 Felly, wrth gwrs, wrth gwrs, rydw i'n ddweud eich cymaint o'r 20a gynllun o'r cymaint o'r gydag o'r Prifedd fath, ac o'r Prifedd Fath i'r Llywodraeth Sgwrshwngu Cymru o'r 2017, oedd oedden nhw'n gyda'r gailu o'r cymaint o'r cymaint o'r eich cymaint o'r electro'u cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint o'r cymaint. Araiba Shop and establish a new-house wood furniture based in the world, iwerd i worell roi disrespect yoi'r command and areas on our rural culture. Diolch Thought so that the report of our ado on new-house wood furniture is made so that UK residents will look forward to seeing new-house wood furniture, because we have I invite an opening statement from Caroline Gardner. Thank you, convener. As you know, the Scotland Acts of 2012 and 2016 have introduced significant new responsibilities for tax and spending. The new financial powers bring fresh opportunities and also new financial risks that need to be managed. They come at a time of continuing pressures on the public finances and uncertainty about the implications of the UK vote to leave the European Union. These changes increase the need for the Scottish Government to provide comprehensive, clear and consistent financial reporting to enable Parliament and this committee to carry out its important scrutiny role. The consolidated accounts before you today are a critical component of this and of the Government's accountability to Parliament and the public. The accounts cover around 90 per cent of the spending approved by Parliament in 2016-17, the elements that the Government is directly responsible for. They share the amount spent against each main budget heading and the reasons for any significant differences. They also show assets, liabilities and other financial commitments carried forward to future years. My report sets out how the consolidated accounts relate to the Scottish budget as a whole and highlights the main financial management issues for the Government during the year. My opinion on the consolidated accounts is unqualified. I am content that they provide a true and fair view of the Government's finances and I would like to highlight four areas. First, financial management and reporting. The Scottish Government managed its budget for 2016-17 within the overall limit set by Parliament and the accounts meet the legal and accounting requirements. The Government has a good record of financial management and reporting and is committed to enhancing financial transparency, including the introduction of a consolidated account covering the whole public sector. I welcome the steps that the Government is taking to improve the presentation of the accounts. The recommendations of the budget process review group will also see further significant changes to financial reporting, including the introduction of a medium-term financial strategy. Longer-term planning is essential for effective decision making and the Government's reporting on the current financial position and future plans and forecasts should support financial sustainability, transparency and accountability. This will allow Parliament to take a broader perspective in its tax and spending decisions and hold the Government to account for its overall management of public finances. Secondly, governance. In October last year, the Scottish Government put new governance arrangements in place to reflect the demands of constitutional change and new financial powers. The success of those arrangements will be determined by how they operate in practice and, in particular, the culture and behaviours of those involved will be central in ensuring that scrutiny and challenge are effective. I will keep the revised arrangements under review as part of our continuing audit work. Thirdly, performance. The consolidated accounts do contain a performance report, which complies with Government reporting requirements. The emphasis is on financial performance against budget, with signposting to more detailed performance information, for example in the national performance framework. There is further scope for the Scottish Government to develop its annual reporting to provide a more rounded picture of its overall performance. Thirdly, I draw the committee's attention to two specific matters arising from the audit of last year's accounts. First, the continuing risk to the common agricultural policy futures programme and how that is reflected in the accounts. Secondly, the closing position on the 2007-13 European structural funds programme, leading to the repayment of £31 million in grants received by the Scottish Government to the European Commission. The committee's evidence session on the Scottish Government's consolidated accounts is a central part of parliamentary scrutiny of the Government's finances. My report on the 2016-17 audit is designed to support this, as well as scrutiny and accountability more generally. As always, convener, we're happy to answer the committee's questions. Thank you very much, Auditor General. Can I turn to questions from members and start with Colin Beattie? Thank you, ma'r hon. General. Overall, the report is a pretty good report, actually. Why is it a section 22 report? It's a very good question. As the committee knows, section 22 reports have traditionally been reserved for cases where there's a problem in an audited body, but that's not the statutory basis for them. The statutory basis is that I can use them to bring anything that I think is appropriate arising from the audit of the accounts to the committee's attention. The history of this section 22 report goes back, I think, three years to the introduction of the new financial powers under the 2012 Scotland Act and the committee's request at that point that I consider bringing an annual report to them alongside the consolidated accounts audit, reflecting the fact that they do cover £34 billion of public spending and that the level of risk and volatility that's involved is increasing rapidly as the 2012 and now the 2016 acts are being implemented. So, presumably in years to come, you'll still continue to have it as a section 22. As the Auditor General at the moment, I think that it's an important part of the accountability for that £34 billion. As the committee knows, the audited accounts of all public bodies are laid in Parliament and would be available for this committee to scrutinise, but I hope it's useful to have a report from me that pulls out what I see as being the key features from this year and then a look ahead to what's coming in future. I'm turning to capital borrowing and I'm looking at the NPD projects. Obviously, NPD was brought in as an alternative to the PFI or PPP, whatever you want to call them, on the basis that they'd be cheaper to run and better controls, but I thought that they were being structured in such a way that they did not come on the books as a public project, a public sector project. I'll ask the team to come in in a moment. Members of the committee may recall that this came up as an issue for the first time on last year's consolidated accounts in 2015-16. The background was that the rules covering the national accounts, that's not the financial reporting, but the national statistics had changed from Europe, the European statistics requirements were different. That meant that the Office for National Statistics classified the Aberdeen Western peripheral route as a project that needed to be on the Government's balance sheet and the Scottish Government on the back of that decision took the decision that three other projects, which were structured in a very similar way, should also be brought on to the balance sheet and therefore needed borrowing cover. I think what you're recalling is that, at the same time, they reviewed other projects, which were still in the pipeline and aimed to structure them as far as possible in a way that would keep them off the balance sheet. Obviously, in there, there's a trade-off between direction and control that the Government has, which is one of the factors that drives their classification as public sector or not and the extent to which bodies are accountable back to Government for the funds that they're spending. So, there's a judgment involved in that. It's not across the board, as far as MPD projects are concerned. The initial decision reflected those four projects, which were structured in a very similar way. Our understanding is that the Government has reviewed the structuring of other projects in the pipeline in a way that it feels keeps them off the balance sheet. We're confident that the accounting treatment in 2016-17 is correct and it's something that we'll keep under review. So, you agree with the Government that these other projects should be off the balance sheet? That's a decision not for us but for the Office for National Statistics. We think that it's a good thing that they've reviewed them, and we will keep in view the application of the ONS guidelines and the accounting treatment that flows from that. Stephen, do you want to add anything to that? No, I think that the Auditor General has covered the key point about the driver behind the decision to bring one to the Government's balance sheet was the ONS decision rather than any specific decision that the Government itself initiated. Have any of the other projects been reviewed by ONS? In other words, do we have some process that's been tested already or some structure that's been tested already and found to be okay? I think that it's true to say that the projects themselves haven't been reviewed, but what we have is what is available generally as a work programme from the Office for National Statistics of the areas that it intends to review. The Government looks at that in making its own decisions as well as the broader