 I welcome everyone to this, the 19th meeting of the Public Audit Committee in 2023. We've got apologies this morning from Colin Beattie, and I welcome Bill Kidd, who is substituting for him. I also welcome Graham Simpson, who is joining the committee at this morning's meeting. The first item on our agenda is for members of the committee to agree to take items 4, 5, 6, 7 and 8 in private. Are we all agreed? Agenda item 2 on our agenda is consideration of evidence on the written authority, which has been issued by the Cabinet Secretary for Well-being, in recent weeks. I am delighted to welcome our witnesses this morning, Neil Gray, Cabinet Secretary for Well-being, Economy, Fair Work and Energy. He is joined by Kate Hall, the Deputy Director of Strategic Industrial Assets in the Scottish Government, and Colin Cook, who is the director of economic development in the Scottish Government. We have a number of questions to put to you, Cabinet Secretary, but first of all I would like to invite you to make a short opening statement. Thank you very much indeed, convener. I appreciate the opportunity to provide the committee with an update in relation to the written authority that I provided in May to secure the continued build of vessel 802 at Ferguson Marine Port Glasgow. I am aware that during a meeting of this committee on 1 June, when the director, General for the Economy, was in attendance and the recent Public Audit Committee debate, which I responded to on 8 June, it was clear from the outset that the committee is interested in the process of written authority since the steps taken by a minister in this regard have not been taken in quite some time. It is rare in Scotland. I am, of course, more than happy to discuss the detail of the process during this session. As part of the process for providing written authority, I was satisfied that the accountable officer, in this case the director general, scrutinised and interrogated the projected costs provided by FMPG and assessed these against alternative options. This followed an independent assessment of the assurance work to test the underlying assumptions and robustness of the data on the estimated cost to complete vessels 801 and 802. To be clear, if the written authority to complete vessel 802 at Ferguson's was not provided, we could be looking at a delay in deploying a new vessel to May 2027 at the earliest, four years from now and two and a half years after 802 is due to be delivered. As advised at the time, I do not consider that to be acceptable to ask our island communities to wait this further period, which I continue to stand by. While the impact on our island communities and on our economy are not covered by the value of the money assessment itself, they have guided the decisions that I have taken, which recognise the broader social and economic benefits of completing both ferries and ensuring that the yard continues to have a strong platform upon which to progress and prosper. I remain committed to supporting a sustainable future for Ferguson Marine and providing written authority confirms the Scottish Government's intention to deliver vessel 802 at the yard and provides a platform upon which future success can be built. As you say, convener, I am joined by Colin Cook and Kate Hall. I will look to answer any questions that you have about the scrutiny that the committee has around the process behind the latest written authority provided by me. Cabinet Secretary, thank you very much indeed. Can I start straight away by asking you to describe the timeline of events that led to the director general economy requesting a written authority? Yes, so the full timeline events that I am happy to provide in writing to make sure that I get the exact dates correct, but it was a process that was undertaken leading up to the decision that was being taken on 14 May, when I gave the written authority and then I was before Parliament on 16 May to ensure that I was informed in Parliament at the earliest possible opportunity, holding myself accountable to colleagues for the fact that I had taken that decision, but I have a full list of the dates in the run-up and I am happy to provide that in writing so that the committee can see that. Yes, thanks. That is perfectly acceptable, because we understand that you are not long in post and we are quite happy to receive information in writing to make sure that the information that we have is accurate. Obviously, you were in post at the time that the request for written authority was provided and it was based upon the report produced by Tenios, as we understand it. Did you get access directly to that report? Yes, I requested it. I requested access to ensure that I was fully informed as to the work that had been undertaken and that I was confident that it was a robust assessment of the costs and the value for money assessment was robust and accurate. I stress again that that is a relatively narrow value for money assessment that does not take into account the wider considerations that I must, as a minister, including the delay to island communities, the future of the yard itself, the workforce and the local economy in Inverclyde. So you looked at that yourself and we were also satisfied that the director general had scrutinised it and analysed it to a depth that was necessary to arrive at the conclusion that a written authority was required. Yes. Okay, that's fine. You'll be aware and you've alluded to it that Gregor Irwin, the director general economy, appeared before this committee a couple of weeks ago and in that session we spoke to him about the committee getting access to the 10-year report and getting access to the information that led to the decision to request a written authority. At the time, he told us what we are doing and what we will work through with the auditor general and his team is seeing what we can do to share additional information. That process is on-going and is not yet complete but we absolutely need to get it right because we are committed to transparency. And then two weeks later we get a letter back from Mr Irwin saying no. What happened between the first of June and the 14th of June? There was a decision taken within government jointly by officials and ministers that the commercial sensitivity of the information within there would not be appropriate to release that report. I mean there's nothing in there to hide. I don't have... There is no issue with the numbers. That is not the problem at hand. It is the commercial sensitivity of the report and the intellectual property that Tenio has over that report as well. It makes it difficult for us to be able to release that. We don't want to put the competitiveness of the yard at risk. I think that you've alluded to that yourself in your letter, convener. But putting it in the public domain absolutely would and would jeopardise the future of the yard. And that includes the rationale for the request for written authority. I mean this is quite a narrow way. I mean the use of the word narrow is something which Greg Irwin falls to quite a number of times in his evidence to us and in some of the written information that we've seen. So it's quite narrow isn't it? So why does that preclude even some of the Tenio report or even some of the information that was the basis for this decision which, as you say, is very unusual? It's the first time there has been written authority since 2007. To be clear, I hope I'm not putting words in Mr Irwin's mouth but I don't think that this was a decision that was requested because there was advice against proceeding in this direction from colleagues in government. This was because he could not be satisfied based on the economic uncertainty, the inflation, the other elements of information available and the direct cost comparison between completing and procuring elsewhere. He was not satisfied on that narrow value for money element. The other two elements on the appropriateness of us proceeding, he was satisfied with and I think that has been set out to the committee. But no, we're not able to release the report. As I've said, we hold very dearly the future of the yard and want to make sure that it's protected as I'm sure convener you understand. Who made that decision? That was a decision that was, first of all, taken by the director general and was asked for my confirmation and so I confirmed that that was the appropriate action to take. So you have vetoed the release of that report? No, this was a collective decision taken in government. Greg Irwin suggested that this was right. Did he go to the cabinet, for example? No, that's not it's a decision that's taken by me and by Greg Irwin. So when we see the First Minister telling us in his new leadership fresh start document, it is imperative that transparency underpins our approach to delivery. My government will ensure the people of Scotland have the information they need to hold us to account. How do you reconcile that statement of intent with what's happened with this? I think it's been acknowledged by the committee that we have released and published proactively over 200 documents on the government's website in relation to the process on going at Ferguson's. We have offered ourselves, both myself as minister, Greg Irwin's been before this committee, Mr Cook and Ms Hall are here today. We have published as much as we can without putting the competitive disadvantage, we are going as far as we possibly can convener and ensuring that we are being transparent and people understand the decisions that we are taking and why we are taking them. But surely there is nobody more familiar in government with what's in that 10 year report than the director general economy. So why would he sit where you are sat today two weeks ago and said it was a work on going, he was having discussions with Audit Scotland and he was hoping to release at least some of the information in that document? To be clear, I don't think that characterises his statement appropriately. I think we were considering whether there was anything that could be released and it was decided that the report and its contents are commercially sensitive, they would put the competitiveness of the yard at risk