 I welcome everyone to this, the third meeting of the Public Audit Committee in 2022. The first item on our agenda is to agree to take agenda items 4, 5 and 6 in private. Are we all agreed on that? We are agreed, thank you very much. We've got two principal items on our agenda this morning. One is to look at the Audit of the Commissioner for Ethical Standards in Public Life in Scotland. First of all, we are going to continue our inquiry into the Audit Scotland report into the Scottish Government consolidated account. I want to welcome this morning the Auditor General, Stephen Boyle, who joins us in the committee room. Delighted to see you here, Auditor General. Joining you online is Michael Olyfant, Audit Director and Helen Russell, who is a senior audit manager audit services in Audit Scotland, who joined us last week. Before I begin the continuation of questions on the consolidated accounts, I think that it was worthwhile, given that Audit Scotland, along with the Accounts Commission, produced an overnight report into social care. I think that it was worth asking the Auditor General to elaborate on the principal lessons from that. We will, of course, as a committee, turn to that for an in-depth discussion, I'm sure, at some point in the future. The thing that struck me about it was the paragraph that said, regardless of what happens with reform, some things cannot wait. A clear plan is needed now to address the significant challenges facing social care in Scotland, based on what can be taken forward without legislation that could provide strong foundations for a national care service. I don't know whether Auditor General wants to say a few words about the report. Good morning, committee. Many thanks indeed. You are right. We are very much looking forward to briefing the committee at a convenient date for you on the joint publication this morning between myself and the Accounts Commission on the Sustainability of Social Care in Scotland. The report highlights a number of components of the circumstances of social care, the real challenges facing the sector to be sustainable, and principally to deliver high-quality care that touches on some of the funding aspects and, importantly, the people component, both the recipients of care and those providing care. As I mentioned earlier, the challenges facing the sector might not be able to wait before Scotland progresses with its thinking about a national care service. We look to contribute to the debate that the country will inevitably have about the delivery of social care and how we overcome those challenges as a country. Myself and the Accounts Commission have produced a drawing on the breadth that Public Audit in Scotland has that covers local government, their responsibilities and my own central government. As I mentioned, we are looking forward to briefing the committee on the briefing paper. I now want to press on with questions that we have about the audit report that you produced into the Scottish Government's consolidated accounts. Again, to rehearse with people if you are joining us remotely and you want to contribute if you are in the chat function, we will pick that up. Auditor General, as you know, if you want to delegate or ask some of your colleagues to come in to particularly develop any answers, we are keen for you to do that. I want to turn to the section in the report that is around the Scottish Government's strategic approach to investment in private companies. I would like to invite Sharon Dowey to open the questioning on that. To start off, we will press with airport. Press with airport was purchased by the Scottish Government in 2013 for £1. The Audit Scotland report, paragraph 28, states that loan support provided up to 31 March 2021 totals £43.4 million, but that was valued at £11.6 million in Transport Scotland's accounts following an independent valuation. Audit Scotland then noted that £1.2 million in interest charges have accrued during the year, resulting in total accrued interest of £6.3 million. He then noted that, in keeping with Transport Scotland's approach in previous years, the interest on those loans has been impaired to now. What is the explanation for the difference in the figures for loan support and interest charges for press with airport between the Audit Scotland report and Transport Scotland's accounts? Morning, Ms Dowey. I am happy to elaborate on both those points. I will invite Michael to come in and supplement anything that he wishes to add to my own remarks. There is clearly a long story behind the press week airport purchase and the Government's acquisition and the loan support that is provided to press week airports. There is an accounting disclosure component to this year so that all public bodies, all private sector bodies, at the end of the financial year, have to make an assessment of the value of any assets. In the case of the Government here, it is the valuation of the assets of the loans that is provided to press week airports. That assessment includes the recoverability of that amount. Although the total loan value is £43.4 million, the Government's assessment of the recoverability of that amount and what it is worth at the current date was down to £11.6 million at the balance sheet date at the end of March. Before I invite Michael in to say a bit about the interest on that, it is an important distinction between the valuation and write-off. The amounts have not been written off, but rather it is an assessment of the valuation at the date. As ever with assets, the value could increase at a future date or it might decrease further, but it is an assessment that the Government has made of the valuation. We, as auditors, are required to form a view about the reasonableness of that, and we are satisfied with the information and evidence that we have seen that that is a reasonable assessment of that. I will pass over to Michael if I may just to say a bit more about that point and anything that he wants to add about the valuation of the associated interest on the loan as well. Good morning, everyone. I think that the only thing that I can really add to that is just a point of clarification. There is not a difference between the valuation and what is in the Scottish Government's accounts and what is in Transport Scotland's accounts. What we are highlighting in the report is that the Scottish Government has provided £43.4 billion worth of loans that are now valued at 11.6 on the impairment. That is the value that is now shown in Transport Scotland's accounts that is consolidated into the Scottish Government's accounts. Both sets of accounts show the same valuation, if that helps to clarify that point. The second question is, what are the financial implications for the Scottish Government of continued failure to find a buyer for Prestwick Airport? The implications of it remaining as an asset within the public sector really depends on what happens next, whether there is a requirement for future loans or otherwise. As we touched on in previous responses, the value of those loans can change and there is a potential that the valuation of the airport could increase. I think that the essence of the answer is that there is uncertainty as to what happens next. As we report in this report and I think that events came after publication about the Government's plans to sell Prestwick Airport, that did not proceed as planned and that it still remains as we understand that it is looking to sell the asset again to the private sector. From our perspective, we will continue to track and monitor that through our audit work and report further as necessary. It is a number of years now since Audit Scotland has reported specifically on Prestwick Airport. I think that it was 2013-2014 or that date. I can confirm that we have produced a separate report as ever. We have options to do further public reporting if I consider that helpful. However, for the time being, it remains a public asset and the associated value of the loans is subject to change as events unfold if there is a subsequent private sale. Can I ask the auditor general about the process that you are describing, the impairment process? Is that a fairly standard practice that is applied widely across any sectors or is it something that is peculiarly unique to Prestwick? Good morning, Mr Goughby. It is an requirement of accounting standards that is applicable to public sector or private sector. All organisations with financial assets have to make an assessment of their value at their financial year-end. Prestwick Airport, Transport Scotland and the Government have done what is required of them in terms of the valuation of the asset. It does not highlight a particular issue or problem in relation to Prestwick. It is a standard accounting practice. It is a standard accounting practice. I think that what we are highlighting in the paragraph, in addition to the fact that the Government has rightly followed accounting standards, is that the valuation that it has placed on the loans is considerably lower than the value of the loans that it has issued to the organisation in terms of the recoverability of that. In the Government's own assessment, Mr Goughby, the numbers are that it has valued the loans at £11.6 million relative to the original £43.4 million that was originally issued. A couple of the other companies that are covered in the report are Fergus Marine, Port Glasgow, Holdings Ltd and BiFab. On Fergus Marine, you have told the committee previously that you plan to publish a fairly comprehensive audit report into where things have reached and how things are going. Is that still on schedule? Yes, convener. We expect to publish a report that tracks the circumstances of the progress of the ships, the loans that were issued to Fergus Marine Engineering Ltd before it became a Government company and looks at some of the steps, processes and risk management and looks also to the future. I intend to publish that in March. Are you getting full co-operation from Transport Scotland, the Scottish Government and the people on-site? There has been a bit of coming and going. Hasn't there been a senior personnel at the site? Yes, I am very pleased to report that we have had full co-operation from the full range of parties that we look to speak to as part of our audit work. If I can switch from the client to the fourth BiFab, again, covered in your report, what are the Scottish Government's total confirmed and potential losses in relation to BiFab? Of course. I will refer to the paragraphs 35 and 36 of our report, and again, Michael might want to comment further. There is a history as ever to this investment, convener, as there had been with some of the other interventions that the Government has made in private companies. What was initially loan support was changed to an equity stake, and the 2018-19 account of the Government converted £37.4 million of loans into a 32 per cent equity stake in BiFab. The following year, that was also assessed a bit like Presswick Airport as to what the current valuation was written down to zero, not written off but written down. In the financial year in question 2020-21, the Government provided a further £4.5 million of loan funding to support BiFab. However, as we note that, in December, BiFab went into administration and the Scottish and UK Governments determined that there was no legal route for it to offer any further support, and the company went into administration. Total funding and total that the Government has provided of the £37.4 plus the £4.5 million gives us a figure of £41.9 million of public investment into BiFab and very little prospect that that will be recovered. Although we do note just in the conclusion of the paragraph that the Government continues to work with the administrators of BiFab as the Government is now a creditor and looking to recover any of its losses. Can we now just pause for a second as Michael may wish to come in if there are any additional points of context or clarity? Thank you. Just in terms of the total loan support, as Auditor General mentioned, there were effectively two loan facilities provided. The first was a loan facility of £41 million to support key contracts that BiFab had on-going. There was a further loan facility of £10 million for restructuring. As Auditor General said, £37.4 million of the first loan facility was drawn down and converted to equity. That has been fully written down to zero. Of the second loan facility, it was extended to £15 million of which the Government over the last couple of years has drawn down £13.5 million, which includes the £4.5 million that Auditor General mentioned. In total, the amount of Government loans to BiFab is £50.9 million, and the current value of those is nil. It is important to note that there is the subsequent sale of the business, and the Scottish Government is continuing to work with the administrators to maximise the