 Welcome to the 19th meeting of the Public Audit and Post Legislative Scrutiny Committee in 2018. Can I ask everyone if there is nobody in the public gallery, but we have apologies this morning from Colin Beattie and Angela Constance MSP is attending in his place. Item 1 is declaration of interest. I would like to advise Angela Constance to declare any relevant interests. I have no relevant interests that are relevant to this committee. Item 2, decision on taking business in private. Do members agree to take items 4 and 5 in private this morning? Item 3 is Scotland's colleges 2018. I would like to welcome our witnesses today, Caroline Gardner, Auditor General for Scotland, Mark McPherson, Senior Manager, Audit Scotland and Mark McCabe, Audit Manager of Audit Scotland. I would like to invite the Auditor General to make a short opening statement. Thank you, convener. This report provides an overview of the college sector in Scotland, in particular the state of college finances and the learning outcomes for students. The report identifies a slight improvement in the financial position of Scotland's 20 incorporated colleges in 2016-17. However, this does mask significant variations between colleges with several facing financial challenges. Colleges are forecasting that their expenditure will increase faster than their income between now and 2021, leading to a growing financial deficit across the sector. Staff costs are increasing, and the full impact of harmonising pay and conditions is estimated to cost an extra £50 million a year from 2019-20. Government funding decisions after 2019-20, along with cost of living increases, could add significantly to the financial pressures on colleges. The Scottish funding council commissioned a college estate condition survey in 2017. It is estimated that a backlog of repairs and maintenance of up to £360 million over the next five years. The funding council is providing £27 million of capital funding to colleges in 2018-19 to tackle the very high priority repairs. With the financial pressures on colleges, it is essential that they plan effectively. College's financial forecasts do not currently provide a reliable picture of the future financial sustainability of the sector, and the funding council and colleges need to address that as a matter of priority. The sector continues to exceed its targets for learning activity in student places. A high proportion of college leavers continue to enter positive destinations such as training, employment and higher education, and student satisfaction remains high. However, in spite of colleges' efforts to tackle the barriers facing students from deprived areas, the gap in attainment between students from the least and most deprived areas is growing. Finally, this year's report looked at the operation of regional strategic bodies in the three multi-college regions. The regional strategic bodies have developed at different rates. There has been some progress since 2016, but the regional arrangements vary in how well they meet the wider aims of regionalisation. Alongside me, convener, are members of the audit team at Audit Scotland, and we are very happy to answer the committee's questions. Thank you very much, Auditor General. I am going to invite Ian Gray to open questioning for the committee this morning. Auditor General, I think that the committee will be pleased to see that this year's report on colleges shows an improvement in the financial position of the sector, because I think that, over recent years, that has been a concern with the annual report. That is good and we should acknowledge that, but you did say there or you sounded some concern there about the financial position moving forward. I just wanted to explore that a little further. The report would appear to indicate two problems or two potential challenges. There is one around capital, and I think that some colleagues will pursue that in a bit more detail, but I wanted to concentrate on the revenue funding for colleges just now. In paragraph 29 of the report, the SFCs recommended assumptions that colleges could use for longer-term planning. One is about capital maintenance, but one is about teaching grant, that it will stay the same. One is about the cost of national bargaining, that colleges should expect some support in the next couple of years, but that will reduce to zero. The fourth one is that colleges should factor in a 1 per cent increase for pay awards, and as the report points out, that is not a realistic assumption. I really just wanted to get a sense from you of how serious a problem the college sector faces on the basis of their current position and the assumptions going forward. It is serious, and that is one of the main messages of the report. The first thing to say is that, although we have seen a slight improvement in the overall financial position, it is a very small surplus across the sector as a whole, and colleges are operating within very tight margins, so there is not much room for manoeuvre for them. The three areas that you highlight are all significant parts of their costs, just very briefly on the capital costs. As we know, the overall backlog is about £360 million. This year, there is £27 million of funding for the very high priority repairs that are required. That is a big gap, and it is unlikely to be closed in the short term by similar levels of capital funding going in. Beyond that, as we know, staffing costs are by far the biggest element of the costs that colleges have to meet. We do not know how the costs of harmonisation will be met after 2019-20. As you say, Government pay policy has moved on from the very tight restraint that we have seen over the past few years, and 1 per cent feels like a very tight assumption to be using looking ahead. Those are the reasons why we think that the financial forecasts are not as reliable as they need to be. Even if colleges were using those assumptions, they would be tight. We know that some colleges have used their own assumptions because they think that their circumstances are different, so we have not got that clear picture of what it means in practice. What do you think would have to happen in order to provide a sounder foundation for the sector moving forward? There are two things. One is that the Government is gradually moving towards providing a clearer picture of its medium-term financial outlook. We saw the publication of the medium-term financial strategy back in May. That contains a lot of information about likely tax revenues, less information about expenditure in different portfolio areas, particularly outside the priority areas of health and social care, for example. More clarity about Government's spending plans would help. Within that, colleges are refining their forecasts so that they are not just based on assumptions but based on what they think their cost pressures are, and then using those as a basis for planning on their own and with the funding council for what they are able to do to close any gaps that that shows up. Whether that means more funding or reducing costs will be part of that discussion. The other side of that is the activity that colleges are expected to undertake. That has also been a theme of the recent run of annual reports into the sector. Previous reports had shown a significant drop in the head count number of students in the sector from a peak of just under 380,000 back in 2007-08. There was a figure of 130,000, 140,000 fewer