 Ffn amlinellent i gwaith i ddiwylliant i gyfaint mewn RPC peiriau am ddiwethaf 2015. Rwy'n gweithio i ddweud mewn cymdeithasol eich coi oeddwyd yn teimlo i ddylch o wlad gynwys iawn. Foddwn ni'n fоко ni'n ddiwylliant i gweithio i gweithio i gweithio i gweithio i gweithio i gweithio i gwymaddol Cymru, mae'n dechrau i gweithio i gweithio i gweithio i gweithio i gweithio i gweithio i gweithio i gweithio dechrau ynghyltr時 mkeinepping. In that case, our next item on the agenda today, is to consider Audit Scotland annual report in the council of 2014-15. I welcome to this meetingandal". Arthur Jiguartner, Audit General for Scotland. John Macleann, chaired by juga policy of Audit Scotland. Russell Frith, Assistant Audit General. Andrew McFargriff, chief operating officer.比較 hynny tel很好 ddefnyddianneddg seulf i hopsutaol. Y Llywyddyn, ddwy'n gwych i ddweud i ddweudio'r ddweud o'r ddweud. I hope you've enjoyed and found interesting reading in our annual report and accounts which describe audit Scotland's work and the financial outcomes over the past year. As you know, our job is to help ensure that public money is spent properly and effectively on the wide range of public services that are provided in Scotland. Felly mae'r hoffi i'r hoffa dynnu 184 cyflwyteid Using Cyfrwyr i'r hoffa cyfrwyr ar y gwaith o gyfleidio mewn cyfrwyr i'r eich cyfrwyth o wneud i'w cyflwythio i'r hoffa diwyffin hwn. Gwel 때chio nef Nike'r bobl sy'n gyrsbydd i'u cyfrwyr, a rhaid diwyffin ymateb o ddweud, gyfrwyr newydd o'r hoffa cyfrwyr. missing of the Scottish public audit model, nonetheless we always need to be agile in responding to changing needs and conditions, for example in areas such as new, developed powers, the integration of health and social work, restructured police and fire services and more intensive audits for the European agricultural funds. Currently and for the foreseeable future, I am hy olduğ ei hyn sydd ar Hoffwyddetaeth gychwyn Liaethau F 재밌au ac yn dd prize gad exatamente o widydd hynny o addищf 때는 wir unent gearbox sheffiert gunennu dyfanc iawn i gyda cy persons law Feel fffrydd wedi wainי Gwellaeth Cymrunon is the continuous requirement for minute Scotland itself. I took over his board chair last October exceeding Ronnie Clelland who made an immense contribution over five years and led the organization through periods of substantial your report itself. It has been my pleasure to work with them over the past six years. Thank you. Finally we have straight questions. One thing which really stands out in the report. Over the last few years we have talked about performance measurement and efficiency, and so forth. I am not seeing that in the annual reporter on anything that has come forward. How are you measuring your performance? Yn gyfer y bai modd, Caroline oedd yn gweithio uchelig ei wneud hyn yn gweld oed. Dwy'n gweithio wrtha'n mynd i gael? Mae gennych â'r gweithio ni'n gweld i gweithio o'i gallu gweithio. Mae sy'n deglasio fyddion ar hyn maen nhw, ac mae hyn yn cyfodol ar rhaid, ac mae hyn yn gallu gweld i'r ddeiwch. Mae'n gweithio'n bydd ymwneud lleiwyr wedi'u ddod o'i ni. Mae Gweithio'n Gweithio'n Gweithio'n Gweithio'n Gweithio a Llywodraeth. Felly those have included some high-level performance measures here in our annual report as we normally do and I hope that together with the pattern of efficiency savings that we've achieved over the past four years, they give you that high-level picture that we've maintained and in many cases improved our performance while reducing the cost of order over 20 years. As you would expect underpinning that, we have a much more detailed system of performance management within the organisation that focusses on performance measures that are monitored ond y cyfnodd, hanfodd, ac yn ddechrau'r barod, a'i bwysig o'r fawr o'r cyfnodd, o'r cyfnodd, o'r ffordd, o'r fawr o'r cyfnodd, o'r gallu'r ddweud o'r cyfnodd, o'r cyfnodd, o'r pwysig o'r fawr o'r cyfnodd. Dyna ddianne Mcgiffin wedi bod yn fawr o'r bwysig o'r gyfan, oherwydd mae'n gweithio'r cerdd i'n fwy oes ar y cyfnodd. I think it would be useful, because the commission has raised this on a number of occasions and it has obviously been a concern for members. The annual report reports on the final year of a 4 year plan to reduce the cost of audits, over four years, by 20 per cent. We are pleased to report that we achieved that, that was largely achieved by reducing the numbers of staff that we have employed. We have done quite a bit of restructuring over the past five years. We also retendered for the work that we contract out to private audit firms to deliver. We have passed those savings on to audited bodies in the form of reduced charges for audits. Over the four-year period, you would be able to see a real fall in the cost of audit and a real fall in the numbers of staff that we have. I think that the performance measurements that you are talking about here relate to purely financial, but there are obviously broader measures and I wondered how you capture these. We capture them in a number of ways. We have efficiency performance measures within the business that get reported to the board on a quarterly basis. Those will look at the average cost that we are running for delivering projects, the time taken to deliver projects, the ways in which we are using colleagues and the available resources that we have. They will look at the activity during the period and the outputs delivered during the period. That is an on-going reporting to our board on those things. Our financial performance is examined every quarter by the Audit Committee of the Board. The board then considers in detail the business performance and the wider issues. That covers a whole spectrum of things, including the ways in which we are restructuring our vacancy levels, turnover levels, making sure that we are resourced to do the work that we need to do, but that we are doing that in as efficiently a way as possible. There is a report that we produce alongside the annual report that covers the impact that we make, the wider impact that the work has, and you will see in that report examples of the ways in which the work of our audit teams has helped to improve public services. We have internal performance and efficiency measures, and we also try to capture, in quite a rich picture, the impact that our audit work has through our engagement with audited bodies. I think that it would be of interest to the commission to see some of these