 Well, good morning and can I welcome everybody to this, the 32nd meeting of the Public Audit Committee in 2023. We've got apologies this morning from Colin Beattie. The first item for committee members to consider on our agenda is whether to take agenda items 3, 4 and 5 in private. Are we all agreed? We are agreed. Our major item this morning is consideration of the 2022-23 audit of the Scottish government's consolidated accounts. I'm therefore very pleased to welcome our witnesses this morning, Stephen Boyle, the Auditor General for Scotland, who's joined this morning by Carol Grant, an audit director at Audit Scotland, Helen Russell, who's a senior audit manager, and by Richard Robinson, who's also a senior audit manager at Audit Scotland. Today's evidence session is principally about the consolidated accounts, but we did also want to take some evidence on the Scottish government's workforce challenges, which is very much a part of that, but I know Richard in particular as the lead auditor on that. We've got quite a large number of questions to put to you this morning, Auditor General, but before we get to those, can I invite you to make an opening statement? Many thanks, convener. Good morning, committee. I am presenting this report on the 2022-23 audit of the Scottish government's consolidated accounts under section 22 of the Public Finance and Accountability Scotland Act 2000. The Scottish government's consolidated accounts are a critical component of its accountability to Parliament and the public and cover around 90 per cent of the budget that was approved by the Parliament. The accounts show the amounts that the government spent against each main budget heading and the reasons for any significant differences. They also show the assets, liabilities and other financial commitments of the Scottish government that it is carrying forward to future years. My independent audit opinion on the consolidated accounts is unqualified. That means that I am confident that they provide a true and fair view of the government's finances and that they meet legal and regulatory requirements. I will highlight the following areas from my report, convener. The first is on budget performance. Net spending for the year was £49.8 billion, £0.5 billion less than budget, which amounts to an underspend of 1 per cent. Two emergency budget reviews were used during the year to manage and control expenditure to ensure that it remained in line with the approved budget. Moving to financial sustainability, the Scottish government continues to face an intensely challenging period in managing its finances due to inflation, pay deals and increased demand for public services. The delivery of those public services isn't affordable in its current form. Public sector reform therefore is essential and the Scottish government will need to work closely with its partners to develop a clear programme of reform, including workforce redesign. As you mentioned, convener, I recently published a briefing on the Scottish government's workforce challenges, and I am very happy to explore that with the committee this morning. The Scottish government committed to the development of a devolved public sector account in 2016. I recognise that the pandemic has impacted on the original plans, together with challenges with the delivery and incorporation of potential sources from the whole of government accounts. I will also note and bring to the committee's attention that our revised approach is currently being developed. Nonetheless, that now needs to be progressed to address the remaining deficiencies in the overall transparency of what the Scottish public sector owns and owes. Lastly, the review of the national outcomes provides an important opportunity for the Scottish government to align its performance reporting with the First Minister's critical missions and demonstrate how progress is being achieved. We look forward to answering the committee's questions. Thank you very much. We are a little bit pushed for time this morning, so I am going to go straight to questions and invite Graeme Simpson to open up. Graeme? Well, thanks a lot, convener, and with those words I will try and keep my questions brief. It wasn't aimed at you in particular, Graeme. No, absolutely, but I will always try and keep them brief. If I get straight into it, you mentioned, in order to general, about a number of underspends. Looking first at the capital underspend, that was underspent by £321 million, 13.5 per cent against its budget. Do you think that that is a reasonable amount? The underspend is, I think, just for additional context. On a budget of £2.4 billion, outturned figure of £2.06 billion, and therefore an underspend of £321 million, I think that the context that the Government is operating in, Mr Simpson, means that that figure is perhaps not as surprising as it might have been in other years. I draw that conclusion informed by our recent reporting on the Scottish Government's infrastructure arrangements, together with the evidence that the committee took from the Scottish Government before the summer recess from Government officials. I think that they are effectively saying that they cannot deliver the capital programme, as they had originally hoped, due to factors such as build-cost inflation, labour price changes and the need to reprofile and redesign capital projects so that they are affordable. I think that that context is pretty relevant for the outturned figure that you see from the 2223 accounts. Having said that, there are a variety of individual factors, and if the committee would like to know more detail, I can invite Carol in particular just to set some of that out for our evidence. Within the capital underspend, there are also some of the technical accounting elements. I know that that has been explored in previous years in terms of student loans. That flows through in terms of the underspend as well. In addition, there was an underspend within the social justice housing and local government portfolio, and we draw that out in the paper. That was primarily due to higher than anticipated capital receipts coming in. There was more income resulting in an underspend, as that was set off against the expenditure that was incurred. We can give you the trend, Helen, if you want to set that out for Mr Simpson. In terms of the trend in respect of capital, it was £321 million underspend this year. Last year, it was £166 million, which was 8.2 per cent of the budget. It was £207 million, which was almost 11 per cent of the year before. The year before that, again, was £230 million. It is of the same amount, roughly. There are fluctuations. It is higher. It is not the same amount, it is higher. No, except that, sorry. It is higher, but, as we have already heard, there are a lot of things going on behind in terms of budgeting and trying to get capital projects under way and such like. The only thing that I would add, Mr Simpson, is that, as the Government official said himself, there is a re-prioritisation exercise on going at the moment that we expect to be provided to Parliament along with the draft budget later this month. That will set out the Government's intentions around the pace, the quantum of their capital programme for the years to come. Okay. Can I ask you about a couple of specific things that you have mentioned in your report? The underspend on the net zero energy and transport portfolio, which is said to be due to lower than expected active travel schemes, low carbon and other transport initiatives. When I had a look, I could not find anything more than that. There is no other explanation. Why are we underspending on active travel schemes? I will bring Helen in a moment so that she can provide as additional detail that we have, Mr Simpson. What the consolidated accounts try to do really on a portfolio basis is to describe a relatively high level what the budget expenditure and variances are for different portfolios. There is some narrative disclosure that goes alongside that, and you have said some of that out, but perhaps not in the level that every user of the accounts might find helpful. Where we have got to is that if the committee are interested, the Government can certainly provide you with a lot more detail on the specifics of overspends and underspends, as you wish. Helen, you made a little bit more detail that we can provide this morning. Thank you. It was just really to draw your attention to the fact that the consolidated accounts on pages 121 to 132 give that amount of sort of a sort of context. In particular to NZ, what we've seen is a few of the schemes were actually put off until 2324, and that's the kind of reasoning behind part of the underspend. There was less than expected third party sort of ask in that area as well. But that's all we've got at this moment, and as I said, you can get more from the SG themselves. Thank you. It's a question for the Government, really, not for yourself, because that level of detail is just not there. If I may just one last point on it, Mr Simpson, we're satisfied that the amounts are correct. That is that our audit has looked at the expenditure through our testing of it, and at the narrative disclosures that accompany the brief description of why there's an over-underspend reasonably states the circumstances. Okay, that's great. I'm going to ask you about something else entirely. Again, it's highlighted in the report. I suppose it's best described as the rangers case, and most people will know what I'm talking about, and the amount of money that's been spent on that. Some of the figures are absolutely colossal, frankly. So I suppose my question would be, are we expecting any more to be spent on this? So there's a couple of points that's important to me. Avail, you're referring to paragraphs 19 onwards of the section 22 report, where we draw attention to the on-going circumstances in respect of public expenditure through the Crown Office Procurator Fiscal Service in respect of the Acquisition and Administration of Rangers Football Club. There, to date, has been expenditure that's been accounted for of around £60.5 million of unplanned expenditure in respect of claims against the Lord Advocate. Some claims have been resolved with around £51.7 million of that, with the balance being a provision, Mr Simpson. The provision really addresses the nature of your questions, what more is to come. What the Crown Office looks to do is provide what they think is the most reasonable assessment, given that there is still remaining uncertainty about what a case, whether it will result in a liability and what it might be settled for. The auditor's judgment is that that's a reasonable assessment. Beyond that, there is no absolute predictability of what might be at the end of any court action, but we're satisfied that that's a reasonable figure. For completeness, we may draw the committee's attention to the last sentence of paragraph 20, which just restates that the Lord Advocate has committed to a process of inquiry to review the circumstances that have led to this amount of unplanned public expenditure. Essentially, what you're saying is that the budgeted for further £8.8 million, and you're saying that's reasonable. I don't know how we could know that's reasonable or not. We can't possibly know that that's going to be it. Maybe if it's helpful, Helen or Carol, to see from an audit perspective what evidence we draw on to arrive at the audit perspective as to whether management, in this case the Crown Office, have made a reasonable decision. That will be informed so that the team can sit out in a bit more detail as they wish. To put some context into it as well, if that's all right for you, the figure has largely stayed the same as last year as well, so that gives some kind of judgment as well that the figure hasn't changed. In terms of the audit perspective, the auditor will have undertaken a review of the background papers and the evidence around that, and it's obviously inquired of the Crown Office