 Welcome to the 13th meeting of the Public Audit and Post Legislative Scrutiny Committee in 2017. Could everybody make sure that they have their electronic devices switched off or at least on silent mode so that it doesn't interfere with the committee. Agender item 1 invites me to put to the committee that we would take agenda item 3 in private. Are we agreed? Thank you very much. I will move us to item 2, and the committee will now take oral evidence on the Auditor General's reports on the 2015-16 audit of Edinburgh College, 2015-16 audit of Lewis Castle College and 2015-16 audit of Murray College. We were scheduled to take this business at last week's meeting, but unfortunately ran out of time, so I do apologise to all the witnesses if there was any inconvenience caused to them and thank you for rescheduling your diaries I welcome Caroline Gardner, Auditor General for Scotland, Hugh Harvey, partner at KPMG, Michael Lavender, Audit Manager at Scott Moncrief, Darshay Santakumaran, Mark McPherson and Anne McDonald, all from Audit Scotland. The Auditor General's opening statement will cover all three reports, and I invite the Auditor General to address the meeting. Thank you, convener. As you say, I'm presenting three reports on colleges this morning, which accounts for the number of witnesses you have before you to help us answer your questions as thoroughly as we can. They all raise matters of public interest arising out of the audits of the college's financial statements, and I've prepared the reports under section 22 of the Public Finance and Accountability Act, which is the vehicle for me to bring those matters to your attention here in Parliament. The external auditors gave unqualified audit opinions on the 2015-16 accounts of all three colleges, but they also highlighted concerns about financial sustainability at each of them. I'll begin with Edinburgh College. As the committee knows, this is the second report I've prepared on Edinburgh College's financial position. In my last report, I highlighted issues arising from the college's failure to meet its student activity target and concluded that the college would face significant difficulties without further financial support. Since then, the committee has taken evidence from both the college and its auditors. The auditor, KPMG, highlighted that the college continued to face significant financial challenges. The college reported a deficit of £7 million for 2015-16 and relied on additional financial support from the Scottish Funding Council in order to meet its liabilities. As I reported last year, a review by the principal found that the college had long-standing problems with its curriculum and with recruiting and retaining students. Audit work undertaken since then has confirmed that these issues had not been properly addressed in the years before merger, partly due to a lack of leadership on the curriculum and partly due to a lack of clarity about roles and responsibilities. The college now has a good understanding of the issues that have led to its current financial position and it's making good progress with its transformation plan, including a review of the curriculum. It's also put in place stronger governance arrangements. The college is confident that it will meet its 2016-17 activity targets and that this programme is welcome, but the college continues to face significant financial challenges and its future sustainability depends on successful implementation of the remainder of the transformation plan. The college also needs to make substantial savings through voluntary severance. Although the funding council has provided assurance that it will continue to support the college, this is contingent on the college continuing to implement the transformation plan and that any unexpected changes in its costs or its income could lead the college to needing further financial support. Mwythion Toulouse Castle College, the auditor Scott Moncrief, highlighted concerns about financial sustainability as a result of the college not achieving student activity targets. He also highlighted that delays in appointing board members had a significant impact on governance. While the college isn't in immediate financial difficulty, it has missed its targets over an extended period and the margin by which it missed the target in 2015-16 was significantly higher than in previous years. In multi-college regions, the funding council provides funding to the regional body, in this case the University of the Highlands and Islands. The regional body is then responsible for agreeing activity levels and allocating funding to the colleges in the region. Because the region overall exceeded its target, the funding council didn't seek recovery of funding from the University of the Highlands and Islands and UHI didn't seek any recovery from the college. There is a risk, though, that continued under-delivery could result in both a reduction in future funding and a recovery of funding for past activity that wasn't delivered. Any reduction or recovery of that type would have a detrimental effect on the college's financial sustainability. The college board and committee is considered performance regularly, but there is little evidence of the board taking effective action to address these risks. The college developed new marketing, employer engagement and curriculum strategies from 2014, but they haven't delivered the intended increases in student numbers. The college is still working with UHI to agree a revised activity target and to adjust its cost-based match this. Finally, Murray College. During the year, Murray College needed