performance measurements that you are extracting, given the interest that has been expressed in the past. I am very happy to share those with the committee, and I am very happy to discuss them in any forum with you. In page 10 of the annual report, it states that the auditors completed 98 per cent of the audits of health central government for their education and local authorities on time. It is clear that that is the majority of the work, but it means that four of the 184 bodies were not completed to timetable. Can you advise why they were not completed to timetable, and was there any common reason across the four why that happened, or was it just individual issues? I will ask Russell to pick that up, as the person within Audit Scotland who oversees the quality and the time limits of the audit reporting. In this instance, they were individual issues and, largely, they were ones where the accounts were presented either late for audit in the first place or required significant further work, which took the agreement of the adjustments required beyond the deadline for completing the audit or the target for completing the audit. The information that was provided to you was not adequate in those four cases? In which cases were they? Certainly, the first year of the Scottish Police Authority was one of them, and the Orkney health board was another one. In the case of the health board, if I remember rightly, the accounts were finally signed off only a few days after the target date of the end of June last year. What was the problem with the accounts? Capital accounting. The re-evaluations had not been put through correctly and it needed an extensive amount of administrative work by the board to get all the figures correct. It seems pretty basic. Do they have an account? I think that you and Mr Martin might recall that I brought section 22 reports on both the SPA and Orkney health board to the committee last year, reflecting problems that included the difficulties that they had in preparing their accounts to the agreed timetable, as well as some other financial management and internal controls issues. Who were the other two? I was going to chip in to say that one is Coatbridge College, where there is a section 22 report waiting to be laid at the moment. I am not sure if I know what the fourth one is at the moment, but we can certainly come back to you with that information. Definitely, there wasn't any common reason across. It was individual issues with these individual bodies. That's right. It's probably worth letting the commission know that over a long period of time it's been a real focus of both the Accounts Commission and myself and my predecessor as Auditor General to really improve the timeliness of financial reporting and audit reporting. In the past, there was quite a strong pattern of accounts being completed late, the audits being completed late, and obviously the more that's the case, the less useful the information is both to the body itself, but importantly to the Parliament and others with an interest. It is generally a very small number, and it almost always reflects problems in the particular body rather than a wider pattern of problems either with the accounting or with the auditing of them. I referred the panel to page 13 of the annual report, and particularly what it refers to, it notes that the work on the police reform in Scotland has found that urgent work is required in the financial strategy for achieving 1.1 billion of savings expected from restructuring. Given that Police Scotland have now moved to the one structure rather than the eight previous structures that we've seen previously, I wonder if the Auditor General could advise us what expected savings have we made in respect to the audit fee? We referred to the Scottish Police Authority in response to the convener's question a moment ago, and I think it's fair to say that for the SPA, we haven't seen the reduction in the audit fees yet, but we expected to see it the time reform was underway because of the slow progress that the authority itself is making in financial management and in bringing together its financial systems. When I reported to the PAC last autumn through a section 22 report, they were still at that stage operating eight separate financial systems, and my report drew attention to problems with their internal controls and governance. All that means that the audit fee is larger than it otherwise would be. We had expected, and Russell will keep me right on this, that the audit fee for the new single force would probably be around half of the total audit fee for the predecessor authorities. We still have that aspiration, but it does depend on the authority being able to make the efficiency savings itself in bringing its systems together and getting good systems of governance and control in place, which we haven't yet seen. What kind of timescale do you think would be attached to that in terms of where you would want to be in that position? Very hard to say at this stage. I had a briefing from the auditor of the authority quite recently about the progress of this year's audit, and there are still some issues that may result in a report to the committee in due course later this year, but for as long as that continues, the audit fee will need to be larger to reflect it. Very happy to keep the committee up to date through our budget submission later this year, but I'm very clear that it wouldn't be proper to reduce the audit fee until that is justified by improvements in the governance and financial management within the authority. Can I move on to page 26 of the report? It says that Scotland notes that the Scottish Public Services Ombudsman has upheld one complaint against us. I just wonder if we could have some further information on that complaint. Absolutely. We're obviously disappointed to have found ourselves in that position. Diane can tell you more about the complaint itself. Thank you. The Scottish Public Services Ombudsman upheld a complaint from a member of the public on the way that we, as Audit Scotland, had handled the complainant's request for us to investigate another public body. The Public Services Ombudsman upheld the complaint after originally not upholding it, so had revisited the complaint. We've taken on board the findings of the SPSU. He has reported them in public and we've recorded them in our annual report. We've apologised to the person concerned. We didn't do well enough in