 Welcome to the 18th meeting of the Public Order and Post Legislative Scrutiny Committee in 2017. Could everybody switch off their electronic devices or at least switch them to silent mode so that it doesn't interfere with the work of the committee? Agender item 1 is for the committee to take items 5, 6, 7 in private. Are we agreed? Thank you very much. Item 2 is Edinburgh College, and we'll take evidence on the Auditor General's 2015-16 Audit of Edinburgh College, and I welcome from the college Annette Bruton, who is the principal and chief executive, Allen Williamson, the chief operating officer and Ian Mackay, chair of the board. I invite an opening statement from Mr Mackay. Thank you very much, chair, and thank you to the committee for your continued and considered work in this area. Edinburgh College, I think, like many colleges in further education sectors, has experienced considerable change over the past few years, and our college has been through challenging times, as you know. It's exemplified in what we're discussing here today, and indeed those challenges remain going forward, most recently highlighted by the potential cost of meeting the national pay bargaining settlement. The originating matter that was brought to the attention of this committee was the mistaken use of additionality within courses in the college and the knock-on effect of the resulting clawback by the SFC of £800,000 to the college's final accounts that year. This matter has been fully reported to the board, and our response as a college has involved the board and myself directly. That response to the original section 22 report and the related work by the executive and board has been helpful to the college in allowing a forensic examination of our processes and procedures and resulted in considerable improvement there. We've reduced the size of the college and tailored courses to better reflect the needs of our wider community. We've removed underperforming courses and we've successfully refocused our offering such that this year we've met our SFC targets in overall credits, in higher education credits and in EU additional credits. The board of the college has sought throughout the process to offer both challenge and support to the executive, and we're pleased to see that that process is beginning to bear fruit. We've sought to be transparent about all of those things from the start. We've worked with the Scottish Funding Council, we've agreed financial assistance with them and we've created a business transformation plan. This plan has taken the college forward and it's provided, I think, myself and the board with the confidence that we need to go forward. Most importantly, I think, has been the result of all that work. Two years on, we've much better information coming to the board and the committees. The principle has reshaped in senior management team. We've met our credit targets for the first time, as I say, since merger. Our financial recovery plan is working, and perhaps most importantly for me, our award-winning students are registering improved rates of attainment and high rates of satisfaction. I think that, chair, we'd still have some way to go on the road to recovery and to growth, but I believe that the helpful reports from the Auditor General and your own work and our own internal processes have shown that we're now on much more solid ground than we've heard before, and I hope that we have every chance of reaching our goals successfully. Thank you for the time to make the statement. Thank you very much, Mr Mackay. We'll now turn to questions from members. Colin Beasie. In the written submission from EIS, there's a number of allegations made here in terms of how the college functions. You were probably aware of that. What would your response be? I became aware of it when I saw your papers that were published. I wasn't aware of it before, but I think that possibly the principle would be in a better position to answer the specifics of the allegations that are there. I, too, saw it in the committee pack. It hadn't been drawn to my attention prior to the papers being submitted for this committee. Is it the first time that you're aware of those allegations? It's the first time that I've seen those allegations drawn to my attention in this way. They haven't been drawn to my attention before I saw them in that committee pack. There are on-going discussions with teachers unions about some of those matters in terms of policy, but I've never seen those allegations before. Would you have a response to that? Yes, I would. I don't know if the committee wants me to go into all the areas that were raised in that communication. That would be helpful if you can do so. There are a number of things that I'd like to clarify about the various matters that were raised in that communication to the committee. First of all, in terms of credits and additionality, there are no national standards with regards to credits. I think that the committee has had that discussion with the Auditor General in the past. The credits are agreed by the Scottish Funding Council, with every college as part of their regional outcome agreement. All of that is within an agreed maximum target of 2.5 per cent available of total credits for additionality. That's the current rules. They change from time to time, but at the moment it's 2.5 per cent. Edinburgh College is no different from any other college in that respect. However, because of what we've been through in the past, we've held down the number of additional credits that we have been making use of. We are maintaining a below-sector average at the point of me looking at the credits last week of 1 per cent. That has been reported to the SFC at regular bi-monthly meetings, which, as a committee is aware, we're having as a part of the transformation plan. The Funding Council indicated that they're pleased with the college's progress and that the college is well under the 2.5 per cent national target. With regard to our credit targets for this year, as the chair has just said, we actually have not only met our credit targets but reflected in real students. Last year, in 2015-16, we enrolled 18,541 unique students. This year, we have enrolled 19,318 unique students. The committee can see that the increase in the credits is down to additional students coming to the college. With regard to the remarks that have been made about the EC units, it's a technical area of work. I'm happy to explain in detail to the committee or write the committee in more detail, if you wish. Just to put the EC units in context, there are various types of credits that we can claim for as part of the funding package for all colleges. Those include SQA units, the kind of learning that students do if they're doing city and guilds, the kind of courses that students are on on a bridge project to higher education. The EC units are part of that overall package that recognises the amount of learning that students do in addition to the qualifications that they get. If I give you an example of that, for example, a student studying national 5 in French in the college, that's a four credit course, so we can acclaim the four credits for the two units that are in it. In addition, we're able to claim an additional credit because we're preparing the students for their exams and they're actually sitting the exam. That's an example of where EC credits would be used. The general volume of EC credits is agreed as part of our funding agreement with the Scottish Funding Council and it's published in our regional outcome agreement. That's built in at the point of the overall planning for the course of study. In terms of withdrawing students, our policy hasn't changed this year in terms of withdrawing students, but we have made some changes to the arrangements that we've made in year in withdrawing students. One of the problems that we had in this committee and I think asked me about that the last time we were here or we put it in our evidence of the committee was that, in former years, our students were able to be withdrawn by their lecturers simply because they'd stopped turning up for class. One of the improvements that we introduced this year is that it's necessary before any student can be withdrawn from a course that they've been followed up by the manager in charge of that area, student support services or our finance team because the reasons that students drop out of class are mainly for financial reasons, for health reasons, for mental health reasons or for personal reasons. One of the things that we think is important to credits is that we give every student every chance to rejoin that course. That's really important, and it's one of the things that we're looking at nationally in FE. We've made some inroads into that this year and we've been much more successful in retaining our students than we have done in previous years. Later this morning, you're going to be seeing a report from the Auditor General on the further education sector 2017. In her report, the Auditor General, in section 25, publishes the retention rates for full-time students and part-time students in Scotland. Compared with those figures for the period 15-16, we're pleased to be able to report that, in 16-17, Edinburgh College has not only improved its performance against all of those measures, but we've actually done better than the national average as it was last year. That's down to actually making sure that the most vulnerable students that was most likely to drop out of Edinburgh College are given every chance to get back into their course and supported to do so. The final point that I would like to make—I'm sorry that I'm taking up so much time, but you did ask me to— I've addressed the issues in the submission. I'm going to let Colin Beattie come back in. There will be other questions that I'm sure will allow you to give us that information. I've heard what the principal said. The submission from EIS indicates that it can provide documentary evidence relating to withdrawals. Could we write to EIS and ask them for this documentary evidence? Yes, I'm sure that the committee could. I'd like to turn to governance. The board, which in this case seems to have been taking a bit of a back seat, according to what we have here, the board, as far back as 2013-14, realised that there was a problem with the financial information coming forward and discussed how it could develop better management information. It doesn't seem anything happened about that. Why? I think that when it fell to me, Colin. I think that what you'll also see in the reports from Carolyn Gardner and her team and from the minutes of the board's meetings at that time—I noted your points in the previous hearing—is that far from not doing anything about it or not being active on it, the board had that almost as a standing item at every meeting that we had. We pursued vigorously what we saw as an on-going issue that we never seemed to be getting answers to, not unlike yourselves. There's a tendency, I think, when you come up against a financial issue when you're a member of a board, to follow the money and to have a look at your financial systems and so on. That's what we did in the first place. You'll see from the board minutes, and I think that it's reported in section 28 of the 15-16 audit, that we were asking a number of questions in trying to pursue those issues that you have raised. I think that what became—it only became clear later that, although that was presenting, obviously, as a financial difficulty, the real cause lay on the curricular side, and it lay, if you like, on the supply side of the equation, where we weren't simply not getting enough bums on seats, enough income coming in through our courses. Now, I would put my hands up and say that we pursued the financials first. It was only once we had found that really that wasn't giving us the answers that the board started to look in other directions, and it was also, as I said in my opening statement, the happen chance almost of the £800K clawback and that pointing us in the direction of looking at the curricular side much more vigorously, and the work that the new incoming principle then did that allowed us to finally get to the bottom of where the real problem lay. To say that the board was not concerned about that and doing things about that, I would have to challenge that. If you look at our minutes, you will see that, in fact, we were challenging that all the way through. If we look at the period when the board first became aware that there was a problem with financial information and management information, which is a bit broader, how long did it take before the board actually managed to receive information that was useful and that they were able to act on? I think that the most useful breakthrough was in the examination that the new principle did as a result of the additionality. The discussion that we had had set the principle down the road of looking at why people had claimed these additional things when they should not have been claiming as much as they had, but where that took us was that, in fact, there were underlying issues there. Once we got there, it did not take us very long at all, but, getting there, we looked mostly at the financial processes. The principle's review, if I remember correctly, was in 2015? It was at the beginning of 2015, that's wrong. End of 2015. There are a couple of years here, as far as I can see, that the board was wrestling with these problems, and that seems an awful long time. It's less than a couple of years. I think that, with the other points again, and realise that in these reports you'll tend to get only the matter that's under discussion. What you don't get is a wider context. The other thing that you've got to remember there is that we had also parted company with the then principle. We had brought in an interim principle. We had actually started a recovery plan with the SFC to address the financial issues that we saw there. In fact, that was going reasonably successfully at the time. It still hadn't, in fact, taken us to the final conclusion of where, in fact, those problems were originating from. I can say to you that, when we appointed the interim principle, which was, I'm trying to get my memory right, in 2014, when the interim principle came in before Annette took up office for about six months, that was a very experienced principle from the south who had dealt with interim principle positions in the past. She was recommended to me by the chief executive of the SFC, and I appointed her. My first instruction to her was that I want you to look at the whole financial side of this college. I want you to open every cupboard. I want to find every skeleton. I want to find out if our processes are right. She came back to me after having investigated that and said that, as far as she could see, everything was sound. It was not that we were sitting on our hands there, but we were, first of all, making sure that we were absolutely secure that our financial side and our financial processes were sound. It was only, as I say, once we started to redirect that, not having given us the answers, that we then moved on to the curricular side, in particular, after Annette's report. It seems that, for any board—I take on board what you say—I understand that those things take time, that it was a difficult situation. However, as a board, if you are not getting financial information, if you are not getting management information, don't you do something about it in less than a couple of years? You say that you did not get adequate information on the crises that was facing Edinburgh College until the principal did her review. That was an awful long time. No, what I said was that we didn't start to understand what the real underlying problem was until that review was carried out. What we had done was pursue the problem that was there in the reports that we were getting and seek to get to the bottom of that and to make ourselves very secure that, in fact, financial processes in the college were sound and were working properly. Now, knowing that you have an outcome in a financial side does not mean that the cause is necessarily on the financial side, and that is what we have found in this case. Again, if you look at the auditor general's reports, you will see on a number of occasions them making the point that the board did pursue this vigorously with executives, we did challenge them and we did ask them. Every time we got an answer and we came to the next board meeting and it clearly hadn't corrected it, we went back and asked again and tried to pursue into other areas. At the end of the day, a board is not in a position to simply walk into the executive's office and start doing their job for them. However, they have to do that, and you