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Adam Smith College Annual Report to the Board of Governors and the Auditor General for Scotland 2011-12 May 2013

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Adam Smith College Annual Report to the Board of Governors and the Auditor General for Scotland 2011-12 May 2013 Adam Smith College Annual Report to the Board of Governors and the Auditor General for Scotland 2011-12 May 2013 Adam Smith College Contents 1. Executive Summary 3 2. Introduction 5 3. Governance arrangements 6 4. Financial Position 9 5. Financial Statements 12 6. Financial Reporting Matters 15 7. The challenges ahead 17 Appendix A: "The Small Print" 2 17 © 2013 Grant Thornton UK LLP. All rights reserved Adam Smith College 1. Executive Summary Introduction see reductions in funding across the sector and result in the creation of a new regional college for the Fife area The Accounts Commission for Scotland appointed from 1 August 2013. Many of the issues identified are Grant Thornton UK LLP as auditors to Adam Smith now legacy issues and have not impacted to any College for the period 2011-12 to 2016-17. This is significant degree of learning outcomes for students as therefore the first year of our appointment. This evidenced by recent inspection reports. document summarises our responsibilities as external Our audit of the financial statements is now complete, auditors for the year ended 31 July 2012 and our but has been delayed by the events outlined above, approach to issues impacting the College during the particularly in resolving the total amount of EU grants year. to be repaid. We are able to confirm that the financial We carry out our audit in accordance with the statements present a true and fair view of the College's International Standards on Auditing (UK and Ireland). financial position at 31 July 2012. In light of the significant governance and financial stewardship issues Our key findings identified in relation to the College's administration of EU grants, we have to draw attention to this significant The College has faced a particularly challenging year, issue in forming our opinion on the accounts. In during which it has identified significant failures in both addition, as a result of delays in finalising these its governance and financial stewardship arrangements. accounts, they have not been laid before Parliament by These failures have led to a change in leadership at the Scottish Ministers within 9 months of the financial year College, and resulted in a requirement to repay over £5.5 million of EU grant income with a consequent end as required by the Public Finance and impact on the financial position of the College. The Accountability (Scotland) Act 2000. We have not been College has also established a £1.2 million provision for required to amend our opinion on the accounts as a further European grant funding where Fife Council result of this matter. acted as lead partner.The College has taken action to address these failings following separate investigations Acknowledgements by the Scottish Funding Council, the Scottish We would like to take this opportunity to record our Government and by independent auditors. appreciation for the kind assistance provided by the These events have occurred during a period of Finance Team and other staff during our audit transition within the further education sector, which will Reporting Area Our Summary Financial As a result of the requirement to repay EU grants, the College reported a deficit for the year Position of £767k, representing 2.5% of income (2011 restated surplus: £387k). Total reserves have fallen by around £4.5 million during 2011-12, to £18.5 million. We are able to confirm that the College remains a going concern with sufficient funds in place to support its operations up to the point of merger with Carnegie College. Financial The draft financial statements were of a good standard, but significant adjustments have Statements been processed following the outcomes of a range of audit reports during the year. We intend to give an unqualified opinion on the truth and fairness of the financial statements 17 © 2013 Grant Thornton UK LLP. All rights reserved Adam Smith College of the College. We have also provided an emphasis of matter paragraph in our opinion in drawing the Board's attention to the significant governance failures during the year which resulted in the requirement to repay EU grant funding. We note that the College's accounts were not laid before the Scottish Parliament by Scottish Ministers within 9 months of the year end as required by the Public Finance and Accountability (Scotland) Act 2000. Whilst this technical breach of a statutory requirement has not required us to amend our opinion on the accounts, the College should avoid any recurrence. Governance and During the financial year, the College responded to a number of Public Interest Disclosures Performance (PID) relating to the culture and governance of the organisation. Following an investigation supported by the Scottish Funding Council, the College agreed an action plan to address the weaknesses identified. In response to the allegations raised, the College changed its senior leadership team in October 2012, and has taken action to improve organisational culture, and financial control arrangements. Learning outcomes for students have been largely unaffected and the College continues to receive strong ratings from Education Scotland. The College is expected to merge with Carnegie College and the non-land based elements of Elmwood College on 1 August 2013. We have reviewed the Colleges' preparations for the merger, but in light of the adjustments to the College accounts, financial resilience will remain a key concern for the incoming Board, particularly in light of a potential inability to access future EU funding and an expected reduction in the availability of revenue grant support from the Scottish Government. 