recovery of public money. However, it remains to be seen how much of the £50.9 million they can get back. If the business was sold on, then there would be the possibility of some of that funding being recovered. I think that it depends, convener, on the nature of the sale, the structure of the subsequent business and whether the business has been acquired or whether the assets. As in many cases, when organisations go into administration, it is not necessarily the full, pre-existing business that is then purchased, it might just be components of our assets. Typically, any of the losses of the previous business remain with the business in its administration. Nonetheless, Mike was right, as we touched on in the report, the Government is still working with the administrators as it looks to maximise its return to offset any losses that are noted. I want to turn now to another aspect of the report that you focus on, which is the arrangements between the Scottish Government and the GFG Alliance at Lucarba, the aluminium smelter and the particular reference to the power purchase agreement, which has been the subject of some interest. Could you explain to us what the implication is of the quadrupling of the provision in the accounts from £37 million of a provision to £161 million of a provision? What does that mean? A provision in an accounting context, and it is a provision for a call and a guarantee in its fullest sense that the Government, as part of the transaction, provided a guarantee for its role in the purchase of the power obligations. The first thing that I want to say is that it is a complex circumstances, convener, and we have tried to, in the report, to bring some clarity to the nature of the transaction and the arrangements that followed the Government's role through the disposal, the role of GFG, and in particular the funder of GFG, Greensill Capital and the financial challenges that that funder has had well documented over the course of the past 12 months. The provision for the call and the guarantee, as you mentioned, has increased to now £161 million. That reflects the likelihood that the Government's assessment of the provision and the guarantee has been called, and therefore the potential Government exposure for what it might face. In our audit work, our role is to assess the reasonableness of the completeness of that provision. It is noting that, in straightforward terms, as best we are able to do, there is an increasing likelihood that the guarantee will be called upon and the Government has reflected that in numbers. It has gone up, as you mentioned, from £37 million to £161 million over the course of 12 months. The minister told Parliament yesterday that he described it as the note in the consolidated accounts for 2020-21 was merely a technical assessment of a range of credit risk scenarios, which is an accounting standards requirement. You are describing something that is a bit beyond that. I do not think that I am contradicting that. The Government has put in their accounts that it has to make an assessment under international financial reporting standards about the likelihood that it is a provision that the guarantee will be called upon. It is technical and driven by Government's compliance with the financial reporting manual and its accounting obligations, but the number has changed quite significantly. There is a basis behind that, and it reflects a level of risk or certainty about what the call and the guarantee in those circumstances might be. Again, I do not want to put words into your mouth, but are you saying that the risk and uncertainty has been fuelled by the collapse of Greensill capital, which was the primary funder of GFG Alliance? The GFG Alliance itself is the subject of a serious fraud-office investigation, and issues have been raised about the governance structure of GFG Alliance. I think that the UK minister described it as opaque. There are concerns that have been expressed about changes to the accounting periods that the company is using, auditors have resigned and finance directors have left. Is all of that fueling the heightened assessment of the risk that the Scottish Government is now exposed to? As you can hear, we are aware of all the factors behind the circumstances of GFG and Greensill capital. As you would expect, our focus is on the Scottish Government and the nature of the transaction. We note in the report that this is a complex group and funding structure that incorporates acquisitions, Government guarantees and in and around all that. What we look to do in the report is to set out some of the history around the potential financial exposure. There is a very significant figure that we put in the quote of paragraph 38 of £586 million, but that was offset by the Government's fee, for the provision of the guarantee, and the range of security packages that the Government takes security over land and assets on the site. You can get away from the fact that the Government's assessment of its exposure has changed over the course of 12 months. We know that there are related events that you refer to, so taking all of that in the round and in our work, we formed an assessment that the Government's own valuation of its provision, its call on the guarantee, is reasonable and that it has cited that as £161 million this year. Do you think that the £586 million provision is now an accurate assessment? The £586 million was the original potential financial exposure, so the quantum of that was offset by security packages and so forth. That is not a figure that the Government's actual exposure is a potential maximum. Steps were taken to offset that with security packages, call on assets and so forth, fees for the guarantee, all of that reduced it to an annual exposure, as we started. It was between £40 million and £32 million. In the round, we are saying that this is still a complex transaction with challenging circumstances with the funders for the GFG group. The Government's exposure has increased in light of a variety of circumstances, and we are seeing that that figure has been reflected appropriately in the accounts. In general, but also in particular reference to this arrangement, do you think that there is enough transparency and openness about the financial arrangements that you have been entered into, which is presumably part of your inquiry into what is going on at Port Glasgow? My predecessor called for greater transparency in Government's interventions in private companies. More communication about the risks and anticipated outcomes is likely to call on public resources for interventions in private companies. As we have touched on this report, I am happy to say more, convener. We welcome some of the progress that we are seeing, the steps that the Government is taking to bring that additional transparency. I think that it is particularly relevant when you look in the case of Lochaber. It is such a complex transaction, and as we have seen through the Government's assessment of the likely call and the guarantee, that can change quite significantly from one year to the next. For our perspective, it validates the need for transparency and that there is a suitable framework that allows the Government to manage its risk and be clear on what the intended outcomes are from those investments. My understanding is that the Scottish Government is now looking at the production of that kind of framework that I know you and you mentioned. Your predecessor has been a long-standing call of Audit Scotland. Do you know when that framework is going to be published? I will update the committee on the progress that the Government has made and when it intends to make that publicly available. Michael Russell is on mute. Can we fix that? Just to repeat that we are not aware of it being published as yet, but we expect it to be published soon. Our understanding is that it will form part of an extension of existing guidance as part of the Scottish Public Finance Manual. We anticipate that it should include more about the Government's principles, about its approach to the policy rationale, the planned outcomes and the type of business, particularly those that are deemed in the national economic interest. Some of the areas that we have been encouraging the Scottish Government to consider are around the risk tolerance, the risk appetite that the Scottish Government has for investment in these private companies, as well as the financial capacity and expected outcomes that it expects to achieve, as part of that any form of exit strategy. When they provide loans and guarantees or support to private companies at what point do they step back from it and outline an appropriate exit strategy? The current guidance at the moment focuses a lot on the decision-making process, some of the governance arrangements, records management and legislation that needs to be adhered to, but what we would like a framework to do is to extend that to cover some of the principles, the risk tolerance and appetite and some of the information about the expected outcomes that the Government hopes to achieve. That, as Auditor General says, should provide greater transparency about the Government's role in financial interventions in private companies. One of the other long-standing requests and demands of Audit Scotland has been for whole public sector accounts to be published. Moving from one subject to the other, would the publication of whole of public sector accounts also allow for better scrutiny of the Scottish Government's investments in private companies? There have been many conversations at this committee and predecessor committees and the need for progress to bring transparency to the scrutiny of the committee, the Parliament and users of public services, and to have a single source that sets out Scottish public bodies, assets, liabilities, revenue and costs. We have noted in the report that there is intended progress this year, two-stage process, that the Government intends to prepare a public sector account for the Scottish Administration. It tends to do that by the end of next month. Later this year, it looks to bring in the wider public sector bodies into a stage basis that will incorporate local government spending. That is really welcome, convener, if that is delivered and an important signal that will aid transparency of bodies that are not in the Scottish Government Consolidator Accounts, as we have touched on in previous conversations, that the Government determines the accounting boundary, informed by the nature of public bodies, the nature of the Scottish Administration and so forth. However, that means that there are a number of important bodies that are not included in the boundary that you mentioned already this morning. It is important to have a complete picture that is delivered by a public sector account for Scotland. I can almost to what we see in a UK basis for a whole of Government accounts. It is important that that is done properly and that it is subject to audit. It is delivered in a relatively timely manner. All of those things we know that the Government is working on. We look forward to seeing it publication and auditing. One of the questions that is outstanding is what difference that would make to you in your ability to scrutinise the whole of the public sector in Scotland? That, presumably, would open up opportunities for you to have a better sense of what you have described before or about what we own and what we owe. I think that it is really important for me, absolutely, but for me and Audit Scotland to support the committee in terms of its scrutiny and back extension of the Parliament, to have a complete picture of the very... You mentioned assets and liabilities, convener, in the Scotland has many billions of assets that are not reflected in the consolidation accounts that the committee is considering this morning and back extension associated liabilities, too. To have that wider sense and especially as the Parliament considers its budget in future years, that it has alongside it a more rounded sense of the associated assets and liabilities alongside the revenue and capital budget considerations that it makes. All of those things feel necessary components. That is why Audit Scotland has been pushing this point along with the support of the committee for so many years. It felt like this is an essential component of a complete suite of financial documents to aid transparency and understanding of Scotland's public finances. Great. Well, let's hope that the timetable set out is indeed met this time. I want to invite Craig Hoy to ask some questions. Good morning, Mr Boyd. I think that there's a broad recognition that in terms of financial management, Covid meant that the Government's budget was going to be fluid and perhaps more complex, but I just want to look at last year's underspend, if I may. We're seeing underspend last year overall of