 Well, good morning and can I welcome everyone to this, the sixth meeting of the Public Audit Committee in 2022. Before I begin, can I remind members, witnesses and staff present that social distancing measures continue to remain in place in committee rooms of the Parliament like this and in addition a face covering must be worn if you are moving around the room or entering or leaving the room, but you can take your face masks off if you're sat down at the table. The first item for the committee is to consider whether or not to take agenda items 4 and 5 in private. Do we agree that? Agreed. Agreed. Thank you very much. We now turn to the first principal item of business on our agenda this morning, which is to consider the Audit Scotland 2020-21 audit of the Scottish Government consolidated accounts. I'd like to welcome our witnesses this morning, in particular to the new-ish permanent secretary, John Paul Marks. You're very welcome here in what I hope will be the first of a number of appearances before us in this session. The permanent secretary is joined in the room this morning by Jackie McAllister, who is the chief financial officer, and by Colin Cook, who is the director of economic development. We have joining us virtually Leslie Fraser, who is the director general corporate, and Alison Stafford, who is the director general of the Scottish Exchequer of the Scottish Government. I'd like to welcome John Paul Marks to his first meeting of a Scottish Parliament committee. That's the public audit committee in his new role. I invite you, permanent secretary, to make a short opening statement. Thanks to the committee and good morning to everyone. I'd like to start with a big thanks to my team for their support over the last few weeks. As you say, I started this job back at the very beginning of January, so it's lovely to meet the committee early on and look forward to working with you in the future. I think I'd start with three key points to make around the 2021 accounts. The first point is the budget scale-up for the Scottish Government and for the team was unprecedented, and it reflects the pandemic context that the team faced, so up 27 per cent, up £10 billion on the previous year. A huge scaling-up enabled Scotland to deliver essential support at a critical time. That continues to an extent through this year. We published a strategic framework this week in terms of the next steps with regards to the pandemic. Nonetheless, for 2021, three budget revisions in year and over £8 billion of additional consequential funding, which is the highest it's ever been. Nonetheless, credit of the team is successfully balancing the books at year end with the resource variance within 1 per cent, which was an important achievement. Some capital underspends from financial transactions as well, but with the carry-forward that money was protected into this year's budget. My first impressions are the foundations, the accounting basis of these accounts is robust and I'm really grateful to Stephen and his team for their input and ultimately for their unqualified opinion confirming the accounts true and a fair view following accounting standards and lawful. On 21, 22, to an extent, those trends continue, although the in-year consequential was around half what it was in 2021, but certainly for me joining in early January in the middle of what was the Omicron peak, the response from the NHS from resilience partnerships from local government has been exceptional. Of course, we continue to remain vigilant to the challenge of numbers of admissions to hospital slightly up on recent data and the numbers in hospital still at a level that puts us in that medium risk range. I agree with Audit Scotland's judgment that there are areas for us to continue to focus on. Fraud and error control will come on to governance strengthening, where there are opportunities for us, a focus on delivery and performance, which is something I'm very determined to lead out with and our support for private sector companies. We learn from our experience over recent years, we are developing a framework for that in terms of our guidance and something we seek to publish shortly. Just in terms of the future, we're working on our spending review now so that we can set a multi-year plan for the Parliament. From my perspective, that is a great opportunity. Obviously, we intend and hope for that plan to be strategic, prioritised and ultimately be effective in achieving the outcomes in our national performance framework at year end. You will see in the next few weeks and months a lot of focus on things like child poverty and the delivery plan on national strategy for economic transformation. It has been good to see some progress in January around things such as Scotland's green free ports and other initiatives that will help us to make progress in the years ahead. I will pause there, convener, but hopefully that is a helpful introduction. If you feel the need, as I am sure you might over the cost of the next hour or so, the need to bring in any of your colleagues, please do that. Similarly, if Leslie and Alison, who are online, want to come in at any point, you can put an R in the chat function and will make sure that you get a call to give your evidence. I just want to begin with a short point before going over to the rest of the committee for questions. You mentioned governance being an issue and an area where perhaps more work is required. We took evidence on 27 January from Michael Olyfant, the Audit Director in Audit Scotland, where he told us that there were some concerns about perhaps overambition. What Mr Olyfant told us was that target dates and scores can sometimes be overambitious and that there is, therefore, something that Audit General has reflected on previously, an implementation gap. What we wanted to understand from you is whether or not there is going to be some reflection on that part of the Audit Scotland report into the consolidated accounts, whether you are going to look at the need for perhaps more clarity on the action that is being taken, so that we better understand how risk management is being carried out and how risks are being addressed by the Scottish Government. I recognise that this is always an opportunity for big organisations to focus on. It starts with, you know, have we got the right strategy in place? Are we clear what the success factors are for determining what success would look like? Our national performance framework does that very well on a long-term basis, integrated into our accounts. I agree with you, convener, and Audit Scotland's advice here is really valuable in terms of the short and medium term and our capacity to evidence that we are indeed shifting the dial on the outcomes that we all care about. So, you know, if I take drug death rates, we now have that data quarterly. We have investment going in of around £50 million a year over five years, so it's a significant investment, and we all want to, of course, see the drug death rate come down and see that data reflect that investment, and we have a team very focused on that delivery plan. Same is true for child poverty. You'll see also when we publish our delivery plan there and when we come forward with the national strategy on economic transformation, trying to be very clear about what are we trying to achieve strategically and what are the indicators for success along the way. One of the things I've put in place since arriving is we call it the delivery executive. We meet every Thursday, every week with the executive team, to talk about these key priorities in terms of the outcomes we're seeking to achieve, what are the short, medium and long-term activities that we are delivering to achieve those outcomes, and then to an extent what's our delivery confidence that those are translating successfully. I think we're very happy to work with Audit Scotland on how we develop the annual report on accounts to include more of that reporting. At the moment I'm impressed by the way the national performance framework integrates into the accounts nicely, but I think we can build on that in the years ahead. Thank you. That's useful because I know that oftentimes in the Parliament there is lots of debate around the inputs and not necessarily sufficient concentration on the outcomes, so that's very helpful. Sharon Dowie wants to ask a question. In the report paragraph 71 it mentions that over the last year there were several changes to the Scottish Government's corporate board. In paragraph 72, the level of change will continue into next year. It also mentions that the DG economy and DG net zero were unsuccessful in identifying appointable candidates, and those have been filled on an interim basis and will be re-advertised in early 2022. It also notes that four non-executive directors will reach the end of their term in 2022, so there's an awful lot of change and uncertainty there. How does the Scottish Government attend to ensure stability and certainty within its leadership group, and what plans are in place to manage its governance arrangements during this period? Thank you. It's a really important question. I guess my arrival is a start of, as you say, stability. I've been working with Ronnie Hines, our lead non-executive director. I meet him very regularly. In terms of the corporate board and the non-executives there, we have been able to extend some end dates for some of those non-executives to provide a bit more stability. We've also recruited an additional three non-executives that will shortly be announced. I signed off on those appointments, which was nice for me to be able to do early in my tenure and their experience. Leadership will be a fabulous contribution to the corporate board. I've met all the non-executives. We've got a great diversity of capability that supports the team, and the non-executes are then integrated, for example, into the boards of things like our child poverty board or our boards on constitutional reform. We have that good governance there. Audit Scotland has been fair in recognising some of the strengths of our governance, but nonetheless we want to continue to improve those. In terms of Eleanor Mitchell and Roy Brannan, if I could, I consider both of them to be fabulous director generals. Roy Brannan brings huge depth of complex infrastructure and major projects experience to my team. Back to the convener's initial question around delivery. Having a DG like Roy around the table focused on things like ScotRail coming into public ownership, net zero and how you translate the 2045 ambition into a road map that gives us confidence that we're on track. His skillset is a great match. Simly Eleanor Mitchell has accountancy backgrounds, has been an interim DG before in social care, has great HR depth of experience as well. She is bringing that operational delivery clarity to the organisation of our economic portfolio. We're clear on what it takes to deliver an underlying improvement in our growth rate. We will compete those roles, but I want to complete the spending review first with the stability of those two individuals in my executive team and then we'll return to that process later in the year. Willie Coffey has a question that he wants to put to you. I wanted to ask a question on the Scottish Government's investment in financial support that we provided to private companies that is mentioned in the Auditor General's report. One of the significant ones, as far as I'm concerned, is an Airshire MSP's Presswick airport. Could you give us a brief outline of why that investment was made? What would the implications have been had that investment not been made in Prestwick airport? That's a pretty complicated question about a counterfactual that is hard to make a judgment on, but I understand why the question. I had a conversation with the sponsor team yesterday. I'm looking forward to visiting Presswick and sitting down with the new chair. The new board, as you know, was appointed just before Christmas, I think, in October last year to talk about Presswick's current position and its long-term future. I recognise just over 200 people are directly recruited into the airport and then it supports a supply chain of a number of thousands of jobs in the area. I can absolutely understand why the decision was made to protect jobs, protect industry and support that local community for an asset that was at that time in distress. I can't sit here and provide you with a value for money judgment on the counterfactual for something that happened in the past before I arrived, but what I can absolutely confirm is that I will be sitting down with the chair and with the team, understanding the position now, and I would expect us to do periodic reviews of all those investments over time and then, of course, keep the committee up to date on value for money judgments and advice ministers on their choices. We know that there are around about 300 jobs there directly and about 1400 jobs, spin-off jobs, associated in the wider Ayrshire economy. We know that the airport is pivotal to the Ayrshire authorities in terms of taking the Ayrshire growth deal forward and their hopes and aspirations for the spaceport possibility in Ayrshire. I just ask again and perhaps your officials who have been in post perhaps longer than yourself, Mr Marks, had the Scottish Government not made that investment, would the airport still be functioning? Well, Colin, I'll give you that opportunity to come in. I absolutely recognise your point, so I'm just checking my latest numbers to say 238 direct recruited jobs, 4,000 in direct within the supply chain, an important asset. You can understand absolutely why the Government made the choice at that time. As I say, sitting down with the board to talk about what comes in the future, Colin, do you want to say anything about what would have happened if it had not stepped in? As you said, it's impossible to speculate on what might have happened. What we should focus on is the fact that the airport has developed a very strong niche as an operating function. It has a specialism in fuel and specialist cargo, so it's got a very robust model going forward. As you know, we've had, over the past few years, some fairly credible expressions of interest