 Rwy'n gilydd i amser i ddweud i mwy gyd ar y pryd. Mae'n dwybod i ariyf arwad ffordd Blackwood, a dweud i'r ddaf yn hynny i gyrraedd y F John Ewing. Rwy'n gyd yn perthynas ar ddod i ddod i chi,pusiaf a larnor, dim ni, dysgu i ddod ar y ffrind yn ei ddod i'r dyfodol. Roedden ni wedi gyfledd pan fyddir i'r ddod i chi'ch gyd i ddod i chi i chi, albeit nid wyg. Rwy'n gyd yn maen nhw, aethau hyn a bod rwy'n rydyn ni. I will now move on to agenda item 2. Agenda item 2 is consideration of Audit Scotland's spring budget revision 2021-22 budget adjustment. There is a copy of the spring budget revision budget adjustment in their meeting papers. I would like to welcome to the meeting Alun Alexander, chair of the board of Audit Scotland, Stephen Boyle, Auditor General for Scotland, Martin Walker, acting director of corporate services and Stuart Dennis, corporate finance manager Audit Scotland. I would like to put on record the commission's thanks to Diane McGiffin, who has just recently left her role as chief operating officer of Audit Scotland. She is taking up a new position as chief executive of the Law Society of Scotland. I am sure that everybody will join me in thanking Diane for all her work over the past 20 years and to wish her well on her new role. With Diane's departure, I would like to welcome Martin Walker to his first appearance before the commission in his role as acting director of corporate services. I would now invite Alun Alexander and then Auditor General to make any short introductory remarks. I would like to share on the matter of the spring budget revision. I would appreciate it if you went to Stephen first and then came back to me for the rest of the agenda. In other words, he will make the opening statement on the spring budget adjustment and I will do the one on the budget proposal. That is grand, Stephen. Good morning, everybody. I am happy to say a couple of introductory remarks to the spring budget revision. If you are content, I will make a fuller opening remark following Professor Alexander on the budget proposals. The spring budget revision request, as ever, relates to Audit Scotland's pension arrangements. It is a membership for the vast majority of Audit Scotland staff of the local government pension scheme, which is a defined benefit scheme supported by assets and subject to evaluation by the scheme's actuaries. Each year, employers such as Audit Scotland have to make accounting disclosures and, if necessary, accounting adjustments to reflect the result of the evaluations based on actuarial assumptions. From the information that we have been provided by the scheme's actuaries, that has resulted in a spring budget revision request to the commission of £6 million for the financial year 2021-20. The background relates to changes in assumptions, in particular to changes to the discount rate reduction in the discount rate that the actuaries are using. That has an effect of increasing the liabilities of the scheme and the associated share that the respective employer members such as Audit Scotland are making. Lastly, I advise the commission that Audit Scotland is in discussions with the Scottish Government Finance Directorate to highlight the financial implications and the requirements for that. Across all of Scotland's public bodies that will make those accounting adjustments where their funding comes from central government parliamentary sources, it is covered by what is known as AME funding annually managed expenditure to reflect the non-cash adjustment and that funding, subject to confirmation negotiation, is due to be received from HM Treasury. Are you happy to pose there? I suspect between myself and Stuart Dennis would be delighted to answer any of the commission's questions. I remind witnesses and members to take a short pause before speaking so that the broadcast team has time to switch their mic on. If any member has a supplementary to a question, please type R in the chat box and I'll bring in just as soon as I can. As always, I'm grateful if the questions and answers can be as tight as possible. For our general, the non-cash accounting adjustment seems to come up every year regularly as clockwork. I can't remember when it last went the other way. As regards the Lothian pension fund, you stated that you've had some discussions with the Scottish Government. Are we satisfied that the previously agreed arrangements with HM Treasury remain in place to meet the pension adjustment? I'm happy to answer both those points to you. Stuart Dennis may want to come in and start to date the commission on where we are with the discussions with the funding and Treasury. It has been subject to fluctuation in terms of whether there is an increase in budget requirements or a reduction over the years. Our expectation is that we will continue to seek support from the commission for additional funding budget approval this year and probably in years to come. If the trend in real assumptions holds good, discount rates will fall. None of us will be able to have any strong degree of confidence, even in the past week or so. We've changed from the Bank of England on the best rates for the first time in many, many years. There is undoubtedly variability in the rates of discount that will be used to measure the assets and liabilities of the scheme. In terms of confidence about the HM Treasury support, Stuart can say a wee bit more, but we would say that it is a well-drawing path chair of AME funding support in totality for what is a non-cash adjustment. Ultimately, it is rooted in discounting disclosures, which need to be correct and proper, but there are no flow of funds directly from central Government, UK Government to Scotland. We really need to have sufficient budget cover. I will pause there and just see if Stuart wishes to add anything about if there is any more Thank you, Stephen. I absolutely confirm what Stephen has said. It is an adjustment and a non-cash adjustment. The Scottish Government Finance Directorate discussed with HM Treasury each year the requirements for Scotland in respect of adjustments like this, and we have always been included in that. We communicate with them regularly to highlight what our requirement will be for this year, so I do not expect to anticipate any rejection of that. It is always supported because it is a non-cash adjustment and it is part of an accounting standard and an accounting treatment that we need to adopt in our annual accounts. Just to clarify my own mind, I have the vision that down in Westminster and the Treasury there is a big pot of liabilities that they have taken in from across the four nations and that is sitting there in the Treasury. How do they account for it? There is accounting in the individual public bodies and then there will be accounting on a key basis as well, so HM Treasury's accounts, which, of course, are audited by the national audit office, will disclose what the annually managed expenditure budget has been and the call against it, some totality and then that will be recorded. Of course, there are the whole of Government accounts for the UK as well, in which we will capture the deal of assets and liabilities. What we do not have here, though, is that for many of the schemes, there will be accounting really for their own basis. The local government pension scheme will produce its own accounts that are audited by Audit Scotland. Those are disclosed with all the assets and liabilities of the scheme. The respective members of that scheme will make very extensive disclosures in their own accounts. In Audit Scotland's annual reporting accounts, we have many pages of pension disclosure that set out what our respective share of those liabilities are, and they are also, as the commission knows, subject to annual audit. In the round, there are a number of components of assurance about where the budget is disclosed along with the pots of assets and liabilities. At this point, I will bring Mark Ruskell in. Thank you, chair. I am content with those answers to your question. I was just going to ask a wider question about pension governance within the Lothian Pension Fund, and what role you play in that as an employer, or indeed what role the members of the scheme play in that governance, given that many of