are quite right to pursue that line of inquiry. We did what we had to do in pursuing the executives to make sure that they were doing the job. If, over a period of many months, you are asking the questions and not getting the answers, as a board, do you not take action? Can I again refer you back to the auditor general's reports? What you will see there is that we were getting answers, but the answers themselves were not actually addressing the problems that we were asking about. It was only then that you are still getting an answer, but you have then got to go back in and pursue again and try to go deeper or wider in order to get that answer. We pursued that. We were not perfect, and I will be the first to say that we were not perfect, but we did in fact seek to pursue and seek to get the answers, because we, like you, realised that there was an ongoing problem that was not being solved by the answers that we were getting from the executives. In the end, that also saw a wholesale change in the executives themselves, which I think is the inevitable end of such a process. Willie Coffey, you wanted to do some follow-up. I wonder if I could just ask the principal to clarify this issue about the EC units that was raised by Colin Beattie. The submission that we have says this, our survey showed that many of those units had no teaching materials, no class time provided, and no final assessment, yet they could still attract funding. Is that correct? Is that a misinterpretation, or is it wrong? Convener, I have not seen the survey. It is not a survey that was carried out by the college, so I am assuming that it was a survey that was carried out by the EISM and EIS members, and I have not seen that. I would welcome seeing that survey. In terms of the allegations that are in that statement, I think that it would be useful for me to see the evidence that the EIS has, but I can say that we have very robust processes around what we claim, how we claim it, and the protocols that we stick to most of which are set down by the funding council. To try to reassure the committee, the reassurance that I get is as well as having internal procedures that we work on ourselves as senior management. We have been audited three times this year. We have been audited by internal audit on our credit claim. We have been audited by the Scottish Funding Council, in addition to the normal audits that we would get on those claims. We have been audited also by Audit Scotland as part of their general audit work and the section 22 work. None of those audits have thrown up such a problem, so, like the committee, I am not sighted on that survey and would welcome the opportunity to see it. That is fine, but, in general, if we do EC units, are there any possibilities that EC units have no materials, class time or friendly assessments associated with them? If I can just go back again to the explanation that I gave earlier, EC units can be used for a number of different things. I gave the example of the French example. The bit that we are claiming an EC code for there is the additional work that you do with students to prepare them for the exam. If we were not able to claim that, it would mean that we would have to be hiring staff for a part of the course that, otherwise, we would not be able to claim credits for, but I think that the committee would recognise that preparing students for their SQA exams is an essential part of any teaching year. It is a device that is used for that. The teaching materials related to that would be the teaching materials that have been taught in the two units. I will give you another example. We also use EC codes for teaching higher education students who are doing higher education with us, but on their way to a course with a university. We are running a course on behalf of a university. We would be using the EC codes to help with that, and there would certainly be teaching materials. The staff themselves are responsible for preparing the teaching materials and for doing the planning. If there are no teaching materials, I am surprised that there would be such a thing. We would need to ask the staff whose class it was and why they had not prepared teaching materials. There is no reason why those EC codes should not be claimed. They are a legitimate part of how you make up the costing of a college. There should be no area of the college where we are claiming for something. We certainly know that we are not claiming for things that we did not do. Again, I would repeat that I cannot see a circumstance in which that would happen, but I would be happy to have that evidence. Is that additional work assessed at all? In the case of the French, it is assessed as part of the overall examination, so the students at the examination. If you imagine that people are very familiar with what happens in schools, you hire a teacher for the whole year to teach a class. Some of that will be the component units of the course. Some of it is the preparation for exams, and that is normally what our staff and our colleagues in schools would be doing from anything from February, March, April, right up to the point of the exam. If we were not able to claim for that, we would not have the funding to hire the teachers to do that part of the course. It is a legitimate part of the way in which colleges are made up in terms of their funding. The paper goes on to say about resulting, and it is meant to be a pass-failer with John. It says here that the ECE code for higher national 5 advance higher needs to be resulted with RP. That does not indicate that the student passed the exam, but they were prepared for the exam. It was on to say that not only are the students credited with a pass when they have not passed anything, but some of the resulting is done by administrative means and does not even involve the lecturer. What did he say to that? First of all, we are getting to very technical territory here, but there are two elements to resulting. We introduced an approach to resulting this year, which meant that students were resulted before lecturers went on holiday. One of the problems that I faced when I came to Edinburgh College the first year I was here, I found that a number of lecturers had gone on holiday and had not completed their resulting. Students were not able to be credited in time for their course in university or to get their care inspectorate registration. There was a whole range of things that were problematic. We introduced a system of resulting that made sure that the lecturers did the bit that only they knew how to do. In other words, they would be the only ones who could say what the marks for the students were and whether the passed or failed. However, it is not just a case of pass, fail and withdrawn. Our mark system includes the lecturer giving the mark, indicating whether the student has passed, they can mark it as candidate withdrawn, they can mark it as merit pass or fail or distinction or a C or a B or an A. There is a whole range of things, so I was not clear about what that statement was referring to, but staff must result the students in terms of their work. However, managers can actually do things like the EC codes because they have planned the courses and they know how much teaching went into that. I hope that that is not too technical an answer, but it is quite a technical area. We were following you. We were following you. Thanks for that minute. I will ask the right other colleagues to come in on that, but thank you for offering an explanation for that. Good morning. The last time that you were here, the deficit for the college for the last financial year 2015-16 was stated as being £7 million. Was the final figure up to £8 million? No, no. It is still at £7 million. That is where it completed. Right. I am told that that represents well over 80 per cent of the total deficit in the college sector that year in Scotland. Is that right? I am not certain. I did not look at that. We have just completed another financial year. Presumably the financial year runs to April, does it? It runs to the end of July. Oh, it is the end of July. An academic year we run to April. So have you any estimated out term for this financial year? Excluding the actual pension valuation, which we do not know until August, we are forecasting £3.4 million. That was against a starting budget of deficit, and that was against a starting budget at the start of the year, £3.8 million. So there is an improvement against the £3.8 million. Right. And when do you expect to get into breakeven? Breakeven, we are making very good progress. We have had a successful voluntary severance scheme so far. We have taken a lot of non-pay costs out as well. We are in line with the transformation plan. The forecast for 18, 19 transformation plan, or should I say, 17, 18 transformation plan, is a £580,000 deficit. That is what we are looking at at this point in time for next year. So we are in line with the transformation plan, and in the following year we are looking at a breakeven position. That is notwithstanding the national pay awards. When you say that is notwithstanding the national pay award, what impact will the national pay award have on those figures? Well, on Edinburgh College we estimate that around about £6 million will be charged, but we have put that into our forecasting and we are currently making plans to address the £6 million over the next four or five years. So when you say that there is going to be a deficit next year, estimated of about £1.5 million, is that assuming that you will have met your obligations under the national agreement? For this year it would be, yes. That is incorporated. And for next year? Yes, next year. Right. Mr McIwon, come in and let's just... Sorry. It's wearing a different hat, convener, but I've had a wee bit more knowledge of the national pay bargaining than my colleagues here since I was involved in that. That circumstance obviously was not known at the time that we were drawing up our transformation plan, but particularly the effect of it, it's not just like a year on year, it's effectively a lot of harmonisation and so on in there as well. I think you will find, I'm not saying that the committee will be spending even more time on further education matters, but I think you will find that the effect of the current deal that is under discussion and as it plays through into support staff as well, which is further down the line, your committee may have more discussions with a larger number of colleges as to the effect, the knock-on effect of that and where we've been actively in discussion with the Government about that. That was something that would have been unforeseen at any individual college level, if you see what I mean. It's one of the consequences of moving from individual bargaining at a college level to not just national bargaining, but a national deal of that sort, which will affect... Some colleges will be affected worse than others, but the knock-on effect overall will actually be quite considerable across the sector. Can I just go back to Edinburgh College and ask about commercial income, because I believe there's been a fairly recent appointment of a new assistant principal who's remit includes commercial income. Am I right in saying that commercial income has pretty well frizzled out, for example, in 2015-16? I don't think that you'd a lot of commercial income, is that right? In 2015-16, the commercial hit their target, although, if you were to go back to... The commercial overall was about 6 million between commercial and international. They hit their target overall, both of them. However, there has been a decline in the commercial and international since probably about 2013-14. What's the decline? Can you give us some figures? On international, which I think was mentioned at the last meeting, international has dropped by 1.1 million, which was 46 per cent. That was really in relation to the policy changes of the UK border agency. That impacted on college students, and that would be across the whole college nationally. Thank you, convener. We have, as Mr Neil correctly says, we've appointed a new head of commercial and international, and a new assistant principal in commercial and international. Although the commercial and international financial return hasn't been what we would expect it to be, we are ambitious about growing that for the future. Obviously, we will work within the economic constraints that we have in Scotland, but Edinburgh has a very particular kind of economy. We think that there is an opportunity for us to be growing our commercial income in that area, not least because there are fewer people out of work in Edinburgh. We need to be shifting some of our effort from not just making sure that all young people who need a place at college have got one, but also making sure that those people are going straight into work from school and that we are providing those employers with opportunities to train on the job. We are ambitious about that. In terms of the international position, and I know that Mr Coffey asked about that at a previous meeting, there are two elements to that. One in six, almost one in five of our students are EU students, so that is something that we have to consider in the current political climate with regard to Brexit. However, with regard to international students who are not EU students, they were affected by the change in rules, the tier 4 visa rules. In 2012-13, we had 215 international students that fell after the tier 4 rules changed to 128 the following year, and we now only have 29 students in the current academic year. That is an area that has certainly seen a decline as a result in the change of visa rules for further education. Nonetheless, we believe that there is an opportunity for us to grow our commercial income and we would seek to do so. In going back to those forecast figures for the outturn this year and next year, it is against the £6 million figure. What are you forecasting for commercial income? Can it be just the same at this point? £6 million, to be more prudent, as a minimum to be prudent. My final question is, with what has gone on in the past, we have to look to see what lessons are learned for the future. Obviously, the role of the board is extremely important as outlined in the exchange between Colin and Ian. How much does the board delegate to the P&R committee? Does the board take primary responsibility or is it now delegating too much to the P&R committee? Is the whole board—who makes up the P&R committee—dominated by non-executive directors? Can you tell us how the modus operandi of the board today is? Obviously, part of our concerns is to make sure that we do not get a repeat of the problems that we have had in the recent past. I think again that that would be coming towards me and you are very well informed of my structures of my board, Alex. I commend you on that. I think that it is a good point, however. You and I have had discussions in the past with different hats on as to how well in fact public sector governance can and should operate. Part of the answer that I was trying to give Colin was that the board through that period very much had to look at itself and had to look at the processes and procedures, the very structures—actually, not just the structures but the dynamic as well—of how we were coming to decisions and how we were following up decisions. You rightly say that we introduced around that time the P&R committee itself, because we did not have one before. If you think about the process that I was describing in answer to Colin Beattie, you were relying from board meeting to board meeting to be able to pick up and to follow up what was becoming an active chase on your part. It was important therefore that we were able to start to focus that in our structures to allow for the board to have committee that was much more actively involved in that. If you think about it, your audit committee is always there as a safety net. It is post hoc catching, but what you did not have and what became an obvious need was something that was much more looking forward and planning ahead. If you like taking that, boards have always got compliance and strategy. That is your two pillars, that any board—I am sorry, that is grannies and eggs here—that is the two pillars that we have. We were sound, I thought, on our audit side but we were not able to follow up on that strategic side and that is where the policy and resources came in. It also was part of the thinking of us trying to be as transparent as we could with SFC in addressing that first financial issue. I do not know whether it comes out in your paperwork. You will see that SFC was very involved. They were actually at the table from day one. When we first set up the first recovery plan with the interim