about £518 million, principally coming from health and the sport budget and transport infrastructure and connectivity. Do you consider, in light of Covid and that fluid situation, that that level of underspend reported is reasonable? I'll ask Helen to come in if she wishes to supplement that. The quantum is bigger than previous years in terms of underspend, and there's a couple of relevant factors in the number of portfolio directors that you mentioned, but in percentage terms it's relatively consistent with underspends in previous years, just given the increase in the Scottish budget as a result of Covid monies that have come through. There were circumstances in particularly health and transport and health as a result of the receipt of Barnett consequentials relatively late in the financial year. It's important that the money is spent well, not just that it's spent timely, but to build on conversations that I've had with the committee in recent weeks. That was a consequence of part of the health underspend in the year. Money is typically carried forward through the Scotland reserve and available to be spent in this financial year. In the transport portfolio, again, there were Covid-related factors about the uptake of Covid grants, the extent to which there was call on subsidies. Basically, as users have, it's changed and the provision of public transport during the Covid pandemic also changed what would have been budget assumptions earlier in the year. To be very direct to your question, Mr Hoy, the overall quantum is larger, but it's not necessarily a change of overall percentage that we've seen in previous times. Just in terms of having looked at this year's budget, which has obviously been debated in Parliament now, the Government has flexibility in terms of where it can direct that overspend. Have you looked into the budget sufficiently to see whether or not it might be moved to other portfolio areas or are we confident that it will stay broadly under the heading of health and transport? Ultimately, that's a policy choice for the Government to determine where best to apply any of the Scotland reserve and any underspends that applies into the Scotland reserve in previous years. I'm mindful of my responsibilities and think that that's ultimately a choice for the Government and for Parliament to make us to where best to spend it. Of course, we will audit the reported results from that spending through the annual accounts. Just in a more abstract philosophical sense, just moving forward and looking forward, what levels of underspend would give you cause for concern? There's always a balance between the extent to which the budget is spent in its entirety. Mindful that the Government isn't able to overspend, so at a Scottish administration level it has to remain within the approved budget. Part of our work requires us to make an assessment of that. It's informed by the audit opinion that we give. Given the size of the Scottish budget in the year in question of over £50 billion, we encourage that money is well spent. If that means that there's a degree of underspend, that's probably to be expected in any financial year. I'm reluctant to name a figure that would say that that's an acceptable level of underspend. That, the Government now has mechanisms in place through the Scotland reserve that it can apply underspend and carry forward components of that into future years, gives it more flexibility and perhaps allows it to, rather than being rash spending decisions a year end as might be a stereotypical assessment of public sector spending, is that there are mechanisms that allow public sector bodies to defer spending, if that's the right thing to do. Overspends are relatively modest. Have you any comment to make in relation to the economy, for example, which was on farewell at £53 million? Is there any opportunity to drill down on the reasons for those overspends? I'll pass over to Helen, just to say if she wants to provide any detail on those particular portfolios. I really think that I would perhaps just draw the committee's attention to it, that the Government itself, in their narrative accompanying accounts, set out particular reasons for some of the overspends in portfolios. On a global basis, we can see that in totality that there's an underspend, but I'll just check with Helen if there's anything that she wishes to add. Good morning, and thank you. I probably don't have very much else to add to what's already been said in terms of the range of overspends and underspends across each of the expenditure areas, so I have nothing specific to add, I would have to say at this point. I think that Willie Coffey has got some questions around the consolidated account sections on performance report. Willie Coffey? Yes, thanks, convener. Just before I come to that, I notice an area that we perhaps didn't touch on last week's auditor general on the European structural funds and their replacement. Did you make a comment at all on the replacement funds and where the audit process sits within that for Scotland? We're unclear about it, we think, so far, but could you give us some kind of update in your perspective of what your role is, if there is any, and if there's a role for this Parliament in this committee? I think that regressive Mr Coffey, I'm not able to give you the clarity that I think you're looking for, and I similarly am too. There are still, ultimately, to step back a second, it's within the gift of the UK Government to determine what the successor arrangements will be, and that also relates to any audit component and assurance and how that flows through into my role. My statutory powers are clear, but as it relates to the audit of European funding, that's been a more discretionary component of Audit Scotland's work. We've talked a number of times previously about the fact that we've discharged some of that through our audit of the agricultural funding and also reported through our audit of the Scottish Government on the European structural funds, albeit that the audit of the European structural funds is undertaken by both the European Commission and the Scottish Government's internal audit auditors. The associated audit arrangements, what will come, were not yet cited entirely. We remain in contact, as I mentioned in previous discussions, with the other UK Audit Agencies, notably the National Audit Office, but we don't know yet whether that will mean that there's a specific or direct role for myself or Audit Scotland in auditing those successor funds. Rest assured, we'll stay in touch with the committee and we are seeking clarity on what comes next. On the issue of performance reporting, the consolidated accounts are a huge document full of numbers. It's the annual statement of account of how the Government has spent the money that it has had at its disposal, but you make some comments in your report, Auditor General, about performance reporting. You say that the first 50 pages of the consolidated accounts are devoted to performance reporting, but you also say that it's difficult to disentangle that and see clearly performance on various policy areas and spending. Can you give us your view on that and how we might improve that? It's a subject that comes up very often at the Audit Committee that we want to see how well the money has been spent and the outcomes that have been achieved by that spend. We recognise the need for public money to be closely related to what the outcomes have been achieved, as you say, from that spending. There are a couple of things to say, and I'm sure that Michael will also want to add his own reflections. There have been some improvements this year on the performance report, which is welcome, so the Government has added some narrative on the impact of Covid, as you would reasonably expect, to set out how that has affected some of the different directorates. What we also note is that there are very many disclosures associated with links to other documents as to how the consolidated accounts have been spent on the associated performance. Although progress is still quite challenging for the reader to piece it all together to say of the £50 billion that has been spent on what has actually been delivered, so while we welcome some of the progress, and I think that the Government equally recognises, we note that in the report and it is very similar through our discussions, that there is more that could be done to make that an easier journey for the reader of the consolidated accounts to form a rounded perspective on how the Government has performed and what it has delivered from public spending. If I may, Mr Coffey, I just invite Michael, and I think that from his own close audit of the work, you will have a perspective on that too. Yes, certainly there is more information that has been produced in accounts this year, Mr Coffey, as you said. It is a big document, and I think that it extends to shy of 180 pages. The performance report is a key part of that, in particular the performance analysis section, which I think is about the best part of 30 pages. It outlines some of the planned deliverables, the contributions to primary and secondary outcomes, but it is well this year some additional information about the impact of Covid, which was important. However, where it makes it difficult for the reader to have accessibility to the reader because of the volume of information that is there, it needs greater links to the financial statements that follow, particularly some of the amounts in the individual portfolios that we mentioned just a few minutes ago. In tying that to how much has been spent there to the intended contribution towards those outcomes, I think that it requires further work. It is something that the Scottish Government is very aware of and has been working on in the past couple of years to improve that. It is fair to say that it is not easy, but I think that there is more that the Government can do in recognising that. I think that there is a further refinement required of the type of information that has been produced for this year's accounts. However, it is important to say what it is. There are certain requirements around the performance report that have to meet the requirements of the financial reporting manual, and we are content that it meets the requirements of the manual. However, I think that this is about extending that and improving that point further to make it more accessible to the reader. As a set of financial statements, you will be aware that it is more than just the numbers. There is a story to be told around the numbers about what the Government has achieved over the financial year. There is certainly room for improvement. Do you think that the consolidated accounts are the place for that? Are we talking about something different here about performance in specific policy areas? Should that be woven into the consolidated accounts, or should we be asking the Government to consider some kind of separate performance reporting document or other that we have never had? Is that where we are going? Does the Government recognise that there is an issue with this? I do not think that it is one or the other. I think that it is both. To agree with Michael's point, there is an obligation on public bodies that follow the financial reporting document. Really, any set of accounts that the performance is described of the organisation in a balanced way, pluses, minuses in terms of its performance, and it is clear from what has been spent and what has been delivered. Whilst we recognise that there has been progress in that front, we think that there is a way to go to bring clarity. I do not underestimate the challenge that the Government is a large, complex organisation. As Michael mentioned, the accounts stretch to 180 pages. Much of that is compliance and prescribed in terms of the content, but organisations have more licence within their performance report to be creative and find ways of telling the story of the financial year that describes the performance, connects to the spending and gives a rounded, balanced picture. To speak to your other point, many organisations do both the company and the annual reporting accounts with a good performance report alongside an annual report of some description. Similarly, organisations have much licence to do that in the way that best suits their organisation. In respect of the Government, it has made much rightly of the national performance framework and the national outcomes in a way to best describe progress on that front too. That matters, but it matters clearly that it is a connection between both spending and performance. We are keen to see progress on both fronts. Are you saying that that is recognised by the Government or is there an issue that we have to persuade the Government that that is an approach that they might want to adopt? We know that the Government is thinking really