those people will be existing employees or former employees of yourselves. I do not know if Stephen Boyle will steer it long to answer that one. Thanks, Mr Ruskell. I will start, and Stuart may want to follow. We are the external auditors, so the Accounts Commission appoints the external auditors of the Lothian Pension Fund to carry out that function. I apologize, but I should say that we appoint the auditors. I think that, certainly speaking, the auditors are actually one of the firms that we appoint as the external auditors. In terms of our engagement with the pension governance arrangements, we are always mindful that, although we are an employer member, we are also appointing the external auditors, and they therefore need to be an appropriate distance and not in any way to compromise the independence of external audit. Stuart can say a bit more about, in a second, how we manage that and what engagement we have directly with the Lothian Pension Fund. The commission may be familiar with that. In recent years, there have been some fairly significant changes in public pension governance arrangements. The creation, if I recall rightly, of the last five or six years of pension boards that has sought to increase representation from employers, employee member representation to inform and shape some of the workings of public pension funds. The success of those arrangements is a matter for review by the individual pension funds that they publish annual reports. There are governance reviews, all of which seek to follow the agenda that people who are members of the fund, whether they are employers or employees, can better inform and understand very significant sums of public money that are being used, recognising that those liabilities and assets will exist for many generations to come. If Mr Russell can tell me, I might just invite Stuart to say if he wishes to say what it's called. Thank you, Stephen. All I would add is that Lothian Pension Fund prepare a pension strategy each year document that we see as an employer. As the Auditor General said, I would confirm that, as we are an audit body, we don't feel it appropriate for any of our members of staff to be a member of the Lothian Pension Fund. Even though it is appointed as an external firm at this stage, that's the approach that we take, but we are involved in pension strategy and they contact us regularly from Lothian Pension Fund to ensure that we are content with the way that they are operating. Are there any other members who would like to ask any questions on the spring budget revision? No. I thank the witnesses and will move on to agenda item 3, which is consideration of Audit Scotland's budget proposal for 2022-23. Members have a copy of the budget proposal in their papers. We have the same witnesses for this agenda item, so I invite the chair of the board, Alun Alexander, to make any short introductionary remarks, as is called by the Auditor General. We are as ever happy to talk through the proposal and to answer any questions that you have for us. As you know and as we all know, the pressure on public services and public finances is more intense than any of us has ever experienced. Public bodies, political leaders and public managers are juggling the difficult tasks of dealing with an on-going and volatile pandemic. The past 10 days have shown us just how volatile it can be and with planning Scotland's recovery from the health and social and economic damage of the past two years. All of that has created significant additional pressures on Scotland's public bodies. They come on top of major stresses and systemic and strategic challenges that they have already faced, such as maintaining financial sustainability, public service provision in a time of increasing demand and economic and health inequalities. The response to that has led to increases in public spending and the overhaul and redesign of public services at previously unimaginable scale and pace. Over the past year and a half, Audit Scotland has had to respond to those challenges. We have had to grow, as you know, and to change rapidly in order to do the bigger and more complex job that is now required of us. That has to be done while we maintain and safeguard the robustness and independence of public audit in Scotland. We have made significant changes to how we work and to ensure that we have the skills and resources for now and into the future, and to protect the safety and wellbeing of our workforce. I would like to acknowledge in this context the support that the commission has given us to make this possible. As Scotland's public bodies can aggregate the recovery and the transformation of services, our role in supporting improvements, providing assurance and shining a spotlight on the significant risks will be even more crucial than ever. I will leave it there, chair, and, with your permission, I will hand over to Stephen Boyle to speak in his capacity as a countable officer for Audit Scotland. Thank you. Chair, as Professor Alexander outlined, and as is discussed in our budget proposal, over the past two years, the scope and scale of our responsibilities have grown at a rate not the same since we were first established in 2000. Public spending in Scotland has increased by about a fifth. Public bodies remain very stretched. Financial risks and issues facing Scotland are now much bigger, and the role of audit has never been more important. Our job has become more complex, and we need to ensure that we have the resources, skills and capacities to fulfil our role now and into the future. Our budget proposal reflects that. We are making good progress, and over the past year and a half we have recruited and strengthened many aspects of our organisation. We have invested in new ways of working and being clearer on our priorities. Through all of this, we have continued to deliver annual audits of hundreds of public sector organisations and a comprehensive and flexible programme of performance auditing on matters of significant public interest. That is not easy, chair, and I want to thank all my Audit Scotland colleagues and those in our partner firms sincerely for all of their work. Public bodies are facing intense pressure. Staff have been diverted to front-line services, large amounts of money have moved rapidly through the system, and the financial controls that are integral to ensuring that public money is spent properly have been variable. Those issues flow through to the audit. Auditors are reporting unprecedented numbers of questions and concerns, and commission members will be familiar with some of the details that I have reported to Parliament through my section 22 reporting in that respect. Looking forward, we are focused on Scotland's recovery and on our own needs as an organisation to embrace the significant demands upon us and to make the most of the opportunities to shape our future by ensuring the safety and quality of opportunity of our colleagues. Our resource requirement for 2022-23 is £11.6 million, which is 573,000 or 5.3 per cent in real terms. Our total proposed budget for 2022-23 is £30.6 million. Our proposal contains more details than the areas that we will deliver for this public money. It includes assurance over the significant new sums of money and how well it has been used. We will continue to focus on other key issues such as inequalities and outcomes being delivered for public spending, climate change and economic recovery, among others. Audit Scotland must continue investing in digital infrastructure and other resources to support more agile and flexible ways of working. We must also attract and retain high-quality people and ensure that we have the right skills. We will invest in new methods, tools and approaches and support that with the right training and development. We are also clear that everything that we do both now and in the future must be built on principles of wellbeing, quality, equality and sustainability. As our chair, my colleagues and I look forward to the commission's questions and we will do our best to answer them. Perhaps I can just open up with the first question. Back in January 2021, the SCPA approved your budget proposal for 2021-22, which included a request for an increase in contingency to £2.4 million, which