as well as to how they reached that estimate. As you've already heard, it's an estimate. It's increased slightly from last year. There's an increase of 700,000 from last year in terms of the provision, but the auditor has deemed it to be okay and acceptable. I was just going to say, obviously, that each of the audited bodies that are consolidated, there's a separate annual audit report, and that's on Audit Scotland's website in terms of more detail around the judgments of the auditor that has been drawn to the attention of those charged with governance of that body. Just to add briefly, Mr Simpson, is that there are different sets of accounting disclosures that happen in different countries. Accounts that you are considering today are based on accruals, whereas in other jurisdictions there will be cash accounts, as is common in various parts of Europe. A cash account wouldn't include this forward projection. What the UK model for accounting is tries to give the reader of accounts that wider perspective of future liabilities and the proximity of those liabilities. The assessment of the Crown Office is that it has an £8.8 million best estimate liability to come. The auditors, as Carolyn Helen has said, have looked at the sporting evidence for that and deemed that that's reasonable. From a disclosure perspective, we are content that that sets out what may well happen, as ever. We would likely be 12 months from now before we are able to give the committee the certainty of what it actually landed on. I'll leave it there, convener. I might come back in later. Yes, of course. Just before we leave that particular issue, as you've already relayed to us, Auditor General, the Lord Advocate has given a commitment to more public accountability and some form of process of inquiry, I think, was the expression that was used on the conclusion of the litigation. I suppose that the two things that arise from that are, do you have any sense of when the litigation will be concluded? Secondly, do you know what the Lord Advocate means by a process of inquiry? I've taken those in reverse, convener. No, I don't have any further information or insight into the Lord Advocate's intentions, so we will continue to engage with the officials of the Crown Office and the Crown Office to understand what that means. Similarly, on the timescales, it will be challenging given the nature of the case to be definitive on that point, given that those cases have gone on for periods of time spanning more than one financial year. What that is looking to do of the £8.8 million, that's a reasonable best estimate at this stage, but I'm probably not able to be more definitive than that. Okay, that's fine. I'm going to now turn to the deputy convener, Sharon Dower, who's got some questions to put. Thank you. Given the non-recurring way in which the 2022-23 changes to improve pay deals and provide cost of living support occurred, and given that increases in the public sector pay will be baselined into the 2023-20 budget and beyond, how do you think fiscal sustainability of the public sector payroll can be achieved and do you think that this can be done without a reduction in the size of the public sector workforce? Those are perhaps the most fundamental challenges that the Government is facing currently, deputy convener. The points that you make are right that public sector pay deals are one of the most significant cost pressures on public finances. 1.7 billion or so of unbudgeted pay deals have now been brought in to future budgets. I will bring Richard in in a moment, just to say a bit more about how that's operated and what it might mean in terms of fiscal sustainability. But at a high level, what we've said both in the section 22 report and on the Scottish Government's workforce challenges briefing paper, is that to move from the significant fiscal challenges that we set out, but again drawing on the work of others, the Scottish Fiscal Commission and the Government's own forecasts are highlighting that there are difficult decisions to be made. That reform, if it's a reform that focuses on the expenditure side, not going into how the Government might vary its income, requires to move to a position that there is a sustainable level of public service. Before passing to Richard, one other point I would mention is that, and I think you heard evidence similar to this last week's round table on colleges finances, is that public sector workers deliver public service. They play a vital role in doing so. The very difficult challenge that the Government will have to take is how they can do so in a way that's fair, equitable, but delivers sustainable public services. So they've set out that workforce estates, increasing use of digitalisation are all of the pillars with which public sector reform will happen, as we touch on and happy to say more detail as you wish. Government is, as considerable work under way within the civil service, working with public bodies to come up with an approach to public sector reform. Fundamentally, what needs to happen is that there is now a clear plan that sets out what's going to be delivered, what it's going to cost and when this is going to be achieved. Richard. To build on that, I suppose that the context of the workforce paper is that, as powers have come to the Scottish Parliament over the course of devolution, the budgets have increased and the workforce costs have increased in line with that, not necessarily in a linear relation which was set out in the report. What's happened recently with Covid-19 and some of those monies being used towards workforce and then inflationary pressures, which obviously increases the pay settlements in board, is a real additional pressure from a financial sustainability point of view on the sustainability of the workforce, which makes up approximately half of the budget. The challenges into the future, as we set out in Exhibit 5 of the report, is really around what the projections that are included within the medium-term financial strategy for what's going to happen next, which is anticipating a slower growth, both in terms of numbers and in terms of assuming to pay awards. So, there's something to manage there within the overall budget and set out what that means. So, the Scottish Government approach to reform has effectively two tiers to it. One, which is about managing the short-term need to come to a position of financial sustainability. The longer-term, over a 10-year period, to look more fundamentally at services and some of the ways that the Auditor General has mentioned there in terms of shared services, digitisation, to see what can be done. One of the main recommendations of the report is to make sure that workforce considerations are included within that, even if they're not necessarily about reforming the workforce per se. So, there may be elements that relate to how staff can work differently together. There may be elements where digitisation is an example that we've used in the report. It means that the ways in which decisions or services are delivered requires less workforce input. So, it's going to be a complicated exercise. One of our starting points in our recommendations is to consider the extent of the data that's needed to support that decision. At the moment, we did this exercise from looking through over 100 sets of accounts over a number of years and pulling out the various data. We've got more to be done to say, okay, what are the expected spending growth in all these public bodies, including the core Scottish Government workforce? How does that work together? What are the impact of efficiencies? And to have a kind of more, what's the word I'm looking for, a sounder base of information to understand how the workforce is going to help move towards financial sustainability. I addressed your question entirely about whether there will be changes in workforce numbers. Fundamentally, it's not for me to make that judgment. I think it is for the Government to set out clearly, transparently, how it intends to use its workforce, very much what Richard is saying in the future delivery of public services so that they are affordable and sustainable. Okay, thanks. I'll come back to more questions later on on the workforce planning. If I could move on to social security, what measures do you think Social Security Scotland should be taking to assess levels of fraud and error within the benefits that they administer? And are they taking sufficient action to address this? I'm going to bring Carol in on this point, because it's a familiar topic for the committee, as the administration of benefit expenditure has been devolved through the creation of the new Social Security Scotland agency, but while some benefits are still administered by the Department for Work and Impensions and the arrangement that exists between the DWP and Social Security Scotland, some of that story, as you mentioned, means that there's a reliance that still exists and there's a reliance that extends into an assessment of fraud or error. I'm probably, I hope, enough from me in terms of context. I have to get a little past to Carol just to say what that means in terms of the audit judgments and any risk and so forth. Thank you, Auditor General. As the Auditor General has said, historically and in this paper what we've been focused on is the risk of error on fraud and the benefits administered by the Department for Work and Impensions because there's the estimate there and we know that. And there is the impact on the regularity opinion for the auditor of Social Security Scotland. I think what you're exploring here is what are Social Security Scotland doing for the benefits that they are administering. So, as I said earlier, the annual audit report is on our website and the auditor goes into quite a lot of detail in relation to this. So what Social Security Scotland have done in a year is they've developed an estimate of the level of official error that exists within the Scottish child payment. And they are using the learning from that to then extend it to the other benefits that they are administering. What that showed and what detail is in the auditor's report is that there was a 1.1 per cent overpayment about £2.3 million within the Scottish child payment and a 0.1 per cent underpayment, a 0.2 million. Obviously, the important thing is that the right people are accessing the benefits that they're entitled to so it's important to consider underpayments and overpayments in that space and it is good to see that Social Security Scotland are developing plans to monitor both and get an understanding of both. What the auditor has said is that it's important, again, as the Auditor General has mentioned, about the pace with which they then develop the understanding for the other benefits. So, there is some discussion at the moment on going with the Scottish Government on the extent to which Social Security Scotland has the powers it needs or whether it may need more powers in terms of the information it gains from those claiming the benefits and also the engagement with them as part of that process and understanding overall how the scheme has been administered and what lies within it. OK, thank you. Moving on to the next question. Last year you were critical of the transparency of the Scottish Government borrowing. Are you satisfied that the Scottish Government is taking steps to improve the transparency of reporting its decisions to undertake borrowing and if so, how has the transparency improved? I think we are making progress to be quite narrow my response to that is that the information is available in terms of the Government's borrowing relative to its powers from the Scotland Act and the fiscal framework. What we are not yet in a position is that we have that captured in a single source. So, there is not yet that level of information in the consolidated accounts. But it is absolutely connected to the wider point that referenced in my opening remarks that we do not yet have a single public