hard about its performance framework, the national outcomes and how it can best describe and make these an accessible document. Where it becomes harder is that there is more of a qualitative measure and outcome, and the various means with which to move beyond outputs against budget. What has been delivered, what was the outcome, and that will have to draw from it a range of sources to tell that story of Scotland's national performance. We now have a series of questions from Colin Beattie on governance. Governance has always been a big issue in connection with the component parts of the Scottish Government. I am concerned about three statements that you made in your report. One is paragraph 70, where you state that there remains scope for greater clarity on the impact of planned actions on reducing risk levels, et cetera. Paragraph 72, where you say that the use of interim appointments to ensure greater stability and certainty within its leadership group and you seem to be encouraging the Scottish Government to improve the arrangements to ensure that they are fit for purpose. In paragraph 75, the Scottish Government's arrangements for sponsoring public bodies remains an area of concern. Of course, the committee has looked at sponsorship on a number of occasions, and there have been certain question marks. The first question to ask you really is, you talk about improvements to risk management processes within the Scottish Government. Can you give more detail on the measures that are being provided and are they considered adequate? Is it just a matter of quality? Are they in place but maybe not quite as sharp as they should be, or is there a serious gap here? I will ask Michael Ewing to come in and describe the risk management arrangements and the progress that is being made. We are talking about progress in terms of risk management. As you, the committee, know and expect that we are around the Government's governance arrangements really quite closely in terms of our interaction with executives, non-executives and attendants at the Scottish Government's Audit and Assurance Committee, and then some of what are known as the director general assurance committees that the portfolio is lead. There is a very significant structure of both governance and associated risk management within the Scottish Government. Some of that has evolved over recent years from a different base in terms of the adequacy of arrangements. If I remember rightly, it was perhaps three years ago that we were really quite critical of some of the components of governance within the Scottish Government. We commented adversely on the Government's audit committee and the level of challenge that it made and fulfilling its purpose of supporting the permanent secretary and its advisory capacity. Here, we are talking about progress. For the role of the Scottish Government, it is one of key leadership to all public bodies in Scotland in terms of risk management and governance to be an exemplar. In order to do that, there are still additional steps to take about how it is translating its risk management arrangements and what it intends to do so that it is possible for members of committees, non-executives and executives to say that they did what they intended to manage that risk. I will pause for a moment. Michael will want to say a bit more about the specifics of risk management, and then I will come back to your other questions. Over the course of the last year, we have seen some improvements around aspects of risk management, particularly around the escalation of risk throughout the organisation. The ownership of each risk within the Scottish Government, as well as some of the important components around risk management, away from the actions and the numbers, and that is around the culture that exists within the organisation. It is important that it is not just the senior civil servants who are risk aware, and we have seen improvements in the culture of risk management and risk identification at all levels across the Government through training and so on. That is really important. Where we would like to see them do more is around where they have planned actions against risk to reduce their exposure. It is to be clear on how that planned action is going to deliver a lower risk score, but sometimes the target date and the target score that they intend to achieve can sometimes feel a bit overambitious in terms of the time that they take to deliver. There is something about a greater reflection required on the length of time it will take to reduce the risk and a bit more clarity on the actions that they are taking to demonstrate how they are going to address the number of risks that are there. The Government has improved on last year's cross-cutting risks. You mentioned one about sponsorship. That is something that the Scottish Government has been well aware of. That is not a risk that sits in any one portfolio that cuts across Government. There are a number of risks such as the response to Covid and the risk around Brexit that need to be seen through one lens rather than the lenses of several portfolios. There is a decent amount of work to identify some of those cross-cutting risks. In terms of your other points, there are changes in leadership within the Scottish Government. A new permanent secretary started at the beginning of this month. In the report, we also noted changes at director general and the use of interim appointments, some as a consequence of the process of change and others as being unable to appoint having gone to market. Coupled with the director general and the executive, we also draw attention with the beauty to some of the changes that will be happening within the non-executive cohort of the Scottish Government. What we are saying is that a lot of change happening at the same time can be challenging for any organisation. We are not saying that we are destabilising but that processes to be managed and the loss of stability and corporate memory that goes alongside that. It is really for the Government to manage that change and support induction processes, as we know that it is thinking about, but to highlight that the volume of change that the Government is going through in terms of its leadership is higher than we have seen for a number of years and it will closely want to monitor that. Do you think that the present Government's arrangements, and I use that in the broadest sense, are fit for purpose? Yes, there is nothing that we have seen to suggest that there are fundamental deficiencies. The current arrangements now stretch back to probably six years that they have been in place within Government in terms of the overarching role of the Scottish Government Audit and Assurance Committee supported by the director general assurance groupings. Michael mentioned the escalation arrangements and alongside that there are the role of the executive team, the corporate board and various subject governance groups as well. The committee has previously heard in its scrutiny of major capital, for example, the role of infrastructure and investment boards, economy groupings and so forth. Although it is a complex set of arrangements, there is no doubt that, as we see, we are not seeing a deficiency or anything that suggests that it is not fit for purpose. There is no cause for complacency alongside that. We would expect that the adequacy of the Government's governance arrangements is tested and reviewed. There is a fundamental component that relates back to the consolidated accounts that, as the principal accountable officer, the permanent secretary, is required annually to make an assessment of the adequacy of the governance arrangements. Our work takes us there, too. We have to similarly form a view about the disclosures, the fullness of them and what has been said. We were content with what was said in the governance statement. Michael specifically quoted the issue about target dates and the fact that in a significant number of cases, since he raised it, they are unrealistic. Have you had a discussion with the Scottish Government on that? Is there any prospect that more realism will come in? That is always going to be thrown up as an anomaly. If you do not meet your target date, that looks bad and it is a black mark against you. Michael can come in to give a detail of the discussions that he has said, but all of them are very brief. You are right that there is always a temptation for public bodies, for any organisation, to set an earlier target date than is realistic, so as to seemingly address the issue, risk de-escalates the action done and move on to the next thing. Actually, it is harder to set a longer date and be realistic about how long it is actually going to take and what is necessary to address the risk. We are keen that that is not a pattern that audit committees can reassure, both the Public Audit Committee and the Parliament, and the Government's own audit committee and the expertise around that table can be satisfied with the steps that have been taken. Michael will say about the extent of that. It is that temptation that target dates either are not realistic or that the action that is planned does not give enough detail so that it is not sufficiently clear, but in terms of the specifics in the work of the Government, I will pass to Michael and allow him to answer. I attend each of the director general assurance meetings where there is one for each of the main Scottish Government portfolios. That has been an issue that not only I have raised throughout the course of the year but also non-executive directors have raised as part of their scrutiny and challenge role. To be fair, we have seen improvement. The Government recognises that it is an area that needs to improve on. It is not necessarily an easy thing to do, and I would absolutely agree with Auditor General in his assessment that sometimes it is just over ambition that the Government wants to reduce risk scores and the plans that will address that. The role that we have in those groups is to be able to pass comment and challenge from an external point of view where we think that it looks over ambitious. Part of it is a documentation thing, the timeliness of it as well. It is part of an on-going discussion and I want to see further improvements with it over the course of the next year. We talked about sponsorship bodies. Sponsorship bodies of course cut across the whole area of the Scottish Government. What are the specific concerns? I mean, we have had individual items coming up here, but you see the full picture across the board. What is the fundamental problem with sponsorship of public bodies across the board? Michael Russell mentioned that the risks around sponsorship are noted by the Government, so that there is a response to the risk. Maybe touch on some of the response, first of all, that we have seen and welcomed without overplaying that that somehow is removing the challenge that still remains. We have seen governance hub by the public bodies unit. That is an overall source of induction training reference for the boards of public bodies, the non-executive members, to allow them to discharge their responsibilities as part of the governance arrangements. That is welcome. We welcomed the additional training that we have seen. Some of that was interrupted reasonably by Covid and it is now restarted. In addition, we mentioned this report and we have touched on it in previous discussions with the committee that the Government commissioned a consultant to review its overall arrangements. They received that towards the end of last year with associated recommendations. We are awaiting the site of what steps the Government plans to take. As I note in this report, Mr Beattie, I have given verbal evidence to the committee in recent weeks. I am keen to see that progress and what the Government plans to take. That will inform what I plan to do next in terms of audit work around sponsorship of public bodies in Scotland. Forgive me for repeating a point that I have said on a number of occasions that sponsorship generally works well in public bodies. I have prepared reports this year and in previous years to highlight examples of where that has not been the case. I will continue to do that as necessary when sponsorship is not working as intended. The desired effect of that is that it contributes to the Government's overall arrangements. It improves whatever is happening in a particular public body, but that learning is spread out so that we do not see some of the examples of where sponsorship has not worked and that there is overall growth in the quality of sponsorship arrangements across public bodies. The thinking is in the right place. The recognition of the risk and the on-going need for improvement are part of the Government's arrangements. As I say, I will take a view as soon as I see the Government's plans next steps in terms of