students. Previous reports have presented to the committee auditor general indicated that that was largely a reduction in students who were women, part-time and older students. That was because of a Government requirement on the sector to focus on full-time young students on courses that are leading to employability. That is fair, isn't it? That was the direction of travel. The report suggests that that changed, is that right? Government policy, as you say, was to focus further education provision on full-time students leading to recognised qualifications. The impact of that was to reduce the number of part-time students and particularly older and female part-time students given the make-up of people taking courses at that point. We reported that over a couple of years, the last two reports, and I think that Government policy has now shifted in the ways that you describe. In Exhibit 8, we show the trends over the last six years, and we are starting to see a slight increase again in the number of students by head count. The largest increase, I think, was part-time students, although interestingly it was part-time students under 16 as part of the developing the young workforce policy, rather than going back to the student population who were displaced previously. Just to be clear on that point, the increase in student numbers is not entirely, but almost entirely made up of what most of us would consider as school students taking part in developing young workforce vocational opportunities in college. Is it also the case that around half that increase is actually in one college, in five college? The largest increase is certainly part-time learners, particularly under 16-year-olds. I will ask Mark to talk you through the detail of that number. On a latter point, yes, five made up half of that amount. If you look at Exhibit 9 on page 22, you can see that there has been a small increase in the number of students aged 25 and over, so it is not solely down to the students under there. Students over the age of 25 still make up about 42 per cent of the student population, so it is still a large proportion of the population, mostly in part-time courses. I think that the point that I am getting to is that in planning sensibly for going forward, clearly the more the sector knows about the financial position that is going to be in the better, but surely it is also important for them to have some sense of stability in what they are required to deliver. Is it fair to say that that has changed quite frequently over recent years? It is true to say that policy has shifted from the shift away from part-time older students towards full-time students working towards a recognised qualification. I think that we are very conscious that there is a lot happening on the enterprise and skills review and the wider strategic board, and what we will be looking to see over the next couple of years is the way in which the objectives for FE colleges through the funding council are lined up with what SDS, Skills Development Scotland and the Scottish Qualifications Authority are doing, and the wider planning for how all of the separate policy strands developing the young workforce to 15 to 24 learner journey and the wider economic strategy are joined up. At the moment, it is hard to see how that joining up is happening. It matters in any case that this is people's ability to work and prosper through their lives, and it matters particularly at a time when Scotland is taking on the new financial powers and our economic performance will have a very direct impact on how much we have got to spend and invest on public services. In order to plan for going forward, it could do with more clarity about where their finances will go but also what policy objectives the Government or we will be looking for them to deliver on. General, are there any good examples across the sector of where that joined up work is happening? I will ask Mark Scott to give you more detail in a moment. It is worth saying that we think that one of the things that UHI is doing is getting that picture right across the highlands and islands of what the needs are, what the colleges can deliver and where the gaps are that need to be filled, but there are smaller scale examples as well. Skills Development Scotland also has responsibility for taking forward the skills investment plans, and they bring together SFC colleges, universities and other key stakeholders in areas to discuss around that. We have not looked at those in detail, but they provide a platform for more localised engagement across the key areas that are linked towards enterprise and the hills. Good morning, Auditor General. First of all, I will build on the theme from Ian Gray to talk about the financial progress of the sector. Two issues in particular, which in previous evidence to the committee from various bodies, have arisen about the best use of the existing resources. If I can take the example of Glasgow, which has got this strategic board, but there are only two colleges in Glasgow, basically a very big college and a smaller college. It seems to me that the consensus of the people that I speak to in Glasgow is that this middle-ranking board is a complete and utter waste of time and money. What would your comment be on that? Would it not be better to use that money for expanding student bursaries in Glasgow, which is desperately needed, rather than wasting it on an unnecessary tier of management? I have reported to the committee before that I think that the college reform programme developed in a way that left the regional bodies in a slightly odd position. From a starting point where I think that the policy intention was to encourage regionalisation right across Scotland, to an extent that it became much more voluntary. As it now stands, we only have three of the regional strategic boards, one in Glasgow, as you say, and one in Lanarkshire, which also includes two colleges, and one in the Highlands and Islands, where the University of the Highlands and Islands covers all of the colleges in the area. They are quite different in terms of what they do. As we say in the report, they have made different degrees of progress. We say in this year's report that they are all now in a position where they are capable of delivering their core responsibilities, and that was not the case last year. However, it is not clear how they are contributing to the wider aims of regionalisation, which was about better outcomes for students and better links with the employers. Until we started to see evidence that they are delivering those things, it is difficult to say that the policy of regionalisation has been a success. Mark Ruskell might want to say a little bit more to you about the specific arrangements in Glasgow and what we know about them. Mark Ruskell, in terms of Glasgow, you point out that there are some mixed views around the establishment of the regional board. We have started to see progress over the past few years, and we are seeing a lot more collaboration between the individual colleges through the board, more coherent strategies and starting to make some progress and traction. What we have recommended in the report is that the regional board works with the individual colleges to overcome some of those concerns that people have in order to get more traction and make more progress going forward. Mark Ruskell, where has the evidence been any added value from having the board? Apart from rather large