 I welcome everyone to the 20th meeting of the Public Audiic Committee in 2023. The first item on the agenda is, for members of the committee to agree or not to take agenda items 4567 and eight in private, are we all agreed? We have apologies this morning from Colin Beattie, and I am pleased to say that we are joined by Bill Kidd in his place. You're welcome, Bill. We have two principal items on the agenda this morning. The first of those is consideration of evidence on the 2021-22 audit of Scottish Canals. I welcome our three witnesses this morning. We are joined by Stephen Boyle, Auditor General, along with Mark Taylor, Audit Director from Audit Scotland, and by Duann Brown, who is a partner at Grant Thornton. We have quite a number of questions that we want to put to you, but before we get to those, Auditor General could ask you to make a short opening statement. Many thanks, convener. Good morning, committee. I have prepared this report under section 22 of the Public Finance and Accountability Scotland Act 2000 on the 2021-22 audit of Scottish Canals. My report brings to your attention on going issues with Scottish Canals valuation of its assets and the completeness and accuracy of its records. Those issues are so significant that they have resulted in the auditors issuing a disclaimer on Scottish Canals financial statements for the second year in a row. The committee may recall that, in February of last year, I reported on similar issues raised through the previous year's audit of Scottish Canals. The issuing of a disclaimer of an audit opinion is a serious matter, convener. It indicates that the auditors have been unable to provide an opinion on the financial statements due to insufficient appropriate audit evidence. That means that there is a lack of public assurance over Scottish Canals financial position and performance and the regularity of its transactions. The basis for the disclaimer is Scottish Canals valuation of its property, plant and equipment assets. Scottish Canals has faced significant challenges adapting to the financial reporting and accounting framework required of it as a non-departmental public body, specifically the way in which it has to value those assets. It has taken steps to address the auditors' concerns, but progress has been limited by the quality of its underlying documentation and data. Scottish Canals now needs to develop an effective plan to ensure that it can meet its financial accounting responsibilities as a matter of urgency. It needs to work together with Transport Scotland in its role as the Scottish Government's sponsor division to ensure that the implications of its accounting rules that it must work to are fully understood and reflected in its planned response. It should work together to ensure that Scottish Canals has the capacity and expertise to deliver the improvements that are needed. Those issues will be a central focus for the incoming external auditors during the 2022-23 annual audit. I will continue to monitor Scottish Canals' progress and report further as necessary. As you note, convener, I am joined by Mark who has led on the preparation of the section 22 report and by Joanne Brown from Grant Thornton who is the appointed external auditor for the 2021-22 year. I will look to answer your questions this morning. Thank you very much indeed and thanks for setting the scene with that opening statement, which has got a great deal of similarity to the evidence that we took around about this time last year. We will go straight to questions and I will begin by inviting the deputy convener, Sharon Dowey, to put some questions to you. This is the second year in a row that the auditor has issued a disclaimer on the audit opinion. Is it correct to say that in 2020-21 the auditor's concerns arose from assets that had not been valued and that this year the concerns are related to a lack of audit evidence to support the valuations that have since taken place? Yes, that is largely the case, deputy convener. I will pass to Joanne Brown who can set out for the committee the judgments that she arrived at in issuing a disclaimer of opinion, but maybe just as a quick additional context to that. Last year's section 22 report highlighted issues around the availability of evidence. The Scottish Canals set out in their response and the evidence to the committee their intention to undertake a full valuation exercise. As we know in our report, that is evidence of some progress, but what they have not yet been able to do is to provide robust evidence to support the valuation numbers and disclosures that they set out in their accounts to satisfy the external auditors that those were complete accurate to allow them to issue an audit opinion. In 2021, there was a series of issues that led to the disclaimer, but principally around the accounting records that supported the valuation in 2021. That included evidence of existence of assets, the record-keeping within the fixed asset register and a number of other issues around accounting for property, plant and equipment. In terms of 2021-22, it was a very complex exercise and Scottish Canals had a project plan and sought to get a valuation. In doing the valuation in 2021-22, they also made the decision that they would value the canal themselves as an asset. That was not something that they did have in 2021's accounts. That included a number of complex judgments and estimates. Whilst we agreed and could see that the valuation model in 2021-22 was a reasonable model, Scottish Canals still lacked underlying data and evidence around some of those material, significant judgments and estimates within the accounts and some similar themes that we saw in 2021 around evidence of existence and ownership of assets, the record-keeping and the data that supported cost information that Scottish Canals proposed to feed into the valuation model. It is very complicated and Canals did do a lot of work, but unfortunately those underlying records do not support some of the material numbers within the financial statements that led to the disclaimer of opinion. Would you say that they are in a worse position this year than they were last year? I do not have a view on that as I have not been the auditor for a number of years, but as we look to set out in the report, there are signs of progress in that Scottish Canals sought to undertake a complex programme of valuations. What they have not yet done is to address all the clear evidence that is required, not just to satisfy the auditors, but also for the accountable officer and their responsibilities and board, will also want to be satisfied on those same points. As section 22 sets out, perhaps at paragraph 15, there are a number of steps that are still required in order to meet the requirements of an external auditor that they can issue a clear opinion on the annual report and accounts. Some progress that we would want to recognise, but quite a bit away to go. The other rationale that we arrive at in the report is that Scottish Canals needs to have a clear plan, together with its sponsor division, as to how it will arrive at a valuation methodology that can allow itself and its auditors to see the evidence necessary to satisfy accounting requirements. How unusual is it for a public body to have a disclaimer on the audit opinion issued in respect of its annual accounts for two consecutive years? Very unusual, deputy convener. I do not think that there are other examples that we can think of where an auditor has issued a disclaimer of opinion. Maybe I should join to set out perhaps some of our experience, but I think that it is also interesting for the committee that when auditors issue opinions, they have a range of options. The most common that you will see is an unmodified, what is known as a clean audit opinion, that the auditors are satisfied that it presents a true and fair view. There are no mysterious misstatements and there are no concerns about the regularity of expenditure. There are then gradations from that, but the disclaimer of opinion is the most serious of all. Do you want to have an additional perspective on that as a practising external auditor? From our perspective, as the Auditor General outlined, a disclaimer opinion is highly unusual and a disclaimer opinion arises in that we were unable to get assurances that the financial statements themselves were not materially misstated. That was in the context of the valuations for Scottish canals. The balance sheet shows £407 million of assets. As an auditor, we worked at a materiality level. We have set that from assets at £4 million. Based on our audit work and our testing, we were unable to conclude the nature of the errors. We identify and believe that there are errors in those accounts, but we have not been able to quantify those errors. That is why we have the disclaimer of opinion. It is quite difficult for organisations when they have a disclaimer of opinion to effectively be able to get a clean opinion the following year. That is something that we had discussed with Scottish canals just around the project plan and the amount of work that they were undertaking. It is not impossible, but for Scottish canals to have moved away from a disclaimer, that we would have had to be able to re-audit effectively the 2021 numbers, which included the prior year misstatements, which we opted not to do, given the number of errors that we were accounting in the 2021-22 audit. We were not confident that those prior year re-statements were going to be materially correct. On that opinion piece, we undertake our audit work as we undertake audit work to give effectively a clean opinion. One of the things that we considered and looked at was if Scottish canals were able to take the actions that we have outlined, and we have a number of actions for them to take going forward. On what timeline would they be able to take those actions? Potentially, as auditors, would it be sensible for us to wait till those actions had been taken before going back to effectively conclude our audit of 2021-22? However, as our auditor judgment was, the time that that would take would just be too long for us to hold that 2021-22 audit open. That is why we then issued the disclaimer of opinion. The report explains that the issuing of a disclaimer in the audit opinion means that auditors cannot provide assurance in Scottish Canals' use of public money during 2021-22. As a disclaimer was also issued for 2020-21 accounts, what are the wider implications of not having assurance in Scottish Canals' use of public money over the past two years? I emphasise that the FGC is a very serious matter. Public bodies that receive funding from the Scottish budget are required to lay their accounts in Parliament. As auditor general, I have the option to consider whether to accompany the laying of a set of annual report and accounts with a section 22 report. I do that as the committee is aware on a number of sets of accounts over the course of the year to highlight matters emerging from the annual audit. For those other sets of accounts, the assumption is almost always that they are accompanied by an unmodified opinion. However, in those circumstances, what we are highlighting in today's report is that there is not the typical assurance that the Parliament would receive on the contents of the annual report and accounts because there is a disclaimer of opinion. The implications are very much part of our thinking and the seriousness of it to bring it to Parliament's attention. It is not as if there is a qualified opinion, which is one of the interim steps that an auditor could take. A qualification is usually on a specific facet of an annual report, but because a disclaimer is much wider than that, it extends and says that