that case, and we've used it as an opportunity to improve our handling of correspondence and concerns. Are you able to be specific about the actual complaint? Also, when you say that you've learned lessons from it, what exactly those processes are? The lessons are about the allocation of resources to complex complaints. I think we, in this particular case, didn't do well enough in keeping the complainant informed about the progress of the complaint and our handling of it. That was because, I think, from the perspective of colleagues handling the complaint, there wasn't much to add, but that's not really good enough in terms of keeping communication flowing. We've learned lessons about how we internally keep different teams informed about the process of handling complaints. A lot of process handling issues that this case has helped us to follow from beginning to end where we could do better. I think that our handling of correspondence and complaints, which we flag in the report, is an area over the past year where we've sought to improve overall. The finding by the SPSO was a disappointment to us and one that we've apologised for and sought to learn from, but we didn't do well enough. On page 27 of the annual report, it notes in the final paragraph that most internal audits in 2014-15 achieved substantial assurance, the highest standard available from our internal auditor's TIA. A follow-up report showed that we were making excellent progress in applying previous recommendations. Can you confirm which internal audits did not achieve substantial assurance and the advisence of the level of assurance that was given by internal auditors? Only one report didn't achieve substantial assurance and it was a review into our readiness to seek accreditation for information security standard. The audit was planned as part of a stage process as we implemented and worked towards the standard. The audit was planned as an opportunity to stocktake how we were doing and the audit provided limited assurance about our readiness to seek accreditation. There was a lot of discussion about the audit and about the findings and how we would use them. A key issue for us there is that a big aspect of the accreditation that we're seeking is specific to the properties in which you are located. As we're relocating, there's a need for us to rework all of our documentation to reflect the relocation in autumn this year. We're using the report as plans to inform improvements that we need to make and we'll be seeking to go for accreditation by the end of March 2015. It's an audit looking at our readiness for something and we plan the audit to help us to focus our attention on the areas that we need to improve. Just for the interests of members, what does TIAA stand for? Do you know? I really don't know. It changed in the course of the year. I think it means something to the team. I don't know if it's an acronym or not. It's not a misprint, is it? No. It is lower case. I find it the audit that it is lower case and that would imply it's not an acronym. I don't know. We use it as the name under which they trade, but I think that you're right that none of us knows what the initials stand for. Good morning. On page 32 of your report, you've reported an underspend of over £1 million. That represents approximately 4 per cent of the Audit Scotland's total resource requirement and 14 per cent of the direct funding approved by the Scottish Parliament in the year. When you consider that most of those underspends might have came from Government funding and indeed from local authorities, could you maybe give me a breakdown on what actual underspends have come from Scottish Government and from local authorities? Sure. It might be helpful, first of all, Mr Pentland, if I break down the big areas where the underspend occurred and they come from three broad headings and then ask Russell to pick up the question of the way that falls across the different sectors that we audit. First of all, of the overall figure, a large chunk of about 200,000 came from the pension adjustments that were required to make under IAS 19. So 200,000 is simply an accounting adjustment for the way in which the pensions are accounted for. The other elements of the underspend, if you break them down by the expenditure category, are, first of all, fee income being higher than we budgeted for. We've talked to the Commission here before about the way our fee budgeting works, with an indicative fee that's set for each body based on the assumption that they have good governance and good internal controls in place, but with freedom for the auditor and the audited body to agree a fee up to plus or minus 10 per cent around that figure. We found last year that fee income was agreed in total across the piece of about 485,000 extra, so that's a big contributor to the underspend that you're seeing there in net terms. The other figure that made a significant contribution is the legal, professional and consultancy fees, which came in at just over £200,000 underspent. They're the big areas. We can allocate them across sectors, and I'll ask Russell to pick them up, but I thought it might be useful to give you that breakdown by expenditure category first. Russell, can you shine a bit more light on that for us? Thank you. I would just add that the third significant area within the overall million was £200,000 approximately on the pension adjustments that are made at the end of the year, which are entirely notional amounts. They came through the AME adjustment that we sought at the spring budget revision, and therefore go straight back to the consolidated funding in underspend from that. In terms of the allocation between sectors, we do a detailed allocation of all our costs between the various sectors, so local government, NHS, central government, further education, and the activities funded directly by the consolidated funding. As you can appreciate, those include a lot of apportionments of some of the central costs, where it doesn't directly relate to activity, so it has to be apportioned, whereas direct costs such as staff and payments to firms can be very easily allocated to sectors. We do that at the budget stage, and then we have done it again at the out-turn stage. For local government, our overall income was £11.5 million, and our expenditure was £11.45 million, so the difference there is only £58,000. For the NHS, we had income of £3.8 million, and expenditure at an