in taking on the airport, so I think that its reputation is getting stronger. I think that we're looking forward to a very positive future for that airport. It's hugely important for us, and you're sure, but from a financial perspective, the committee and the Auditor General are thinking about and asking about the financial implications of the long-term support in the absence of finding a current buyer. Are you able to see anything at all about progress in that regard? I think that the Cabinet Secretary for Finance and Economy made a statement in Parliament back in January that said and repeated that our long-term aim, as it has been from the start, is to return the airport to the private sector. That repains our aim. We're in a very positive place there. As you know, we have a debt. There is a debt payable back to the Scottish Government, but that legally at least remains payable at a time in the future. I think that there's a very strong working relationship between ourselves, Transport Scotland and the airport. We're open-minded to all sorts of futures about how we find a bidder, how the debt is structured, how the debt might be restructured in the future. We want to do the best—as you've been pointing out, Mr Coffey—for the region of Ayrshire and to make sure that that airport continues to add value and continues to support jobs well-paid, good jobs and infrastructure in that area. There has also been considerable public interest in another financial arrangement that the Government has, and that's with the GFG Alliance. The Audit Scotland report particularly focuses on the Lucarba Alley minimum swell to deal. What is the total financial exposure of the Scottish Government in relation to that deal? You can imagine that I've been getting into the GFG position and looking at Lucarba and also we just talked about Presswick, Ferguson's, Liberty Steel and all our private investments to reflect on where we are. One of the things that's important to my leadership is going out to visit these sites, to meet the teams, to understand the impacts in communities. We are trying to ensure that we have consolidated the capabilities for managing these investments in a single division and then developing our framework advice and guidance for how they are managed and how we would make those decisions in the future. We've had good input from Audit Scotland and we are going to seek to publish that framework at the end of March. We'll get all of that to the committee. In terms of latest financial exposure on Lucarba specifically in the 2021 accounts, we disclosed a provisional figure in relation to the guarantee increasing from 33 million in the 18-19 accounts to 37 million in 19-20 and then 161 million in 2021. Colin and I can reflect a bit more on what makes that change happen given the accounting treatment. I think again that it's worth starting, as we did in the discussion around Presswick, by saying that this is a critical strategic asset. It's the last remaining aluminium smelter in the United Kingdom and it's a valuable and important part of employment in the West Highlands. I might defer to the CFO when it comes to the technicalities of the accounting, but I am the director responsible for that in the Scottish Government. Perhaps I can give a little bit of context to explain that movement. Right up at the end of the financial year, very close to the financial year, Greenshill Capital UK Ltd went into administration and they were the main provider of finance to the GFG Alliance in general. Inevitably, therefore, that put a pressure on GFG Alliance and triggered a global refinancing and restructuring within that group. It was within that context something that happened towards the end of the financial year that we worked with Deloitte, who are our advisors on this, on whether the provision in the accounts was at the right level. I think it's also probably worth saying that ministers have no role in setting that level. Despite the fact that there's no contractual default or anything like that at the end of March 2021, we decided to take a very prudent approach and classify the guarantee as credit-impaired. Now, as I said, I might defer to the CFO, but that's stage three of the IFRS methodology. Previously, it had been classified as stage two, which is about a significant increase in credit risk. In summary, yes, that figure has moved, but the provision has been determined on a very cautious basis. It's been determined as if, essentially, a default has occurred and that asset recovery is at the lower end of the spectrum. No such default has occurred. Our central planning assumption is that any exposure from the guarantee would be covered by the security package that the Government enjoys over the lock-up asset, and that is a very strong security package. It includes significant land holdings and, of course, the smelter. I think that we're in a very strong position there. The evidence that we took from the Auditor General on 27 January was that he described the deal between the Scottish Government and the GFG Alliance entered into as a complex transaction were his words. He said that, again, to quote the Auditor General, there is an increasing likelihood that the guarantee will be called upon. Is that a strong position? I think that it's worth repeating that the level of provision or the provision that is made does not imply that a loss has occurred, nor does it imply that a loss will occur. It certainly doesn't impact on SG spending or the Scottish Government's budget, so I think that that remains the case. Of course, the GFG Alliance is going through a global restructuring. There are some well-known financial issues that they are dealing with. However, as regards the Lekaba asset, as I said, we believe that the provision is more than covered by the security package that we have when it comes to protecting the public finances. That includes the smelter, the hydro, and some extensive land holdings. The value of those assets in the accounts of GFG Alliance is in excess of the level of security that is in excess of the level of the guarantee that we've provided. I think that we are in a robust position, as one can be, from a financial point of view at the moment. To repeat, we are in a very robust position because we have protected really valuable jobs and a really valuable strategic asset in the West Highlands. Mr Cook, I'm going to call Jackie McAlister in a second. The facts of the matter are that the GFG Alliance in the last couple of weeks has been brought to book by HMRC. It's the subject of an investigation by the Serious Fraud Office. As you mentioned earlier, Permanent Secretary, Greensill capital has collapsed. There are question marks around the governance structure of the GFG Alliance itself, so I just wonder from the perspective of the Scottish Government, as almost a partner in this enterprise, a party to a deal with the GFG Alliance, what contingency plans are you making? We have continued to plan on a contingency basis. You will be aware, convener, of a statement that was made in Parliament in respect of the Liberty Steel transaction, which was a direct result of the contingency planning that was carried out by the Scottish Government. It's worth saying that the HMRC has lodged winding up petitions against four organisations within the GFG Alliance in England. At the present time, the Scottish plants are not part of that. It is a complicated group and there are undoubtedly arrangements across that group. There may well be loans from one part to the other, so there is always a potential that the actions of the HMRC do spill over into the assets in Scotland, but at the moment that's not the case. My team works very closely with local management at the Scottish plants. In respect of Locaba, we have regular meetings about the guarantees, so we keep a close watch on what is happening. Minister Ivan McKee has visited the sites recently spoken and be very impressed by the plans and the operational plans. We are keeping a close eye on it. Of course, the GFG Alliance is a major international group. Of course, it has some difficulties that it is in the middle of a global restructuring. We will take the action that is required to protect those jobs and organisations going forward. Jackie McAllister wants to come in, so I will invite Jackie in just now. Briefly, to build on the accounting treatment and, indeed, audit Scotland's comments around that. Just to be clear, the provision that Colin was talking about is an expected credit loss. It's a requirement for all organisations under the accounting standards to make an assessment of the credit risk. That is essentially a set of underlying credit risk scenarios that are run to come up with the calculation. That includes the credit strength of the organisation and associated organisations. That calculation is what has driven the increase from £37 million to £161 million. Audit Scotland confirmed that it considered that to be a reasonable provision and a reasonable expected credit loss. Clearly, that is something that we will continue to keep under review. I will move on in a second, but to underline the fact that this is within the space of a year a quadrupling of that assessment of the exposure to risk. If that was my own personal financial situation, I would be alarmed at such an increase in the expected or the assessed exposure to financial risk. Is the Scottish Government not alarmed by the quadrupling of that exposure? At this point, there is no call on the Scottish Government guarantee. There is no debt owed to the Scottish Government. All of the fees that are due, with respect to the guarantee, are up to date. Just to reiterate the point that has been made, there is a comprehensive security package in place. I think that it is also worth pointing out that that level of provision can move. If the global credit position of the GFG Alliance improves, that opens up the scope and suggests that the level of the provision may well change in the future. Colin Beattie wants to come in. When you were referring to the value of the assets, you referred to the book value of the assets. Is that what we are relying on, the book value of the assets, as opposed to the market value of the assets? I quoted the last time that I have a figure that has been quoted, which was the fact that the GFG valued the assets in their 2019 accounts at £438 million. That is the figure that I quoted. I do not have a more up-to-date figure on the asset value based on current market conditions. We are basing the issue on the book value of the assets according to the company. To the GFG Alliance in 2019, which I think gives us a fair degree of certainty that that is sufficient to cover the exposure that the Scottish Government has had to this process. How often are you going to revisit that to ensure that the value of the assets are not impaired? That is something that we have when we have our quarterly guarantee meetings. We review management accounts, we review business performance, we look at progress against the business plan and I think that all that informs the value of those assets. However, the value of the assets comes from the land, it comes from the smelter, it comes from the hydro. It is a complicated picture and we can keep that under review, Mr Beatty. I am going to now move our questioning along and invite Craig Hoy to ask some questions. Good morning, Mr Markson. Welcome to committee and congratulations on your relatively new role. I would like to turn to the transparency issue, particularly the transparency and reporting around the record amounts of money that was spent last year and the year before in relation to the Covid pandemic. Obviously, you summarised at the beginning that we saw record amounts of money being pumped in £10.7 billion more in 2021 than the prior year, £8.6 billion emanating from Barnett consequentials from the UK Government in that year and also a budget underspend of £580 million. Just looking at those figures, do you agree with the Auditor General's report that there should perhaps no be greater transparency in the Government's financial reporting of those Covid-related expenditures? I am really happy to sit down with Stephen Boyle and his team and talk about what more would help with regards to improving transparency in our annual report and accounting. My first impression is that we are in a robust place, as I said, in terms of the fundamental quality and level of prudence and professionalism that is going into the annual reporting, which, to an extent, is covered in the Auditor General's opinion. If I go to the accounts that we are talking about here with regard to 2021, I think that three in-year budget revisions were made statements to Parliament around all of those and explanations for all those changes. Since I have arrived, I think that the First Minister makes a statement to Parliament pretty much every week on our latest position on Covid, the latest data, business support and the other investments that we have been seeking to make to maximise value for money in our response. Of course, we published on Tuesday our strategic framework, which sets out in detail the latest position. On further work that we could do on transparency, going back to the conversation that we had at the beginning with the convener's question, we want to build on the national performance framework integrated within our accounts to give a good record of how the delivery is translating into outcomes. Jackie may want to say a bit more about the conversations on transparency today, because I know that wider public sector accounts are a staged approach that we are looking at. There are things that we can do to put more data and more contribution into Parliament and the committee to see where the spend is happening. Jackie, do you want to build on that a bit? Absolutely. To reinforce what the permanent secretary said, we thoroughly agree on the need for transparency. We recognise that the public interest and the permanent secretary set out a number of ways that we have sought to do that through 2021. We did enhance the accounts with some additional disclosures and there are additional sets of information and data sets already in the public domain. We have also