Item no 7.4 + + EDI N BVRG H THE CITY OF EDINBURGH COUNCIL Report no cq3I \lO-ll\ 9s Implications of Audit Scotland’s Report on ‘The Gathering 2009’ The City of Edinburgh Council 16 September 2010 Purpose of Report 1 To refer to the Council the attached report by the Chief Executive on Audit Scotland’s review report on ‘The Gathering 2009’. Main Report 2 On 31 August 201 0, the Policy and Strategy Committee considered the attached report by the Chief Executive detailing the implications for the Council of Audit Scotland’s review report on ‘The Gathering 2009’. 3 The Committee agreed to refer the report to the Council without recommendation. Recommendation 4 That the Council considers the attached report by the Chief Executive on the implications of Audit Scotland’s report on ‘The Gathering 2009’. AI astair Maclean Head of Legal and Administrative Services Appendix Report no PS/50/10-11/CE by the Chief Executive Contactltel Rhona Sinclair lit 529 4238; €3 [email protected] Wards affected All Background None Papers Item no EDIN BVRGH Report no THE CITY OF EDINBURGH COUNCIL Implications of Audit Scotland’s report on ‘The Gathering 2009’ Policy & Strategy Committee 31 August 2010 1 Purpose of report 1.I On the 23 June 2010 Audit Scotland published its review report on the Gathering ‘2009. On that date, the Council Leader requested that I provide within two cycles :- e a report on Audit Scotland’s review; e the implications for this Council of Audit Scotland’s recommendations; and 0 an explanation of why this Council agreed to settle one of The Gathering 2009 Ltd’s debts to a creditor. 2 Background 2.1 The Gathering 2009 Ltd has been the subject of considerable scrutiny, primarily by MSP’s in the Scottish Parliament. Initially this matter was raised in Parliamentary question and answer sessions and latterly in the Public Audit Committee where the Auditor General for Scotland’s report on the Gathering was considered on 23 June 2010. The report was commissioned by the Auditor General and undertaken by Audit Scotland following media coverage of the Gathering 2009 company’s financial situation and enquires from MSPs. 2.2 The full report is available at www.audit-scotland.gov.uk but for ease of reference i have attached a copy of the Summary and Recommendations as Appendix 1. 3 Audit Scotland’s Review 3.1 The key objectives of Audit Scotland’s review were to: 0 review the governance arrangements of the Gathering event; 0 evaluate the event’s financial management arrangements; and 1 0 review the basis of the decision to write off the public sector monies owed by the Gathering 2009 Ltd including both monies to fund the event and the services provided. 3.2 The report explains that the idea to establish 2009 as a year of celebration was originally initiated by the Scottish Executive in 2003 with a commitment to celebrate the 250th Anniversary of the birth of Robert Burns. The years celebration was branded as Homecoming Scotland 2009. 3.3 In February 2007 a private company, The Gathering 2009 Ltd was established to design, organise and develop what became a signature event in the Homecoming Scotland 2009 programme. On 13 March 2007 the Executive of the Council approved the recommendation of a mernber/officer working group, chaired by the then Council Leader (Councillor Anderson), in support for Homecoming Scotland 2009. 3.4 The Gathering 2009 Ltd immediately approached Events Scotland, Scottish Enterprise, Edinburgh and Lothians (now Scottish Enterprise) and the City of Edinburgh Council to seek funding support for the event. In June 2007 a business plan was submitted seeking a f300k grant split equally between the bodies and phased over two years. The first payment was made by Events Scotland in October 2007. 3.5 It is the Council's normal practice to work closely with partner agencies on major projects such as this. The collaborative approach is mutually beneficial; it secures efficiency through sharing due diligence responsibilities wherever possible and enables funders to reach agreement on what projects to support, the level of that support and the associated terms and conditions of support. 3.6 The three public sector funders formed a Steering Group to work alongside Homecomeing Scotland and the Company's Directors and this group first met in February 2008. The role of the Group was advisory only but it provided a forum through which funders were able to receive information on developments and to ask questions about the decisions which were being taken by the Company Directors. 3.7 This was an effective way of maintaining an oversight of the development of the event and enabled partners to offer advice and, where necessary, challenge the Company Directors. 