17 © 2013 Grant Thornton UK LLP. All rights reserved Adam Smith College 2. Introduction This report has been prepared for the benefit of Our responsibilities discussion between Grant Thornton UK LLP and Adam Smith College (the College). This has been our It is a condition of our appointment that we meet the first year of auditing the College and this report gives a requirements of the Code of Audit Practice, which is summary of the findings from our work. Our audit has approved by the Auditor General for Scotland. The focused on the financial statements and governance most recent Code was published in May 2011 and arrangements at the College. applies to audits for financial years starting on or after 1 April 2011. Our Audit Approach Memorandum, issued in May 2012 identified two key issues in relation to the 2011-12 audit: The Code of Audit Practice highlights the special accountabilities that are attached to the conduct of the outcomes of a Scottish Funding Council (SFC) public business and the use of public money. This general governance oversight review of the means that public sector audit must be planned and College's response to public interest disclosures undertaken from a wider perspective than the private and related matters sector. We are therefore required to provide assurance, not only on the financial statements, but also on the the regionalisation agenda and proposed merger of College's governance arrangements and use of Fife Colleges. resources. During the audit year, the College has faced a number This report meets the mandatory requirements of of significant challenges emerging from subsequent International Standard on Auditing 260 (ISA 260) to investigations into the public interest disclosures. report the outcome of the audit to 'those charged with Sector developments governance', designated as the Audit Committee and the Board. All Colleges in Scotland face a period of significant change, as structural reform is embedded, coupled with The Board is responsible for the preparation of financial a challenging financial outlook as cost pressures rise statements which record its financial position as at 31 while funding from the Scottish Government is July2012, and its income and expenditure for the year expected to reduce by around 24% by 2014-15. then ended. We are responsible for undertaking an audit and reporting whether, in our opinion, the Board’s We use this report to consider the financial position of financial statements present a true and fair view of the the College, and we hope to continue to support the financial position. College as it prepares for merger with Carnegie College. 17 © 2013 Grant Thornton UK LLP. All rights reserved Adam Smith College 3. Governance arrangements During 2011-12, the College responded to Public Interest Disclosures relating to the culture of the College, and the misuse of public funds. The College's leadership team has changed significantly a result of the subsequent investigations. A temporary Principal and Interim Vice Principal were appointed in October 2012, to lead the College until the merger with Carnegie College. Public Interest Disclosures (Table 1). As a result of the Phase 2 report, Scottish In 2011-12, a number of Public Interest Disclosures Government internal auditors were engaged to review were made alleging various matters including bullying the management of EU funds at the College. The and mismanagement at the College. The College auditors found significant irregularities, including the initially asked their internal auditors to investigate claims apparent systemic overclaiming of staff time. The regarding the potential inappropriate use of College Scottish Government has subsequently required the resources. In February 2012, the Education Secretary College to repay the full value of EU grants received asked the Scottish Funding Council (SFC) to prepare a £5.5 million), and has de-committed the balance of further report on the allegations relating to the culture grants not yet paid (amounting to a further £2.6 of the College. million). As a result of this review, the College and SFC jointly Table 1: Summary of KPMG findings published an action plan to address the issues arising in Phase 1 April 2012. The action plan included further Voluntary severance payments made to two individuals investigations into specific allegations around the misuse were not in line with the College policy at the time.
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