was to implement long-term sustainable resource programme to meet the needs and demands of public audit. I am not going to go through this line-by-line and talk about what parts have been allocated to what, but you did say then that, in response to questions, if you identify any potential underspend against this budget allocation, we will indicate this at the earliest opportunity for a return to the Scottish consolidated fund. The question on that is that, having made that undertaking, the latest management contingency update letter appears to suggest that £107,000 of non-recurring surplus has been used to secure time-limited external support. Now, in relation to the £500,000 management contingency sought for 2022-23, are you able to expand on the types of unplanned financial risks that could be used for and, again, will any underspend be returned to the Scottish consolidated fund? So, basically, why haven't you returned the surplus money from last year and how are you giving the same undertaking this year? Thank you, chair. I'm delighted to start now. I might ask Martin Walker, who has been overseeing the infrastructure and the programme management that we've put around how we've been spending the additional budget allocation that the commission agreed in last year's budget to say a bit more on the detail that I provide. To answer your questions in reverse for me, chair, yes, we make the same undertaking that if Audit Scotland doesn't spend the money that the commission affords us in approving our budget, we would return that money absolutely back to the commission fund. That would always remain the case, because our call and our request for our budget is built up on expectation of how we will spend it. As the commission generously supported our budget bid last year with the unprecedented challenges that the public bodies, including ourselves, were facing last year, our submission last year was designed to support Audit Scotland to provide public assurance on how well that money was being spent, recognising the hugely significant scale of change of public spending that has taken place over the course of the past two years, as we touched on in the proposal that jumped from £40 billion to £55 billion of spending. As I referred to in my introductory remarks, the need for assurance on how that money has been spent in quite different ways, at different scale and pace, with the control environment not always being, as we would have expected in previous years, all of that required additional audit input to ensure that that money was being spent and for us to report on it appropriately. How we have done that briefly, the chair, and Martin can say a bit more, is that we have invested in technology to ensure that we can support our colleagues to work remotely, as we have almost entirely been a virtual organisation in the intervening period. We have also invested in our capacity, and we have recruited additional auditors initially to deliver the responsibilities that we have. We have also, in more recent months, started to identify how, as an organisation, we are fit to deliver on our work and investing in some of our corporate activities, our governance arrangements, our digital skills, the development of our audit methodologies. All of those activities have been funded and supported by the commission's support from last year. I will pause and I know that Martin will want to come in and give a bit of detail behind some of that spending and, hopefully, assure the commission. Thank you, Stephen. Good morning, everybody. As the Auditor General said, the main focus and the main objective of resourcing and building our capacity in those areas has really been about two things. One has been about delivery, and the second has been about development. We were very conscious that, during the course of the year, we needed to respond to the pressures that there were around delivering the audit work, and that is why the first phase of our capacity building project was very much focused on getting additional auditors into the mix. With the commission's support and funding that has been approved, we were able to bring in 24 additional auditors to get on with that work. Bringing in some of that resource also meant that we were able to free up a little bit of our existing capacity so that we were also able to invest in the future and put some of that resource into developing our audit methodologies, considering how we can best use digital audit techniques and so on. We have used a combination of in the here and the now, but we are also focused on the future as well. The second phase of the building capacity, as Stephen said, was very much focusing on specialist and support skills. In more recent months, we have been going through a rigorous process of considering various proposals from areas of the business, considering business cases to assess how appropriate those bids were, and then determining where those resources can be best used. That, again, has been a combination of things. We have invested more in audit quality, which is obviously very important to us. Some of the corporate governance that Stephen mentioned, and also in some communications resource so that we are able to get our messages out effectively and efficiently, and really get the most value, if you like, out of the audit judgments that we are making. Beyond that, the last area is around technology that Stephen mentioned. We are keen to ensure that the digital provision that we have in Audit Scotland is what all of our auditors need to be able to do their job effectively. Lastly, the one last area is to do with some short-term spending, which might involve getting in some external consultancy in particular areas where we think might benefit from that. For example, we are looking to secure some support to help us to inform our long-term office management strategy. Clearly, as we move into the new ways of working and where hybrid working becomes much more prevalent than would have been the case before, we think that we might need some specialist advice around how we can move through from the current model of office provision to what a future model might look like. A couple of areas in addition to that, but hopefully that gives you a sense of what it is that we have used those resources for. I will bring Daniel Johnson in for a supplementary at this point. Colin, the witnesses just touched on resource points. If you were going to ask a question about that, I might come in after that rather than pre-empting that question if you were going to ask about that. Oh, so that may come up in my next question. You can come in in a moment. General, just continuing on the question of those resources, £1.5 million of the funding that was approved as contingency in 2021-22 was used to recruit additional permanent positions. Now, was last year's request for management contingency effectively a request for additional staff and, therefore, additional recurring budget? I am concerned about not mixing up recurring and non-recurring continuancies. I understand the nature of the question, chair. As the commission will be familiar, we are largely a staff-led organisation in terms of how we deliver our activity. I think that, as we describe over 70 per cent of our cost basis in respect of our staffing arrangements. So, while we have recruited new colleagues to deliver our work, recognising that the budget uplift that the commission supported us with is subject to review on an annual basis as we look to deliver our work, we would also point to the fact that we have a comprehensive workforce strategy and workforce plan. We have turnover in our organisation. It allows us to adjust and allow for flexibility. If the commission felt necessary that this was a time-limited budget, we would make the necessary provision and adjustments within our workforce plan to allow for that. It would not be our preference to be clear, chair. I think that the overall challenges facing the scale of additional public spending in our view necessitates that level of investment from the commission. However, if we needed to, we would review our workforce plan and make those level of changes. However, to deliver our audit work, we needed to recruit colleagues to support that