continued to think about how we can be more transparent. Indeed, this week, the Finance Committee has received the spring budget revision guide, which provides additional transparency in terms of the Covid budget that has been allocated and spent. We also agree with Audit Scotland that it is complex, so I think that they set out in their publication on following the pandemic pound that this is complex. There are many different challenges in tracking depending on the type of Covid funding and spend, but we are continuing to look at how we can improve it. I was just looking at the overall levels of public expenditure in Scotland at the moment, including non-Covid monies. We have seen record amounts of money in perhaps more complex arrangements than we have seen in the history of devolution. We have record spending, we have levelling up, we have huge Covid disbursements through local authorities, we have the upcoming health and social care levy. That is perhaps a more complex set of spending arrangements than we have ever seen since this Parliament was created. Therefore, would you welcome and possibly encourage greater UK-level oversight and scrutiny of public spending in Scotland? That is a complicated question. I was probably found that question easier to answer until the last bit. We are continually building the impact of the Scottish Government in Scotland. I take Social Security as a good example. I had an excellent session yesterday with David Wallace and Social Security Scotland and the team, the financial outturn. We are building as we take over adult disability payments, child payments and the doubling of that will have a good impact on child poverty in Scotland. Under devolution, with health and education, we are seeing our capacity to make an impact grow year by year by year. Clearly, in that time, the pandemic has radically changed that dynamic, as we said, the significant in-year consequentials in these accounts. Again, this year, we expect it to be less in the year ahead. We have very close relationships with HM Treasury. There is an almost constant dialogue going on around Barnett consequentials. Alison, who is also online, can say a bit about the fiscal framework review and the conversation that is happening there between Ms Forbes and the chief secretary around the long-term fiscal framework for Scotland. To answer your question directly, I do not think that there is an appetite in the Scottish Government for an increased level of oversight of our devolved powers and budget responsibilities from the UK Government. We do not think that that would be a necessary thing. However, we absolutely work in partnership and we have seen some good collaboration, for example, on green free ports, which has been a helpful investment. An additional £52 million for Scotland for two ports that the process announced recently and on levelling up. Good conversations going on with the Department for Levelling Up between the First Minister and Ms Forbes and Mr Gove as we agree what the shared prosperity fund will mean, what levelling up will mean and how our local communities can take advantage of it. Rather than it being oversight of one versus another, my interest is in creating the environment for the teams to work in partnership and try to make sure that whatever we do, we always try to get the best outcomes for Scotland. However, Alison could say a bit more about the fiscal framework review if that is helpful, because that is part of the next step of what the fiscal powers could look and be like in the future. So, happy to come in, convener? Yes, please come in. I would welcome your contribution. Okay, thank you very much. As the permanent secretary says, the fiscal framework and the review of that is something that is particularly active for us at the moment. Scotland actually has been going, and I understand Mr Hoy's question. There is a lot of complexity. Actually, it is a complexity that we have been handling over a number of years, because we have been going through some of the fastest, deepest devolution of any fiscal powers of any country in the OECD. We have been creating that fiscal institutional landscape as well, the first tax legislation for 300 years, establishing Revenue Scotland, having the Scottish Fiscal Commission to generate the forecasts of what we build into our budgets so that they are robust. The fiscal framework means that we are already operating in one of the most heavily regulated environments. That fiscal framework is right and proper that it is due for review. The Scottish Government and the Treasury have jointly agreed to commission an independent report on the block grant adjustment arrangements and, obviously, looking for stakeholder input in that as well, prior to a broader review of the fiscal framework itself. That is timely. We have taken on and really taken forward the powers that have already come forward here in Scotland. I think that that comprehensive consideration of the operation of the current framework to ensure that the Scottish Government and the Parliament actually have the necessary powers now to manage the risks and the opportunities that we face within our devolved responsibilities and to support the on-going economic recovery so vital after the impact of Covid is essential. We work closely with the Finance, Committee and Parliament on that as well, and we are making considerable progress with Treasury colleagues. The Cabinet Secretary met the Chief Secretary at a meeting of the Joint Exchequer on 3 February to discuss the scope of the view. There are clearly really good steps that have been taken forward and we are happy to keep the committee advised on that as that goes forward, too. Thank you. I have just returned just to transparency around Covid-related spending. Mr Marsh, we should not say perhaps what plans the Scottish Government has to be more open about that and to make the clear links between the budgets, the funding arrangements and the actual spending on the ground in relation to Covid expenditure. That is something that we have sought to do throughout the annual report and account. For each portfolio, the Cabinet Secretary and Director-General is being clear on the inputs in terms of financial spend and the budget, the outputs in terms of activity and the outcomes. I see that and observe it as being a good discipline in the annual report and accounts, but I hear the desire for that to be more detailed. As Jackie reflected, we want to maximise the transparency. We are here to serve Parliament, the Scottish people. We want people to have confidence that they are getting value for money from the investment. As Alison said, we continue to see the maturity of our attack system, our social security system and, as per the Audit Scotland report this morning, as we emerge from the worst of this pandemic, we want to demonstrate, as per our spending review, which we hope to announce in May, that we have the right strategic plans for the Parliament, multi-year, that will deliver the right outcomes as per the framework but is also prioritised and delivers the right results. We will try to make sure that that is reflected in the spending review announcement and in our annual report and accounts and reporting going forward. You mentioned that, in 2021, there were three significant in-year budget changes. Could you perhaps give the committee a flavour of how those are monitored and reported, particularly in relation to those Covid-related expenditures? When we get an in-year change due to a consequential, a good example recently was on cost of living, an announcement by the Chancellor followed very quickly by an announcement by our ministers. We made clear to Parliament how that consequential will be spent. In cost of living, that was precisely done and the explanation of the spend was communicated to the council tax bans allocated through local government. Then that money will be tracked and reported against. That is the discipline that should apply through our in-year budget changes when we receive consequentials. Jackie is part of our delivery executive. Each week, we talk about finance, risk, delivery and performance. In each month, we get the refreshed outturn on spend by portfolio area. We are able to track that quite precisely. Jackie, do you want to say a bit more about that? I am really happy to. It is important to note that in any year, but in 2021, it was quite dynamic in terms of the budget management. Of course, the Covid funding announcements were not happening in isolation to other changes in our budgets. In each of the three budget revision exercises, we would have been aggregating together all those adjustments and presenting them to Parliament, because it was really important that we had taught and realistic budgets for Parliament to hold us accountable to. Of course, each of the budget revisions would have been a really transparent description of those budget changes, but some of the challenges that we were alluding to earlier lie there. As we know, the UK Government made announcements throughout the year, some of which generated consequentials. However, the process of those consequentials being confirmed happens at a much later stage, so through the supplementary estimate that will happen in January or February, as we have seen this year. Sometimes the amounts that come through are different from what perhaps we had been planning on, so there is a bit of reconciliation. We are also subject to possibly negative consequentials on other areas. What we get is a net figure from the UK Government. Again, we have to manage that. In addition, and particularly linked to Covid, a lot of our schemes were demand led, so, while we would have made announcements, we would then have determined what the requirement was based on the demand for some of those schemes and our budgets may well have been adjusted at a later stage. What we are trying to do in thinking about how we can be transparent is to manage all those factors. I come back to the point that I made earlier, that we are fully committed to being as transparent as we can. In relation to the underspend, which is £580 million, could you give the committee just some flavour of the underlying reasons for the underspend? How much of that is possibly available through the Scotland reserve? We were reflecting on that this week. As I said in the opening statement, on the resource budget, I was impressed by the low level of variance below 1 per cent, but nonetheless, as you say, the capital underspend with the total underspend of £580 million less, which was 1.1 per cent of the £50 billion baseline. In terms of the breakdown there, £320 million of it related to transport, infrastructure and connectivity investments. As was true, down south and in countries and economies around the world, lockdowns had a significant impact on the capacity of capital projects to stick to timetables that had been set pre-pandemic. That was the main challenge there. We also did, as Jackie said, receive a late consequential, which we were able to carry forward. I think that the reassuring elements of the flexibility and the fiscal framework as Alison described, as we were able to carry forward all of that underspend to make sure that the pounds were not lost to ultimately the Scottish people. We can make sure that money is still invested, but nonetheless, the in-year movements in budget and the accounting challenge that presents for the team is complicated, which hence the fiscal framework review and the importance of having that partnership dialogue with the UK Government upstream to understand their own planning on initiatives that are coming down the track. We are able to also plan in partnership ready for when we are going to receive new monies. Looking particularly at paragraphs 43 and 44, it says that the Scottish Government should clearly outline its plans for future investment in private companies to ensure that there is greater transparency over financial support provided and the value of public funds committed. The Scottish Government has committed to develop a framework to outline its principles and approach for decisions about future investment in private companies. Can you tell me when that framework will be published? The intention is to publish it at the end of March. We are just finalising the framework based on inputs and advice that has been really appreciated from Audit Scotland. We will now put that to our ministers with the intent to publish at the end of March. I reviewed the framework with the team with Colin and the team this week. I think that it is a helpful addition. It builds on the conversations that we had around Lockerbur and Presswick. From my perspective, if I think about the year ahead, I want to get out and about and get to meet the executives of those teams, the new chief executive of Ferguson's just in place, understand their asset position now, the level of risk and their future plans, and the framework seeks to build on our existing guidance. Take the lessons from those investments and make sure that we continue to refine the framework accordingly, and that works well. It breaks it down into the terms of what the right principles are, what the right accounting officer tests are, and what the key considerations should be. It relates to the point that was asked earlier about the counterfactual, the business case, and the last resort investment choice. What are long-term strategic intent is to realise value for money. It is all set out in there and intent is to get that published end of March. I am a bit worried about the word intent. Intent to publish at the end of March does not mean that it will be published at the end of March. The only reason I say that is that it is getting finalised. We will share the advice with ministers. It may mean that somebody wants to refine it further, but, from my perspective, that is feasible at the end of March. I know that you just started in January, but the initial report said that the recommendation was put in 2018. Why is it taking so long for the framework to be published and intent to publish at the end of March? I am not sure that I can take any credit for starting in January and getting it published in March. The bottom line, I think, is