and so it would not be appropriate for us to release it. And that's the decision that you have taken as the cabinet secretary? We have taken as government, yes. Okay. Can I just ask you then about the process of the written authority? I mean, we were told that not only yourself but the deputy First Minister and the First Minister were involved in the decision to issue written authority. Were the deputy First Minister and First Minister involved in the decision not to release this report? So my understanding of the written authority process is that the deputy First Minister and the First Minister are required to be part of the process of issuing written authority because of the nature of it. I will need to check if they have been, I'm pretty sure they will have been cited on my decision to decline the publication of the report, but that has been a decision for myself and Mr Irwin. Okay, well, we may return to some of these themes, but we are quite tight for time, so I'm going to ask the deputy convener Sharon Dally to put some questions to you. Thank you, good morning. You provided written authority to the director general the day after it had been sought. Did you give sufficient time to fully consider the request and consult with officials and Scottish ministers as appropriate, particularly given the request and provision of the written authority that was completed over the course of the weekend? Yes. When I provide and writing the timeline of the process before issuing the written authority on the 14th, it will become clear that sufficient rigor was given to interrogate that. I ensured that we had looked at all possible permutations in terms of the cost analysis to ensure that I was confident that this was a rigorous process, not just within Government but with our external advisers, that that had been done fully and appropriately, that I had considered all possible permutations and was confident that this was the right thing to do. So had you had meetings prior to the 14th, how many meetings did you have and who would you have had the meetings with? Well, colleagues present who I think at that time were fed up of seeing my face on the screen at that time because I had requested quite a number of meetings and discussions. The First Minister and the Deputy First Minister were part of those as well because of the nature, as I say, of the written authority process. We ensured that we had rigorously interrogated the information that was before us. Just to clarify, who was at the request of the 10-year report and how long did it take to complete? The 10-year report was compiled, as you know, over a number of months following the receipt originally of the proposal from the chief executive. The revised cost estimates were provided in September and then the report was completed shortly before the decision was taken in May. September 22, it was asked for? Correct. When the work first was initiated as a consequence of the revised cost estimates from the CEO and then the work progressed over a period of time, given the scale of the consideration involved. Obviously there have been issues with the cost for quite a few years now. Has there ever been a due diligence? Is it aimed to ask for a report to be done before to see if there was value for money? There is no going process of interaction with the management at the yard to ensure that everything that is possible is being done to keep costs to a minimum. Obviously there have been decisions taken that have been part of your deliberations over a long period of time that the design of the ships that have contributed a significant amount to the additional cost. However, we continue to have on-going discussions with the management at the yard to make sure that everything that is possible is being done to minimise the costs and cost control measures that are in place. If I may, we have spoken before about the decision that we took to establish the division that Kate is heading up, the strategic commercial assets division, that that was a signal of our desire to have a far more robust process of managing those assets—Ferguson, Preswick and Lacharba. The process that we followed to commission and interrogate the report is a sign of the new way of working and the robust approach that we have discussed and that Audit Scotland has helped us to create. I think that that is very much what you will see in the future, the rigour going forward. I think that that has been welcomed by the committee before. Has there been any advice given in the past to see that there was not a value for money in complete NATO 2? No, if there had been a concern at the accountable officer level at any stage, then they would have had to request written authority to proceed. In your letter to the director general, you refer to there being a narrow value for money case for continuing to build vessel 802 at FMPG. Can you explain what is meant by a narrow value for money case and how you arrived at that conclusion, given the term, is not specifically used by the director general in his letter to you? The narrow value for money case that I describe is the direct comparison between completing NATO 2 and procuring elsewhere with elements of economic consideration being part of that. Gregor Irwin, in his letter to the convener, sets out some of the uncertainty that there is within the market. The cost comparison meant that he was in his value for money assessment that he has to carry out as an accountable officer, able with confidence to conclude that there was a value for money case in completing NATO 2 at the yard. I have a much wider consideration that I feel that I am duty bound to take, which includes the cost to islanders of a further delay in the vessels. We already know that our island communities have suffered significant disruption as an islander myself. I know how somebody who is born and brought up on an island, I know how difficult a time that will have been for people in the isles. I am acutely aware of the need to deliver the vessels as quickly as possible. That was at the forefront of my consideration. Alongside that, there is also the consideration of the future of the yard. The narrow value for money assessment is neutral on the future of the yard as to whether NATO 2 was completed at Ferguson's or we procured elsewhere. I felt duty bound to consider that, not in neutrality, but I felt that without NATO 2 being completed there, the yard would have been put at risk. That was part of my consideration. The workforce is also part of that, and the contribution that the yard makes to the local economy. I have heard directly from the likes of Stuart McMillan and Ronnie Cowan about their experience in the local community and the discussions that they have with local businesses that tell them that, without the economic contribution that the yard makes, their businesses would not be viable. There is a wider consideration that I have to take beyond the narrow assessment that is about the cost to complete at the yard versus the procuring elsewhere. Elements of economic consideration beyond that and what I have to consider is much wider, and that is why I took the decision that I did. Obviously, we have got concerns about the completion dates as well, and we have heard that there have been issues throughout the issues that are embedded in the Glyne Sanox in the 802. So, how confident are you that no more issues will be found, and did the report highlight any other concerns that the committee should be aware of? Myself, colleagues are in constant dialogue with Mr Tideman, and I am looking forward to having the opportunity to visit the yard in the summer recess to be able to see for myself the progress that is being made. Lessons are being learned in terms of the delivery of 802 from what has happened with 801. We have already spoken about the design difficulties that have led to cost increases and delays with 801. My hope is certainly that that will reduce, minimise any further delays and any other cost increases. Clearly, it is not something that I can absolutely guarantee, but the discussions that we are having with the yard are around ensuring that everything that is possible is being done, not least because of that overriding concern that I had in taking the decision to issue written authority, which was about delivering the vessels for our island communities as quickly as possible. Everything that is possible is being done to expedite that process and to do so, minimising costs at all times. I hope that Mr Tideman made contributions to the committee previously that he was able to say similar. That is his overriding objective at present. Your letter accepts that the value for money assessment concludes that it would be cheaper to re-procure a new vessel, but that would not be deployed until May 27 at the earliest. How did you arrive at the May 20-27 date for the potential deployment of a new vessel? That was through the discussions and the market awareness that we have around some of the work that we have elsewhere with vessels that we have procured in Turkey and the awareness that we have there in terms of the estimated time that it would take to go through the procurement process, the ships to be built and then delivered. That would be the earliest, a stress that May 27 date would be the earliest possible that we could see a re-procured 802 delivered from elsewhere. Did you look at the possibility of stopping 802 and giving a new contract for a new ship to FMPG? No, I need to check, but I think that that was part of the consideration. The consideration was about completing 802 or re-procuring elsewhere, so going through a procurement process, whether or not FMPG could have been part of that procurement process for deliberation, but that was purely about estimating what the cost and the delivery timescale would be of re-procurement compared to completing 802 at the yard, as we are currently progressing. Thank you. Was the May 27 date one of the conclusions of the 10-year report? No, that's not enough. For clarity, the 10-year report looked at that value for money case that we've been discussing. Yes. Craig Hoy has got some questions to put. Good morning, Mr Gray. Obviously, the