salaries that get paid to themselves? We have seen that there is greater co-ordination, so they have things like curriculum hubs, where they are jointly planning college courses to match economic and employer needs. We are seeing the board bringing together regional leads. Will that happen without the regional board? There is no evidence that the regional board would not happen anyway. It is a difficult one to argue. Colleges have always done some joint work together, but the board is there and the board is starting to make progress in some of the areas that the aims of regionalisation are geared towards. Do you tell me that the regional board in Glasgow provides value for money? We have not said whether it provides value for money or not. We will not be looking at it because it spends a fair bit of money, which, if redirected to student bursaries, I think that a lot of people think would have much more impact on improving college education in Glasgow than wasting it on this bit of bureaucracy that very few people think is adding any vulgar. What we are saying, Mr Neil, is that until all the regional boards move on to demonstrate that they are able to deliver the planned benefits of regionalisation, they are not in a position to demonstrate value for money. How long have they been up and running, Auditor General? How long have they got? Is this another blank check? The establishment of them is a policy matter, and as you know, I cannot comment on that. I have reported this year that it is the first time that all three of them are in a position to fulfil their statutory responsibilities and that slow progress from when they were first mooted in policy and, over time, recognised as able to fulfil their functions by the funding council. They are there to deliver wider benefits that matter about outcomes for students and better links with employers. Until they can demonstrate that, I think that it is not possible for us to say that they are delivering value for money. How long have they been up and running now? They vary. The act was the 2013 act. They were recognised by the funding council as ready to take on their responsibilities at different points during the period since then. Glasgow was only recognised within the last year or so, so establishing them was slow. Demonstrating the benefits that they were set up to provide is obviously even slower. That is one of the findings of my report. It is obviously an issue that we need to take up with the Government about the need to demonstrate the value of the regional boards and to prove that they are necessary to achieving the strategic policy objectives in each area. It is also a question for the funding council that has to recognise them as ready to take on their new responsibilities. A related question, we had heard evidence about new college Lanarkshire. I do not want to specifically talk about new college Lanarkshire this morning because we are having a further session specifically on that report, but one of the themes emerging from that and from previous sessions with other colleges are the layers of management and the allocation of resources within colleges where it seems to be very top-heavy on senior and middle management and the resources getting spent on management would be better spent on delivery at lecture level. Any comment on that? I recognise that it is a concern that you have raised a number of times in the committee, Mr Neil. As you say in new college Lanarkshire, I think that it will be a focus of the evidence session that you have planned in the next few weeks. It is not something that we have looked at directly in this report. We have looked at costs and performance. One of the things that we are interested in is the very variable performance of colleges across the country. If you look at exhibit 10, we have a kind of heat map that looks at the performance on a red amber green rating across the four measures of performance for each college there. It is a very variable picture from colleges such as Orkney that are all greens to other colleges that have got much more red in there. I think that it is a perfectly valid question to be asking the funding council what they know, what they are doing about this variability of performance and how that relates to what colleges are spending on their management and the other ways that they go about organising and delivering their responsibilities. That is at the heart of value for money. At the moment, nobody knows enough about the reasons for the differences. My final point is a wider issue. That is the £360 million for backlog. Obviously, I know that that is based on the Scottish funding council's own survey of property in the sector, but if you look at their surveys, there are a lot of unanswered questions. For example, how much of this is genuine backlog and how much of it is planned replacement, refurbishment or expansion funding for new buildings? When I read the word backlog, having been in business, I interpret backlog as being works that need done that so far have not been done. When I look at the projection and the breakdown of the years in which this money is liable, a fair chunk of it is on and after year five and a fair chunk of that is for new build, not for backlog. Should we not be trying to get this funding council to give us a much, much more accurate picture of what is genuine backlog? You are right that it is important to be precise about the terms that we are using. I think that the estate condition survey is a bit more precise than some of the wording that we have used perhaps and that has been used in the committee. The college estate condition survey identified overall repairs and maintenance requirements across the next five years of £360 million, so that is the total. Not all of that is backlog. The backlog of repairs and maintenance is £163 million across the five years, and it has prioritised within that what is very high priority. It is required in order to make sure that buildings are safe and can continue to be used for their purpose through to the things that are nicer to have but not as essential. Given the publicity that this report was published, you have just said that the real backlog is about £163 million, not £360 million. If you take the proper definition of backlog, so should we not be in presentation, both in terms of the funding council and the audit report, have two columns and not just one, one for what is genuine backlog and one for planned improvement, refurbishment, etc. One is entirely separate from the other. When you are planning any kind of business, your backlog repairs, which are much more urgent sometimes because of asbestos or whatever, is a completely different priority and is very often funded in a different way from new-build refurbishment, etc., so should we not split the two? I am not sure that that is necessary for planning, which is what we are talking about. The £360 million is the estimate that comes from the Estates Condition Survey for both the backlog of repairs and maintenance and the investment that is needed to keep the estate fit for purpose as it is changing the sort of qualifications that are required. Does not say that. Your report in the key facts diagram calls this estimated total cost of backlog of repairs and maintenance, it does not say, and also new-build, etc. Therefore, it is very, very misleading. Paragraph 25 breaks down the £360 million. No, I know that it breaks it down, but the headline