the committee and the Parliament therefore do not have assurance in totality over the set of annual reports and accounts. In your view, has Scottish Canals already failed to meet its public accountability responsibilities and comply with the financial reporting manual requirements in the 2020-21 and 2022 reporting years? Is the same conclusion of failure likely to be reported for the current financial year? Maybe taking those points in reverse, as Joanne referred to a moment or two, it is going to be difficult to resolve all the issues in a short timescale, but I do not want to pre-empt that entirely yet. It is important that the incoming auditors, together with the Scottish Canals leadership team and the sponsor body, have a clear understanding of their intentions to move forward and address some of the issues that are highlighted in today's report, but it will be challenging. That is very clear. Those are complex issues, and it is going to take careful consideration from Scottish Canals and Transport Scotland to come up with a clear plan to have their assets valued and reported in a way that can satisfy audit responsibilities. Your second point about the understanding and ownership of it, if I am paraphrasing slightly, but effectively, the accountable officer of Scottish Canals sets out very clearly in their annual report and accounts their responsibilities. One of them is in overall compliance with the financial reporting manual requirements as it relates to assets and other matters. That may well be an issue that the committee wishes to explore further with Scottish Canals and its understanding of those requirements. What are the consequences for Scottish Canals if they continue to fail to meet their public accountability responsibilities? It is less clear that, ultimately, Scottish Canals is primarily funded by grant and aid from the Scottish Government through the budget-setting arrangements. That will be a matter of importance for the Scottish Parliament as it considers the future budget-setting arrangements. It can be satisfied that funds allocated to Scottish Canals are being spent properly. Most typically, that assurance comes from regular audit assurance and recognition of accountable officers' responsibilities in their accompanying accounts. However, where that chain is broken by a disclaimer of audit opinions, it is effectively saying that the auditors cannot give the Parliament the typical assurance that they would expect from the awarding of public funds through the budget action. The report paragraph 4 is pretty damning, isn't it? It says that the auditors were unable to conclude whether the annual report and accounts give a true and fair view, whether expenditure and income were regular, whether the annual accounts are free from material misstatement and whether adequate accounting records have been kept. That is a fairly heavy charge, isn't it? That is why we cannot overstate the seriousness of an external auditor disclaiming their opinion and ramifications of it. We cannot have a true and fair view in itself. The regularity of expenditure that amounts spent by a public body were consistent with legislation and budget acts. The company's section 22 report sets out many examples where the documentation and the data were not available to support the valuation figures that were presented to her by the leadership of Scottish Canals to audit. I want to give the committee a bit more detail behind that, but it is a very significant set of circumstances that paragraph 4 sets out. Just in terms of that last point, as auditors, we look to management to provide suitable underlying documentation to support balances in the financial statements that are fit for purpose, fit for audit purpose and that tie back into the trial balance in the actual accounts. As our external audit report outlines, we encountered a number of difficulties in doing that. In particular, we did have challenges reconciling certain information through the valuation report back into the draft accounts that did not reconcile in a number of draft account versions that we received. We had concerns around additions and whether those were treated in the right financial year. We had concerns whether there was duplication of additions, concerns around assets under construction and whether some of those assets had been capitalised when, in fact, not assets should have been through the revenue account. There were many examples where we felt that there were potential errors in the valuation, not just the valuation but the accounts as a whole. The reason why the disclaimer opinion is a disclaimer is that the size of those balances is very large to Scottish Canals accounts. The property, plant and equipment balances touch a number of areas in the accounts, including income and expenditure, your depreciation charge hits that account, the revaluation reserve. For us, the errors we felt were pervasive across the financial statements. The reason the opinion is caveated on the wider annual reporting accounts is that, when you read Scottish Canals annual reporting accounts, the front-end narrative includes a number of balances that we are not able to give assurances over within the financial statements. Before I move on to Craig Hoyey, the evidence that we took last year, for example, from Transport Scotland was—their description of the situation as it was then was—that it is a fairly narrow point. It is a narrow point about the evaluation of assets. Is that how you would characterise it? No, it is not. I think that we are stepping back for a second look at the purpose of Scottish Canals. One of its core responsibilities is strategic objective, which is to maintain the canal network and to maintain it. Part of that would be its associated value, the cost of maintaining it and records that go alongside that. I would not agree that it is a narrow technical point. The fact that Grant Thornton has reached the opinion that it is the valuation of their assets affects so much of the running of the business and the disclosures of how it has performed over the course of the year. It was pervasive. We suggest that that is central to Scottish Canals activity. Mark Taylor. If I could just add a little to what Auditor General said. As the root of your original question is, convener, we have issues about valuation, but the result of those is that there is no assurance across anything that is in the accounts. That is the fundamental concern that we have about a disclaimer—that there is no assurance for the Parliament. I must say that there is no assurance for the Accountable Officer within Scottish Government Transport Scotland and, indeed, for the Treasury in the whole system about the confirmation that the audit process provides to everybody about the robustness of a set of accounts. That fundamentally is the concern here. That is very clear. We appreciate that. Craig Hoy has got some questions. Craig. Thank you, convener. Without repeating or laboring perhaps some of the points that the convener has made, Mr Boyle. Paragraph 5 of the report, however, goes on to say that the Auditors reported that they had not received all information and explanations required for their audit in relation to property, plant and equipment balances. The Auditors also raised concerns about the overall quality and timeliness of Scottish Canals accounting records and working papers. That has led, you say, to significant delays in the audit process. I suspect that I can second guess what you are going to say on the basis of responses to Mr Leonard, but would it therefore be safe to say that your concerns are far wider than the issues relating to property, plant and equipment balances? Is that the case? I can ask John to set out a bit more detail for the committee. We find it helpful about the nature of some of the interactions that she and her team had with Scottish Canals. It speaks to a couple of other points, Mr Hoy, that we touched on elsewhere in the report about the capacity that exists within both the leadership and the finance team within Scottish Canals. There has been significant turnover in that team, in the finance team, and there has also been change of leadership in the organisation. They have recently appointed a new chief executive. Those issues are also relevant to the circumstances that we find ourselves in today, where it has been challenging for Scottish Canals to prepare a complete set of annual reporting accounts. John might refer to ensure, but the version that she was originally presented to audit had a number of significant aspects of a set of annual reporting accounts missing. A number of two-and-fro and iteration then followed, but as well as the quality of the accounts, there is also a point of make before passing to John about the timeliness of it as well. Public bodies are required to lay their accounts in Parliament by the end of the calendar year or nine months after the end of the financial year. Those accounts were finally laid just a few weeks ago now. Again, the timeliness of it is relevant to scrutiny that the Parliament can be satisfied. We are many months after the original laying-down date as a consequence of it, and as John has touched on already, we are now already into not the financial year to be audited, but the next one. There is a risk that we could experience a backlog effect over a number of years, so all the more reason there needs to be a clear and comprehensive plan between Scottish Canals and its sponsored division as to where they go next to resolve those issues. In terms of our audit work and the financial statement audit work, that commenced in July. Given the challenges that they had with valuation, we agreed that we would look at doing our audit work excluding valuation earlier in the process, so we were effectively in July working off a trial balance during the course of our audit, which concluded in May this year. I think that we received about seven or eight different trial balances from Scottish Canals, and the first draft of accounts that was not a full draft of accounts for audit would have been in January, and that was missing primary statements and key notes to the accounts. We have highlighted in our external audit report the need for better quality accounts, better review of the accounts and better working papers that support the balances within the accounts. As the Auditor General said, the Scottish Canals finance team is very small. During the financial year in question, there was significant turnover in that finance team, which resulted in a loss of effectively corporate knowledge of Scottish Canals, and it also made it difficult for them to provide suitable explanations and working papers to auditors to support the numbers in the accounts. Individuals who prepared those accounts and worked to prepare the accounts were not there throughout the audit period, and they have some challenges around records in what is manually held and what is electronically held. One of the key challenges specific to property planning equipment is the data and records that are held by the engineers in the project management system and the inability to reconcile that to the fixed asset register. A lot of work in progress took place during 2021-22 to do that reconciliation, but the engineering records and the project records do not then support some of the cost information that has been used in the valuation to inform the financial statements. There are a number of issues that we have identified wider than property planning equipment where we have an action plan for Scottish Canals to take forward. Principally, I would look to them to improve the quality of those accounts and the working papers that sit underneath them. Regardless of the size of the