 Awrfynllwyddiol. Fel y 17 yma'r gweithio a'r cysylltwysgau cy lleolwyddiol y swallowd siwr i'r cyrdydd yn 2017. A ddiriadent, rydyn ni i ni'n gael ei dweud o'r seheil o adonnalig dros eich cychwyn cyfle o'i meddwl yn defnyddio cymddiant oherwydd ni oedd y gallu gweld ar y cysylltu cymryd o'r cymryd. Ym y gendel ei ym 1 dydynt nid i'w ffordd i'w ddryn i chi'n tud i ffordd i ffadr i'w ei wneud. The first substantial item will be to take evidence on the 2015-16 audit of Murray College. We have already taken evidence from the Auditor General and Audit Scotland, and I now welcome today's witnesses. From Murray College we have Anne Lindsay, the assistant principal, Peter Graham, the board chair, Murray Easton, board vice chair, and chair of the Finance and General Purposes Committee, and Nick Clinton, the director of finance. From the University of Highlands and Islands, or UHI, Clive Mulholland, the principal and vice chancellor, and Fiona Llarg, secretary and chief operating officer. Before moving to questions, I'll briefly set out some background to this evidence session. The Auditor General told us that we are seeing a failure of financial management, which, at the highest level, manifested in the need to ask for what was effectively emergency funding from UHI in 2014-15 and in 2015-16, so that the college could pay its bills and meet its financial obligations. That should not happen in a public body. The funding in question amounted to almost £700,000 in 2015-16. It is also worth noting that Murray College's staff costs accounted for 72 per cent of its gross expenditure in 2015-16, which is higher than the Scottish average of 63 per cent. Those staff costs are estimated to increase to 78 per cent for 2016-17. I now invite Peter Graham, chair of the board, to make a brief opening statement. Thank you very much. I'm chairman of the board of Murray College and you've taken the first three lines of my introduction where I was going to introduce people, so my apologies I'll just catch up to where I was. I think what we want to do is try and get to the root cause of the financial situation. While the financial year in question is that of 2015-16, almost all of the underlying issues existed at the end of 2014-15. Similar to most significant incidents, there's no one single cause. The situation arose as a result of a number of risks being exposed by a series of circumstances, events and behaviours that came together during 2014-15, which combined to create a sequence of deficiencies across the college system of internal control resulting in the breakdown of financial management. The single biggest contributing factor was the poor performance of the then financial director. I must point out that Nick Clinton has only been in place for three weeks as our new financial director, so it's important that there's no cross-reference or mix-up on financial directors, as it were, during 2014-15, something that cannot be legislated for. That was then followed by a leave of absence during 2015-16. Underlying risk factors affecting the wider control environment at the time included the regulatory framework, changes in the education sector since 2014, including the ONS reclassification process and associated changes in financial reporting, budgetary pressures, reductions in funding, as well as inflation pressures on payrolls and other costs, budgetary control, weakness in process, compliance and systems, internal reporting, inconsistencies in data and irregular timing of reports, SMT factors, changes at principal level and assistant principal and compassionate leave, board factors. The chair of the F&GP had personal issues, which meant that he was unavailable for a large part of that period. UHI factors, a role of RSV, is still being defined and implemented in the interrelationship between the two institutions. SFC factors, agreement to request for early drawdown in funds from April 14. It's a fair catalogue of errors and mistakes, but the management of the board of Murray College believes that the issues within their control have and are being subsequently addressed. Thank you very much. Thank you. Just if I may begin. The first question I'll direct just to Anne Lindsay, if I may. I believe there was some confusion about your attendance today. Would you be able to clear that up for us, please? I am not aware of any confusion of my attendance. I think that the college decided that the best approach was for the financial expertise people to come today, which would have been our director of finance and our commander of the Finance and General Purposes Committee. As another senior executive member, I was happy to attend. I am going to look at the voluntary severance scheme. Just before I do, Mr Graham, a very brief question. Did I hear you write that you put a lot of the difficulties down to the poor performance of a previous finance director in your opening statement? Is that correct? Yes. Can I ask Murray to answer on that for me? I think that what we found is that I was not there at the time. I have only been in the position on the board for the last year. What seems to have happened is that the finance director at the time had not been there for a considerable period of time and I would build up a strong level of trust with the board and with the management team based on his track record. There had been nothing to suggest anything untoward in his performance. There had been no financial irregularities up to that point and no evidence of anything other than good, competent management of the college's financial affairs. It was only in that last year, and it seems that there are a number of contributing factors, including all the pressures of changes brought in by the ONS re-classification, budgetary pressures on them and the things that Peter alluded to, that somehow his behaviour changed. It does not necessarily mean that the underlying procedures and controls within the college were broken. There were some weaknesses that we did pick up and address, but we could not legislate for the apparent change in behaviour where a new principal at the time and an FD under pressure resorted to a style of behaviour that seemed to be more about holding the line of the budget and not releasing bad news, being focused more on financial reporting obligations to the SFC rather than using good-quality financial data to run the affairs of the college. The previous financial director is no longer there. Correct. He went on sick leave during 1516 and left the college in the middle of last year. Do you recall the terms under which he left? Was that a straight resignation? Can I answer that? Yes. It was a compromise agreement. It is confidential between the college and him, but it was a managed departure. Let's look at compromise agreements and voluntary severance. There is a proposed scheme. Are you in a position to give us an update on where the voluntary severance scheme is, please? I am. We are still with the assistance of the UHI answering questions to the Scottish Funding Council with a view to putting together a scheme. It closed two weeks ago. I don't think that it would be fair to the parties who have applied to go into individuals, but there are a dozen applicants, 10 of whom we have made a business case to accept. We are still discussing with the Scottish Funding Council as late as last night. We were talking to Mr Kemp. 12 have applied. Are any of the 12 who have applied members of the senior management team or senior members of the college? I can't. It's not fair on those members of staff or the positioning of that. I'm discussing that with the Scottish Funding Council. We're filling in questions with them, dealing with it and moving it forward. I don't know if Clive might like to add to that. Both the university and its role as a strategic body are working with the fund and the funding council. They are working with the college. We have a series of questions about what is being proposed, so that is still in discussion with the funding council at the minute. Are you at liberty to say what proportion of those 12 are from the senior management? I don't think so, really, no. I think I would want the Scottish Funding Council to advise me as to how I should proceed with that. For me to suggest that there are members of staff who may or may not be leaving at this stage, we don't know. We haven't got agreement from the funding council as to our proposals. I think it would be very difficult and unfair on those members of staff. It is fair to say that it is at least a possibility that in a situation that is considerably challenging that some members of the senior management team who perhaps could be said to have got the college into this situation may be leaving with a large payoff in the not-too-distant future. I'm afraid that I disagree with that. That's extremely unfair. I think that the current senior management team, during that period, did everything that was possibly good to help, including Ann herself, who stepped up to be vice principal when the principal was away and when the other principal was left. The board addressed the issues as far as I can see. I joined the board in August last year. I've been chair for a month, during which time I've done very little else but the position, as far as I understand it, was that the senior management team very much stepped up to the mark and caught the problem where it was going wrong. The principal left. The financial director was managed out of the business. He then moved very quickly with UHI Help to start remedying the position. It felt that the voluntary severance scheme of itself will work. If we accept that there will be some senior management going and some, I guess, academic staff going and support staff. That concerns me because it rather strikes me that the end product that a college sells, if you like, is the ability to teach pupils. Can I point you to your own figures at the start, where you said that we had 72 per cent of our income going on staff and the average in Scotland is 63 per cent? We need to address that and we need to bring that in line with the other colleges. We're not allowed to go to make redundancies. We have to do it in this way. Our ambition is, and I think you will see from our financial recovery plan, and already is achieving that. I accept that, except that if the product is the provision of teaching, is the provision of education, is it possible, in your view, to cut the staff through a voluntary severance scheme without diminishing that product? I believe so. Have you done the analysis? Is there a business plan that— Of course we have. We have very detailed analysis, which we've submitted to the Scottish Funding Council. Every single individual, there is a business case to them. It shows where they sit. We've spoken to their curriculum leaders. We've dealt internally to manage transition so that that is not an influence on the students we've assured. We've spoken to and assured the unions that we wouldn't be doing any of these actions if we were unable to show that it would not impact on the students and the student experience. Colin Beattie. I'd like to give a little bit of governance. What is the size of the board of Moray College? We're currently in transition. It was 18. We have three members who are at the point of resignation. The previous chair, who was actually an acting chair for a year, was the vice chair, Ash, who has now or will leave, even in his principle, as vice chair at the end of this month. There are two other members of the board who are retiring. We interview next week for a further—we've got three candidates coming forward to fill places that we're not quite sure whether we wish to maintain the size of the board at 18 or gradually try and reduce it, but we're trying to make sure that we've got a proper transect in all the classifications that we need on the board. 18 seems quite a large board. Yes, it does. It's a legacy that I've been left with. It is something that we will strive to try and amend. In any board, there are those who don't appear to turn up from time to time, and we need to have a managed process of dealing with that, which we are putting in place. Looking back at the role of the board over the last few years, during the difficulties arose, did the board receive regular financial updates all the way through? Obviously, I wasn't there at that time as I joined the board in August last year. My feeling is that it is probably a question for Murray. I wasn't there either, but the evidence suggests that the quality of information and the timing of information was not what should have been expected by the board and by the Finance and General Properties Committee. It was not adequate. Looking as far back as 2014-15, the auditor was saying that the board and committee minutes didn't evidence decisions that were agreed. What was the point? The point of what? The point of the point of minutes that don't actually say what's been agreed. I don't know all I can say is that it's not that way now. I can't comment on the time. We were trying to explore how that arose in the first place and ensure that it doesn't happen again. We need to understand what went wrong and where the disconnects were. I couldn't agree more. There were failings. We don't have the evidence. The people who were there at the time are no longer there. They are no longer employed by the college. They are away from the institution. I don't quite know how we get that evidence. We know that it was poor. Looking forward, I think that Marysian just said that it's not that way now that there are proper records kept, proper records of decisions taken. Is that so? No, absolutely. I would not say that the records kept at the time were not correct. The basic accounting information was sound. What we are talking about here is deficiencies in the process of sharing management information with the senior management team and with the board. There was disparate information being shared in reporting to the SFC, different information being held on the accounting system for forecasts, not for the actual accounts themselves and different information that was inconsistent and not given on a timely basis to the board. What we have in place now is what I would call single data flow. It is a single set of financial information. The primary purpose is to enable the management of the college to use that financial information to run the affairs of the college. The secondary aspects, that