urgently to draw down an advance of £697,000 on its funding allocation from UHI, the regional body in this case as well, as it didn't have enough money to meet its operating costs. This was the second year in which the college needed to request an advance of funding. In January 2016, the college was forecasting an end-year surplus of £145,000, but by April this had changed to a forecast deficit of £499,000. The auditor from Audit Scotland found that the management accounts analysed the areas of overspend but didn't provide explanations for variances between budgets and forecasts, and further problems arose when the budgets and the cash flow forecasts weren't updated to reflect new information. The college's current financial position isn't sustainable, and it's currently discussing a recovery plan with both UHI and the funding council based on reaching financial balance by 2019. It's important that UHI ensures that the college can deliver on its priorities within the resources available to it, and the college board will obviously also have an important role to play in monitoring the college's progress with the agreed recovery plan. All three colleges face different challenges, but all need to take action now to get on to a firmer financial footing. As always, convener, my colleagues and I'll do our best to answer your questions. Thank you very much. I wonder whether I might start off and I think we'll take each of the colleges in turn starting with Edinburgh. Can you confirm, Auditor General, that this report on Edinburgh builds on the issues that were in your previous report? I'm keen to establish if there's anything new that is arising in this current report. It builds on my previous report and the evidence sessions that were held with the college representatives by this committee previous to my report being published. The two key differences that are worth highlighting are, first of all, an update on the financial position and the progress with the recovery plan for 2015-16. Secondly, a bit more detail about the principal's investigation of the underlying causes of the problems. Committee members who were in place when I reported last year will recall that the issues had come to light very shortly before the deadline for section 22 reports being laid in Parliament, so we've taken the opportunity since then to do some more work to investigate the underlying causes and you'll find that in my report. Okay, that's very helpful. Thank you. Colin Beattie. A significant issue in this is that everybody who is apparently involved in this has gone and there's no one to point the finger at now. However, I'd be interested to explore a little bit more about the role of the board in your report on page 9 paragraph 28. You say that board members told you that during 2013-14 it became clear that there were financial problems at the college, but the root cause wasn't clear from the information that was provided to the board, so what did the board do about it? I'll ask you to come in in a moment, but my understanding, and I hope that it's reflected in the report, is that because of the lack of clarity of roles and responsibilities between the two people responsible for the curriculum, the information that was reaching the board wasn't adequate to enable them to follow up, to pursue the questions that came through. So, again, the question is what did the board do? They have a responsibility. Hugh, would you like to pick that up in some detail? Yes, as I understand things, towards the end of 2013, 2012-13, the board were considering the budget for 2013-14 and at that stage there was a budgeted deficit of around £1.7 million. That was, as a result of anticipated reductions in SFC funding and also post-merger pay awards that were made. My understanding of those arrangements was to align the pay awards across the former three colleges. Can you just ask on those pay awards? Surely they would not have budgeted to go into deficit to make those awards, but they would have agreed to some sort of funding with SFC? I'm not sure whether there would have been anything agreed with SFC, but, as I say, I am aware that there was a budgeted deficit for 2013-14. Do you think that a large part of that was the awards for all that you had done, of it? Yes, that was an element. I'm sorry, I don't know the exact details. I'm just concerned that it would be extraordinary if the college was budgeting for a deficit without having made some arrangements to cover that deficit, either by giving it with the SFC or from their own reserves or whatever. Yes, there were the cash reserves in the college at that time. They were able to support that deficit. What did the board actually do? They became clear that there were problems, they became clear that there was a deficit. What action did the board take? They have a responsibility? At that time, I don't know the answer to that. I'm sorry. I don't mean to avoid the question, but I wasn't the auditor signing the accounts at that time. It was a predecessor of mine. I'm sorry, I don't have the details of sitting at the board, apologies. We do go on in the same paragraph, Mr Beattie, in paragraph 28, to say that board minutes show that, during 2014-15, the board was provided with assurances by members of the executive team that the activity targets would be met. Clearly, that would have a very clear knock-on effect to the financial position of the college and that the board itself raised the question of the need for additional management information. I think that where things failed was that the lack of clarity of roles and responsibilities in the college