out-turn basis of £3.5 million. There is an underspend there, so we have in that sector recovered more income than we incurred expenditure. One of the considerations for the board in August will be whether or not to make an application for the autumn budget revision to provide for that to be refunded to the NHS. In previous years, we have done that on some occasions, where the amounts have been significant but not on others, where they are fairly low. In central government, chargeable activity, we had income of £2.3 million and expenditure of £2.8 million, so on that one, we incurred more expenditure than income. And then the balance is in the consolidated fund-funded expenditure. It's probably going to bring one to my second, but you did say that, obviously in August, sorry, maybe later on this year, you're going to be thinking about a mechanism on a timetable for returning the underspends in these authorities. Why did that not happen in the past then? When you consider that these same authorities have been under extreme financial pressure, I think the brief answer is that on occasion it has happened in the past, Mr Pentland. The legislation that governs our finances within the Public Finance Act provides that we must break even taking one class of audits with another, taking one year with another. So we are looking to smooth our expenditure across each sector and as far as possible across bodies each year to give people predictability about their audit fees and also to make sure that it's an efficient system to be operating. Russell was talking about a very small underspend there on local government of about £58,000. If you divide that between the 67 bodies that the Accounts Commission audits in the local government sector, that's less than £1,000 each, and I think there's a question about whether it's worthwhile for us to incur the expense of processing refunds and for them to process the expense of banking them when actually the next year it's likely that the cost may come out in a slightly different direction. So we're increasing the transparency of the way we budget and report that, but we do have, and I think it's built into the legislation to have the flexibility to smooth that over a period. When there's a significant underspend, then past practice has been for the board to agree that we apply to you for the budget cover to refund that money to the bodies involved, but it is a matter that depends on the extent of the underspend or indeed the overspend in particular bodies and the extent to which that's likely to come out in future years audit work. Again, when you're looking at the underspend of over £1 million, then on the same year you sort of further a resource of £1.7 million to cover additional pension costs, and could you ask us why that was a case? Certainly. As both Russell and I said a moment ago, some of the pension adjustments that are required are purely accounting adjustments that we'd have no control over and that have no direct impact on the income or the expenditure that we manage in the year. Over the period of audit Scotland's life those adjustments have varied significantly from significant credits in our favour, which we've returned to the Scottish Consolidated Fund, to significant movements against our finances that are charged to us, where we have come back to the SCPA to ask for cover generally from underspends to manage them. Russell can give you a bit more detail of what the movements look like in 2014-15, which is the year here, but it is something that moves very markedly from one year to another, of which we have no control. The way in which we need to ask for budget cover is a reflection of the fact that we are largely a member of the local government superannuation scheme, but it is required to manage our finances under the central government Scottish public financial management model, which leads to some tensions that we discuss for you each year. Russell? Thank you. As you said, we applied for additional cover under Amy, rather than Dell, for £1.8 million in the spring budget revision. That was to cover what we were expecting to be based on the actuarial advice that we had. The additional non-cash charge that we have to make in our income and expenditure account for pension costs over and above the contributions that we routinely make to the fund during the year. That's because the accounting basis for accounting for pensions and the actuarial basis are actually different. When we got the final year-end figures from the actuary, rather than £1.8 million, it was £1.6 million of adjustment, and that's why there's 200,000 underspend in relation to that entirely non-cash element, which then feeds back through into the consolidated fund, in that we would not apply to carry that forward for any reason. I'm sure you will agree to the general public coming in with an underspend, and then seeking a request. This was only like some four months before you actually recorded your underspend. I completely understand that this is a complex area, Mr Penland. We've tried in the past to separate out, in our own reporting and for the commission, the distinction between the pension accounting adjustments, which in a sense are like the weather that we have to respond to what the actuary requires of us. They have no impact on the resources available to us, although they do feed through to the out-turn figures in the way that Russell has described and the costs that we manage more generally. Of the £1 million underspend that you referred to, about £800,000 comes from the things that we control. The pension adjustments happen outside that due to things like changes in the discount rate that's applied, changes in the valuation of the assets for the local government pension fund, and there's very little we can do to manage any of that. We're also not in a position, as you know, to carry forward reserves to manage it as most local authority bodies do, so we try to ring fence that with your agreement separately from the other things that we manage here. On the remaining £800,000, which we've reported here, the million less than the £200,000 pension adjustment, we completely agree that we can continue to apply more discipline to that to bring it much more closely to our expenditure matching our income. The two areas in that that we've outlined are the higher fee income, and this summer we're looking at how we put the income budget into our overall budget to minimise