same core data set, is used to feed the Scottish funding council reporting requirements and also the needs and requirements of the board. That is done on a timely basis. We have quarterly management accounts and we have an understanding of no surprises. If anything comes out during the course of the quarter rather than wait until the next meeting of the finance committee or the board, that information is shared with relevant members by the finance director at the time to allow a live conversation to be had. Can I also ask Murray to take us a little bit into the future? The financial recovery plan? No, the association. Perhaps I can ask a question. I am still looking at the historic side and trying to understand some of the aspects of that. At what point did the United Nations Secretary of State become aware of the difficulties and what action was taken at that point? I will start off and then I will ask Fiona to come in. We became aware in June 2015. We had to make a cash advance to the college. At that time then we took a report to our own Finance and General Purposes Committee and then we wrote to the college asking for an explanation as to how it got to that position and then asking for certain things to be done. We engaged with the college very quickly and we sought additional information. We wanted a recovery plan. We wanted to look at what they were going to do to get themselves out of that position. You became aware in June 2015 that there was a problem. There were difficulties at that time with the board getting financial information and dealing with the situation. What support did you give them? We offered lots of support. We offered the support of our existing financial staff. We offered support at an individual level. Was that support accepted? No, it wasn't. That was with the board that was existing at that time. It is a different board now. Do you know why that assistance wasn't accepted? I can only speculate because I don't know what their thoughts are. At that stage we were transitioning from a structure where the relationship was directly with the Scottish Funding Council and with the Post-16 Education Act, the university became the regional strategic body. There was some resistance during that transition in terms of the relationships between the colleagues, the regional strategic body and the funding council at that time. Presumably the college didn't just say no because. Fiona, do you want to… I think that it wasn't no because. I think that it was much more that they felt that they had the situation under control and we had several meetings with the chair, board members and senior staff in college at that time. We continued to ask a lot of detailed questions for many months and information was provided on a… All the information that we asked for wasn't provided at the time that we asked for it, but over several meetings we were able to get more information. Certainly the resisted direct intervention bias at that stage. You just accepted that over an extended period? No, we didn't. We pushed and we pushed as hard as we could to get that information, but the board at that time was not willing to engage with the university or with the regional strategic body. We did get that information. As Fiona said, we managed to extract that information from them and we got various data sets from the college. According to the audit report, the board of the college was struggling to get information, so the information that they gave you must have been fairly limited. You could say that. As an independent college, the board has the responsibility for ensuring that the information that they provide to the regional strategic body is correct, so we have to go with the information that is provided to us by the college. If you knew over an extended period that there was a problem and you knew that the college was refusing assistance, what did you do other than press them? Surely you escalated it up the line? We did, but we worked with the college and we did start to get the information out of them. We had a number of meetings with both the chair of the board at the time and the principal. Who did you escalate it to? We escalated it up through to the Finance and General Purposes Committee of the University and then the University Court. And outside the university? Yes, on to the Scottish Funding Council. The Scottish Funding Council and what advice did they give you? The Scottish Funding Council worked with us to try to help the college as much as we could. The SFC got in touch directly with the college? No, through UHI. Any letter that went to the college was copied to us, so the funding council was making sure that they were concerned. So what did the funding council tell the college that they had to engage with you? Not so much in those words, but they said that the problem needed to be fixed and that as the regional strategic body we all have to work together to actually solve this issue. Does that seem a bit weak? You have months of problems, you have a board that is not engaging, you have inadequate financial information, there is a deficit situation, college is looking for funding, you have escalated it and nothing. I would not say that it was nothing, it just took a lot longer than we were hoping. The explanation that I would give for it is that at that stage, when we have learned our lessons from that point, as we were transitioning from into the regional strategic body role, there were complications around relationships and relationships were difficult at that time as to who we were supposed to be talking to. Since then, we have tightened up on that, we are getting much more regular financial information from all of the partners, we have put in place a number of new committee structures to have a much greater oversight and we will be much more directive and interventional in the future because I think that is our role as a regional strategic body. That would be the question, do you not think at the time that if you had been more decisive when the problem arose that it could have been fixed a lot quicker? Potentially yes, and I think that that is a learning exercise for us as we transitioned into a regional body role. Do you believe now as a regional body that you have that authority to intervene and direct the colleges? Yes, we do. It seems to me that in the past you have just escalated the SFC in a way in some ways. We have also made changes to governance, I am going to ask him if you want to explain about the appointment now of the people on the board. To put it into context, in 2014-15 we had just taken over the regional strategic body responsibilities on 1 August 2014, so at that stage we had legacy boards in each of our five incorporated colleges. The past of the part of the post 16 education act provided that when the new boards came in it was the UHI as the regional strategic body that made the appointments of both the chairs, the chairs of the colleges and also all the independent members, but that took quite a while to transition into the new boards. So at that stage the Murray College board had been appointed by Murray College itself and had a feeling of autonomy and much greater independence from UHI than the current board would because the current board members, the chair and independent members are appointed by us. That has been quite a major change, but there was also a legacy of regular finance information and performance information not being provided under the previous regime to UHI because all we funded in the previous part up until 2014 was higher education, whereas it took quite some time to work with the partners to get them to provide all the data that we now get on a very regular basis. Obviously we are keen to ensure that this does not happen again. You believe that you now have clear, for one of a better word, guidelines as to how you would approach this again in the future and that it would be direct intervention at a much earlier stage if I am interpreting what you are saying correctly. The role of SFC does not seem to have backed you up in any particular strength at the time that you approached them with the original problem. Am I wrong? No, I would not put it like that. I think that there was a confusion over the relationships between the regional strategy party and the Scottish funding council. So the SFC was confused? I think that we were all unclear. I think also then that what did not help was that at that time the board would continue to write to the funding council when the roles were shifting over to the regional strategy body. But you are satisfied that this would not be the case again going forward? Yes, we have put in place what Fiona has said and we have put in place other measures as well and we will be much more directive in the future. I would be interested, convener, to see a copy of these rules, guidelines. You say that you have now got a process. That process presumably is documented. That process is, for example, at a governance level, it is through the appointment that Fiona has just talked about and then at an executive level what we have done is we have changed the executive structure within the university and we have created two new bodies. There is a partnership council, which has got all of the partners, the principles involved in that and we start to scrutinise now much more closely what is happening in each of the partners and then we have a new SMT that has got a number of the principles from the partners on that as well. Put that together then with the governance structure that we have put in place. Excuse me, my high favour is playing up this morning. If we put that in place then also with the new data sets that we are getting, we are much more confident that we have a better control over what is happening across the partnership. I hope that it is not as bureaucratic as it sounds. Do you have a documented process for dealing with issues arising with colleges? No, there is no specific protocol as such because the issues that could arise in a college could be a multitude. We would probably spend all our time writing processes or writing protocols. I am thinking in a particular case where a college is, for want of a better word, failing. What we have, we do have a process in that the data set that we would use to examine that and the data that we would look at is considered at a number of levels and then it is escalated so it is considered at the SMT, it is considered at the partnership council, then it is escalated to the Finance and General Purposes Committee of the University and then ultimately the court as the regional strategic body. In addition to that, we also have a further educational regional board, which is made up of all the chairs of the colleges. It is quite a complicated governance structure. Yes, it is. Have you ever thought of simplifying it? Yes, I have. Are you going to? We have looked, we have made changes to the governance structure within the limitations that we have got at the minute. Jackie Baillie wishes to carry on in that regard. Just a short supplementary question, and it is to go back to the college rather than UHI. I think that you would accept that it is not, and I am sure that you are not suggesting that this is simply down to one person. The board and the senior management team have responsibilities too. I entirely accept that the three gentlemen here came after the event and certainly in the case of Mr Clinton three weeks ago, so I appreciate asking you to answer for things you do not know about. It is difficult. Ann Lindsay was there for the duration of that process and stepped up to the plate on at least one, if not two occasions, to take the senior position. I wonder therefore if we could address some of those questions to you about what happened, what was done to fix the problems, and what was the interaction between yourself and UHI? What did they ask of you? What did you do or not do in relation to those requests so that we get a fuller picture from somebody who was actually there? Yes, we had a principal in place from August 2014 until March 2015, so only in post eight months. I personally was not in cause some of that time, but that is not relevant. When I picked up the role in March 2015, it was fairly quickly clear to me that we did not have the management financial information that we had previously. It was clear to me that there had been, as well as all of the other contributing factors that we have already discussed, which I do not think can be underestimated to be fair to the teams. We also had that year an unexpected significant drop in our HE student numbers, and during that period—the August of the March—we had not, in any way, altered our budgets to line up with the fact that we would have had less income through less HE students, and from an operational point of view that was the key impact that caused the cash advance to be necessary. For whatever reason, we had not altered the budgets. In our normal processes, we would, and we obviously do now, but we also did before. Obviously, the budgets are set on targets, and every September, October, once the student numbers are in, we realign our budgets, and that has served us well in the past. That year, we had a significant drop in HE students that was not recognised. As soon as I became acting principal in March 2015, we instantly made a number of changes to our budget control. There is no doubt about it, and again, for whatever reason, it really had deteriorated over a short period of time. What I found was very difficult to ascertain our financial position. It did take us quite some time working with our FD to establish where we were. That would not occur now, absolutely not, and it would not have occurred prior to that, to be honest, either. However, it cannot be underestimated just how long it took us to actually, really forensically look at all of the accounts and all of the finances over that period of time. That took time to answer your question about the United Nations High School of Science. As a member of the executive, I worked quite directly with the director of finance of the United Nations High School of Science at the time and sought help in terms of best way forward. I immediately contacted our internal and external auditors, and I did contact the SFC directly because, as Fiona said, it was the emerging of regionalisation at that time, but SFC did tell me that my link was through the United Nations High School of