meant that that information still wasn't reliable enough for the board to do its business. Do you think that the board was inquiring enough? Do you think that they carried a function in terms of interrogating the officers? The evidence from the board minutes suggests that they were carrying out their role as expected. Where things fell down was in the response that they received from members of the executive team. That rolled on through to the principal's review and the departure of key members of staff at that point. As all this unfolded over a period of years, because quite early on the board realised that there was a problem, they received assurances, presumably they received repeat assurances again and again as the situation deteriorated, what did they do? I think you'll see the story coming through in the report here that they asked for that information at a point in 2015, a new principal was appointed who started to dig into the underlying causes of the issues here, which led to, which were based on long-standing problems with the curriculum, as well as the lack of clarity of roles and responsibilities. At that point there was a restructuring of the college and eventually the departure in different ways of key members of the previous executive team and then the agreement of recovery plan. I think the evidence we have suggests that, given the long-standing nature of the problems and the lack of clarity of roles and the performance of the people carrying out those roles, the board was probably doing as much as it could have done in a difficult situation. It's worth also noting the backdrop to this was the merger of a number of colleges to form a new Edinburgh College and a number of other changes going on, so I think there was a lot of change for the board to get to grips with. Presumably members of the board would have headed up committees or committees, whatever. Would they not have been in a position to obtain more information? Should they have been in a position to receive more information? Should they have been in a position to be more inquiring and ask more questions? I think our impression overall is that they were asking the questions, but the underlying problem wasn't well understood and the information they were getting simply didn't unpick those questions for them well enough until a new principle was appointed in 2015 and the sequence of events described in the report took place. Now clearly there's always a matter of judgment about how far that could or should have been pushed, but the evidence from board minutes is that they were certainly asking the right questions and receiving assurances from officers about those questions. It certainly seems to me that there's still a question over the role of the board there. First of all, I want to look at the, you've talked about the vice principles and various responsibility about additionality. You may recall that when we had Edinburgh College in, I was quite exercised about this, about lines of responsibility, and at the time it would appear, or we were told, look, it's a general malaise. There is no single individual. This now tends to suggest that there was a single individual. So I'm just curious about some aspects of that. First of all, we must have known about the competency hearing into the vice principal curriculum and quality at the time of the last audit and assessment, so could you comment on that at all, please? In response to the convener's first question, I outlined the timeline of this. My report was finalised in February, March of 2016, very shortly after the problems had emerged in terms of the financial position that came through. The evidence that you've heard since then, you've heard from the principal of the board and her colleagues, and I can't comment on what she told you. The assurance that I can give you is that since then, Dashi on my left ear has done a lot of audit work directly in the college to look at the underlying causes and the action that's been taken since, and the information that's contained on pages 6 and 7 of the report reflects our findings there. I think that it is correct that the competency hearing had probably been scheduled at that point. There may be other factors that were affecting the principal's evidence to this committee, but in terms of the sequence of events and the underlying causes, we've set out our full understanding of that based on the audit work that's been carried out since. Why didn't the principal tell me about the competency hearing? I recall specifically asking who is responsible for this, and at the time, I seem to recall—I suppose you'll say that that's for them to answer. I just wonder if there's more to be done there, actually, because it feels like I asked a direct question and it was dodged at the time in the light of the new information that you've got. I'm afraid I can't answer why the principal gave you the answer that she did. If I was speculating—and I'd stress it is speculating—I think that it is rarely the case in situations like this where one individual carries all of the responsibility. You'll note from the sequence of events set out on pages 6 and 7 that the other vice principal had previously applied for and received voluntary severance, whether that underpins a clear-cut division of responsibility between the two individuals or simply the sequence of events. As the management structure was reviewed and decisions were taken, I don't know, but we've set out our best understanding of what did happen here. I think that the principal would have to answer your broader question about the reasons for the answers that