the chance of there being more money recovered than we need across the year. The other is the legal and professional fees where we're budgeting more tightly every year to bring that underspend down. I would remind you that under our financial regime we simply are not allowed to overspend, so you will always see a small underspend. The challenge for us is to make that as small as possible while making sure that we're not coming back to you for extra resources every time a small change in our cost envelope occurs, but you're absolutely right to ask the question. We will continue to apply pressure to it and to make that transparent to you in our budgeting round. I'm sure you do appreciate that, if it's a complex year for those people who work in it, you can fully understand how the layperson would look at us. On page 33, Audit Scotland have reported that savings were made as a result of reduced use of external consultants and professional service providers £209,000 and ICT and web development expenditure of £140,000. However, expenditure on these services increased from 2013-14 level by £156,000 and £58,000 respectively. You provide some explanation of these savings against budget taking account of the increased expenditure on these services year on year? I think Russell is the man to give us a bit of detail on both of those. As a way of introduction though, I'd say that what you're seeing in both of those is the effect of us trying to budget more tightly, so the budget is coming down and you're seeing an underspend against it, but the pattern of expenditure year on year varies depending on what's required in those particular budget headings. Can you give us some information about the underlying figures, Russell? I can try. It's absolutely right as the overall explanation in terms of the consultancy and external support budget that the budget has been coming down year on year, as we have sought to get the budget closer to what we were spending and indeed revisiting why we were spending or not spending it. The answer in that respect for the consultancy is that we did not achieve the level of spend that we thought we would be achieving, but it was higher than the previous year. An element of that is down to the national fraud initiative expenditure of just over £200,000, which occurs every second year. The national fraud initiative is an exercise that takes place every second year and we pay what used to be the audit commission to process all the data, and that is a lumpy piece of expenditure just over £200,000 every second year, and that is the principal reason for the variance year on year. For IT, which was the other area that you were looking at, the expenditure last year, 1415 was £58,000 higher than in 2013-14. That was made up of increased software license charges from Microsoft to our providers and additional licenses for the software that we use to allow our staff to securely log into our systems wherever they find themselves. As part of our overall efficiency push, we are looking for staff to work much more flexibly from our clients' offices, from the various Audit Scotland offices that we have, and they have to be able to do that securely. The software that we use for that generates savings in other ways, but it does have a cost in itself, and that was a significant part of the increased spend on IT in 2014-15 compared to 2013-14. On page 37, the salaries for three senior staff members are shown to have risen by one salary band from 2013-14 to 2014-15. As we know, the band increases can reflect a salary rise of anywhere between £1 and £9,999. Notwithstanding the fact that the Auditor General salary is a matter for the Scottish parliamentary body, can you confirm that the pay awards for senior staff members were commensurate with rises elsewhere in Audit Scotland and in the wider public sector? Absolutely, Mr McDonald. We apply, as you would expect, the Scottish Government's pay policy to our own staff across the piece. For our main-grade staff, we applied a two-year deal in line with the policy, which was a modest one but was able to flex the payment in ways that our staff valued by making a 2% increase in the first year and a freeze the second year. For our senior management team staff, whose pay is governed by the Immuneration Committee, the senior pay policy from the Scottish Government was applied and the treatment was consistent with the policies across the piece. Diane will keep me straight, but I think that the pay awards available for senior management team members were smaller in a percentage terms than they were for main-grade staff consistent with the pay policies that apply. Is that the case here? Okay, thank you. On page 38, going back to the issue of the pension fund that was raised earlier, we note that a payment of £273,000 was made to the Lodian pension fund to secure early access to pension benefits for a former senior staff member. We know that this individual left audit Scotland and subsequently joined the Board of Revenue Scotland. I think that it is fair to say that this aspect of the report perhaps has raised a few eyebrows. Can you confirm that our robust business case was prepared prior to this payment being made? Absolutely. I will ask John as chair of the Board to come in in a moment, but I can give you an absolute assurance that all of the voluntary severances that have been agreed by Audit Scotland this year and in previous years are in line with our voluntary severance policy. It is a policy that complies in all respects with the reports that we have published on the way other bodies manage this and has been an important part of our ability to reduce our costs by more than 20 per cent over the last four years. In relation to the management team, we have reduced the management team from seven members to five since 2012. That has generated significant recurring savings for us. The departure to which you are referring in this year's annual report has generated recurring savings for us of £121,000 with a payback period of 27 months. It is clear to us that it is value for money. It is also provided as business benefits in having a smaller and tighter management team, which is able to get some of the benefits of one organisation working that are one of the key ways that we are able to keep on delivering our audit work to the standards that are required while reducing the cost. For each early severance that comes forward, there is a robust business