sector account for Scotland for various reasons. Perhaps with an element of familiarity and maybe with some signs of progress of commitment towards the public sector account that we have seen over the past few months, the information is available but not in a single source. I am feeling more optimistic that we will be moving towards a transparent disclosure of a single source of the relevant Government borrowing and look forward to see progress on that front. Do you think that there is a will there from the Government to be more transparent? I am going past the car. I can set out the nature of the progress and engagement that she has had with the Government. The information is there undoubtedly and is reported publicly. The missing element for me is that to make a set of accounts meaningful and useful all the various important components should be accessible within the one document. We are not there yet. The signs of progress that Carol can describe are encouraging. Within the paper we say that we are expecting a proposal in terms of the way forward. We have now received a proposal from the Government and we are considering it at the moment. As the order general said it is important that the information is understood where to find it. There is something about the transparency in terms of the Scottish Government consolidated accounts that you are considering today in more than 190 pages. As more detail in there is going to improve the transparency or is it about taking a step back and thinking about how the information is presented, you will see the recommendation that we have made in terms of the performance report in terms of the consolidated accounts trying to get that more focused. It is about striking the right balance between having the necessary information available and having it understandable and digestible so that people can pick up the document and get that sense. As the order general said I think we are having positive conversations about the way forward on this. We have the proposal that we are considering at the moment and I am optimistic that we will see real progress over the next few months. There is one of the comments that you made earlier on it was actually when my colleague Graham Simpson was asking you the questions in underspend and you said if the committee are interested the Government will have much more detail. Is that the kind of detail that should be readily available to us without having to go and ask for it? I think there is a balance to be struck on it. The committee can be assured that there is the Government runs its income expenditure operation in complex processes that there are ledger codes account codes and so forth that will set out all of their transactions in the set of accounts. They have to strike the balance in respect of under and overspends. We always recognise that the committee and especially the public might want more detail than is available in a set of accounts. Provisions exist for more information to be requested, freedom of information and so forth to ask for more detail. I think that there needs to be a review. I think that it's where we've got two deputy committee disbeld on Carol's point that these accounts run to nearly 200 pages. There is a question for preparers of accounts and auditors to be absolutely frank about the extent to which this is still useful, accessible, relevant information. Yes, it complies with accounting and auditing standards but stepping back from that as Carol says, would adding more information into the accounts make them a useful compilation? What we understand of the Government's proposal and as Carol says, we're giving some careful thought to as to how do you get a set of public financial reports that are useful to a broader audience than a set of 190 page accounts? That might go into more detail on the underspends and overspends of different portfolio lines but I think that it absolutely should be bringing in information about the totality of Government borrowing given how important that is. So there is a balance to be struck between giving more information in some parts and maybe less in other areas. I suppose if they gave us more information it would save them a lot of man hours doing freedom of information requests. Do you have any concerns in relation to the increasing level of charges linked to borrowing and are you aware if the Scottish Government has taken a view on what is considered reasonable? In paragraphs 23 and 24 of the report today we set out both the interest and capital repayments that the Government is making as a result of its borrowing arrangements. Again, just by a way for the record the total principal level of capital borrowing at the end of March 23 was over £1.5 billion against an overall cap in terms of the fiscal framework of £3 billion so clearly what we're seeing there is that the Scottish Government is using the powers and the fiscal framework to borrow for capital purposes. Our paper also updates the committee on where there's been borrowing for resource purposes. Much more stringent rules for resource borrowing particularly as the committee will recall for where there was fiscal shocks much of those related to the Covid-19 pandemic. What we have now in terms of interest payments of £266.8 million per year and repayments of £160 million so these are becoming quite big numbers in terms of both servicing the borrowing and then repayment of that. Yes, more expenditure but more complexity to alongside that. I wouldn't say I have concerns about the forability these are factored into future plans alongside future borrowing intentions but it's recognising that the complexity of borrowing arrangements for the Scottish Government is increasing and we'll expect to see that as Richard mentioned a few minutes ago built into future projections when the next version of the medium-term financial strategy is published early next year. Right, good. One of the areas that's in the report which we are usually very interested in and we are once again is investment in private companies by the Scottish Government and I want to invite Willie Coffey to get us under way under that section. Thanks very much again, good morning. Stephen, firstly I wonder if you could ask in your opening remarks you said that the consolidated accounts accounts for 90 per cent of the budget approved by Parliament so what about the other 10 per cent what is that, that's roughly £5 billion of the spend so what does it get spent on and who accounts for it do you get a look at it? So very happy to click us off on that and I'll bring colleagues in to say a wee bit more so the history of this is in respect of what's known as the accounting boundary Mr Coffey which really sets out what bodies are brought into the consolidated accounts and which are not there are complexities to that but it's largely a matter for Government so a couple of very obvious examples that I share is that so for example the budget approved by Parliament includes the Parliament itself the Scottish Parliamentary Corporate Body Scotland so we're not consolidated into those accounts and there are a small number of other organisations and colleagues can set that out for good reason really about the founding legislation as to why they're not part of the Government's consolidated accounts for assurance for you Mr Coffey and for the committee all expenditure approved by the Parliament is subject to external audit that is appointed by me or the Accounts Commission or in some rare cases the number which we set out is that these are subject to separate audit arrangements and the information will all be reported publicly okay thank you for that I just want to ask that question because you mentioned it there turning to investment in private companies auditor general the strategic commercial assets division was established last year what's its purpose is it effective is it too early to tell or do you have a sense of whether it's doing the job that we hope it should do yeah I'll start actually I'll bring Caroline in this actually because the committee will recall this had been an area of concern for both me and my predecessor about the arrangements that the Government had in place to support initial investment due to Dylan's activity management of the investment potential exit arrangements from those investments so as you mentioned they have set up the strategic commercial assets division team of civil servants to manage both existing investments and potential opportunities we welcome that Mr Coffey think that that is evidence of progress that the Government have stronger infrastructure of their own to manage current and potential investments it's it's potentially still relatively early on in terms of the nature of that team being set up but I think that they now have the set up that they need with which to go forward on much stronger footing than existed previously I think that hopefully you find it helpful but I think that maybe it would be worth Carol just setting out some of the engagement that Audit Scotland have had with those civil servants so we have regular engagement with the new team that's been drawn together you'll recall last year some of the discussion was around the business investment framework that had been developed and work on going to improve that that has been updated and it was published on the website last month in terms of the revisions to that to strengthen the arrangements within it taken on board the comments from the Auditor General and the engagement with the audit team is subject to on-going review and engagement so if there's other areas that we feel need to be further strengthened they're absolutely open to that discussion and to that engagement they're also developing some intervention playbooks and really kind of almost examples and talking through and making a case studies so that people can understand when things are emerging the right steps to take and who to speak to are really strengthening the arrangements right across that space Do we get or do you get sight of deliberations, reports, recommendations all that kind of territory do we see any of that as that publicly available? Not proactively we're not consulted or engaged in potential opportunities I think it's Carol you might say a bit more Carol about the nature of the arrangement informing the judgment that arrangements are improving I think it is important to recognise the scenario planning that exists together with the management of existing interventions is stronger but what I think probably for good reason in respect of appropriate boundaries the team isn't coming to us to say we've got a potential opportunity here or there what do we think about it would go beyond our role and perhaps into one of advisors and consultancy for government which is quite distinct from our audit responsibilities with Carol I don't think there's much to add other than just the part of the engagement has been us also developing our understanding of the ongoing economic analysis that the team do the depth of understanding they have about all the strategic partners in the private sector and their importance to the economy so that they have that depth of understanding of that economic environment that the companies are working in and can engage with them early on in terms of some of that and as the author general has said there's a range of routes in terms of support that already exists in terms of the enterprise companies and things like that sometimes it's about pointing them in a direction more than actually intervening Okay, thanks for that Turning to a specific intervention Presswick airport once again features in your reports auditor general it's now in its fourth year in a row in profit the strategic importance of the airport I think was illustrated on the last weekend when it dealt with multiple diversions, emergencies and otherwise to the airport the weather that was experienced across northern Europe for us in Ayrshire Ayrshire MSP is a really strategic and important asset