Science, and I was comfortable with that. I received support directly from the executive team at the United Nations High School of Science and that did help. How long did it take to get the finances in a position that there was a degree of clarity? I think we had quite a bit of clarity by the June-July, but in actual fact the following year, one would have expected, we immediately also improved the information we were giving to boards because I completely agree that the information given to the board between the August and the March was not fit for purpose. I have to say that it was not inaccurate, it was just lacking in detail, and there had been minimum commentary. There was very little discussion on variances, etc., so we immediately improved the information that went to the boards. Again, though I would say that that took a while, it really generally, over the 1516, we were still identifying some financial issues that are in the report that had an impact on our cash flow the following year, and it took us some time to recognise those. Also because of our financial situation, we immediately looked at, we went first to our non-staffing costs to try and reduce them as much as possible but, obviously, with the students' service teaching being paramount in our heads at that time. Just so that I am clear here, it took, according to what you are saying to me, from March to June or July to get clarity, some clarity. To get initial clarity, yes. Initial clarity will agree to those terms, and at that stage you were talking to the board about that, but actually we then had the problem repeated for another year. I think that we continued to improve the information that was going to the board over that period of time, but I would be accepting that it was not totally sufficient until the new board were in place. So you required a cash advance of a similar magnitude the following year to the problem remained? We did require a cash advance the following year. I think that one of the factors that caused that, in actual fact, was the fact that we had a 368k cash advance in 1415, and to be honest, that was a very large amount of money to have to pay back in one year, and we always recognised that that may be actually difficult to achieve. Although I was surprised at the size of the cash advance that we required the following year, we always considered that there might be a cash advance issue due to the fact that there had been 368k in the first year. Can you clear up for me? Again, I might have misheard this, but I heard the UK High School saying that the college did not accept help, but you seemed to indicate that you did. What is the truth? I personally received help from the executive. The board and its relationship with the Finance and Energy Proposals Committee of the UK High School, I cannot discuss. I would say that there was a good relationship with the executive and with Anne in particular. The real challenge was that it came from the board, and that the pushback was coming from the board itself. Again, to reiterate, it is a different board to what we have today. I will leave it there, convener. I am sure that other members will pick myself. Thank you. Just on that, I am absolutely clear. Fiona Larg said that there was various performance and financial information that was not being provided to the United Nations to allow them to help, presumably. Does that cross over with the period that you are talking about, Anne-Lynesie? It does, in the sense that the college was at that point, that was June 2015, and the college was still trying, at that point, to ascertain all the financial management information that we had used to having. It was the case that, in my respect, it was not the fact that we were not willing to send the information. We generally had difficulty in actually finding the information for quite some time. We did a forensic check of our entire finance system. We put incredible new systems into place. We changed our software, we changed the work of the finance team, and we immediately had significant information at the executive level of our budgeted control. To be honest, that was my primary aim, to ensure that we were in control of our budgets again, because we had not been in my view for a while. My primary aim was to ensure that we had the budgeted information. In the sense of providing higher-level information, we always provided what we had, but we were not sometimes able to give justification or explanation as to why the figures were as they were. It was a dramatic deterioration in a very short period of time. OK, but Fiona Larg's evidence was along the lines of, we just weren't getting the information. What you seem to be saying is that we didn't have the information to give, and we were taking steps to remedy that, but why weren't you talking to UHI and saying to them, we haven't got this information for you, because that wasn't what I understood from Fiona Larg. Again, I was in the sense that I was discussing with the director of finance of UHI, and they were some supporting, I mean, I'm not an accountant, so they did provide quite good financial support in going forward, and what the key areas were, etc. So I personally had a good relationship with UHI. Right. Very briefly, just for the record. I just had a little bit of clarity that might be helpful. There is an obligation in the college to do quarterly financial returns to the Scottish Funding Council. Those returns were submitted and on time, and would have been available to UHI themselves, so they would have had access to that level of information. The issue around it was whether the quality of the forecasts within those returns were appropriate and accurate, or whether they were actually masking reality such that they had information, but it wasn't actually telling the story of what was happening within the college, and that appears to be what was happening. So there was information out there, but it may not have been appropriate and up to date. Right. Alex Neil. Can I just pursue some of this, please? Mr Graham explained a litany of problems that all arose, and seemed to arise quite suddenly. From what he's saying, the previous finance director under whom this appeared to all happen appeared to serve the college well until this particular series of events all seemed to happen at once. Did nobody think to... Obviously, something had gone wrong, and I don't want to get into personalities, but nobody think to suspend the finance director given what you'd found out and bring in at least someone from outside to get it sorted. Did he remain the finance director throughout this period? The finance director very shortly thereafter went on sick leave. So was he replaced by a temporary post? Eventually, but not for quite some time because it wasn't initially established at what point he would be returning. But what we did do was we have another accountant in the college and she had her duties extended and she was in fact the one that led us through the period of a natural fact getting back on track with all of our information. We had a qualified accountant within the organisation. There is no doubt about it though. We were under resourced and it was. I think that one has to remember that we are talking about 14-15. I genuinely don't think that we can underestimate in terms of finance staff the real impact of the various things that were happening in that time. We had regionalisation, we had the new reporting framework because we were being reclassified by O&S in terms of the college framework. We had a considerable change in that period. I think that my own reflection was that in finance we perhaps spent too much time and too much priority on ensuring that all of the reports were returned to UHI stroke SFC all of the time and perhaps not enough on what I would class as the core finance role there is an element of genuine so much change that at that time it was quite overwhelming but I have to say that the staff that remained dealt with it all very well immediately thereafter. You said that when you were putting charge of things you notified pretty quickly the auditors, I think you said the internal and the external auditors. What did they do? My reason for informing them was to ensure that that Murray's problem was well known because obviously that was paramount for me it was ensuring that we let everybody know that we did have these problems and both sets of auditors were genuinely very supportive. I had great discussions with them, talked through different strategies in terms of financial recovery. We talked about priorities and of course the priority was budgetary control. At that time it was lacking so both sets of auditors provided quite a bit of support in that very brief timescale initially but then what we did, what I did was that once we had resolved our budgetary control issues and we had implemented them and we had a period of time lapse about six months, I think. I asked the internal auditor to come in and do a specific audit on budgetary control and on a cash flow, etc. to ensure that one, what we had put into place was fit for purpose and effective and two, the natural fact that we were implementing it to our own procedures and although at that time I think there was one or two recommendations to help us to improve further overall the internal auditors were satisfied that we were back on track so to speak. You notified the SFC what support did they provide? I contacted the SFC directly because as I said at that time we were just literally forming the region of the Highlands and Islands in terms of FE and their response to me was due to digitalisation and I had to contact UHI instead so I had already done that to be honest and then continued after that. So they banked it back to UHI basically? Yes. And really didn't, and lifted it that, did they? Did they come back to check three months later? No, I mean we, as Murray says, we continuously returned all the reports we never missed a report, we returned all the reports all of the time but no, they didn't come back. They didn't come back at all? No, the UHI. Right. They were very hands-off. SFC? Oh, absolutely. Right, okay. Can I widen this out a bit? Because obviously the Highlands and Islands is a very unique arrangement given that we've got the Highlands and Islands University made up of the 13 colleges which are also FE colleges in effect. And it seems to me just building on what Colin Beattie said. If you start, for example, at this college, you had the Finance and General Purposes Committee, excuse me, then you had the board, then you've got UHI and within that you've got now got a partnership board and you've got various other boards as well as full-time staff and so on and the new appointee and then at the top of the tree we've got the SFC. I mean, it's a little wonder that there is mayhem, is it not? I mean, any bodies are involved in this. I mean, it must be a very bureaucratic and slow process with that number of people involved. And in answering Clive, could you tell me, you know, what is the role in the Highlands and Islands respectively of the SFC, UHI, or the regional college board and the colleges? How much autonomy have the colleges got? Where do you come in and the SFC doesn't? And where do they come in to tell you what to do? What sanctions have you got if a principal or a board of a college decides that they don't agree with you? What sanction have you got, if any, to impose your point of view? I wouldn't quite say it's mayhem, I would say it's very, very complicated. I mean, UHI itself is unique. It's a very, very different sort of university and it was the only way they could actually create a university presence in the Highlands and Islands without bringing in these colleges together. So we're a federal university, so we're federated with the individual colleges. We have a number of relationships with them and this is where it gets complicated again in that as a university, the 13 colleges are academic partners of the universities, they deliver the higher education elements, so there's a partnership arrangement. The university is also now a regional strategic body for the further education funding. So we play a number of roles and that can be quite difficult to politically work your way through, particularly when you have an area that covers an area bigger than Belgium, so you're going from the Shetland Islands all the way down to Argyll where the pressures and the challenges in each one of those locations are very, very different. So we have a challenging position there in itself. Then what we have to do is to figure out in terms of, and this is the creation of the university, is that there was no location anywhere in the Highlands and Islands that would have the critical mass necessary to create a university. But by bringing them all together, we were able to create what is in effect the University of the Highlands and Islands, which has performed incredibly well. If you look back at the last research excellence exercise, we performed incredibly well for a university that's only four or five years old. Now, we are young, we're growing, we're developing, we've still got a lot to learn. We have the complications of that. We've got the complications of the regional strategic body coming in in 2015-16. So we've had to work our way and feel our way through that because when unlike a traditional university or a single institution with a single governance structure where you may be able to be very, very directive in a federated relationship, you have to, in a lot of cases, bring people with you. So we have the geopolitical dimension to the partnership as well. My personal view is that over a period of time, the governance structures will change. How long that will be, I'm not clear because it will depend on how fast there is an appetite for change. But it is a very complicated structure. I have been in the Highlands and Islands three years now. I don't claim to understand the politics completely. But it took me about a year and a half to actually start to understand how the relationships all work. Is there not a built-in conflict of interest between the university because the role of higher and further education is quite distinct and obviously the colleges are involved in both further and higher education. You're now acting as the regional college board as well as the university. It's a two-headed monster, isn't it? We've actually turned it round on its