case that has to comply with our overall policy. It is considered by the management team and for those that we consider to represent value for money, it is then considered by the remuneration committee of the board to provide that assurance about the balance between the immediate costs that we are incurring and the benefits that we will gain in future years. We then report annually to the board to demonstrate that the savings have been achieved in practice, but I will ask John perhaps to give you a bit more assurance about the boards and the committee's role. I can confirm all of that and also that the full case for this matter was presented to the remuneration committee, which considered it in detail and scrutinised every aspect of it and eventually approved the business case, as did the board subsequently. We have no concerns about it, especially bearing in mind the restructuring that followed it, which allowed overall savings to be made. OK. Just to clarify, how much have you saved in reducing the management team from seven to five? We can give you the total figure. The figure I have available today is the figure from the change that happened in 1415. The previous one happened I think in 2013-14 and was reported to you last year, but in each case what we are looking for is a saving that is at least 25% more than the cost of the post, so we are not just taking out the cost of the post, but saving 25% more. We can confirm that the full saving to you separately if that would be helpful. Yes, it would. Thank you. Could I also just add, convener, that you mentioned, Mr McDonnell, the appointment of this staff member to the Board of Revenue Scotland. I think it is important for us to be clear that we have no role in those appointment decisions being made by other bodies. Absolutely. There was no suggestion that that was the case. Pace 39. It is just for clarity, and it is just the way that I am reading it, but it is on service contracts. It is the first paragraph that probably needs a wee bit clarity on it. It says that service managers hold appointments that are open-ended until they retire. I would assume then that that is not a contract. Is that right? Absolutely. It is normal employment practice that our people are on an open-ended employment contract, which is terminated when they leave, when they resign or when they retire. If we want to terminate them before that, we incur a cost in the way that we have just been discussing. That is where I want clarity. How can you terminate if it is not a contract? It is an open-ended employment contract. The way in which we would have to do it would be through a voluntary severance agreement under the terms of the policy that the Board has approved, which applies to all of these. The disclosure is required to be clear with you that that is the basis on which all of our staff are employed. We have a continuing liability unless we reach agreement about voluntary severance, voluntary redundancy and the terms of our policy for those departures. I am still a wee bit unclear here. My understanding would be if you are a contractor here on a contract for one, five years or whatever. An open-ended contract means what? That is the way in which we are required to describe the standard employment contract that all of our staff are employed under and all of the staff of the Parliament or a local authority would be employed under. The alternative is a service contract, which is a one-year contract or a five-year contract or something that has a fixed term and comes to an agreed point. Ours are open-ended employment contracts in the way that you would expect for most public bodies. You are saying that an open-ended contract, if you decide to terminate that contract, there is a cost involved. Why? I think that the word contracts might not be helping that. I wonder if Diane can help to explain more clearly what I am clearly not explaining. I shall try, but I am not sure what else I have said. The heading here is one required, I think, Russell, by the accounting standards. It requires us to disclose whether senior managers are on fixed term contracts or other contracts. The word contract there is required by the accounting standards. Our description of it is designed to explain that our managers are all on appointments, which are open-ended until they retire. They are not a fixed term contract. The title is perhaps getting in the way here. It is a requirement under accounting standards. We have the usual employment contracts. We have some staff on fixed term contracts. When those expire, there is no cost to them expiring. Generally speaking, the vast majority of our staff are on permanent employment contracts. The only way of ending those is dismissal, voluntary exit, redundancy and so on. Some of those would incur a cost. I do not know whether that is any clearer. I think that the word needs to be considered and changed for us outside the bubble. It then goes on to say that early termination, other than through misconduct, would result in an individual receiving compensation. That, to me, is where it becomes a wee bit more complex because if it is an open-ended appointment, why should there be any compensation paid to somebody who is finishing up? If they resign and move on or if they retire, then no compensation is payable, obviously, as you would expect. If, however, we were to conclude that we did not need a particular group of staff any more and to agree voluntary redundancy with them, then they would be entitled to compensation for their loss of office under our voluntary redundancy scheme. That is the difference that is intended to be described there. As Diane says, the heading and the wording are what we are required to comply with under the guidance that covers our annual reporting. I am sorry if it is not helpful to you, but really what it is trying to explain is that the terms on which our senior managers are employed are the absolutely standard employment contracts that senior managers across the public sector have. There is no difference there at all. The aim disclosure is last year, but we will take on board your comments about how we can try to bring some clarity to that, but there is no change from last year to this year in this situation. We have been any more detailed this year. That is why we are asking questions. On that point, it is not just for clarity and for the record. In terms of how we will have seen some reports presented to the