that the pandemic, as colleagues will appreciate, has hugely disrupted everything. I saw that even in my handover with my predecessor, and then, certainly from 5 January, people working flat out all night weekends to manage the Omicron peak and to manage our response. It has been an unprecedented disruption to everything as it has to everyone's personal lives and society, and I think that that included the framework. All I would add is that we have always followed the guidance that is in the Scottish Public Finance Manual. That is an iteration of that guidance, and we will continue to develop new iterations of what is now considered a framework as we go forward. We have been working with Audit Scotland on this certainly over the last year. We had really useful meetings with them in September and November. I think that we are now in a position where we have a new framework that we can recommend is published. I am pretty confident that it will happen, but we have always followed the SPFM. We will continue to follow that, and we will continue to build on it. I think that we would be really helpful if Audit Scotland did the audits, and one of the things that we have found is that the recommendations do not seem to happen very quickly. That recommendation came in 2018, and I know that we have had the pandemic, but we did not have the pandemic in 2018 or 2019. I think that what would help Audit Scotland is when the auditors do their audits, if we may have a wee bit more of a timely trying to action the recommendations. Can I just ask another one as well on whether the principles are being applied in current decision making processes? I think that I am probably thinking about ScotRail on that one. Are the principles being applied in current decision making processes with the Scottish Government? As I said, we have always followed the principles in the SPFM. The framework represents an improvement and iteration of those principles, and we will continue to follow them. As the permanent secretary said, the overarching principle is about there being a clear policy rationale, about there being a commercial outcome, about there being a comprehensive business case. One of the things that the framework now does is give more information and more detail and more specificity about what should be in that comprehensive business case. However, when we make decisions about investments in business, we will and do follow the principles that are described in the SPFM and in the framework. Permanent secretary, we cannot hold you individually accountable for this either, but one of the other things that the committee has been waiting a long time for and the Auditor General and the Auditor General's predecessor has been waiting a long time for our whole public sector consolidated accounts to be published. We have an understanding that this is going to be produced in two stages. I think that stage one is due to be published in spring of this year, spring 2022. Could you perhaps bring the committee up to date on what progress is being made and do you expect that target date to be met? Just on the point previously, I have had really good introductory meetings with Steven and Audit Scotland. I am completely committed to ensuring that when we get the recommendations, we are clear on them. We have a good debate about them if we have a challenge and then we get on with it. I think that it is a fair challenge for us and let us make sure that we get that right. On this one, on public sector accounts, Jackie is our resident expert and can say a bit more, but the plan has been developed with Audit Scotland, as you say, convener for a staged approach. I was challenging the team to say, explain to me what that means. My understanding is that that is going to enable us to see a wider set of expenditure that relates to Scotland's overall public administration, so things like Audit Scotland itself, the Scottish Parliament, non-ministerial public bodies and the like. We are bringing that together so that it is more visible. The aim is for that to be delivered in the spring. From there, going into the summer, developing what the wider output could be, I think that the only bit of caution that I bring to this is making sure that it is indeed going to add value and is not going to create significant additional burdens collecting data on, for example, the NHS or local government or others. I just want to be confident that we are doing this with the right intent because it is going to help with regard to transparency, with regard to the tracking of overall spend and our understanding of value for money in Scotland. Jackie can say a bit more about the timetable and uncertainty for you there. As a cast iron guarantee, it is going to happen, or are you now caveating that? The other thing that I am bound to say to you is that your predecessor sat before this committee or its equivalent in 2016 and gave an undertaking to provide whole public sector Scottish Government consolidated accounts and we are still waiting in 2022. I think that the thing that I would ask is that I reserve a bit of judgment to provide the committee and our ministers with advice on doing it in a way that is actually proportionate will add value and can be done without creating significant additional administrative burdens on other public bodies. Having said all of that, our absolute intent is to first get the stage one done and then move to a stage two that does fulfil that commitment, but does it in a proportionate way or in a way that does indeed add value? Jackie, do you want to say a bit more about that? Very happy to. Just to build on the permanent secretary there, we remain committed to producing that. In taking a staged approach, it allows us to share it with Audit Scotland and the committee, get feedback and evolve it in a way that, as the permanent secretary has set out, it is meaningful and adds value. In terms of the time, we are on track to deliver the stage one in spring. We will be sharing that draft with Audit Scotland very shortly and we are intending to undertake stage two in the summer. Again, my caveat around that is, on the point that the permanent secretary raised about not creating an additional burden, we are planning to use data and information capture that is already happening with respect to the UK Government whole of government accounts. We would not be asking entities to do something that they are not doing already, but we are aware at the moment that the 2021 whole of government accounts in the UK Government perspective is not live and is not open. That may inhibit us as we get nearer the time, but we will keep an eye on that. However, the intent is absolutely there. The work is being undertaken. If I may, and the 2016 recommendation precedes me, I am afraid to, but I have to point to the pandemic in a slightly different way. Because this is a consolidated set of accounts, we have to have the underlying accounts prepared and completed. Unfortunately, the elongated timelines for those accounts being completed have impacted on the timeline and ability for us to do the whole of public sector accounts. Even with a timeline of the end of September for the consolidated accounts of the Scottish Government, it would be challenging, but we are currently working to the end of December. That just runs us straight into the next year and the next accounting period, but we are confident with the staged approach that we have set out. We would welcome the feedback from the committee in due course on that. I am sure that we will reflect on the evidence that you have given us on that subject this morning, and we will decide on what we think the next steps that we need to take are. I just want to take you back. You have mentioned the national performance framework a few times this morning in your evidence. Can you tell us what plans you have to improve performance reporting in the consolidated accounts? As you said, I alluded to it earlier. The national performance framework is particularly powerful in Scotland and is respected elsewhere and is best practice. It is powerful that it works for public bodies, agencies and local governments and is transparent. The evidence is clear and creates a good set of strategic accountability. That is integrated into the annual report and accounts. Each portfolio area director is clear what their activities relate to with regard to the achievements of those outcomes. The thing that I want to work on, which the teams are already doing, but we want to make progress with the point that we made earlier, is the short to medium term indicators to track activity against outcomes so that we can see progress. When it is feasible for us to include more of that into the annual report and accounts as it is developed, I will be encouraging the teams to do so. There was just one other area that is quite specific, which I wanted to ask you about. At the last session on 27 January, we took evidence from the Auditor General on the overspend in the Crown Office and Procurator Fiscal Service, which was the result of special payments of £40.2 million being given out in connection with the Acquisition and Administration of Rangers Football Club. We are interested in not only the impact that that has on the Crown Office and Procurator Fiscal Service, but we are also interested in the decision making around that, particularly in the role of the Lord Advocate, for example. I do not know whether the overspend as a result of the pay-outs—I think that there are still two outstanding pay-outs, or outstanding cases, I should say. We were told in the audit report that the Scottish Government authorised the overspend. Can you tell me who it was that authorised that overspend? We can check to give you certainty. I think that it is probably the best thing for us to do in terms of signing off of the annual report on accounts in terms of any overspend. It is signed off by the principal accounting officer and ministers, but if there is a specific that you are alluding to, we can take that away, if we cannot say now, but Jackie, do you want to add on that? So, in the first instance, the accounting officer in terms of their budget would be having a conversation with the Crown Office and, in particular, looking at the extent to which it could manage the pressure within its budget. Where it was clear that it would go above that, then, again, the accounting officer would be putting advice to ministers and the cabinet, essentially, would be signing off on budget changes. So, I mean, you know, just checking the detail here, you know, financial year 2021, as you say, Crown Office procurator fiscal service charged £27.9 million to the accounts, including a provision for £14.96 million. So, but as Jackie said, you know, that goes through the usual due diligence with regards accounting officer and then ministerial approval, but happy to come back to the committee with some more detail on that, if helpful. Yeah, I think it would be. I mean, I know that there are other processes under way, but I do think that there is an important aspect to this for this public audit committee, which is about, you know, how the decision-making process was arrived at, and, you know, the Lord Advocate admitted liability in court, which then therefore would have had financial consequences. So, if you could get back to us on that, I think that would be very, very helpful. I am going to move it on now and ask Colin Beattie to come in with a series of questions. Thank you, convener. Firstly, I would like to go back to the intervention that I made earlier on about the smelter just for the clarification in my own mind. You are relying on a 2019 book value to cover the Scottish Government's potential liability. Book value is certainly not necessarily market value and it is certainly not for sale value. Normally, it is a matter of prudence, and if the Scottish Government is in the position of a lender, if you like, a guarantor, then it would be looking at for sale value to ensure that, in a worse case, it would be covered. Has that for sale value been calculated and, if so, does it still cover the potential liability of the Scottish Government? I am not aware of having calculated the value in the way that you described. I will check that and I will come back to the committee if we have. I will also come back to the committee with any plans that we can put in place to do exactly what you have just described. Clearly, the issue is that book value and, indeed, to an extent, market value will assume the smelter as a going concern and it will be valued accordingly, whereas the for sale value will simply be the value of the land and buildings without the business attached, if you like. That is the critical one to ensure that we have cover. I will move on. I am sure that the committee will be... One extra bit, if that is okay. Could I just make one clarification if that is okay? The number that Colin was referring to earlier is the estimate of the value of the security. That is not directly linked to the number that is reflected in the balance sheet in the accounts, which is the expected credit loss against the guarantee. They are very different numbers, just to clarify. Okay, I was taking the book value as being the book value. You are saying there is a bit more behind it. Nevertheless, the important thing is the for sale value to ensure that we have that cover. As I said earlier, with regard to all of these investments, my plan through the year is to visit each of them, do that review and, as you say, I think that we should include, of course, the asset position and then the longer term plan. I want to discuss that with each of those executives and their boards, meet the team in the community and properly get under the detail of each of them. Hopefully, we can have a good dialogue with the committee about each of their futures. If individual members would like to meet, talk about those. I am very happy to do so. There would be an appetite for that when the time comes. Let me move on a little bit to particularly Covid-19 expenditure and the fraud and irregularities around that. Obviously, the two big business sport schemes total practically £1.6 billion, and they responded very quickly to Covid-19. Your