aspiration. In my mind, a contingency is more of one-off. You do not have a contingency as a recurring expense, which seems to be what most of this contingency is being utilised for. Would there not be a merit when you are asking for a contingency to say that you are not actually asking for a contingency in case something happens, in case there is an unexpected expenditure or a half-expected expenditure? You knew that there was additional staffing needed. Why did not you just apply to that in the budget? I recognise your definition, chair, of contingency. When we approached the commission for the budget last year, probably recognising the times that we were in and not knowing what would be expected of public spending and associated assurance, that we were grateful to receive the support through the contingency is how we managed it. However, in terms of delivering the assurance that is required for the additional public spending, we could have taken two routes. One, we could have got to go and recruit temporary staff to deliver that work, or else to recruit on a more permanent basis. For me, there are a couple of components, but one is that our experience of recruiting temporary staff has been mixed. Primarily, in terms of audit quality, we are typically unable to recruit for the duration and quality of colleagues that we would want to join the organisation. The other point is that, as I alluded to in our earlier discussion, I think that we would be able to de-risk that as we move forward through the turnover that inevitably we have in the organisation as people move and take their careers elsewhere. Therefore, although we have recruited this year and continue to hope for the commission's support, if that is what the commission's mind is to do for our overall budget, should we decide that our budget would have a step change back to more recognisable levels that we could accommodate through our workforce arrangements, we are happy to discuss how we would best do that if that is what you feel. That brings you to the next point. To what extent are the posts that you have recruited in 2021-22? You are looking for a further 1.5 post in 2022-23, but looking at the posts that were added in 2021-22, how many of them related to the global health emergency, if a substantial amount did, as opposed to the additional work and responsibilities that you were taking on anyway? Can we expect the number of permanent posts to reduce in time as Covid-19 reduces and we see a recovery? I will ask Martin just to say a wee bit more about the specifics of the recruitment. We talked about how we had recruited on a phase basis to support our capacity. The second phase was for specialist skills to, as in any organisation, require a base level of specialist skills to ensure that the functioning of the organisation is new. Clearly, there is a ratio between those two numbers. If I can digress for a second, there is a consistency. For the type of work that we do, we set ourselves high standards. The commission public expects us to be a well-functioning organisation that our control environment can re-communicate. Our governance and regimes are all operating effectively. We also need to invest in our digital skills. In terms of the core of the recruitment that we have done, the audit work needed to deliver assurance on the vast sums of additional public spending. That was reflected in the first phase. What we have not done is attributed to all those 24 colleagues that Martin referred to to say that that percentage relates to the global health emergency and a certain other percentage relates to previously agreed and committed investment through the programme that we referred to as the new financial powers investment programme relating to the devolution of responsibilities to the Scottish Parliament and the creation of new bodies and so forth. However, it would be clearly the case that the majority of our recruitment of auditors over the course of 2021-22 has been in respect of the Covid-19 pandemic and the public audit response to that. In simple terms, we would expect a number of permanent posts to reduce over time. I am cautious about making that direct correlation chair, if I am being honest. In that case, if all other things are being equal, you could confidently predict that. What we are identifying as we touch on in our budget proposal is that the auditing of public bodies' auditing profession is changing. We have to invest in digital skills. We will have a response to climate emergency. We are also seeing very significant new quality and compliance expectations upon audit organisations, all of which would have been part of our discussions with the commission had they not been for a pandemic. I think that we are effectively saying, chair, in simple terms that I do not think that the relationship is entirely linear, but if the pandemic disappeared overnight, which of course we all hope it would, is that we would immediately revert back to our staffing cohort that existed pre-pandemic. I think that we still want to continue discussions with the commission that Public Audit in Scotland was suitably resourced with the skills and capacity that needed to respond to all the challenges that we are facing. The additional resources that you want in the 2022-23 budget are 1.5 posts. Are these also for Covid-19 or are they for the actual audit itself, audit priorities? Those posts do not relate to Covid-19. They are in respect of previously agreed and discussed proposals around the public audit response to new financial powers and the devolution of responsibilities to the Parliament and our audit work. There is a continuation of that investment as distinct from the Covid-19 public audit response. You are very clear on the 1.5. Surely you can separate out numbers that are put in place on to the Covid-19 issue as opposed to audit issues from the previous year. We are happy to have a further look at that, chair, and perhaps come back to the committee on writing. What we do not typically look to do is to say for the people that we recruited last year that they would work on Covid-19 and the others would work on new financial powers. It is safe to say in my mind that the majority, if not all, of the colleagues that we recruited would have been working on the public audit response to the pandemic, but we would not ring fence a group of colleagues artificially perhaps in how we would manage their inputs. What we are saying for those 1.5 posts this year is that there is a continuation of those new powers that Scotland has been provided with through devolution and audit response to that. Really, the continuation of that conversation that Audit Scotland has had with the commission over a long time. Can I bring Daniel Johnson back in at that point? Thank you for the way that you have brought me in. I did not want to pre-empt your questions there because my follow-ups followed directly on from them. Stephen, you have quite rightly in the public domain said that it is vitally important that the Scottish Government acts with transparency when it comes to Covid-19 money and how that is spent, both in terms of how planned expenditure and actually how it is delivered in the submission here. You talk about following the public panned. I am just wondering, following on from the answers there whether you are doing that. I accept that it might not be about having designated people as being the people that are doing the Covid-19 work, but there surely must be activities that you are undertaking because of Covid-19. While it might not be discrete individuals or resource that are allocated to Covid-19 activities, you must be able to identify the percentage of work in each audit that you are undertaking or other work that you are undertaking that is due to the pandemic. Is that the case? How is that identified? Are you tracking it? Is there a need for you to look at what activities you are undertaking because of Covid-19 so that you can manage and track that? I am very happy to say a word or two about your points that you are making. Stuart Dennis might want to come in to give the commission a bit more detail about some of our tracking and monitoring arrangements. You are quite right that I have not been slow in encouraging public