she gave to this committee. Just staying on that briefly—it may be a question for Darcy—what review has been done on the recruitment process? I'm somewhat concerned about this idea of matching. This person seems to have just been given a post and then, on reflection, they've discovered that this person was manifestly unsuitable for that post. Secondly, can you tell me in terms of the process that this individual resigned? Did they resign in response to being told that you are going to be under investigation? If so, if you like, the record will be clean and they may have gone off to do something similar. As far as the matching is concerned, I think that the development plan that the interim principal put in place featured a restructuring of the executive team. At the point at which the current principal came into post in May was when that was carried out and the two vice principal posts were merged. I don't have a lot of detail about the job-matching process, but, as I understand it, the fit was 60 per cent or more with the vice principal curriculum's job, and that is why he was then matched into post. Whether it should have been a more formal recruitment process, that's something perhaps he'd have to ask the principal. I'm sorry, what was your second question? According to the report, the timeline goes that the board says that there is a concern with this individual, and shortly afterwards the individual resigns, apparently with a completely clean record. I'm just wondering if the individual resigns in response to a tip-off that there's going to be some action taken or just moving on? As it says in the report, and as I understand it from the principal's investigation, the board were informed that the vice principal curriculum would undergo this competency hearing, and at this point the principal did speak to the vice principal in question. Following that, he resigned. I couldn't comment on the motivation for his resignation. So, just moving on to looking ahead, the voluntary severance scheme. I have something of a concern about that. First of all, it would appear that the first voluntary severance scheme, made to June 2016, had a cost of £1.14 million, with expected savings of £1.12 million. So, it appears to have cost more than the anticipated savings. Is that the case, and do you feel lessons have been learned from that? The team will keep me straight, but the way it's normally reported is that the cost is a one-off and the savings are recurring annual savings. You're right, it's not explicit in the report, so apologies for that, but normally they're annual savings, which recur year after year, and that's my understanding of what's happened here. I understand. The phase three scheme is more challenging. It targets a different demographic, it targets the academic staff, and it's going to strip out a significant number of those people. First of all, is this going to work in terms of pure finances? Secondly, do you have any concern in that it seems to me rather that a college without staff, the product that a college sells, is its expertise, its academia? You're absolutely right that having the right staff with the right skills and the right teaching experience are critical to the success of any college. The voluntary severance scheme for academic staff is time to follow the curriculum review element of the transformation plan. The college needs to review its curriculum to make sure, first of all, that it's meeting the needs of students and employers, and secondly that it can afford to deliver that within the activity targets and funding agreed with the funding council. So their intention is that they will complete the curriculum review, then identify what staffing is needed for the future curriculum that will be in place and invite voluntary severance applications to try and bring the two in line with each other. As we say in the report, there is a risk with any voluntary severance scheme that the people who apply for voluntary severance are not necessarily the people who you would most like to lose from your workforce or who are least critical to delivering the curriculum for the future. The college obviously still has the right to refuse any individual application, but there is a risk that they won't receive enough suitable applications to make the savings that are intended from it, and that's the risk that we highlight in the report. Yes, you do, and I think that you're right to. That would be my significant concern. What's the backup plan? If this doesn't happen, what does happen? There are two routes that are open to the college. The first and the less likely is that it's able to raise significant amounts of funding from other sources to replace the income that it will likely continue to lose from the funding council as its activity targets come into line with what it's able to deliver for the future. The second and more likely is that it will have to negotiate with the funding council either changes to its targets or more transformation funding to give it more time to make the changes that are needed, but that is, as I say in the report, the significant risk to the delivery of the transformation plan and coming back into financial balance. I'm looking at page 12 of your report, Auditor General, and I see that the college plans to make further savings in estate management across the four campuses. I'm just wondering if you have any more information on that, because I'd be quite interested in what impact that might have on students. I think that the estate's work is a part of the overall financial sustainability element of the transformation