3.8 In June 2008 the Company submitted a business plan for further funding from the Scottish Government towards improving the content of the event. An additional €1OOK was awarded by them to the Company at that time. 3.9 Part of the additional grant was awarded to support an education programme (f20K) and the Council, in support of that programme, applied to the Heritage Lottery Fund (HLF) for further funding, This bid was successful and the HLF awarded E10.5K. The Council forwarded the grant payment to the Company. This brought the total public sector funding to f410.5k. 3.10 In April 2009 the Company Directors reported to the Scottish Government that they were encountering cash flow problems. 2 3.1 1 These had arisen as a result of a number of unforeseen difficulties associated with contractual arrangements and with the impact of the recession on sponsorship and supplier credit. 3.1 2 In order to address this situation, the Scottish Government offered the company a short term interest free loan of f180K in June 2009 which was accepted. 3.13 At the same time the Steering Group was becoming increasingly concerned about the evolving financial circumstances of the Company. The Group increased its scrutiny of the financial projections provided by the Company and the frequency of meetings with the Company increased from monthly to weekly. 3.14 Additionally, to assist with the cash flow problem, the public sector funders in the Group agreed to adjust their payment schedules but they were not aware of the loan which had been agreed between the Company and the Scottish Government. 3.1 5 It is self evident that the Governance arrangements associated with this event were compromised to some extent by the absence of a major funder from membership of the Steering Group. Despite this, the Steering Group was able to influence the content of the event and did secure a greater focus on maximising income and keeping costs down. 3.1 6 At about the same time as the Scottish Government approved the loan to the Gathering 2009 Ltd, Events Scotland agreed to provide a further grant of f80K to assist with additional marketing. This reflected the public sector bodies’ concerns with the ticket sales position and brought the overall public sector grant support to f490.5k. 3.1 7 Despite the injection of additional funds for marketing the event, ticket sales remained much lower than had been anticipated and income generally was well short of even the most pessimistic projections. 3.1 8 It should be noted that the Company Directors considered that a loss would be acceptable in the first year of an event which was expected to be repeated and this was understood and accepted by the funders. However, it subsequently became apparent that the financial position of the company was untenable. 3.19 The event generated a much higher than expected economic impact for both Edinburgh and Scotland. The net additional expenditure of f8.8m in Edinburgh and €10.4m in Scotland represented a return on the public sector investment of 1:I8 at the Edinburgh level and 121 at the Scottish level. These figures are significantly better than for most comparable events. 3.20 The Scottish Government was keen to find ways of protecting the reputation of the event to enable it to be repeated, whilst at the same time to protect the interests of the many creditors. State Aid rules and the Companies Act precluded direct intervention by the Scottish Government and this triggered the discussions with the Council and others in October 2009 which are referred to in section four below. 3.21 After lengthy and detailed discussions between the Scottish Government and the Council and despite the recognition that we had common cause, a solution 3 could not be found. On 26 January 2010 the Scottish Government was informed that the Council was unable to take this matter further. The Company was placed in liquidation on the same day. 3.22 The list of creditors stands at f726k. This is made up of f382k owed to six public sector bodies and E 344k owed to 103 private sector organisations. The Council is owed f24k and a claim has been submitted to the liquidator for the amount. However, the debts of the company far exceed the value of any assets and the prospect of ordinary creditors being paid a dividend is remote. Consequently, the debt to the Council has been written off under the approved Scheme of Delegation. 4 Why this Council agreed to settle one of the Gathering 2009 Ltd’s debts 4.1 On 12 October 2009 The First Minister called a meeting with Council members and officers together with representatives of several public bodies to discuss the emerging financial difficulties facing The Gathering 2009 Ltd.