and the press release have been touted, and the coverage in the media all created this hysteria around the backlog, and, in fact, it was based on inaccurate figures, because it was not backlog, it was backlog and plans for new-build. The £360 million is the total investment that is required over the next five years for repairs and maintenance. That is not what you see. You see that it is backlog and for repairs and maintenance, so that is not accurate. I am sorry if that is the impression that we have given. It is. I am accepting that, Mr Neil. The important fact is that the £360 million investment is what is required to both deal with the backlog and keep the estate fit for providing qualifications across the piece. I think that we just need to look at the presentation in future. We will have a look at that, certainly. Mark, I think that you may want to add just a bit more clarification to what is in the figures. Is that why you are? Yes. The £360 million does not include new-build. That was for maintenance of the existing estate. The survey breaks the maintenance down into four particular categories, from very high to high priority medium and then low priority, so that there is an indication of what the profile of investment is required over the next sort of four or five years. One of them has a £10 million figure for a new tower that will be built in year five or beyond. That figure is included, so that does not stand up to what you have just said. My understanding was that it was for the repairs and maintenance of the existing estate. Are you looking at finding counsel in their terminology? I think that you are all odds on this. You need to go back and look at it and present it more accurately and make the clear distinction between genuine backlog and planned new investment, because those are two different things. Mr General, is it possible that your team could go and review this and perhaps write to the committee with some clarification? All of the figures here, but I do not think that it is a good use of the committee's time to get through them at that level of detail. I do not either, so perhaps we can wait for you to communicate with us on much more detail and how this breaks down. Of course. Thank you very much. Can I refer you to the key facts page on the first page of your report? Your report that there is a 10.4 per cent increase in Scottish Government funding between 1617 and 1819. It is my understanding that the colleges are spending the whole amount of that increase on the costs of harmonisation. Is that correct? Certainly that is the largest part of the increases there. Mark, can you break down the figure for us? Sorry, can you repeat that? 0.4 per cent is all being spent on the costs of harmonisation. Is that correct? Yes. The additional cost of harmonisation is £50 million from 2019-20, and that is a recurring annual cost. For any members of the public watching, just say that harmonisation in the college sector is when regionalisation happened and we found that staff in different colleges were on different pay scales and different pay rates, so it was to bring all that into line. The Scottish Government's funding increase for colleges is all going on staff costs. Is that correct? We say in the report that most of it is to meet the increased costs associated with bringing pain and conditions into line with each other. It is not quite all, but it counts for most of the 10.9 per cent across the two years. It was 5 per cent in 2016-17 specifically to fund that. You said earlier in your answer to Ian Gray that the costs of harmonisation will no longer be met by the Government after 2019. Is that correct? Not quite. What we know is that the Government has committed to meeting the costs for 2017-18 and 2018-19. We do not know what will happen after that. It is one of the reasons why greater clarity for the colleges would help them to make their own financial forecasts more robust. We do not know where that money will come from. Can I ask you what the impact will be on the college sector when that 10 per cent disappears? If that 10 per cent disappears. If I can refer you to Exhibit 1, that breaks down the expenditure of colleges on the green part of the Exhibit of about £728 million. By far the biggest part of that is staff costs, the dark green at £463 million. If the £50 million funding, which is currently available but not committed thereafter, is not available, colleges would have to find savings of that volume from within the overall £728 million that they spend or alternatively find other sources of income. However, as you can see on the left-hand side of that graph, beyond what they receive from the Government through the funding council, their other sources of income are relatively small compared. They come to a little bit less than £200 million in total, so to increase that by £50 million would be a real challenge. At the moment, we have a Scottish Government commitment only to meet that until 2019. They may change their minds and find more money for the cost of harmonisation, but as it stands, there is no promise to fund it beyond 2019. On top of that, colleges are being asked to make a 3 per cent cut every year. For some colleges, that can total £1 million. With that cut that they are being asked to make, coupled with the lack of money in the future beyond next year for harmonisation, what impact does that have? One of the overall messages of this report, convener, is that although there has been this slight improvement in colleges' financial position, they remain under real financial pressure. There is the question of how they will fund harmonisation after 2019. They will also have to find cost of living increases. As we discussed in response to earlier questions, the pressures on public sector pay are increasing for understandable reasons. We have the pressures of meeting the required investment in the college estate and we also have the potential impact of Britain's withdrawal from the European Union. All of those are really significant financial pressures on top of the efficiency targets that colleges, like most other public bodies, are required to meet. As you will know, some colleges paid for harmonisation themselves when they saw this coming down the line. Some colleges did not and so are being given the money by the Scottish Government. For those colleges that paid it themselves, and I used Dundee and Angus College as an example, they paid for harmonisation themselves at a cost of £1.5 million. Do you think that the Government should refund them that money because, in a way, they were organised and managed themselves without the Government having to step in? Should they be refunded for that? That is a question of policy that is beyond my remit. It is important to note, as the committee has investigated before, that different colleges were affected by harmonisation in different ways. Some of them started off with pay rates and other terms and conditions that were well below the national picture. Others were closer to it and the cost implications for them are quite different. That is why the funding council needs to be working with colleges to understand what the costs are really likely to be over the longer term on a consistent basis, as a basis for a discussion about how those cost pressures can be met, and the education that colleges deliver protected and enhanced. Thank you. Angela Constance. Do you have supplementary to that? Various supplementaries. I