assessment that two places on value for money was going to be very detailed, but you said that it was narrow. You had to set that against what you have described as a wider set of considerations. Can you bring to the committee or publish any detailed assessment of those wider set of considerations? You just said that one of them was a conversation with Stuart McMillan, which doesn't sound particularly scientific. Well, no, that's not scientific. I think that I would concur with that with Mr Hoy's assertion there. The overriding consideration for me was the impact on island communities of not completing 802 at the yard in as fast a process as possible. I think that colleagues that are sat here today and others elsewhere in the chamber have acknowledged the fact that it was the right decision to take to ensure that we had 802 completed as quickly as possible because of the impact on island communities that it doesn't take a deep dive or a wide assessment to be able to understand, because we've been living it in terms of the disruption that there has been for island communities for so long. The reference that I made there to conversations that I've had with Stuart McMillan and Ronnie Cowan are anecdotal, not scientific, as you suggest. Don't you think that we're talking about a huge amount of taxpayers' money? We should have more than anecdotal or non-scientific assessments being taken back when they seek to override official advice? Well, again, I wouldn't want to put words in Mr Irwin's mouth, but it wasn't Mr Irwin's advice not to proceed. As perhaps has been suggested by Mr Hoy, I might be wrong in that regard, but it wasn't Mr Irwin's advice not to proceed rather that he wanted my authority to proceed knowing that there was not this narrow-for-money case for 802. In terms of ensuring that we brought the required rigor that Mr Hoy is looking for to ensure that we are spending taxpayers' money appropriately, the 10-year report gives us a significant amount of information. We also have our own assessments in terms of the work on going at the yard. And knowing the impact of delaying any further to island communities, knowing the impact that putting the future of the yard at Jeopardy would have for the local economy in Inverclyde and the workforce there, and also another important consideration, which is ensuring the best possible future that we can for commercial shipbuilding in Scotland were important considerations. I think that that has been acknowledged by colleagues, and that is why I gave written authority in this case. Obviously, the convener has identified that this is the first time that written authority had been used since 2007. Can you just explain in a bit more detail specifically why you thought it was necessary to provide that written authority? What were you seeking to achieve? What were you seeking to avoid occurring? In terms of a written authority process, the minister does not seek to intervene in order to override a decision with written authority. Rather, it is an accountable officer—in this case, the director general, Mr Irwin—that concludes through the Scottish Public Finance Manual, Greenbrooke analysis that the value for money test is not met, or the two other elements of the accountable officer process are not met. He or she has to seek the authority of the minister, in this case myself, to be able to proceed with the work. It is not a minister in this case, certainly. There have been cases at the UK Government level where ministers have sought to override advice from officials. In this case, Mr Irwin concluded that, on the narrow value for money assessment, he could not conclude that this was value for money, that one of the three elements that he has to consider. He sought my authority in order to proceed, and that is what I gave, given the wider considerations that I had to take. Obviously, from that point on, there are quite a lot of risks on your shoulders. You have asked the director general for economy, as the accountable officer, to ensure that both the NFPG and the NFP do quotes at everything possible to improve productivity, maximise operational efficiency and ensure that there is tight control of costs. How do you expect that to be achieved? The work that Mr Cook has outlined is being led by Ms Hall. Mr Tybin has already sought to deliver in terms of productivity improvements and learning lessons from the process of getting to the stage that 801 is at, which is very close to completion. Obviously, the substantial element of both cost and therefore risk to this overall contract is the completion of 802. There was no value for money issue with 801, because it is further away from being completed. My hope, as I have already outlined, is that, by being aware of the issues that there have been, partly due to the design issues of 801, it will be able to learn sufficiently enough to be able to mitigate as far as possible with 802. That cannot be guaranteed until the process is continued, but my hope is, as I have set out in that correspondence, as I have said in the meetings that I have had with Mr Tybin, is my expectation that the yard does everything possible to mitigate the risk of any further cost overrun or any time overrun. Tight control of costs involves stopping any further bonuses? I think that the Government has been very clear in terms of our view of performance-related bonuses. Those are contractual obligations. I am sure that colleagues on the committee would not wish us to be seen to be breaking contractual law, but we have made very clear to the yard our displeasure at having had been and any likelihood of any future bonuses. There is a process on-going about whether or not those contracts can be renegotiated in order to see those removed, and I hope that that can be the case. I share the upset and the anger that colleagues on the committee, colleagues in Parliament and people in Scotland will have around those bonuses being paid when there has been such delay and such cost overruns with the project. When the First Minister said on 27 April that it is my expectation, the Government's expectation, and the chair of Ferguson Marine knows this very well that there should not be bonuses in the current financial year, 23-24, something that was flatly contradicted in this committee by the chairman of the yard, Andrew Miller, was the First Minister over-speaking or trying to somehow exert some remote pressure on the board? The First Minister set out the Government's position that we do not expect it to be the case. The chair has a role to play. We have communicated very clearly with the chair our position. It is for the chair, obviously, to go through the process that he needs to go through. I respect that and respect his position in that case. I also share, presumably, Mr Hoy's, the committees and colleagues in Parliament's displeasure at their performance-related bonuses for a contract that has overrun both in terms of time and cost. What assurance can you give the committee that there will be no additional funding beyond that? That has been forecasted by the CEO of the yard and agreed by the Scottish Government. I am no more than £97.5 million for vessel 801 and no more than £105.1 million for vessel 802. What assurance can you provide to us that that will not be exceeded? There is a process on-going for each financial year through the budget process in terms of the allocation that goes to FNPG. Part of that is about assessing what money will be required in order to continue the work that is on-going. That is partly what has triggered why I am here today, because there was a need for additional rigour to be given to the estimates that were given by the chief executive in September. I am hopeful that we will be in a position where there will not be any further requirement of funding, but it is not something that I can guarantee. We are in a very difficult economic situation. Everybody saw the very disappointing UK inflation figures yesterday. Inflation sits stubbornly high. We are in a very turbulent economic situation. That is going to have an impact, but I am hopeful that that impact can be minimised as far as possible. Obviously, there is a process to inform Parliament should there be any further requests as there was last year for any increased funding. I will ensure that that process is followed as it was last year. You talked about the public's anger about the delays and the cost overruns. This has been going on for eight years, and there have been six ministers and no ministerial resignations in spite of that. If there were to be any significant increase in costs or significant delays, would you resign given that you have issued this direction? If I personally have done something that puts at risk the delivery of a Government agenda, then, of course, I would consider my position. In this case, the issues that we are talking about have, particularly in more recent times, not been due to ministers or Government issues. We are facing, as I have said in my previous answer to you, incredibly turbulent economic factors that are driving supply chain constraints, that are driving cost increases, not just in terms of parts but also labour. It is incredibly unpredictable as a result. Mr Hoy is well aware of the economic situation that the UK faces, and the impact that that has on public contracts is obvious. I cannot foresee a circumstance that would be something that I would be resigning over, unless it was something that I had done directly myself that had caused any of those issues. So far, I do not think that that has been the case, Mr Hoy. Okay, you are blaming economic headwinds, but obviously mistakes were made in the past. So, on that basis, should any of your predecessors have resigned? I think that my predecessors, both in this particular portfolio and transport portfolios and others, have made themselves more than available in terms of the inquiry that has been conducted in this case, and they can obviously speak for themselves in terms of the decisions that they have taken. However, my overriding concern is about ensuring that we complete those vessels as quickly, as timeously and as cost-effectively as possible. That is what Ireland