guidelines on what the ESA requirements are. We're not expecting any further change, but it is always a possibility. I mean clearly that reclassification put the capital budget under some pressure. It did in order to meet the requirements in terms of accounting. The Scottish Government agreed with Hermatidou's Treasury that it could use the borrowing powers in place for 15, 16 and 1617 to cover the headroom that was required, and that did squeeze out other capital spending. From this year on, that should be relaxed to it because of the new power. There are still limits on borrowing. They're increasing every year. I think that Michael is probably in a good position to talk you through what the current position is. I think that in relation to the capital spending, it's still to come for these four projects. We found that there's £190 million included within the 2017-18 budget that is required for the ONS classification. That's obviously less than it was required during the 2016-17 budget, so it's probably through the woods, if you like, for the four projects in terms of the initial capital budgeting spend that's required. Just a couple of quick questions. On paragraph 25, we're talking about the block grant and the forecast tax income from Scottish taxpayers, and it says that no adjustments will be made to future Scottish budget should the actual tax received in 2016-17 differ from that forecast. I thought that there was a review process on that to assess whether the forecasts were correct before it got set in stone. This is the transitional year. For 1617, the block grant adjustment stands, and there won't be an adjustment to it later for the reconciliation. From 2017-18 onwards, there will be, and you're quite right. That's obviously one of the elements that is increasing the risk and the volatility in the Scottish budget in future. The receipts may be higher than forecast, in which case the budget's better off or lower, in which case it's worse off. That's 2017-18 onwards, not 16-17. The last question that I'm going to ask is in connection with the budgeting cycle. You're always encouraging people to have a longer forecast three-four-year budget. Is it not very difficult for the Scottish Government to do that when it doesn't actually know how big the check it's going to get? In some ways, it's becoming more possible and also more important to do it as the new financial powers come in. I mentioned in my opening statement the report of the budget process review group, and one of the recommendations in there was the introduction of a medium-term financial strategy that looks ahead five years at what's likely to happen to the economy and, therefore, what's likely to happen to the devolved tax revenues, an indication of the block grant, which will still be around 50% of what we spend based on UK Government projections and forecasts from the Office for Budget Responsibility, for example, and broad trends in spending based on things like demographics and policy as it stands now. It will obviously be a high-level strategy and there will be both policy changes and environmental changes that affect it, but the budget process review group felt that that was a very important starting point for budgeting and for parliamentary scrutiny, and I think that the recommendation has been accepted by both the Finance Committee of this Parliament and by the Cabinet Secretary for Finance. I understand those elements of the tax that are within our powers here doing forecasts and so on for that, but the block grant is subject to not just economic pressures, there's other budget pressures and so on within the Westminster Government that come to bear on that and we've had cuts virtually every year and as far as we know we don't know what's going to happen in November, those to some extent will continue. Does it make it quite difficult for the block grant to be projected? I think it certainly is impossible to know what the firm figures will be, but the block grant will be still 50% of the resources available to the Government and therefore projecting ahead what might happen to it and having a range of possibilities scenarios for upside and downside risk gives it a sense of how much overall resource the Government has to plan with and therefore the choices that it's making in each individual year's budget. I wonder whether I could pursue a couple of points on capital borrowing with you as a result of the reclassification of projects. The amount that Michael Olifant raised with us was £190 million projected for 1718 for four projects. Is there any requirement for capital for those projects beyond 1718? I don't know the detail of that, but we need to see in obviously subsequent budgets, the forthcoming budgets for 1819 to know if there's any more in relation to that. I was referring specifically to the budget as we know it for 1718. They don't profile ahead, they don't look at their liabilities ahead. We would expect the Scottish Government to be doing that, but in terms of what is publicly available through the budget. That's helpful to know. Given that so much capital was used for the reclassification of these particular projects, does that mean that there was an opportunity lost and other projects were reprofiled as a consequence? We explored that in some detail with the committee last year, and I recognise that many members of the committee are new since then. What we conveyed to the committee and I think what was confirmed by the Scottish Government was that it was possible to manage that with reprofiling the projects that were coming through, and in particular the projects that were reviewed in line with Mr Beattie's question to see whether they needed to be structured differently or needed to come onto the balance sheet. Some of those were delayed, so that meant that the spending profile went further out. That's helpful to know. My final question is just clarification in paragraph 29. You talk about capital pressures arising from NPD as a result of the ONS classification would have to be absorbed within capital del limits with capital borrowing powers to be used as intended. Does that mean that there is no access to the new capital borrowing powers or can they spend up to the limit of the new powers? The intention is that the capital borrowing powers are available to be used as intended from the 17-18 budget onwards. Capital del was used to cover the implications of the NPD projects that were reclassified. That's helpful to know. One final thing before I move on to Bill Bowman. It is the case that we now have new borrowing powers in the event of economic shocks. They weren't triggered last year, but my understanding is that the eligibility criteria for using that power has now been triggered. Is that something that has been indicated anywhere publicly by the Scottish Government? It's not indicated in the accounts that are before you today and that there is no expectation or requirement that it should be. Again, referring back to the report of the budget process review group, one of the recommendations in there was that there should first of all be an annual fiscal framework outturn report that demonstrates how all of the elements of the fiscal framework have been used in the year and secondly a recommendation for mid-year reporting around budget revisions that would pick up exactly that sort of point. I've looked through your report more to the actual accounts themselves, which I presume you may have with you. I have a number of questions, some of which I may need a little bit more information on, but I'll just focus on a couple of points here just now. There's one on page 33 that says, and this is to do with the remuneration of ministers, that the First Minister has a benefit in kind for 2016-17 of £334 arising from the provision of accommodation at Bute House and the comparatives for the previous year's £93.81. Do you know how that is calculated? I'm afraid of the detail in front of me at the moment that we can come back to the committee on that. That would be an audited number. It would be, yes. You don't remember anything about it. It just seems a strange number. It is a low number. It's worth me being clear that Stephen and Michael lead the audit team, but as you'd expect for an audit of £34 billion, there's a much wider team behind us, and we're happy to revert to the committee after this meeting with more detail on any of the questions that we need to. The next question relates to page 62, which is the consolidated statement of financial position of the balance sheet, as I would have called it, and perhaps followed on a little bit from the convener's questions about liabilities. If I understand it correctly, the total current assets are £2.4 billion and the total liabilities are £3.4 billion. It says in the accounts that they're prepared on a going-concern basis, and you might think that that's an obvious thing for Government. However, if you're lacking £1 billion in current assets to meet your current liabilities, is there something in the accounts that explains how that is going to be dealt with? The first thing to say is that you're absolutely right. The tests that we need to apply to Government and public sector bodies are different from those that would apply to many private sector bodies for obvious reasons. Stephen, I'll ask you to talk through the audit approach there. Thanks, Auditor General. It's something that we see quite commonly in public sector bodies that liabilities can outstrip assets, and it's often as part of our audit approach that we consider carefully about the flow of funds coming into the organisation in future years, as to how that secures its long-term future. Particularly as Auditor General mentions that the nature of public sector bodies and the