bodies to be open and transparent in their spending of public money. The same absolutely applies to how Audit Scotland affairs that we are clear with the commission, Parliament and users of public services that we are held to the same standard that we pass comment on other organisations. The Covid-19 activities are dispersed across all aspects of our work. That is fairly unavoidable. Over the course of the past 20 months, we have done the two things. One is that we have changed our performance audit best value programme. We have produced a number of new reports on how Covid money has been spent within a series of trackers in terms of publications. We also have a dedicated website of an e-hub related to Covid activity. We will continue to do that through all aspects of our work. We have got overview reports on the NHS in Scotland and local government that will be published early in the new year. In terms of our tracking of the money that auditors how well that has been spent, we have got a further significant report due in May of next year. We are really taking stock of how all the public money has been spent. That is informed by the annual audit work. As we look to touch in our budget submission, annual audits are still taking longer. That is almost entirely due to the pandemic. Fast sums of money have reached local authorities that have to be audited. They have also gone to enterprise agencies and other public bodies. All of that work is Covid related as well. The audits are still taking longer. Mr Johnson is another feature of the pandemic, too. That requires more input and more judgment about the public money that is being spent as well. All of that is a reflection indication to the commission that the impact of the pandemic is touching all aspects of our work, but it matters that we are tracking and monitoring and recording how we do that. I suggest that Stuart Dennis might want to come in, but I am conscious perhaps that Professor Alexander might also want to say a word about how we are reporting and assuring our own boards about how that money has been spent. I am happy to share your discretion to perhaps go to Professor Alexander for the first time in the register of S. Please do. Are we okay? Should I come back in with a question? Andy, are you online now? I am now, yes. Would you like to come in as the other general suggested? If you could say it again, I had a way from keyboard moment, so I didn't hear that. I tell you what, what I might do is I want to come back on something that Stephen had said anyway and maybe he can repeat his question and the answer to that. Just in terms of the delay to the audit work, can I just ask what the broad balances between I think we can understand that there is complexity because you are having to do audit work remotely and social distancing and so on. So there is a sort of a productivity issue there, just inherent because of Covid restrictions. But what is the split between that and the fact that the nature of the activities being undertaken by public body and the way that they are being funded because of extraordinary Covid funding is making your audit work more complicated? It is more difficult to follow the audit trail because of the nature of the—is there a sense of that split? Indeed, is there something else that I have missed in terms of my assessment of why audit may be taking longer? All of those things are relevant, Mr Johnson. There is remote auditing, so as the commissioner will have heard me say already that we became a virtual organisation almost overnight in March of last year. We have periodically made access to our offices available as the pandemic restrictions allowed. We had done that a little bit over the course of the autumn and now have reverted back to being entirely virtual again over the course of the past few weeks. So remote auditing has been a factor. It is also relevant to point out that when lockdowns have been at their most significant and that schools were closed in particular, that has caused a real disruption, as colleagues had assumed caring responsibilities. I would also say that the same applies to public bodies colleagues, as well, as they similarly would be able to be less productive if they also had caring responsibilities. All those things are factors, not just for audit, but for any workplace. We touched on the quality of the accounts that we have received for audit. We would say, and certainly from the feedback that we have had directly from our auditors this year, that we are making the most significant amount of audit recommendations and adjustments that many of us have done at any stage. Some of that will be as a consequence of the additional sums that have been received and the money that is flown through the system at real pace by the necessity that we would recognise. That is also causing delay, but it is not a universal picture. The point that I would stress to the commission is that some public bodies have been able to prepare their accounts and the audit has been delivered on the original timescale pre-pandemic, but for others they are taking considerably longer. By way of illustration, all of the central government audits are expected to be laid in Parliament by the end of December. For the first time, there will be two central government bodies that will not meet their lane deadline of the end of this month. We also have a number of local authority audits that are still continuing. We have often used the phrase unprecedented in recent months, but none of us can recall yet that any of audits is still going on beyond the calendar year that the audit started. All those factors have been factors as to why the audits are taking longer. We anticipate that there will be a recovery of some of the timescales next year, but probably more realistically it will be for the start of the next audit appointment round that we will work to recover the timescales of earlier financial reporting in conjunction with public bodies. Daniel, do you want to continue your questioning? I think that I may leave it there. I have one question that I may come in on in terms of what was alluded to in terms of the investments, but that may get covered off by a colleague, so I will leave it there for now. Thanks to you, everybody. I think that Auditor General answered my first question there, which was what is your latest estimate of when you will catch up with the audit work delayed because of the disruption from the pandemic? I think that I would have been perhaps more confident in my answer to the deputy chair if he asked me this two or three weeks ago. Having now, as we have all seen with further restrictions, we are less confident in what I would say. Our plan had been that 2022 would have been a year of progress, if not recovery of timescales 2023. We would dissipate reverting to what we would have recognised as the traditional deadlines for the completion of the audit. Perhaps for the commission's information, we are not alone in those circumstances. We go from previous conversations that we engage regularly with the other UK audit agencies, and that they are also experiencing delays and complexity in the audit. It is a factor of the people, the quality of the accounts that we receive for audit and the need for audit quality in the assurance that the work that we will give to the public and to our respective parliaments. All of that needs to be done properly, but we have a plan that will make changes to that, given the circumstances that we are facing. However, I fear that it will take a little bit longer now to recover entirely to the timescales that we have been in. In the report, it is well explained that you can only charge for work that has been undertaken, catching up also in fares. There may be an element of additional fee income from work undertaken in 2022-23, but that relates to audits from previous years. To what extent does the budget proposal include fees or fee income arising from audits related to previous years, as well as fee income from work undertaken in 2022-23? I am happy to start on that. I suspect Stuart Dennis. I want to say a word or two about some of the flow of funds in respect of previous years. If I may, fee income represents a significant component of Audit Scotland's