principle, we established an actual joint committee with SFC. It was not that we were coming up with policies and taking them to SFC, we were actually making them up jointly with SFC in order to find a way out of that. It seemed to me at the time that there was no point in being anything other than fully transparent in a situation like that. Once we changed the structure of the board to introduce the policy and resources committee and give us that ability to be more strategic in those key areas, we continued to practice that, for those items that are to do with our business transformation plan and related areas, SFC actually sits at the table with us, representatives from SFC are there, they are actually taking part in that decision and we very often will quiz them in much the same way that you are quizzing me, for the point. Will you be my non-executive director? It will tend to be mostly non-execs. None of our committees will have executives, but, again, you have to remember the make-up of a college board. There are large boards anyway with a lot of non-execs, but we will also have the student representatives and so on, so you will find spread across what is quite a lot of committees on that board. You will have, I suppose, appropriate representation going forward. My own view, and it would be a view that I would hold outside of this process, I think it would also be based on my work in institute directors and so on, is that where you are looking for decisions to be made that can be shown to be outside of any kind of pressure or interest that someone may have, the safest road for a board is through their non-executives at that time because the non-executives are the ones that can be shown not to have an axe to grind. Therefore, personally, in situations like that, I would rely on non-executives. I am lucky in Edinburgh's board that I have some very, very experienced and good non-executives. The role of the PNR committee, and I hear what you are saying about the need for a PNR committee, and I accept that, but it is not diluting the effectiveness of the board itself. I certainly would not think that. I think that it is the opposite. Again, let me choose my words carefully. The public sector can be quite cumbersome in a way in which it goes about things sometimes. It does not always have the speed of action that is available within the private sector or even in the third sector in a lot of its work. This is a problem that I am sure you have come across the same as me in previous roles. In that situation, you need to have structures that make that work easier. The whole point of the structural change that I brought in to establish the policy and resources committee was that it was giving us the ability to move quickly and with more agility between board means. The board only meets four or five times a year. When you are in the situation that we were in at that time, you needed an awful lot more agility and ability to shift things forward. That was the reason for that change, and I think that it has worked. Finally, I give my apologies. I have to leave in the next few minutes to another committee meeting. My apologies. No problem at all. Willie Coffey had a small supplementary on the back of Alex Neil's question. Thank you very much. Can you clarify, please? You said that you had the impact on non-EU international students. The figures that you gave in 2015 were dropped to 29. It is 29 in the current year, and we had a drop in 13, 14 to 128. From the point at which the change in the UK legislation came in, it has dropped significantly. It is very difficult for students. Can you put a value in that cost? It has dropped the non-EU international students. As a result of those changes, those policy changes cost the college £1.1 million annually. Of course, is there any prospect of that recovering? I know that you are making efforts to extend your interest in commercial income elsewhere, as you said to Mr Neil, but is there any prospect of that? We are making efforts. There is also a different mode of delivery now that is required by overseas companies in effect, where they prefer the delivery in the homeland rather than students coming across to Edinburgh to study, so we have had to change the model of delivery also on that. If there is any growth, I would suspect that the growth will come from delivery in another country. Good morning. I just want to, at the outset, look at getting a bit of clarity over something. There has been a lot of talk throughout the process about the additionality and various funding issues. Back in November, we met, and the college was very clear to accept that there had been failings, and it accepted those failings in general terms and said that a lot of cooks were involved in that. By the time of the Audit Scotland report, the principal concluded that the vice-president of curriculum and quality was the responsible person for the additionality issue. Why is there a difference between what I was told in response to my question in November and what Audit Scotland is reporting? Audit Scotland was using information that I provided to them as part of their section 22. I think that I said to the committee when I met you in November, and I still hold this view, that part of the problem lay with the structure and that there were two vice-principles and a deputy principal who all had a bit of responsibility for making sure that curriculum frameworks were sound, but nobody seemed to have the overall responsibility. I subsequently carried out a review, as you are aware, because you have seen it in the Audit Scotland report, as well as me reporting that to you myself, that says that there were failings in the way the structure had been set up so that everybody and nobody had responsibility. By the time I concluded my investigation and was reporting to the PNR committee and the board on that, the responsibility for having sorted that out then lay with the vice-principle curriculum, who by then had taken on a new role and was in a role that had all the component parts of that responsibility. My conclusion in those findings, which I reported to you, was that the new responsibilities now lay within the new role of the vice-principle of curriculum, so there were two components to my findings. One was that the previous structure had muddied the water and everybody and nobody was responsible. In the first few months in which I was in post, a new appointment had been made and matched in with a vice-principle curriculum. I concluded in that report that the problems that were current at that time lay within the purview of the vice-principle curriculum. At that point, the board asked me to then… That was an investigation into the general situation. The board then instructed me to consider whether there was a case to be answered in terms of competence. The committee will be aware that if you decide to commence down a competency route, you have to carry out a competency investigation that had not been done and you have to then have a competency hearing, which gives people the right to reply to any accusations that are made against them. That had not been done and that was not done because the vice-principle in question resigned his post. Just for clarity, because that all tallies, but the answer that I was given in November was very clearly. When I put the direct question, who is responsible for this, the answer that I got was everyone and no one. When the Audit Scotland report comes out, there is a very clear conclusion drawn by yourself that one person was responsible. Which is it? Was that one person responsible for what went wrong? I will try to clarify for Mr Kerr. The difficulty here is that I concluded that the problem lay in the area of one person's new remit. What I had not the opportunity to do was to carry out a competency investigation or a competency hearing. I think that the committee will understand that, until an investigation, the investigation that I did was not into anyone's competency. I could not, even at this point in time, draw a conclusion to the committee that someone was incompetent when they did not have the benefit of a competency hearing, the opportunity to defend themselves or a competency investigation. What I can say with certainty is that the area of difficulty that we were experiencing lay within that vice principal's remit that the former structure caused an all or nothing and everybody a nobody problem. It is very difficult to point the finger at someone who had not had the opportunity to either defend themselves or to go through a competency procedure because those competency procedures were never carried out because the vice principal resigned his post. Do you maintain that the entirety of the problems were down to one person? I have never maintained that, convener. I have always said that it is a combination of a poor structure and failings on more than one person's behalf, but at the point at which I concluded my investigation into the situation, the area of difficulty lay within the new remit of a then vice principal. If more than one person was responsible, what has happened to the other people who were responsible? One person left us because their post ceased to exist in the structure. They left under voluntary severance. Just to be clear to the committee, I am not suggesting that that person was incompetent. I am suggesting that that person had a remit that was partly responsible. Mr Williamson, if I may, you were part of the team during this period, was that not correct? That is right, yes, I was. Ms Bruton, is Mr Williamson partly responsible for what happened? I suppose that corporately the entire team was responsible for what I would say. I think that I said this to the committee the last time. I believe that I said to the committee that I maybe did not make it explicit. Mr Williamson was extremely helpful to me when I was carrying out my investigation and actually came forward to help me with a lot of the problems that the board was seeking to identify. I think that I will move on at this stage. The voluntary severance scheme, so we will look forward now for May. This is key to the transformation plan. The Audit Scotland report talks about it being primarily or the transformation plan is primarily dependent on the transformation plan working. You are in the third phase of the voluntary severance scheme. You launched that in April 2017 and that is focusing on the academic staff with the intention of saving nearly £2.5 million, I believe. First question, where are we on that? Has the scheme closed and how many applications of the hoped-for 51 have you received? I will start if I may and then pass over to Mr Williamson who will give you the details around that. Yes, we have now concluded three voluntary severance schemes. The third voluntary severance scheme was open to staff from across support and the academic staff. The reason that we were able to open it more fully to academic staff was that we had completed our curriculum review in advance of the third voluntary severance scheme. You may remember that from the section 22 report and I think the responses that the Auditor General gave. We have concluded three voluntary severance schemes now. We still have a gap to close in terms of funding but it has been largely successful in getting the reduction in staffing that we need as well as reduction in finance. The reason that we were welcoming applications from curriculum staff in phase 3 of that scheme was to enable us to see which areas of the curriculum we needed to grow and which areas of the curriculum would be contracting because clearly we would not be letting staff go in areas where we were trying to grow. We were able to accept applications where they were affordable because the SFC set the rules for what is affordable in terms of VS and where students would not be suffering. We needed to make sure that it was an area where it was not an area of growth. Mr Williamson can give you some of the financials and the shortfall that we have still to meet on that. From the target up to 2017-18, for the budget year that we are just coming into, we had a target for the voluntary severance scheme of £3.8 million. At this point in time, we have achieved with £3.5 million, although we are at a stage in which we are currently reviewing some other applications. We are oversubscribed in applications. We have had around about 103 applications. We have accepted 54 applications and we are currently looking at the applications to see if there are any others that we can release. Just out of interest, you were advanced £1.85 million from the SFC to make this happen. On the figures that you have just given, Mr Williamson, it has not quite achieved what you had hoped for? It has cost so far £1 million, and that has released £1.6 million. What happens to the SFC funding for clarity? The SFC funding will take the money back if we are not using it. However, we still have a bit to go to finalise the scheme and whatever balance is remaining. The funding council will keep it. Can I perhaps just clarify on that last point, picking up on your not quite having achieved their target, is still in process and it is not just us that makes the decision. The SFC has to make the decision as to whether some people that we might wish to go are actually fit within a framework with them. That is still work in progress in terms of whether that you will see that we are very close to the target. However, I remind you that there is more in this marriage than just us. We need to have the SFC's approval as well, so there is still actually on-going discussions there. I will bring in Liam Kerr in a minute, because I am conscious that Monica Lennon needs to be elsewhere, so I would like to invite her to ask her questions. I do not need to excuse myself just before 10 for probably 15 to 20 minutes, so I will now come back from another committee. Good morning, everyone. The colleges financial position remains challenging. I am aware that, in the Audit Scotland report, there is some caution that any adverse fluctuations in income or costs could affect the college's ability to repay the £2.9 million transformation funding to the funding council and that the college could require further support. Mr Williamson, you have given some detail on the deficit figures, and that seems to be coming down, and that is encouraging. However, Mr Mackay in your opening remarks, you mentioned national pay bargaining, and later you talked about that being an unforeseen circumstance. Mr Williamson, what scenario planning has been undertaken in respect of national pay commitments in an outcome to Mr Mackay with some questions? We have included a five-year financial forecast, which incorporates the national pay award and the repayment of the £2.9 million. On the £2.9 million, we are in discussion at the moment with the funding council about an appropriate pay pack period. When did you start to build in the national pay costs into your planning work? As soon as we started to see the outcome of the national pay discussions, we started to include them in the financial projections. Could you give a more specific date on that, please? Probably about three months ago, when we received some of the figures of what the implications were. Are you aware that the agreements were reached some time ago, Mr Williamson? Yes. The agreement was reached, but the financial consequences were not, because we are still to understand exactly what the funding elements of that will be and whether we are going to be supported. What support are you expecting? We do not know what support we are expecting, but in the initial April to July period, the funding council has given all colleges a level of support for the first four months of the 25 per cent award. Okay. Mr Mackay, you wanted to come in. I was simply going to say that no, those decisions were not made some time ago, and the final outcome, in fact, is still not known in terms of the national agreement, in terms of what the actual cost will be college to college. National agreements signed? You are taxing my memory here, but it was in May that we had these discussions with EIS. Sorry, again, just to confirm for the record. You mentioned you had another hat. Maybe just tell everyone what that hat is. A chair of the employers association, and as part of that, I was involved in those negotiations. In fact, we concluded that we got pretty close in terms of the pay cost, but we have still not identified final terms and conditions changes. Those terms and conditions changes will, in some ways, have a much more significant effect for some colleges than others. If you change the national class contact hours from 24 to 23, or from 21 to 23 for an individual college, in some ways that will have as much effect as the