team, that sounds pretty poor given that we are talking about the public purse. Obviously, the report states that auditors did not receive all of the information and sufficient explanation required for the audit in relation to property plan and equipment balances. Did you get the impression, however, that the staff that were there were fully engaged with the process and were they open and transparent with you? In terms of open and transparency, I do not flag any concerns. They are a very small team, and one of the particular challenges that they had was the capacity, skills and experience, while also looking at the valuation work. It was a risk that they highlighted, but there was a significant time input that was needed by the core finance team to work with the consultants to produce the valuation and answer the consultant's questions on underlying data, etc. That directed them away from the financial statements. However, as a small team, it is something that we would look to them to do regardless of being a small team. They should be able to do a self-review of accounts. They should be able to have the records that produce a good set of accounts with the underlying data. They should be able to therefore effectively answer the auditor's questions and provide the data to support the balances. That is something that was very challenging over this time period. Obviously, accountability is clearly linked to capacity, but it is also competent. Do you get the impression that there was some failure of leadership within the organisation either past or present? Personally, from my perspective, I think that they underestimated the challenge of the valuation and the time commitment and the data that Scottish Canals would need to provide to support the valuation work. Within that, the skills that would be needed around, for example, capital accounting. While they looked to the consultant for the valuation, I think that they underestimated the skills and experience that they would need internally to be able to produce a set of accounts and produce information that would support the consultants in the valuation exercise. I think that they underestimated that. They focused very much in 2021-22 on the point in the prior year about valuation, but they did not necessarily pay enough attention, in my opinion, to the underlying records and the points that were still raised in the prior year audit that they did not manage to address, which has in turn supported another disclaimer this year. Obviously, that is two years when you have come forward with a disclaimer. On the basis of your engagement today, looking at the present situation, do you think that we now have the bandwidth, the capacity and the competence to make sure that we will not be doing this again next year? Probably for me, Mr Hoyer. I do not think that we can yet give you that assurance. As Joanne has set out, her audit has largely just finished, so it has only been a few weeks now since she has signed or disclaimed her opinion, I should say. The incoming auditors will have a handover. They will review Joanne's judgments, and they will take their own view about the adequacy of records. I have heard, just to repeat my earlier remark, that it will be very challenging to resolve all the issues that were set out last year's report and today's report in time to satisfy those requirements for a clean audit opinion, but I should stress that I do not want to pre-empt, and it will be for the independent external auditors to arrive at their views. Okay, thank you very much. I am going to turn straight away to Bill Kidd, who has got some questions to put. Bill. Thank you, convener. Thank you, Ms Brown has already given us a background on the valuation of assets, circumstances. Just to say that during evidence with Scottish Canals here in May of last year, the then chief executive and director of finance and business confirmed that we were aiming to meet the target of undertaking a new valuation process by the end of last year. They described this themselves as being an ambitious target, and had concerns that they would be unable to meet the deadline. So, just to go back a wee bit there, can you confirm if Scottish Canals met the deadline to undertake a new valuation process on the canal infrastructure estate in its entirety during that time? Morning, Mr Greer. I can start on joining us and say a bit more. I think that it is twofold. As we say at paragraph 13, the progressed work to complete the valuation, what they have not done is to align the progress in the valuation with clear underlying records and data to support the valuation that was presented for audit. John again can say a bit more, but what the auditors found was that and this is complex. I do not wish to understate that for the committee that what we are talking about are very old, in some cases, potential heritage assets that have not been valued in this way before. So, engineering records were used, the judgments of management experts alongside that, but really enabled for auditors to validate that through very difficult. So, what we have not got is sufficient evidence to support the valuation on the basis that it was made by Scottish Canals, along with the other factors that John can set out further for the committee, as you wish. Just in terms of the project plan, Scottish Canals developed a project plan that would seek to help them to address the disclaimer and undertake the valuation for 2021-22. That project plan was approved by the board. There were some slippages in that project plan, but in that time period, following the prior year disclaimer, they undertook an exercise to procure consultancy support, and they worked with the consultants for that time period, really, June to November 2022. At November 2022, the value, as they had appointed, had given them additional insight into the valuation and a valuation report, which was then subject to audit and subject to them reflecting that within the unaudited accounts. In that time period as well, they worked hard to be able to componentise the assets, so part of the exercise was to understand what assets do Scottish Canals hold, on what basis, what type of asset is it, and can we put it into components? How do we group assets? That was a significant piece of work, so they have certainly progressed that element. It was a very ambitious project plan, but, obviously, the accounts themselves I was not able to sign until a couple of weeks ago. On the report and the extent to which, if any, the issues around the valuation assets have impacted on Scottish Canals' ability to prepare a medium-term financial strategy, could you tell us the extent to which, if any, the issues have allowed them to do that? Are they going to be able to prepare a medium-term strategy? Moriby Llywodraeth, you have an initial financial strategy. What the work on valuations did in terms of 2021-22 was effectively take up a significant proportion of the finance's team's time, which meant that some of those activities were effectively put to the back seat while they focused in on the valuations in the annual accounts. They have done an initial sort of outlook over the next three years, but there is a commitment there for them to do a more detailed financial strategy, and that will take into account the decision around the VAT element and also just the recent pay reward that they have done. They are committed as part of an action in our external audit report, which I think has a timeline of October this year for them to complete. That actually covers what I was going to ask afterwards anyway, so thank you very much indeed for that. Thanks Bill. I'm now going to bring in Willie Coffey, who's got a suite of questions to ask. Willie. Thanks very much, convener, and good morning, auditor general and colleagues. Can I continue this examination of the historical data side of this problem with you, if you don't mind it? You've identified that valuations for some of the assets are based in cost data provided by the management, for example drawing on estimates on a historic project. Is this the fundamental issue that we've got here, Stephen? We just don't have the records of what these assets were worth in the past. Is that what we're dealing with here, principally? It's undoubtedly very complex, Mr Coffey. Valuing assets in a different way from previous circumstances and in doing so, having to find reliable records has been challenging, so you mentioned engineering records. I'm going to do a bit more, as much as you're able to, about the methodology and the approach that canals took together with the consultants that they used to support the valuation is very relevant, but undoubtedly what we're talking about is an exercise that was really challenging, but that was consistent with the methodology and the valuation approach that canals were required to follow in conjunction with the accounts direction that it has from the Scottish Government, but this is the methodology to be employed and reported in the annual report and accounts, so that complexity, together with dealing with very old assets, historic records is very difficult to achieve, but Johann can say a bit more. In terms of Scottish Canals approach, they determined effectively those assets were networked specialised operational assets on the whole, which require them to be valued on a depreciated replacement cost basis. In some instances, they worked really closely with the consultant where there is third-party cost data easily available, which would indicate that that is a suitable measure, for example a lock gate. There were a number of assets where we were able to substantiate either to the consultant's view, the consultant's judgment and data that the consultant had to effectively benchmark some of the cost and the replacement costs of those assets. One of the largest challenges during the audit was the canals themselves. They have a value in 2122s accounts of about £137 million, which is based on some assumptions around the length of the canal, some assumptions around a cost to replace per metre the length of the canal. That was very judgmental and very estimate-based. We did have some information from Scottish Canals engineers who, unfortunately, were no longer at Scottish Canals and the judgments and estimates that they had set out had not been fully articulated or documented. The canals themselves go back 200 plus years, so there is not that same cost data. It is not as easy as if you were to effectively value a road. There is a lot of data there around what a replacement road cost would be. There is not that same data for canals. That was very hard to support the judgments and estimates in the accounts. Given all that, how will we ever resolve that to the satisfaction of extending the load if there is a real difficulty in establishing original valuations of assets or benchmarking those values against similar assets elsewhere? Is that the journey that we are travelling on? Try to benchmark the whole asset portfolio against similar assets elsewhere and being comfortable that that is a fair and reasonable assumption? Is that where we are? It sounds like an impossible task to me, but is that where we are going with us? That is largely where I am. Mark White might want to say a bit more about the alternative options. It is not for us as auditors or for John as the external auditor or even the incoming external auditor to say how a public body should value its assets. That is for them, together with the sponsor body of the Scottish Government, with a degree of flexibility but not that much because it really depends on the judgment about what those assets are for. In the Scottish Canals case, the assets that John set out are operational assets and that drives