plan, so they're taking a planned approach to it, as you would expect. I think that the planning work is not yet complete, but I'll ask you if there's more he can add in that area. The planning work, as far as I understand it, is not complete. The work on what elements of the estate are required will follow the curriculum review as well, so everything falls into place behind that. Do you see any changes to the availability of courses, for example? Again, it's difficult to predict what the curriculum review will throw out. There are four campuses, and where the courses will be delivered, it remains to be seen. That is the largest part of the transformation plan that is getting to the bottom of that. Will the curriculum review inform the estate management review? Is that how it works? Yes, it should fall into place behind that. On that same page, you highlight the importance of cash flow management. Is it paragraph 42 of page 12, where you say that cash flow management is a critical component, and you highlight a number of areas, including the outcome from national bargaining. That is clearly a live issue at the moment, with the biggest industrial action that we have seen in education since the 1980s. The financial pressures that you have highlighted are well rehearsed now, but is there any link between the current industrial dispute over national bargaining and the financial pressures that colleges such as Edinburgh College are facing? The national pay bargaining, which follows from reform and was intended to harmonise terms and conditions right across the sector, obviously affects all colleges, and it affects colleges in different ways, depending on their starting points. Some colleges are closer to what will finally be agreed than others are, and, therefore, there will be less of a financial impact on it. You will see in one of the reports that we will come on to later this morning that, in previous years, a failure to plan for the impact of paying negotiations had an effect on their financial position. I think that it is not something that, in the case of Edinburgh College, has led to the position that they are in now, but it clearly is a financial pressure that they and other colleges will need to accommodate in future once they know the final details, and that all colleges should be doing some scenario planning for now to understand what it might mean for them and how they would fund that, given the other pressures that are around. Colin Beattie had made reference to the board earlier. It is my understanding that Ian Mackay, who is the chair of the board in Edinburgh College, is also on the board of Collegy Scotland and is also the chair of the employers association in Scotland, who are part of the negotiations with the EIS. Do you foresee any conflicts of interest there? Speaking in response to your question directly, I cannot see a particular conflict of interest. On the one hand, in a country the size of Scotland, I think that anybody with the experience and insight to be able to lead the negotiations for the employers would likely have a role with one of the colleges to have built up that experience. Equally, the negotiating team on the staff side will also have an interest in terms of being, representing or being members of college staff at this point in time. I think that that is not an unusual feature of any sort of industrial negotiation. Clearly, the question is what the long-term costs are for the sector as a whole and what it means for individual colleges, given that it will differ from case to case. Apologies if I say that this issue may have been covered at previous discussions of the committee, but I am looking back at your report from 2013. In terms of Edinburgh College, it highlighted then that the income had dropped by about £11 million at that time. You mentioned in that report that a substantial portion of income, £1.6 million, had been lost mainly through the overseas student programme that the UK Borders Agency stopped. Shortly after that, the funding council issued this guidance in additionality. Is there a correlation between the colleges losing income and the emergence of more of this additionality to top up courses in it as a means to try and balance income? I do not think that we have the evidence to support that as a clear finding in this case. I think that it is certainly the case that one of the reasons the funding council wanted to put limits on additionality was because they felt that there was a risk that it could be used by some colleges to top up financial pressures that were coming from other sources. I think that one of the underlying issues in Edinburgh was that long-standing problems with recruiting and retaining students were not apparent to the board because of the use of additionality to top up the income flows that were expected. It is possible that the drop in income that you highlight was a factor, but the broader question is that the funding council recognised that additionality was not being used in the ways that were planned to broaden the coverage of further education and put measures in place to limit that. It seems to still be an issue, the additionality issue, and it goes through all of the reports, but you do say and you did say in your opening remarks that the college is confident that it will meet its activity targets. Does that mean that this issue of additionality is agreed now with the funding council and that it is... Yes, at the time we finalised the report, both the college and the funding council were confident that Edinburgh College would meet its 2015-16 target overall. We know that the