budget. About two thirds of our income comes from fees that we charge where we are able to for the annual audit work. We have a significant group of audits that are non-chargeable, and audit fee is covered by the commission's budget approval. The budget proposal that we are anticipating broadly is about a 2 per cent fee setting across the various different sectors that we have analysed some of the ranges that are entirely consistent from one body to another. There is a bit of flexibility to charge additional fees where we need to as part of our audit arrangements. We really reflect that, if there are circumstances where we have not received a high-quality set of unaudited accounts, high-quality working papers, the support to the audit of officials has been able to answer audit queries with the usual deadlines and so forth. If that has not been the case, we say in all of our documentation that we reserve the right to charge additional fees. However, I will pause and see if Stewart can supplement that with just any further detail or comment that he wishes. I have a couple of points to raise. Some of it might have been raised on the last question as well. 2021 has been the first effectively first audit year that we have done completely remotely. 2020 was a partial year. This year, we will get a clear picture of exactly how long remote audit takes from start to finish. 2020 was a year where we had started audits on the old way of working, and then we had to finish off due to the pandemic remotely. In respect of comparison of days and the amount of resources that it has taken, we will have a clearer picture on completion of the 2021 audit. As Stephen said, we need to be a bit prudent in respect of the fees. We will expect some element of catch-up but not to levels that we previously had, as Stephen alluded to. We are not in a position where we think that we are going back to how we used to operate and be at that position for the next financial year. The budget assumes a small element of catch-up but not to the extent of where we were previously. As he said, the last couple of weeks are evidence of that with what is happening with the LACE's ferry. You cannot accurately predict anything at all in that sense, so you have to be very careful in respect of financial management. I hope that that answers your question. That is great. In paragraph 65, Audit Scotland advises that it expects its head count will increase further as we continue to identify key areas that require further investment. How many additional posts are expected in addition to its head count of 330? Half the cost of the additional posts has been included in the budget projections for 2023-24 and 2024-25 on table 1 and page 10 of the budget proposal. I invite Martin to come in to say a bit more depth to chair about how we have constructed the proposal in the second and our expectations for future years. The certainty that we are able to offer probably is not as much as we would hope if we were being... I think that what we have looked to do is to identify the components that we, in future years, set aside the specifics of the detailed proposal for this year, is that the environment that we are operating in is really volatile with the case of the option of technology application of our digital auditing strategy and the investment that we have made in audit quality in particular so that we can assure the commission, the Audit Scotland assures myself, the Auditor General and the Accounts Commission, of the quality of our work. We captured that in our submission this year, but our plans, as I mentioned earlier in terms of our workforce plan, we keep that under regular review so that we are reflecting our financial spending colleagues that we put and employed to deliver that are all in tandem. I will pause for a moment if Martin is able to say a little bit more about where that might lead us in subsequent years of our budget so much. Thank you, Auditor General. You are absolutely right that the accuracy with which we can predict our workforce projections over the course of the next couple of years is quite difficult. In previous years, there was much more predictability and we could anticipate and plan for changes in a much more accurate way probably. What we have in the budget submission here today is in the current situation, and with the uncertainties being as they are, this is our best estimate of what the workforce will look like over the years to come. We are at a stage at the moment where some of the things that we are currently investing in like digital auditing and looking at what new ways of working look like in practice were almost in a transition stage. While we would want to get efficiencies from those processes, at the moment it is quite difficult necessarily to be able to pin those down. We might like to see a curve if you like that goes up and then starts to drop as those new ways of working really come into effect, but as we sit here at the moment it is really quite difficult to predict with as much accuracy as we would like. It is absolutely the case however that, as the Auditor General says, we keep this stuff under regular review. We recast the workforce projections on an annual basis as a minimum and, as we demonstrated in this year, we have also sought to be as flexible as we can in being able to respond to the challenges that we are facing at the moment while at the same time ensuring that we keep very close tabs on what is happening there. There was a question earlier on in terms of how it is that the board keeps itself assured of how all this is playing out and, if it is helpful, I could say a little bit about that. The board and the Audit Committee get quarterly update reports in terms of our performance, in terms of our financial performance and also in terms of risk. That is a well-established pattern of reporting that we sustained during the course of the pandemic because we were very clear that there are certain good matters of governance that need to continue, even in quite challenging circumstances. That is what we did. Over and above that, thinking about the impact of Covid, we produce an update report for every meeting of the board that assesses the impact that the pandemic is having on the audit process and audit delivery and also the organisational impacts of Covid in terms of how it is impacting our people and how we are responding to all of that. As I said, the board gets an update report on that at each and every one of its meetings and they are all published on our website. From that, I think that, hopefully, you will take assurance that we have monitored things carefully and that we are very keen to ensure that the board, as all the information, needs to assure itself that we are responding in an appropriate way. That is fine. I will touch on my last one. You mentioned earlier, Auditor General, about the staff costs, which are about 70 per cent of your expenditure. There are a lot of increased costs in the fees that are paid to the professional services firms that perform audit work on Audit Scotland's behalf. They are likely to have significant increases in their subject to significant uncertainties. The last question is, to what extent has Audit Scotland's budget for 2022-23 recognised the budgetary impact of increased inflation, given the potential for higher than anticipated staff costs increases and significantly increased fees that are payable to professional services firms? From your last answer, I take it that that has all been taken into account when you have done the budget. I will invite Professor Alexander to come in a wee second. He will want to say a little bit more about that, through his sharing of our board and his work in sharing the procurement arrangements, the new audit appointment steering group and more about where we are at. However, there is uncertainty. I think that it is the point that we made, Deputy Chair, about what our costs might be after we have completed the procurement for audit services, reflecting the next market of approach that we have for undertaking the external audit of public bodies in Scotland. Broadly speaking, Audit Scotland staff conducts about two-thirds of the audit work, and a third or so is undertaken by firms appointed by myself