will trot through them as quick as I can, convener. Do you have supplementary on that point? I will bring in Liam Kerr and then I will come back to you. All right. I will try to come in various points to raise supplementaries. Okay. If you could do this point and then I will bring you back in later. Right. Okay. I do have three or four supplementaries. Have you assessed the impact of Brexit on the college sector at all? We have had a look at the high level at the level of EU funding that colleges receive and at what they know about where staff and students come from and what the impact of Brexit might be. It is a question that the funding council is looking at closely. We are planning to publish a position statement on EU withdrawal and what it means for public bodies a bit later in October, and I hope that that will give a clearer picture. Again, I think that it is something that affects different colleges in different ways. I would like to come back to the assets issue. Round about paragraph 25, as you were talking about earlier. Very briefly, if I may, I understood the point that Mr Neil was making. If I can just ask a very brief question on that, because paragraph 25 seems to say that the backlog of repairs and maintenance will cost about £360 million. In paragraph 24, the report talks of £74.4 million of capital funding being given to colleges from the Scottish Government, but £42 million of that is for a new campus. I am finding it, perhaps like Mr Neil, but it is slightly confusing. Are new campuses included in the definition of repairs and maintenance? The £360 million figure comes from the state's condition survey, which the funding council has commissioned to look right across Scotland's colleges at what investment is needed in repairs and maintenance. Of that, they found that there is a backlog of £163 million, which is work that is currently outstanding. They then looked ahead, and the other £200 million is the repair and maintenance that is expected to be required over the next five years, as it becomes due as buildings suffer wear and tear. Mark, I think, can talk you through how that relates to what is in paragraph 24, which is, I think, at the heart of the question that Mr Neil asked before. In terms of the total capital investment, you are right, it is £74.5 million and around £42 million of that is going to 4th valley for the new campus. That leaves around £27 million of a difference in the capital funding. That is the money that the SFC is allocating directly to colleges to cover what they have identified as being the very high priority repairs that were required within one year that were identified in the survey. That survey identified that those costs were in the region of about £31 million. When the SFC did validation of that, it found that a couple of those were overstated and that figure came out at around £27 million. The SFC fully funded the first year of very high priority repairs, as well as the new build in 4th valley, which brings that total to £74.5 million. I understand. On that very high priority, what is very high priority? When we say very high priority, are we talking about something that could compromise the safety of students and staff? The definition in the survey is given as very high risk maintenance work that is required immediately or within one year to repair or replace elements of buildings that have already failed or at risk of imminent failure with a high risk of compounding damage, causing loss of service and or a health and safety risk. That is the actual definition that the surveyors have used. Following on, a pocket of maintenance backlog of repairs that has to happen imminently, there is then a further £77 million that is required to do high priority work, which is not quite as serious as very high priority. Nevertheless, how serious are we talking in terms of high priority? Going back to the convener's questions earlier, where is £77 million supposed to come from in the next two years? That is something that the Scottish Funding Council will be looking at. I am working with the Government to determine how that level of investment is made going forward. The Scottish Funding Council and the Scottish Government will obviously be monitoring the investment and what that results in to ensure that those figures keep up to date, but it will need to look at what further capital investment is needed. At least in theory, £77 million could come from the SFC or Scottish Government, is what you suggested. Are the colleges expected to find that? I think that that is a debate that needs to be had between the SFC Government and colleges. I think that the point is that we do not know where it is coming from yet. Respecting Mr Neil's comment about the college in his area, as we understand it, the £360 million is not new build. It is all maintenance and repairs to the existing estate. We know how much is available this year for repairs and maintenance and for new investment, and it falls a long way short of keeping up with that £360 million. That is why we report it as being a pressure on college finances. Just out of interest, when something is defined as high priority, do you make a distinction, or is there any analysis done on how quickly a high priority matter might turn into the very high priority that could compromise safety? I think that that is part of the work that the surveyors who carried out the estate condition survey have done. They have used their professional expertise to look at the condition now over the five-year period to look at what is urgent, a very high priority to be addressed at this point, what requires doing over two years to avoid getting worse in that way, and then looking at over the remaining three years what investment is needed to keep the estate fit for purpose and to adapt it for changes to the types of teaching and learning that it is carrying on. It does not include new build, it is about the existing estate. In that respect, just finally from me, if I may, there will be a lot of competing calls for funding by the various colleges to talk about bringing their estates up to where they need to be. At paragraph 27, you recommended that the SFC produced some criteria so that they could decide where that funding should go. I understand from your report that that has been produced as of December last year, but it has not been published. Are you able to tell us why, if it will be and whether you have seen it? I do not think that we know why it has been published. Mark, is there anything more you want to say about it? I do not think that there is a lot more to say on that. I do not know why it has not been published. We have not seen that, so I cannot give you an answer. Is anyone asking the question? It seems rather to me that, if I was a college, I would find it an awful lot easier to plan if I knew whether my work was likely to be a priority or not. Is anyone asking the question of the SFC? You are absolutely right that it would help the colleges to plan. I suspect that the discussion going on behind the scenes is about how the capital funding that may be available can be best used to meet the very large investment requirement that has been identified. Mark, I think, is looking to come in. Of course, on pages 6 of the report, we have recommended that the Scottish Government and the Funding Council should publish that criteria to allow that to happen. That is what they do. Apologies for jumping around, but