sponsorship. You have answered my next question, because I was going to ask when that review would come forward and what you would do when it did. I think that this committee will take a close interest in that, because we only see the bad side and section 22 and so on. We do not see the good ones where it is working well. Nevertheless, there has been sufficient evidence that sponsorship, in some cases, has not been as effective as it should be. Obviously, we have a concern about that, and I am sure that the committee will come back to that in the future. Just one last question, coming back to the risk management process. Do you consider that overall the risk management process is adequate? It is a big question. I am perhaps reluctant to give you that unqualified assurance. What is in my mind, Mr Beattie, is the perhaps more remote but very significant risks. We have seen that through the course of the pandemic. The Government is thinking—all public bodies are thinking—to be reasonable before the Covid pandemic, that a pandemic event would be a flu like a pandemic. Although that featured on its risk register, it did not necessarily have the prominence. It was not a near risk in those terms. It is that level of thinking and risk analysis that the Government and other public bodies need to be doing. I think that it is a question that I would like to come back to the committee on in future discussions about risk management. Are those risks that will have a very significant impact, but their likelihood might be distant or not happen over the course of many years? How are those risks being managed? For me, it is perhaps a qualified assurance at this stage and one that we will continue to monitor and report to you on. Would it be correct to say that risk management on a day-to-day basis is adequate, but you are talking about more remote possibilities and you have quoted the question of a pandemic, which clearly is not something that anybody really hoped would ever happen. The preparations for that are obviously very different. Would that be a fair analysis? I think that that is a fair conclusion. I am notwithstanding the points that you made in the report on Michael's observations about the timeliness, the adequacy of steps around the Government's risk management arrangements, they have improved and they have plans to do more. Where we are thinking about our audit work is, as we have talked about, those really remote but very significant risks. We know that the Government does deep dives and it takes topics that it explores with its audit committee, and that is all good practice. I think that, as we have all seen and perhaps learning for all of us, auditors are well about for those remote risks, how might a public body respond to those. I would like to give that more consideration. I think that that is something that the committee might want to keep an eye on. Thank you very much. I would concur with Colin on that final point. That probably is all the questions that we have on the consolidated account. I thank you, Auditor General, for once again giving us the benefit of your wisdom and analysis. I also thank Michael and Helen, who joined us online this morning. We are now going to have a changeover of witnesses, so I would like to suspend the meeting until that takes place. I welcome people back to the second half of this morning's Public Audit Committee. In this part of the meeting, we are taking evidence on the Audit Scotland section 22 report into the Office of the Commissioner for Ethical Standards and Public Life in Scotland. I welcome our witnesses for this part of this morning's evidence gathering. I welcome back Auditor General Stephen Boyle. Stephen is joined remotely by Richard Robinson, who is a senior manager of performance audit and best value at Audit Scotland. We are also joined by Pat Kenny, who is a director of Deloitte, who was involved in putting this report together. I invite Auditor General to give us an opening statement. I am presenting the report on the 2020-21 order of the Commissioner for Ethical Standards and Public Life in Scotland under section 22 of the Public Finance and Accountability Scotland Act 2000. The commissioner's office plays a vital role in upholding public trust in ethical standards and public life through investigations into the conduct of MSPs, local authority councillors and members of public boards. My report draws attention to significant concerns about the operation of the commissioner's office in the year. Both the commissioner's office annual report and accounts and the auditor's report highlight ineffective governance arrangements and a breakdown of relationships with key stakeholders. During the year, the Standards Commission for Scotland issued statutory directions to the commissioner's office for the first time. That was to provide it with assurance that the commissioner's office was carrying out its functions in accordance with legislation. Had governance been operating effectively, many of the issues in my report may have been identified and addressed more quickly. In particular, there was no defined performance management framework, risk management was ineffective and there was no internal audit function. The Audit Committee did also not operate effectively during the year. Action is also needed on workforce planning and training. The auditor recommends that all eligibility decisions and investigations carried out since August 2020 be reviewed by an appropriate external investigator. There is also a significant risk with funding and staffing implications. Improvements are needed for the commissioner's office to operate effective strategic leadership, fulfil its statutory duties and restore confidence in the effectiveness of this essential public office. I am aware that the commissioner's office is taking action to address the issues that are identified. It is vital that progress is made so that the public, the Parliament and the public bodies can have trust and confidence in the organisation. I will continue to monitor and report on the performance of the commissioner's office with a view to further public reporting. As ever, my colleagues and I look forward to answering the committee's questions. I am going to turn straight away to Sharon Dowie, who has a series of questions to ask. I have noted that the commissioner was appointed as commissioner and accountable officer in the first of April 2019. Paragraph 8, page 3 of the section 22 report outlines that the commissioner has been in extended leave since early March 2021. We also then note that the Scottish parliamentary corporate body appointed the public appointments manager as acting commissioner and the head of corporate services as acting accountable officer on 20 April 2021. Do you know the reasons why the acting commissioner is not also fulfilling the role of accountable officer? I will ask Pat Kenny if he has any insight into the distinction between the commissioner's role and that of the accountable officer. It is not unprecedented. Even in some of the evidence that the committee took last week, there are circumstances in which the head of the organisation, for one of a better term, and the accountable officer role reside in different posts. The ultimist is a choice that the parliamentary corporate body took in allocating those responsibilities, but as you note, those were distinct from how it operated with the commissioner who is currently on leave. I will ask Pat Kenny if he has any further insight into that. Good morning, committee. I do not really get much to add on that. That was the decision that was taken at the time, as the Auditor General mentions. It is not unprecedented, and I think that that was the appropriate decision given the circumstances that the organisation felt at that particular time. Paragraph 28 of the section 22 report refers to 22 separate recommendations made by the external auditor, and those recommendations can be found in the auditor's annual audit report, which the commissioner's office has accepted and is progressing. We also understand from the external auditor's annual report that a separate detailed draft report by the auditor to management was considered by the advisory audit board in June 2021, which set out its findings and conclusions on each audit dimension. Is this report publicly available? I am happy to start on both those points and invite Pat. Pat will have, as the author of the reports will be able to update the committee. On the 22 recommendations, and very significant recommendations—I may say the same as they were—in terms of the steps that are needed to be taken to address many of the issues, some really significant important work that is needed to be undertaken, Pat has seen the progress that has been made, or the planned progress, is a combination of both of those points, and he can update the committee on that in a second. Pat also prepared a wider scope report to accompany the annual audit report. There is a very clear overlap between that, so that the recommendations and conclusions in the wider scope report form the action plan effectively that you are referencing with the 22 action points. It is not yet a finalised report, the wider scope report, in that, as auditors, Pat's firm follows the same process that I do in Audit Scotland, we give organisations and people reference them the opportunity to give comment for clearance, for factual accuracy, and Pat has been unable to do all those steps by virtue of the fact that, as noted in the report, the commissioner is currently on sick leave. It has not stopped him preparing the annual audit report, and it has not stopped me preparing a section 22 report. From my section 22 report, I have done on the annual audit report, but it is also important that the two other key sources for the report are that I reference the commissioner's office's annual report and accounts and some of the very significant disclosures that are made in that document, along with the other source of evidence, are the minutes of the Standards Commission for Scotland and some of the judgments that they have made. A range of sources, but I will pause and invite Pat just to say a bit more about the status of his work. Pat? Yes, thanks, Auditor General. That was the reason that the draft wider scope report analysed. I still hope to do that, but we have not been able to have feedback from the commissioner on the findings of the report today, and that is the reason why it is still in draft form. However, just to give the committee some assurance, the recommendations are very much in line with the wider scope report. I think that, in the wider scope report, there was one additional recommendation, but that related to wider governance implications, which was more relevant for the SPCB. The recommendations that form the publicly available report and the Auditor General's section 22 report are pretty much the same recommendations that are included in the draft wider scope report. That is fine. I think that Craig Hoy has got some questions that follow on from this. Craig? Thank you, Richard. Just to delve a little bit deeper in relation to leadership and governance, paragraph 9, page 4 of the section 22 report, highlights that the commissioner's office's acting accountable officer concludes that she is not satisfied that an effective scheme of governance operated in 2021, and the external auditor also concluded in their annual audit report that the governance and scrutiny arrangements were ineffective during that period, and they are currently not sufficient to deliver best value. Noting those very serious issues in relation to leadership and governance, can you say to what extent the 2021 picture is different from the assessment that was made in the prior reporting period? There are very significant statements that the acting accountable officer has made. It is incredibly rare to see as clear a judgment from an accountable officer that their organisation did not have sufficient arrangements to deliver best value. In the report, we identified a number of factors as to what has contributed to those circumstances in terms of inadequate performance management, risk management, governance and scrutiny arrangements, and the absence of an internal audit function, all of which were factors behind the accountable officer's own assessment of governance arrangements. Pat, again, I want to commend some of the detail behind the progress that has been made this year. Two things that I would highlight myself is that the advisory audit board, the name that they use for their audit committee, has been re-engaged. That is now working again, which is an essential component of any organisation's oversight support scrutiny function. They have also made progress in steps to appointing an internal audit function, as well as necessary progress. You may wish to come back to that, but, although we are pleased to see