Parliament’s consideration of them.
9. By convention, the Finance Committee’s consideration of the Executive’s draft budget (i.e. stage 2 of the budget process) has included a discussion of the SCPA’s report on Audit Scotland’s expenditure proposals. The SCPA’s report has then been included as an annexe to the Finance Committee’s report. The Committee and the SCPA wish to formalise this link, in recognition of the fact that whilst the SCPA has primary responsibility for scrutinising Audit Scotland’s expenditure proposals, the Finance Committee is responsible for scrutinising Scottish Ministers’ expenditure proposals as a whole.
10. This process creates the possibility of disagreement between the two bodies if they were to take a different opinion on Audit Scotland’s proposals. This could result in the Finance Committee’s report containing a different recommendation on Audit Scotland’s proposals from that reported by the SCPA.
11. To attempt to avoid such a scenario, the Finance Committee and the SCPA can discuss the SCPA’s report before the Finance Committee produces its report. The SCPA agrees that in order to assist the Committee’s understanding of Audit Scotland’s expenditure plans, it will seek to answer any questions from the Committee and make information available to the Committee.
12. If there is still disagreement between the Finance Committee and the SCPA, the Committee can express its comments on Audit Scotland’s
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proposals in its report or in the motion to discuss its report. The SCPA is free to lodge an amendment to the Finance Committee’s motion. The Parliament will then vote on the Finance Committee’s motion.
13. In situations where the SCPA’s report expresses discontent with Audit Scotland’s expenditure proposals and the Finance Committee either has no comment to make or is in agreement, the SCPA can lodge a motion on its report and seek to secure parliamentary time to debate this. Alternatively, the Finance Committee could, with the SCPA’s agreement, express any discontent in its report which could then be debated in the Parliament.
14. In either case, the final expenditure proposals for Audit Scotland will appear in the annual Budget Bill, which will be voted upon by the Parliament.
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Scottish Commission for Public Audit
2nd Meeting, 2011 (Session 4), Tuesday 4 October 2011
Work Programme
Purpose 1. The purpose of this paper is to invite the Commission to consider a revised draft work programme and agree actions which emerged from its business planning event on Tuesday 23 August 2011 in relation to its approach to conducting business.
Future work programme 2. Attached at Annex A to this paper is a suggested work programme for the Commission. This identifies work over the coming months, in particular over the next few weeks when the Commission will fulfils its role in relation to the scrutiny of the draft budget currently being considered by the Finance Committee.
3. The key task will be the consideration of Audit Scotland’s draft budget for 2012-13. This will involve taking oral evidence from Audit Scotland. The Commission will then report to the Parliament. That report is then factored in to the wider scrutiny by the Finance Committee of the draft budget.
4. The Commission is invited to consider and agree the attached draft work programme.
Procedures 5. Members agreed at the business planning event to adopt a number of working practices common to committees of the Parliament. It considered that such practices would be useful in demonstrating that the Commission will be open, accessible and efficient in conducting its business. The Commission has already adopted this approach when, at its first meeting, it appointed a deputy convener (not provided for in Standing Orders) and the Members declared any interests relevant to the work of the SCPA.
6. The Commission considered the following practices at the business planning event—
Meeting in public 7. Committees of the Parliament meet in public and publish their meeting papers, minutes and any reports wherever possible. This fits in with the open, accessible and participative founding principles of the Scottish Parliament.
8. Members are invited to confirm that they wish to follow this practice.
9. It is, of course open to the SCPA to decide to take a particular agenda item in private. As a matter of good administration, where it decides to do so, it would seek to do so formally in advance either at the start of the agenda or, preferably, at a previous meeting.
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Quorum 10. Standing Orders (Rule 12.2.1) sets the quorum for committees at three members (i.e. three members of the committee must be present before it can commence any business). If, during a meeting which began quorate, attendance falls below three, the business under discussion may be concluded but no vote can take place and no further business can begin.
11. Members are invited to confirm that they wish to follow this practice of three being the quorum for a meeting of the SCPA.
Participation by non-SCPA members in meetings 12. Rule 12.2.2 of Standing Orders states—
Any member of the Parliament may attend any meeting, or part of a meeting, of any committee held in public, but if that member— (a) is not a member of the committee; (b) is a member of the committee and a committee substitute is attending in that member’s place; or (c) is a member of the committee but is prevented from exercising the rights of a committee member by Rule 9.13A,
that member may participate in the proceedings of the committee only if invited to do so by the convener and may not vote.
13. Members are invited to confirm that they are content to allow non-SCPA members to attend a meeting and, with the agreement of the Convener, participate.
Reports 14. Section 12(4) of the Public Finance and Accountability (Scotland) Act 2000 states—
The Commission is from time to time to report to the Parliament on the exercise of its functions.
15. Previous Commissions have reported on their scrutiny of the Audit Scotland budget proposal each year. The report feeds into the annual scrutiny by the Finance Committee of the budget. That report has included details of the work of the SCPA over that last year (committees of the Parliament publish an annual report). This ‘annual report’ would detail the number of meetings held and the issues considered.
16. Members indicated that they would not include details of the work of the SCPA within the budget report and that it would publish a separate annual report. This would likely be in June of each year when the committees of the Parliament publish their own annual reports. This report would provide an opportunity for the SCPA to set out the meetings held, the work undertaken, the approach taken and the results achieved. Such annual reports are now only published in e-format online.
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17. Members are invited to confirm that they wish to follow this practice and publish an annual report each year, setting out the work and activities of the Commission over the last year, in line with committee annual reports.
Conclusion 18. The Commission is invited to consider and agree—
• the attached draft work programme • each of the working practices outlined above
Secretary to the Scottish Commission for Public Audit 28 September 2011
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WORK PROGRAMME FOR SCPA
Date Business Thursday 27 October SCPA meeting— • Consider Audit Scotland draft budget for 2012- 13 and take oral evidence from AS • Consider draft agreement between the SCPA and Audit Scotland
Tuesday 1 November SCPA meeting— • agree report to the Parliament on Audit Scotland’s 2012-13 budget proposal (must be by second week of November to fit with budget timescale)
Publish report (by 4 November)
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