Audit Committee in connection with Seven's payments and obviously that is the result of the Auditor General scrutinising those reports or those arrangements, how is the Auditor General audited in that respect? It might be helpful just to the official report. Of course. The commission here appoints our external auditors and they look at significant transactions in our accounts in the same way that the Auditors I appoint do for public bodies. They have reported here as part of the annual report on their conclusions and I think you are taking evidence from them shortly after this session this morning. If you have got any questions about that, I am sure they will be very happy to give you the feedback of their work in this area. I think probably there is a footnote to the question of the pension payment. I think that there is a lot of sensitivity about such payments and such payments to senior staff in particular across the public and private sector to be honest. I do not think that it is surprising that the commission is focusing on this aspect. We are very committed to making sure that we apply the same standards of governance ourselves as we expect of the bodies that we audit and very happy to give the commission here any explanations that you would find useful about that. Thank you. Just one final question here. Note 5 on page 56 of the annual report sets out the fees and charges paid by the audited bodies for the audit services. On the 30th of October 2014, the commission acts asked Audit Scotland to provide details of the fee strategy review referred to in the 2015-16 budget submission. In evidence to the commission, Russell Frith commented that Audit Scotland was looking at all aspects of fee setting and charging at every aspect of what is in the fee strategy document. Mr Frith confirmed that this work will finally be concluded over the early months of next year so that we are in a position to set out clear arrangements for our next audit procurement round, which kicks off next autumn, and to present our budget next year. That is a quote, obviously. Can I have an update on this review? Certainly, convener. We have taken a number of papers on this topic to the board since we were with you last autumn, partly to set out for what is aboard with a number of new members the way in which our funding and the fees element of that work in practice and partly to set out some questions for them to review for the strategy going forward. We have made good progress on that, and some key decisions have been made by the board about what the options are that we should be bringing to you as part of our budget submission later this summer, and we'd be very happy to give you an update on that in detail at that point. Okay. Can I ask if members have any other questions on the—I've got one or two questions myself that I'd like to just nip through with you. On page 33, second paragraph, we're talking here about an increased deficit and other financing can cause my increased interest costs on pension liabilities. I think I know what that is, but maybe you could just walk us through that. I'm going to ask Russell to do that, as the man who understands this better than I do. Yeah. Part of the pension accounting is that we have to show through our accounts the movement in the net pension asset or liability relating to the local government scheme, and two of the movements are the increase in value of the fund caused by the increase in the value of the assets of the fund, and the other is to record an expense for the interest cost on the liabilities, and they're required to be disclosed within that part of the accounts. So it's accounting for the movement in the liability, the net liability, pension liability of Audit Scotland. Okay. Just dropping on the same page down to comparison with budget, second paragraph, it says fee income net of sums paid to appointed external audit firms was £488,000 greater than budget as a result of an increase in agreed fees compared to budget. Now, you're saying here that there was lower levels of expenses paid to external audit firms, but an increase in fees. Perhaps you could walk me through that one. Of course, convener. The £488,000 figure there is the same element that I described in answer to Mr Pentland's question earlier as a significant part of the underspend, the net underspend that we saw and have reported here for 2014-15, and it comes from the difference between the budget that we set for audit fees across the piece, which was approved by you last autumn, and the individual fees agreed between auditors and audited bodies for each of the 200 or so audits that were carried out. As you know, within the fee strategy, we set an indicative fee and that feeds into our budget. Auditors and audited bodies then have the freedom to agree a fee, which is plus or minus 10 per cent around that. For a range of reasons, during 2014-15, the net effect was £488,000 higher than we'd budgeted for. Part of that is due to particular issues like the Scottish Police Authority that we touched on earlier. Part of it is due to bodies that have got smaller problems with parts of their governance or their internal controls, where more audit work is required. Part is simply where the audited body and the auditor agree that a bit more work would be helpful. Some audit fees come in below the indicative amount as well, but the net effect was that £488,000 above the budget that we had for the year. It just looks a bit odd as you can understand. If you're paying less for the audits, why are you charging more to other people in the face of it, it looks? I appreciate that this is complex and it takes us time to understand all of the things that affect each other, but it is due to the agreement of higher than indicative fees between the auditor and the audited body. Page 55, I'm looking at the legal and professional fees. There's been a huge increase there. I just wondered what specifically that was. That is the impact of the point that I was referring to earlier about the cost of the national fraud initiative occurring every second year. The costs were incurred during 2014-15 and they weren't incurred in 2013-14, and that's the line that they fall into. The cost of the national fraud initiative is just over £200,000 each time that it takes place every second year. Page 58, I'm looking at page 58 intangible assets. Can you remind me what the intangible assets are? They're software licenses, convener. I