a particular valuation methodology. However, there is another categorisation of assets. Across the public sector, there is a range and they are not the only body of Mr Coffey who has very old assets and they are valued differently in some places. That brings us back to one of the key judgments that we are making in the report. The Scottish Canals, together with its sponsor department, have to come up with what is its plan and the route through it so that the accountable officer and the auditors can be satisfied that there is enough evidence to support valuations given its centrality to the annual report and accounts, but we will pass the mark for a second. I absolutely recognise the challenge that you set out, Mr Coffey. The starting point for what we say in the general section 22 report is to have a broader look at what the plan should be and that it might be that carrying on with the work and the approach that has been set out and that the Scottish Canals and with the support transport of Scotland has determined is the right thing to do. We will keep working at it and work at work away at it but there are challenges in there. However, there is also an opportunity for that broader look at whether we are going about it the right way. Can we reframe how we are looking to do that? It is not for us as the auditors to say what the solution is in there but there is that broader opportunity to think that we are where we are. We have the history that we know about. Since 2012, we have seen this coming. We have had to go at it. Is more of the same the right solution or is there a different solution in here? Thank you for that. One of the other issues that you have raised in the report to the Auditor General is the issues about ownership and rights and obligations and so on, which probably further complicate the whole mix. How much has that impacted on the ability to produce and prepare accurate statements of valuation of assets if we have got these issues in the background too? I think that it is a good example of additional complexity in this year's audit. Do you want to say more about what she and her team have encountered? Auditors fundamentally have to satisfy themselves that when they are looking at any such a kind of public body or elsewhere, if a body is disclosing assets, the auditor has to see and prove to us that you own them. You have the title deeds or the associated evidence of ownership and Grant Orton did not see all that from some of the sample testing that they did. Again, John is the best place to set that out. From our perspective, as an auditor, we are looking for evidence that Scottish Canals have rights and obligations and therefore they have ownership of the assets to be able to account for them in their balance sheet. One of the challenges is the very nature of the asset base. Within it, there are a number of toolpaths, some of which are Scottish Canals and some of which are bordering local authority toolpaths. They had to go back to look at land registry data, registers of Scotland type data, and that was data that they did not have that they had to then go and look for to be able to evidence that existence and ownership of the assets. In our sample testing there was at least one item that we sample tested where although Canals had included it in their fixed asset register, it was not an asset owned by Scottish Canals and that was something they then had to adjust. That was in a relatively small sample of the total population. Given the nature of Scottish Canals and how much work they do in partnership with other bodies, including some additional third party funding that they get, we have made a recommendation in the external audit report that, going forward, when undertaking those partnerships, those funding agreements with the likes of Sustrans, etc, that they at that point in time determine who owns what asset and what that asset actually is and therefore that would help them to account properly for it if it is their asset. It is something that they just did not have the controls in place in the past to be able to properly evidence for audit purposes. Do you see them making sufficient progress in that whole area to reconcile that? Are they making any good progress or any progress towards that? That is really complex. Does entangling that being done? From what we saw, a huge effort was made during the audit process to get evidence of the existence and to understand the importance of that rights and obligations in existence. That is something that they have endeavoured to do for all assets that ultimately go into the final fixed-asset register. In some respects, that part, whilst complicated, is an easier thing for them to do than necessarily some of the judgments and estimates on, for example, the cost data around Canals length. Okay, thanks very much. That last query from me is about a comment that you made earlier, about errors in the accounting statements. I will just read this, so I will get the wording correct to Joanne. The reconciliation of the reconstructed closing balances to the figures in the draft accounts identified several errors. Can you just flesh out for us a wee bit what are those errors and what has been done to correct that? Through our external audit report, we highlight about 10 pages of adjustments to the unoddied accounts. Some of those adjustments were identified errors where, for example, we had an evaluation report that did not reconcile to the TB. There were reconciling differences, so they needed to adjust for that. The trial balance drives their accounts, and that is their financial ledger. They made some changes there. There were a number of errors that we identified that come back to the nature of the disclaimer opinion. We knew that there was an error if we extrapolated it because we sample tested it. It would be highly material. Some of those were around the categorisation of assets under construction, whether the additions that they put through in 2021-22 were in fact additions in the prior year, so should have been in the prior year accounts. When you have something as an addition, if it is already in operation, then it should be valued, and that obviously therefore had not been valued. There was an asset that they made a decision to retain at historic cost, which we were not clear of the judgments on. We felt that that should have been included within the valuation. There was a challenge about the residual value of the canals and at what time period would that be. Some of those are just highly material, so they judged that a residual value of the canal would be 12 years. They did not necessarily have evidence to support that justification, but if that changed by even 10 years instead of 12, that could be a 30 million pound difference in the accounts. There was a series of errors where we have known errors that they will need to correct and other errors where they need to go and investigate to make sure that what they put forward is a complete and accurate accounting record. That seems like plain and simple accounting errors and a lack of awareness of accounting practice. To me, could you give us any assurance to one that that is being addressed and that error rate will not be seen in the next set of accounts? Some of that comes back to the earlier points around the capacity of the finance team plus the turnover in the team and the skills and capacity. I am aware that Scottish Canals have done effectively a restructure of their finance team and introduced two new posts to increase the capacity and skills within the team. That is a recommendation that we have in our external audit report, which Canals management have signed up to take action from. By strengthening that team, the quality of the accounts and the evidence for audit should improve. If you are involved, you will be keeping a close eye on that clearly for the next time round. That will be Joanne's final audit report on Scottish Canals, but there is a new team of auditors who will do just that, Mr Coffey. I will add to a couple of Joanne's points. Joanne said that there are 10 pages of errors reported in the external auditors annual report that accompanies the accounts. That, in itself, is most unusual. You rarely see a set of an audit report with that number of errors reported or requested changes. I bear in mind that that is based on sample testing. Auditors test samples of transactions or assets and then apply judgment or models to see what that means for the population. All of that brings back to the range of factors that Grant Thornton built into their judgment that a disclaimer was the most appropriate opinion on the accounts. One of the points made in the report is that Scottish Canals need to consider the value for money of their approach to those valuations, including whether or not they are getting value for money from consultants that they engage. Have you seen any evidence that they are actually doing this? We make this point, convener. We refer to the fact that Scottish Canals has spent £500,000 on consultants to support the asset valuation activity in the year and plans to spend a further £100,000 in the 2022-23 financial year that has now concluded. We also note in the report that, in commissioning the work from the consultants, that Scottish Canals does not retain ownership of the valuation model. I think that it would be a question for Scottish Canals to consider was that a good decision to make, given the importance of the model, how that connects to a fixed asset register, which also was not part of the overall commission to have an operational fixed asset register. We have not arrived at a view on that, but we think that it is a very relevant factor for Scottish Canals to consider. I emphasise on the point that Mark made earlier that it is the best approach to plough on and get to a conclusion on this methodology, or are there other routes to arriving at a true and fair set of accounts? It is relevant that this is again still considerable sums of public money that has been invested in consultants to support an approach that has not yet borne fruit. Can I move on to a different question, which is about the leadership of the organisation We are aware, of course, that the former chief executive left and, I think, as recently as May of this year, a new chief executive has started. I mean, was there a gap between that position being filled, and if there was a gap, has that contributed to some of the difficulties here? I'll ask Joanne actually just to set out the time scale and I'll maybe come back in after. The previous chief executive left the organisation at December time. That was a planned exit, effectively, in terms of the five years that she was chief executive of Canals. They took steps to appoint an interim chief executive, who was effectively the chief operating officer for Scottish Canals. He has been with the organisation for many years and is very familiar with Scottish Canals. He fulfilled that on an interim basis until the new chief executive started last month. I don't personally think that that contributed to this. I think that the interim chief executive was aware, was within the organisation in the prior year when the disclaimer was there, was a member of the board that also supported the project plan. The knowledge and experience of Scottish Canals, the challenge of the valuation and what they were attempting to do, was well known across the leadership team. The change in chief executive didn't, in my view, impact on that. That's a fair assessment that Joanne makes, convener, but there's a significant onus on the new chief executive to take his own view about the approach that he's inherited and whether that is going to produce the results of a compliance set of annual