communities deserve, and that is one of the most important elements that I see as being in my portfolio right now, and I will keep pushing as hard as possible to ensure, as I say, the timuous and cost-effective delivery of those vessels. As somebody who is born and brought up an island, how do you think people will react to your answer, which suggests that the reason for those two vessels, both vessels, are five years late and three and a half times over budget is because of inflationary pressures and supply chain difficulties? That is not the only suggestion that I have made in terms of the reason why the substantive elements of the delays are in place. I have already spoken earlier in my contribution in terms of the design problems that have been with the vessels. That is the substantive element here, but in terms of the more recent issues and what Mr Hoy was asking about, in terms of the future and the progress of completing those two vessels, the overriding issues over the last number of months and the reason why additional funds have been requested, certainly driven by the design difficulties but have also been driven by the economic factors. There is no doubt about that. Mr Irwin, in his seeking my authority, made that plane. He was not able to forecast with sufficient certainty as to the final cost, which is why because of the economic turbulence that there is in the market. I do not think that it would be fair to put that to one side and to suggest that the economic conditions that we are currently working with are somehow immune from that particular project, whereas other projects are suffering those difficulties. I reflect on the fact that, in terms of the supply chain, components were ordered so far in advance that they were rusting in the yard because they had not been reused. Bill Kidd has got a question for you. Cabinet Secretary, to go off at a wee bit of a tangent from what you have been here, but still related to what you have been speaking about, many millions of pounds are being allocated by the Scottish Government to ensure that those two vessels are delivered. However, in the 24th of May, you wrote to us and stated that there is a provision of £120,000 to Ferguson Marine for capital investment measures. I know that there is a lot of money being spent on those two boats, but I think that capital investment measures tend to suggest where the yard will be going in the future. I have to say that £120,000 does not really strike me as being something that would fill local people with a huge amount of confidence for the future of the yard. Can you tell us why this money has been allocated just now and give us a bit more of a breakdown on how the money will be spent? I will bring Colin in on the particulars of the £120,000, but the future of the yard is obviously going to be dependent on ensuring that it is productive, that it is competitive. Some of that work is going to require difficult decisions in terms of the future nature of the yard, including the capital investment that is going to be required to bring it up to competitive standard. There is a request that has come in from the chief executive for the work that he believes would be required in order to bring it up to standard. We have to go through a rigorous process of ensuring that our subsidy control was in line with subsidy control measures to take that decision, which is something that the convener and I alluded to during the debate. I will bring Mr Cook in to provide further detail on the £120,000. The £120,000 covers three things. Firstly, there was a desktop study about potential future engineering work. There was money allocated to strengthen the internal audit function of the yard and there was money allocated to a cyber security improvement programme. Those are three specific things that the chief executive recommended were necessary for the yard. They are not the full entirety or his ambitions for the capital investment that would be required to ensure that the yard becomes fully competitive. I can understand those elements, but I do not want you to have to predict things. That £120,000 is there now to do those specific elements. What about as things go forward? Would it be likely to be in this business scenario more requirement? There is undoubtedly a requirement to do more. The request that I alluded to earlier is in. What we have to assess from a subsidy control perspective is whether or not if the yard was in private ownership, whether this work would be forthcoming and whether by providing it we are providing a subsidy or a competitive advantage to the yard that they would not have in the private sector. That work is on-going, but it is undoubted that there is work required to ensure that the yard is competitive going forward. That is where some of the difficult decision making is going to be over the coming months in terms of making sure that we are making sure that the yard is as possible a position to ensure that a good feature is going forward. Thank you both for that. We have a final couple of questions now from Willie Coffey. Cabinet Secretary, could I just explore a little bit more with you from this point to the conclusion and the completion of the 802, 801 and 802 about the financial controls and the information that you will get as a Government and how Parliament can be made aware of that and see this? Clearly, we were concerned about the information flow being lacking during the length of the project and it has come up several times at this committee about those aspects. The auditor general raised it too. What kind of assurances can you provide to the committee and the public that the quality of information that you get, the accuracy, the financial forecast, all of that, the regularity of it to the completion of the projects is sufficient and robust enough to give you the comfort that you need and the comfort that the committee and the public will seek from this point to the conclusion of the project? I thank Mr Coffey for that question. I think that the committee provides a critical function in terms of holding the Government to account. Again, as I did during the debate, I thank you all for the work that you do to scrutinise not just this project but other projects and work delivered by Government. As Mr Coffey previously alluded, we have the directorate in place the work that has been led by Ms Hall to ensure that we are providing that rigour, that level of information, providing as much as we possibly can in the public domain but also to the committee to ensure that you are able to discharge your duties as you do. I will give that commitment again that we will provide as much information as we can. Obviously, I understand the frustration that the committee will feel that I am not able to go further with regard to the due diligence reports but where we can provide information absolutely well so that you are able to do your work and the public is able to have confidence in the decisions that we are taking. How frequently, regularly will that be? Will it be monthly updates or quarterly updates? How frequently will that take place? We meet weekly with the CEO and his finance team. We also provide internal updates on a regular basis to the cabinet secretary and other ministers. Obviously, we also share on the website details of the monthly reports that we get from Ferguson's. There is a clear beat rate and rhythm and a process for internal escalation if we think that there is anything that could be going awry that we would then immediately share with seniorism with the cabinet secretary and also to ensure that the accountable officer within the Scottish Government is fulfilling their duties as well. Would we get notified of concerns or issues as we develop them? In the last thing, I am sure, we want to hear another announcement in the Parliament about another issue about the finances. How would we get a quicker assessment of anything for the past? For the purposes of what we are discussing today, I took a decision on the 14th of May and then was before Parliament on the 16th. The first possible parliamentary sitting day that I could be before Parliament. I hope that that gives some comfort to both Mr Coffey and colleagues that I am committed to providing information as quickly as possible in order to ensure that there can be public scrutiny but that the duty that this committee has is able to be discharged as effectively as possible. We will seek to provide the information in the public domain as quickly as we possibly can. You mentioned several times the current inflationary problems that we have impacting on the costs for completion. That will be evident, I presume, in the monthly updates that we receive. The inflation, as I said in response to the convener, the wider economic conditions are obviously a factor. One of the major factors is the design, the design difficulties, in terms of the cost overruns and the delays. As I said, I hope that we are able to mitigate, that Ferguson's in delivering these vessels are able to mitigate as much as possible with 802 from learning the problems that there were with 801. I cannot guarantee that and I do not think that the Yard would be able to guarantee that until they continue to progress, but I am hopeful that we will be able to see a timious and cost-effective delivery of those two vessels for our own communities. The big question of the written authority issue that has been discussed at the committee, Neil, is a rare occurrence in your opening remarks. Have there been any written authority events in a previous session of the Parliament and would the Government publish those if there were any? We have to publish them. The process is well set out in the Scottish Public Finance Manual in terms of how an accountable officer has to go through that process, so we have to publish that. The last written authority, I believe, was in 2007. There have obviously been numerous in that time at a UK Government level, but I am happy to furnish with more detail some of that in the correspondence that I sent back to the convener in terms of the timeline that I spoke of earlier, but it is a rare occurrence. I am pleased that it is a rare occurrence in Scotland. I