head. We actually see this as an opportunity because we are the first tertiary university in the UK. So we cover both further education and higher education. So we're very proud of that, the fact that we are tertiary. We're breaking down a lot of barriers around traditional education and the separation between further and higher education. Half of our higher education students come through a vocational... who then want to go on. So we see that as very distinctive. We see ourselves as mapping very closely against the learner journey on the students and putting the students at the centre. So we see ourselves as doing things that are very different. The problem we have is that then we come up against barriers because the structures are all set up for further education or higher education. So we get difficulties when it comes to that. That really leads on to my next question. Is the time really not come to recognise that you are a different beast from the rest of the higher and the rest of the further education system and have, would it not be much more effective, just a one unified management structure recognising the reality of the situation, perhaps with local boards looking at specifically local issues. But we're not created an unnecessarily complicated situation where it's very difficult for anybody to really be in control, particularly when something goes wrong. It seems to be getting battered from pillar to pillar to post. That is one option. And there are a number of other options that could be looked at as well to simplify. We are looking at simplifying that. For example, we've just gone through a period there where we had a strategy working group from across the partnership and we've agreed changes that we hope will simplify and clarify where the accountability sits. So we've now done that and we've basically signed an agreement between all 13 partners that this is the processes and this is where the accountability sits and this is where responsibility and decision making. So we're started on that journey. Where that journey will end up, I'm not sure. I suspect that it'll be after my tenure as principal. To clarify the SFC, the SFC obviously gave you a budget as a university from the higher education funding. In terms of further education, does the SFC still give money? Do they give it to the board for distribution or do they specify how much each of the 13 colleges are going to get? What we do is we have two funding streams. One is the higher education funding stream, which is similar to any other university. And then we have a further education funding stream, which is similar to any other college. They both come into the institution. The higher education budget is managed through the court as normal. But because we've also got responsibilities of regional strategic body, we have set up a committee, which is called the Further Education Regional Board, and that's a committee of court. And their responsibility then is to manage the further education budget on a regional basis. So the money comes into the region. Yeah, it comes into the region. I hear the point about managing it, but do you allocate the money between the colleges? Do you decide how much money a Murray College is getting? In essence, yes. The Further Educational Regional Board, acting as the regional strategic body, allocates it on a regional basis. Right. And it could get funding from your higher education budget as well, obviously. Presumably the colleges do higher as well as further. The colleges get two income streams. They get a further education and a higher education income stream from the university. Right. How long do you expect to be there? How long do you think your tenure will be? I'm hoping as long as I keep performing well, I'd like to think I'll be here for a bit of time. It's not in terms of really your personality. You've given the impression that you doubt if much will change even in your time. No, I think what I was trying to say was that the timescale things move quite slowly in the highlands. And it could be, I don't know, it could happen in the next few months if it was so to be or it could take three, four, five, six, seven years. Does it not require some national leadership to drive the change? Potentially, yes. I think any political support will be great. Yeah. Well, given what we've seen, and it's not just in this college, there's at least one other college out of the 13, and we're seeing them later who've had other problems. But it just seems sitting here is not necessarily a bureaucratic, complicated arrangement that could be simplified, and the opportunity to take a more innovative approach, to have a more unified, higher and further education system in the highlands and islands, which I would have thought would be very much in tune with what the needs are of the highlands and islands community. I think anything that simplifies the system would be welcome. I think I would say that, yes, we are a hugely complicated beast, but what I would say is if you look at the achievements of the institution over the last 10 years, and it's only had university titles for four years, we've just been awarded research degree awarding powers last week by the Privy Council, so we're clearly demonstrating. I think we could do a lot better, and that will be the challenge for us in the next five to 10 years as how do we build on that foundation. So anything that simplifies it and makes it easier for us to do that would be welcome. So my final question is, if a similar situation arose in any of the 13 colleges in the future, do you feel as though you're now equipped to deal with the situation quickly and to expedite the solutions that you think are required quickly, to me? We have better information. We've got more accurate information. We'll get it in a better time. The university and I is clearer in terms of its role as a regional strategic body. So in the future, we would be much more directive and interventionalist. And you have the necessary powers to do that. A very quick matter arising from Mr Neil's line of questioning. Presumably, then, you could absorb some of the financial difficulties created by, let's say, Murray College by taking budget from Loose Castle budget and sending it to them, couldn't you? In theory we could. I don't think Loose Castle would be very pleased about that. What we have is we have a mechanism, a model for funding, which we have inherited from the funding council as we became a regional strategic body. So what we've been doing is we've been transitioning into a model that we think is more appropriate for the Highlands and Islands and the best people to make the judgment about what's needed in the Highlands and Islands and the people that are in the Highlands and Islands. So that's the boards and the universities and the colleges working together. So we have been funded on a regional basis and our role is to provide the regional educational opportunities. So we can move funding around and we can change the model to incentivise and to deliver on areas where there's need. So yes, we can do that. But when one college needs a cash advance, there's only a finite pot of cash. So you have to pull it from somewhere else. And we have pulled that out of the university because the university is able to have reserves through the higher education. Through the further education aspect there is no reserves, but we can use higher education reserves which the university and the partners of all are and we can use that to support. But the key challenge is not just providing the cash advance. It's determining what the root causes are and trying to make sure that that doesn't happen in the future. I accept that, but just to be absolutely clear, if a college requires a cash advance to make it sustainable, you will use university reserves to make that advance. Yes, we can use that. Monica Lennon. Thank you, convener. I'll just begin by going slightly backwards. Peter Graham at the beginning, you were quite frank in setting out what you painted a picture of what had gone before and it was pretty chaotic and dysfunctional, I think. Everyone would agree. Now I'm keen to hear what lessons have been learned and what difference really the new board is making and the new senior executive team and Lindsay is fair to say you're the only person on the panel who's been there throughout. So I wonder if you can perhaps say in your own words what the culture had been like in the college and what it did change, a chaos period, what that change was and how you stepped up to be the most senior person and what you've brought in terms of leadership qualities and expertise to go about changing that culture. Of course, I think it has to be recognised that since February 2016 we have a new principal, David Patterson, who's been able to be with us today. If he was here, I think he would be informing you that we have done substantial work towards a new strategic plan. We have worked with our staff, consulted with the staff, our stakeholders, various groups, et cetera, to take that forward. A key part of that strategic plan is values, communication, culture, support for students. But in terms of the finances that we're discussing today, we have really, for 18 months, perhaps longer been working on looking at our financial recovery plan. Now that we know our baseline, now we know where we are to take forward our financial recovery plan. That financial recovery plan is really two streams that's based on growth, both through the university. We've got at least two new degrees that we're developing just now, which we would be sharing with our partners. We have other plans to grow our HE numbers. We've also, in terms of growth, we're looking to increase our commercial income because we feel that in the current environment we need to do that. We've been looking at various projects to take forward to increase our income outside grant. We've also had to look at reducing our costs because it was clear that our staffing costs were too high and although it wasn't our first consideration, we did very much try to revisit the funding model to see if we could get more funding. However, we are where we are and I think that the VSS scheme that we have in place just now is one method in that fact. I was looking at our staff costs but in that fact, in the last 18 months, 15 months, our staffing has steadily reduced because we've been looking at vacancies, we've not been filling vacancies to the same extent. We do have some very strict parameters that we use for that. Students impact upon students, impact upon staff and impact upon service delivery. I appreciate your very expansive answer. I was keen to stick initially on looking back at some of the behavioural issues because I really want to be satisfied that the right skills and the right people are now in place. From your experience of that, if you can perhaps say what was lacking perhaps in the previous board in terms of skills and if you are confident that the new board has the necessary skills to be effective in its role. With regards to the board of management? The board, yes. I certainly have welcomed and noticed a significant difference in the new board that was formed last August. I've only recently been attending meetings until our principal went off on sick leave. For example, I've just had two financial purposes committee. They were very rigorous. They were very detailed. We talked a lot about current position. We talked a lot about where we sat with regards to financial recovery plan. The board are very supportive. But there is an element of rigor, yes. Can you see what was perhaps missing before in terms of skills and experience and what the difference is? You've talked in quite general terms there, but I'm looking for some examples about the type of people who were on the board and what they are CV brought to the role. I think that perhaps in terms of finance there's more knowledge and experience of finance matters on the board now than there were before. I think that the previous board would have recognised that. Can I just talk for a little bit of clarity? Just in terms of what you think might have been lacking before. Can I just talk for a... Sure. If I can just ask the questions, please. What you're bringing to the board. Just a little bit of clarity. The picture I see when I look back from what I've seen and read and understand from conversations wasn't necessarily a chaotic situation. There was nothing to suggest that the books and records of the college were not being properly maintained nor that the procedures generally were inappropriate nor anything about the capability of the board. What we had here was... If you strip away all the other issues, what we had here in 2014-15, I know that it's come out of the audit report for 2015-16, but the root cause was 2014-15. If you strip everything else away about process, procedures and people, what you have is that the financial model, the financial framework under which the college was operating had broken down. That was the root issue, not the cause but the issue. In simple terms, we got to a position where the cost base was exceeding the total income which was provided by funding and commercial income generated by the college. That had broken. That was what gave rise to the need for an advance at the end of 2014 of £368,000. The issue around it was that the quality of information was poor and not being fairly and timely presented so that the secondary lines of defence outside of management who were primarily responsible, the secondary lines of defence, namely the board and finance committee, UHI, auditors, the SFC themselves were not able to see the issue unfold and it was only once we got to the end of the year that the size of the financial whole became real and that's when people reacted. It could and should have been picked up earlier, it wasn't. By that time, the cash flow was negative. We had an end of year cash deficit and two things need to happen at that point. One, you've got to try to fix the budget model so that you're actually generating positive cash and then you've got to address the whole that you have already created. If you don't do that, it gets worse and that's what happened in 1516. The size of the whole grew from 368 to an advance of 568 and what we have done now, the rest of it was just about awareness and then resolution. What we now have is a financial recovery plan that is addressed, that has changed the