report and accounts valuation methodology. It also links to the strategic purpose of Canals in its wider sense. Are Canals an operational asset? Is there an alternative approach? It's part of the wider strategy of the organisation that incorporates both the maintenance of the canal network alongside, as Joanne mentioned earlier, some of the other activities that Scottish Canals has engaged in over the past 10 years. My final question is really about the relationship with the Scottish Government's sponsor division. We know that we were told last year that Transport Scotland attends board meetings of Scottish Canals. We were told in evidence last year that Transport Scotland and the expression used was sits hand in glove with Scottish Canals. Again, is that a characterisation that you recognise? Certainly, we would recognise that Scottish Canals attends board meetings, the phraseology I'll leave for others to describe, but I think it brings us back to when the judges were making the report, convener, is that the sponsor team at Scottish Canals will have a very important role working with Scottish Canals to determine the way forward to arrive at evaluation approach strategy that can be fit for purpose to deliver a clean set of audit opinion in future. Mark Taylor mentioned earlier that there was a risk warning of this being a possibility as far back as 2012, so we're almost a decade on and still disclaimers are being issued by the auditors. There are still some pretty fundamental problems. There's turbulence in the finance team and the leadership of the organisation and so on. Why isn't some stability into that equation being injected by Transport Scotland? I think that we've taken that in reverse order. I think that the stability point is an important question for Transport Scotland, convener, about their views on the way forward. In terms of the chronology going back to 2012-2013, when it became a public corporation, and then another committee has engaged with the Office for National Statistics on elements of the history of it, the Scottish Government in discussion with the Office for National Statistics and Scottish Canals recognised that a public corporation wasn't the best descriptor of Scottish Canals core purpose and activities. That, as we know from last year's evidence and reflected in today's report, led to a point that it then had to adopt different accounting practices when it became a non-departmental public body. There is a great deal of history into where we've reached, but it needs to be taken the opportunity that exists now with the new leadership of Scottish Canals together with the sponsor team and say, well, what is the best way forward that's going to deliver value for money and also a clear compliance set of annual report and accounts. Okay, well thank you. We've run out of time, so I'm going to draw this part of this morning's session to a close, but can I thank you, Auditor General, for your evidence this morning to Mark Taylor and to Joanne Brown, who has been moved on because it's a routine thing. It's not because you've done anything wrong, Joanne, is it? Thank you all for your evidence. It's been very illuminating and we'll need to consider what our next steps as a committee are in response to the evidence that we've heard this morning, but I now propose to suspend the session in order to allow for a changeover of witnesses. Well, can I welcome everyone back to this morning's public audit committee? The second principle item on our agenda is consideration of major capital projects. I'm delighted that we've got four witnesses from the Scottish Government here to help us in our inquiries about major capital projects. First of all, Alison Cumming, who's the director of budget and public spending in the Scottish Government. Also, Alison Irvin, who's the chief executive officer of Transport Scotland, is very welcome. Next to Alison is David Srini, who's the director of environment and forestry at the Scottish Government. Finally, Kirsty Burge, who's here from the directorate of energy and climate change, so you're all very welcome. We're particularly interested in focusing on the Government's approach to net zero and that whole agenda around climate change targets. We are a little bit pressed for time, so I don't think there's going to be an opening statement. We're just going to go straight into the questions and I'd like to introduce Bill Kidd, who's going to ask the first couple of questions. Bill? Thank you very much, convener. Thank you for being here today, panel. In terms of the Scottish Government's infrastructure improvement plan, the IIP, and the report, as far as net zero and environmental sustainability theme is within the report, to what extent do budgetary challenges impact on the delivery of those programmes, please? Thank you. I'll take that, and if colleagues want to come in and add things specific afterwards, please do. We manage the capital programme across the entirety, across all portfolios. Members will be aware that we did have an emergency budget review last year, which did necessitate some capital savings. At the nature of that, there was an element of what savings were practically possible in the year, as well as being able to apply strategic lines to protect the areas that are of greatest priority and greatest potential impact. The capital position overall has been impacted by the overall fiscal position. We are seeing a very challenging capital funding outlook. We also had negative consequentials in 2022-23, which means that we often have to prioritise in the year. However, ministers are very clear about prioritisation that projects that support net zero are one of the top priorities, so we would be protected to the extent possible. Subject to the considerations that I gave about when we were looking at in-year savings, you have to look at what can practically be paused or halted at that point in the year. On the basis of financial issues and others, we are assuming that the rationale behind interim emissions targets have not been missed so far. Will delays to delivery or scaling back of the net zero and environmental sustainability programmes cause further impact on the Scottish Government's ability to meet emissions reductions targets coming up? I will invite my colleague to respond. I will maybe build on what Allison said. Budgetary challenges are very real and they come at a time when we are needing to invest significantly in the net zero transition, obviously, for payoff well down the road. That said, the Scottish Government has increasingly invested in the net zero agenda. In the CSR back in 2021, there was a significant step-up in our net zero-related investment. In the revised CSR allocations that Allison just talked about, there was a commitment to invest £5 billion in rail infrastructure. Public transport is a critical component of investment in the net zero transition. We have committed to investing £1.8 billion in heating buildings and there is additional funding on top of that. We recognise that it is a challenge. We missed the most recent emissions targets, that is correct. It was a fairly narrow miss, but I missed none the less. We will continue to focus closely on net zero as we work out capital funding allocations as we go forward. The final thing that I would say on that point is that public sector funding plays a very important role, but we are increasingly looking at how we even more effectively leverage in private sector funding to help support the transition. It was a narrow miss, but I missed it anyway. The latest analysis shows that emissions from, as you have mentioned, both transport and buildings during 2020-21 increased emissions. How, using that information, will you be able to impact plans for future infrastructure investment to tackle any such problems going forward? Our three biggest emitting sectors in Scotland are, as you say, transport, industry and buildings. If you look at our capital spending allocation, areas in which we have some more devolved powers, particularly transport and buildings, are areas that receive the significant focus of our capital investment on net zero. Our spend is targeted towards those particular areas. As I said, there is £5 billion for rail infrastructure, and there is more. There is £1.8 billion for decarbonising our buildings, which is a significant step up in this Parliament compared to the time before. I suppose that the other thing that I would say on this is that it takes time to deliver the investment and for the investment to have an impact on emissions reduction. A lot of what we are doing, not everything but a lot of what we are doing, has substantive lead times to deliver the emissions reduction. Like most people, I suppose, you think of emissions. You think of transport. You think of vehicles and such like that. Emissions are coming from those, but most people do not really think too much about buildings in terms of emissions coming there. What sort of ways—in fact, because a lot of buildings are a majority, I suppose—are not actually under direct control of the Scottish Government? What sort of ways can the Scottish Government have impact on addressing emissions from buildings? In a number of ways. It is partly through regulations and then it is partly around providing support for individuals and businesses and leveraging private sector finance where we can. On regulations, we have just laid regulations to require zero emission heating in new builds. Subject to that passing, that will have a significant impact. We are also looking at consulting on a bill to regulate for improved energy efficiency and zero emission heating for homes and domestic buildings. The intention is to do that this year. That gives you a sense of the kind of things that we are doing on the regulatory front. Using the regulatory tools to apply across many areas of emissions reduction, we will need regulation along with financial support. On financial support, as I mentioned, we have a overall commitment of £1.8 billion investment for this Parliament. That covers schemes. I can go into explaining a little bit—I do not need to do it now—about how we will do the emissions reduction in buildings. It is mainly through heat networks in Scotland and heat pumps. We have a number of schemes—loan and grant schemes—to support individuals, companies and housing associations to decarbonise their buildings. That was the one that I was wondering about most as private citizens being able to help to address those issues. Shall I say a bit more about those schemes now? Kirsty, to get into too much detail about particular projects. We have questions about some of the projects in particular. We will come back to those in the course of the discussion over the next three quarters by now. Willie Coffey has got some questions to put to you. Thanks, convener, and good morning, everyone. I wonder if I could just ask you for a few comments on the impact that the current economic situation is having in the programme, particularly issues about supply chain and inflation and so on, and just what impact that is having, Alison. Thank you. As we reported in the medium-term financial strategy that was published in May, the OBR forecasts and our expectations is that we will have a 7 per cent real-terms reduction in our capital funding between 2023-24 and 2027-28. We have seen significant pressures on from construction inflation, which peaked at 25 per cent last summer. High is coming down, but what we are finding is that higher price levels are now effectively baked in, but we are not going back to pre-shock levels. That is undoubtedly having an impact on our ability to deliver the infrastructure investment pipeline as originally intended to the original timescales. That