to have but looking at the broader picture and the investment that the Scottish Government has made have you seen any progress in attracting a buyer to pick up the airport and whether we might be able to look forward to that I think this is pretty topical Mr Coffey actually understands that Chair and Chief Executive I believe gave evidence to the Economy and Fair Work Committee in the Parliament earlier this week and advised that a new potential buyer has been sourced but for good reason in terms of commercial confidentiality that the Government has been down this road before and as the Cabinet Secretary stated in his evidence Government's not a distressed seller so there is an appropriate balance to be struck between financial support and its profitability as you mentioned and then looking to recoup the public investment that's already been made in the airport from an audit perspective we'll continue to track that through Carol's engagement with the strategic commercial assets division is where our interest will be but it's been a very prominent investment that perhaps looking at the difference in valuation compared to investment that's been made in the airport we'll monitor that and report further as developments happen okay thank you very much for that Graham Simpson do you want to come in on the earlier point that Willie was asking about it was actually more about press week yeah go on then so that's quite handy so there's been a number of attempts to buy the airport a number of expressions of interest and of course we heard yesterday I think it was at the economy committee that there is another potential buyer do you think the and by the way all the previous ones have been rebuffed for whatever reason do you think the process in which these expressions of interest are dealt with is the right one they're dealt with by the board of the airport initially and sometimes my understanding it doesn't go any further so it doesn't even get to a ministerial decision potentially and given that we've got this new body the strategic commercial assets division do you see them having a role in deciding what to do with these assets not just press week but we've also got Ferguson Marine for example should they be stepping in at some point so I don't have any insight into the specifics of how bids arrive at or are assessed at an initial stage by the management of press week airport but clearly government have a role and as with this new team I think it's maybe just important just the few words in paragraph 27 of our report that just captures that really end to end process that the Scottish Government have about it provides support across the whole life cycle so in process of disposal the Scottish Government has a role after all it was the investor and that's captured in the relationship between the airport and the Scottish Government the specifics of how that role and relationship is discharged Mr Simpson we're probably one step removed from that Carol maybe turn to any further insight but it remains an area of audit interest for us and we'll continue to report on it but if there's any more specifics about the mechanisms it may be that the Government themselves can provide that detail to the committee I'll check the Carol first I don't have anything to add to what we can continue the engagement and pick up maybe in a bit more detail but yeah I think approaching the Government would be the best place for that Yeah okay I think it probably yes it probably is because we could have a position where you've got a board who just don't want to sell an asset and yet we have a Government that says well we we believe that this asset whatever it is should be returned to the private sector I think at the risk of speculating on it I think my expectation would be that the Government as the owner would set out its intentions what its requirements are to the management of the airport and I think you could maybe have taken that assurance from Cabinet Secretary's words yesterday that which I think suggests that they are not a distressed seller of the airport and therefore with that they'll have a clear expectation about what their requirements to be met at the point of sale but I think I wouldn't only be speculating on that Mr Simpson I don't have any further insight and I think it's perhaps something that Government or the airport themselves could do but just on that one of the recurring questions is why did the Government step in to buy Prestwick airport and why didn't it step in to save the Glasgow, Caledonia and Railway works in Springburn it owns Prestwick airport there's been speculation in the last week or so that other Scottish airports are going to be put up for sale by their present owners is there any consideration under the business investment framework of the Scottish Government whether they would step in there to what extent is the strategic commercial assets division just about managing the here and now and those enterprises which are currently owned by the Scottish Government and to what extent are they looking across the whole Scottish economy saying well that enterprise is strategically important but is in trouble and maybe we should consider stepping in and taking over ownership of it how does that work and what's your sense of how that's working in this new landscape that's been created this new infrastructure as you described it that's been created to look at that I believe the Government has a stronger framework than they did when they made these investments so when the investments that are set out exhibit to whether it's Prestwick airport by FAB or Ferguson's some of those were done at that time without that investment framework and certainly there wasn't a strategic commercial assets division in place to manage I think as I recall the committee has taken evidence on this on various occasions and I think you've always had evidence that suggests that there are a number of levers at their disposal so an investment framework is that it's not an entirely prescriptive approach that says these are only the opportunities that they will take relative to ones that they will decline so from an audit perspective we've seen progress and it says that they have now a better understanding of the risks that they will weigh up the opportunities to how they will manage and dispose of interventions than they did perhaps going back 5 to 10 years ago but it is complex I think that's the thing I've recognised as Carol Woods too it's not just about the Government this wasn't a territory that Government were really investing in because after all they had enterprise agencies and other mechanisms which would typically have engaged in opportunities such as these those still exist so that clear understanding of how the process is working it's still evolving and that's perhaps why I gave a qualified response to Mr Coffey that whilst we welcome the approach I don't know if you could ever say it's definitive or foolproof and there will still undoubtedly be test cases to come for example of why this airport and not that one and why that business and not the other we'll no doubt have the accountable officer from the Government the permanent secretary possibly before us in the new year to talk about some of these things as well but can I go to something again which the committee has concerned itself with and that is Ferguson Marine Port Glasgow Limited which again is mentioned in the report this year we've had and you highlight it in the section 22 report on the consolidated accounts this year we've had a written authority required for the first time since 2007 when the director general economy saw a written authority from the cabinet secretary because he didn't think continuing to construct Veslato 2 in the yard represented value for money in his assessment and that was based upon some external reports as well I guess my question to you is to what extent have you had access to the documentation which informed the decision making of the Government around this? We have had access and we have seen the documentation that is considered by the Government to be commercially sensitive to inform the judgments that we've made in today's report that the written authority that the director general the accountable officer requested from the cabinet secretary we needed to have access to those documentation in order to make that assessment I'm going to bring Caroline because she was the auditor who explored the circumstances directly with the Scottish Government but the conclusion that we've reached as we set out in the report that the process that the Government followed the accountable officer followed was consistent with the requirements of the Scottish Public Finance Manual but Caroline can set out more detail for the committee. The approach that we adopted was what I would almost describe as like a show and tell so we had really good engagement with the team within Government involved in the due diligence work and involved with Ferguson Marine we had a meeting with them we asked them to go through everything, the entire timeline that has existed since they got involved with Ferguson Marine the different AO assessments and due diligence exercises that have taken place and then we selected the evidence that we needed access to and that was provided to us so that we could view it we could assess it and we could form our conclusions on the basis of that evidence As a committee we still got outstanding requests for also getting access to that information and for as much of that to be put into the public domain as possible recognising that there probably will be commercial sensitivities around some of it and we don't want to in any way compromise the yards position but I think maximum transparency remains our position on it and again I'm not really going to ask you to comment on that unless you want to The other area that have been of routine concern to the committee again, which is mentioned in your report this year is around the arrangements concerning the Lucar-Braliminium Smelter which is part of the Liberty Group owned by the GFG Alliance and there are very subsidiary parts to that as well Today, this year in Exhibit 2 there continues to be uncertainty regarding the financial stability of GFG Alliance Would you care to elaborate on that? Yes I would GFG Alliance as our understanding is in the process of refinancing its group following the financial difficulties of the Greensill Capital Group its primary funders that process is on-going The difficulties also extend to its audit arrangements which I think you also touched on when we spoke about this matter at the evidence session last year From review of companies house submissions, the most recent submission from the company that runs the Lucar-Braliminium Smelter which I think we refer to is a Cymic, look-aver Hydropower Ltd but there is also a company Alvan's British Aluminium Ltd which is part of the group following a name change Their most recent submission was a set of unaudited accounts for the year-ended 31st of March 2021 so the audited accounts are late and that is a matter of concern and I'm sure it's on-going as the group looks to get auditors for the audit of the Lilacabba Smelter organisation so there is uncertainty and that uncertainty is reflected in the consolidated accounts as it relates to the quantum of the provision that exists for the Scottish Government's potential liability as it relates to the guarantee that it has provided so that provision is increased by £21 million during the 22-23 financial year and at the year end it was sitting at £135 million reflecting the level of risk and uncertainty that currently exists OK, but can I go back and just check with you then so the Cymic, look-aver Hydropower Ltd Cymic Energy so I don't know that's another incarnation of it or that's just given it it's the correct name that it's always had I mean so it hasn't submitted audited accounts I mean has the Liberty Group submitted audited accounts has the GFG Alliance submitted