funding council is monitoring the use of additionality very closely, in this case particularly, as you would expect. That would suggest that the combination of the college getting its house in order and the reduction in its target from the funding council is helping to bring it closer to balance on the back of the plan that runs through to 2019-20. Just on that issue about the overseas programmes, have they, in any way, come back on to the table or have they been swept away and are gone and lost for ever now? I'm not sure. Because it was a substantial annual income that the college was able to call on? I'm hearing from the team that we don't think that that is the case, and clearly the uncertainty that's related to Brexit may also be having an effect in this case, as it will for other colleges. Okay, fine. Thanks, Canvida. Thank you. Alex Neil. Can I just ask a general question? Because when you look at the three college reports, there's a clear pattern of the ineffectiveness of the boards to deal with the situation. Even after the board has become very much aware of the challenges in reaching targets and managing budgets and projecting supplicies and then deficits within a short period of each time, with wild swings between the forecast surplus and the forecast deficit, as in the case of Lewis or Murray. But it's a general pattern in the public sector. The SPA evidence clearly shows that the board has not nearly been as effective as it should be. So can I ask—I think there are two issues here. One is this general pattern of the boards of these public bodies not doing their job properly. Why and what do we need to do to get it sorted? Secondly, there's a specific issue in the college sector, because to be fair to the non-executive board members in the college sector, they are unpaid other than expenses. I think that you've got to take that into account. Both in terms of does that affect the calibre of the people who are on these boards? Does it affect the level of commitment and does it affect the performance negatively? And should we be paying the non-executive board members of colleges? If we did, would that improve the effectiveness of these boards? Would we get real value for money for paying them something at least to recognise the service? I think that both of those issues are the general issue of the ineffectiveness of these boards and the very specific issue about payment to college board members and whether that's a factor in why we've got so many colleges where the boards are just not performing? I think that that's a really important question, Mr Neil. I'd start off by saying you're right that there clearly are some boards that haven't carried out their responsibilities well in the public sector equally. I think that we've seen some very effective boards that are leading their organisations through difficult times, so I don't want it to have a blanket condemnation of the way boards are working. The report on the role of boards that Audit Scotland published back in 2010 highlighted a number of issues about the variation between boards of public bodies, their membership, how they're appointed, how they operate, the expectations on them. And I think there are some important questions in there that would be worth a closer look and we're certainly having a look at ourselves as we think about our future work programme. And one of the important things in there I think is the relationship between the board and its sponsoring department in government. Some of those relationships are direct, some of them are indirect through funding bodies like the funding council, but the ability to spot problems early and tackle them seems to be very variable. And I think that that's also an important question from government's perspective. Moving on specifically to further education boards, you're right that they are very unusual now in being unpaid. They're unusual also in that college boards appoint their own members rather than it being done through the public appointments process, where in most cases ministerial approval happening. Before regionalisation, most of them were very small boards and small organisations and I think that often makes it harder to attract strong board members with broader experience. Since regionalisation, many of them are larger but they're still small compared to other public bodies that we see around the place. And I think it's difficult to overestimate the scale of change that those boards have been through over the last three or four years, with lots of mergers happening across Scotland, the introduction of regional bodies, a change to the funding process and the way in which targets the set and a significant change to government policy, which has moved funding away from part-time students and towards younger full-time students working towards a vocational course. So I think all of that has made it a very difficult environment for board members to be carrying out their roles in. And you'll also see again in later, the later two reports you're looking at this morning, the phasing of board appointments and retirements during that period has meant there's been quite a loss of the expertise that did exist. So I think all of that has meant there have been particular problems in the further education sector in a context where it's always been one that's had the problems that can emerge in public sector boards in a sort of higher volume than those problems might emerge elsewhere. But there's maybe a need for us to look again at the whole issue and how, you know, why is it some boards are very effective and other boards are very ineffective