is why ministers are intending to do a further reset of the capital spending review that will be published alongside the budget for 2024-25. That gives us an opportunity to reset that pipeline also to extend it out by one year to 2026-27, recognising that things will take longer to deliver and, as flagged in the policy prospectus, to ensure that we are directing our capital investment to the Government's top priorities and the specifically referenced net zero and the sustaining public service infrastructure. The inflationary environment and the impact flowing through into UK Government funding decisions are having a significant impact on the extent that our investment can achieve in Scotland in the pace at which that can be delivered. I was just going to follow up and ask you about that, but the impact on the programmes might be. You have said that the Scottish Government will try, as best as it can, to protect and prioritise net zero projects. Is that the expectation that the members can take an assurance that net zero projects in the capital programme will be given its priorities as far as possible? It will be given priority and we have budgetary tools that will help us to provide advice on that prioritisation. It is a priority alongside public services infrastructure, so we cannot direct the whole capital budget to net zero and there needs to be that balance. However, as Kirsty alluded to, we are looking at the various range of measures and models that might be available to help to maximise investment from different sources across the range of projects and programmes in the infrastructure investment pipeline, so that we can supplement the public capital that is going into those. Are you able to give the committee any hints or otherwise about potential projects that might suffer delay or pause or even cancellation? Could we draw you on that at all and give the committee some kind of inkling about what that might look like? I probably won't surprise you that I can't be drawn on specific projects this morning, really because the decisions have not yet been taken. We're working through that prioritisation with ministers at the present time and bringing the evidence to them about which investments can have the greatest impact on emissions and on other priorities. When will the Parliament see all that data? It will be when the draft budget is presented to Parliament. There's some engagement going on between the Deputy First Minister and the Finance and Public Administration Committee at the moment on the date for that draft budget, but there's some dependencies on when the UK's budget statement is in the autumn. However, I would expect roughly around the same time as last year, so around December time, subject to the UK timings. Many thanks for that. I think that Craig Hoy may ask some questions in this area as well. Thank you, convener, and good morning. Just go back for perhaps a delve into some detail about perhaps a couple of infrastructure projects. The Cabinet Secretary for Finance has said that there will be a prioritisation exercise in relation to infrastructure spending. You said a little bit about how you will approach that in relation to net zero and public services. Is it safe, therefore, to say that road projects would be given less prioritisation than perhaps net zero, or can you say a conflation of the two in relation to road infrastructure with achieving net zero objectives? My colleague Alison Irwin may want to say a little bit further on roads, but overall there's no presumption against investment in roads in the prioritisation framework that's coming forward. There's clearly still a need to invest in road projects, and ministers have made some very specific commitments in that regard. We will be looking across the piece at net zero and other areas where we need to continue to invest in our public service infrastructure. Alison Irwin might want to say a little bit more about the planned investment in roads projects. I'll add shortly to what Alison said. There are various reasons why you will want to invest in transport infrastructure. Ministers have been really clear about their net zero ambition and the prioritisation that comes with that, which is why, within the transport budget, we spend more than half of our budget on public transport and other sustainable modes. That's all set out within the investment hierarchy that we adopt as well. Within that context, people still need to get about, and there are other reasons why we might want to invest in our road network, in particular in thinking about road safety, for example, severance issues, air quality, etc. and connectivity. Has that prioritisation exercise changed at all since the Bute House agreement? The Bute House agreement has some specific commitments in relation to investment in particular net zero schemes. The infrastructure investment plan and the original capital spending review predate the Bute House agreement and had net zero as a clear priority in there. We will be looking at the full range of projects within the pipeline and in the Bute House agreement as part of the prioritisation ahead of the capital spending review reset. Perhaps this is one for Alas and obviously you'll be aware that, particularly in relation to the south of Scotland residents of the Scottish Borders, West Lothian, Midlothian, the planned intervention at Sheriffhall roundabout, which is £120 million potential intervention to relieve congestion. What is now a very congested pinch point was, in 2020, held up quite significantly by a campaign led by the Green Party, which now potentially means that there is a local public inquiry under way earlier this year. Do you have a revised timetable potentially for the intervention at Sheriffhall? Is this maybe one of those areas where there is a reprioritisation? Obviously, cars are sitting there all day, at any given time of the day, so they can be idling huge tailbacks. That will be as an environmental and an economic cost. Would it be something like Sheriffhall fitting to the broader prioritisation exercise, given that one party within the coalition clearly are opposed to such interventions? Deal with Sheriffhall specifically and then talk about the rest of your comments in more general terms. Sheriffhall, I think that we've completed the public inquiry work for that and we're waiting on the response coming back in the decision made. As a result of being in that position, we're not able to determine a programme at this point in time. In answering more general terms in terms of Sheriffhall and a number of other projects that we have within the transport portfolio, what I would say is that the comments that my colleague Alison Cumming made at the start in terms of the squeeze on the capital budget and that prioritisation exercise will need to come through before we're able to say one way or the other about a whole range of projects within the transport sector as well as within other sectors. I'm sorry that that's not specifically answering your question but it's probably as clear as I can be at this point. In terms of the presumption of priorities, it would be safer to say that you can see investment flowing, particularly given that you're talking about a 7% reduction in the capital budget, that investment flows away from those sorts of projects and towards public transport and zero on public services. In terms of managing my constituents' expectations, is that the kind of expectation management that we should be engaged in? If I can take you back to one of the very first questions that your colleague Mr Kidd asked in relation to the climate change targets, transport emissions is the biggest emitting sector that we have in Scotland. That was one of the sectors where we saw quite a significant rebound from the previous year because activity levels had been vastly subdued during the pandemic. You can see how stubborn, if I can use that word, and challenging, reducing transport emissions are. It's not just about the infrastructure, although the infrastructure is really, really important in giving people alternative bits, about changing behaviours and drawing in other policy areas into the mix. I'm particularly thinking about how transport interacts with land use planning. All of that needs to come together. I wouldn't want us to be thinking that we will be able to solve the transport climate emissions challenge purely by infrastructure. There are a whole number of dynamics that we need to play into that. If I may just have one question in relation to the oncology enabling projects at Edinburgh Cancer Centre, there has been approximately a one-year delay and the cost of the project is probably about 10 to 15 per cent over budget. Can you just flesh out what the reasons were for both the delay and the increase in budget? Sorry, I don't have that detail to hand with me today, but we can write to the committee with that information. Okay, thank you very much. Yes, we're trying our best to be strategic this morning and not get into too much pork barrel politics, Mr Hoy. I'm going to move on now to the deputy convener, Sharon. Thank you. Good morning. In the third year of the IIP timeframe, reported spend on the programmes under the net zero and environmental sustainability theme appears to represent only around 13 per cent of the total planned expenditure. Is spending expected to reach the amounts envisaged when the IIP was published even with a one-year extension to the programme? In overall terms, I would reinforce if we look at the decisions that ministers took in the Scottish budget 2023-24, that reflected £2.2 billion of low-carbon investment in Scotland, which is the highest amount spent on low-carbon capital investment to date, just to illustrate on the basis of decisions that have been taken up until now that show that commitment to increasing the investment in low-carbon capital. We can't comment on specific sums today because the prioritisation exercise is still going ahead, but what we're seeking to do through that prioritisation is to focus very much on the outcomes that can be delivered through particular programmes and to see how they can maximise their impact on net zero objectives, particularly in due course around emissions targets. Can you tell us which specific programmes are likely to experience lower than expected spend or require extended timeframes to achieve delivery on the scale originally anticipated? Those issues are all being considered by ministers at present and the outcomes of those decisions will be presented to Parliament in the capital spending review reset alongside the draft budget. Has progress in net zero and environmental sustainability programmes been affected by lower than anticipated uptake from private sector and local authority partners? If so, what's been done to address that? I know that we have encountered some underspends on particular schemes where demand hasn't picked up quite as quickly as our original projections had led us to set the budget at a particular level. I can come in and say a couple of things on buildings decarbonisation. Partly some of that was still in the period when we had a bit of Covid overhang. When people are looking to get folks in to install a heat pump or make energy efficiency measures, there was a period when that was a little bit slower than we had hoped for. Some of those initiatives are fairly new. If you take the scale of investment and support for heat networks funds, it takes a little while to get the pipeline up and going. However, we are going back to the capital funding programmes that deliver heat decarbonisation and energy efficiency measures in people's homes. What we have seen is a real steady uptake of take-up last year, with a significant