actual increase in someone's wages, that still is not concluded. I am a bit confused about some of the timescales here, because Mr Williamson seems to be saying that it is only in the last three months that the work has been carried out to look at the costs and obligations. As the chair of the employers association, you have an important seat at the table, Mr Mackay, but you were not clearly acknowledging that the agreement had been reached some time before. I will clarify for you. Would that be helpful? Yes, it would be helpful. What normally happens in a collective bargaining situation is that, at the same time as you are actually face-to-face in collective bargaining, you are also working out the numbers as you go along. As something is put on the table or removed from the table, you have to know what the actual cost of that is. You have to know whether it is affordable. In our situation, where we have the employers, it is a voluntary collective bargaining scheme, which the Government is not at the table. However, it would be foolish in our situation for us not to at least check with Government, and the SFC is to whether the kinds of things that are being talked about at the table A make sense in their numbers, because let's remember that this is quite a new sector to actually work out the numbers for the whole sector. However, we have to check whether, in fact, there will be support from Government for whatever deal it is that comes out the other end. All of that is happening during—it's not a fixed situation. What Alan is talking about is that, throughout the process that is going on for some time, what we have been doing parallel to this is working out the prospective numbers as we have gone along, getting those double checked by the SFC and running them past Government as well, so that, in the actual collective bargaining room, so to speak, we are having a real discussion, we are having a discussion that can then be brought into fruition. Part of that has been checking back with colleges what the likely outcomes are going to be. I think that it would be prudent for any finance directors across the whole sector to be having a good look at likely outcomes of what is going to come out of that bargaining throughout that process. That, I think, is what we are talking about here. Getting to the point at which you know the actual cost—in fact, I think that the official—I don't know again whether you are aware of how the procedures work in collective bargaining at this level—but what happens in the end is that there will be a circular that will come out from the joint secretaries, and that is the legal document that says, this is what you have to do. The first of those came out last week in terms of the first down payment, so to speak, that we are hoping to be paying on this in July to our teaching staff. In fact, that is just the first of those. There will be others that will follow. In a way, the first time that you knew exactly what it was going to cost you was last week when that circular came out, but it would be prudent for finance directors to be seeing the way that the wind is blowing and trying to take account of that and their thinking from there on. I may be wrong, but I am sure that it is in the Audit Scotland report that the annual pay increases had been agreed in 2015, but perhaps you know better. We can clarify that afterwards. I will move on, because I appreciate that it is not all about national bargaining today, but I think that you have made some interesting remarks. We have talked about your financial situation in terms of opportunities to make savings, estate management and there is a review under way. I am interested to know what impact that will have across the four campuses, your approach to that and how that might impact on students, and the curriculum review, perhaps Ms Bruton would like to go first. I will make a couple of remarks and then I will pass to Mr Williamson, because it sits in his remit. We had a review done of our estate, because there have been a lot of discussions in this merger about things like, could we save money by closing a campus? That is really unsettling for staff when you have that level of uncertainty. We have had a review carried out by an external party, and one of the things that that review showed us was that the four campuses that we have are just about the right size for the number of students that we have. That was extremely helpful. It is probably more expensive to run four campuses than to run one, but our four campuses are in some of the most deprived areas in our region. They are well located and the size of the buildings themselves are about right for the level of activity that we have. We could expand a little but not very much. The focus on the estate has been on looking at the areas of our provision that we need to make a change to for curriculum reasons. It is really focused on construction and engineering, because those are the areas where we really need to modernise. We might need to make a shift of some curriculum areas or build some new provision on one of those sites, but at the moment that is the scope of the review that we have been undertaking, but Mr Williams can add a little bit more detail, because he is responsible for that. What we have been looking at are the options for construction and engineering in particular, mainly on the basis that the facilities there really need investment, and we are looking at some centralisation. The capacity issues following the report are probably close to the right size if you look at the four campuses in general. In addition to that, we are also looking at a potential joined-up approach with other institutions on the west corridor of Edinburgh. Similarly, every year and on an on-going basis, we look at how we are increasing the room utilisation, i.e. how do we get more students into classes, for example? That might be knocking down walls. We are also investing in sustainability. We are looking at LED lighting at this point in time. We are looking at replacing electricity with gas workshops instead. We are also looking at combined heat power plant from additional funding from the funding council at this point in time. There are a lot of sustainability elements that we are looking at. On a financial saving side, we are probably looking at around about £600,000 to £700,000, which is probably what we have been saving, and there is potential for more once we put the investment in from £1.3 million. That figure of £600,000 to £700,000, is that going to be an annual saving? That is a recurring saving. That is a recurring saving. Broadly speaking, you are committed to retaining four campuses. Interesting comments about construction and engineering among the cross-party group on constructions. I know that that is an important area, but, Mr Mackay, you said in your opening remarks that you have tailored courses to reflect the needs of local communities. Can you explain the approach to that, and how you know that that is working for local communities? Part of the process that we have gone through has involved an awful lot of looking at ourselves and our processes. Indeed, not just how do we count the beans, but how do we actually reflect the job that we are there to do? In fact, part of the process, a board meeting when we were having a report on the initial transformation plan where we were seeking to make financial savings, came to light because we had a report from Ruth Silver, who some of you may be aware of, who did a big report on widening access up here. Ruth had carried out some work along with people from SDS and SFC, and so on, and SFC had paid for it. It was a really interesting and useful piece of work that was done for the Glasgow colleges in order to basically go and ask all of the key stakeholders where we were, feed that back into the college, match it against the three colleges' output and start to make changes to make sure that you did match what your community needed. When we heard about that, we were very quick to say, hang on, we will have some of that as well, please, and we were like, will the SFC fund us, because it was a considerable expense? The SFC fund us to do the same job of work for Edinburgh and the Lothians that we represent, so it is based on that. We did that initial work, and that acted as the starting point for the much larger piece of work that the principal and education people have done on our curriculum since then. That gives us a bit of confidence that we are working off the views and attitudes that are coming from our partner councils and so on that we are working with. I need to make standards committee in a few minutes. I do not want to be late or I will be in trouble. I will finish by picking up on the reflections on governance. Mr Mackay, you did say that the board was not perfect and nobody is perfect. In hindsight, what would you have done differently as the chairperson and, I suppose, for other board members? Have you undergone any training to upskill and improve? We introduced at Edinburgh from day one some of the processes that are now being introduced across the whole sector in terms of board review, review of the chair and independent review of the third party independent review of the way in which the board works. We introduced all of those from day one when Edinburgh College was established. Those same processes are now being introduced across the whole sector, mostly because of the damaging and reputational things that have been elsewhere in the sector in the past three or four years. Personally, that is a very good move, and it is in line with my own work that I have done through his directories and so on. What would we have done differently? Hindsight, as the committee probably knows better than most, is a wonderful thing. Had we known from day one that we should be looking much more closely at the very specific way in which we were gathering students, the actual numbers of students that we are participating in and so on, and that, in fact, there was a capacity out there in the community to feed what we thought was the size of the college when we first put it together, that would have been by far the best place to go. You are right that I said that the boards make mistakes. I also said that I had some very good people on my board. The only thing that boards can do is to learn from that and seek to change thereafter. I said in my answer to Alex Neil that we have changed a lot of structures on the board to make it more functional. On the commercial and international, that is one of the other things that we have done because we saw that problem coming and we wanted to react to that. We have reacted to the ability of the board to move more quickly when it deals with things like that. The stuff that you guys have done in pointing us towards areas that we maybe need to look at more closely, we have also taken on board because there is very little point in any of us who are charged with trying to get the best for the public purse and not listening to people and not changing the way in which we do things. We are quite grateful for that. We have made a number of changes and I am as confident as any football manager can ever be that, in fact, they are starting to get the thing right and moving forward. I am sure that if I had a chair, he would say that he had full confidence in me, and we all know what that means. I think that we have done what we can. I think that we are very conscious that public money is involved and I think that—I will just say one thing, perhaps, chair, which might be helpful to the committee generally. In preparation for this, in looking at Caroline Gardner's report that you are coming up to talk about in the next wee while, we started—I asked Alan to look at our underlying accounts and our trends for the next three to four years. I was happy when Alan produced those figures for us that Black Ink was showing and was growing for Edinburgh College, because that, at the end of the day, as far as my board is concerned—and I am sure that as far as you are concerned—is the outcome that we want to see. In fact, we have managed to get to the bottom of those problems and we have managed to move forward into a situation where the college's finances are working much more stable. Liam Kerr, do you want to return to your question? We are talking about the voluntary severance scheme and just looking forward to how that will work. My understanding is that an element of the voluntary severance scheme, or part of the decision on who will be chosen and who will be accepted, is whether the course is efficient. I see from the report that inefficient courses are in danger of being removed, or maybe I can go further and say that inefficient courses will be removed. For clarity, what is efficiency? Is it purely financial? You mentioned earlier that it would be where students would not suffer. What is the definition of efficiency? There are several elements to efficiency. One is class numbers, but there is not an absolute number. For example, a course in business can run with much larger numbers of students than a course where we are making provision for young people with additional support needs. As you would expect, we set the course targets for each subject area according to what is pedagogically sound, what breaks even, and it might be that we are even prepared to make a loss in some courses because those are vulnerable students or their entry-level courses. We know that if students pass those courses, they will go on to sustain other courses and get into work in future. We set an efficiency quotient for each course on a case-by-case basis. Depending on aspects such as safety, you might be able to have a class of 30 undertaking a course in economics, but you would not have a class of 30 in a construction lab because it would not be safe to do so. For every course in the college, we have worked to identify what would be an efficient number. That is one element of efficiency. Another element of efficiency is the staff costs that go with it and the overheads that go with it. We would seek to run for students every course that we possibly could. We cannot run courses unless they are for students who are very vulnerable or who have additional support needs. We would not be running courses with students of two or three, and you would not expect us to. What we are trying to do is to maximise the benefits to students. We are also trying to reduce courses where there is little or no demand. There are some courses in the FE sector where the demand is tailing away, and there are other courses where the demand is growing. It is slightly allied to Monica Lennon's question about how you get that right and the question that she was asking about the curriculum, because that is about running a curriculum for the future. In the past, we have turned away too many students who wanted to come to Edinburgh College because they did not have the qualifications that they needed to get into college. We are now investing more heavily in courses that are viable, which can run, and which give people the qualifications that they need to get on to the course that they desire. I am afraid that it would be nice and simple if I was able to say that the quotient is 15 or 20 or 25, but it depends. We now have a very detailed analysis across the whole of our college about what the numbers have to be for each course. If a course is not viable, we seek to make sure that the students can either join another class where there is another one running in parallel, could change the days to come on a course or to find another course that suits them. It is always a balance between student demand and what the employer needs are. Equally, there is no point in training students for something in which there are no jobs and balancing all that up with the efficiency of the college, because we are spending public money. We do not have a blank check to run courses for everyone regardless of whether they are efficient or not. Can you briefly give an example? What are some of the courses that are inefficient and have thus been cut? What we have found in the past is that say, for example, that we run eight parallel childcare courses and that we have offered those courses on lots of different days and that in each of those courses we only get 14 students. Even with the national average of drop-out, that is going to come down by a couple of students by the end of the year. That then begins to make that inefficient, but if, however, we can consolidate the days on which those courses run while maintaining as much flexibility as we can, we could actually combine those courses so that instead of running eight, you are running six, and then we would have more efficient numbers of 25, 26, 27 in childcare, where it is possible