business model for the college. We now have a plan going forward, a two and a half year plan that by the end of not the academic year ahead we will be in positive income and generating positive cash flow and that was the core issue that needed to be fixed. It wasn't just about chaotic context. The underlying financial model was broken and that's what management with the current board have addressed and we are already halfway towards achieving the recovery plan. Wouldn't a competent team have picked up those problems earlier? Absolutely, but what I'm saying is that within the senior management team I would expect the principal and the finance director at the time to be sharing that information with a wider senior management team and with their finance committee in the board and that's what did not appear to happen. Sharing of the up-to-date situation, sharing the bad news, understanding what the extent of the problem was and why and if you could address it earlier the size of the whole would not have continually grown deeper and deeper. Can I come back to your question? Obviously I'll let you in, but can I ask the witnesses to keep answers quite short and concise just now as we're getting on in time? Can I come back to your question about the ethos in the board? What you'd had and what Clive is having to work with in the UHI throughout all of the colleges is an historical set-up that revised Education Act and so you had a team of people who were in there who'd been there for quite a long time who complacent would be too strong but they were relaxed and comfortable with the FD and the situations that were going on. What Clive has now got particularly at Murray College and probably as a result of this is a board who are much more structured towards looking towards the UHI who are much more structured to looking towards the future in that relationship. We're already discussing a unified accountancy package which will be structured through from UHI and you can see centralised services coming out of it which gives you some of the savings you're looking for. For you to impose change to those college boards I suspect we'll meet resistance and at the moment I've been to a couple of these ferv meetings even my role a new chairman. You're getting people who are stuck in their little class and they're saying I want, I want, I want instead of look we're all in this together we need to work this pie so that it's to the advantage of all and that is probably the biggest significant change on the board at Murray College is this willingness to move into the future in a proper and managed relationship with the UHI the openness of the bookkeeping the interrelationship between our new financial director he's already been in his last two weeks into the UHI meeting with the FD of the UHI we've already discussed how we intend to move forward our finances so these ethos changes which is I think what you were asking about are so significant because we're new to the game we're not looking at the history we're not burdened down by the relationships that there were historically and we've come in with a view the reason I've applied is because I want Murray College to be part like Maudlin is to Cambridge or something like that I think what I was just hoping to hear is that there has been that look back to the past so that the lessons have been learned and the same mistakes won't be repeated Does that give you that answer to that? I think we're getting there, thank you Mr Clinton, congratulations on your new job we haven't heard from you yet the auditor found that the management accounts did analyse areas of overspend so that we could not provide explanations for the variances between budgets and forecasts and also there was a lack of audit trails can you reassure us today that this has all been improved upon and we won't see that complaint again? By what I've seen so far I'm just in the door in a matter of weeks so I've come in at a point where there were management accounts getting prepared and then looking at the budgets going forward but there certainly is a narrative there in place that wasn't before but from what I can see I'll be looking to expand on that and working very closely with F&GP to understand what they want looking at the reasons why not just saying this is up, this is down and that's a percentage of it to do some analysis and actually dig into it to find out what is going on there do we need to be taken action do we need to be concerned and as Maudlin mentioned earlier that may meet quarterly or so there is going to be or there is a very direct line of communication whereby I'll be in contact with Murray or the board if there is anything that I feel needs examine needs to be brought to the board's attention and we'll certainly be ensuring that going forward that the board pack the information is robust sound and has the narrative to go along with it or are you going to do differently from your predecessors? Probably everything to be fair if we're looking at what had not happened going back then but really looking to understand the dynamics of the college and where the issues are we've got a financial recovery plan that we're working to one of the big challenges and areas to focus on is the non-funded income and that's very much at a recent board meeting we have decided that there will be a committee set up which I'll be chairing to look at getting new ideas to generate income pulling that, pushing it forward and actually putting the emphasis out there on the budget holders that they need to be thinking about this as well as just I need this but we need to be having a more commercial out view on things I think I can't remember who said it but one of the witnesses morning said it it'd been quite difficult to repay the previous advance all in one go the most recent advance is almost £700,000 when is that to be paid back? Is that part of the recovery plan? As far as I've seen, yes I know there is staggered payments going back I'm looking at the cash flows that are done monthly but that is all built into the financial recovery plan and I'm at the infancy of getting into the detail of everything just now Is that going to place a burden on the college's books or Mr Easton thinks nodding is achievable to pay that back in one year? Yeah, by the projections that we're looking at just now based on what's gone into the recovery plan I'd make the assumption that yes but clearly until I'm right into the detail I couldn't give you a kind of solid black or white answer Okay, one of the other things that I picked up from the Audit Scotland report is that a decision has been taken to delay property repairs as a sort of short term funding measure Now Mr Clinton, would you not be concerned that that might lead to increased costs in the future if you put off repairing leaky roofs for example and what impact will that have on the value of assets going forward? Potentially I don't really have the background knowledge of what was or wasn't done and capital expenditure and maintaining buildings Sure, but there's some risks thrown up if you're putting off repairs Potentially, yeah Can I say that there has been a substantial amount of maintenance work done on our we have a very ageing building of course and it is expensive to maintain but we have this year spent a considerable amount of time money improving we've refloared corridors we've done a lot of repair work we've put in new fire risk assessment work there's been quite a bit of money spent this year on capital and maintenance What kinds of repairs have been put on hold? I don't think we've we actually have a long term maintenance plan and to bonus it's on schedule we have some work that we're planning again to do next year once we have our capital maintenance funds for next year so I wouldn't say that we're actually behind our maintenance plan I think where we are in terms of our building is that it is hugely costly in actual fact to bring it up to what we would like to see to the extent that our funding will never cover that to be honest we just have to ensure that we do the best for our students and our staff and of course health and safety etc so we do have a routine maintenance plan that our head of states delivers upon but yes it's an expensive building to maintain Okay so what bearing does that have on the student experience there's probably lots of investments and upgrades that you would like to do to really enhance the student experience is that a concern that you have? I think that any college would love to do more with our students in saying that and I know it's not the end but we meet with our students regularly we have very good relationships with our students close links through many many routes but we have just finished our learner survey of the year and we're always very appreciative of the high praise that we receive from these surveys etc but we would also know through other channels a final question from me perhaps Mr Clinton and Mr Graham could pick this up national bargaining I just wondered what recent discussions you have had about any financial implications around the national bargaining commitments on pay harmonisation terms of conditions etc as we've already heard the funding to the college comes from the UHI our Scottish funding council in effect now and we are discussing with them the impact of national bargaining and we are waiting to hear whether or not additional funding is going to be given to us in relation to that but we've certainly taken it into account in our budget for next year which we're in the process of moving forward and we're waiting to hear whether or not we're going to get funding which at the moment I don't think a decision has been taken on whether the colleges are there's been sort of press releases and so on but I'm I think there's even been some this morning but Clive you're probably more up to date on that than I am just before we move on to Clive how much do you need 414,000 400,000 is that for year one for next year and what about for subsequent years years two and three who knows Dylan, do you want to add to that? The only thing I could add is that obviously the funding that the college receives comes from the government through us so I can't magic up any extra income as such all I will say is that we have been working across the partnership modelling different things looking at the impact on that and it's a process that I think is from a personal perspective I think it's the right thing to do and we've just as all organisations we will have to actually figure out how we manage that as we go forward but until we find out what the final outcome is it's sort of guessing in the dark at the minute national bargaining is happening it's settled colleges will have to deliver on it as employers if the Scottish Government doesn't inject more money into the system to cover that and I think colleges Scotland are on record saying that they have concerns about the fordability if you have to pick up the tab yourselves is that going to create some financial difficulties again I'm looking at you Mr Clinton You simply couldn't just add that into your call space without having additional income What would suffer as a result because it's national policy it's going to have to be delivered what would be the consequence if you don't get that additional money I suppose you'd need to revisit the financial recovery plan and again discussing that with board the other senior management and UHI Is that a risk that you're alive to being very new in the role? Yes, it's impossible not to be aware of how it's going on Thank you Willie Coffey I'd like to get back to the actual report of the auditor general's report on college performance to date It was mentioned by the convener and others and I think Mr Graham that the proportion of staff cost staff budget was 72% of that of the college Scottish average is 63% but the forecast is that the staff cost ratio will go up to 78% Is that accurate and is that part of your plan? We've moved on since then with the recovery plan, I don't know what the actual percentages will be but we did benchmarking exercises that suggested our support staff was too high our academic staff were roughly in line with other equivalent benchmarks We have already from the beginning of this academic year started with a staff base of 249 full time equivalents The last forecast we had for the average for the year had brought that down to 239 and that's now coming down to 234 so we've made significant inroads into reducing the payroll budget The numbers that you gave me don't particularly help The information that I have here says that Murray College the staff cost budget is 72% of gross expenditure Scottish average is 63% Is Murray College staff cost high on the Scottish average? Given the interventions we've made this year in a reduction of 15 FTEs that will bring it down to but I know that it will bring us down well within the benchmark levels for other equivalents and I suggest that we'll be back in line with or below what the average was There's another statement here that says staff cost will increase to 78% across budgets for years Categorical saying that's not the case Information now, it's been superseded We can check that with others and we can come back to that Could I start at the current position and look forward and give you a chance The recovery plan's in place I presume Has everyone happy with it? Has the UHI seen it? Has the funding council seen it? Has it approved? Has it in place? And what's likely to happen in the next year? Yes, to all of the above and the financial recovery that we have made this year we started up with an opening draft showing a bottom-up deficit without any intervention of 967 which was even greater than the deficit of around 800 for the last two years By the time the recovery plan was put in place which is around the end of the year we had driven that deficit down for the current year to about 606 The last forecast and this is with on-going interventions and actions being fulfilled during the course of the current academic year the forecast in March had dropped the deficit to 515 and the latest one that Nick presented is now 460 so we've halved the deficit going forward we're primarily dependent on the satisfactory support of the VS scheme and if that does come through we expect it will give us of the order in full about 350,000 so you can see then that the deficit going forward year on year all things