hope that it is not something that is required routinely, as it is elsewhere, but the fact that it is rare means that I understand the committee's interest in how that came about, which is why I am more unhappy to be here today and more unhappy to provide as much information as I possibly can in terms of the process that was gone through to arrive at that decision so that the committee can have confidence in that. Thank you. I said that Willie Coffey was going to ask the last questions. Actually, Graham Simpson has indicated that he wants to come in with a brief final question, so, Graham. Yeah, thanks very much, convener. Yeah, cabinet secretary said earlier that there is no issue with the numbers, so if I could ask you about the numbers, what is your estimate of what it is going to cost to complete 802 as opposed to what has been spent now? The figure that is in the public domain is £105 million to complete, which is part of the overall £202 million cost to complete from when the yard was nationalised. So that is the gap between what has been spent now and what it will take to complete? No, that is the total cost from when the yard was nationalised. So what is the gap between what has been spent? So how much is still to be spent from today? I would need to come back to you in writing with that figure in terms of how much from the estimate that the chief executive came forward with in September. September it was £70 million. Yeah, so I don't need to respond to you in writing if Ms Hall has assisted £70 million to complete 802. £70 million actually? From September date? Yes, I know the £70 million. Okay, I think that helps the committee in terms of looking at this value for money assessment, you know, because I think that we can probably figure out that it would be cheaper than £70 million to buy new ferry elsewhere. Okay, thank you convener. Okay, thank you. Well look, I've just got one final public audit question for you and it's on a much smaller scale but it is quite important to us and that is the cost of these consultants. So in the evidence session on the 1st of June, Mr Irwin said that the First Marine International report came in at a cost of £0.25 million for six months' work and he described it as a first-class external independent technical advice and acknowledged that to quote him again, that sort of advice might not come cheap. So that's six months' work, FMI, £0.25 million. In a parliamentary answer at the weekend, we were told that the cost of the 10-year report was nearly three times that amount, £620,000 estimated, not admittedly for six months' work, but for eight months' work, I think, Ms Hall said earlier on. Given that Mr Cook earlier said that the 10-year report just looked at value for money, why on earth is it costing such a huge amount of money and in light of that, why on earth is none of it able to be published? Well, I've set out, I think, why I cannot publish it and obviously there will be a debate as to whether or not, and you will perhaps, convener, hold a different view than I do, but I am not willing to put the yard at a competitive disadvantage, I'm not willing to jeopardise the yard's ability to compete for future orders. The work that was done by Tenio went into a substantial amount of detail working with the yard to ensure that all potential permutations were looked at in terms of risks that there were to the contract, particularly on 802, and we were able to give advice off the back of that. It was more than just looking at numbers on a spreadsheet or comparing costs, it was looking at the processes that are in place at the yard, they are international experts in this field that is well recognised and the advice that they have provided has given me the assurance that I was able to take the correct decision in issuing written authority to see the completion of 801 and 802. But there's not a single word or sentence of that report that you prepared to release into the public domain. I've said why, convener. I think that I would have hoped that it would be understood that by releasing this report we would be putting the yard at a competitive disadvantage. Even in a redacted form, we'd be able to look at what is being said there and benchmark their own work based on what has been produced as part of that report. There is not just the competitiveness element, there is also the intellectual property that is attached to it from 10.0 as well that I have to consider. Unfortunately, it's not something that I am able to release. In light of that, I still question then why Gregor Irwin, sitting in the chair that you're sitting in this morning, was contemplated in co-operation with Audit Scotland releasing some of that material. It was something that we were considering. We were looking at what could be released, but it's been concluded that we cannot release that report. We weren't looking to... But he didn't know two weeks ago what you've just described as a report that, in its entirety, has got intellectual property rights. In its entirety, would jeopardise the commercial future of the yard. No, but we're looking to be as co-operative as possible. We were looking to have, and Mr Irwin set it out, we were looking at everything possible to be as co-operative as we possibly could be with the committee to ensure that you had as much information as you could. The conclusion is that we cannot publish that report. Well, as I said in the debate, when we had it, Governments are judged by what they do, not what they say they do. So can I thank Cabinet Secretary, you for coming along to give evidence this morning. It's greatly appreciated that you've done that yourself. And can I thank Colin Cook and Kate Hall for joining you. We're now going to take a short break while we change witnesses. I'll go into private session. Thank you. Well, can I welcome everyone back? We've now had a change of witnesses, and we're moving on to agenda item 3, which is consideration of the 2021-22 audit of South Lanarkshire College. Can I welcome our witnesses in this session this morning? We're joined by the Auditor General, Stephen Boyle. Alongside, Mr Boyle is Rebecca Seidel, who is a senior audit manager at Audit Scotland, and David Hoose, who is a partner at Mazzars, the organisation that carried the audit out. Can I invite Auditor General Yu to make an opening statement before we get into questions from the committee? Many thanks, convener. Good morning, committee. I have prepared this report on the 2021-22 audit of South Lanarkshire College under section 22 of the Public Finance and Accountability Scotland Act 2000. In April 2022, I also produced a section 22 report on the 2021 audit of the college, which highlighted governance issues that resulted in areas of non-compliance with the code of good governance for Scotland's colleges. The committee considered that report in May 2022. I have now prepared this further section 22 report to update the committee on the college's progress in addressing those issues. First, I am pleased to report that the college has improved its governance and that it was fully compliant with the code of good governance by the end of the academic year 2021-22. The college has made progress against the external auditor's recommendations from last year and is committed to making further improvements. The external auditor will continue to monitor that progress. The committee will recall that, in November 2021, the college's board agreed to commission two independent investigations into complaints and grievances against the chair of the board and the principal and interim clerk to the board. The college's board considered the final reports from those investigations in January of this year. The board agreed to terminate the employment of the principal and interim clerk to the board. The tenure of the chair of the board ended in May 2022. A new chair and principal are now in post. The governance issues were complex and led to a long period of uncertainty in the college. Up to April this year, the college has spent around £800,000 of public money on the investigations and associated costs. The scope content process and outcome of the investigations convener were not examined as part of the annual audit and are therefore not the focus of my section 22 report. I am joined, as you say, by Rebecca Cyro and David Huss from Mazzars, and between us we look to answer the committee's questions this morning. I will get his under way and just really home in on this issue about the compliance, because there was a real concern when we received the section 22 report last year that governance arrangements were way off what they should have been in terms of publication of minutes, even in terms of meetings being convened and whether there were internal audit procedures in place or not, so there were big alarm bells ringing at that time. In this report, essentially you are saying to us that there has been a stabilisation and compliance with codes of good governance are in place. I think that the date that is mentioned in the report is that they were in place by I think the 31st of July 2022, which is very precise. Did things happen in advance of that, in the lead up to that, or was that when the change took place? Thanks for that, convener. I will maybe bring David in on the second, actually, because through his external audit he has tracked the progress that his colleagues made in the recommendations in the previous year. I will order two first before turning to David. The precision on the 31st of July is just worth noting that Scotland's colleges follow a different financial year than the other public bodies across Scotland, so their financial year and academic year are aligned to the end of July. David can take through the detail, convener, but there were five recommendations in the previous year, and we set that out at annex 1 to section 22 reports. In overall terms, there is progress with two of those recommendations, two of the five fully implemented, two mostly implemented and one in progress, but I will stop and bring David in just to say a bit more about how that has progressed. Thank you, Auditor General. Just a second comment, the progress made against the recommendations