quick responses, obviously, there was a need to get money to the right place at the right time very quickly, which opens up a higher risk element. I notice that the Scottish Government estimates that fraud and error will be 1 to 2 per cent of those payments and that approximately 16 to 32 million would be involved in that. I am wondering how that equates to the figures that we are seeing in Westminster, on a bigger scale, where we are seeing estimates of anything up to £15 billion and above. Have we been better at it? Is it simply—I do not know—it seems that it should be given that Westminster has had that experience, why are we better? Why is it not as high here proportionally? It is a really fair question. Your description of the provision on fraud is precisely right, so 1 to 2 per cent, which was based on the benchmarking from previous schemes and the range of financial risk at that 16 to 32 million. Colin will be able to say a little bit more about our process then of assuring the outturn, but an early reflection from my perspective is that it looks like we are at the lower end of that, potentially even so far identified fraud less than a million of actual cases. To address your point, it was a good fast response, but it was also done in partnership with local government using existing capabilities and footprints where we had an authenticated identity for people who would be in receipt of those monies. Scotland did benefit from things like the furlough scheme and from the trust and protect approach taken to universal credit, but those schemes at that scale, as you say, had their own particular design and had a fraud loss. Because we were able to do this with local government using existing infrastructure and their expertise in delivery, we think that we have kept the exposure on those grants so far, identified cases less than a million. Colin, do you want to say a bit more on that? I think that, throughout the pandemic, we have responded in a way that has taken into account the need to be as tight as possible and to make sure that we minimise the risk of fraud. When we started, the initial judgments were taken about the key pivotal enterprises that we needed to support. We worked with Scottish Enterprise and Visit Scotland and organisations like that that had established relationships. Of course, that minimises the risk of fraud. We then moved on, as the permanent secretary said, to the provision of a much wider range of grants, much smaller grants, largely working through local authorities, leading eventually to the strategic framework business fund. Those were based on non-domestic rates. Around non-domestic rates, the local authorities already have a system in place, they have a mechanism for tying a business to a particular property, and they have a very well-tried and tested mechanism for reducing error in fraud, which they were able to bring to bear. I think that that has been absolutely critical, as the permanent secretary said, in terms of minimising the fraud. We also then, as we moved into other areas, took decisions on a case-by-case basis. If you look at something like the taxi fund, that was administered by local authorities. Why? Because local authorities licence taxis and, therefore, they have an established relationship with that organisation. We used a different approach when it came to something like the mobile close contact services. We are moving beyond that. I know that this stretches out of the financial year that we are looking at today, but we have continued to evolve that approach. The Scottish Government has pointed ahead of counter fraud. It has looked at the funds that we operate and has assessed them as adequate. We have put in place now a control fraud checklist, so that when people are designing schemes, when policy people are thinking about new support schemes, they can work through from the beginning and design fraud control in from the very beginning, based on our latest expertise and the intelligence that we have picked up over the last few years. I am still worrying a wee bit about the differences north and south of the border. Is it very different the way that we approached it up here as opposed to down south? Did they not use the local authorities and so on as an obvious avenue to manage a great deal of the Covid-19 payments? I am just worried that there is some place hidden amount that is going to jump out at us here. I do not think that I can and I would not want to put myself in the position of trying to speculate on the decisions that were taken by UK Government. We focused on the approach for Scotland. We believe that working with local authorities was the best way to do that. I believe that the evidence so far seems to suggest that that was the right thing to do and that local authorities and the existing systems that they have and the intelligence and the people working on the ground in those areas has been of great benefit to the Scottish economy. I am very pleased if we have managed to keep fraud down to this sort of level. Just a niggling worry, that is all. The next question that you have partially answered, Colin, you talked about control fraud, checklists and so on, check sheets. I was going to ask you about the action that the Scottish Government had taken to reduce and manage the error in fraud and maybe you could give us a little bit more detail on that. As I said, the Scottish Government more generally has appointed a head of counter fraud. He has assessed the funds, as I said, and he has worked with local authorities, looked at our controls on the business side and found them to be adequate. The counter fraud checklist that I mentioned allows us to bake in that learning into the assessment of future funds. It is prompts. How do you check that a business is claiming to be in a sector that it actually is in? These are the kind of things that lead to fraud. There would be cases of people potentially applying more than once for a particular grant using a different bank account. It goes as far as organised crime groups, impersonating genuine businesses. What has been important is that we have been working with our head of counter fraud and with Audit Scotland. We raise those and we make policy makers and people who are deciding upon the shape and the way in which a fund operates are aware of those up front so that we can plan for them. How much has the Scottish Government actually recovered in terms of fraudulent payments and payments made in error? Do we have a figure for that? We do not actually have a figure for it because it is for the individual delivery partners to determine how and when they take legal action to recover that. As a result, we do not have data on the number of cases of suspected fraud that they are currently pursuing. Mind you, there is. To add to that degree of confidence that you were looking for earlier, there is clear data to indicate that there is a high rate of prepayment for detection in local authorities and that the ratio of applications to awards is low. There is a high number of rejected applications that suggest that the system is working extremely effectively. I am a bit concerned that we do not seem to have a grip of what the recoveries are. I think that that is quite important. You are making estimates of how much the fraud and errors would be, but you have no idea on the recoveries. I would have thought that it is a simple matter of pulling the councils and getting the figures from there. I think that it is one of those who are happy to take it away, as you say, for cases that have been identified. If I take a case that is related to us, we would seek recovery, either legally or through civil cases. Our delivery partners would be doing that, but why do we not take away the challenge of whether we can go and look to confirm that it is just under a million of identified fraud cases to date? How many are being pursued and how much money has been collected so far? How much reassurance can you give us that your partners are vigorously pursuing that if you are not looking at it? I can give you an assurance that we are continuing to work with those local delivery partners, and we are continuing to work with them to ensure that they have the resources available in order to pursue those actions should they choose to do so. How effective it is. We need to know the outcomes, surely. As the permanent secretary says, I am sure that there is action that we can take to improve our data collection and to return to the committee if and when that happens. That is a logical extension. It is also a question of whether you are making all those estimates until you know the whole picture. You cannot know that those estimates are particularly accurate. I think that it is a different thing. We are confirming cases of fraud that have indeed been identified as confirmed to us. You are making a fair point to say how much of that money has been recovered, and we will take the action to confirm that back to you. Local authorities are confirming to you the number of cases and so on, but what they are doing about it is not in actual fact. You say that they are pursuing them vigorously, but you have no actual evidence to show that. As we were suggesting, we can do more to collect and collate information, but there is a lot of on-going work between the team and the Scottish Government that is responsible, and we have a dedicated team, a dedicated directorate and division focused on this action and our local authority delivery partners. There is no current information, and there is no information that suggests that there are large amounts of undetected fraud, and there are no other factors that are introducing any significant uncertainty into this, but we will continue to work with them and we will look to see what we can do to improve the flow of information and intelligence back. Data is always king. It is always a problem getting it, and then the right format and so forth. It is a problem that comes before this committee all the time. That does not seem difficult to get. I would have hoped that the Government would have plans to report fraud and error, and the amount that is recovered seems pretty basic to me. What lessons have we learned in all this in terms of fraud and error and the processes that have been put in place? Have we learned anything from this? You made the point in your opening question. The money got out the door quickly, got to the right sectors and delivered the support that was needed at a critical time. That was not without challenge, of course, and a lot of heavy lifting and local government has played a huge part in making that happen. On the fraud and error point, I completely agree with your challenge of showing us the data on recovery against the identified cases to date, but nonetheless that exposure at 1 to 2 per cent in the provision in accounts and the actual to date is quite encouraging, given the volume of investment and the context of which it was done because it had to be done at pace given the crisis and some of the comparators elsewhere. We have learned important lessons around making sure that we tailor the schemes. Data is key in terms of not just tracking the spend, but it is recede. Of course, there has been a debate about that. We are happy to come back to the committee in the future and to talk more about generally the learning from Covid as the strategic framework embeds and we move on a bit. Certainly this committee would be interested in a bit more data around what has happened in terms of recoveries and so on because I still look at those big figures south of the border and it sort of niggles that are we missing something. I think that it is a fair challenge that we will take back to the team and ask them to just think again on the diligence, on the assurance levels, on the sampling. Are we confident? I think that a critical element of that will be local authorities themselves and the publication of their own accounts which you would expect them to publish numbers of frauds, for example, in the schemes that they have administered as part of that process. That will give us an opportunity to do so. We are coming towards the last lap, but I will invite Sharon Dower, who has a couple of questions, to put to you before we finish and then Willie Coffey is coming back in. During 2021, the Scottish Government commissioned an external consultant to conduct a review of the Scottish Government's relationships with public bodies. It considered the current delivery of sponsorship arrangements within the Scottish Government, including how it should organise and manage its relationships with public bodies. It also considered how sponsors and public bodies can effectively manage risk and, very importantly, escalation of issues when challenges arise. Can you tell us what improvements have been advised by the consultant, and if all the findings were accepted by the Scottish Government? No, I am happy to. This is a really important piece of work. I am very conscious that, as we were talking about earlier, the footprint of the public sector in Scotland in terms of public sector accounts and capturing that. The leadership and sponsorship of those public bodies is critical. I have been able to meet, so far, Social Security Scotland, Food Standards Scotland, Transport Scotland, Scottish Prison Service Education Scotland, Revenue Scotland and many more still to come. The intent, of course, is to make sure that we have the very best sponsorship arrangements in place. We have had receipt of that report. We have all the recommendations. I think that it is fair to say that we do accept that they are all helpful. The next step from my perspective is a session that I am bringing together with my whole executive team to walk through each of those recommendations and talk about the assurance process that we will each step through within each of the DG portfolios to confirm that those recommendations are in place. We are making sure that responsibilities and roles are clear. There are four business cases in place before a new public body is established. Where it is a smaller public body, we seek to use shared services to avoid duplication. We have a well-developed performance framework. The ministers are