to run courses at that number. You are cutting some courses. We are not cutting any students, but we are cutting the number of occurrences of courses. Yes, so there will be less course options. Well, no, there won't be fewer course options. There may be fewer days on which it runs, or there may be less flexibility. Yes, so what impact assessment has been done by the college on the implications for students, and you mentioned the labour market there, so what impact assessment has been done on your ability to provide to the labour market and, indeed, to provide routes to university? Well, that is part of our wider curriculum review. Far from cutting courses in the last couple of years, we have been introducing courses. Has there been an impact assessment done before undertaking the scheme that will result in college? There would be an impact assessment undertaken if we were going to close a course, and there is always an impact assessment done when we are creating a new course. Has there been an impact assessment done? We heard earlier on that there is a very far-advanced voluntary severance scheme. There are very far-advanced programmes to transform the product. What impact assessment has been done, past tense, to check the impact on the labour market, the students and the university progression? So an impact assessment will have been done. We have done an impact assessment on the voluntary severance scheme and the effect that that would have. Was that done in consultation with the students and the labour market local employers? I do not have the detail of that impact assessment with me, I would have to write to the committee about that. I would be very grateful, thank you. Obviously, you talk about adding students into courses, so the courses are now bigger. Presumably that will have a significant effect on staff and the ability of the college with less people to deliver those bigger courses, the more subscribed courses. What impact assessment has been done on the impact on the staff of the changes that are being made? I am just checking with Mr Williamson, because again, this is Char's and Mr Williamson's Bailiwick. I believe that that will have been done as part of the same impact assessment for the voluntary severance scheme. Perhaps, if that could be provided. One final thing, which I just want to wrap up and perhaps I might bring Mr Mackay back in here. Is there a danger, Mr Mackay, that in the drive for the financial stability that we have been talking about this morning, however that instability, if I can put it that way, has been incurred, that there is a negative impact on course provision, on the learning journey and the staff experience? I think that any change in any public service can always be regarded as having a negative effect somewhere. In that particular instance, the board has been at pains to come at this whole question from the opposite of what some of us might remember from the value for money days and so on of Mrs Thatcher and so on. We have come at this, in fact, from what is the need that is out there. What kind of curriculum should we be doing as Edinburgh College? What should we be offering? Using that as our driver as to how, in fact, we then produce a college that is efficiently delivering that. In discussions on the board, we made it clear that we did not want to see that as an exercise that was driven by cost-cutting or by something that could then have the kind of unforeseen consequence that you are describing there. At the end of the day, that does not actually do what needs to happen. We have tried, from the outset at Edinburgh College, to take the best of what our legacy, the historic FE provision in our area, was, but to learn from that and move it forward into something that the community wants. I am reasonably confident that, in fact, we have started from the basis of what is good for our students, what is good for our community and make a college that delivers that and try to do it then in such a way that we are not having the consequence that you are referring to. Whether we manage it or not, by all means, we can have that discussion either here or somewhere else and give us five years or something to see how it comes out. As I said, I was very hopeful that, in beginning to look forward, in beginning to look at our underlying trends, in beginning to look at the stability of the college that we are starting to see black ink there, that is helpful for everyone. It is helpful for the general mood within the college. It is helpful for our staff. It takes everyone forward at that point. That is what the board wants to see. I suspect that that is what the executive wants to see or, indeed, what you want to see as well. I have a couple of questions just to sweep up, and we will be very quick. I want to return to the EIS submission. Your explanation of the change to the system of withdrawals was such that you did not want a withdrawal by a lecturer. You wanted to do follow-up, and I absolutely understand that. When is the withdrawal then reported? Based on the follow-up that you are doing, how many of those students are then re-engaged with courses? The withdrawal is reported as soon as we are certain that enough time has passed or that so much time has passed that the student will not be able to catch up, or that the student can tell us, either face to face in writing, that they are definitely not coming back. That will vary from student to student. Clearly, we are trying to get the students back in to their classes within a matter of days rather than a matter of weeks, so that is reported as soon as we know that the student has withdrawn from the class. I am sorry, convener. There was a second part to your question. How do you know how successful you are? How many, in percentage terms, of those students have actually returned to their courses and re-engaged? Well, this year, our retention rates are up significantly. That is my question. It is the specific. Those who would otherwise have been marked as a withdrawal, you are working with to get back into the politics. I would need to give you that actual figure. What I can tell you is that, last year, we had 5.2% of our students' withdrawal, and in this current year, which is just ending tomorrow, we had 4.6% of our students' withdrawal. My belief is that that change to that withdrawal system has helped to retain more students. The system itself is not gaming the numbers. It is providing you with an early opportunity to engage with students. Both, yes. That is correct. Can I go on to the resulting EC units very quickly? I absolutely understand what you are saying in the example that you gave of a NAT5 French preparation. That would, would it not involve teaching materials and class time? Yes, it would. You would expect that, if a student was being prepared for assessment, that would be using the materials that were needed for the unit, but also the teacher would be preparing materials for practice assessments and working with students on what areas of their work, either individually or collectively, they need to revise. So are you therefore in a position to guarantee that there is no resulting EC unit as a consequence that has no teaching materials, no class time and no financial assessment in it? There should be no, there should be no examples of where teacher time has not been used to support students in, for example, studying for their exams. Okay, would you go back? It might be part of the overall cost of the staff for the whole year, but I'd be very happy to look at anything that anybody thinks is problematic. I would not expect to see that. Okay, I would have thought that you as the principal would want to investigate that. I will indeed. That brings me to my next point. You've come to this committee asking for a survey conducted by the EIS, and I wonder whether that doesn't point to, and let me be helpful, as I hope the committee can be. We've had a number of items of correspondence from the EIS since the section 22 report into Edinburgh College landed with this committee. It strikes me, including today's example, that there may be a fundamental issue of communication between the college, the board and indeed the EIS. I wonder whether there is any activity that you are taking to address that. There is indeed, and actually it's been a key element of the work I've been doing over the last two years, is trying to build industrial relations in the college. In fact, we have some examples of excellent industrial relations in Edinburgh College because we have more than one union. I've sought to introduce a whole range of measures to support partnership working, and some of my EIS branch officials are sitting behind me, so I can't see their faces, but you can. I've always worked well in any job that I've done with our trade unions. I believe that strong trade unions make for a very good workplace, and of course I'll continue to work towards better partnership working with the EIS in particular. Thank you, that's helpful. Monica Lennon wanted a quick question. Oh, thank you. The answer is probably no, but I thought I'd take the opportunity, since I was back quicker than expected. An issue was raised with me recently about another college, about a practice whereby students who drop out maybe after a couple of weeks, but certainly before December, are being pursued for a fee repayment. I can tell by looking at your face that it's probably not happening in Edinburgh College, but it's not happening in Edinburgh College. Are you aware of that practice? I'm not. No, and it's not part of your procedures. That's reassuring, thank you. On the basis that I think we've concluded all questions from the committee, can I thank the witnesses for their attendance this morning, and could I suspend the meeting briefly to allow a change over in witnesses? Okay, can I move us to item 3 on the agenda, which is the Common Agricultural Policy Futures programme, and we'll take evidence from the Auditor General on her further update on the programme. I welcome the Auditor General and her colleagues from Audit Scotland, and can I invite an opening statement from the Auditor General? Thank you, convener. Today's report looks at the progress that the Scottish Government has made with delivering its Common Agricultural Policy Futures programme since I last reported. It covers progress up to May 2017. Before I outline my findings, it's important to note that the rural payment system is working, processing applications and making payments, but it's not working as well as intended, and some parts of the system are still being developed and redesigned. I'd also like to acknowledge the tremendous efforts that staff right across the agriculture and rural economy directorate continue to make in delivering the programme and improving the system. The Government has made significant changes to the leadership and governance of the programme, improving the transparency of decision making and increasing the strategic capacity of senior management. However, it's clear that the difficulties experienced in previous years have had a detrimental impact on the programme over the last year. The report highlights that significant management time is still focused on short-term payment priorities. The changes to leadership will take time to embed, and the Government will need to ensure that senior management is able to focus on the longer-term strategic needs of the directorate. I highlighted in my report that the application process has improved with the proportion of applications made online increasing, but the Government has not been able to make 2016 payments as quickly as it would have liked. The system requires significant development to be able to make 2016 payments, and the Government undertook additional checks to make sure that there were no errors. In order to make payments to farmers more quickly, the Government introduced another loan scheme. The scheme made payments to farmers from November 2016, which was welcomed, but it put the Government's budget under pressure and the requirement to maximise the recovery of loans by the year end, put pressure on payment timescales and on staff. The report also summarises the findings of our recent audit work on the European Agricultural Funds account. We identified through that audit a number of weaknesses in controls, which mean that there continues to be a risk of significant financial penalties. I recommended in my report last May that the Government should complete a detailed assessment of the risk of financial penalties, and I highlight this year that the assessment is not yet complete. In the absence of the Government's own assessment and acknowledging the uncertainties involved, we have updated our estimate and found that penalties of up to £60 million are still possible. The programme closed at the end of March this year, with programme activity moving into the business of the directorate. Three key systems are still being developed. The programme had spent £166 million to the end of March 2017, and the Government forecasts that it will deliver a cap compliance system within the budget of £178 million. The Government will need to continue to incur costs related to the rural payments system. An independent technical assurance review found that although the system's design and infrastructure is fundamentally sound, significant investment will be needed to develop, rewrite and redesign some parts of it. The review also noted the lack of a fully tested comprehensive disaster recovery plan. Overall, the report highlights that the programme has cost significantly more than expected, delivered less than originally anticipated and will not deliver the full range of planned benefits to date it hasn't delivered value for money. My report makes a number of recommendations to help management to prioritise activity as the programme closes and moves into directorate activity. Convener, I have with me the team who have worked on this report and on previous reports and will do our best to answer the committee's questions. Thank you very much. Before I invite members to ask questions, you referred to the independent technical assurance review of the IT system in your statement to us that was commissioned by the Scottish Government. You will be aware that we asked the Scottish Government to provide a full version of the review, but it had concerns about commercial confidentiality and the possibility of cyberattacks, so it did not want to publish that. It has, however, provided us with a summary of the key findings. Given that it concerns an IT programme that has meant £1 million of public money that has been beset by delays, I would like to be reassured that you, as the Auditor General, had access to all the information and were not inhibited in carrying out your report. Absolutely. I have had access to all the information that I require to produce this report. I have read the technical assurance review in full, and I know that my team has worked with it closely in informing the conclusions in my report. That is helpful to know. Thank you very much. Colin Beattie. General, I suppose that the biggest concern here is the potential for disallowance and the risks around that. You have done a detailed assessment. What does that entail? I will ask the team to talk you through the detail of it in a moment. It is worth saying up front that the recommendation that I made last year was that the Government should carry out that assessment in order to prioritise its investment in which parts of the system should take priority to minimise the risk of penalties and disallowance. That work is still continuing and the Government does not have its own figure. We made use of the information to which I have just referred in my answer to the convener and our knowledge of the European Commission's rules to carry out our own assessment in relation to both delayed payments and the controls that are required to be in place. I think that Morag is probably the best place to talk you through how we did that. First, to set out the financial penalties that can be incurred obviously relate to not just missing deadlines but also identify any weaknesses and controls if that poses a risk to the European funding. Within the EC regulations, there is an audit circular that sets out a table that has a percentage that can be applied in terms of disallowance from about 2 per cent up right up to 25 per cent. That goes on the number of control weaknesses that are identified. As we set out in paragraphs 57 to 64 of the reports, that sets out what we found in the European Agricultural Fund's audit that identified a number of weaknesses in control, and from that we used that information to refine our assessment from previous years. Our assessment also takes into consideration missing