being equal would drop to around 100,000 by next year and we're planning to close that gap by further interventions within the college largely around commercial income that would take us back to 1718, we're projecting a deficit of only 150 and then by the following year down to around minus 50 or even zero and we're halfway there already It's good to hear the UHR's assessment of the recovery plan and whether you're satisfied We've looked at it and we have approved that in general however what we are doing and this goes back to what I was saying earlier we're not going to put a support project board in place with the college to work with the college so that they can have additional expertise and we can have increased confidence that the recovery plan will be delivered so for example and I think it was mentioned about growth in your curriculum we would want to be very much involved in that and helping to guide and have that expertise to guide as well as manage your cost base so we will have that a much closer hands-on relationship with the college going forward Anne, you mentioned some of the growth plans planning to grow the 8G numbers but you also said just before that one of the causes of the financial difficulty was a drop in the 8G student number so what's happening now is you get more 8G students coming back That was genuinely one year which was very unexpected so in turn the following year 15-16 we actually had a significant increase in our 8G numbers in fact we had record numbers of both 8G and FE students the following year so and we are currently our activity levels are beyond target on FE so of the 1897 credit target we're delivering over 19,000 so we're very comfortable in terms of the student numbers it genuinely was one year unexpectedly our 8G numbers dropped and as I said the following year there was a significant increase Are your forecasts based on say 100% achievement of your aims in the recovery plan for example you also mentioned commercial income have you factored that into the recovery plan and assumed that you're going to get all of it No, we've passed a judgement on it we've made an assessment of what is possible and risk that and put in a certain proportion it's around half of what we think is possible and your assessment of the recovery plan is acceptable Thank you Just to wrap up just three very quick areas just so I'm clear about the current structure there was a new principle taken on in March 2016 who's currently on long term sick leave in absent in the college since April long term he's had an operation a fairly serious operation and he was told at the time that he was expected to be away for six to ten weeks it's actually looking at it's going to be slightly longer than that but we are hoping to see him back in a part time capacity within the next couple of weeks building up to full time probably by the end of July and going into him yourself as the assistant principal and Lindsay and another which is Tom McGarry so presumably you'll be very important the assistant principals will be very important driving this process forward Other than the previous director of finance who we heard about earlier has anyone else left the college as a result of the performance and finance issues whether by settlement agreement or yes a number of board members not what was the cause of the principal leaving him it was direct was it it was managed yes that was going to be my next question the previous principal the one I think he was in for 700 months there's a compromise agreement around right so the the last principal left under a settlement agreement the director of finance left under a settlement agreement anyone else no I'm not aware of anyone else I wasn't there but I haven't heard of anyone else no I'm not aware of anyone else I can't recall but absolutely I don't recall anybody no okay thank you for your evidence for coming along today I'll now suspend the meeting briefly to allow for a changeover of witnesses thank you very much and good morning again for item 3 we'll take further evidence on the 2015-16 audit of loose castle college which is based in the Outer Hebrides I welcome Ian McMillan the principal of the college and I welcome back Clive Mulholland and Fiona Llarg of the University of Highlands and Islands as with Murray College just for clarification the regional strategic body for loose college I'll briefly set out some background to this evidence session loose college has failed to meet its further education targets for eight years albeit by a small margin and with extenuating circumstances in some cases in one of those years according to the Auditor General's report the Scottish funding council or the UHI did seek to recover funding from the college so we will be exploring how the college spent the public money it received for activity it apparently did not deliver what role the UHI played in supporting or challenging the college the impact of loose underperformance on other colleges within the UHI region and how the college will now ensure that it delivers the appropriate volume of learning for its students I'd now like to invite Ian McMillan to make an opening statement just a couple of minutes just to set some of the context I think we as a college did submit a one page summary of the actions that have been taken recently by the new board to show the steps that we have been taking to address the issues outlined by the Auditor General in the report the college does have a new board in place and it's a board in which a board has been appointed by UHI the board has in its totality been in place since last September so we're just coming to the end of its first full cycle of activity as a board the board itself is very focused on the challenges faced by the college particularly in regard to student recruitment and the impact that failure targets has on the finances of the college and in addition to conducting the formal board business the board has met separately to consider specific issues relevant to the sustainability of the college and in these sessions we focus first of all on risk and developing and upgrading the risk register for the college and subsequently we met discuss curriculum and to develop a curriculum action plan that we see has changed the way that we delivered curriculum within the college as a result of the challenges that we face and a further such meeting is planned for early August to consider finance and to develop a financial strategy response to take account of all the challenges that we face and to make sure that in future that we have everything in place that we're able to respond to the changes in our action plans because it's all very well to plan one thing but we're in a fairly volatile situation and because we are very small small changes have quite a significant impact on us so we're very conscious that we have to develop a plan that is able to respond to particular scenarios so we're looking to do that in August a key part of the finances for the college is the allocation model that's actually used for further education activity and with the introduction of the new system in 2015-16 that the new system that simplified the model there were quite a number of complexities that have been within the previous funding model that were lost as a result of that simplification which have caused us difficulties in the Highlands and Islands in particular because we receive funding and activity from Scottish funding council but we've had to develop a mechanism to allocate the funding and the activity funding was fairly straightforward to the extent that because the funding council had allocated the same amount of funding to the region the same amount of funding was allocated to each college but the activity levels were a bit more complex and it took us as a region with the help of SFC until the autumn of last year to put in place a model that allowed that activity to match the funding so for 2017-18 we now have new allocations of activity which have resulted in loose castle colleges activity being reduced down to a level which is of the same level that we've been achieving in the past two years and that as a consequence of that we have had a reduction in funding which we have factored into the budgets going forward and we have been able to accommodate that within our budgets but like all of these things it will be challenging for us to meet that so that's one of the reasons as well behind our strategic work in August on on the budgets but I think it's it's important for the committee to understand that we are moving forward taking these taking these observations that have come from Audit Scotland that we recognise them that we are taking them seriously and that we are responding and will continue to respond Colin Beattie I'd like to look a little bit at the governance here the colleges have been underperforming now to a greater or lesser extent really since 2008-9 what action did the board take in relation to this? I think yes it has been underperforming in terms of student activity levels I think in the out-of-hebrities we are very conscious of the challenges that we are actually facing in terms of the demographic changes that are occurring within the islands I think what the board actually did is they did actually consider some additional strategic responses particularly in regard to curriculum employer engagement student engagement and also marketing but the Auditor General says that these strategies didn't work they didn't work in attracting the level of students that we needed and again some of the strategies that we can put in place will not halt some of the demographic changes that we are I mean it says here there is little evidence of the board taking effective action would you be able to comment on that? I think there's little evidence of the action that the board took resulting in an improvement in the situation I think that would be fair to say yes now UHI obviously came on the scene in the latter part of this period of underperformance at what point did you become aware that there was a problem and how? If you look at the position of the college and it's just picking up where Ian has left off it's in quite a fragile area it's funding up until 2015-16 came directly from the funding council so there's a model that's been in place for a period of time we've taken over that and we've continued to fund at the minute based on that model however as a region we're now looking to see is that model appropriate for us in the Highlands and Islands so we're aware of that we're aware that the college is not necessarily underperforming but it may be overfunded but if we had just stripped out that overfunding straight away the college would be in an incredibly difficult position so there's the context of the environment within which it sits however that doesn't mean to say that we shouldn't be doing anything and we are starting to take action now so we're looking at through the Further Educational Regional Board which allocates the funding in FE we're now looking at what's the appropriate amount of funding for the college and other colleges but in addition to that we're now starting to look at Ian has mentioned the demographic and we know they're there we're now starting to look to see with the college how do we address those and one of the ways of addressing those is that because of the technology that we use in UHI it's the technology that has enabled UHI to exist in the first place so we use a lot of what's called network teaching so we have the opportunity to actually start taking the college out from the Hebrides and teaching across Scotland rather than trying to either attract students in the Hebrides or bringing them in so therefore we're starting to work to become much more sustainable so those are the plans we're now starting to look at with the college and saying were the areas that you've got expertise like for example through additional music we can start to teach out from there so we recognise that there is an there is an issue around the funding but if we had just funded based on the model to their activity levels so what we're doing is we're looking at this as a regional basis with the college as part of the university When did you actually become aware that there was a problem? We've seen that in the last from 15-16 when we see the figures we've been aware that there is a difference between the activity and the funding and we've been aware of that since we have inherited that model at the funding council and did SFC know about this were they aware about this? Yes so they were aware that they were subsidising this college I'm sure they were I couldn't comment for the funding council but we just adopted the model at the funding council clearly there are certain businesses, colleges that might be as you say in fact it is capable of being turned around from a financial point of view Yes I do I think it requires the support of the university to be able to do that and I think we need to look at new ways of working so for example we're now starting to look at having shared services at the minute I'll give you an example we do more video conference teaching than anybody else in Europe so Shetland College run that for us so we have an opportunity to look at services and try to support the local college so we could put services in different colleges that are in difficulties I'm not saying that's the whole solution but that's part of the solution of dealing with a region that is quite fragile and I think we get our strength from rather than a college operating in isolation as being part of a larger group in through the university so we can access some of the capacity and capability that may be missing in a very small college My understanding is the board consists of 13 members is that still the case? That's correct yes Seems quite big for a small college That's the minimum required by the post 16 act is 13 13 It says here there's been quite a turn over in the general report although obviously that's a little bit historic now and at that point seven experienced members had left including the chair of the six remaining are they still on the board? Yes I think of the of the independent members it's three of the independent members that were on the previous board are on the current board where staff members and of course myself and the present board obviously the previous board didn't respond particularly well to the situation and failed to take