assumptions that we're able to make about the flow of funds gives us that certainty to allow us to consider it in the round going-concern implications. We follow that through as part of our approach under auditing standards to ensure that it's considered fully by audit committees and through the representations that we seek from the principal accountable officer that senior officials are cited on the implications around that, and that we've considered it fully prior to the signing of Auditor General's opinion on the accounts. So they do forecasts of their cash flow? Yes, indeed. And there's no doubt, then, that this will be settled, or they will have the funds to settle the amounts? There certainly are forecasts about it, and the ratio of assets and liabilities that's presented in this year's accounts is not an unusual position, and the Government continues to, through its position and the receipt of funds through the block grant and now through the additional revenue from tax raising powers, having considered that position and what we've seen in past ability to settle debts as and when they've arisen, we're content that that's a reasonable position to adopt. Do you think that they should say anything as to why this is not an issue? As I say, the only reference that I could find to go in concern was the statement and the responsibilities that the accounts have to be prepared on a going-concern basis, and that seems to be just the end of it. It's a good question. I guess reflects the value of having somebody with your professional background grounded in a private sector setting. I think the starting assumption that we apply, as Stephen has said, is that the Government is able to draw down through the Scottish Consolidated Fund all of the block grant, which is set at the beginning of the year from the UK Government, which has very significant tax and borrowing powers to meet its commitments. From 2016-17, the Scottish Government itself now has tax-raising powers that it could use if it found itself in a position where it was finding it difficult to meet its liabilities. It's probably worth saying as well that that's another one of the reasons why the medium-term financial strategy feels so important, so that you're not looking at this one year at a time, as the accounts do, but looking out over a five-year period. You mentioned or recommend that there's a further consolidation done, I think. Do you think that would show a different position? It certainly would, and that's one of the reasons why I've been recommending it for the last few years. The balance sheet, obviously, is a key part of any set of financial statements. Unlike you, that's the terminology that I grew up with. What the balance sheet that we have in front of us here doesn't include is some very significant liabilities, like wider pension liabilities across the public sector and borrowing from other public bodies, in particular local government, which is fairly significant in total. Neither of those liabilities would fall immediately to the Scottish Government in the event of problems, but in practice the Scottish Government would certainly have a responsibility to step in and ensure that the liabilities were met. There are obviously also very significant assets in other parts of the public sector, which aren't shown here. We do have whole-of-government accounts for the UK as a whole to which Scotland contributes. We don't have that equivalent balance sheet consolidated for Scotland as a whole. Is that just a recommendation from you, or do you have some response that they will do that? I first recommended it in 2013. The Government has since made a commitment to introducing them, and we are now in a dry run period where they are going through the preparatory work to strip out the double counting, the related party transactions and so on that would be involved. I can't require it, but the Government has made a commitment to doing it. We might follow that up. Indeed. Thank you very much. I'll just start on the overall budget. The accounts show that the total net expenditure was £33,870 million, which was £85 million less than budgeted. You have a table that shows various areas that have been underfunded to the wrong word, but you know what I mean. They haven't received quite as much as they were budgeted for, such as education, social security and justice. I think that people will be surprised at this. So, what happens to the £85 million that hasn't been spent? I think that people will be looking at this and saying that education, for example, doesn't have a great deal of cash swelling around in it, so why isn't that money being spent in it? I'll start off and then ask Stephen to come in on the specifics of the underspends that are shown in the account. First of all, it's worth noting that the £85 million, although it's a very large number, is only 0.025 per cent of the overall £34 billion that was spent by the Scottish Government last year. Secondly, the dell underspend to use the jargon, which is what this is, can now go into the Scotland reserve and be carried forward for use in future on similar types of spending, so it's not lost to Scotland, it's carried forward. You're right, though. There's an opportunity cost in the year of money that isn't spent on the purposes for which it was intended. The Government's accounts provide a description of, through the narrative part of the accounts, why budgets have been over or underspent. They draw attention to a couple of areas that you mentioned, Mr Kerr, in terms of education. In particular, they highlight underspends as a result of timing for initiating the attainment fund and the availability of that budget next year. They explain that, as and when projects were identified and initiated during the middle of the year, that the availability of projects and to deliver that fund hadn't come through in sufficient time, nonetheless that budget is identified to be carried forward into 2017-18 for use next year. I would like to press on that. On page 8 of your report, we talked about the health and sport. There was an overspend of £112 million. Of course, no one would ever want to go over budget, but I think that, by and large, people would be sympathetic where it's health. Except that, that is mainly related to an increase of £160 million to the provision used to assess legal claims against health boards. Would you be able to explain that, because £160 million to assess legal claims, is that right? Not quite. The increase is in the provision in the accounts for possible future costs, which may crystallise in future years. I'm not sure whether Stephen or Michael is the best place to talk you through more detail. Costs of the litigation, if ultimately successful by the claimant? Absolutely. Effectively, the cost of the damages is more than the legal cost of assessing the cost, if that makes sense. The adjustment that we are seeing this year is a technical change in how that model effectively is calculated, which brings an additional provision of £160 million. I think that it's important to note that it doesn't affect the spending power of the health budget. That is categorised as annually managed expenditure, which Treasury provides annual budget cover for, so it doesn't affect the spending power that was included with the health budget, and we understand that what was there by way of spending power for health was used up within 1617. Just so that I'm clear, the Scottish NHS makes provision for £160 million to settle or to pay off successful or settled claims against it. If so, do you get any sense of—there's obviously a bill being proposed at the moment, which has as its endgame increasing access to justice, which logically means more claims potentially against the NHS? Do you get any sense that the Scottish Government, having provisioned £160 million now, is provisioning even more on the basis of that bill becoming an act? I wouldn't know whether that is factored into the figures. What I do know is that the approach that the Scottish Government has taken is similar to a UK approach. That is using the same model that applies across the UK, so a specific Scottish judicial judgment, I wouldn't necessarily know if that's included or not. I would expect not. I think that most of the accounting adjustments that are made reflect the legislation that already applies to the health service and other services, but it is one of the things that potentially could come into play in a medium-term financial strategy. If a change of that nature was likely to have significant impacts on costs in an area, then it's something that should well be played into that, thinking about what's going to happen to spending on health over the longer term. The other thing that I would add about the legal claims has been a feature of health board accounting for many years in respect of clinical and medical negligence claims, and typically they've assessed them in terms of their likelihood and proximity to payment on a scale of three to one. Three has driven a provision and then down to a grade of one has led to what they've characterized as a contingent liability in accounting terms, and it really reflects the most likelihood of settlement. The increase in the provision is essentially that, just as part of what we think is appropriate, an on-going review of the most likelihood of payment, and that's been captured appropriately in the accounts. I'd like to just look at the LBTT as well. In this report, you talk about the amount being raised from land and buildings transaction tax on Scottish landfill was £633 million, £38 million less than the forecast. Specifically on LBTT, I would say purely anecdotally, I living in Aberdeen, that the LBTT has killed the market, if I can put it that