deadlines as well. You have adjusted your potential loss from £125 million to £60 million. Why was that adjustment made? Was there improvements in the system or better controls? Last year, we gave a range. Our estimate was between £40 million and £125 million, and that assessment was prepared in advance of the publication of the report last May 2016. After that, the Government obviously applied for or was granted an extension to the payment deadline from the end of June to the middle of October. That affected the likely penalties and disallowance that come through. It is also fair to say that there are reports between paragraphs 56 and 64 that, in the European Agricultural Fund's audit, we found that some of the weaknesses had increased from previous audit work. It is a complex calculus that Morag has tried to talk you through, but the combination of all that brings the upper limit down from £125 million to £60 million with the recognition of the uncertainties that are involved and the fact that, if the EC does decide to impose penalties, the Government can negotiate with the Commission about that. I am not defending the system. It has clearly been a real problem. Last year, where presumably things were even worse than they are this year, the penalties incurred were £5 million. I would have hoped that it would be getting mitigated in some way. We hope that they are being mitigated as well. That is reflected in the fact that the upper limit has come down in the estimate that we have published in this report. The £5 million relates only to payment delays. As the team has talked you through, there is also the potential for significant penalties relating to control weaknesses. We know that those weaknesses exist from our work on the European Agricultural Fund's audit. It is for the EC to assess what penalties it wishes to impose and the Government can negotiate. However, there is a second stream of potential penalties as well as those related to delayed payments. Are the control issues from your experience from what you have seen improving? Are they being addressed? Morag Stephen, do you want to talk about that through in more detail? At Paragraph 60, we gave a flavour of some of the control difficulties that we encountered during the EFOT audit, which was quite a challenging audit. We concluded that at the end of February. Some of the difficulties to overcome were the availability of the audit trail, the system reports, to support the numbers in the EFOT account. Although the nature of potential disallowances has reduced at the experience during the course of the audit and some of the challenges that we found in terms of the evidence to support the numbers, it was a difficult experience. Although we were able to verify the numbers that were produced for us to audit, we still make recommendations and note findings to be addressed during the course and information that will fall up during the course of the audit this year. Norah John, you said that the system is working, perhaps not working as well as it should, but it is working and it is delivering. You have stated that it is not value for money. On the face of it, I can understand why you might go down that road. I was just wondering that, given the potential of disallowance that might have taken place, had even this system not been in place, it is obviously delivering some value for money, if not as much as it might be a hope for. Would that be correct? I have said that the system has not yet achieved value for money and that recognised the fact that the Government is still hoping that it can identify more areas to achieve benefits from the investment that it has made around, for example, the land mapping system and the customer account information that is being developed and will, we hope, be in place in future. The reason for my judgment that it has not yet received achieved value for money is very much about the comparison of the original costs and benefits that were anticipated against where we are now. We have seen the cost rise from the original planned costs of about £102 million to £178 million as the current estimate. We know that some of the planned benefits on which that was based have not been achieved. Obviously, the risk of minimising penalties and disallowance is still very much open. Some of the benefits in terms of integrating pillar 1 and pillar 2 payments and improved experience for users and customers of the system and improved reporting have not been taken out of scope deliberately when the system was rescoped in 2015. We still have some elements that will need further investment to achieve future cap compliance. At the moment, all those elements together drew me to conclude that it has not yet achieved value for money. I recognise that the Government is still working to see what more value it can achieve from the system. Team, is there anything that you would like to add to that? Liam Kerr. First of all, just to get into this, you made four recommendations in the previous report, but only one of them has been completed. When do you anticipate, when are the Government saying that the rest of them will be acknowledged and achieved? I think that we can give you some more detail on the Government's current plans for some of the three recommendations that are not yet complete. The comments that I would make reflect the comments in my opening statement, which is that the focus on being able to open the applications process and make payments during 2017 has got in the way of the longer term strategic changes that are needed to make the programme as a whole as robust and resilient as it may be. Gemma, is there more that we can add about progress? Certainly. On the other three recommendations, there is very much work in progress on these issues, and we wanted to recognise that while recognising that further effort is still required on them. For example, the first one on the detailed assessment of financial penalties, we made that recommendation last year, as your general said, to help them to make the decisions on priorities. We note now that the changes to governance that have been made bring in some of the accreditation side to sit on those committees that help that broader assessment of all the issues, but that more detailed assessment of what is the built-up risk of financial penalties across all the different schemes has not yet been done. While some changes have been made to look more broadly at the risk of disallowance, it has not been to that detailed level that we would expect it to be. We also talk about noise transfer, and that is very much a live issue at the moment with the end of the programme and contractors leaving. We have seen a transition plan in place, but the risk that we saw was that there is so much activity on going at the moment with the need to make payments and the need to deliver the developments to the system that there is very much a risk that there is not that time built in for that noise transfer to take place, and we thought that there is not adequate contingency in there to allow for that, so we were thinking because of that risk that that plan might not succeed and we wanted to highlight that risk. Our last one was around about the disaster recovery solution. We noted that last year and, again, it has come up in the independent technical assurance report as well. Logi, the situation has not moved on that much, but the Scottish Government are starting to consider now with the legacy systems being in place for much longer, which is where the real problem lies with the disaster recovery. The new system does have a disaster recovery built into it. It has not yet been tested, but it is there, but the legacy systems cause the problem because they are having to rely on those legacy systems for much longer than they are now looking at, actually. As we suggested, what is the risk that they are prepared to take at different parts of the process and therefore what would be appropriate disaster recovery arrangements to put in place in the short term and into the longer term? Can we look at the knowledge transfer piece that you mentioned? First of all, just for my clarity, you talked at paragraph 94 in your report and you mentioned something else there about contractors. There are around 20 contractors with a pivotal role, and you say in paragraph 94 that there is a significant number of contractors developing the system. Just for my clarity, when you say contractors, what you mean is that your classic IR35 one-man band is engaged to send one guy in to develop something? Is that correct? No, the majority of contractors come through the main supplier, so they come through CGI, and that is what we mean by contractors, so they are contractors employed by CGI or through CGI. Engaged through CGI, not employed by CGI? Yes, sorry. I understand. Interesting. You then talk about the knowledge transfer. This is a programme whereby, now that there is a system there, we are trying to capture all of that knowledge to get it internalised to employees to actually put in place, correct? Yes, so essentially as the programme closes and there will be less people working on the development of the system, it is essential that that knowledge is transferred to the staff who will be running the business as it goes into business as usual, who know and understand how the system operates. Have you been given any idea of when that process will conclude, and indeed how it will conclude? Presumably, as you quite rightly say, there are a finite number of staff in there already who are, by the sound of it, incredibly overworked and are about to have an enormous amount of knowledge transfer placed on them. Is that correct? We know that arrangements are already in place, so for some of those very key roles, there has been work shadowing put in place over the last few months to try and get that knowledge transfer in place. We know that it is very much on the Scottish Government's top of their priority list as something that they need to do, and arrangements are in place for that. Should the Scottish Government be engaging or employing more people? Is that an exercise that is happening? One of the things that the directorate has been doing is looking at the kind of capacity that it has within the directorate to manage the move into business as usual. We talk in the report about leadership changes and the kind of increases into the leadership team to make sure that it has that capacity to deal with the business as usual as the system comes out of development in internormal processes. I have some further questions, but I think that I'll come back. Willie Coffey. I wonder if I could just go back to the budgetary issues and try to steer away from the software issues that are usually focused on in this discussion. In the opening second paragraph, you are saying there that the Government expects to deliver the system that complies with cap regulations within the £170 million budget, and we discussed that in response to some of Colin Beattie's questions. Can you say what your perspective is on that if you have had a chance to look at that? You are also projecting forward looking at some additional work that may continue to be required to fully develop tests and so on and deliver the system. Has there been any analysis of the extent and the size of that and whether or not Scotland has a chance to scrutinise that, too? Yes. I can refer you first of all to Exhibit 7 on page 18. That shows you the programme costs as at 31 March. It shows you that of the total £178 million budget, £166.4 million had been spent by that point. The balance of the £178 million was committed to a range of other things that need to be achieved to ensure cap compliance at that point. Most significantly, there are three additional parts of the system that still need to be put in place and which are budgeted for in relation to the scheme accounting and customer account management, to the land parcel and pillar two capital claims. Those are budgeted for and the budgeting is reasonable, but there is clearly a risk until those parts of the system are up and running that they may cost more than expected or that there may be unanticipated problems with them. That is the £178 million programme budget. We are moving on a little bit in the report. We identify that the Scottish Government, in order to not just maintain the system but develop and stabilise the elements that are already in place, has entered into contracts with two suppliers, a contract of £29 million with CGI over two years, which reflects their option to extend that payment, and a smaller contract of £3.5 million to maintain and develop some of the legacy systems to keep it together. We recognise in the report that there is always a need to invest in maintaining and continuing to develop an IT system to make sure that it stays fit for purpose and can meet changing needs, but we also conclude that the scale of the investment required is more than would normally be anticipated, and I think that reflects the findings in the technical assurance review. Gemma, do you want to add to that in terms of any of the detail? We know at the moment from the technical assurance review indicates that significant investment is required. What we do not know yet is what the costs of that will be. The Scottish Government is currently talking with the contractors about what the costs of that might be and how significant they will be. I think that what is clear is that there will be a number of decisions for the Government to make about where they prioritise the investment. That is why we made the recommendation in the report about them having a framework in place to allow them to make those decisions, so to ensure that they bring in what are the technical requirements of the system but what are the requirements from some of the EC audits, for example, and how do they prioritise investment in that? What do the farmers want to be prioritised? What do the area offices staff need? There has to be a framework that brings all those things together so that the Scottish Government can prioritise between them about where the investment goes. How regular will that be, the follow-up assessment and projection of continuing financial support to develop the system? It is clearly obvious that any package like that will need continuing maintenance and possibly some investment as policies change and demands change. How regularly will we see that? Do you think that a re-forecast of what will additionally be required year on year to support the package? What the directorate will need to do will be annually as part of its budgeting process to look at what are the needs for that year and the next year. As it would do in any year and as it is no longer a programme, it is part of business as usual, that will form part of its overall assessment about what it needs, what investment might be required and where are the priority areas and how will it spread that over the years? A reference in the paper is due to difficulties that are experienced across Europe. Have other jurisdictions been experiencing similar difficulties in implementing the new cap system in their countries? What kind of extent have they had to contend with? We know that a number of member states had difficulties last year in meeting the end of June timescale for making payments and the commission, as a result, gave a wider extension to a number of member states to extend the deadline through to mid-October 2016. We do not know what the position is this year. I do not think that we are in a position to comment about practice elsewhere in the European community at the moment, but we do know that it was widespread last year. Beyond 2019, perhaps, when the UK pulls out the European Union, this software is presumably going to have to change radically at that point again, because the compliance rules are going to be changed or different, I would imagine. None of us knows what the position will look like in 2019. I assume that the Government will still want to be developing a system for providing support through an economy. One of the areas that the directorate is currently looking at is how this system could be used to provide wider support with further development as required, but it is obviously not a helpful development in the terms of providing what is required for this cap programme. I presume that it will stay in place until we know what it should be replaced by. The system should have some kind of life-spanning beyond exiting the year. One would hope that, for the amount of money that we have put in it, it has more than just a limited shelf-life. Liam Kerr, for one final question, and then we will move on. You might want to make it one in parts. Very quick question. Two contracts have been extended. I think that CGI