picking up on some of Mr Neil's earlier questions, I wonder if there was any evidence that regional bodies were taking on some of the role and functions of the Scottish Funding Council or whether there remains duplication. Whether or not there has been any progress towards regional bodies acting in effect as many funding councils as was originally planned. I would say that the closest we have seen to that is probably in University of Highlands and Islands, where the colleges in the region face very particular problems because of the remoteness, the rurality of the populations that they serve. They are very small scale on the whole, which makes it harder to deliver the range of services and courses that are needed locally. The challenge is sustainability around recruiting staff and students. The work that we have seen starting up in the University of Highlands and Islands of bringing the colleges together and helping them to understand how they complement each other, where they might be able to support each other, what support they can get from the university itself and the ways in which funding might need to move to meet those different patterns of provision early days. We are starting to see that happening. It is much harder to see evidence of that role being carried out in Glasgow or Lanarkshire, partly because, as Mr Neil phrased, it is one large college and one small college in Lanarkshire. The larger college is the regional board. In Glasgow, we have the separate regional body. We are not seeing that focus on how they can move beyond what the individual colleges do to meet the needs of students and employers better. Do you have a view that if regional boards were stepping up and performing as many funding councils, how that process would be managed in terms of a reducing role for the more centralised Scottish funding council? I am not sure that that is a question for us at the moment. The policy itself moved on between the initial review of further education and the legislation. We have seen quite different models emerging across Scotland with most of Scotland not having a regional body at all. I think that it would be helpful for the committee to review how far those policy aims have been delivered on the back of our finding that beyond the mergers and the work that we are starting to see in UHI, there is not much impact so far at all on those wider aims beyond simply having a body in place that can fulfil its statutory responsibilities. That is really all that we are seeing at this point. My final question is for just now, convener. Is the auditor general mentioned that there was variable performance in terms of outputs and achievements? I wondered if that was related to variable financial soundness. Some colleges are more financially sound than others. Is there a link between financial stability and performance or any evidence of that? In terms of some colleges, being more financially sound and making decisions to plan ahead, as the convener mentioned, I wonder if you could say a bit more about what is driving that. Is that purely local factors or is it the big national factors in terms of harmonisation or are there just exemplars of good governance and financial planning out there? It is a really good question, and when we tried to answer and found that, as far as we can get, it was complicated. There is not a clear link between the colleges that are doing particularly well or particularly poorly in Exhibit 10 and their financial health and financial sustainability. They fall into different categories. Many of the factors that we know are local, the extent to which the local communities they serve are more or less deprived, the state of the local economy and the number of other opportunities there are for learners and the extent to which there are flexible pathways for learners and students to work through. That is why we think that the funding council should be using exactly this sort of information about performance and about financial health to understand what is driving it and what lessons can be learned, what are the things that colleges themselves can do and the regional bodies where they exist to be getting more performance at a better value for money and how can they support the colleges that are struggling to do that? How strong is the evidence that colleges have met in the needs of their local economy? As we say, the evidence that the regional bodies are doing that is not yet there. I think that it is one of the things that we will want to look at when we pick up the strategic board enterprise and skills. Effie colleges are not the only part of that. They have to be working with SDS, SQA and enterprise bodies to do it. It is very much the role of the strategic board to be looking at the evidence and the extent to which they are aligned and then looking at what needs to change as a result of that. You would be looking at indicators on the ground in a particular local economy, because I know, for example, that my local college would argue very strongly that they are meeting local economic need and that there would be evidence of that in terms of the student demographics course provision, as well as their plans for the future. Yes, and it is something that I would expect the funding council to be doing. They are distributing large amounts of funding to Effie colleges each year. We think that it is important that they have a very clear sense not just on the performance in relation to students directly but on how well those students are able to meet the needs of local employers, particularly in a context in which our economic performance will have a very direct impact on the amount of money that we have to spend on services, on infrastructure and on all the things that are our Government priorities. Willie Coffey Caroline, I wonder if I could pick up again on the salary harmonisation issue that the convener also mentioned on behalf of the Dundee in Angus colleges, and I would like to raise it on behalf of Ayrshire College. As you know, Ayrshire College is also one of the colleges that met the cost of major harmonisation costs at that particular point. Can you be clear that that is in fact a win-off award and that is somehow not consolidated so that Ayrshire will not be effectively paying for that on the years to come? Can you clarify that every college will be back to the same base level? Is that the figure of £50 million that you mentioned earlier for the whole college sector in terms of the whole harmonisation bill? That is the best estimate that has been produced by colleges Scotland and accepted by the Government and the SFC. As we have said a number of times, it is complex because individual colleges started in different places. I think that the figure has become clearer and firmer over the two or three years that this has been negotiated, but £50 million is the best figure that has come through for all staff, for lecturing staff and for support staff in colleges from the 2018-19 year onwards. It is the best figure there is. For all the colleges, even those who funded the harmonisation costs themselves. That is the intention and it is the figure that has been accepted by the funding council and the Government. Have you a figure of what the cost was to fund those that it did not fund the harmonisation costs themselves? No, that is the overall picture across Scotland. Mark is looking to comment that. I just want to clarify one point. Colleges who were formed as a