action being taken against the 22 recommendations of which those were part of it, that will get the organisation back up to a baseline. It is perhaps too early to draw any definitive conclusions about how well those arrangements are yet working. If I may turn to Pat, he will want to say a bit more about what he has seen since the conclusion of last year's audit. As the Auditor General said, it is obviously early days, but I am satisfied that the acting commissioner is making good progress in implementing the recommendation that we made. For example, there is a new risk management policy in place, a much more detailed risk register is in place, and there is good progress there. There has been good progress again in the performance management framework, so that has been encouraging. In terms of the new investigation manual, again, there is progress being made with that in terms of getting an established template for how investigations are conducted within the organisation. Early days, but early signs are that the organisation is making good progress, but it is obviously one that I am keeping under constant review. As a matter of course, in this year's audit, we will do a follow-up in terms of progress that is made today. In paragraph 23, you set out clearly that some of the most basic governance processes and functions were absent from the commissioner's office during the period of 2021. Indeed, you note that there was no defined as you mentioned performance management framework, risk management policy, risk register or internal audit function. Did the auditors have any growing concerns about the way that the commissioner's office was operating before the 2021 reporting and performance period? Perhaps I will talk the committee through some of the chronology about previous audits and how that arrived at some of the fairly stark circumstances that we are reporting here. In overall terms, we saw a very clear escalation of deterioration in circumstances during the course of the year. There are a number of components to that, but overall we saw a deterioration in relationships with the commissioner's office and its key stakeholders. A consequence of some of the events that took place during the course of the year about changes in investigations processes, restructuring of the organisation, stepping back from advisory audit boards arrangements that were particular to the year in question that led to some of the very significant circumstances that are here. What went before and how that unfolded and escalated to where we are? Pat will come in and say about the events of previous audits through to today. Sorry, I think that we can't hear Mr Kenny, I don't know whether Pat, you are muted or have been muted at this end. I think that's me being unmuted now, apologies. Right, great. In the prior year audit, there were a few warning signs of what was potentially about to happen, nothing obviously on the scale that we have identified in the current year audit. I think that the main one was the breakdown in relationships with the advisory audit board. I think that there were obviously difficulties there. The commissioner was minded to appoint new members to the advisory audit board and was in discussions with the SPCB about that, but no agreement could be reached with the SPCB on changes to the members of the advisory audit board. It transpired that when the accounts were signed in October 2020, the year before, that was done without the involvement of the advisory audit board, which I was very concerned about at the time. There was nothing statutory that required the advisory audit board that had to be involved in the sign-off process, but it did concern me significantly. I had to take a view internally and consult internally as to whether it was still appropriate for me to sign off that year, and I concluded that it was possible. As I said, there were some signs in the prior year that things were not moving in the right direction. I am going to invite Colin Beattie now to ask a series of questions. Order of general, I have to say that this report came as a bit of a surprise. I am sort of reminded of that famous phrase from juvenile cwis castoriad ipsos castoriad. It seems to fit very well in this particular situation. Who watches the watchman? Your report on paragraph 19 talks about the remedial action that the commissioners office is taking to address the issues. What confidence do you have that this will be enough to address the scale of the problems that seem to exist in this office? I think that our assessment will be that they have a credible action plan, Mr Beattie. Twenty-two recommendations that are being subject to scrutiny and challenge with a re-engaged advisory audit board is welcome progress. There are significant recommendations therein. Particularly if we are referring to the fact that the commissioners office will not be able to solve all of these challenges on their own. There is a need for repairing relationships with the Standards Commission for Scotland, with the Parliamentary Corporate Body and its own staff. All of those are components that will give it the platform to deliver on the progress that is needed. Some of those components will require additional funding to address concerns about loss of public, parliamentary, local authority confidence and trust in the process. As we have already touched on in the discussion, it is that addressing the challenges that the recommendations will not be solved overnight, but what we have also seen and Pat again can come in on this point if he wishes, is that the organisation through the acting accountable officer, the acting commissioner, has engaged fully and is taking the matter seriously. We think that it is an appropriate action plan, but it will not be able to be addressed entirely on its own accord. The seriousness of it is absolutely recognised. As we have already mentioned, we will continue to do our work here to report publicly on the progress that is being made. Again, if I may, I invite Pat to give his own assessment as well. I am satisfied that the acting commissioner is taking the issues very seriously and is working hard to address them. As I said, it is early days and we will keep it under a constant review, but the indication from my perspective is that the acting commissioner is keen to get these issues resolved as soon as he possibly can handle them. You have already said that they cannot do this alone and that they have to engage with outside partners. Do they have the skills internally to be able to do this? I mean, my impression is that if they did not give the situation that they got into, maybe they did not have the skills in the first place. Do they have the skills now? This is a small organisation, Mr Beattie. It is one of the points that is worth emphasising. Pat can confirm the number of employees, but I think that it is barely into double digits in terms of the number of people who undertake this really important statutory function. We have also seen changes in the volume of complaints, cases that they are asked to look at, the complexity. In difficult environment, it is also worth recognising, too, about the nature of the caseload that they experience. I will give two components to it. One is the recommendation from Deloitte about the need to revisit some of the cases between the period of August 2020 to the end of the year. That will require additional financial support and potential additional resource support. The recommendation extends to whether there is an independent resource that can be needed to support some of that review. Then, one of the points that we make in the report is that, following restructure and workforce planning, those two points have to come together in a way that they have not up until now. In any organisation's workforce plan, it has to be aligned to corporate plans, strategic objectives and financial position. That has to be done as well. That will allow the commissioners' office to make an assessment as to whether they have the resources, the right people and the staffing cohort to deliver what is being asked of them in very important and challenging circumstances. It is perhaps not able to give you the assurance that you are asking for at this stage. Has any commitment been made in terms of the financial support that they need, or, indeed, from the Scottish Government—and maybe it is early days—providing them with the additional skills and support to get them through this? I would draw a distinction between a parliamentary body as opposed to a Government organisation, so it will be as a result of any discussions that the commissioners' office and the parliamentary corporate body decide to arrive at in terms of the financial position support resources that the commissioners' office might need. The last thing that I understood is that those discussions were on-going, but Pat might have a more up-to-date position on that. Yes. Just to confirm to the committee that there are 10 employees in the organisation, in terms of the big outstanding recommendation where finance is required from the SPCB is the reinvestigation of the complaints process and an external re-examination of the complaints during that defined period. My understanding is that there has still been no agreement on the financing of that, and that one is still outstanding. That is the one recommendation that I still think needs to be addressed as a matter of urgency. That brings me to my next question, which is paragraph 28. You make 22 separate recommendations, at least the external auditor makes 22. You have already said that there needs to be collaboration with the Scottish Parliamentary Corporate Body and others in order to achieve that. What engagement has Audit Scotland had with the corporate body about the report and its role in addressing some of the issues that have come up? My engagement with the report is the receipt of the annual audit report and the decision that I make as to whether there is sufficient public interest, parliamentary interest, to report to the Public Audit Committee on the content. Clearly, I have done that today and published the report at the end of last year to highlight the risk of loss of public confidence and concerns. In terms of addressing the recommendations, I think that we have touched on that many of those recommendations can be dealt with by the commissioner's office and some require parliamentary consideration, the Parliamentary Corporate Body and a view as to what they choose to make. What that means for Audit Scotland's role is that there are two angles to it, Mr Beattie, the nature of your question. One is the public reporting that I will do through my audit of preparation of section 22 reports and so forth and the other is my audit work as the auditor of the parliamentary corporate body. That is a small component of that work and we continue to have regular discussions with the Parliament's audit and assurance board and through my direct engagement with the chief executive of the parliamentary corporate body. Do you interpret from that that you have had specific discussions with the corporate body in connection with the issue? Not directly with the corporate body. I have regular engagement with the chief executive of the Parliament on a range of factors. Of course, you will be aware that the chief executive and the parliamentary corporate body are very well-cited on the circumstances here. As we have mentioned, it will be for the parliamentary corporate body to take a view as to what steps, if any, it chooses to make in respect of any of the resource requirements and relationships that are cited as recommendations in this report. I am assuming that the report is being agreed and accepted by the commission. Indeed. The recommendations in the report, along with the full disclosures that the commissioner's office makes in its annual report and accounts, reflect the significance in the series. I do not think that there is any debate or ambiguity that there were very significant challenges within the organisation in the year in question. Your report highlights the breakdown in the working relationships between the commissioner's office and other external bodies. Can you give us some detail on how that happened? What should the commissioner's office have been engaging with in terms of the external stakeholders? How did that lead to the lack of scrutiny that one would have expected? I highlight to the committee exhibit 1 to the report that we set out how the process of ethical standards investigations of complaints work within the structures in Scotland and how that relates to the investigations that are undertaken by the commissioner's office and the dual reporting lines that it has to the standards commission for Scotland, who are responsible for complaints about members of public boards and local authority elected members, and members of the Scottish