and Paragraph 43 say that another one has been extended. Do you have any comment on the extension of the contracts of people who appear to have failed to deliver the IT system that they are paid to do? Secondly, on the loan scheme, which I am very pleased about—this is people's lives that we are talking about here—money that was pulled into the loan scheme, what has suffered as a result of funding the loan scheme, and finally, who is at fault for this? That is perfectly succinct. We talk in some detail about the extension of the contracts in Paragraph 40 to 43. I think that, in terms of CGI, the option to extend the contract was there from the beginning for two years. Given the problems that have been experienced, there was little option once the Government started to look at what was required other than to extend it. We recognise in the report that the Government has negotiated quite rigorously with CGI about the conditions that are put in place around that extension and that contract monitoring has improved. I think that that gives me some comfort that this is being done in a way that is based on a proper appraisal of the options and maximises the chance of getting good value for the additional money that is being spent. The other contract is a smaller one and reflects the fact that, against expectations, the rural payment system overall is still relying on a number of legacy systems that need to be maintained in order to play their part in that. Against the point at which the system has reached, they both seem to me to be reasonable decisions. I will ask Stephen to pick up the question of loans. I refer Mr Cartiwag to Exibit 4. In the report, we have set out in a bit more detail the progress and use of the loan schemes over the course of the past few years, covering the various mechanisms that have been used as well as the recovery and the amounts that are outstanding. The Government has funded the loan schemes from its financial transactions budget, and that is a budget that is designed to fund schemes outside public sector bodies, typically for regeneration infrastructure and housing initiatives. We have said that there was an impetus to recover balances of loans by the year-end and we note the balance that remained outstanding at the year-end. The Government has noted that it was able to support and deliver the programme through what is referred to as underspends in other areas to arrive at the year-end position. I will pick that up again if I may convene. The committee may recall that, in my report last year, I concluded that the problems that we have seen with the system go right back to the beginnings of the programme in 2012 and the extent to which the complexity of the new cap programme was underestimated and, beyond that, the changes that were agreed between the Scottish Government and farmers and rural businesses added to that complexity. We have seen significant changes in both the civil servants and the ministers accountable for this in recent months, but I think that the question of the underlying responsibility goes right back to 2012 and we can refer you back to that earlier report if you would find that helpful. Thank you very much and I will have a brief suspension to allow some of the witnesses to change. It is Scotland's colleges 2017 indeed, so we will take evidence on the report from the Auditor General and I welcome back the Auditor General and her two colleagues from Audit Scotland and I invite her to give us an opening statement. Thank you convener. The second report this morning is my annual report on Scotland's colleges. Colleges have an important role in helping to achieve sustainable economic growth by contributing to the development of a highly educated and skilled workforce. The college sector has been through major reform in recent years and I have reported to this committee and its predecessor about progress through my annual overview reports. Today's report provides an update on college finances as well as an analysis of learning activity. Since 2012-13, the Scottish Government has set a national target for the college sector to deliver a certain volume of learning. The sector has continued to exceed this target, although its performance declined slightly in the last year. The Government prioritises full-time courses for younger learners. With the number of young people in Scotland falling at the moment and school leavers increasingly going into employment or university, we think that it will be harder for the sector to continue achieving the national target in future. We illustrate this in Exhibit 1 on page 9 of the report. There are over 220,000 students in colleges across Scotland in 2015-16. The number of students attending college has fallen slightly since last year and, when measured by full-time equivalents, numbers are at their lowest level since 2006-07. Most of the reductions are in the 16 to 24 age group. The change in student numbers is shown in Exhibits 2 and 3 on pages 10 and 11 of the report. Because overall demand for college places is still not recorded, we are not able to say whether that reflects fall in demand or other factors. Looking at how well students do in college, attainment continues to improve with the percentage of full-time students who successfully complete their course increasing in 2015-16. Most full-time students also continue to be satisfied with their college experience. In terms of the financial health of the college sector, we note that it remains stable but that it has deteriorated since 2014-15. We analysed college accounts and found that 11 had an underlying deficit compared to 9 in the previous year. Overall, the sector's underlying deficit was £8 million in 2015-16 compared to £1 million in the previous year. Colleges will receive an increase in funding from the Scottish Government in 2017-18, but they will still face some financial challenges. In particular, colleges Scotland has estimated that meeting the costs arising from implementing any agreements from national paying conditions and negotiations could be around £80 million over three years. The Government is still working to verify these figures. Some colleges have started to develop longer-term financial plans and work is underway with the funding council to establish a common set of assumptions to underpin these. This will help to support financial decision making that takes account of both immediate and future cost pressures. The report makes a number of recommendations for the Government, the funding council and individual colleges to take forward. Those are summarised on page 6 of the report. I am joined by Mark McPherson and Stuart Nugent, who carried out the work for this audit, and we are happy to answer any questions that the committee may have. There is mention made here of five colleges in particular that have deficits. Some of them we have seen come before us as an issue before, but there are some new names in there, should we be concerned? We talk about four colleges facing particular challenges to their financial sustainability. Three of them are the ones that you have received section 22 reports on in this year of the Parliament. The other is new college Lanark show, which is summarised in exhibit eight of the report. I made the decision at the point where section 22 reports were being drawn together, but it was not appropriate at that stage to bring you a section 22 report on that one college, but we are monitoring it closely and you may see further reporting in future depending on what has happened during the financial year that is about to close. I think that I am rereading. I am talking about regional Dumfries and Galloway, which filled me with targets as well. Can you refer me to the paragraph? Oh, it is paragraph 8. Apologies. You are talking about the targets for student numbers rather than the targets for financial performance. We do not have particular concerns about what is happening in the areas that have not been reported to you individually already, but the assurance holds that, through the auditors and the work that the team in Audit Scotland do, we monitor it closely. If we think that there are underlying problems that are not being addressed, we will report them to you in good time. I note that you referred to a 6 per cent increase in staff numbers over the last couple of years. That seems a little bit extraordinary given that all the colleges are saying that they are going to be saving money and reaching their budgets by reducing staff, which are the most expensive element. Are those front-line staff? It just seems odd. It is our attention as well, as you can imagine. More information is set out in paragraphs 42 and 43, which provides more information about both non-teaching staff and teaching staff. The number of non-teaching staff has increased by 9 per cent since 2013-14, and colleges where that happened told us that the main reasons were services such as catering and cleaning being brought back in-house, curriculum changes that require more support staff, or more apprenticeships where apprentices are being brought on as members of non-teaching college staff. In relation to teaching staff, the numbers increased by 5 per cent since 2013-14. That is shown in paragraph 43. Again, colleges tell us that that is due to increasing credit targets in some colleges and changes in curriculum or service delivery. You heard some of that in your evidence from Edinburgh College earlier. It is obviously an area that we are looking at closely, given the reduction in staffing numbers that we saw during the peak period of reform. We have recommended that colleges should be putting in place detailed workforce plans so that they are able to plan for the longer term rather than making short-term decisions that may have longer-term costs and consequences. Mark, I am not sure if you want to add to that. No, I am not. References made to reduction in the amount of money that is held in ALFs. I assume that that is what you would have expected to see in any case, because most of that money was originally allocated, particularly for CAPEX projects. Did you look at that at all? I know that there has been a question of how far you can look at an ALF. Absolutely. We look at it, as you know, through the lens of the college accounts, rather than looking directly at the arm's length foundations themselves. Stuart, do you want to talk about what we have seen in doing that work? Yes, I think that we have reported on it. Yes, in paragraph 60 we reported our findings. We noted in 2014 that there was £99 million that was donated to ALFs from the college sector. Over the course of the two years following that, the current amount that is held is around £57 million, and colleges are forecasting that it will require a further £34 million from ALFs, mainly for CAPEX projects, in the years from 2016-17 to 2018-19. Given the range of pressures that colleges are facing, we think that it is unlikely that they will be able to transfer significant amounts back into the foundations, but that may change over a period of time. It is something that we would expect to see reflected in their longer-term financial plans as they are developed. However, there is no indication that they are removing the funds from ALFs for revenue purposes. The terms of the ALFs should preclude that in any case, but the examples that we have looked at and referred to here in the paragraph that Stuart has just referred to are generally for capital purposes. On page 6, you say that the SFC should conclude its work too, and you are talking about requiring colleges to include the underlying financial position. Is that in respect to depreciation? Stuart is our expert in all of the accounting adjustments that are made, and I will ask him to talk you through the significant elements. Depreciation is one of them. Yes, indeed, depreciation is one of them. Others are pension adjustments, which reflect longer-term implications from pension liabilities for the college sector. There are also adjustments for any asset impairments, which do not result in an immediate cash payment, but again, they impact on a longer-term basis. This year, we have also noted that, due to changing the accounting rules, capital income from ALFs has been recognised in full in-year, whereas in the past it would be recognised over the course of the asset to which it was funded. We have made an adjustment for that, because otherwise the income does not match against the expenditure. That is the main adjustment that we made this year, but we recommend that the Scottish funding council should identify the main adjustments along the same lines as ourselves and require colleges to include a statement within the accounts of the underlying position. Is this the first time that this has been done? No, we did a similar exercise last year. The only difference is that the capital income from ALFs is a new adjustment that was brought about by the new SOARP, which came in in 1516. Has the SFC accepted the recommendation? Yes, it has. As we mentioned in the report, we recommend that the SFC should conclude its work to specify the adjustments so that they have taken the point on board. As far as I am aware, it will be included within the accounts direction for 2016-17, although I have not been in sight of that yet, I think that that should be available shortly. The question of the depreciation, which has always been a bit of a minority. You have, in your calculations in the report here, allowed for that for the college sector. I understand that there are going to be changes to this. Will it eliminate the need for those adjustments? No, I do not think that. We have not seen the detail in terms of how we will look in the accounts, but I do not think that it will eliminate the need for an adjustment as such. The proposal from the funding council is to allocate a fixed cash budget to each of the colleges. There is a first of all a name change from net depreciation to fixed cash budget. It is effectively the same thing. Each college will know in advance how much fixed cash it will have available and what it can spend that cash on. That should work towards providing colleges with more certainty, but by spending that cash it will still have an impact on the surplus or deficit position in the accounts and so it will still require an adjustment of some sort within the accounts. Eliminating the depreciation and bringing in the fixed cash budget, it is not really achieving much, is it? It is coming to the same thing. I think that what it is doing is maintaining the funding available to colleges through the changes that were required when they were reclassified as public bodies. It is complex, as you can hear from the very detailed information that Stuart has been providing the committee with. The general conclusion is that there is not a solution to the underlying issue brought about by reclassification. We are focusing instead on transparency, on making sure that colleges report on a consistent basis how they have spent the resources that are available to them and that we can look at the underlying financial position as a result of that. Thank you. I move on to Monica Lennon. I am conscious of time, but Monica on you go. Thank you, convener. I guess one of the headlines from the report is that it should numbers decrease slightly in 2015-16, but are at their lowest since 2006-2007. There has been a lot of reaction to the report and to the figures, but I wonder if the general view can provide some clarification, because when that was raised with the First Minister at First Minister's questions last week, she did not accept the methodology that has been used in the report. I think that, as she said, those statistics come from the funding council and we do not agree with the methodology. Can you help to explain what is going on here? Of course. The first thing to say is that, for all of our reports, we go through a process of agreeing the factual accuracy with the bodies that we are auditing, and in this case that includes the funding council and the Scottish Government. My report focuses on the 20 incorporated colleges, which are the ones that fall within my remit, and that has been the case since I started producing these reports some years ago. If I can refer you to paragraph 12, it provides some background to the confusion that you have just highlighted. The figures that I quote in my key messages and throughout the report are based on those 20 incorporated colleges. If you add in the non-incorporated colleges of which there are six, plus Scotland's rural college, which is a higher education institution whose activity counts towards the further education target, you end up with a very small increase in headcount in 2015-16, but the overall trend is still the same over time. We have