audited accounts Carol, I think a recent communication with the Government just asked to check the status of this but we understand that there is remaining work to be done on new auditors convener our focus has been on the Government's relationship with this part of the GFG group so we may need to come back to you with more detail about the totality of it but there is that not having a set of audited accounts and remaining uncertainty about the funding arrangements for the Government's partner of which it is providing a guarantee is a matter of concern and we're seeing that through the increase in the provision but again if I'll pause for a minute just to check for more detail about that Carol No, to be honest Todd Sturgeon I think you've covered everything from the recent engagement which we shared yesterday I mean two years ago the House of Commons Select Committee on Business and Enterprise concluded and I'll quote them because what they said was fairly direct we believe that until Mr Gupta restructures his GFG Alliance companies into a more acceptable corporate structure and publishes consolidated accounts that are adequately audited he fails to fulfil the criteria that we believe should be applied to define a fit and proper person for the purposes of receiving any form of Government support I mean that's a pretty direct assessment of where we are isn't it I think it reflects the on-going uncertainty that exists and the level of risk in respect of this investment or sort of guarantee rather that the Scottish Government has made in the Smelter convener it's uncertain, it's challenging unpredictable circumstances that currently exist and of course it relates not just to the investment of public funds but also I'm sure a matter of concern for the workers and the people in the local area too yeah absolutely and I suppose just to throw into the pot the GFG Alliance has also been investigated by the serious fraud office I mean just to take you back finally on before we move on to another area of questioning last year you told us I think it was the 27th of January you said that there is an increasing likelihood that the guarantee will be called upon I mean do you have any update on where you stand on that question I don't think circumstances have changed materially from 11 months ago now that there is uncertainty the the Government is still receiving payment from the GFG group in respect of the provision of the guarantee so that money is being paid so that's perhaps marginally offsets the overall unease and risk that exists but the fact that the provision itself has grown that there aren't audited accounts and there is wider group uncertainty about its funding all points to matters of concern okay thank you I'm going to move things along so the Government's exposure according to your report is between 14 million and 32 million is 32 million in your view the maximum that the Government could be hit for that's the annual exposure that's the annual exposure the total exposure is 135 million 135 million so potentially this could cost the Government 135 million that's correct okay I'm going to move it along and we've got some questions about the European structural investment funds which Willie Coffey wants to lead on Willie thanks again we are still within the European structural funds process until June 24 Scotland's still benefiting from that but there's been some kind of change in methodology in your report about reclaiming costs from the various schemes that has resulted in the Scottish Government having to write off 36 million pounds I wonder if you could give the committee a little bit more details on what that's all about I'll pass to Carol to set this out for the committee in a second Mr Coffey but there's been a long tail as the committee will recall about European structural and investment funds a process that comes to an end as you mentioned in June next year the history to this was that there has been processes of interruption and suspension as the European Commission and their auditors weren't satisfied that their processes were being followed correctly by the Scottish Government and its partners for the awarding of grants as you mentioned the methodology has been reviewed and that's resulted in changes to the level of exposure that exposure really exists because the Scottish Government continued to pay public bodies or other bodies who were providing the service while the process was interruption from the Scottish Government and what they've identified is that they're not going to be able to recover all of the amounts that they paid out while the interruption and suspension took place but Carol can give a bit more detail about where we are now and what the future might hold and what I've said since the suspension has been lifted there has been an improvement in strengthening in the arrangements in terms of the funds it is recognised as a significant risk within the Scottish Government it features heavily in terms of the risk management processes and the on-going discussions it's been a key feature so work is on-going with partners to ensure that claims are submitted and that those are compliant at the point of submission and then are subject to checks so it is dependent on partners to a certain extent but the Scottish Government is working with them to ensure that what is submitted complies with the requirements another thing that the Government is looking at is there's a scheme that can be applied to meet some of the costs in terms of the resettlement so what we have seen is the Government really looking to see where they can use this funding and trying to move projects about to ensure they get the maximum benefit from it before it concludes okay thank you for the answers to that in my seemingly annual question to you about the replacement funds, the replacement programs that will replace the European funds things like shared prosperity community renewal community ownership, levelling up and so on are we any clearer now about the audit arrangements that you may have to scrutinise the spend of these funds which are a replacement for the European funds that we used to enjoy? I think that we are fairly clear Mr Coffey that I have no statutory powers with which to audit expenditure by the UK Government that's pretty clear that those expenditure undertaken or grants by the UK department for levelling up is a matter for the national audit office I think that as I've also set out in correspondence to the committee however is that we understand and appreciate the Scottish Parliament and this committee's longstanding interest in both European structural investment funds and what might follow so an intention from us and alongside my colleagues in Accounting Commission who audit local government and being that local government bodies might well be significant recipients of levelling up funding is that we find an appropriate reporting mechanism that stops short of an audit just to be absolutely clear to recognise this committee's interest so that is work that we are following up on and will bring to the committee's attention at an appropriate point. That's helpful again so in terms of scrutiny, transparency, accountability and all of that does this mean that Scotland's councils are reporting to our UK Government department? So there will be grant recipients potentially of a UK Government department as they potentially might be for other sources of funding so I don't think I would say this would be a unique set of circumstances so and indeed there is a process that the Scottish Government local authorities and the UK Government will follow but various sources of funding what we want to do is to satisfy the Parliament's interest and find a way that we can do just that but that will fall short of an audit of levelling up to Scottish local authorities or other public bodies. The Accounts Commission will have a role to play in this. That's absolutely right, I think both myself and the Accounts Commission because it won't exclusively be local authorities that we will receive, there might be other public bodies and finding a way that recognises the interest and the transparency of the amounts of money that have come to Scottish public bodies and how it's been used. What we don't yet have is a prescriptive model with which we'll do that but it remains our commitment to do just so. Have you finally any idea when you might be clearer, when you might expect to see what you consider to be an appropriate level of observation scrutiny or otherwise? Probably something I would need to come back to to the committee. Most obviously financial year time skills would feel the most appropriate period to do that and as audit activity runs alongside that that will vary, so over the course of 2024 at the appropriate point we'll be able to update the committee further. Okay, thanks very much for that. Thank you. One of the areas that you mentioned in your opening statement is this long-standing request for whole-of-government accounts to be produced and there have been delays and talk of alternative proposals and so on. I just wonder whether perhaps you could give us an update on where we are with the issue in a little bit more detail. You're very happy to convene on your right. This is a long-standing issue that my predecessor and I have both sought from the Scottish Government a clearer, more comprehensive set of financial reporting that captures fundamentally the assets and liabilities but also revenue and income that exists across the public sector. I understand that it's complex that there's not a single source mechanism with which to do this. Some of the history also references the fact that both permanent secretaries that I've given evidence have supported or recognised the importance of this but it hasn't yet been delivered to me. We've had interruptions from the pandemic of course and then more recently there have been challenges experienced with the compilation of the whole-of-government accounts at a UK level that has also brought added complexity. Alongside that the whole-of-government accounts have changed the reporting threshold more recently. How it works at the moment in my Scottish context is that auditors working for me and the Accounts Commission will also undertake work on behalf of the National Audit Office who audit the whole-of-government accounts and then submit returns so that the NEO is consistent with the accounts. The threshold for that is increasing to £2 billion revenue. That's going to knock out the vast majority of Scottish public bodies. You'd be left with the Government and some of our largest health boards and councils. That process seems closed in terms of an approach with which to compile a public sector accounts for Scotland. A reference about earlier optimism and I believe that to-case. Government has come to us with a proposal that gives us a route through which to compile meaningful, relevant, compilation of assets and liabilities from the wider public sector in Scotland. We need to see progress in this convener. That's where I'm at now. We've had this part of eight years of delay and finalising what seems to be the missing element of Scottish financial reporting. Carol can set out what's coming next and timescales, hopefully. But we do need to see meaningful progress quickly now. Thank you. As the Auditor General has said, it felt appropriate for the Scottish Government to reflect on the plans given the changes in the whole of Government accounts. We wouldn't want to be in a space where the production would have an overly onerous audit regime or be overly onerous in terms of the preparation, so it is said earlier about the balance but it is about striking the right balance in that space. We've received the proposal and we are considering it. We have plans to have a day with Government early in the new year to explore it further. What we are looking at is I'm going to see a starting point, but that's not the case. It's about not starting with the full set of