think I asked this question before, actually. You did and I remembered the answer that we gave you, convener. I think that's everything. Do members have no other questions in that case? Thank you very much. Yes, Russell. I've been handed an answer to one of your earlier questions, which was what does TIA stand for? It currently stands for the Internal Audit Association. You couldn't make it up, could you? Thank you very much for your tins, and I'll just pause for a moment while the witnesses change over. Continuing on the same agenda item, I welcome the representatives of Alexander Sloan, the external auditors of Audit Scotland, and we have Andrew McBean, senior partner, and David Jeffcoat, associate. Can I invite members to, if they've got any questions, Angus? Good morning, gentlemen. The commission notes that your firm has issued a true and fair audit opinion following its work on Audit Scotland's annual report and account. Can you confirm that you've received all the necessary information and explanations required by you to form your opinion on the financial statements? Good morning. Yes, I'm happy to confirm that we did receive all the information and explanations that were required to undertake our audit for the year ended March 2015. If we could just give a brief overview of the work that we carried out. Our firm has been appointed to carry out the external audit, the accounts of Audit Scotland. We're required to provide an audit opinion on whether the accounts give a true and fair view and whether they've been prepared in accordance with international financial reporting standards as interpreted and adapted by the financial reporting manual and to confirm that they've been properly prepared in accordance with the public finance and accountability Scotland Act 2000 and directions by Scottish ministers. We carried out an interim audit in February this year and our final audit work was carried out in May and early June. Our audit was carried out in accordance with international standards on auditing. As I mentioned earlier, we received all the information and explanations that were required to carry out the work and the audit was completed without any problems or issues. We signed our audit report on 9 June 2015. Our audit report is unmodified, that is, we're satisfied that the accounts do give a true and fair view and there are no significant matters that require to be brought to the attention of yourselves today or any other readers of the accounts. We're also required to prepare a report to management. The purpose of this letter, our report, is to summarise the key issues arising from our audit, including following up the main audit risks identified at the planning stage and to report any weaknesses in the accounting systems and internal controls that came to our attention during the course of the audit. I'm pleased to report that, in the course of our audit work this year, we do not find any weaknesses in the accounting and internal controls. I'd finally just like to record my thanks to the staff at Audit Scotland and the support staff at the SCPA for their assistance during our audit process this year. Okay, thank you. Thank you and good morning gentlemen. Can I just ask in your report to those charged with governance and I know this is as required by the international standard in auditing and in your report to the Audit Committee of Scotland of Audit Scotland. Did you raise any matters that the commission should be aware of? No, there were no significant issues that we had to arise. We obviously followed through our audit process, looking at the audit risk, examining all the areas of significance and there were no issues or problems that need to be brought to your attention. Okay. Good morning. At 4.2 of your report, you referred to your effective working relationship with Audit Scotland's internal auditors. Can you confirm if you've placed reliance on the work of internal audit and, if so, the extent of this reliance in order to avoid duplication of effort and to maximise efficiency for both internal and external auditors? I think what I would say in this area in terms of our audit approach, we did not in fact place great reliance on the work of the internal auditors. I think that was because basically when we looked at the situation, the areas that they cover within their internal audit approach isn't always really relevant to the audit of the financial statements, so we do examine their work and look at it. We don't place great reliance on it. It's usual to know that they've looked at the areas that they have and that gives us assurances, but by saying that we don't place great reliance, that means that we don't want to restrict our tests and therefore we carry out detailed testing just to be certain that there are no issues or problems. That may create some additional audit work for us, but it doesn't create any additional audit fees for Audit Scotland. You were present earlier where members were asking for information in connection with the pension payment to the member staff and the previous witnesses indicated that you had audited this. Are you satisfied as to the business case and so forth supporting that decision? Yes. We also examine the paperwork that has been prepared. We don't draw an opinion on the business case but we make sure that we examine all the information that is appropriate within the reports. We obviously look at each of the cases that have come up under the voluntary release scheme and we are satisfied that all the calculations have been properly prepared and the information is properly disclosed in the account. We have carried out our detail working at you and have no issues or concerns. Thank you. Is there any other matter that you would want to bring to the attention of the commission? No, I think that it was a satisfactory audit process this year. Our management letter confirms that there are no issues or problems, so really probably nothing else to say at this point. Do members have any other questions? In that case, thank you very much for your attendance. Just before we conclude the public part of the meeting, I think that we should note that we are about to lose Catherine Ferguson, who is going off to greater things and maybe just put on record our thanks for our help and support over the past few years, really, isn't it? Thank you. As I said, that concludes the public part of the meeting and we now move into private session.