way. The reason for the reduction in projected receipts is because the market has reacted negatively to the introduction of LBTT. The Scottish Government presumably would disagree with me. What does their analysis say is the reason for the depressed projected receipts? The Scottish Fiscal Commission published a report last month, which is called the Forecast Evaluation Report, and it's a thing that they'll produce annually in future years. What that does is to go back to the forecast, which fed into each Scottish Government budget and then compare it with the outturn when that's available and do their best to explore the differences based on the way the model worked, the inputs to the model and what happened in practice. They had a session with the Finance Committee a couple of weeks ago, and, as you would expect, the land and building transactions tax difference was a significant element of that session. I think that there were two things that they stressed in their report. The first was that the forecast that fed into the 16-17 budget was made in December 2015 for the first time with a new tax for Scotland and a new structure from its predecessor tax, the old stamp duty. Therefore, it was always likely to be greater forecast error in there. There were changes to the tax with the later introduction of the additional dwelling supplement just prior to the start of the financial year, which also came into the mix at a late position. In terms of the quality of the forecast itself, I think that they identified that the biggest variation was around the movement in house prices across Scotland. They concluded that the movement in the northeast was not a major contributor to that. The broader picture seemed to be that the forecast had assumed that house price growth would return to trend after the financial crisis in 2008. In fact, that, as with many other parts of the economy, is still below trend and that that was the biggest contributor. However, it clearly is very important that the Government and Parliament have a very clear picture of how forecasts relate to out turns and how forecasts are improving over time, as both our collective experience gets better and the data improves for the particular taxes that we are looking at. One final question for me. Just staying on LBTT at page 5 of the report, you just say that the Scottish Government managed this shortfall, being the LBTT shortfall, through underspends in its overall budgets. Do you have any sense of which other budgets suffered? I do not use that pejoratively, but it did not get quite as much as a result of that under-projection. I think that the table on page 7 and 8 gives you the major areas taken from the Scottish Government's accounts where there were those movements. As always, there are some areas where spend will be lower than expected anyway, some areas where the amount that is spent depends on demand from external parties for the funding that is available and they were able to manage it within the overall budget to the £85 million that you identified in your first question. I do not think that we have any evidence that there were areas that went short in that sense, but, as I said in my answer to the convener earlier, money that is not spent on the purpose for which it was originally intended obviously does have an opportunity cost. Willie Coffey? Just on that point, Auditor General, on page 12, you indicated that there was a highly forecast receipt from LBTT and SFLT of £74 million a year before, which is still held in reserve, as I understand it, and that any shortfalls in the particular year mentioned there were met through various underspends elsewhere. The point that you made was also made at the Finance Committee about the ebb and flow of forecasting being a bit of a black art, I think, was well made. I wanted to ask Kate a broader question about scrutiny, and you mentioned again the Finance Committee. As you well know, the Parliament in the Finance Committee last year had some difficulty with the scrutiny process due mainly to the timing of the budget and the compressed timescale for scrutiny that we had within the Scottish Parliament. Also, during the course of the year, it was not clear to some members of that committee how someone planned expenditure was actually achieved and the impact that that might have on the wider budget. Of course, that led the committee to request the revised framework for scrutiny, which would give all members of the committee and indeed the Parliament the chance to see the ebb and flow of the cash throughout the course of the year, to give everyone a better chance in a clearer insight into that. Can you say a wee bit more about how that is planned to roll out and how that will work and how it might aid not only the Finance Committee but other members of the Parliament? Absolutely. Perhaps before I do, I could just note that you referenced particularly the ebb and flow in the land and building transaction tax from 2015-16 into 2017-18. Of course, that is a tax that has inbuilt more volatility than most because the non-domestic element of it and non-residential element of it tends to depend on a very small number of very high value transactions, so that tends to be more shifting. In terms of in-year scrutiny of the budget, which I think was the main part of your question, it is something that the budget process review group of which I as a member considered very carefully. We know that there will be more volatility and that will move in different directions for different devolved taxes and for different expenditure lines. Equally, the process as a whole is probably the most important thing, the big picture rather than what is happening line by line, month by month on individual taxes. The recommendation that the group made was that there should be formal reporting back to Parliament mid-year at the time that the autumn budget revision comes back to Parliament that sets out the overall picture in terms of where revenues are higher or lower than expected, where expenditure is higher or lower than expected and the main reasons, the action that the Government is taking to manage that, including the use of its revenue borrowing powers and the use of the reserve, which is referred to here, and then how that will play through into any budget revisions that are being requested for Parliament to approve. On balance, we thought that doing that once during the year in the run-up to the budget process was more likely to be useful than having quarterly or monthly reporting at this point. Although we were very conscious that in New Zealand, for example, the New Zealand Treasury simply publishes monthly management accounts showing the picture at each point in time, that is something that Scotland may want to develop towards, but we felt at this stage that would risk crowding out the big picture and the decisions that need to be taken in that context. On the issue about the unplanned expenditure and the miraculous appearance of some money to fund a particular initiative or other, how better and clearer do you think that that will be with this new process so that members can see where movements of money are going from department to department? For example, how clear will that be for everyone, do you think? Our recommendations from the budget process review group were absolutely intended to do that, and I think that there were two key things. One was the need to have the big picture easily seen in one place that pulls together not just these accounts, but also things like the non-domestic race account and the Scottish consolidated account, which sit next to this but are not drawn together. That also shows the Scotland reserve and the use of borrowing powers and shows the movements in each of those headings across the year compared to the budget. That would help. At the moment, you have to work quite hard to pull that picture together, even if your accountants with access to all the numbers and people in Parliament, people across Scotland would find that much more difficult than we do. We think that it should be there straightforwardly for you to use. The second one that the group recommended and I think feels quite strongly about is efforts to separate out the numerical presentation of the budget from the political presentation of the narrative that goes alongside that. Just to pluck one example, I know that there was a fair bit of confusion in the finance committee and the local government committee last year about the local government settlement because the figure that was in the budget was confused in some people's minds with figures around the overall funding available to local government that took in things like the amount available from council tax increases and from the £250 million that went to IJBs from the health service. We think that separating out the presentation of the numbers in a technical sense from the political presentation which any Government will want to do will also help that clarity. For us, the finance committee will do that regularly throughout the course of the year. For us, as an audit committee, is there a scope for us to look at those kinds of figures on perhaps a quarterly basis or should we continue to wait until the consolidated annual account comes out before we get our chance at it? It's obviously a decision for the committee. My viewers, you might expect, is that there is a particular value in audited numbers like these, which have been through the process of audit with all of the relevant auditing standards and accounting standards tested out, and that using that perhaps to compare back to the budget and understand what's changed and what the reasons for that are would be a very strong way of closing the loop at the moment. A lot of the