accounts, as you would expect them. But building the picture, seeing what works, seeing what is accessible, we said earlier the accounts in front of us today are over 190 pages. Would another set of accounts of that magnitude improve transparency so it's I'm saying balance about many times today but it feels like that is the important thing. It is about capturing the right information in a way that is transparent but it's also meaningful. Once we have the proposal bottomed out, the Auditor General then considers the audit regime that sits around that to ensure that there is that independent assurance provided on what is produced by the Government. We have some steps to take but, as the Auditor General said, there is optimism there in terms of the way forward. Just to add to Carol's remarks, we also recognise the committee's longstanding interest and role in the production and scrutiny of an additional set of public financial accounts for Scotland. Of course, we will engage with you regularly as matters progress over 2024 and, indeed, we would be very happy to have further engagement beyond any discussion we have today. Right, thank you. That assurance is very welcome and I think we've heard about roadmaps and processes and alternative proposals and so on. Your patience is exemplary because it's running out a little bit really. We'll see what response we get from the Scottish Government when we approach them. I'm going to move things along and we wanted to spend some time just looking at the workforce reform agenda but also more broadly the public service reform agenda. I'm going to invite the deputy convener back in and I think that Graham Simpson might want to come in on this as well. Sharon, over to you. Thank you. The Finance and Public Administration Committee recently produced their pre-budget scrutiny report. Do you agree with the criticisms made of the Scottish Government's public service reform programme? If I may be able to reference the comments from my own report is that there is work to do to deliver sustainable public services with the financial resources that the Scottish Government has. It's been well referenced, deputy convener, that there is a budget gap that exists of £1 billion rising to £1.9 billion that leads me to the conclusion that I make in the report and I referenced in my opening remarks that the current model isn't sustainable so reform is a must and the Government's pillars for reform around the workforce digitalisation all have merit they all have to be tackled but what we need to move from is absolutely appropriate steps of a civil service team having engagement with public bodies gathering that information, ideas, templates and so forth to a very clear plan and we haven't yet seen that plan we hope we might see more detail through the draft budget with the publication of the medium-term financial strategy but it's really that plan for where we are now relative to a sustainable path to public service delivery that we need to get to and that's the thrust not just of the section 22 report but also both the workforce paper that you have in front of you today and also the infrastructure paper from a couple of months ago as well You actually say that in your comments the Scottish Government must develop a clear roadmap of how the design and delivery of public services will be transformed to be financially sustainable how do you see that roadmap looking and how quickly would you like to see it? There's an urgency to this, no question so there has to be a clear plan for sustainable public finances and public service delivery as I mentioned I think we'd expect to see that in the draft budget I think it is helpful that the Government is intending that that's going to be a three-year indicative budget in the that comes out later this month together with more detailed longer-term forecasts in its medium-term financial strategy There is work in progress, we know that and I think we recognise that in our paper on engaging with public bodies it set out the broad themes that it intends to progress public sector reform we want to see the next step of that, I think that's appropriate it's appropriate for the public and the Parliament people who work in public service to have a clear idea about how sustainable financial high quality public services will be delivered You mentioned the budget there what else should we be looking to see in the upcoming budget area? Again, I think it's a matter largely if the Government itself will decide what it wants to set out in the budget I alluded to three-year sets of figures and then more detail beyond that in the medium-term financial strategy I should say and again Richard McWinnaw'r comment on this too is that the budget strategy was and remains a very appropriate document it does set out the Government's intentions for its use of fiscal resource the challenges that we're facing and not all Governments are doing this so when that was brought in we thought that was an appropriate step to increase transparency around the level of opportunities and public finance Richard McWinnaw'r can say more we want to see how we're going to get from where we are now with a budget gap of £1 billion rising to £1.9 billion and what the intention is for how that's going to be met with supporting level of detail that people can understand, scrutinise and have a feel for where the next steps go Richard McWinnaw'r comment there's probably a couple of points one is around priorities so reform is often used as a byword to talk about financial sustainability and reductions of budget but it may well be areas of reform in terms of programme for Government or what have you aren't necessarily seeing the same level so the budget amounts may change within the medium term financial strategies and expectation of increases in NHS budgets and workforce overtime to meet some of the capacity issues so one of the things is around clarity of those priorities which are set out within the medium term financial strategy as it's critical missions and how it's looking to corral or manage its resources towards those priorities so seeing that in practice what that means for budgets would be useful I think the second point is probably around collaboration as we set out in the workforce paper one of the reasons for the need for the better data is because budgets are held by over a hundred different public bodies and when budgets are given it's not given in a way which is okay this is, here's your budget and this much is for your workforce and this much is for everything else but I'm worried about how to balance and shape that budget depending on what their reform strategy is going to be so the ability for the Scottish Government to act in a convening role to pull that together to understand and plan the extent of reform that is being planned by others as well as themselves and over what time scales that's due to return a dividend for want of a better word is going to be really useful I think to planning out in more detail about the longer term plan The workforce challenges briefing highlights the need for better data on the size, cost and skillset of the workforce in over 100 of its public bodies to better understand how workforce reforms will impact services can you give us any more detail on any work that you're aware of that's under way to address the data gaps Richard can say a bit more about the background to this and the work that's under way this is a very significant challenge and I wouldn't want to be impressed to be glib about this deputy convener that it will be a it will be a significant undertaking to reform workforce in the Scottish Government and its bodies as we set out in the paper some of the changes that have taken place since the evolution the growth in the Scottish public sector workforce events such as preparations for no-deal Brexit Covid have all impacted on the workforce numbers that exist the context and the paper draws on NHS workforce as well is that the Scottish Government has already committed to growing the NHS workforce and therefore to deliver a sustainable plan that if that area is protected might impact more significantly on other parts of the Scottish public sector workforce that requires a detailed comprehensive workforce plan for the NHS itself yes but the other parts too because as Richard mentioned on past year and a second it isn't about the Government body in isolation it's a totality of plans about how bodies are going to work together where workers might be required in years to come that has to be underpinned by high quality data we've got gaps at the moment so the steps to address that have to be factored into the Government's plans as they go forward next anything to add Richard? again I think a couple of points the first one probably about understanding the variety of bodies in the amount of their costs or services delivered by actual people will vary from body to body so for example the NHS as opposed to we mentioned in the report Social Security where the budget is large a lot of that is obviously benefits payments house as opposed to workforce costs so I think understanding that variety and difference centrally and collegially is important because the challenges such as inflationary challenges pay cost challenges capacity challenges will vary from body to body as well so part of it is about the ability to articulate and have a better understanding, a more nuanced understanding of where the workforce related risks are so the Scottish Government I think part of the question was what's happening so the Scottish Government did write out to public bodies and say can we have more understanding of how many people do employ how much do they cost what are your plans for reform the more understanding is that there were further letters sent for clarity and I think having gone through the various accounts ourselves and in the appendix we have the caveats for what we are able to say and aren't able to say is quite a complex exercise to do you factor in in the extent to factor in pensions the extent to which you can get information on say GP practices where the money goes to the GP practice the complexities around how much public bodies have considered whether or not workforces will change so there's work to do there for them to understand the bullet together but that's the benefit and I think just secondly the point is really around there are bigger organisations where smaller changes bigger difference we set that out in the report when we're talking about there the size of for example the NHS workforce compared to some of the other sectors of public spending I don't underestimate how complicated it will be but do you think there's enough focus on it and enough pace because it's obviously something that we've known about for quite a while now so is there enough focus and pace on it to get this action as quickly as possible I think the Scottish Government understand that there's an urgent challenge and there's work on the going I think I would refer back to what the old general has said which is that this is an urgent challenge and we would expect to see more plans in detail which is why we've made these straightforward recommendations about what we'd expect to see for them to manage that properly I've no doubt that this is understood to be a key component of public sector reform and fiscal sustainability by the Scottish Government we've seen in the committee as heard over the past couple of years and it continues into the current financial year is that the Scottish Government is deploying workforce controls so it has recruitment measures in place with which to consider vacancy filling at pace so that it's consistent in delivering a balanced budget and that's absolutely fine, appropriate and within their responsibilities but those are short term measures so it needs to be underpinned in a company by a detail robust workforce plan the pace with which a company has to be at the same time as financial plans because really if you deliver a financial