the action that was required the current board are they fully informed are they fully engaged in taking the action that's required and has UHI actually signed off on a recovery plan? The the new board is fully engaged and they are taking a more active role in terms of what we are doing and what we are actually doing in an operational sense to respond to the problem in terms of our recovery plan the information that we've put together as to how we've as a college dealt with the reduction in funding has been passed to UHI and has been approved and has been through through the committee process within UHI so as far as I'm aware it has been accepted and from UHI's point of view you've approved this do you have to send to SFC as well are they engaged in it at all or is it handled at regional level? This would be handled at regional level because we're the regional strategic body so our role is to the main role of the regional strategic body is to ensure the provision of further education in the highlands and islands it's not necessarily to preserve the colleges although the colleges obviously are the main delivery vehicles for that but our our main responsibility is to ensure the provision of further education in the highlands and islands Thank you, Willie Coffey. Very much, convenier, in good morning to you. The last committee where we discussed this issue I think I tried to kind of spring to the defence a wee bit of the college and recognising the size of it and raised the question about whether the original characteristics and targets and so on are really fair when applied to the college and the western Isles like this Mae'r rhaid i lwasgeau seemsblygio i'n dweithio gyd, el lö i siaradol rymor, ond siaradol arall nad coulwnr i'n adnabodniad. Are incredible that the model does not really work well for your college. Mae'n i ничего s nói, mae'n rhaid i gael mitig rail tarff fel i ddim yn Irish a ti'n amgylchedd ar y llwn. Odeu honestyw'r rangodes Wyethwyr wedi fwy lle arg 有fyro i'raisiau hyn am gyfath Children and Young Children's College of Ibarra Raith. Ibarra Raith yn g스�周od ascendol i'r infrared ddiweddol a'r redyn ladw gyda'rrau ffucksrad pethau iswyr. Felly mae siŵr yn gwneud cyfasio'i ardeitu eich lwyaf ynghylched o'r lwyaf honi siŵr scriged, ac at y rhan o gyfæd ychydig yn Canadian Wh אםadau i lwyff irvyll, yn llwy Dorothy然後n Innovation International ynghylch. Mae gwirdd ag feltio hyn yw oedd, cyfre이 amirau a ddyriadpo i cadais thoseu rhan o gy dejaell wedi And that takes a disproportionate amount of time probably from us as a college and a resource to contribute to that. So it would be useful if there was something in the funding regime that recognised that. It's that we are funded on the basis of, we're funded basically on a per capita basis for the number of students that we have. Rydyn ni'n Reptilham yw'r cwrin blaenau a'r rhaid i fi yw'r gwahodd ychydig i'w ddweud gweld ar y rhaid i chi'r gwahodd a'r rhaidio'r adeiladwag. Rydyn ni'n rhaid i chi'w ddim ddweud, ac i chi'n ddim ddim ddweud gan rhaid i chi'n ddim ardilladwad i'w ddweud o ddweud. It's very, very hard to put one mechanism in place which satisfies the requirements of a large regional college and satisfies the requirements of a college, like ours, but we do have a voice at regional level and at national level and we do try to influence that, whether anybody listens to that or not is a different matter. I think we discussed Edinburgh in the conversation, and we compared Edinburgh with Newcastle, and it's the same sort of criteria that applied to Edinburgh that was applied to you, and I think some colleagues around the table were not surprised at that, just a bit concerned about that, and the notion that you were failing for eight years in a row was one that sat a wee bit uncomfortable with me because of that criteria. The question that my colleague Colin asked there, you have to have 13 members in the board and you said I will have to, because that's the rules. It seems to me that we need some kind of flexible approach here that recognises the differences that are evident and obvious in places like the western islands. I think what we have, what we have in the regionalisation process and in the changes that have come to us is we do have an opportunity to compensate for the challenges that we have as a small college by linking into services that are available from the university or from other colleges within the highlands and islands. There's a need for us as colleges to work closer together, and to, I think Clive mentioned, about sharing services. There's an assumption that sharing services is always about back office services, but we have to, I mean we already do to a large extent share teaching. We certainly do across higher education. We will be looking to do that more and more at further education level. We'll be looking to develop curriculum collectively, so each individual college is not developing the curriculum individually for that college. We have expertise that we all need, whether it's financial, legal, marketing. We need to be able to share these because as a college, as an individual college, Lewis Castle is actually probably too small to function independently itself from the rest of the region from other colleges. So there is a need for us to work together. We've recognised this for a long period of time, but again as islanders we also protect our autonomy maybe more than most, so there's a need for us to find an accommodation with our partners that allows that to work. Do you find that you need more assistance by way of technology and online capabilities and so on to deliver what you do much more so than perhaps anyone might need that kind of assistance? I think what we actually have is a well developed expertise in using technology because we realise that that's what will actually keep us sustainable. As a college we have played a significant part in the development of the university and in developing particularly network courses. Certainly at one time we had a disproportionate number of the courses that were offered across UHI were led from Lewis Castle. The reason for that is that we recognised that we needed to do that. I think that Clive identified earlier that there was an opportunity for us to provide some of that learning and teaching opportunity from Lewis Castle out to other people. And because we recognise that need we probably are better placed and more motivated to make use of that technology and to break new ground. So we have been doing that quite significantly and I would expect that we would carry on doing that. And have you got decent broadband, speed that allows you to dissipate this fully and properly? We're getting there. I think the broadband debate is an interesting one. We have got first class communications into the college sites and that again we've got some improvement in that again over the summer coming. So I think into our sites we have, I think maybe in individual pockets within the islands there are plenty of issues. If you were to just capture all of this and suggest or make a recommendation for some kind of change or assistance or something that would help your college, what would it be? Would it be to break free of the straight jacket or the one size fits all approach? The one thing I would say, I think if there's one thing, if somebody could sort out the VAT landscape so that we could provide services between individual colleges and individual colleges in the university, that opens the door to a whole load of sharing that we currently cannot undertake without incurring a 20% VAT charge. For me, again I'm an accountant by profession so for me that one is the one infuriating thing that's really blocking us and stopping us from addressing some of the bureaucratic challenges that we have. If somebody can unlock that door for me I would be really grateful. Just pick on that. What do you mean by that? You're constantly paying VAT for cross-service sharing? Because we're separate organisations, except for teaching, teaching because education services directly to students are exempt from VAT but all other services incur a VAT charge of 20%. Why would you be particularly damaged by that compared to other colleges? If you take some of the support services like student support, we're looking at can we provide a unified student support service across the whole region for all the colleges? We think we can do it in a much more efficient way and actually improve the quality of it because we get better consistency. The problem is that there's a 20% VAT charge on every partner. For the university, there's a 20% VAT charge on that straight away. You've got to make an extra 20% savings on top before you even start to make savings. That's what Ian's referring to. How do we address that? We're working on it. You're working on it? Yes. Thank you very much for that. As a point of clarification, Mr McMillan, you say that you're an accountant to trade. You're the principal and chief executive. You're also the senior financial officer, I believe? Yes. When I was made principal, we didn't replace the director of finance post. We have a finance manager, so we do have a professional accountant who looks after the day-to-day operational finances. I'm right just for clarity that you're doing all three roles, principal, CEO and director of finance. At the high, is that the strategic level? I don't play any part in the day-to-day operations. Do you envisage that continuing? I think when I took on the role, what we expected was that we would have moved to the shared services situation within UHI, that we would have been able to move to that fairly quickly, and that some of the financial expertise that I am currently providing would be available from somewhere else within the network. I don't believe that we need a full-time finance director, but what we actually need is that we need that other brain and that other viewpoint that we would actually be better getting from somewhere else within the sector. To be absolutely clear, do you envisage that continuing? For the short-term, yes, until we can find a solution. Alex Neil. Can I go back and build on Willie Coffey's points? The reason we're here is because the Auditor General has done a report saying that the past eight years you haven't met your targets, and obviously colleges, unlike universities, their main catchment area is the local community, and that's even more true of an island community. We're all very well aware of the challenges in terms of the demographics, both in terms of population changes and ageing structures and so on, particularly in island communities. The Hebrides has had its more challenges than most. Can I start from the beginning? Who sets the targets? On what basis are the targets set? Are the targets realistic for an island community like Lewis? I think from my point of view, I think the targets have been too high, but because the targets that have been set are directly related to the funding that we receive, the funding that we actually receive for those targets is what we need to sustain the level of activity that we have within the college. I would say that, and we've started to now with this new model, move away from the way things have been traditionally, I would actually say that they are too high, but that I wouldn't want to see all the money that's directly relating to these targets being taken away. I can understand the target. I remember working in the old Cymru in Doon Valley district council. I didn't work for the council, fortunately, but the chief executive—this is 30 years ago, I was very young at the time—used to complain about the Scottish office, looked to the funding for graveyards in rural areas in exactly the same way as the funding for graveyards in urban areas. It's a lot cheaper per unit, if I could put it that way, to maintain a graveyard in an urban community. It is in a rural community because in that rural community there are 16 major settlements and every village wanted to retain its own graveyard. Ergo, the costs of doing so were much higher. I think that you've answered the first one, which is that the targets are too high, but my question is, what input do you have on your board to the setting of the target? Is it an iterative process? I presume that it's the SFC originally who set the targets. Is it an iterative process or is it handed down from on high in Edinburgh and they decide what the target is, end of story? What is the process of setting the target? Traditionally, up until this year, the targets that we have are very much based on targets that were set a number of years ago. If I'm correct in thinking, I think that 2010-11 was quite a major change point for the FE sector in terms of funding and in terms of activity. All the activity levels that we've had since have been based on that position in 2010-11. As changes have been made as a result of regionalisation and so on, they've all been based on that. I think that there's been so much change in the sector that a lot of these targets have not really been revisited since that time. Were those targets set by the SFC? Yes. Did you have any input into the targets at that time? In terms of being set, no, not really. You would look at them and say, well, you accept the targets. We do always have the opportunity to say, or we did in the past, to say yes or no to the targets. That's one of those questions that the answer to that has to be yes, because you don't really know what the consequences of no. That's my point. You're very nervous about saying, well, we can't accept that target because then your funding will be cut. I think that the second point that you're really saying is, and that's where the analogy comes in with the cost of graveyards in Cymru can do in Valley 30 years ago, is the unit cost of delivering equality further education service in Rwys. By definition, you have far fewer people, far fewer units, if I can put it that way, to spread the cost. It's a lot easier in a bigger college to reduce your unit cost because there's probably 20 or 30 people in the class whereas you'd be lucky to get five or six, ten in a class, maybe. The original targets were unrealistic to start with, probably, and you didn't really have much of an input into it. Secondly, there is not sufficient recognition of the additional cost of delivering FE in a community like Rwys. Would that be a fair comment? It would be a fair comment. There are mechanisms within the