increase on that on the previous year. On decarbonising homes, we are increasing our public awareness and marketing on that going forward to increase uptake. We are seeing a clear upward trajectory in those areas, just to take buildings as an example. Who sets the targets? When you are getting in to do targets for transport and any kind of infrastructure and you put out your announcements, who is it that sets the targets and ensures that they are smart? Just make sure that the figures are not pulled out of thin air. I am just going to look at some of the figures that were in it. You have got the bus priority investment, which says that it was initially £495 million, but so far it has been allocated 26 million. I know that you are still reviewing things to see where you can make savings. One of the other things that I was looking at as well was the housing target. It seems to be an 11-year plan. It has been put in that it is 110,000 houses between 2032, which works out about 10,000 houses a year. However, going in that, we can look as if we are 12,517 short. I know that we are still to get to the end of this financial year. Is there workings in the background that show how many houses you were expecting to build each year, or more information that can be shared so that we know where we are in the investment programme? Overall, for any capital investment programme, there will be a business case to support the investment decision and a delivery plan alongside it that is subject to internal governance and ultimately decisions will be taken on where targets are set by ministers based on the advice and evidence presented by civil servants. In terms of the affordable housing supply programme, if the committee would like additional information on that, we can provide it to you. However, it is a 10-year plus programme, so there are plans over how that investment will be phased over the period. I understand that we remain on track to deliver the overall target at the end of the period. I will pick up on that theme. Sharon Dowey mentioned the future transport fund, the bus priority improvements, which I presume is building bus lanes and trying to make sure that buses get priority in traffic even across the sheriff's hall roundabout. When we look at the budget headings, planned expenditure on that was £495 million, only £26 million has been spent. Scotland's heat network, £300 million in the budget, only £6.4 million has been spent. Low-carbon manufacturing challenge fund, £26 million in the budget, only £3.25 million spent. Emerging energy technologies fund, £180 million planned, only £10 million spent. I do not miss out on Mr Senior at Arini. The peatland underspend has been an issue as well, has not it? I know that Rhoda Grant has written to the cabinet secretary who has confirmed underspend on peatland restoration £12 million in 2021, £7.4 million in 2021-22. Why is there such slow progress in these areas? Let's talk about the bus priority fund. Can you relate it back to the question that you asked as well, Ms Dewey, about the role of other people and other actors in that? When the bus priority fund was launched, £495 million was to say a signal of ambition from ministers about how important the bus priority and the bus sector are to the people of Scotland and the contribution that it makes to the transport offer. Since that scheme was launched, we found that there have been fewer schemes that were what I would describe ready for construction than we had hoped. There is a lot of work going on at the moment with local authority partners and CPT and COSLA across the whole of the country looking at a whole range of business cases. That is predominantly where the £26 million that has been allocated is going to. The anticipation is that that will give us a pipeline of projects that we can then start to roll out. I will stop there. To Sharon Dowie's point, those figures were not just plucked out of thin air. They were an informed assessment of what was likely to be needed in order to help to meet the Government's target. Absolutely, they were informed. Now, what we are trying to do with all the various different partners is to pull that kind of evidence base and the business cases for all the offers that we have on the table to make sure that it delivers the outcomes, which might seem painful in terms of the timescales, but is really good governance. As you all know as politicians that you are, once you try to take away road space—whether it is for bus priority or active travel—there is quite a lot of community consultation and engagement and views that need to be taken on board. I think that that is the right way that we do that, because we need to bring people with us as part of that journey to overall climate emission reduction. I get that, but I also am taking cognisance of the fact that the previous First Minister declared that we had a climate emergency, which suggests that there should be some fairly urgent action taken rather than a gradualist approach. I do not know whether Mr Seniorini can speak a little bit about what is happening with the peatland restoration and why there is a hold up there. I am happy to do that. In summary, peatland restoration is in a phase of really trying to build capacity, create demand and get to the delivery levels that it needs to get to. We are at the early stages of what is going to be a 10-year programme. It is about generating the demand for projects and having a good process to get those projects assessed and approved and the due diligence done. It is about the people, the equipment and the skills. In the past year, we are making progress. We have had 7,500 hectares restored. In the last year, that is 38 per cent up on the previous year. We are making a step change. We are building that contractor capacity. It is quite a skilled operation. We need the machinery, so we are investing in training and capacity building. The fact that we can say that this is a 10-year programme gives the private sector that confidence to invest in those skills and to invest in that machinery. I acknowledge that we are below where we would want to be, but we have made progress in the last year and we have confidence that we have the right analysis of that situation. To Sharon Dowey's point, why set a target if it is not an informed target that is realistic and achievable? That is a legitimate question that we are posing this morning. The other area in that restoration of nature is the investment in woodland and forestry. It is not quite meeting its target. Does that take the shape of grants to private landowners and to some of the equity funds that are involved in the carbon offset racket? I would say that forestry is perhaps a more mature operation, but it has plateaued over the last three or four years and, to meet the targets, it needs to increase again. On the targets themselves, the targets are set as part of the climate change plan, so the statutory targets for emissions reductions are turned into individual targets. They are very ambitious but they have to be achievable. On forestry, again, there is a lot of read across to the peatland restoration. It is about skills, capacity and the process of application and approval of those grants. Last week, the Cabinet Secretary announced the whole set of actions and investments in that skills and capacity area. I turn back to Alison Irving for a particular area of interest in the whole question of the net zero targets and what we are doing with transport, which you quite rightly say, first and foremost, is about getting people on to public transport. However, one of the other goals that the Government has set is about electric vehicle charging networks and so on. I have noticed recently that an announcement was made that the Government was withdrawing from the EV charging network Charge Place Scotland and leaving it to the private sector. Is that correct? Those would not be the words I would use. Choose your own words. If I may choose my own words. I cannot remember now which of you asked the question about the role of various different actors in this aspect of business. There is a role for Government, particularly in the EV charging. Scotland has a really good track record in terms of leading the way, which is why we have more EV charges in Scotland per head of population across the four UK nations. There comes a point where the role of Government is to give other actors that kind of space in which to invest, because, as is well recognised, this is not something that Government can or should afford on their own. The work that we are doing on EV charging is about enabling that. It is about recognising the great work that has been done, the great work that Charge Place Scotland does, but realising that, in order to get the pace behind it and the scale of investment that we need in EV charging, etc., we need to change the way that we do that. That is the work that is under way now. At the moment, Charge Point Scotland's network of chargers is already a mix between ones that Government has funded, ones that local authorities have funded and ones that are privately funded, etc. The work now is working with local authorities or in a regional context, depending on the area, to understand what the needs are, what the demands are across the various different types of use of EV charging that we will need, whether that is retail or whether that is residential type things, in order to come forward with a plan that gets us to that point where we have the EV charging network that we make. We are in a kind of a transition, that is how I would describe it. It is reported that £65 million of public expenditure has been invested in the EV charging network. What happens to that? Do we get that back? That is the level of investment that gives you the EV charging network that you have on the ground. That is what I would describe as the pump priming. I do not think that it is as simple as to say whether we will get it back. I think that it is about where is Government best able to use its investment capabilities and its legislative and direction capabilities to effect that behaviour change. I would say that. Who will own those charge points in the future? I cannot answer that question, but I am happy to write to you if I am able to give you the detail. Okay, right. Thank you, fair enough. Just one other thing for me before I go to Bill Kidd again, and that is just this whole question about the assessment, the cost-benefit analysis that is made on a road project, a road improvement project, the A83 or whatever it is. How do you reconcile that with the net zero targets? What is the criteria that is used in order to say, yes, that is going ahead or no, that is not going ahead? Or yes, that has been prioritised or no, that has been de-prioritised? Prioritisation takes place at different levels. At the overall Scottish Government level, we will take into account prioritisation of some large-scale projects in terms of determining the allocations that go to different portfolios. At portfolio level, there will also be further more detailed prioritisation taken on the projects within that area. Alison Irvine may want to say more on the letters in the right order, STPR2, apologies, in terms of the work that has gone there in a very detailed methodology in Transport Scotland to look at the transport projects overall. There is no—I would say that it is obviously not an exact science—how you can rank projects across different policy objectives. We are investing based on the recommendations of the Infrastructure Commission for Scotland on developing a new investment hierarchy and prioritisation approach for the next capital spending review. The Scottish Futures Trust is working with us to develop that. In