result of merger of predecessor colleges, a number of those definitely did undertake harmonisation of those college pay terms and conditions at that point in time. Of course, what we are now talking about is national harmonisation, so if those colleges after merger and harmonisation were still below whatever the final nationally agreed figure would be, then they will have another element to pay as well. It does not necessarily mean that harmonising of point of merger is all the cost, if you like. There is local harmonisation as a result of merger, and then there is a national harmonisation. When I wrote to John Kemp about that, he said to me, had earshorn not harmonised at merger, it would receive a higher level of funding now. That suggests to me that somehow that is consolidated, that that higher award would be consolidated in a new baseline established, or is that wrong? I think that it is the same point that convener made, that some colleges, either because of mergers that were happening locally or because of other factors, raised pay to a common basis at that point. That put them in a position where the gap between that and the national harmonisation agreement was smaller than it otherwise would have been. They met some of that costing from their own resources. Had they not done that, they would have a bigger gap to meet now, and the funding would have been available to them to do it. The convener's question was whether they should receive funding to compensate for that. That is not a policy question and not one I can answer, but it is clear that the gap is now smaller than it would have been because of the action that they took at the point of merger. My point is slightly different from the convener's. We are all back to the same point that we were before the harmonisation awards when made by some of the colleges. We are all back at square one, base one level, aren't we? Yes, and the £50 million is based on getting from where we are now to the newly agreed terms and conditions, if I am understanding you correctly. I am interested in whether we can get a figure that was paid to those colleges that did not do that. To me, convener tells me that some colleges sat on their hands and waited for the Scottish Government to step in and pay this money, and I do not think that that is particularly fair. All colleges are back at the same position, as Elder General has explained. For Ayrshire, the gap now is smaller. In theory, if every college was funded for the gap, they would receive a smaller amount than they would have done had they not harmonised. You could argue that they would be disadvantaged in that way. I think that we are not in a position to comment on whether the funding will be fully met in retrospect for any harmonisation that took place prior to the national harmonisation. Could we possibly get a figure from someone about the amount of money that was paid to those colleges that did not harmonise at the point of merger? That was the Scottish Government money that was paid to some colleges and not others. I think that all that we have is the other side of that, which is the cost of mergers, which we reported on in this report a couple of years ago. We can certainly pull that out for the committee. In a sense, that is the other side. That is the additional money that went in when that first harmonisation happened rather than the cost of not doing it for the other colleges, if that makes sense. Mr Coffey, it is a figure that we could get from the Scottish Funding Council as well. The second point is that, as you know, you have mentioned it in your report on page 15, Ayrshire College has an additional millstone around their neck, and it is the £2 million a year legacy PFI debt that they are having to pay. I believe that they are unique in Scotland now in having this additional burden to pay. It is due over the next seven years, and it is bringing even more financial pressures to the college than perhaps being experienced by the rest of the college sector in Scotland. Do you know if any progress is being made in that regard to try and resolve that matter, because it is particularly serious? You are right that they are unique. Other colleges that had PFI contracts have now had those contracts bought out, and the other PPP deals are non-profit distributing models, where the Government pays the charge directly so that it does not affect the college's budget. I do not think that we have anything more to say than what we say here, but I will just check with Mark. We know that discussions have been on-going between the funding council and the college for a number of years now around this issue, because the college has obviously been aware of it since the point of merger, and we know that those discussions continue. The latest information is what was in the report, and we have not heard anything further. Did you say that some of the previous PFI contracts were bought out? I think that Whithlothian College was one of the ones that had a PFI deal. Mark can tell you what the current position is. My understanding that Mark might be able to correct me if I am wrong is that, in any of those PPP deals, most of the colleges will have been expected to make some sort of contribution towards the cost of it, although proportioned amounts will have been provided by Government or the SFC. I think that Gershires' situation, as you say, is a bit different, and it is unique in that sense. I think that it will have been the funding council or Scottish Government via the funding council. I do not have the details for Whithlothian. We can find out. Perhaps if there is any further questions specifically on Whithlothian College, Mr Coffey might be able to write to you with further details on that. Do you have any further questions? Auditor General, can I ask a follow-up to Mr Coffey's first question, and the point that I was raising earlier, just briefly? Is there not a point here that we have talked about in previous sessions about trying to incentivise public bodies for good governance and good behaviour, as it were? It seems to me really unfair, in the examples that I have raised and Mr Coffey has raised, that the two colleges that planned their boards were able to foresee that coming in line with Government policy paid for it, planned for it, that they are being penalised or getting less money. Is there not an issue there about penalising good governance? I do not think that I would frame it in quite those terms, although I understand why it looks that way from an individual colleges perspective. The way that I would frame this is much more about the overall management of the reform programme. We know that there was an awful lot of discretion given to individual colleges and regions for whether they would merge or not, the extent to which the funding council met, the costs of mergers varied and the overall evaluation of the reform programme and the benefits that it generated was not robust, in my view. We have reported that over a number of these annual reports. I think that what you are describing is one of the consequences of the way in which the overall reform programme was managed, which left some colleges bearing more of the costs themselves than others, not all of them those who got ahead in the way that you described. The way that funding for, for example, voluntary severance packages came through was quite different and in some colleges which the committee has examined in detail not well