funding process that we have been in discussions with, that we do get a premium for remoteness and virality. Is this sufficient? I think that there are always, and that's always one of our challenges when we're looking to do things at national level, as you will always get the difference of view and opinion between urban and rural people. Finding the right balance to that is always going to be difficult. In your opinion, although there is a premium, the premium isn't, if I could put it this way, generous enough to recognise the reality of the cost pressures that you are under in a remote rural island community with a relatively very small catchment area with an ageing population. I think that I'm right in saying that there is a falling population still. I think that what you said a short while ago, that if we make an assumption that for full-time courses an average class size might be 20, the highest that we've had as an average class size has been over a year, has been nine. So, in theory, it costs us twice as much per student to deliver those courses, but we do not receive twice as much per student. Obviously, some of that, by sharing services in the future, some of that can be addressed, but it seems to me there's a fundamental inbuilt unfairness. If the targets are not reflective of the reality of the situation on the ground and the money going to the colleges isn't reflective of the true additional costs, particularly unit costs, of being in a remote rural island community, it seems to me that we need to get those fundamentals right before we can judge whether you're performing properly or not. From the university perspective, we get funded for further education on a regional basis. I'm not blaming you by the way. Even though I'm going to come on to that, I've got an ask. We get funded on a regional basis, so even though the college is underperformed and hasn't met its targets, the region has a whole house. In fact, we've overperformed on that. Our responsibility is to look at it on a regional basis. However, when you have colleges like Lewis Castle that are in a very fragile area, there are difficulties. It is more expensive to deliver that. If we had taken the decision when the funding model came over to us to just fund them based on their activity levels, that would have a catastrophic effect on the college. We have to look—we've got to do two things. One is we've got to look to see can we reshape the college to get it into a better position? The other one, and this is the ask, is that from a political perspective, we would argue that it then becomes a political decision as to what you're willing to fund there, because you may never be able to have something that's completely self-sustaining in its own right as part of a larger organisation maybe. We would argue that, because of those additional teaching costs, we should get increased funding for each student because of that, and that would follow in if you make a political decision that you want to support the regional development. If you look at wider economic issues, clearly the Government's policy, every successive Government in here, since this place was established, has been to try to do what we can to increase the population and particularly to retain younger people in the island communities. Therefore, to in any way reduce the quality and the range of services provided by the college like Lewis is going to work against that policy, because very clearly the age profile people who go to colleges, younger people. It seems to me that we need to be very clear about the wider policy issues in relation to a community like Lewis. Inverness is at the other end, which is supposedly the fastest growing city in the UK, if not in Europe. Therefore, as you say, you're dealing within Inverness at one end and you're dealing with Lewis at the other, and you have to recognise that it's a completely different scenario in both of them. The only purpose for the university to be set up was to stop the drain of young people from out of the region, because it was absolutely clear that when they went to the central belt or elsewhere for education, they never came back. We have been very successful at doing that, but that comes at a cost, and the costs in a regionally dispersed organisation are going to be much higher because we have got 13 libraries, 13 learning resource centres, we've got all of that across the maintain. The answer is for us to get control of that in here and abolish that in the services between the different colleges, and that might fund the additional resources we need for places like Lewis. If you can get rid of that, we'd be delighted. Unfortunately, at the moment, we don't have control of it, but I'm sure that's going to change, Liam. Thank you. Is that relevant, Mr Neil? Of course it is. It's relevant to what they were saying. We'll move on. Can you just pick up the discussion that Alex Neil has led so capably? The point that we've settled on there is that what's set nationally isn't always going to work at that very local level. Have you made that case at the college or have you made that case to the Scottish Government about that apparent mismatch? I mean, at every opportunity I take every opportunity I can to say, and my colleagues as well across the partnership will say, we do have challenges that are unlike other universities across Scotland, very big challenges. Do you think the Scottish Government recognises those challenges? I think they do, yes. I think everybody recognises the challenges, but the difficult bit is what you do about it. Just in terms of the students themselves, I know previously a large number of your students were part-time learners and older students. Given the change in national policy, I just wonder if you can say what the learning opportunities are for students who are over 24 in the island communities. We still have a wide range of learning opportunities, but probably what's actually happened as a result of some of the changes is that we have had to focus more on our full-time courses. Because our resources are taken up on these full-time courses, we just don't have the additional capacity to develop new activities for other groups, but we have actually been working at building that activity back up again. We are actually providing some interesting and useful opportunities for people as well. Some of the changes in the past because we have been offering courses and nothing had been available, it was a lot easier to attract people to come in and do it, but now we have to be a bit more innovative and make things a bit more interesting. That has been difficult in the financial climate that we have had. I am sure that it is part of the work that you are doing. You are always taking into account the needs of local employers. Are you able to say something about the local labour market and any sort of change in trend since the new policies came into effect? Yes. We have been hit particularly hard by the downturn in the oil and gas industry. We have very good pathways through to qualifications on the engineering side of our activities that provided good opportunities for young people in particular to get trained to work in the oil and gas sector. A lot of them are working offshore, but they maintain their homes and their families in the islands. That has been quite a difficult change for us and a difficult transition because in terms of aspiration and perceptions, particularly of young people, the assumption is that that tap has just been turned off, which it hasn't. There are still opportunities in oil and gas, but unfortunately a lot of the media coverage about oil and gas being in crisis and big reductions have resulted in fewer young people looking to take qualifications and engineering. We are looking to address that to encourage more people to get back in there because there is still work and there will actually be work available for them, so we are looking at that. We have had particular challenges in construction trades in the construction industry and quite a number of courses where we still offer the courses, but the numbers are getting so small that it is becoming very difficult for us to maintain some of the traditional trades in the construction industry. However, we are working with the trade bodies and the companies to try and do something about it. No, that's helpful. I was just going to finish by asking, are you getting support from the industries themselves? I know that the Audit Scotland report talked about your marketing efforts and perhaps they haven't been effective. Is there more that the industry can do to support your work? Yes, there always is. We are not going to be able to train apprentices if they are not actually taken on by the companies, but the companies at times have been finding it difficult to even recruit traditional apprentices because, again, there doesn't seem to be that motivation to go into an industry that is maybe seen as uncertain and that work isn't guaranteed. I have a great deal of sympathy with the points that my colleagues are making about the numbers and how it has all arrived at. My difficulty is that the college has effectively been funded for eight years or in eight separate occasions, if you like, in excess of what it needed to deliver. There has to be an argument that somebody is funding that. Almost the other colleges are subsidising that shortfall, but it then begs a question of UHI. You've only recovered that funding, that overspend, if you like, on one occasion in eight years, as I understand it. Why do you not recover that money and who takes that decision based on what criteria? We were not responsible for that money before 2015-16, so that was a Scottish funding council that funded the college before then. I was going to ask about them after, so perhaps we'll deal with that now. That's a question that you need to ask the funding council. We are aware of the situation that colleges are in. The problem that we've got is that if we just clawed that back instantly from the college, it would have that huge impact on them. We don't want to do that. We want to work with the college and we want to develop a sustainable model, as sustainable as we can be. Again, that's another reason why you have a regional university and you have the colleges all within that. The analogy, I would say, is a bit like if you take a traditional university, there are some faculties that are seen as the cash cows within the university and they sometimes support. The engineering and the business faculties quite often cross subsidise the humanities. In our case, we work together as a collective of all of those. With 13 partners, we're always going to have a position where some are up and some are down because the local challenges are very different at different times. We have to, as a group and as an institution like that, try and manage that process. Ideally, I would like every single college to be self-sustaining and to actually deliver a surplus that we can use to reinvest in the business. We've got certain restrictions on us. One way of dealing with that is that we get better at what we do. The other way, as I said earlier, is to push harder for additional funding for the region and get recognition that it is going to be more expensive to deliver across large parts of our organisation. Can I make a comment on that as well? I understand what you're saying. I have some difficulty with some of the wording of it because it suggests that we're actually using money for something in a way that it's improper that somehow that, because we're spending all the money that we actually receive, that we spend the money on delivering the learning and teaching that we offer right across the piece. It's not that we're using the money in an improper way, so we are actually using the money to the best effect that we can in terms of what we offer. The reality is that if UHI or SFC came back to take the money back, we've spent that money on delivering the services that we have delivered, so it's not that we've got that money sitting somewhere and not working towards the benefit of the students that we have, albeit that there aren't as many of them as the targets that are being set for us. I certainly didn't intend to imply anything like that. Let me give that reassurance. Just turning back, because I think Mr Mulholland you made a good point there, but isn't there a risk that other colleges in the fold will look at what's happened over eight years? There's almost a disincentive on them to meet their own targets, because they're looking and saying, well, you only recovered whether you could or not, but you only recovered the overfunding, if I can put it that way, on one occasion out of eight years. So why are we striving to meet our targets? Why don't we just do the same thing? I can answer that. We've now got in place a process and it goes back to, I think, some of the questions that Mr Neil was asking earlier about the involvement in setting the targets. We inherited the model from the funding council, so the seven years before that you'd have to ask the funding council. We inherited that model. We are in the transition at the minute. We did not want to do anything that would put at peril and at risk one of the colleges. We now have a process in place through our further educational regional board, and all of the partners have input into that, and they determine how they're going to allocate the resources among the partnership. At the minute, we've got Loose Castle. We are reducing the credits that we're going to give them. That's a deliberate decision that has been made, so we're moving away from the status quo, but we want to do that in a managed way. As you said, I don't want us to be in a position where people think they can just sit back. We're now changing that process, and that process will continue to evolve over the next couple of years in terms of that funding, as we refine that funding model. Just one final point to wrap up that whole area. Are you aware if any of the other colleges in the fold are experiencing difficulties in achieving their targets? Some of them are quite close. Again, it's a reflection of a fragile environment. It's a reflection of the financial environment that we're in at the minute, but none of them are in the position that Murray College is in. Do you have any further questions? Thank you very much. We'll now move into private session. I thank the witnesses.