Parliament, who receive complaints about that grouping, lobbyists or the public appointments process through to the Parliament Standards Procedures and Public Appointments Committee. We know that one of the key themes of the report was the breakdown in relationships. I may focus on the standards commission for Scotland for a second. For the first time since the creation of the Parliament, the standards commission saw fit to issue a direction to the commissioner's office in respect of its role, its concerns about the information that it was being provided with and the nature of the investigations that were being undertaken. It issued three separate directions to the commissioner's office. Most unusual, very significant in and of themselves, but in particular at one of those directions it determined that it had not been met in terms of the provision of information. All of those are a consequence of non-compliance with the direction in the judgment of the standards commission as they have been admitted officially, but as a wider picture of concerns and breakdown of relationships, many issues such as those where two organisations have to work closely together as they do, would typically be resolved through discussion and negotiation, as opposed to getting to the stage where there is an official direction issued from one body to another. I guess turning it round on its head, so to speak. All those external bodies that have to deal with the commissioner's office and where the relationships broke down and so forth, could have been done differently by those external bodies. They knew that there was a problem. They must have known that there was a problem, and that problem did not happen overnight. It happened over an extended period. What should they have done that they did not do to raise the flag on this? One external body did raise the flag with the commissioner's office. Did it go any place else? Did anybody else have sight of that? I will give a perspective on that, and, similarly, Pat, we will offer one or two. As we have touched on already, there is a context of matters escalated quickly during the course of the year in question. As I mentioned in the previous answer, typically, there is a need for organisations to work closely together, whether through preference or statutory in this regard. By process of negotiation, memorandum of understanding, if you need to formalise that, regular meetings and so forth all allow for the business to be undertaken quickly. What is particular to the commissioner's office is that some of the more typical routes through which organisations can engage with one another were not available and the presence of an audit committee. There were not other avenues other than perhaps through the commissioner's office, the commissioner himself, with which to raise those concerns. That they were missing gave fewer opportunities to raise those concerns. Perhaps, as far as I am able to go, Mr Beattie and say what the organisations experience was like and what they might want to do. It may be that this is a question directly for the other organisations identified in the report for them to offer their own perspective on it, if that would be of value to the committee. Just one last question. It is a small organisation. I think that, as Pat said, there are only 10 employees. Who would have provided their internal audit function? As we have touched on, it would be a matter for the commissioner's office to determine who would be the best place to undertake an internal audit function. Pat can update on this, but our understanding is that they have now gone out to tender for the receipt of internal audit services and how they best procure that, as many organisations do. So they did not have an internal audit oversight? That is very clear that that was one of the key components that was missing in the organisation, an internal audit of their arrangements. All the value that that brings to any organisation was not a feature of their internal control and scrutiny arrangements. I might ask Pat if I may just to say that there has been progress on that front and how that is looking. Yes, there has been progress on that. It has been out to tender and an appointment will be made in the short term. There have been discussions over quite a sustained period on internal audit, and I have raised it in prior year audit reports that the gap previously the commissioner was wanting to go for a shared service arrangement with another commissioner's office, but that did not transpire. That was a bit of the reason for the delay, but they have made good progress on that, and I do expect that to be in place very soon. I think that it is important for the committee to understand that the advisory audit board is not the equivalent of an audit committee that you would see in other public sector organisations. It does not have the clout. It is much more advisory, it is light touch. Although the absence of the advisory audit board did not help in that engagement, I think that it is important for the committee to realise that it is not the equivalent of a normal public sector audit committee that the committee would be familiar with. I think that it is important that that is understood. I will turn straight away now to Willie Coffey, who has also got a series of questions on the report. Willie Coffey, can I go back to the standard commission's directions that you have referred to several times? You just said a moment ago to Colin about the issue of three directions, and that is the first time that had happened. Could you tell us insofar as you can, what you have brought that about, and can you tell us what the directions were and what they carried out? I will turn to colleagues. Richard in particular has some of the detailed analysis as to the specifics of each direction. He can update the committee on whether they were achieved. In overall terms, they were not achieved. Mr Coffey is the important thing to note, so that the standards commission still had concerns, and it formally raised those concerns with the Parliamentary Corporate Body, noting that the direction had not been complied with. Richard, you can come in a second, but this is most unusual that the standards commission sought to formally issue a direction. It is a real issue. In terms of the respect of legislation and regulations, to do so is indicative of very significant issues, much like the conversation with Mr Beattie. Normally, we would expect organisations that are obliged to cooperate and work closely together to resolve that through more informal means of clarity around shared objectives, delivery and so forth, but to get to a stage of escalation of a direction is indicative of the breakdown of relationships that we are noting throughout the contents of the report. If I may, I will turn to Richard just to set out some of the detail behind each of the directions. As we say in paragraph 11, the commissioners office is independent, but the standards commission does have the opportunity to issue those directions to give it assurance over activities. As the Auditor General said, there were three that took place in the year. In fact, they built upon each other the nature of them, which is also set out in the January report in accounts, is about the need to provide a list of complaints, what happened with the complaints, letters detailing the reasons by which complaints were deemed ineligible, or inadmissible, was one of the themes of the March 21. As we can see from what is included in section 22 in the Auditor's report, we see from the minutes of the Standards Committee that, by the end of the year, there was a feeling that they had not been complied with and that a further application was needed, which is why it is so important that the re-establishment of the relationships takes place and that that kind of sense of trust and checks and balances between the organisations continues. It comes of those directions that we were not reported back to the commission because they did not carry them out. Really, I suppose that what you are saying is that they were not carried out, so how could they be reported back to the commission? However, that led to the complaint to the SPCB about the whole matter. Is that whole circle being resolved now? Is it? Have the directions been carried out now, satisfactorily, or is it still in the process of debating this? I do not know if I am able to give you a definitive answer on that. At this stage, if the Standards Commission is satisfied that the directions have been complied with, I understand that negotiations are still continuing on that front. I do not think that that detracts, if I may, Mr Crawford, from the fact that there are signs of progress. There is an action plan to address many of the concerns to rebuild those important relationships, but on the specifics of whether the directions have been met. Ultimately, that will be a decision for the Standards Commission for Scotland to reach a view on. I turn to the investigation and assessment process. Your report said that the legal advice that was obtained by the commissioner's office confirmed that the investigation process, which was amended in 2020, we understand, and the assessment process itself was not compliant with the legislation. Was it compliant before 2020? Is it compliant now? Where are we in that area? I will ask Pat to come in in a moment. Again, it is hugely significant. The legal advice determined that the investigation process was not compliant with the legislation. Very significant risks associated with that and what that might mean for any previous investigations and any associated judgments. There were factors that led to changes in the investigation process. Pat has made recommendations based on that about what that means for cases and investigations in the timeframe between August 2020 and the end of the year. There is a clear connection between changes in the investigation manual and the associated timescale that followed thereafter. I will ask Pat to come in and update the committee on the status of the manual in particular in response to your question. The investigation manual is still working in progress, but it is moving forward. The acting commissioner has agreed the assessment criteria for complaints with the SPCB. That is a positive step forward. Historically, the issues were really related to the fact that it appears that complaints were being dismissed at eligibility stage, which students have been. It also appears that there were often informal investigations done into certain complaints. Under the directions, the standards commission should have been communicated to the standards commission. That was not happening. The fundamental reason that the directions were issued just to go back to a prior question was that the standards commission was asking for certain information, and that was not forthcoming from the commission. They felt, under the circumstances, that they would have to issue a direction. Pat, you are talking about the change in the way in which complaints were assessed. Has it been agreed that that has to be changed and that the process that is being followed? Your report also tells us about the substantial increase in the numbers of complaints against councillors and board members. Is there some way that that will be revisited or is it a new process for the future that we are embarking on, or are we looking back at those complaints that perhaps should have been followed up and worked on? That is really the central to the recommendation and one that the commissioners office is considering how best to do so. Pat's recommendation is that that should be supported by an external assessor, but the commissioners office view is that they will do that internally in the first instance and then take a view following further discussions with the parliamentary corporate body, whether to involve any external support as part of those reviews. Lastly, any indication of when there might be a resolution to this? I think that we have reported as the most up-to-date position that we are aware of, Mr Coffey. It is probably a question for the commissioners office themselves if they are able to share the status of those discussions with the committee. We are going to continue on that theme of workforce issues and I am going to bring Craig Hoye back in. Thanks, Richard. Paragraph 17, page 5 of the report refers to the acting ethical standards commissioners assessment that staff were not equipped to fully fulfil the office's statutory functions. As such, the external auditor is recommended in their annual report that a formal training programme, as well as workforce planning arrangements, should be put in place. In light of that, are you able to confirm whether a skills gap currently exists within the organisation and in which specific areas? Yes. Mr Hoye, last part to update again on the nature of the concerns, he