and the Accounts Commission. We are right in the midst of that tender arrangement at the moment, so we do not yet know quite what the detail of the firms' bids will be. We are broadening that out. What we have seen is a direction of travel across external audit, both in the public and private sector, that fees are increasing because of increasing finance arrangements, increasing complexity, demands and expectations. What we have set out in the budget proposal is a plan that we will continue to engage with the commission, but the impact of that will be known quite clearly. More in time for the next time we have the budget submission for our 23-24 budget, we will see the costs coming through. Of course, we will continue to update you. Just very briefly, before I hand to Professor Alexander, it is that, in terms of our own costs for Audit Scotland employees, that references the fee increase that we would pay the firms under the existing arrangements. We have made some assumptions about pay awards in our budget submission. We have referenced what we know of other parts of the public sector and the pay awards that they might make that are formed up to a point by the Scottish Government's pay policy. We are also more widely about the need for us to invest in the recruit and to retain high-quality, high-skilled people, so that our market is different and we have to reflect all those parts so that we can continue to deliver all the audit work that is required. I will pause there, Deputy Chair, and just invite Professor Alexander if he wishes to say any more. Thanks very much indeed, Stephen. Two main points about the oversight that the board gives for the entire budget process and indeed for the entire decision-making process in Audit Scotland. Stephen referred a few months ago to the procurement round that is just coming to its conclusion. We hope to appoint new auditors in the first quarter of next year to take effect from the beginning of the next financial year. Back in 2019 February, the board, before I became chair, asked me to chair a steering group to do two important things. One was to revise the code of audit practice, which underpins the entire audit process. The other was to organise the procurement of auditors from private firms who do about a third of the audit work for which we are responsible. That process has been detailed oversight and detailed participation by the members of the board with a report to each meeting of the board of where we have got to. In addition to that, I have instituted a practice of having board seminars where we look in some detail in a way that is unbound by the pressures of a complex agenda, but which underpins the way in which we give oversight to things such as the budget submission. We had a seminar on risk towards the end of the summer, a seminar on the development of the budget process and the assumptions underlying it. We will have other seminars in the coming year. I emphasised that to the commission just to make the point that I and my independent members of the board do not come to the board and then forget about everything else that is happening. We are continuing oversight, and we come with a deep understanding. How can I put this, a positively critical eye on the proposals that come to us? I will ask people to be really tight with their questions because we are running a bit over time. I would like to quickly go back to the point that Martin was making about the future operating model and the offices. You have the three offices, Edinburgh, Glasgow and Inverness. You are undertaking a property review at the moment. Can you say a little bit more about what the emerging conclusions are for that? Are you going to need those three properties in the long term? Are the changes that you have made as a result of Covid going to stick in terms of the need for less office accommodation? Can you give us a very quick flavour of where you think that that is going in terms of your need for these bases going forward? I am happy to start. You mentioned that and I want to say a word or two as well. We will be doing the property review and we have started our thinking on that. We have touched on with the commission previously that we are tied into leases currently for the three sites that we have, all of which end in successive years from 2025, if I recall, onwards. We have consulted with our colleagues regularly over the course of the pandemic through pulse surveys periodically to test their views about ways of working and so forth. We are continuing to do that. By all the expectations that we will likely move to, not exclusively the virtual model that we are in as we speak, but more like the hybrid set of arrangements, there is more flexibility for how people undertake their work, that we are providing the right service and expectation to the public bodies that we audit, mindful of our net zero aspirations too. All of that speaks to the likelihood that we will still have an office estate of some description in how we deliver our work, but probably not in the guys entirely that we currently do. Unfortunately, as we go through that process, we are still incurring costs and we are still paying rent for the three sites that we have. It is worth for the commission's insight to hear that we have just about completed our rent negotiations on our Edinburgh office too. Contrary to expectations about the demand for commercial property in Edinburgh, after a long period of negotiations, our rent will be increasing slightly for that site for the duration of our lease in accordance with that contract. In totality, it will look and feel different in the future, but likely as we just rebuild up to that point until we have the break points in the respect of leases for those three offices. Okay, thanks. I do not know if Martin has got any very brief comments to add to that. I think that with this kind of thing, timing is everything. As we know, there are still some significant uncertainties and, in some respects, there is competing pressures as well. As Stephen said, we have done a number of surveys with colleagues and it is very clear that hybrid working is very much the future preference for the vast majority of our colleagues, and that makes perfect sense in many respects. That would typically take you in the direction of assuming, therefore, that we would need a reduced office footprint, and we would need less space. I am sure that that will be a factor. It is also the case that, as things develop and as we still need to manage through the pandemic, there is a competing pressure, which is any restrictions around social distancing, and we have always sought to achieve really good social distancing standards there. That, as an opposite effect, suggests that, well, the footprint might not actually reduce as much as you might originally think if there is to be some form of social distancing maintained into the longer term. Clearly, there is a big uncertainty about that at the moment. I think that what we are keen to do is look at all options, and this is where the green agenda is very important here as well, in that we need to consider whether having the three larger offices is the right model in the long term and whether there may be other odd models that we need to consider, which are smaller satellite offices, which provide more ready access to people across the country. We have people spread right across the country, and, pre-pandemic, people would travel into those offices. We need to think carefully about whether or not that is a sensible model of going forward. We know from the survey and the feedback that we got from colleagues that one of the things that people have really liked out of the pandemic—and there are not many of those things, it has to be said—but one of the things that has been a real learning point and a real thing that people have benefited from is the absence of commuting and spending that all of that time each day travelling to a work location. That is absolutely one of the things that we want to hold on to. We do not want to revert and snap back to type before, because there are some good things that have come out of all this, and we need to use that to inform our thinking for the future. We need to look at a broad range of options