the meantime, we are looking at the individual value-for-money assessments through business cases that are produced for different projects. There will always be an element of political prioritisation of the projects that are considered to be value-for-money. I have one request, which I am really making on behalf of the clerks and SPICE. Quite often, those programmes have a change of name—Kirsty Burge knows exactly what I am talking about—especially in that whole domestic marketplace and so on. We can make sure that we can follow the thread of where different programmes go when their name changes, so that, when we produce those major capital projects updates for us, we can see what is what. I am now going to invite Bill Kidd to ask a couple more questions. On the basis that you get nothing for nothing, there has to be funding for all this infrastructure. The IAIP progress report noted that the Scottish Government has committed to a sustainable deployment of revenue, financed investment and capital borrowing to ensure that there is no undue financial burden on future policy choices. I do not know if you might be able to give us an answer to whether the Scottish Government intends to make greater use of its capital borrowing powers to support infrastructure investment in the face of a declining capital budget. If there are any plans for any of the programmes under net zero and environmental sustainability to make use of revenue financing. Taking the first point on capital borrowing, our capital borrowing policy is set out each year in the medium-term financial strategy. The fiscal framework that was agreed with the UK Government allows us to borrow up to £450 million in any year, but there is also an aggregate limit on the outstanding debt at any time of £3 billion, which means that we can't borrow at that full amount every year and remain sustainable and have borrowing available to us. The policy has determined that borrowing £250 million per annum over a 15-year term is the sustainable level that we would never breach that £3 billion ceiling. Our policy is to anticipate up to £450 million each year when we set the capital funding envelope for the budget, which would come about £250 million from borrowing £200 million to recognise there may be some other flexibility in the year, in your consequentials to UK Government funding changes, for example, but that if they don't come to pass, we have the scope to increase borrowing. Within the terms of operation of the fiscal framework, the Government is making full use of its capital borrowing powers and planning its capital expenditure. The capital borrowing framework will be subject to consideration in the fiscal framework review that is under way between the Scottish Government and the UK Government. Overall, given the financial challenges that I outlined earlier in the session, we will need to look creatively at what approaches that represent good value for public money can be deployed in order to support the capital funding that is available, given that our capital funding subject to borrowing is essentially determined by UK Government decisions. At the moment, I wouldn't rule anything out in terms of looking at different funding models, be it revenue finance models or looking at ways, as my colleagues have referred to, of incentivising more private capital investment in some areas in the net zero investment space. However, all those matters will be weighed up and considered as part of the capital spending review. That is including the plans for any programmes under net zero and environmental sustainability, covered in the same way? Yes, in exactly the same way. I would add that ministers will be very thoughtful of the learning from previous revenue financed capital schemes and taking into account that value for money will be at the heart of any decisions in terms of using different funding or financing models. Willie Coffey has another question to come in with. It was just on the question that the convener led to mention the A83 and how it balance up investment in things such as road infrastructure and demonstrate an overall gain for net zero. Am I right in saying that that is who the rest will be thankful is on the A83 and that in 2020 that road was shot for 200 days? If you are investing in a repair or an upgrade or whatever programme project to solve that problem, are you able ultimately to demonstrate that there is a net zero gain there because you are not doing the 59-mile detour for vehicles for 200 days in a given year? Do you do that kind of balancing act to demonstrate to the committee that that is what is going on? The A83 is a really good example of how, in the transport appraisal process and decision making process, you need to draw on a range of factors to help to inform decision making. The A83, as you rightly said, has been subject to some quite significant landslides. That is a result of climate change because we are seeing increased rainfalls and the stability of the mountainside. That road provides absolutely fundamental access to vast swathes of Scotland's geography and any time that it is closed, that is impacted. You are drawing in all those factors into the appraisal, the business case effectively, to help ministers to make informed decisions and ultimately the decisions are for ministers on how they prioritise it, but that is how you do that. Yes, the climate impact associated with a road improvement programme is part of that mix, but it is not the only part. Thank you, that has been very helpful. I ask each of you whether you have any reflections on the Audit Scotland report that came out recently that spoke about the extent to which there is joined up working across Government in pursuit of net zero targets. Let me read out a couple of the conclusions from that report. The Auditor General concluded that the Scottish Government does not routinely carry out carbon assessments or capture the impact of spending decisions on its carbon footprint in the long term. He also said that the Scottish Government does not assess how far the policies outlined in the climate change plan update will contribute to net zero. The Scottish Government does not know how much the policies proposed in the current climate change plan update will cost. Do you think that that is a fair assessment? I start with you, Alison Cumming, perhaps. I would point to the work that is under way for my interests under the joint budget review, which is looking at how we can improve the transparency of the decisions that we take and support evidence on how decisions are taken on allocation of resources, both capital and resource budgeting, in relation to impact on climate change and emissions. We are starting to make progress in implementing the recommendations of that review. We have introduced a dedicated climate change narrative to the budget, and we are developing that enhanced taxonomy of Scottish Government spend to support the Parliament and others in scrutinising those decisions. I would say that we are making significant progress in looking at how we can take that evidence base in to support the decisions that are taken within the budget and applying that across all portfolios and looking at ways in which the investment decisions that are taken, be it health justice as well as in the net zero portfolio, can have the maximum impact on our emissions targets. I will add two things to what Alison Cumming said. One is that this is genuinely hard and that no country does it well. There is not a template sitting out there that we could just take and deploy for our purposes. The work that Alison described is our work and we look at what people are doing internationally as well to improve methodology for assessing the carbon impact. Your example of the rest and be thankful is just a good example of some of the detailed challenges around that. The second point that I would make in response to your question was about the Audit Scotland report on costs and impact assessment. We got new, really ambitious climate change targets in Scotland back in 2019. That was voted in by all parties. It was a cross-party agreement on that. That was in 2019. The year after that, we agreed to publish an update to our climate change plan. We are required by law to produce a climate change plan every five years, but given the increased ambition on our targets, we thought, right, we better get on and set out how we plan to meet that. Normally, it takes a good two and a half years, given that the climate change plan covers everything, to produce a full climate change plan. That was an update—a sort of interim climate change plan, if you would—and just in the time available, we were not able to set out detailed information on costs and the specific emissions impacts. However, what we are now in the middle of—I am sure that we will be at this committee and others to discuss this—is to produce our next full climate change plan. The intention is to lay that in Parliament in November this year, and that will obviously be scrutinised. In that plan, the work that we are currently doing, we will be setting out the information on the costs and the emissions impact of the policies. There is that work alongside the work that Alison described, on how we, in general, not just for the climate change plan, but also when we publish budgets and when we take policy decisions to improve our assessment of the emissions impact of our policy decisions. I do not know whether you want to add anything to that. I can talk about the peatland and the forestry aspects of it. Just to paraphrase, because it is hard, but we are making progress. On forestry and peatlands, there is a lot of really good science, there are lots of models around the carbon capture or the carbon emissions avoided that come from our projects. Again, we are at the start-up phase or at the learning phase, so we are understanding and we are thinking about the economies of scale as we scale up. We are gathering a lot of evidence and a lot of data on both the emissions and the costs per hectare or per ton of carbon. We are feeding in to Kirsty's climate change plan to support that decision making. Thanks. Alison Irwin? Yes. To add to that, it is hard, but we are making progress theme. We have updated our appraisal guidance to make the climate aspects of appraisal more explicit. What has happened is done shortly after the climate change plan also reflects our commitment to the 20 per cent reduction in car kilometres so that that is taken into account. There is progress there. I would add a couple of other things. For some of the technologies, particularly in transport, do not exist at this point in time or they are very embryonic. Therefore, it is hard to work out how much it will cost. It is hard to know what that would look like and how quickly that can be ramped out, but we know that that is the area in innovation where we need to drive that degree of change. We are doing everything that we can just as Kirsty and Alison have outlined. Okay, thanks. When we return after the summer recess, I think that we are going to take more evidence on that with the DG net zero, so we will get his assessment of that. However, as a public audit committee, obviously data measurement and assessment are really important, as is the word transparency that Alison Cymru used. With that, thank you for being transparent this morning and appearing before the committee. It is greatly appreciated. I thank Alison Irwin, David Srini, Alison Cumming and Kirsty Burge for joining us and giving us of your time and your empirical observations about how things are working in government on these important questions for all of us. Thank you very much and I am now going to move the committee into private session.