meeting the chair and chief executive on a regular basis. Those are some of the recommendations that we have had. From my early meetings, it is clear that that best practice is in place. We have some great public bodies in Scotland and the relationship is very good, but it is consistency that matters. We want to give that assurance back. We will have that focus session, get the assurance in and then, hopefully, confirm later to the committee that that has indeed been established and that best practice is working well. Is there a copy of that report available? Yes, it will be published at the end of February. We will see a copy of it if you are in. We can get a copy to the committee. You have explained how you are taking forward the recommendations. The one thing that I would ask is to make sure that there are timescales in them, so that we know when they will be implemented so that we do not end up getting a report further down the line. That is the objective of the ET session from my perspective. For me to feel confident in that principal accounting officer role, I want to know that those recommendations are embedded and consistent. My expectation is that, through this calendar year, all of them would be established as best practice and assured back to me from each DG. As a window of time for us to get that done and assured properly, that would be a broad planning assumption. However, we can make sure that, if there is a complex recommendation or two that we need to have a specific milestone on, we can put one in place. For the final question or two, I will hand over to Willie Coffey. I wonder if I could ask a question on the European structural and investment funds issue that is contained in the Auditor General's report. We know that the UK Government committed to replacing those funds that previously came from the European Union. The estimate of those funds is £183 million a year coming to Scotland. First, would you know if that sum has been confirmed yet? Secondly, and important for this committee, what is this committee or this Parliament or audit Scotland's role to be in scrutinising and holding that spend to account in Scotland? We previously did it, but, as far as I know, none of us are aware where the scrutiny function will lie as we move forward. It may fall into shared prosperity, levelling up and so on and so forth, but, as yet, we do not know, we are not aware if there is a role, even for the Scottish Parliament, to scrutinise the spend that we previously had. We would be obliged if you could clarify any of those matters for the committee. On your last point, this is one of the complexities of the UKIM legislation and common frameworks. As you say, with the shared prosperity fund and how it will work into Scotland, Northern Ireland and Wales. My ambition is that, going back to the conversation that we had earlier about partnership, we managed to settle on a co-design, co-delivery type model in which we are able to ensure that the shared prosperity fund investments and levelling up into Scotland aligns with our existing programme, so that we do not have duplication that is co-ordinated so that it works well for communities and partners on the ground and is optimised to deliver best value. However, we do not have that agreed detail yet. We are having very clear conversations at senior ministerial level about it, and there is still that opportunity to get to that co-design, co-delivery position so that we do have co-ordination and optimise it. If we can get to that, then I think that there is a role for the committee with regard to how we as the Scottish Government are engaging with that and the committee is oversight of our involvement. We can absolutely keep the committee up to date as shared prosperity and levelling up finalises. In terms of the accounts, there is a small right of and provision in respect to European structural funding, already expended that will not or may not be reimbursed by the European Commission to the Scottish Government. There is a £16 million right of £28.7 million provision, which Colin can say a bit more in the detail of, but we step through the right accounting process to make that transparent. The Scottish Government is making it clear to our UK Government colleagues that that scrutiny function must remain in Scotland where it previously was. Are we making it clear that that is our wish? You can rest assured that 100 per cent has been made very clear and consistently at every level. There are regular dialogues going on that have yet to conclude. Mr Gove is down the stairs at the minute. Could we invite him to give that a clarification? I think that there is a shared ambition around what the shared prosperity fund and levelling up should seek to ultimately achieve—reduce poverty, improve skills and prosperity. The question is how oversight matters. From a Scottish Government perspective, clearly we would prefer to be able to direct that investment and align it with our existing strategies and plans in partnership with local government in Scotland. I do not think that that is how it is going to work. Can we resolve a co-design, co-delivery operating model that ensures that we get the best possible partnership working to get the best value for money? I think that you undertook to give us some more information in writing whether it was about fraud, payment and recovery and decision making in relation to the Crown Office and Procurator Fiscal Service overspend and so on. I think that that would be helpful. There may be other areas that, when we go back and survey the official report, we will also follow up with you. I thank you very much indeed for your time this morning and for your thoughtful contributions. I also thank the team that has accompanied you. Leslie Fraser and Dallisyn Stafford have joined us online this morning. I thank you very much and to Jackie McAllister and Colin Cook, who have joined us in the committee room this morning. With that, I would like to suspend the meeting to allow for a changeover of witnesses. I resume this morning's meeting of the Public Audit Committee and turn to agenda item 3, which is a review of the section 22 report arising from the 2020-21 audit of the Organization Scottish Canals. I welcome our witnesses for this part of the meeting. Auditor General Stephen Boyle joins us in the committee room. Welcome. Online, we have Graham Greenhill, who is a senior manager of performance audit and best value at Audit Scotland. We are also joined by Johann Brown, who is a partner with Grant Thornton, who carried out the audit on the ground with Scottish Canals. Auditor General, if I could begin by inviting you to give us an opening statement. Thank you, convener. Good morning, committee. I have prepared this report under section 22 of the Public Finance and Accountability Scotland Act 2000 to draw the Parliament's attention to challenges that Scottish Canals have had in valuing their assets in 2020-21 and the resultant disclaimer of opinion issued by their external auditors. By way of background, on 1 April 2020, Scottish Canals' status changed from a public corporation to a non-departmental public body. That change came with a requirement to follow HM Treasury's accounting guide, including the methodology to be used to value the canal infrastructure and inland waterways. Although the required valuations for investment properties and land and buildings were conducted, auditors found that Scottish Canals did not get valuations for around £51 million of specialist assets. Those included dredging equipment, lock gates and canal basin widening works. A subsequent valuation aimed at estimating the cost of replacing those assets in their current condition and existing use, then raised concerns about the accuracy of Scottish Canals fixed assets register among other valuation flaws. That meant that auditors had to issue a disclaimer of opinion on the accuracy of Scottish Canals financial statements, because insufficient audit evidence was available to conclude on the overall valuation of the canal infrastructure and inland waterways. Again, that remains an unusual step for an auditor to take. Scottish Canals will now undertake a new valuation process of the canal infrastructure estate in its entirety during 2022. A key part of that work will require Scottish Canals to review its fixed assets register to ensure that all assets are appropriately recorded and categorised. That will be a substantial piece of work that is necessary to provide sufficient evidence to support future judgments and estimates of asset valuations. It is also needed to support preparation of canal's medium-term financial strategy and the delivery of its asset management strategy. Scottish Canals Board now needs to assure itself that the organisation has sufficient skills and capacity to deliver the complex project and that it provides appropriate support and challenge to ensure that it is delivered to plan. As you note, convener, I am joined this morning by Joanne Brown, the partner and external auditor of Scottish Canals from Grant Thornton and also from Graham Greenhill, who is one of our senior managers in Audit Scotland. Between the three of us, we will look to answer the committee's questions. Thanks, Auditor General. As usual, please feel free to call on Joanne and Graham as appropriate. To Joanne and Graham, if you wish to come in at any point, please use the chat box function and put an R in there, and we will ensure that you are called. I want to begin by asking Sharon Dowie to ask the first question. Page 3 of the report states that Scottish Canals consists of a board comprising a chair, vice chair and between one and four members appointed by the Scottish ministers. As such, it operates on a day-to-day basis independently from the Scottish Government, but for which Scottish ministers are ultimately accountable to the Scottish Parliament. Scottish Canals chief executive, as accountable officer for the organisation, is also personally accountable to the Scottish Parliament for ensuring its resources are used economically, efficiently and effectively. Can you tell us what support, if any, was provided by the Scottish Government to the board of Scottish Canals when the status of the organisation was changed from a public corporation to a non-departmental public body, and whether or not it was a level of support that you would have expected? The overall accountability is clear for this. The accountability for preparing a set of annual reporting accounts rests with the organisation and the accountable officer. As you know, through the Scottish Public Finance Manual sets out the personal accountability through to this committee of the Scottish Parliament. Before I turn to Joanne, I will say a bit more about some of the conversations that have taken place between the Scottish Government, the Sponsoring Team and Scottish Canals, to set that out for the committee. If it is helpful, first of all, to set this up, it was not sprung upon Scottish Canals that this would be a new requirement. To look at some of the chronology, as Grant Thornton in his annual audit report on the audit, concluding 2019, noted that this change of status was pending, that the decision stems from a decision made by the Office for National Statistics, having reviewed the functions operation and status of Scottish Canals, that it deemed to be more adequately described as a non-departmental public body, as opposed to a public corporation. Going back for nearly two years, that project and that awareness were there. As I said, the responsibility rests with the accountable officer and the board of Scottish Canals to reflect that in their accounts, but there always is interaction as you would anticipate with the sponsoring body. I may have just turned to Joanne if there is anything more that she wishes to say about how those conversations ensued. Joanne, do you want to come in? Thanks, apologies, I was stuck on mute there. Just to add to that point a representation from the sponsor team Transport Scotland does routinely the Scottish Canals board in a representative manner, and the board did discuss on a number of occasions the change in status to an NDPB. When the change was first announced, which I think was round about September 19, there were a number of discussions, as I understand it, that did take place with the sponsor team. Later on, as the audit matters arose during the audit last year, there were further conversations with Transport Scotland in their sponsor role at that stage. So, is it lack of understanding from the board or is it not enough guidance from the Scottish Government? If they knew that it was going to happen in 2019 and they haven't taken any action. From an external audit perspective, it was known that the change to the NDPB would require a change in the accounting and the way that the accounting is under the frame. We had a number of discussions with Scottish Canals management and we also shared a paper later on to management outlining some of the issues that they would need to consider in changing to the frame. In terms of the specialist 51 million of assets, I think that there was a lack of understanding from Scottish Canals on the need to get those valued in order to comply with the frame. So, when they were picking up the changes to the frame, this balance was missed effectively. Okay, thank you. Just to clarify, I think that the frame is the Majesty's Treasury financial reporting manual, isn't it? Yeah, just so that we're all clear about that. Right, I'm going to turn to Craig Hoy, who's got a question to put. Thank you, convener. Good morning, Mr Bourne. Thank you for joining us for what I understand is a busy morning. Just with a point of clarification with the in relation to financial performance 2021, your report provides information on Scottish Canals financial performance for that period. However, it's not absolutely clear from the report whether you have any specific concerns about Scottish Canals financial performance or if the information that you set out in the report is to help provide broader context to the overall situation. So, could you just clarify at your position in that regard? Yeah, good morning, Mr Hoy. It's largely the latter on the former, so