for this. As I say, the timing will be really quite important. We have the breakpoints and the leases, and, hopefully, by those points, we will be in a much clearer position in terms of what we expect our office estate footprint will need to be and, importantly, what our colleagues are expecting and needing from office space. I think that it is true to say that office space or what gets done in offices in the future will not necessarily be the same as how it used to be in the past. Apologies, I have possibly a bit too much information there, but it has given you a bit of a flavour of our thinking at the moment. No, that is fine. It sounds like exciting opportunities for staff and potential cost reductions as well, so I am happy to be in. Can I just ask you then about something very specific in the budget? That is the £660,000 for governance. Can you just very briefly just explain what sits under that figure? I was just going to invite Martin to talk you through that, as it sits under his area of responsibility. That covers a broad range of areas. As you would imagine for an organisation that sets high expectations in terms of good governance, that is absolutely something that we apply to ourselves as well. There is a range of areas that come under that. It is about supporting the board and all of the business of the board and its committees and so on, and the various support services that are involved in supporting that process. It includes things like our performance management arrangements, our risk management arrangements and all of the work that goes into that to ensure that we are operating as effectively as we can be and that we are meeting the aspirations that we expect of others. Do you see any way to reduce that figure going forward? I think that we are always looking to deliver efficiencies where we can. As we do in all areas of the audit work and the whole running of the organisation, all those things we keep under careful and close review. Again, we may find that, as we make more and greater use of technology, there are some opportunities for efficiencies that we get from that. Even as members will be very aware of just the issue of holding meetings and all the expense that can go with that, it has been very different under the pandemic situation. It may be that we need to continue to look at how we can retain some of the things that have worked and have perhaps been more efficient through the course of the pandemic as we develop the new ways of working in the future. We absolutely keep all that stuff under review all of the time. Just one last detailed question. We have noticed in the report that the payment per hour for the audit support officers has gone from £41 an hour down to £38 an hour. Can you explain what is going on there? The short answer is no. I would not want to try and bluff an answer for you there. It may be something that Stuart can help with or, if not, it is something that we can provide some information on in the back of this meeting, if that is helpful. That would be good. Mark Ruskell, can you now bring Richard Leonard in, please? Thank you, chair. Good afternoon, Auditor General. I have just got one very quick question. Under other administrative costs, paragraph 68 of the budget proposals, we are told that there is an increase of £220,000 in respect, I quote, of the biennial national broad initiative. I wonder whether Stephenie could explain how that is calculated. Is it an increase of £220,000 for additional staff recruitment, for additional services to be brought in? Can you also just explain for our benefit if we look at page 19 of the budget appendix 2? There is a table there with various budget lines. I wonder whether he could explain to us under which budget line that expends it. Thanks, Mr Leonard. Taking your questions in reverse, appendix 2, the national fraud initiative, is identified under the audit quality analysis line. If that has under £829,000, the additional £220,000 that we are requesting for the budget is part of that analysis. Stuart, I am sure that we will want to say a little bit more about how we spend the £220,000. You rightly said that this is a spend that almost yoos in and out of our budget request to the commission by reflecting the biennial nature of the activity. We do not go and recruit new people to come and work on the national fraud initiative, then they leave us and then we rehire, but there are costs associated with the running of the activity and very direct costs associated with the engagement that we have in using the activities and arrangements for the Cabinet Office to oversee the overall national fraud initiative. It is a fairly consistent model of spend pattern in our budget that appears, disappears and then comes back. If you are happy, Mr Leonard, you can talk the commission through about some of the analysis of how that £220 is made up. That would be helpful. Thank you, Stephen. The £220 is our contribution to the Cabinet Office for all the datasets of the public bodies in Scotland that provide information as part of the database and the NFI matching exercise. We pay for the whole of the public sector in Scotland, and that was the agreed arrangement. That is what we do for that. As the Auditor General said, that is every two years. The last one that we did was in 2020. There will be due a report on the NFI matches probably next year at some point as the matches are identified and what findings there have been. The last report that we did was in July 2020, based on the 1819, and that identified £15 million of fraud anera in the public sector in Scotland. Since the implementation of NFI at 0607 in that report, we have identified £143 million as part of the exercise. That is likely to increase once the data match for the 2020 exercise is done. What will happen in 2022 is that the payment as the datasets are sent into the Cabinet Office to co-ordinate that answers the question. That is helpful. Any money recovered as a result of the national fraud initiative presumably goes back to those bodies who have been defraud. It does not come back to Audit Scotland, does it? No, it goes back to the bodies that are identified and the bodies will try and get the money back that has been identified as the errors. I guess that my point is that you have to pay a fee to get the datasets, but in so doing, when you track fraud, you do not get any recovery of that term of that fee that you have to put in. That was the agreed method that we decided in Scotland to do a number of years ago, so that was the preferred method that would be easier to be co-ordinated in one location, and Audit Scotland was the appropriate body to do that, instead of having lots of independent payments and invoes. That seemed to be the most efficient and effective method to undertake NFI. Thanks, chair. Back to you. Thank you, Richard. I am conscious of the time. I have another couple of questions myself. What I propose to do is to send these through the clerks to Audit Scotland and will circulate the responses when received. Do any other members have any other points that they would like to bring out at this time? Stephen, I see that you have an R in the box there. Did you have something that you would like to say? I was just going to say a word or two about NFI to Mr Lerner's point about the benefits. In financial terms, they do not accrue back to Audit Scotland. I think that we are generally content with those arrangements that the public body's participation and their full engagement really matter, so we report on that, as Stuart mentioned, on the biannual reporting of it. However, they also accrue the financial benefits and the deterrent impact on NFI. Disrupting that relationship, I guess we might have been at the risk of unintended consequences, but it might not be at all that would have been wanted for changing the C arrangement for NFI. No other members have indicated that they would like to carry on with any questions. I would say that that concludes our evidence session, and I will thank all our witnesses for their evidence. Of course, that also concludes the public part of today's meeting. Members might like a couple of minutes' comfort break as we resume private session so that the evidence is heard. Thank you very much.