has mentioned already that this is an organisation with only 10 employees and therefore there is a correlation between the volume and complexity of the cases coming to the organisation and their ability to field all of that in a timely way. There are also other factors that are relevant in terms of an organisational restructure. An important disclosure that the commissioners office themselves made in their annual report and accounts is that one of the circumstances that contributed to the challenges that they found themselves in is that long-standing, experienced members of staff were leaving the organisation during the year and that loss of corporate memory prevented them from taking forward their statutory functions in the way that they wanted to. What comes next is a feature of some of Pat's recommendations and the commissioners office's response in terms of skills, training and workforce planning. Again, Pat will want to come in and say more if he is able to. Yes. We identified an issue with a clear lack of a workforce plan and the recommendation was made that that should outline the current workforce, the future workforce and how it got there and identify any skill gaps and actions that are required to rectify those skill gaps. There has been a bit of progress in terms of an interim plan by the acting commissioner being put in place there, but it is fair to say that there is still further progress required in workforce planning and that is something that will be following up in the course of the next year's audit. In relation to training, there was a view that there was a clear need for training. Has that training started in a meaningful way? Does it give you the assurance that it will meet the current needs and concerns? Pat can come in and say about how that is progressing. I guess where I am, Mr Hoy, is some reluctance to be definitive that any one component of the recommendations will be enough to address all the concerns that are significant in this report. Yes, it matters that training is underpinning recruitment for vacancies in the organisation, but there is an effective workforce plan linked to financial and corporate objectives. All of those things have to be in the wider sense to address the issues noted. What that means in the specifics of training, Pat? Again, he may have an update and I will turn to him now. Yes, again there has been some progress there, but I think that there is still an issue, an ongoing issue and it links back to the workforce planning point. My understanding was that there was only one individual in the organisation who had experience, for example, in dealing with MSP complaints. Obviously you are totally exposed if that one individual leaves the organisation, so there is still that overall action plan required in terms of matching the organisational needs to its statutory functions, and there is still further progress required in that regard. I am confident that the acting commissioner understands that and accepts that there is a need to be further in that, and again that is something that we will keep under review. Thank you. Just to go back to the size of the operation, I will not fall back on my rusty Latin emulation to make this point, but just thinking of an old episode of Yes Minister, I think that Sir Humphrey Appleby explains to the minister the full structure of permanent secretaries, permanent undersecretaries and the complexity of Government, and the question is can they all type, and they say no, Mrs Mackay she is the typist. Looking at the complexity of the work that the organisation is undertaking and the fact that there is only one individual potential that can experience MSP complaints, is there a concern that this body is not properly resourced to do the job? If there are vacancies, will that have a significant and negative impact and should we be looking longer term at the resource that the corporate body provides to the organisation? We saw in the year in question that vacancies were a contributing factor to the organisation being able to deliver what it is intended to do and the resultant impact that that has had. That was without question following the restructure, unfilled posts, loss of corporate memory, working key components. As Pat has mentioned equally, there are key personal dependencies in the organisation, too. All those things bring risk to the organisation to deliver what is intended of it. What comes next will be a matter for the commissioner's office and the Parliament to determine the component of resource at its disposal, the financial consequences of that. Similarly, as we understand and have touched on already, those discussions are on-going. Ultimately, that is a policy consideration for the Parliament to decide as to the resource and its expectations and how to align those two points. I want to finish this session with a few short questions. One is just to pick up that point. You have catalogued the challenges that the organisation has faced from staff training issues, staff vacancy issues, arguably significant workload burdens on the staff remaining issues around funding and approaches that have been made to the corporate body to increase funding. At the same time, in the audit report, there are recommendations for presumably quite substantive, albeit important, pieces of work such as drafting of the full investigations manual. There is also a proposal to bring in an external investigator to try to address some of those deficiencies in the organisation. My question is, having heard of all that, do you think that that will be achievable? Clearly, a really challenging circumstance is convener to do all of these things. I think that we have touched on some of our responses already, that we have confidence from the response to the recommendations, the response to our report, Pat's audit report and some of the clear disclosures in the annual report and accounts, all of that points to our recognition of the challenges. In many organisations, we do not even get to that point about there is not an acceptance of the challenges that are facing them. Coupled with that point and in action plan gives a platform to restore confidence in the work of this organisation. As we have touched on already, they cannot do it alone and that will be dependent on rebuilding the trust and relationship with its other key stakeholders and then that other component that you have mentioned about the financial circumstances of the organisation. Again, that latter point is perhaps about policy and the choices that the Parliament will want to make in conjunction with the commissioner's office. Yes, it is achievable to answer your question directly, the timing around that will be dependent on some of those factors. You answered the question from Colin Beattie earlier on, where he had asked you about where those negotiations lie between the commissioner's office and the corporate body in terms of the release of more resources. I think that you said that that was still the subject of negotiation. Is that correct? I understand the community. Yes, so nothing has been finalised yet. Just a couple of other final areas. One is that there is a section in the report on whistleblowing, which, just so I get this right, is whistleblowing for employees of the organisation. It is not whistleblowers who have got apart-to-plane complaints that come to the organisation. I am sure that there is a Latin equivalence of that calling, but there is something then that is not there about the need for an organisation that presumably deals with from time to time complaints by people covered by the public interest disclosure legislation and people who are whistleblowers. It begs the question, does it not, then, why is it not there within the organisation that looks at those things, an effective whistleblowing policy? I think that there has been a recommendation, hasn't there, that that needs to be addressed. Where are things with that? The fact can come in about the progress of the recommendation, convener, but just to provide some prior context, you are right that the commissioner is an identified person under the Public Interest Disclosure Act for people external members of the public to raise concerns of the very nature of this organisation, as it were. The organisation themselves also has a whistleblowing policy for their own employees. What the audit found was that there was a lack of awareness of the policy and the routes and options for employees of the commissioner's office, for them to raise concerns. It notes in particular, and I think that it touches on Pat's earlier point that there weren't the typical avenues for employees to raise concerns in that in other organisations you would have the route through the audit committee, the chair of the audit committee, a board member, as more than one source with which to whistleblow if that's what an employee felt necessary to do. In this organisation, that was through the commissioner themselves. What comes next for matters in terms of both the re-establishment of an advisory audit board and alongside that much greater awareness and giving members of staff the tools with which to whistleblow should they need to do so. I will ask Tom to part, if I may, to say where the promotion of the material and any further considerations have reached. The whistleblowing policy has been updated and it has been communicated to staff in terms of the process to be followed. One of the improvements that was made was that the policy mentioned that there was an option to go to Audit Scotland if the staff had any concerns. A lot of staff within the organisation we found weren't aware of that, so that has been highlighted and communicated to staff. There has been some progress there. I just then establish that there was a policy but it wasn't fit for purpose, although there was a policy. It's just that people weren't sufficiently aware of it. The final issue is to end where we started. You said in your opening statement that Audit Scotland is all about public trust in the system of complaints and how they are dealt with. The outstanding phrases in the report are recurring ones about substantial weaknesses, about significant improvements that are required. Paragraph 26 is one of the conclusions. The overarching risk is a loss of public trust in the ability of the commissioner's office to properly investigate and consider complaints made against the conduct of individuals in public life in Scotland. What is your assessment of where you think that stands today? Do you think that there is an already existing crisis of confidence in the system? Given the volume of content of the audit report, the disclosures and the annual report and accounts in my own section 22 report, all of those are necessary for public reporting, convener, on openness and transparency. However, it is an unavoidable consequence that the risk is that members of the public will question whether or not they will be heard adequately, that their complaint will be sufficiently investigated with the proper levels of rigor, and that that will be dealt with as they would expect. What we are not drawing a conclusion on is that that has specifically happened, or pointing to a case where those circumstances have unfolded. However, with any organisation, it has to have sufficient governance, leadership, scrutiny arrangements and all of the typical components of how an organisation is well run. That is so many of them that we are missing in this organisation runs the risk that it is unable to do what it is there to do. On that basis, if that sense pervades in members of the public, there is a risk that they will be disengaged from the process and not have what we would say is the trust and confidence in the public complaints process. As well as any internal reforms, what are the external changes that are needed in order for the commissioner's office to address that? If I made a very direct question for the commissioner's office, as we have all our reports clear for accuracy and tone, we have done that with this report. As well as addressing the recommendations, there is a reflection for the commissioner's office as to whether there is anything that they would want to do to reassure members of the public. I think that very clearly today is part of that process in terms of the discussion, any follow-up work that happens and any public reporting that the commissioner's office wishes to do about how they have addressed the weaknesses that we have discussed this morning. Thank you very much indeed and, as always, Auditor General, thank you very much for the frankness of your replies. I also take the opportunity to thank Richard Robinson, who joined us online, and Pat Kenny of Deloitte, who joined us this morning. That brings to an end the public part of this morning's committee meeting, so I would like to close the meeting before we go into private session.