tried to be as transparent as we can about what is happening here, but the exhibits in Exhibit 2 and Exhibit 1 highlight the overall method, which is not so much about student numbers in 2015-16, but about the long-term trend with the focus on younger students studying full-time courses that lead to a recognised qualification, which is a matter of government policy. Secondly, the declining number of young people in that age group and the fact that more of them are going to employment and higher education rather than into further education college. The figures that I have reported are transparent when I stand by them, but that is not the key message. The message is about the longer-term policy and the extent to which targets will be achievable given the demographic shift that we are seeing. That is helpful clarification on what the trends are telling us. I suppose that it takes me on to looking at actual demand. In your report, there is a lot of discussion around the fact that we do not really know what the demand is. I know that you did recommend last year that the funding council should explore with colleges a way to better assess that demand. I think that the Scottish Government is now commencing some work on that. I do not know if that would be a common application process perhaps around the UCAS system that we have for universities. Is that what you are recommending and is that what the Government is actually committed to exploring? Yes. You are right to reference the higher education system where, across the United Kingdom, we know how many students are applying for higher education places. We do not have that for further education in Scotland. It is not clear whether the falling numbers that we are seeing over time reflect either a fall in demand or students who are not able to access the course that they would like to study. Mark, I think, can talk you through more what the Government and the funding council are doing around looking at a system to fill that gap in the data. The funding council and the Government have looked in the past at ways in which they can better understand some of the demand for college places. I think that the Scottish Funding Council has a demographic model, so it looks at some of the wider implications of demographic change. More recently, as part of the learner journey work that the Scottish Government is undertaking, it is looking specifically at the potential in a common application process. At this stage, that is still at a very early stage. Can I pick up on retention rates? Again, they have decreased slightly for 2015-2016. I know that there is some work under way to try to better understand the reasons why people are dropping out. I know that in Britain in the previous session, we ran through some of them, but again, are we getting a complete picture here of what is going on? The information that we have used is set out in paragraph 25. We have information that splits between further education students full-time and part-time and higher education students in further education colleges, which is part of the complexity that we were talking about a moment ago. It is a mixed picture and the change is a very small year on year. At a national level, I think that it is very hard to explain what is happening. The funding council, as we say in that paragraph, thinks that one of the reasons may be the efforts that colleges are making to target harder-to-reach students who may need more support to be able to remain in their course and to benefit from them, but that is an impressionistic view rather than based on the data. I was very encouraged to hear what Annette Bruggan was saying about the work that Edinburgh is doing to identify students who are having difficulties early and to see what can be done to support them. It clearly also links into questions about the availability of student support funding, other services to help students who have particular needs to benefit from their courses, and I think that that can only be done at a college-by-college level. Again, I think that just from speaking to students and lecturers recently, it is not always a negative when a student does withdraw from a course. It could be that they have managed to get a place at university or another opportunity has arisen, but I guess the point is that we really do not know what the picture is telling us. The other question that I suppose has been around the financial cost of student does withdraw from a course early on. Has any work been done to look at that in terms of what that is costing the public? Could we improve on that? It is not work that we have done. We do note in the report that, in March this year, the Minister for Further Education, Higher Education and Science has outlined some work that the Government is doing to try to improve attainment and retention rates in colleges. I hope that that would be looking at those sorts of questions to really understand the costs and benefits to individual students, but also to colleges and the sector as a whole and think about how best to improve that. Lastly, I can pick up the issue of national bargaining, because it has been discussed earlier. We know that College of Scotland's estimated £80 million will be required to cover the full cost of implementing national pay and conditions. It sounds like, in some colleges, it is coming as a bit of a surprise and they have not really factored it in, but I note from the point that Colin Beattie made, or you touched on about new college Lanarkshire, that seems to be a factor in some of the financial pressures that they are facing and have flagged up. Do you have any sense of how prepared colleges are to meet those costs? Is that figure of £80 million accurate? I know that the Scottish Funding Council has made some additional money available in recent weeks, but I think that it is only around £2 million. The extra £80 million, if that is the correct figure, where is that money going to come from and can colleges absorb that based on their current budgets? We highlight it as being one of the most significant financial pressures that colleges are facing. The £80 million is only an estimate at this stage. One of the difficulties is that we know that it will affect different colleges in different ways because they have all negotiated their paying conditions separately. They are starting in different places, some are closer to what the national package looks like and some are further away. That will need to be built up almost on the basis of individual members of staff to understand what the financial implications are. Mark can tell you a bit more about the work that is going on behind the scenes to understand that and the scale of the challenge. I understand that Colleges Scotland has represented a body for colleges. It has been working pretty closely with colleges to try to establish individual costs at each college based on their best understanding of what the final costs are likely to be. It is subject to on-going discussion, as you would expect, with both the Scottish Funding Council and the Scottish Government, because there will be a question about where the funding might come from if it is needed to meet that cost. To clarify that figure of £82 million that Colleges Scotland has arrived at, is that based on information that they are getting from the individual colleges? I understand that, since the time of that estimate, they have been doing further work with colleges, so the figure has been refined over time. We do not have the detail on what that is. Thank you very much, Willie Coffey. Can you just remind us, or general, of how much cash assets does the college sector currently have? The cash that they held at the end of the financial year had fallen between 2014 and 2015 and 2016 from—it had fallen by £11 million. The amount that is held, I think, Stuart will be able to help me with. £43 million in 15, 16 accounts. That is our cash asset at the moment. Are there any restrictions about the use of that, as it is for identified purposes? No, that is cash on hand, so it is to meet the on-going costs of running the services that they are responsible for. Right. Thank you very much for clarifying that. In terms of the population changes, I note from your paper in paragraph 7 that, since 2012-13, the Scottish Government has maintained this figure of 116,000 FTE student places and still maintains that, but that is despite quite a significant drop in the actual population from that period, particularly in the 16 to 19-year-old age group, as well as reporting that more youngsters are going into work and or university. That is a really positive message, but how are the colleges looking at that? There are clear messages in the future if there is a declining population and how they prepare for the years to come on the assumption that that FTE target will be maintained. You are right. The first of my key messages is that the colleges have managed to continue to achieve their learning targets over a number of years now in the face of the challenges that we have there. An exhibit 1 shows you the learning targets achieved in the past and forecast for the next couple of years against the population of young people, and that gap starts to look more significant as we look to the future. That is why we are making the recommendation that the target itself should be reviewed, given that there are fewer young people and more of them are going into work or into higher education. The target itself is still appropriate. Individual colleges through the reform process and the curriculum reviews that they are carrying out are looking at how best they can serve the needs of the young people in their area. In a sense, you need that top-down and bottom-up look to be able to make an assessment of whether the system itself is trying to do the right things for the longer term. How are they managing to maintain the targets, if the actual physical numbers and the population are declining and they are coming through to the colleges? How are they managing to do that? Mark? Mark may want to comment. I think that we have seen curriculum reviews happening after reform, which have aimed to understand better what the needs of employers and young people themselves are and to make sure that those courses are being delivered. We are looking at more innovative ways of providing further education and more options for learning. There is good work going on behind that, and it clearly is becoming more difficult against the demographic change and the financial pressures that we have reported on. Marcus, in what you can say. I suppose that we mentioned earlier that there is a lack of any national measure of demand. It could be that some of the continued achievement of targets is tapping into markets of population that previously were not attending or were not coming to college. We have also mentioned harder to reach students, and it could be that, with additional support or additional input to those students, more people could be attracted into college from what is the smaller pool that now exists. On Europe again, it is in paragraph 54 that you mentioned a number of schemes that are funded through the European Union to the value of £70 million. Those programmes are scheduled to end anyway in 2020-21. Has there been any discussion about further extending these beyond that period of time? I know that the UK Government has given some kind of commitment to 2020, but we do not think that there is any commitment to go beyond that at the moment. Do we know any more? I do not think that we can say more than we say in the reports where we recognise that as one of the potential financial pressures facing colleges if that funding is not available after 2020. Those are programmes around youth employment and developing our workforce and so on, so presumably the colleges would wish to continue with those initiatives beyond that. I assume that the colleges would and I assume that the Government would, but there clearly is now given the vote last June and the events that have unfolded since then a need to review what happens if that European funding is not available, how the objectives that it is achieving could be met in other ways. I will be brief, convener, thank you. Two things that I just want to explore. The first is involving the SFC, if I may. Just looking at some of the other reports that we have done, in relation to Edinburgh College that we looked at earlier, the SFC removed credits from them, which plunged them into debt. They clawed back £800,000 on additionality. They are funding a voluntary severance scheme. Last week, we looked at Murray College, which is having financial challenges. We also looked at Lewis Castle, which has an allocation of credits, which is causing a problem and does not get clawed back. What is your view on how the SFC is managing the sector and managing the public purse? We have reported, as I said in my opening remarks, on the progress of college reform over the past three or four years. A couple of the clear messages coming out of that work have been, first of all, that it has been an unprecedentedly complex range of reforms that were happening over that period. Secondly, that the governance arrangements that have emerged from the end of it are now very complex, with single college regional boards, college regions that are funding colleges in other parts of Scotland. As you heard last week in UHI, a different set of arrangements before, with seven colleges playing into UHI's overall objectives. We have highlighted some of the changes that the funding councillor has tried to make to respond to the reform and the complexity that comes with it. We have also reported in some of the cases where that has not worked as well as it should have been, particularly in relation to the college in Lanarkshire that the committee spent some time on two years ago. I think that if you want to explore the future role of the funding council on the back of all the change that has been under way over that period, it would be appropriate to ask the funding councillor about it. I have not drawn a conclusion about this other than to recognise the complexity and the areas where it has not gone as well as it might have done. Thank you, that is very helpful. The other level was just exploring something that Colin Beattie was talking about, the staff and staff costs. There have been a lot of voluntary severance schemes, there have been a lot of voluntary severance schemes that we have looked at. In the same period—18 million pounds of costs that you say at Exhibit 10 are related to staff severance—in the same period, staff costs have gone up by £24 million, which begs the question, what is going on with the workforce planning? Are we removing too many people through the voluntary severance? What is happening to those people who have come out of voluntary severance, so are they coming back into the sector? There is an awful lot in that question. I need to start just by correcting the understanding of Exhibit 10. Exceptional staff costs the figure of £18 million that you refer to is the difference between what was incurred in 2012-13 and in 2015-16. Paragraph 40, 18 million of which related to staff severance. You are absolutely right. Apologies for misunderstanding the question in that case. Overall, I think that what we have said over the last two or three years is that, given the scale of reform that was going on, the range of mergers that we have had of colleges, it was entirely understandable that voluntary severance schemes were needed to reshape the workforce, to take out things that were duplicated in terms of teaching and support to teaching and learning, and to reshape the workforce for new curriculums. We have also said, though, that doing that in the absence of curriculum reviews and long-term workforce plans runs the risk of exactly what you are describing, of the wrong people being let go because they have other options and of people who may not be best matched with what the college is planning to do for the future remaining. We have reported the figures here because we have seen that uptick again in staff numbers for both teaching and non-teaching staff. We will continue through the audit work to look at the voluntary severance schemes that are in place, but that is why we are particularly pleased to see the emphasis on workforce planning coming through in individual colleges and with support from the funding council to make sure that there is a much longer-term view in future of what staffing is needed and how it can be afforded against the backdrop of the financial pressures that we have described. Thank you very much. I thank you for your evidence this morning. We will now move into private session. If I could ask that the public galleries are cleared.