from previous year was linear. We report at 31st of July because that was the year-end date, but as you have seen, our audit opinion was only signed off in April this year, so we have taken into consideration progress that has been made since the year-end. As the Auditor General has commented, our audit report last year identified five recommendations. There has been good progress made against those that we have identified as being under way of areas where the progress that has been made needs to be further embedded, so there has been good progress made, but it needs to be further embedded, or there are areas where, effectively, things have been made good progress, such as harmonising timelines and reporting lines between the regional strategic body and South Lanarkshire College, but there is still work to be done to improve it further. So our summary, as the Auditor General has said, is good progress has been made against three of those five recommendations, with the other two fully addressed. Okay, thanks for that. I'm going to bring in Craig Hoy, who's got a couple of questions to put to you. Thank you, convener. After what appears to have been quite a protracted period with the Audit and Risk Committee and the board were not meeting, they both did so in November 2021. What was the catalyst for these meetings resuming, and are the board and the Audit and Risk Committee now meeting regularly in your view? Yes, that's our understanding, Mr Hoy, that, again, David, you can talk through, I guess, the process and the chain of events where we're at now. Maybe the one thing I've just shared with the committee, and we touched on it in the section 22 report as well, on the back of various reviews stretching back to the summer of 2021, an engagement with the college, the regional board and the Scottish funding council on governance matters. That progress that's set out in the report against the recommendations is also sitting alongside a rolling governance improvement action plan that is a positive development. Rather than just seeing this as a one-off series of events, evidence of a college that's keeping its governance, its arrangements under regular review. Again, I think that that's a welcome development, but in terms of the work of the board and the Audit and Risk Committee, David attends the Audit and Risk Committee, so he can take the committee through that. I think in our experience, Mr Hoy, I'm not party to what happened before November 21, I've come relatively recently to this engagement, but during my time with the college, the board and all of its committees have met regularly, we've been involved in a number of those meetings and they appear to have discharged their duties appropriately. Okay. The Audit body has recommended that the college should reduce or extend the tenure of some members to provide for improved continuity of membership at the end of those individuals' tenure, and that this is being considered by the college. Can you perhaps provide some detail on how the college is taking this recommendation forward and against what timescale for it to be achieved? The college is sought to recruit six new board members in May 23, so it's going out to advert to recruit six new board members. When it has those board members lined up, it can then consider those board members and its existing board member teams their length of tenure and appoint people to different tenures, so that there is that succession planning, so that not all of those people's terms of office finish at the same time. At the point at which the auditor signed their opinion on March 2022, papers for the college's board and committee meetings held after June 2021 were not publicly available on the college's website, but by 31 July 2022, as the convener alluded to, the college was compliant with that aspect of the code. It sounds like things have improved. To what extent did the college take prompt action on that recommendation? Do you have any concerns that it was too slow to meet that recommendation? No, my recollection is that it was addressed promptly. There were issues, as the reports mentioned, in terms of the college's clerking professionals, governance professionals. Once those individuals were in place, the matter was addressed promptly. Do you have any so-niggling or on-going concerns about compliance and relation to publication of so-to-mere minutes and reports of meetings? No, no, thank you. One of the issues highlighted last year is not just an issue in South Lanarkshire College, but it can be an issue in other public organisations, too. That is to do with training and induction training for board members who were involved in the governance of those organisations. In the report, I think that it is paragraph 18, there is reference made to induction training that was organised in the early part of 2022, and then again in the spring of 2022. I guess that my questions are twofold. One is, do you have any evidence that those induction sessions made a difference? Mr Hoosie mentioned that there are six new board members in the process of being recruited. Do you know what the induction arrangements for them will be? What are they in place? Programmed induction events and other support mechanisms to make sure that people who are involved in the governance of the college understand what their roles and responsibilities are. We also referenced in last year's report that, inevitably, Covid had had an interruption to the ability of not just South Lanarkshire College, but all public bodies bringing on new board members effectively during that period. We all recall that much of that would have been done online rather than having a programme of a series of face-to-face to support new people into the college environment. It is worth stating, convener, that, as colleges and public bodies are looking to broaden their reach in terms of who are sitting on boards and the diversity of boards, there is another dynamic in colleges in which staff member representation and students are on the board, too. All the more reason that board member induction is undertaken properly, as David mentioned and has been touched on. Coupled with that, there are also six new board members who are out to be recruited to the board. There are signs of progress from David who can speak about the arrangements that are in place, but it also relates back to Mr Hoi's earlier question that there is a rolling programme of evaluation of how effective governance is in place. The induction is only one part of that. It needs to be done effectively, but through chair of the board interaction with board members, appraisal arrangements that board member networks are effective are all part of ensuring that the induction runs smoothly, but that transitions into effective governance arrangements and contribution from board members to the duration of their tenure. I will bring David in just to speak more about the intervening arrangements. From my point of view, convener, in terms of the training itself, I have very little to add than other than what Stephen has raised. I think that the one thing that I am aware of has been a concerted effort in the college to make sure that it is tailored rather than its training that is delivered assuming one size fits all. As the college seeks to recruit board members with specific skills, they will, by default, need training in different areas. That is very helpful. Willie Coffey has got some questions to put to you, Willie. Thanks very much, convener. I would just like to ask Stephen about internal and external audit issues. You are saying in your report that there were delays to appoint external auditors in that meant that the internal audit plan was not approved until later on, but audit function did carry on, internal audit function was carried on. Could you just give us a little flavour of what your perspective on that is? Was that successfully done and what were the risks of carrying out audit work without a plan? Good morning, Mr Coffey. You recall, I think, from last year's discussion that there was a changeover of internal auditors during that 2021 year from assets to Henderson Logie. This was one of the reasons in terms of the governance disclosures that were made by the college in their annual report and accounts last year in the governance statement that not having that continuity of internal auditors brought them into conflict with the requirements of the good governance code. We note that there were delays in appointing Henderson Logie that contributed to delay the production of the internal audit plan. The Audit and Risk Committee would expect to see from the internal auditors their internal audit plan, which is the basis of their evaluation of the risk and control environment of the organisation, so that they can direct their internal audit to the best effect. That is now in place and was approved by the Audit and Risk Committee in May of 2022. The factors behind that, Mr Coffey, were somewhat less clear as to why there was that period of delay. It is part of the need for the college to assure itself that it is getting the right level of effective governance assessment of controls across their operations. David may want to say a wee bit more, because it is certainly part of his annual external audit that is required to consider the work of internal auditors or so. For my point of view, Mr Coffey, there were two dates involved here in terms of the internal audit plan. My understanding as a draft plan was discussed at Audit and Risk Committee level in March 2021. The final plan agreed at May effectively. That is not unusually my experience, that is the board just challenging some of the areas that have been identified for review. As the Audit and Risk Committee general says, one of the things that we will do during our audit is consider the work of the internal auditors and that plan of works that they agreed with the board in May was delivered fully in the year, so they delivered in the fullness of their plan. Your report says that the college's annual report commented that internal audit made a statement that you considered that there were adequate and effective arrangements in place for risk management