we look to preparing a section 22 report. The principal objective of this is to draw the Parliament's attention to the challenges that Scottish Canals have had in valuing their specialist infrastructure assets and the resultant disclaimer of opinion, which touched on the opening statement, is a very unusual move and an important step that Scottish Canals needs to take in the current financial year to resolve that matter. Nonetheless, we draw attention to the overall financial position of Scottish Canals. As the report touches on the need for it to develop a medium-term financial strategy, the nature of Scottish Canals activity is managing Scotland's inland waterways as an organisation that has been involved in regeneration activity for many years and that influence its income arrangements as well. In valuing its estate, it's important that it captures what that means through to its revenue projections, its call-on Government grants, as part of a medium-term financial strategy. We provide that as context largely, but the matters aren't entirely unrelated. I turn now to Colin Beattie, who has a couple of questions to ask. The principal conclusion that we reached, Mr Beattie, is that Scottish Canals needs to take some significant steps in the current year to resolve the issue that led to the disclaimer of opinion. I don't wish to labour the point, but it is a very unusual step that the auditors have taken to issue a disclaimer of opinion. I say that, recognising as I do that, you received a report in the past couple of weeks that similarly had a disclaimer of opinion, but it's been many, many years since an auditor has taken such steps that there was insufficient evidence. We note in the report, as I mentioned in my opening remarks, that the board of Scottish Canals will want to assure itself that they will be able to resolve this during the current financial year. It's also true that there were two years or so before these accounts were signed off that steps could have been taken. We know that the organisation, as all others have heard already, has been dealing with the effects of the Covid-19 pandemic and that there have been changes in personnel in Scottish Canals that will have interrupted its progress. However, what we are saying today in the report published is that it is a real need for the board of Scottish Canals to track, monitor and be assured on progress. Joan might want to come in and say a bit more about the timeline for this year's audit, the signing off of the accounts and the steps that the board will follow over the course of the year. There's something that I may want to ask there. I was going to ask what the role of the external auditors was in this, because they must have been advising the board all the way along on this. Were they ignored? Did they not give sufficient advice, guidance and clarification? Perhaps Joan can give us a bit more info on that. I'm sure that Joan will want to say a bit more about the role that she and Grant Thornton have played. If I may, I would say that it's not the auditor's role to provide advice to the board of Scottish Canals by providing an independent audit. Although the public audit model in Scotland, as you know, is to provide assurance and to support public bodies to improve, but ultimately it's the responsibility of the accountable officer and the board to ensure that their accounts are well prepared. That's true, but I'd be surprised if the external auditors didn't have a role in providing the information that the board needed to enable them to comply with whatever was required in terms of those assets. I accept that point. As Joan mentioned and touched on, the Grant Thornton external audit report on the 2018-19 audit identified that that was a significant task pending. It's safe to draw a conclusion that this wasn't an event or a requirement that emerged late on during the current year and that there have been conversations that have taken place regularly with the auditors, as I heard Joan say a few moments ago, that they prepared a paper on the matter. It's probably best for Joan to set out, Mr Beattie, how Grant Thornton has discussed the requirement with Scottish Canals. Last point before I pick up on Scottish Canals project plan to address the issues. As the Auditor General set out in our 2020 external audit report, we highlighted a management action plan, where we highlighted the risk to Scottish Canals in the transition to the accounting as an NDPB and what that would mean in terms of the significant work required in terms of restating the financial statements. There was a management response that was captured in that report. We raised it as a significant audit risk in our 2021 external audit plan, which we presented to the Audit Committee, again setting out the work that is required to restate the financial statements and the impact on the financial statements for Scottish Canals in the change of status. As I mentioned, we then shared a paper with management again December 2020, which set out the various accounting requirements under the frame and where we would recommend management pay particular attention in undertaking and drafting the financial statements for the year ahead. As the Auditor General outlined, there is a lot that is to be honest management decision, and we are there to therefore independently audit the set of accounts and the decisions and judgments made by management. From an external audit perspective, that is something that came up in conversation routinely with the accountable officer and the finance team throughout the year and throughout the audit work. In terms of their timeline, Scottish Canals have started to produce an indicative timeline and project plan, setting out the various activities that they need to undertake during this year to resolve the issues that we have reported on. That includes updating the fixed asset register, considering the nature of the assets held and then how those assets are going to be subject to valuation. That timeline at the moment takes them through to December 2022, December of this year, when they anticipate audited accounts being signed. That is an indicative timeline at the moment. The board is still to have sight of that plan and effectively sign that plan off. That will work very closely with the Scottish Canals as we go through our planning for the audit this year. As you would expect, that is something that we will keep very close to in terms of the actions that Scottish Canals are taking to rectify the issues that are identified. I will turn to a different aspect of the report. The report makes it clear that the cost of running Scottish Canals exceeds the funding and income. Paragraph 11 says that at 2021, the income was 18.8 but the outgoings were 22.7. That is a net negative of 3.9. What are your views on the financial sustainability of Scottish Canals? One of the requirements of external auditors of public bodies in Scotland is to express a judgment on the financial sustainability of public bodies, as well as financial management, governance and leadership arrangements, as well as any opinion on the financial statements. Building on the response that I gave to Mr Hoy, we are not identifying core financial sustainability issues with Scottish Canals business. The main thrust of today's report is the basis of the valuation concerns and the need to tackle that. We make the connection that the nature of Scottish Canals business is to maintain the Scotland's inland waterways. That requires considerable on-going maintenance investment. As an organisation, it has played an important role in regeneration activity around Scotland's Canals. It is in the process of updating its medium-term financial strategy. That will be the key point of judgment, first of all, for the board of Scottish Canals to assess its own judgment about its financial sustainability and then, from an audit perspective, to follow on from that. As we sit today, we are not raising red flags about Scottish Canals financial sustainability, but, with any public body, it will want to keep that under close review. The report also states that there is a maintenance backlog of £70 million. That is a heck of a lot for an organisation of this size and the resources that it has got. How now does it get to that level? I want to say a bit more about the background to it, too. Backlog maintenance is not unique to Scottish Canals. It is a regular feature of public bodies that are managing large, complex asset bases. The ability to keep all those assets up-to-date in the condition that is to be expected is really on the basis of prioritisation. Valuations and reviews of maintenance requirements have arrived at that figure to return it to ideal condition. It will be a choice for Scottish Canals, as it has been a choice for where they have prioritised their investment in years gone by. Whether they will return to a place where they have invested £70 million or more will be dependent both on the financial strategy that they produce and the delivery of their estate or asset management strategy that accompanies it. I will turn to Joanne for some of the decisions that have gone in years preceding today's report. Scottish Canals has had in place for a period of time an asset management plan. Typically, the asset management plan has span 10 to 12 years, and it is annually reviewed and considered. As the Auditor General mentioned, the historic nature of those assets has been considered within that asset management plan, and that asset management plan considers the assets according to risk, according to priority, according to information that they have around inspections of those assets. It has been recognised by Scottish Canals that they need to take some decisions on how they invest in the Canals infrastructure, based on the funding and the financial monetary sums that they can afford to put back into maintaining the canal. There are judgments on that, and they need to balance that longer-term asset management plan with one of potential incidences in year, where there is an asset failure, where they then need to go in and repair that asset, so that something that they constantly recognise within the asset management plan is recognised as a risk on the corporate risk register around the backlog maintenance, and they continue to talk to the sponsor team about the future funding and how that can be funded going forward. I want to probe a little bit more into the fact that we are sitting with the report, which has got a disclaimer on the Audit Opinion attached to it. In paragraph 3 of the report on page 2, it says, and I quote, that Scottish Canals had not obtained a valuation for around £51 million of specialist operational assets that had been capitalised between 2012 and 2021. Would you have expected a public corporation, which is what Scottish Canals was during that period, to have had those assets valued? What we are saying in the report is that there are, as you know, £51 million of specialist operational assets that did not have a valuation. I am sure that Johann Lamont might want to take the committee through some of the valuations that were obtained, subsequent valuations that happened during the year, and some of the concerns that Grant Thornton had about the material that they were presented with and how that then relayed to the information that was stored in the fixed asset register. Part of the background to this is that the requirement upon Scottish Canals for Valuation evolved as it moved from being a public corporation into a non-departmental body, with the additional obligations around what that meant for how they recorded their assets, disclosed them in their financial report and accounts. What we have today, though, is the ultimate... Johann, I am sure, will say more as a disclaimer of Audit Opinion, because the auditor was not able to obtain the evidence necessary to sign off on the set of accounts. What went before Johann can take the committee through? I am happy to pick up on those points. As a public corporation, they were accounting primarily under Companies Act requirements, so they were not required to physically have a valuation of the assets that the capital spend was held at historic cost and then depreciated over the useful life. Under the frame, the accounting treatment changes in the R required to have a valuation identified and commissioned a valuation prior to our audit starting for land and buildings, which is maybe about about £8 million of the balance sheet. However, the £51 million of assets that they were holding determined as specialist assets did not request a valuation. That came to light during our external audit year-end work in May and June, when we had conversations with management about the need for the valuation in order to demonstrate compliance with the accounting requirements. When we started to look at the detail of the underlying records of the £51 million, coupled with the valuation that they subsequently got in October, we had concerns around the suitability of the audit evidence and management records. The fixed asset register itself, the descriptions in the fixed asset register, made it quite difficult to understand what was the exact asset. It is quite important in terms of accounting terms whether we needed to understand if it was a new asset that they were then bringing in or if it was a repair or an enhancement of an existing asset. The way that the fixed asset register was set up, you would not be able to tell whether old assets had been effectively written out of the fixed asset register. We had some concerns around potential duplication and double counting between the valuation of the specialist assets and what was recorded in the fixed asset register. For example, a number of investment properties were subject to valuation. We were comfortable with those valuations, but some of the balance that makes up the £51 million contributed to the investment property, so we were unclear whether that was effectively a double count. Within the asset register, it holds a number of assets as a component of assets. Those were then wrapped up into individual assets, which sought to value in October-November last year. However, there were different types of assets in