attention, since Parliament was established, has gone on to the budget for obvious reasons. This committee has the chance to compare the two, to understand the differences and to make recommendations looking ahead that can improve things for the future. Good morning. I just want to return to the issue of underspend, which Liam Kerr mentioned, but I apologise unlike Bill Bowman. I don't have a copy of the consortium's accounts in front of me, but I did want to pick up on the underspend in relation to the community's budget. I suppose it relates to housing and infrastructure spending. From the report, I can see that there are £62 million of underspend, and that mostly relates to the housing budget and the infrastructure loan fund. I wonder if I can try and unpick that with you and how that differs from last year. You're right. There is an underspend of £62 million, and the Government itself in the accounts looks to explain movements from actual to budget to give some context to that analysis. Apologies, we don't have a lot of the detail that underpins that movement, but in terms of the explanation, it really goes on to say that the infrastructure loans fund was established during 1617, and the reason that the spend wasn't as anticipated related to the availability of sites for new provision became available from both councillors and private sector providers. Inevitably, there is a lead-in time to sites becoming available and then money being spent, so that wasn't all in place during the course of the 1617 year to allow that spend to go through, as had been anticipated in the original budget. It's always a challenge, particularly when new funds are created to be set up to identify what the profile of spending will be over, particularly if it's set up over a number of years. In relation to the infrastructure loan fund, it's a loan to non-public sector organisations prioritised for housing. It's also for other infrastructure, but it's prioritised for housing. As Stephen mentioned, there are timing challenges around getting sites available so that the money could be spent within 1617. However, where the underspend happened in relation to the loans fund, it was partially offset by higher demand in the help-to-buy scheme, so that gives an indication of where demand activity really drives whether there's overspends or underspends in certain areas. Thank you, Stephen and Michael. That's helpful. I appreciate your shame that the scheme is fairly new, but there was a house building and infrastructure loan fund that was launched back in 2011, I believe, so can you explain what the difference is between the schemes? I do know that there's a number of schemes within the infrastructure loans fund. I don't know the details, but perhaps a detail is better explained by the Scottish Government. Specifically relating to the loans fund in 1617, that's what we looked at by way of the treatment through the consolidated accounts. The reason why I was asking is that I appreciate this new scheme. I don't know how much it differs from the previous schemes in terms of the criteria and so on, but given that we've had some kind of model since 2011, it would be good to see what's been happening in the last number of years. You asked about how that compares in terms of the underspent of previous years. I've just checked back to last year's report, and last year the underspend was £163 million in the same portfolio. Again, we said at that point that it was mainly due to reduce revenue and capital spending on demand-led housing projects, so a significant underspend again, but it was larger last year than in 2016-17. As Michael said, if you're interested in the detail of the schemes, the Scottish Government would be well placed to talk you through that. Thank you. I will follow that up, but that's at least a bit of an improvement. In terms of trying to understand what's going on, the word used was availability of sites or availability of land. Are you able to say a bit more about what's understood by availability? Probably not, unfortunately. The purpose of our work in this area is to assess the performance against budget, but also the actual spend that has gone through in the year relative to what's being presented for audit. We're content that the number is presented as a reasonable and accurate figure. As we'd be happy to come back to the committee with more detail, I'm sure that the Government would be able to set out the nature and pattern of availability of sites and how that's translated into spend. Again, I don't know if you're able to answer this today, but it's useful to get it on the record. We've talked previously in other sessions about city deals, which clearly have a big role to play in providing infrastructure and getting development on the ground. The accountability around that is quite interesting, we could say. When we see an underspend in a loan fund like this and we know that the Government has an aim of making sure that we do a trying deal to solve the housing crisis and get development in the right place, is there any flexibility to move money around or to be working with the other partners like local government? In broad terms, the Government does have flexibility to move money between budget headings, and you heard in earlier exchanges how they were able to do that to reflect the lower than expected receipts for the land and buildings transaction tax, but some parts of the budget are ring-fenced for good reasons. One of the tables that we've looked at already shows things like non-cash Dell and the AMI funding, which is there for very specific purposes and can't be used for other purposes. Equally, some of the funding coming into city deals is match funding coming from the UK Treasury to match either Scottish Government funding or local authority funding, and that couldn't be used in other ways. It might be helpful to note that we're carrying out or I'm carrying out a piece of work jointly with the Accounts Commission looking at city deals more generally because of the complexities of the accountabilities involved. That will be coming through, I hope, next year. The aim of that is to drill down in a way that goes further than just the accounting treatment of the numbers to explain what's planned and what's being achieved with those significant amounts of funding. Anything else, if you want to add to that? I'll just ask briefly about help-to-buy, because I can't see it on the picture, but from memory, I think that there's also been an underspend on the help-to-buy budget. Is that correct? I don't think that I can show it to that detail. I think that that was just from my background information as to where the movements in budget would apply, so if the Scottish Government have identified a potential underspend as it's moving towards the year-end in one area, what they've done is used some of that money to meet the higher demand through help-to-buy. I think that what you're remembering is the evidence that the committee took around the cap future scheme and the loans that were made available to farmers as payments were delayed. Some of the funding for those loans came from the financial transactions fund, which covers help-to-buy, among other things, but, as Michael says, it's not shown to that level, I think, within our report and perhaps not within the accounts. The only other context by way of the financial transactions budget, Exhibit 3, to the report on page 10, sets out the overall outturn against the HN Treasury budget for the financial transactions budget for the year-end. I think that, overall, that's a good report. Last year, I asked a few questions around just the way information was set out and performance, and I think that some of those points have been taken on board, and that's positive. I was looking again—I know that Liam Kerr had raised underspend—looking at education, but the baby box spending, I've had quite an interest in the baby box scheme. There's a lot of positive work going on there, and I know that the Government's going to keep it under constant evaluation, and that probably means that items will be added to the scheme as it goes forward. Can you explain what's meant here by the reprofiling of the baby box spending? So, there was £6 million reprofiled to £17.18, so that effectively is £6 million that they didn't spend in the £16.17 financial year that will be added to the budget in £17.18. Really £16.17, as we understand, it focused more on the design and procurement of the scheme and some of the spending that was earmarked for £16.17 was around the planned purchase of stock, but it was no longer required because of the stage that it was at. All that will feed into and be added to the budget for £17.18. Does that sit within the education budget or is that the health budget? That's within education. Right. Was it always in the education budget? I don't know if it's moved from one budget to another. As far as I'm aware, it was in education. It's worth saying that, with the change in portfolio structures at the start of 2016-17, so quite a number of budget headings would have moved from one portfolio to another just to match ministerial changes in portfolios. Okay. Thank you. That's helpful. Okay. Let me follow up with one question on underspend, if I may. Last year, I think, was the first time that the Government anticipated underspend and actually spent it and allocated it within the budget before we had the outturn. Is that good accounting practice? Longer-term financial planning is definitely good accounting practice, and we've had a gradually evolving set of arrangements that allow Government to do that, starting off with the budget exchange mechanism between the UK Government and the Scottish Government, now moving into the Scotland