control and governance and so on. Do you share that assessment, that view? We have not found anything to contravene that. Certainly, I would refer you to our annual auditors report where we did not identify any internal control recommendations from our work, so there is nothing to suggest that that is not correct. The other thing that I would add is that you recognise from your letter of time on this committee, Mr Coffey, that auditors do not often engage in hyperbole. It is usually an indication that, as David says, they have not found anything to report, so that is probably an environment that has a reasonable assessment and is satisfied with your language. Thank you very much for that. I will turn to the governance improvement plan. You are saying quite clearly that there has been good progress with that, but some areas have not yet been addressed or could you just flesh out what those might be? I will bring David in again. He is close to the detail of that. I will take the chance to repeat my overall views on having a governance improvement plan. Our rolling action plan is a positive aspect of the college's consideration of governance and its commitment to keep those matters under review. David can speak to the committee about the steps that have been taken. In terms of the governance improvement plan, Mr Coffey, as the Auditor General said, significant progress had been made. Those are a different set of recommendations to those from our audit last year. There were some that were time bound in terms of the college's ability to deliver against them, one of them related to the appointment of a permanent governance professional, which could not be completed until the investigations were completed in January 23. There were ones that the colleges progressed but had still work to go because they could not because of other factors. As the Auditor General says, it is pleasing in my mind that the college has accepted that there needs to be a continued review of governance, so the governance framework that they have put in place going forward enables them to capture any governance actions as they arise, appoint owners, appoint timelines and continue to keep them in front and centre for the board to make sure that governance is continuously improved. There is another comment to Stephen about the timetabling of college boards and committees so that there is a more timely and efficient reporting structure. Could you just explain a little bit about what you mean by that and are we satisfied that that is also satisfactory in place? If you can highlight a paragraph for me, Mr Coffey, just make sure that I comment on the right time. The committee will recall that there is a complexity to the arrangements in South Lanarkshire College that is part of a regional college arrangement. I might say a word or two about that in a moment further, convener. South Lanarkshire College operates as part of the Lanarkshire arrangement with the strategic college, as we refer to as the Lanarkshire board, in our report. That is about the recommendation so that the flow through of decision making, co-operation and governance accountability operates effectively that South Lanarkshire College's meeting arrangements are aligned to that of the Lanarkshire board. David can say more about the progression of that, but it is worth coming back to just about where those regional college arrangements are sitting. The committee may recall that the Scottish Funding Council made recommendations to the Government on the back of a review that I am paraphrasing, convener, but largely stating that they were not serving to best effect how Scotland's college's accountability arrangements, its governance arrangements, should operate. As we recall, those recommendations were accepted by the Scottish Government, but we have not yet seen progress as to where that is going to go next in terms of how structures will operate in the future where they are currently in a regional setting. I have drifted a wee bit off topic from your question, Mr Coffey, but I will turn to David just about the alignment of those meetings. I think that, Mr Coffey, our understanding is that historically the meeting timetables for the regional strategic body and South Lanarkshire college have sometimes been prepared in isolation and therefore that is not facilitated matters that have been discussed at the South Lanarkshire College board that need ratifying at the regional strategic board being passed up in a timely manner and also where there are possibly overlap of committee members, sometimes those meetings have clashed as well. So I think that it was a case of just making the two timetables work more coherently and more efficiently. Are you happy with your age? I think that, as I said earlier, Mr Coffey, I think that there is still progress to be made, but we have seen good evidence of progression. With the consolidation of the college sector that we have seen over the last decade, it does seem a little bit excessive, does it, to have a regional college board that has got oversight of just two colleges? The SFC's review, convener, largely concluded that the arrangements weren't well understood or accepted and that they brought conflict into the arrangements. Wherever future structure that the Government decides to do will, of course, want to weigh up the number of colleges that exist in our regional setting or otherwise, I think that what the SFC's review recognises. We have perhaps seen evidence of that through some of our own reporting on Scotland's colleges is that the regionalisation arrangements, as it currently exists, have the hallmarks of some of that conflict and lack of understanding, so we are keen to see where the Government is going to go next on this. Right, good, thank you. The deputy convener, Sharon Dowie, has got some questions. Sharon. Thank you, good morning. We noted that the independent auditor is monitoring progress against the governance review programme. When was the programme implemented and what has been the progress to date? Morning, deputy convener. The other is the independent auditor beside me, actually. I'll again turn to him to update the committee. I think, deputy convener, that governance monitoring programme was first implemented at the December 22 board meeting and was first populated at that point in time, and is now a standing item of business at every board meeting going forward, so I understand. Can you confirm what progress there has been in appointing a permanent clerk to the board? So I think that they had mentioned a moment or two ago that the plan is to recruit for an experienced governance professional. I think that it's the language that views progress for the recruitment of that post. Again, they might have an up-to-date position. I don't have anything to add currently, deputy convener. I'm not aware of where the college is at at the moment. And final question from me. The report states that the auditor considered the implications of the independent investigations for the colleges' compliance with the code. Can you provide more detail about the outcome of those considerations? Certainly. I think that, as we mentioned elsewhere in the paper, we did not see and Stephen mentioned in his introduction, we haven't seen full site of the independent investigation reports themselves. That wasn't considered appropriate. So, effectively, we therefore had to put in arrangements to ensure ourselves as auditors as to whether there are any matters raised in those investigations that would impact on our opinions. So what we requested was the college to prepare a detailed paper for us that set out their considerations of those reports. And were there any matters identified there that could impact on our work on governance, our work on the financial statements? And then to ratify that paper, I met with the partner from the college's main legal advisers, who had had full site of the independent investigation reports, to triangulate the college's paper with his understanding of what had been said. Okay. I've got Bill Kidd, who's got an important question to put to you. Thank you, convener. Right now, there's a time when everyone, as we all know, is facing some financial difficulty. Colleges are no different there. Colleges across the country are facing some issues, costs, et cetera, and financial stability. So, during this period though, £800,000 of public money have been spent on investigations and associated costs on South Lanarkshire College. Has this large amount of money, to what extent, has it impacted on improving the college's financial stability as compared to that of other colleges across the country? Morning, Mr Kidd. I guess there's a number of components to your question, but I've taken those in a various order. No, I don't think that spending £100,000, you would say, has directly contributed to improving the college's financial sustainability. The investigation was in respect of concerns and grievances relating to the principal, the interim clerk and the chair of the board. David May wishes to say a bit more beyond what he's already said and limited the extent of that related directly to our audit work. What we have drawn though is the connection between spending £800,000 of public money at a time when not just South Lanarkshire College but many of Scotland's colleges are experiencing financial challenges. The college's own annual report and accounts identifies that it anticipates receiving a flat cash financial settlement over the course of the next five years and that it's forecasting deficits in many of these years to the extent that the board of management of the college was only able to offer assurance on the in-year budget for 2020-23 and not future years that were subject to its consideration. With those longer and medium-term financial challenges, that had to spend £800,000 of public money would not help to contribute to its future financial sustainability, we're clear on that point, Mr Kidd. Again, David May wishes to offer some additional perspectives from his annual audit. I think very little for me to add, Mr Kidd. As Stephen says, there's a significant chunk in our report on the college's financial