which we would have an audit challenge around whether the useful life of those individual components was the correct allocation of that and whether the valuation basis was correct. In some cases, the 51 specialist assets included things such as infrastructure assets, bridges, roads and towpaths. It also included specialist engineering assets such as lockpile sea gates, but there was also an element that was land, and that would have a different valuation basis. The actual records that Scottish Canals had to support the valuation and what the individual assets were lacking. There was a challenge around the subsequent valuation that they did get, which was around October-November time, which came later than our audit work. There were a number of factors that caused us concern about the fixed assets and the subsequent valuation. As the Auditor General outlined, a disclaimer opinion is really unusual. I have only ever signed two. It is just the two that you have seen. However, when you look at the balances and the financial statements in which the transactions were hit, we were not able to say whether it was material or otherwise misstated, and that could be if capital was incorrect or treated and should have been expenditure. If the useful lives were incorrect, that would have an impact on depreciation and revaluation reserves. The impact of the 51 million hit a number of financial statement line items, which we therefore thought was pervasive across the accounts that led to the disclaimer itself. One thing that occurs to me when we are having this session is that I understand that Scottish Canals was transferring its status from being a public corporation to being a non-departmental public body, and that led to a change in its accounting requirements. Does Scottish natural heritage, Scottish water, have a fixed asset register? What about ScotRail in the future? Will that need to have a fixed asset register? Where does this sit in a spectrum of other organisations? Can you know any public bodies that are managing assets should have a fixed asset register? It is a core component of how they would manage the maintenance, the recording of assets, as Joanne touches on it. It is not necessarily just the overall asset that you can see, but it is very often subdivided into what is known as components of different items that make up an asset that may have different useful lives. That ought to link clearly and transparently into the depreciation, the management of the asset and the associated financial reporting that is disclosed in respect of the assets. It is a fairly usual expected thing that a fixed asset register needs to be recorded, it needs to be updated and those records are accurate. There are other circumstances where evaluation might be applied prior to a change of ownership. We have seen that in the past. For example, with ScotRail, where the ownership of the franchise is changing, would you expect there to be on transfer date some fixed asset register so that the Scottish Government that was taking on the asset would know what a bellio was handing over to it? In that context, we have not done any work on that yet, but the auditors, whether it is the outgoing or the incoming auditors, will look at opening balances to be satisfied of the disclosures that are being inherited. The same applies to the incoming board and accountable officers. We will also want that assurance, whether it is from external auditors or internal auditors. They will want to be clear on the assets and liabilities that the organisation is inheriting. In respect of Scottish Cals, the fixed asset register is a vital component of the organisation, given what it does. Maintaining Scotland's inland waterways is a key feature of their work. I think that all the more reason that the focus on resolving the issues that we report today is done over the course of this year and reported at the end of December, as intended. The entirety of the canal network has never been valued in its entirety or disclosed in accounts produced by Scottish Canals. What is the reason for that? Is it because of its old Victorian structures that have never been properly assessed since they were built centuries ago? Is there another reason? Why is it? Largely, as you described, convener, about the requirements before Scottish Canals became a non-departmental body did not require them to have the type of valuations that they now do since becoming an NDPB. There has been a change of status. John might want to say a bit more about the valuation methodologies that are now with Scottish Canals moving from a historical basis to a depreciated replacement cost existing use as some of the requirements that are now on Scottish Canals. I do wish to understate the significance of a big piece of work. I think some of the judgments that we make in the report is a significant piece of work that is required of Scottish Canals this year to resolve the valuation concerns that we talk about in today's report, all the more reason that there is good governance oversight of the project over the course of this year. If you are content, convener, John might want to say a bit more about the valuation arrangements now and what went before. In terms of what went before when Scottish Canals came into existence in 2012, there was effectively an asset register agreement between British Waterways and Scottish Canals. What that happened to have was assets transferring to Scottish Canals with effectively a nil network value. Recognising the canal network and the canal assets itself as effectively a heritage historic monument type of asset, which could not be subject to valuation and therefore was held at residual nil value. Over time, Scottish Canals have obviously invested in the canal network and undertaken a number of repairs. As part of those repairs, there have been enhancements to the canal network. What has been quite challenging for Scottish Canals to think through is, for example, some of the spend this year in that specialist asset category was an enhancement to a reservoir, but the actual reservoir itself is not held on the canal's books and not attributed a value. If the conversations are around, is it the actual reservoir that you should be valuing, or is it this piece of work that you have done within the reservoir and what does that mean in terms of valuation? There would be a challenge in that something Scottish Canals are in discussion with the sponsor team on how would you put a value on a canal's network. It is not quite the same as a trunk road, it is not used in the same way, and ultimately Scottish Government would want to have the whole canal network attributed a value and on Scottish Government's books effectively. That is an on-going conversation Scottish Canals are needing to have to understand, in the first instance, why they would want to have capital assets and why they would want to hold them in this way. Once they better understand the nature of the capital asset, they would be better placed to determine its valuation because, over time, all that work is being capitalised. Effectively, if they continue this way, they will inadvertently give the whole canal network a value. I am not necessarily sure that that is what the intention is, and that is something that the canal management is looking at. There are still quite a few unanswered questions that we will need to consider how best we respond to, but I know that Willie Coffey has some questions to raise. Thank you, convener. Auditor General, it seems that the transition from Scottish Canals from a public body to the NDPB is what has brought about many or most of these issues, and I am looking at your report in paragraph 10. That transition or that decision came as a result of a review by the Office for National Statistics to change its status from public body to NDPB. Did no one think that they were putting a bit of a millstone around its neck in the changing requirements that Joanne described earlier? There is a substantial difference in how you account for these assets if you are one type of body or the other. Did nobody think about that before they made the decision to change the status of the organisation? That is a really interesting point, Mr Coffey. I am going to bring Graham in because he might just provide a bit of additional context and background for the committee. You might recall, Mr Coffey, in the predecessor committee, that decisions that the Office for National Statistics has made in terms of other capital projects, Graham might want to say a bit more about Aberdeen Western, but Peripheral Route, for example, was one of the previous special populace vehicle that went around that. That was also one of the consequences of a call that the Office for National Statistics made. Before Graham wants to say anything on that, the ONS will make its own decisions. Across the UK, it will determine its judgment on the status and the activity of individual public bodies and to which category they best fall. Clearly, it took a judgment that Scottish Canals, by way of its relationship with Government, was better described as a non-departmental public body than a public corporation. However, the knock-on implications of that were very significant, as we are seeing today. Joanne describes the complexities of the previous valuation arrangements and what fell upon Scottish Canals. However, the decisions that might initially be relatively innocuous can have serious repercussions, and it is probably worth hearing from Graham about how that has been dealt with previously. The work of the ONS in that area is not entirely uncommon for bodies' status to change as a result of the ONS reviews, but it is fairly unusual. In case that happens for arms-length bodies, bodies that are at the boundaries of the public sector, which have features of a kind of training nature, one recent example that you might remember that was the special purpose vehicle set up to deliver the Aberdeen western peripheral route, part of the non-profit distributing project. The ONS was responsible for classifying whether the privately financed projects are under public sector control or private sector control, using guidance prepared by Eurostat, the European Statistic Authority. Back in 2015, the ONS concluded that, because the public sector had effective vetoes over the key aspects of the project and a share of the project's services, the NPD project was under the public sector. That meant that the Scottish Government halted non-profit distributing as a method of delivering private finance projects. It changed the way in which private finance projects introduced the mutual investment model to avoid the kind of ONS review that was resulting in the special purpose vehicle being regarded as being under public sector control. I think that it is fair to say that the ONS tends not to think too much about the implications of its decisions in the way that Mr Coffey outlined. It tends to be looking at the wider picture and whether the public bodies are where they sit within the national account of boundaries. I am still reading the report of the journal. That status change was made only April 2020. You could argue that it would struggle to be able to deliver the extent of the fixed asset register, re-examination or revaluation in that particular time frame. However, it is probably more important to ask the generalist now whether he is getting on with it. Are you confident that the organisation is aware of what needs to be done and the demands that are in the FREMs that you have outlined in Juwan described to us? Does the organisation have the skills and capacity to get the work done now as quickly as they possibly can? I might address both those points, Mr Coffey. Although the status change happened in April 2020, we would point to the fact that there was awareness of the implications of the status change for at least a year beforehand that might have allowed for some of the circumstances that we are reporting today to have been avoided. On whether we are able to give you the necessary assurance that, over the course of this year, all the necessary work will be carried out, it is probably not yet. Unfortunately, Juwan will want to say a bit more about what she has said. We know that this is a complex task. Scottish Canals recognise that it is a complex set of work that is undertaken and that it has arrangements progressing to tackle the issue. The point that we made a couple of times today is that the board of Scottish Canals will want to assure itself that the necessary skills, project steps are in place to tackle and deliver upon the project. Juwan has already mentioned that, through our external audit work, we will track and monitor that and consider further public reporting as necessary. However, I will hand over to Juwan to say a bit more about how Scottish Canals are tackling and what their intentions are this year. I think that Juwan has frozen. I do not think that we are able to fix that, in which case I am going to reflect on whether Auditor General has anything else that he wants to say. Thank you, convener. I really just briefly, again, as Mr Crawford mentioned, that we know that Scottish Canals are making plans to tackle the issue. It is a significant task. As we have said a number of times already and touched on in the report, and it needs to be carefully managed with the right resource and the level of expertise, whether Scottish Canals have that expertise in-house or not, therefore bringing in the necessary subject matter experts to support them in the valuation process. It is a big, complex project. Of course, it will want support from the Scottish Government and its sponsor team to deliver on that and manage it and report it transparently throughout the course of the year. As I have mentioned, Mr Crawford will continue to monitor that through our audit work and Juwan's team. We are now out of time, so I thank the Auditor General, as always, for providing us with a useful insight into the report. I also thank Juwan Brown, who joined us online, and Graham Greenhill for the evidence that you have given us this morning, which has given us quite a lot of food for thought. I am now going to move the committee meeting into private session.