reserve, which is formally there to smooth taking one year with another. What I would expect to see is that being done as far as possible in a planned way and a transparent way, which is clear that funding is, for example, being held back from this year in order to make investments in future or, alternatively, that investments being made here to make savings in the longer term. Again, another reason for having a medium-term financial strategy. The other point that, again, is worth making is that on a budget of £34 billion, what looks like very large numbers are actually very small percentages, and therefore that smoothing is happening on a relatively limited level. It's important that Parliament and its committees absolutely understand those movements to make sure that they get the big picture and the longer-term consequences of what they're seeing. I recall a previous Cabinet Secretary for Finance allocating a budget that was, say, £100 million over what was allowed for in order to reduce underspins. That practice seems to have stopped. Would you encourage that as good practice in the future? I don't recall the specifics that you're referring to, so I'll be careful. I think that it is never good practice to have a budget that doesn't reflect what you expect to achieve during the year and, indeed, to be explicitly linked to the outcomes that you want to get from it. In a budgeting context where there is little room for manoeuvre, that is the sort of thing that you see. One of the reasons why I've been recommending longer-term financial planning in the health service since I've been in this job is that a focus on hitting a very specific revenue resource limit tends to drive bad behaviour about getting spending out the door at the end of March rather than planning for the longer term. The whole budgeting context needs to support good financial management. I just follow up on Liam Kerr's question about the legal provision in the health service. The £160 million provision is that over a specified number of years? I come back to the committee with the detail of what our understanding of work in this area is that legal claims from receipt through to any final decision can take many, many years. From what I remember, in my time as the health secretary, the actual pay-outs were about £60 or £70 million per year, so I'm just wondering how long the provision will last for. As you say, Mr Neil, the provision will last for as long as it is deemed to be necessary to be in place until there is either certainty that the claim will or won't need to be settled on any corresponding amount. If you could come back to us and tell us how long you would estimate that that provision would last for, because if it was provisioned for the entire bill, then from memory, I think that that would cover about two years. I think that the difference to the budget is in respect of a reassessment of the total bill in the round, as opposed to any expectation of flow of funds that will happen in future years in close proximity. Can you give us a fuller explanation of that, please, as part of the follow-up so that we understand it? Of course. It is important, and we are more and more going like America in terms of people suing the health service, so it's one of those areas to keep a close eye on, I think, in the future. The second question is just to get a clarification. In the accounts, I think that there's another 300 million of contingent liabilities in respect of the clinical and medical compensation payments. In addition to what's provided, there's potential of even more coming in, so could you maybe build that into your explanation as well? It's useful to have a briefing that brings all this together, including actual pay-outs over the last three years. We can certainly do a briefing of the committee on how the system works. If you want to drill into the actual pay-outs beyond the numbers, that's obviously something to take forward with the Government. It's the numbers to see the flow of the numbers and how long the provision will last for and so on. Why the 300 million, vis-à-vis the 160 million, what's the purpose of the two provisions? That's the accountants' trickery for you, but we'll explain how it works. With a capital T. My second question is that there are quite a number of portfolios where Government gives guarantees. For example, in housing, there are income revenue guarantees. In the economy, there are guarantees given to businesses. Rather than loans or grants or investment, there are also guarantees. How are guarantees dealt with in the accounts? Very good question. We're all turning to the relevant paragraph in the report, sorry, which is paragraph 33 on page 14. I'll ask Stephen to talk you through how it works. Thank you, Auditor General. We've looked to capturing the report about guarantees and we placed it in the context of the hydro plant in Lochaber and the guarantee that the Government entered into for the purchase of electricity, if I recall. What the accounts look to show is the Government's potential liability should there be a material change of circumstances in the provision and then they then need to step in. For that particular example, they've shown it as £21.4 million. And similarly, to the previous discussion about claims, as to the proximity of that will depend as to what happens about the viability of the provider in a change in price, but they've looked to show in the accounts that this is a potential liability that could crystallise into the future and because they are able to, unlike some other liabilities, quantify that, which is a particular test on accounting standards. Do those liabilities, and the provision of those liabilities in any way, affect the ability to spend money within the budget? No, they're not— It doesn't impact on the revenue or capital budget? They're not directly connected, but it is correct that the accounts adequately capture potential liabilities. No, I understand that, but it's the impact it has. For example, in terms of the guarantees given to housing developers under the housing guarantee scheme, there could be a multitude of housing developers, is there a formula for deciding the upper limit to which the totality of guarantees can go? I think that the answer to that would be no. I ultimately will depend on the risk appetite that the Government has around to, as they consider, schemes in the round. I think that our interest in that is fully disclosed in the annual account. So this issue is really disclosure, but it doesn't really impact on the actual budgets themselves per se? Correct. As you're suggesting, it's very important that they are transparent and that Parliament sees how they're building up over time. They're disclosed in the notes to the accounts on pages 108 and 109. It's something that we look at closely and we test, first of all, that they're being treated properly in accounting terms, that they shouldn't be contingent liabilities or provisions, and secondly, keep an eye on how they're changing as they accumulate over time. Obviously it's key. Okay, that's very helpful. My final issue is PFI and NPDs. Obviously, we've touched on the Aberdeen Western peripheral and that was affected by reclassification, but my issues are a bit different from that. I think that there are two issues. One is transparency of PFI deals in particular, but also NPDs to some extent. Secondly, the value for money issues around both. I think that there is a general acceptance that NPDs are better value for money than PFI's, but the question is, are they as good value for money as they could and should be? The value for money issue presumably would be the subject of a very specific piece of work by your self-auditor general and wouldn't be relevant to the consolidated account, so I'm going to pursue the transparency issue. I mean, if you take the famous Hairmire's PFI deal, which is now more than halfway through the contract period, perhaps the health secretary asked for a copy of the contract and the civil service said, do you really want a copy of the contract? I said, I really want a copy of the contract. I want to read this contract and they supplied the contract to me and it stacked up way above this desk. It was huge, very complicated and all the rest of it, but one thing became clear to me as the health secretary was nobody was really monitoring these PFI contracts. They were not being pleased and, quite frankly, the contractors were getting away with financial murder, in my view. Are you satisfied, particularly in relation to PFI contracts, that are you satisfied about the level of policing by the relevant bodies such as health boards? The first thing to say is that I agree with you entirely about transparency. The PFI NPD arrangements to which the Scottish Government is party are again included in the notes to the accounts and you can see some information there. There is separate information in the quarterly report that this comes to the committee about capital projects, which shows how far from the 5 per cent headroom limit that the Cabinet Secretary for Finance has set the revenue commitments of God, but it is very hard to see that picture overall and to see how the costs compare with each other. The monitoring of almost all of the PPPT's and umbrella term public-private partnership schemes is subject. It comes from the individual body, whether it is a health board, a local authority or an FE college that holds the contract. As you say, they are very complex contracts. The ones that I have seen recently tend to come on a DVD rather than on stacks of paper just because of the size of them. It is really important that the monitoring is focused on the right issues and receives the right degree of attention, given not just the financial