position, the report identifies that the college has identified an operational funding gap over the foreseeable future of the period 2027. Stephen's mentioned the flat cash funding settlement from the Scottish Funding Council, that's a contributory factor certainly and it is impacting on all of the Scottish colleges at the time that they are facing inflationary pressures. There is a challenge for the sector as a whole and South Lanarkshire is no different. Just on the basis that a large amount of money has been spent in this instance, is there a direction in which the money will help the college to move in, which will help to balance? Across all colleges, as we've been talking about, there is an issue financially, but it probably has been worse in this instance during this period of time. Can it balance again? Will it be able, with this money, to try and help bring back a certain degree of balance in terms of temporary staff and so on? That's not our understanding in terms of the nature of the spend, but in respect of investigations arising from concerns and grievances about the now former chair, the former principal and the former interim clerk of the college, as opposed to consideration of wider financial activity or challenges. I might want to say a wee bit more about some of the financial challenges that Scotland's colleges are facing as it relates to their activity. As has been said previously, the entire college sector in Scotland is facing financial challenges going forward and risks to financial sustainability is a theme that came through in a lot of our annual audit reports from 2021-22 on all of Scotland's colleges. We've seen in South Lanarkshire College that, historically, they have operated on a balanced budget and have always been in surplus. They remained in surplus and had an adjusted operating position, which was a surplus in 2021-22. Nonetheless, that doesn't take away from the fact that, looking ahead, there are some real pressures on the college sector as a whole. Some of them have already been mentioned around the flat cash settlement. Inflationary costs cost relating to staff pay and other costs that colleges are incurred where the seeing, for example, through their supply chain, the seeing costs increase. Although South Lanarkshire College remains in surplus, that doesn't take away from the fact that there are some real challenges ahead for the college sector and the wider sector. I am conflating two areas. When you see a lot of sums of money, you tend to look for the positive benefits that come out of it. Those are two separate areas. Thank you for the answer. The £800,000 was spent predominantly on paying lawyers to carry out those investigations as I read the report. Where did that money come from? Did the college have reserves that it could draw on? Presumably, that was an unanticipated outlay that it would not have been budgeted for. You are right on that, convener. The majority of the £800,000 spend on it straddle two financial years that were spent on legal fees. David can keep me right on that. 450,000 pounds were spent up to the end of the financial year at the end of July, with an expectation or current figure that that will be £800,000 in totality. As I say, the majority of that is on legal fees with other elements relating to interim post-holders fees, because some of the members of staff being the principal and interim clerk would have continued to be paid by the college whilst they were suspended for the duration of the investigations. In terms of the legal fees, it is also the case, convener, that while there would be lawyer fees, there were also HR investigations that were undertaken alongside the lawyers who would have overseen those investigations. You mentioned earlier that auditors are not prone to hyperball, but you think that it is absolutely right to highlight that in your report as something that is a matter of public interest, if not public concern. Indeed, £800,000 is a significant sum of public money. As Rebecca Wightley said, Scotland's college sector has been under financial strain. I know that the committee has taken a keen interest in Scotland's colleges and you heard a recent round table about some of the challenges that the sector is facing. For South Lanarkshire College to have spent £800,000 of public money on HR investigations that, in fact to Mr Kidd's question, do not relate to its financial future or its activities, is regrettable at a time when that money would ideally have been better spent on its activities or, indeed, consideration of its future arrangements. Thank you. We joined this morning by Graham Simpson, who I think has got a number of questions he wants to put to you. Graham, over to you. Thank you very much, convener. Good morning, Auditor General. It's been a bit of a sorry saga this to put it mildly. I don't want to go over the evidence that he gave last year. I'm not going to do that. We'll concentrate on what's in your current report. But, as he said earlier, the upshot is that the chair has gone and two highly respected public servants in the form of principal and the interim clock to the board have lost their livelihoods. That's where we're at, and £800,000 has been spent so far. Where has that £800,000 come from? David, can I say a bit more about that, Mr Simpson? As you mentioned, I understand that the majority of that money has been spent on the investigations led by lawyers supported by HR professionals, with the balance relating to interim costs for the college, forgive me, employing interim principles and interim acting clerk arrangements. Sorry, that wasn't my question. My question was, if £800,000 has been spent, it must have come from somewhere, given the risks to the sector at the moment. That money has come from somewhere. Which budget has it come from? My apologies. I'll ask David to pick up a specific question. If you look at the college's financial statements for the year to July 22 and compare the result for that year to the year to July 21, the underlying result for the college is some £5,000, £600,000 lower than it was the year before. The main contributory factor to that is the £450,000 spend in the year on these investigations, so it's come from operating budgets. Is that the main reason for this funding gap, Mr Hoos, that you referred to earlier? I don't believe so, Mr Hoos. The funding gap that I mentioned earlier is primarily looking forward from the current financial year to 26-27 and really driven by the advice from the Scottish Funding Council that colleges should reflect a flat cash funding payment in their forecasts. It would be fair to say, though, that you haven't identified where the money has come from, which budget it's come from. If that college had not spent that £800,000, it could have been spent on learning. If the college hadn't spent £450,000 in the 21-22 annual report and accounts, it would be at the discretion of the board of management charged with governance to determine how to spend that. In delivering its core function of training and learning activities, yes, it would have been able to prioritise its core activities rather than spending the money on legal and HR investigations. We have mentioned the former principal who has been sacked, the former interim clerk to the board, who has also gone. My understanding is that both those individuals will be going to employment tribunals. We don't want to get into that, but there is the risk of extra costs to the college from that process, particularly if the individuals are successful. Do you know that if the college is budgeted for that? I am not party to any potential or live employment tribunal arrangements, convener. In any circumstances where a public body has a potential liability, it needs to make an accounting judgment as to whether that is live or realised, and it should consider how to disclose that as either a contingent liability or a provision in its future accounts. That is about all that I can really say about the circumstances relating to this case. If there are any live cases, I don't want to prejudice those by having any discussion about them at the Public Audit Committee this morning. Absolutely, convener. I don't want to get into the right or wrongs of anyone's case. It is merely a financial risk that people need to be aware of. That's why I raise it. We don't know where that will end up, but we have had a case that just emerged this week. For example, South Lanarkshire Council and its leisure trust were involved in a case that went to tribunal, and that cost them £800,000—the same figure—at the end of it. It can be enormously costly to public bodies. I know that there was a view within the sector, and when I say the sector, I mean the college principles, that this particular principle was—let me rephrase that, because we don't want to get into the individual case. There was a concern that from the college principles group that principles can be removed too easily if there is a fall-out with the board. Of course, if that does happen, we can start to accrue the sort of cost that we've seen. Is that something that you're aware of? It's not something that I'm aware of, Mr Simpson, in terms of the views that were expressed by the college principles group now. They did write to the former education secretary about this, but that's not something that you've seen. Let's talk about this case. If there were procedures put in place that could have maybe avoided us getting to the position that we are— Sorry, Mr Simpson. Procedural matters may well be the subject of future litigation, and I'm not having anything played out at the Public Audit Committee of the Scottish Parliament, which may later form parts of arguments that take place at employment tribunals or in other litigation settings. If you've got other questions, Mr Simpson, about the report, please ask them. If not, we'll draw your questions to a close. I'll draw it to a close at that point. If there are no other members of the committee who've got questions to put, can I thank you, Auditor General, for your evidence this morning? Mr Hoos, thank you too, and Rebecca Seidel, thank you for joining us. I'm now going to move the meeting into private session.