and poor performers and, you know, is there a pattern there is something we need to be doing in terms of general policy towards the appointment of board members in the selection? I mean, as a minister, I certainly found that some, when I always asked for the original list of applicants, and I often found that I knew people who had been turned down at the first phase. So I know particularly, I think there are aspects of the public appointments selection process right from the beginning, which are defective, quite frankly. You know, I mean, I remember one case where a former Labour minister had been turned down right from day one for, he was a former minister of health for a health board position. Now, had his name come to me, although he wasn't of my party, I would have appointed him because I knew he was well and truly up to the job. And yet, you know, the explanation is that by the time he gets to ministers, ministers have a very limited choice, and I just don't think the system is working anything like as fairly or as effectively as it needs to. I think there's also a related issue of how allio boards are appointed by local authorities and whether they should be brought under the ambit of the public appointments code and system as well, because it is wide open to corruption. Anecdotally, we hear concerns similar to the ones you've outlined about people not understanding why apparently qualified candidates haven't made it through the process to be presented to ministers. Equally, we know from our own work that the number of applicants has been dropping over recent years, and clearly that's a concern. If you're looking to attract high quality candidates and diverse board members, you want as many well qualified people in as wide a way as possible to be putting their names forward in the first place. So, I think it is an issue that's worthy of attention. The public appointments process, I think, is probably a bit at the edge of my remit, but the broader question of the role of boards in effective governance is at the heart of it, and we're looking at that now. It'd be interesting to see if the success rate of applicants from retired civil servants is markedly higher than what it is for non-civil servants, I suspect. That was certainly my impression. Right. I'm going to move us on before we drift even further to consideration of Lewis Castle College. Liam Kerr. Thank you, convener. So Lewis Castle College, I have a degree of sympathy for them in terms of the demographic shift and things, but it would appear that they've been missing the targets for about eight years. First of all, hasn't the SFC or UHI at any point stepped in in that eight years and said, hang on, there's a problem here, and if not, why not? As we say in the report, they have absolutely been missing it for a number of years. The extent to which they've missed it has varied from year to year, and in the early part of that period, the funding council had a system whereby it would allow an element of leeway, either side of the target, in order for colleges to have a bit of flexibility in how they did it. The reason I've reported now is that the shortfall has increased quite markedly in the last year, and there are now real questions about financial sustainability, but I think Mark will be able to tell you a bit more about what the funding council has done over that period. I think it's worth looking at Exhibit 1 in the report, and you can see that in the early part of that period there was a significant underdelivery in 2008-09, but then some significant improvement over the subsequent years. Even in the year when I think in 2010-11, the funding council, although the delivery was outside of the leeway, really equated to about two students when you added up the total number of hours, so it didn't feel that it was right to make a clawback for an relatively small amount. I think the real change began to happen in about 2012-13, and at that point, of course, that's when regional targets applied, so the funding council had obviously taken the decision that, since the region had achieved, it wasn't going to pursue recovery from others, but I think that those last two years, 14-15, which we reported in our overview report last year, and then again this year, indicate significant difficulties that haven't really been addressed in the preceding years. So, is it possible, then, that other colleges are in this situation that haven't been picked up yet? We obviously monitor the annual reports and accounts of all of the colleges, and they feed into the annual overview report that we produce. There is a related issue in the report on Murray College that you'll be coming on to shortly, and again both of those are within the University of Highlands and Islands region, and the region as a whole is meeting the target that was agreed with the funding council. What we aim to do is, when we think that this is more than just a minor problem that can be corrected within the normal management of the organisation to bring it to this committee's attention through the section 22 report. So, at the moment, the three colleges that you've got here are the ones that we have real concerns about, and we will continue monitoring year on year what we're seeing in individual colleges and bring that to your attention as necessary. Thank you. It seems to me, it feels as though there's a basic issue of fairness going on here in so far as, effectively, Lewis Castle is allowed to under-deliver because others can over-deliver, if I can put it that way. Going forward, let's say that the SFC were to reduce funding. First question