plan supported by a roadmap you risk delay so these things have to align Can you confirm what is the strategy because you've described how the Government has stated that it, for understandable reasons wishes to grow the workforce in the national health service just exactly a week ago we had representatives from the further education sector talking about pretty drastic reductions already contemplating even more drastic cuts to the workforce in the future and the Cabinet Secretary for Finance stated on the BBC a couple of weeks ago that the public sector workforce will have to shrink so if the public sector workforce has to shrink the policy is to grow the workforce in the NHS we've seen one component of the public sector in front of us describing some pretty catastrophic decisions that they're contemplating how does that what's the overarching strategy I think that's what we're calling for convener that paragraph 52 the Government should have a comprehensive workforce strategy that factors in the impact of growth in the NHS that's one of our recommendations in today's report that if there's a commitment to grow the NHS and that's a policy matter that will have an opportunity cost on other parts of public service delivery how that's delivered in a planned manner is what we're calling for in today's report fine, thanks for clarifying that I don't know if Grains do you want to come in on this area or will I go to Willie to talk about shared services yeah, would I I think it follows on from your question convener I mean you've said that reforms are needed you've said you want the Government to set out a workforce strategy what kind of reforms do you think are required in order to deliver public services better ultimately these are policy decisions I would say Mr Simpson so it is for the Government to decide how public services are delivered that's subject to parliamentary scrutiny of its budget sorry if I could just stop you there that I accept it's for the Government to set out what they think but you have made a direct point that reforms are required so you are identifying some areas of weakness that need to be addressed so what are those areas of weakness so I'm absolutely going to elaborate on my acceptance of the need for reform the pillars that the Government have identified in my view are appropriate so there needs to be a reform of the workforce they need to look at their I think we've talked about the workforce the estate very much needs to be looked at is it an estate that is necessary to deliver public services over the course of the next 5 to 10 years relative to an estate that would have been designed in some cases so that the committee has heard last week from college representatives we aren't using public buildings the way we once were the pandemic has absolutely changed patterns connected to that I also think that the Government's plans around adoption of more digital technology will affect both the estate and their workforce so these are absolutely not my role to comment on policy but the pillars I think are appropriate I think that the strands with which they are basing their public sector reform requirements are the right ones in my view what comes next is what we are looking to see so potentially fewer buildings using buildings better going digital fewer workers potentially what about the number of public bodies that we have should we be seeing more of them? so there is a fine line here between policy and appropriateness for me to comment on it the point that I would draw on perhaps is that in its resource spending review of 2022 the Government indicated that it was its intention to reduce the number of public bodies I am neutral on that I would say that it's a matter for Government to determine how its services are delivered could I see a circumstances where you could have fewer public bodies? absolutely we've gone through cycles as a country where we've had different models of public service delivery whether it's in regional local authorities and then local government reorganisation in the 1990s we've had regional police bodies we've went to national police and fire service around 10 years ago so we have different models I'm less concerned about the organisational structure as I am about the quality of public services and that they are fiscally sustainable okay thank you we've just got a couple more areas where we wanted to put some questions to you Auditor General and the first of those I'm going to hand over to Willie Coffey because it's about shared services and what the experience of that has been so far in terms of capital expenditure and revenue possibilities so Willie thanks again convener Stephen Under this heading of corporate transformation which you've spoken about for many occasions at the committee here is an example of that taking place the government's replacing it's having a new HR and finance system we're calling it Oracle Cloud it was originally estimated £22 million you're estimating your report suggests that it might be £52 million on the positive side of that there is expected to be a substantial saving if we combine and deliver the service but once again it looks like a familiar story with an IT development project initially being estimated far too low and now being estimated more than double the price to deliver it could you give us a flavour and some background about the reasons for that and what our expectations might be going forward thanks very much Mr Coffey I'll start here and bring Helen in a moment or two this is effectively a corporate transformation programme that the Scottish Government is to deliver back office services about the finance HR not just for itself so that these systems support around 30 or so public bodies I don't think it's unreasonable for me to say that the Government has not invested sufficiently in its back office IT infrastructure so they are playing catch up to get a system that is not just fit for the current day but fit for probably would have been 5 to 10 years ago a system so there are a number of strands to this and Helen can sit in a bit more detail the programme isn't moving at the pace that had hoped to and it's also costing more than it initially was forecast to do so Primarily due to underestimating the scale, the complexity and the costs of it there is project assurance in place which I think is appropriate so they are subject to gateway reviews and governance arrangements but until this is resolved at an affordable price that delivers value for money as you mentioned that there are going to be nearly £26 million of savings potentially at the right point depending on where they get to with the overall spend is that it will increase efficiency and also de-risk some of the arrangements that currently exist the committee has heard a number of occasions in recent years about risks around IT systems cyber risks and so forth that's not quite the nature of this it's about business efficiency so more traditional risks there are a lot of manual interventions required in governments IT systems that in itself brings perhaps more traditional internal control risks when you have manual interventions on a system and there are a lot of checks and steps that officials and government have to take just to ensure the running of the system so there's work to be done here Mr Coffey it's a critical component of just how government functions behind the scenes so they do have to invest but they've got to know when they're going to deliver and at what price so that work is under way but I'll probably stop at that point and I'll tell him to say further thank you so the initial investigation over this whole system started about four years ago and it was identified at that point that they needed to sort of bring down the risk around this sort of rules sort of via the EHR and the account system it was basically seen as an increasing source of organisational risk as you've just heard they were no longer fit for purpose and they hadn't had the investment that was asked for a few years back over that period so in terms of you'd asked about the increased time and cost you've heard the complexity and effort of the project was previously more than estimated organisational capacity and capability was in there as well there was a lack of specialist knowledge the government hadn't done anything like this for quite some time so the amount of experience that was held within wasn't there and over above all of that they had to undergo the normal business they had to cover as well over and above that there was a lot of things that were happening around the old system that they had to translate into a new business case almost to make it fit into the new system and in addition they had to get together a team that worked properly and optimally as well so there were a lot of issues around all of that over and above that in terms of continuity of staff as well so despite this having started in 2022 which was the first outline business case it has been a slow start up and I think that that would be agreed and accepted the revised business case was approved in this year 2023 and it was September 2023 and the government are working to implement the new systems in accordance with the EHR and finance coming online in April 2024 but there are some risks obviously around this it's a major programme they've adopted the view that it will be adopted, not adapt so everyone has to change their current ways of working into working this new system in essence and that requires a lot of training and assessment and working with partners and it's all part of the drive to bring efficiency and reform as well with bringing on board the Scottish Government itself and over 30 partners that's just phase 1 phase 2 will be going further out to try and bring more on board and this again hopefully will bring in efficiencies and savings as well It's got a familiar ring to it I have to say this committee is probably blue in the face asking these questions about IT projects we felt we had gotten over the worst of these stories and here's another one it's always pinpointed at the start of a process where we seem to underestimate the complexity of these programmes and then we realise it later on by which time the courses have doubled why have we now learned the good lessons from some of the more recent major IT projects that have been developing correctly at pace, at budget and so on understanding the complexity why have we embraced all of that experience and used it in this one do you think some of the reasons for why it's taking longer and costy more Helen's touched on and we sit out in the paper having said all that I understand the root of your question Mr Coffey that the Government is sponsoring other public bodies to deliver effective IT arrangements but it itself is experiencing difficulties too so there is maybe not much more assurance I can give you that this stage other than to say as I touch on in the report that we are going to remain close to this project and report further as it progresses hopefully to a satisfactory conclusion but I can't understate that this really matters this is an important project for the safe and effective running of Government services the more detail of that will follow from us but it's also perhaps an area that the committee might want to follow up directly with either through upcoming sessions but you also I'm sure had the opportunity through the major capital project IT projects I should say to explore with Government and just finally then June 24 was mentioned is that for components of the programme to be approved action or is it the whole programme will be up and running by June 24 April 24 is the expected go live date for the EHR and the finance systems with all partner bodies so the 30 plus bodies there's more to come after that potentially more at phase 2 as it extends into the wider public sector and is the detailed examination of complexity requirements for that phase under way do you think I don't know the answer to that I'm