commitments involved but also the impact on the services provided to people in critical services in education and health, for example. It is not something that we look at directly unless a problem appears through our audit work. We are planning another piece of work on public-private partnerships more generally, which is getting under way at the moment to report late next year, which is looking at the state of play on all of this. We produced a piece of work about a decade ago, or Audit Scotland did, which I think still stands up in many ways. What we have not done is to refresh that for the current set of projects that are around to look at value for money and to look at the governance and the other arrangements around them that need to be in place to make sure that the public purse is receiving what it is paying for from them? Certainly, through Scottish Futures Trust, we brought a team into, I think it was, Fourth Valley, the hospital, the Larmorod hospital, and they quickly identified breaches of the contract, which have resulted in savings. However, we are not doing it on anything like the scale that is happening in many health boards south of the board. We are very, very multimillion-pound recurring savings are taking place because teams who have been brought in to look at this monitoring are identifying major breaches of contract, which of course opens up the whole contract and gives the public sector the ability to renegotiate many of the terms and conditions. My question to you is that I understand that, for example, here Myers is the responsibility of Lanarkshire health board, but should we not be taking a much more robust approach to ensure that the Lanarkshire health boards of this world are actually being as robust as they need to be to try and get a better deal and to make sure that those contracts are being properly adhered to? I think that the Scottish Futures Trust has made a big contribution by bringing that expertise and ability to first of all negotiate better contracts and then understand the workings of the ones that are in place. I do not know what they have done in terms of reviewing other contracts that are currently under way, like the Fourth Valley one, and it is something else that will certainly take away and have a look at. It is also something for the Accounts Commission because a lot of the contracts were in relation to schools and they are some of the worst contracts as well, in my view, and certainly the evidence is. The problem is because of the commercial confidentiality, when you try to get to the information and the terms and conditions of those contracts, organisations such as health boards and such as local authorities hide behind the commercial confidentiality rule. My view is that those things should all be open. I can see during a negotiation that you have to maintain a degree of commercial confidentiality, but I think that public are entitled to know where their money is going once the deal is done. Strong advocate of transparency, I agree with you on that. I think that the specific point of how well the contracts are being reviewed in terms of their implementation once they are up and running is a very good one that I will take away. I think that there is potentially significant savings in a number of portfolios, if a more robust approach is taken throughout the public sector to PFI and to a lesser extent, but nevertheless we should be looking at NPD projects as well. European structural funds. Paragraph 65 to 67 of your report. You will forgive me if I just try and translate this into language, I understand, because I find it rather complex. Pick me up if I translate this wrong. As I understand it, there were suspensions on the ability of the funds related to the 2006 to 2013 schemes, on the ability of the Scottish Government to draw down on those funds. As a result, the Scottish Government went ahead with some projects in the anticipation of receiving some funding. The Scottish Government makes provision of 14 million in case those funds are not forthcoming and it turns out that they are not forthcoming. However, what your report seems to say is that that 14 million provision was significantly short and that, in fact, the liability, the money that needs to be paid back to the structural funds, is 31 million. Then you talk about the net cost being 21 million. What is going on there, please? It is not just you, it is very complicated. What you just described is a very close to what we are trying to say in the report and I will hand over with gratitude to Michael to help you with the detail of it. I will do my best to try and simplify a complex matter. I think that what I will do is complicate a little more to begin with by talking in euros, because that is obviously the payments that are made by the European Commission in that currency. Given its enclosure of the programme, I think that it is useful to talk about the programme as a whole, covering the 2007-2013 programme. Of that, in that period, €820 million was available to the Scottish Government. Around 90 per cent was declared eligible expenditure, so that is €744 million. The total that was received by the Scottish Government was more than that, so that leaves a difference between the grants that were declared and the total that was received of 37 million euros, which translates to the £31 million sterling that is affected by the liability and the money that goes back to the European Commission. I understand. The Scottish Government has to find £31 million at some point to give back to the European Commission. That has been through the accounts in 1617, so that money has in effect been returned. It is subject to final checks by the European Commission. As far as the Scottish Government is concerned, the Scottish Government will submit an audited report that is reporting the £31 million liability, but the European Commission will do its own checks and are due to report by March next year, so that final position may change. However, as far as we know just now, it is a £31 million liability. That will be finalised in March 2018. I believe that the committee has a letter from April 2017 in which the Scottish Government is of the view that the amount owed is £13.3 million. Is it simply the case that the figures that you are talking about in the report have come out after that letter? If that is right, does the Scottish Government accept that we are potentially in the hole for £31 million? There is a time indifference between the letter that the committee received. The letter probably refers more to the £14 million provision that was created last year, but what we found through this year's audit is that it is now crystallised into a liability that was higher and more significant than £31 million. There is a big difference in what was provisioned for and what was actually liable for. Is that an easy mistake to make? It probably comes through the final declaration that there is a lot more activity going on to reconcile the amount that has come from the commission from projects that have either had self-corrections applied or spending that was withdrawn from internal checks that perhaps revealed that there was poor documentation or maybe some issue that means that the European Commission would not approve that spending. So there was a lot more activity, particularly within the last quarter, which settled on that higher amount. The paragraph 67 of the report seems to me to come at it from the other end, if you like. While that was going on, various projects were happening and some people, some companies were contracted, I guess. You have called them project sponsors, I think, but I guess what you mean by that is that people were engaged to deliver. As a result of that delivery, you say that the Scottish Government has overpaid by £16 million, or you do not say overpaid, but the Scottish Government has paid out £16 million that it now seeks to take back from those people who were delivering the projects. Or that the Scottish Government is invoicing for that extra £60 million. What are the realistic prospects of getting any of that £60 million back on the basis that, presumably, the deliverers were engaged in good faith and delivered in good faith and invoiced in good faith? I think that the reason why it is a difficult position, so £16 million, as you say, has been overpaid to project sponsors. In terms of the recovery of that, as we say— Forgive me, Michael. What does overpaid mean? That has paid money to project sponsors that has not been eligible expenditure that is required to have gone back to the European Commission. That has been settled between the Scottish Government and the European Commission in previous years, so that is money that is due to come back to the Scottish Government. It was, presumably, legitimate to be paid to the project sponsors. It was not their mistake, was it? It was presumably contracted to deliver whatever it was that they were supposed to deliver. Absolutely. It was basically money that was hoped that it would be able to come from the European Commission through eligible expenditure. Grants are paid by the Scottish Government in advance to project sponsors. At then, once a year, the Scottish Government will then make a declaration back to the European Commission to receive money for that. Help to give you a couple of examples of the sorts of things that lead to the errors that can potentially lead to repayment or to the funding not being available from the European Union. The Scottish Government will accept applications from a range of bodies, which might be other public bodies and community associations for projects or grants that are eligible within the scheme. It will approve some of that within the total funding that it has