handled. Management rest with? Is that the Scottish funding council or government? I think that it is a combination of government and the funding council. The committee has looked at that in some detail in the past. The extent to which there was clarity about the objectives of the reform programme and the extent to which the individual changes for colleges and groups of colleges that were merging was overseen and challenged, I think, was quite variable across the country. Bill Bowman, you are very patient. Thank you very much. Can I touch on comments that you make in Paras 9 and 31 of your reports? I think that most of the questions this morning have involved financial information. In Paras 9, you are saying that the colleges had to restate or get help in calculating their financial position. In Paras 31, you state the obvious that financial forecasts have to be based on realistic and consistent assumptions. Are we saying that the colleges are not competent in preparing financial information or are there some renegade colleges that will not do as they are bid to by the funding council? Paras 9 and 31 are looking at slightly different things. I will ask Mark McCabe in a minute to come on to Paras 9, the underlying financial position. Paras 29 and 31 are the underlying assumptions for the forecasts. This is the first time that the funding council has worked with colleges to develop forecasts looking ahead on a consistent basis. That is an important step forward and I welcome it. The colleges did not all agree that the assumptions that the funding council had proposed were the right ones. We talked earlier in response to Mr Gray's question about the assumption on future pay increases. My view is that a 1 per cent assumption is quite tight on the back of pay restraint going back a number of years since 2010 and the inflationary pressures that we are seeing. I think that the funding council and colleges are still negotiating around what is an appropriate figure to put in there, which recognises the constraints on public funding but is also not so tight that it cannot possibly be stuck to over time, and it is that process that is going on. I am not terribly surprised by that, although I think that it is important that people get it right. The funding council just asks them to do something and they can ignore it. I do not think that that is what happened. I think that there was a dialogue between individual colleges and the funding council that said that, for those reasons, we think that our assumptions are different for pay assumptions or for capital maintenance requirements coming through. They do not need to be consistent. I think that it would be very helpful if they were consistent. I also think that they need to be realistic, both for what the individual colleges are facing and for what the funding council expects to be available for Government funding. In a sense, the missing bit of the jigsaw is the Government's medium-term outlook and more detail about the funding that it expects to put in after 2019. What is the right solution that would not have you commenting on it then? I think that it would be very helpful if there were a set of agreed common assumptions that colleges were applying and that were in line with the signals from Government about the funding that they would put in in future years. Is there a governance issue here that they are not doing what they are asked to do? I do not think so. I think that there is room, as I said, for the funding council to be working with colleges in more detail to understand what is underlying their financial position and their performance across the piece so that they can make sure that money is going to the right places. I think that that is more complex than just a governance issue. I think that it is about the funding council's role overall and the extent to which local autonomy and local accountability are in balance. I suspect that we are not going to understand that. Can I have clarification on the point in paragraph 9 where you are asking about the underlying financial position? We had made recommendations in previous reports that this was something that would be added to accounts to give a more transparent picture of colleges' financial position. Previously, in accounts, the financial position could be skewed by things like depreciation, pension adjustments and the like. That strips out some of that and tries to give a more clear, comparable picture across the board. That was the first time that colleges were preparing that as an addition to their accounts. Inevitably, when introducing something new, there was a different interpretation of the SFC's guidance on that. That took a bit of additional work by the SFC and by ourselves in looking at the tens data to try to work at what the true position is. What we are simply saying is that, going forward, there is the scope to strengthen that guidance and to tighten up the definition so that colleges have a stronger position. Liam Kerr. Briefly, if I may, Auditor General, you have noted in your report that there is a gender imbalance on the boards of the colleges and that currently all but three are falling short of the statutory gender representation objective. You recognise that that is not necessarily entirely in the colleges' control or at least some of them, where they have elected members. You also cite UHI as taking steps to address it. I am curious to know, though, what is the timeline within which the colleges need to change or comply with the objective and what happens to the colleges if they don't or can't? That is very much a question for the funding council about the way that they are taking this new policy requirement forward. As you say, there is a balance between the appointments made and the election, particularly of staff representatives to boards, but colleges vary in the extent to which they have a plan for doing it and the speed at which they are making progress. Mark, is there anything that you want to add to that? I don't have a date. I can confirm that from the Act of Corsiwm. Just to pick up the point that it is not policy, it is legislation. If I recall correctly, the clerks can go and check it factually that things such as ex-officio and elective members are not included. When Parliament passed the legislation, it was not unanimous, but it was passed with hefty support. There was a very clear expectation put across the public sector. Liam Kerr, do you want to follow that up? Can I move to Exhibit XI auditor general? I think that it is about student satisfaction Exhibit X, sorry. I was slightly confused. I think that it was perhaps to do with the colour coding and all of that. I wondered if you could send the committee the figures that all that was based on. I would find that very helpful. Sure. Specificly on satisfaction convener, we have in paragraph 44 the results of the satisfaction survey at a national level. We have it broken down if you would find that useful. What we have tried to do in that exhibit is to summarise all four of the performance indicators to give a sense of how colleges are doing. It is possible to send us the figures for all four of the indicators for all of the colleges. Presumably you must have them quite easily. That would be great. Do members have any other questions for Audit Scotland on this report? Can I thank you very much indeed for your time this morning and for your evidence? I now close the public session of this meeting.