sorry we don't want to repeat the experience do we no agree we don't want to we don't want to repeat any concerns that have existed earlier parts of the project but I think we need to follow up in detail with the plans for future rollout and if we have that we'll share that with the committee great thanks for that thank you we've just got a couple of final areas to cover the first of those is governance arrangements I mean you say in paragraph 70 of this year's report that I reported last year that many of the main governance groups are attended by the same individuals both executive and non executive and cover similar topics themes and risks this increases the risk of duplication inefficiency or blurred lines of responsibility between the different roles and remits of each group so could you tell us what progress has been made since that picture you drew last year some progress I think there is that largely remains the case that there is there is a lot of governance that exists within the Scottish Government much of that is understandable there is a large complex organisation in the permanent secretary and the accountable officers need assurance that they are delivering services as intended public money is being spent appropriately the mechanisms which they discharge those governance responsibilities though do lead us to the conclusion as we touched on last year and I'll say a bit more about what's changed of that duplication and blurring many of the same individuals around the same table wearing what they call different hats so that can lead to inefficiency, complexity and risk of not always necessarily the appropriate balance of challenge and scrutiny and accountability so those factors remain largely the same as they did 12 months ago what's changed and welcomed changes is that they are piloting approaches to governance Helen can say a bit more about this and we hope those are successful but it doesn't really amend the overall conclusion that we reach on paragraph 71 that there's a need for a wider review of governance that is refined streamlined absolutely that it's giving the permanent secretary and ministers the level of assurance that they require on public service delivery responsibility for the Scottish Government the pilot Helen can say more but there's work to be done here Helen Just to give you an idea of the types of meetings that we're referring to you've got quarterly corporate board meetings you've got audit and assurance quarterly assurance board meetings of which there are eight of them meet quarterly as well and executive team meetings and within all of that the full area of place people performance as well so our concern as you've already heard is that the same people might be attending a lot of these meetings with different roles to play excuse me it's that there's the opportunity there for duplication for overlap and perhaps it could be sought through a bit more as to what all the roles of these groups are so in terms of the pilot meetings so this is in relation to the assurance group meetings what they're trying to do now is they're trying to focus on key areas that the DG is asking for assurance around so instead of covering a set agenda and covering the three lines of assurance they're now starting to focus on what they see are the key risks affecting them it's a welcome step but as you've already heard there's a way to go still and what you're saying if I understand it is that notwithstanding these pilots you still think there needs to be a more comprehensive review and have you had a response from the government to that call so the government... Carol and Helen can say a bit more about arrangements for the report and the reaction to this and Carol will have also made reference to this in her annual logic report which informs the section 22 reports I'll pass to her in a second we're not saying in today's report that governance arrangements are fundamentally not working so that's evidenced by the governance statement in the consolidated accounts which we think is fair as part of the auditor's responsibility to take a view whether that's consistent and overall arrangements are effective but there's opportunity here convener for just to bring in efficiency speed of decision making and giving assurance to the permanent secretary and with all the context that we've discussed this morning about the challenges that the government is facing around fiscal sustainability public sector reform I'm sure they'd want to be assured that governance is as effective to support all of that level of change and challenge that they're dealing with but I'll pass to Carol just to talk the committee through the government's response to these points thank you just to confirm we had a specific recommendation in the annual audit report in relation to the review of the governance arrangements and we have had a response with an agreed action by the end of March next year on progress on this so at that point we'll be able to assess what has taken place and what progress has been made but just to reiterate the auditor general's point it's not that we have specific concerns about the appropriateness of the governance arrangements it really is about the efficiency and the potential duplication so it's not that there is weaknesses there in terms of the governance arrangements but it's about whether there is more efficiency that could be driven out of it and more that could be done to support that there is talk in the report about risk as well associated with it too which I think would be of interest to this committee sorry Carol can I just check you talked about March by March will you get an answer whether the government will conduct a review or not or will they have conducted the review much or? The commitment is to have completed a review by March and reflecting on the six good governance principles and we will take a view on that when we receive it. I'm going to move us on to the final area and that is climate change you mentioned some of the difficulties if I can put it diplomatically which have surrounded the deposit return scheme I wonder whether you've got a view on the likelihood of the new projected timeframe of implementation by October 2025 being met? I think it remains to be seen we'll track progress the challenges that exist and we set some of these out in the paper so we touch on a couple of factors one is the circumstances with the scheme administrator Circularity Scotland who entered administration at the point that the Scottish Government wasn't able to progress with its deposit return scheme and the pace that was intended due to intervention by the UK Government application of the internal markets act what we don't know yet and as ever of those factors the Scottish Government will have a clearer indication than we do from an audit perspective of its next steps but there is potential risk there to deliver the scheme without the planned infrastructure I don't have any further insight into its ability to do so or what its next steps are what our paper looks to do is to set out some of the financial implications of it with the amount of money that was spent in setting up the scheme of £219,000 and we do refer to the parliamentary commentary that was given by the Scottish National Investment Bank that they have written off £9 million of investment that it put into Circularity Scotland and it's I may need to check the written off statement actually but it's full repayment of the loan as we say is unlikely so there were financial circumstances as a result of the first scheme and I'm sure the Government won't want to manage that closely for its timescale and investment for the revised timescales but as I understand it you audit the Scottish National Investment Bank so I point the external auditor of the Scottish National Investment Bank that's correct but do you publish a report on the audit of the Scottish National Investment Bank? We do convener KPMG I've appointed to as the external auditor of the Scottish National Investment Bank and their annual audit report will be published on our website it's a matter we're keeping under close eye so we recognise the significance of it On the Scottish National Investment Bank more widely they'll have a portfolio of investments alongside their missions Green Investment and Climate Change pillars of their missions so that information is available publicly yes I think we all understand that with an institution like the Scottish National Investment Bank it will back some winners and it will back some losers but it's quite unusual for the loser to be one which is directly under the ambit of the Scottish Government isn't it? So you're right in terms of whether it's the Scottish National Investment Bank or the development agencies some investments will pay off and others won't and they'll set that out in their accounts about gains and losses that they have made The other part of the question what we haven't done is any audit work in the specific circumstances of how Circularity Scotland came to receive investment from the Scottish National Investment Bank I've no reason to doubt convener that the investment was made alongside their investment criteria the governance, the investment committee that the Scottish National Investment Bank has if that were the case I'm sure it would have been brought to my attention But is that part of your audit function to look at whether those criteria were applied in a case like that especially where 9 million pounds of public money has had to be written off? I don't think that KPMG would specifically review as part of their annual audit the mechanics behind one investment relative to another That's not to say that there isn't the potential for further audit activity on this point and that's something I can give some thought to if it's of public interest or to the committee that the remit of KPMG and any other external auditor of the Scottish public body to give an opinion on the annual report and accounts and then wider scope application financial sustainability, governance leadership, financial management arrangements and that's what they've set out in their annual audit report Again, that's something we can explore further with the committee if that's of interest I'm going to finish with a fairly easy question for you Do you think that the Government is on track to meet its legally binding net zero targets by 2045? Five years ahead of the rest of the UK I'm not sure I'm going to be able to give you a definitive answer to an extremely complicated It's a simple question Auditor General So yes or no question There's a simple question but very complicated parts to it I think that what we've set out in the report there are 43 indicators with which measure progress 21 on track 9 off track and 13 that is too early to say We also know that it sometimes can be challenging to ascertain the direct contribution that the Scottish Government is making to those that would improve progress monitoring and tracking in the Government's plans with which to deliver its targets As you would expect matters will evolve over the next few years It's a very firm part of our audit activity both through the annual audit of the Scottish Government and our wider programme of audits That report is just to signal that there are risks to meeting climate targets That is the case for all public bodies and jurisdictions Thank you It remains very much central to the considerations of the Public Audit Committee about the progress that we are making to meet those net zero targets and that goal of decarbonisation On that note Auditor General Richard Helen and Carol for the evidence that you've given us this morning It's been very useful as always and it's certainly triggered some potential areas that we might want to dig a little bit deeper into and has given us plenty of information to consider if and when we have evidence session with the permanent secretary Thank you very much indeed and I'm now going to move the committee into private session