available. As a condition of having that money, there are things that the project sponsors are required to do, such as meeting procurement rules, having particular controls over the way that the money is spent and keeping an audit trail over that. If it becomes clear later that those conditions have not been met, the funding is not eligible to reclaim from Europe, which is part of the £31 million that you have been talking about. Secondly, the bodies that have spent the money are not entitled to some or all of it from the Scottish Government. That is the difficult judgment that the Government is having to take about reclaiming it from the bodies. As we mentioned briefly in this report and spent some time on last year, one of the things that the Scottish Government did when projects went into interruption and suspension was to focus very much on improving the controls to make sure that much less of the spending would fall into that category where it was not eligible for European ESF funding. What we are seeing is the tale of money that went out before those changes had come in place. I understand. The money has gone out to third sector organisations perhaps. It is a number of different organisations, universities, colleges, private sector, third sector and local authorities. The Scottish Government is now seeking, for presumably perfectly adjustment reasons that the Auditor General set out, it could go to those bodies and say, can we have our significant funds back, please? These are bodies that presumably have spent on the project or may have spent on the project and no longer have those funds. If that is right, is it not more likely that the Scottish Government needs to write off £16 million? As Michael has mentioned, the invoices process is under way. Parts of the correspondence that the Government is having with those bodies includes the provision for appeals to be factored into any associated invoices. We thought about that in terms of the disclosure that is captured in the accounts, particularly whether there is certainty around the ultimate receipt of that £16 million. That is why it is not captured by certainty as an asset or an anticipated flow of funds back to Government just because of the nature of the appeals process that is detailed. The final question for me would be, as Michael Allafant talks about, there is a distinct programme in 2006-13. There is another programme now running from 14 to 20. Is there any impact on those projects as a result of the issues with the 2006-13? The Scottish Government says that the start of some of those projects has been delayed, so has there been a significant impact? If so, what is it? In terms of the one-inch impact, that is quite separate. It is distinct to the 2007-13 programme. What is of interest in how the new programme is applied is that a lot of it is around the management of the controls in place, which is where we have seen some of the problems that arise from the previous programme. We understand that the Scottish Government is still designing and improving controls around that, although the European Commission has approved its overall controls framework for this programme. The letter that the committee received back in January outlined some of the principles that the Scottish Government hoped to apply with that. That is something that we will be looking at with interest in our forthcoming annual audit, covered in the period 17-18. Can I come then to Parah 59? It is the CEP Futures, and back to your £60 million. Can we just clarify then what they actually booked in relation to that? The £60 million that you referred to was the figure that we captured in the June report on the CEP Futures follow-up, which we identified that there was a potential penalty in respect of common agricultural payments. The £60 million was based on our interpretation of potential fines arising from not just the timing of payments but also factoring in the assessment of the control environment that exists. That assessment is then translated in part into the disclosures that are in the consolidated accounts. It refers back to our earlier discussion about the certainty and timing of some of those liabilities. The certainty element is captured in the provision of £2.5 million in respect of penalties. This year's accounts also include an unquantified contingent liability. The reason for that is that we sought to explain in Exhibit 6 to the report about the interaction that can take place between payment agencies and the commission. Any indication of potential penalties that come from the commission are always subject to negotiation and further timing. Our judgment on the basis of the disclosures, which is perhaps a bit like the clinical negligence claims that we talked about earlier, is that it is a mixture of both provision and contingent liability. You spoke about the £60 million and have actually booked £2.5 million. Booked £2.5 million in 2016-17, a provision and then the unquantified contingent liability for future. If they had booked the £60 million, would you have gone and taken and moved on? No, I don't think that we would. Our audit work is always subject to discussion and reference to auditing standards and accounting standards. We think that both are right to cut a long story short. The £60 million was based on a methodology in terms of the potential liabilities, but translating that into what is appropriate for capturing in the audited accounts is better reflected by an unquantified contingent liability. We seem to be reaching the position that we are reading the numbers and then we are having to go to the notes to read the words and then start to make a judgment as to whether, as Alex Neil was looking at earlier, we should perhaps read notes 15 to 17 and add the numbers up in our heads. I guess that if you were an external analyst you would just add the contingent liabilities in and say that those are numbers that could go out the door. I just think that perhaps we are talking about better disclosure, better more transparency and then you have to read into quite small print here about unquantified contingent liabilities. That is quite difficult even for somebody who is familiar with those terms as to exactly what they mean. I do not know if you can perhaps remind me, because you will be more familiar with the accounts. In the front part of the accounts, where there is all the discussion about what the Government has done, do they go into the detail of what those things might mean? There is reference to the cap futures within the narratives— But generally, within contingent liabilities, contingent assets, indemnities, guarantees. I know that there is reference to the ability of the Government to give guarantees and the authorisation limits and how—I do not know if you have looked at that at all in any of your work—but it looks like there is quite a lot of issues within here that might take a bit more detailed reading than just for a lay person to pick up. I would be interested to see how the health and NHS medical claims come out, because there are quite big numbers within that. Do you get the impression that things are just being put into contingent liabilities and we will feed them back in the future as we have to, as opposed to being very careful and prudent and making full provision for what should be made now? We test those questions very carefully, as any auditor would, to make sure that the accounting treatment is correct. My annual audit report that is produced and published and the section 22 report to this one aims to bring that picture together. We are also seeing improvements in the Scottish Government's reporting. The narratives improved over time, the disclosures are now fuller than they have been, and we continue to encourage them to push them to include disclosures where we think they ought to be there. It is also true that the importance of those figures is becoming increasingly important as we are now a tax-raising as well as a spending parliament. It does feel to me that this is a milestone year with the introduction of income tax powers on all non-savings, non-dividend income and the greater level of volatility that brings. That is why both my recommendations and those of the budget process review group are about getting more of that transparency in future to the financial statements but also to the budget so that people can see the relation between the two. We will take the health review of the provisions there as a good test case and see how we get on with that. I just had a point in the detail that you mentioned. We need to go through the notes and add up the numbers. Paragraph 33 of our report, we just outlined where the liabilities can be quantified, and that is an estimated £429 million, so that is the ones that are quantifiable at this stage. The report, the one to us. I take that as a useful number, but I suppose within the financial statements themselves, I do not think that there is a summary like that that I recall. Is there any information in your report that is not available from the accounts or is it all drawn from the accounts? I think that it is all drawn from the accounts and our insights into them from the wider audit work that we do. The aim is to pull out the things of interest and we hope that it is useful to this committee and to Parliament more widely. That is an additional disclosure that is new. There are, but we do pull some information for some of the exhibits, particularly if we are reconciling the Scottish budget to HM Treasury's budget. That comes from budget documents, for example, and one or two other disclosures that come from the audited accounts of other bodies. Thank you very much for your evidence this morning and now move the committee into private session.