is, it would presumably be the UHI's overall funding package that would actually be reduced, and would there be an expectation and or could the SFC mandate that UHI specifically passed that reduction on to Lewis Castle, or would it be within a discretion of UHI to say, well, okay, we've had a reduction, and we will spread that across all of our colleges? The way in which the funding model works now, since the reform of colleges and the introduction of the regional bodies, is that the agreement on activity targets and funding is between the funding council and the regional body, so it is for the University of the Highlands and Islands to agree with the colleges that make it up how the funding and the activity will be distributed between them. That is now the subject of a review in the region to make sure both that there is fairness between colleges and that any movements that are needed don't put individual colleges at immediate risk, but, clearly, whenever you've got winners and losers, it's a difficult position to manage, and I think that the way in which that review is taken forward will be critical to the future of both Lewis Castle and Murray colleges. Does that concern you at all? Presumably, if the UHI were to take a decision not to pass it to Lewis, but to share it, first of all, that could mask the problems at Lewis, but secondly, it gives an advantage. If I am a college in a multi-college region, then I have a significant advantage over those regions where I'm standalone, don't I? I think the first thing to say, as we say in the report, is that both the college and the University of the Highlands and Islands have recognised that they were slow in understanding the implications of the new funding model that was introduced, so the review they're doing now is the review they probably wish they had done when the arrangements first came in. Beyond that, you're absolutely right that there is a real question of making sure, not just that it's fair to colleges, but that colleges are well placed to meet the needs of students and employers in their regions, and in some ways that's particularly important in a very remote and rural area, like the University of Highlands and Islands, where there may not be obvious alternatives in the way they may be in parts of the central belt, for example. The review is very important. Reducing activity targets has the consequence of reducing the funding that's available to the individual colleges in the region, and the UHI and the funding council will need to be assured that those changes can be made in a way that are fair to students and to staff within the organisation and that the financial shifts can be made in a sustainable way. I think that Mark is looking to add to that. Yeah, it's just to say that the review that the auditor general refers to, we received some information just in the past week that indicates that changes have been made to the targets for each of the individual colleges and that Lewis Castle will see a reduction in its target for 1718. So in a sense that they've now done the work that they've been, they've now completed the work that they've been working on over the past a little while. We haven't looked in detail at what the full implications of that are, but we'll be interested in that for next year's work on the audit and on the overview. A final short question. Caroline Gardner mentioned a misunderstanding. You've alluded to it in page 7 paragraph 14 about a misunderstanding in the effects of changes introduced by the SFC. Now, to some extent, that was the problem at Edinburgh College with the additionality. So do you extrapolate from that that there is an issue with when the SFC is making changes in its communication and that actually we're ending up blaming the colleges for misunderstandings that perhaps have a root cause that's higher up the chain? It's a very good question and one we've considered as you would imagine. I think the conclusion that we've drawn on the back of the work that we've done with the colleges and with the funding council is that actually the funding council did as much as could have been expected in terms of communicating that to the sector as a whole and to individual colleges, but against a backdrop of all of the changes that I've outlined, outlined falling funding from the funding council to the sector, shifts in the policy for who were priority students and learners, regionalisation mergers and changes to the governance overall. A number of colleges didn't fully understand the impact on them. I think that's been ratted it up in the cases that we've brought to you because of particular circumstances in the college. In Edinburgh, obviously, we've talked about the lack of clarity about the effect of additionality and the unclear roles and responsibilities. In Murray College, I think we talk about the lack of capacity in the finance team. So those local circumstances made it worse, but I think we've concluded that the funding council wasn't underplaying its responsibility to communicate clearly the changes that it was making. Monica Lennon wanted to follow-up, I think, on the Scottish Funding Council. You've just said to Liam Kerr or to General that the Scottish Funding Council did as much as it could have been expected. I guess you're saying that no one in particular is to blame for that lack of understanding, but it just leaves me wondering if we have a sector that's overwhelmed by all of the reforms, all of the changes and perhaps reduced capacity. Is this kind of misunderstanding inevitable when we have these programmes of big reform? I don't think that it's inevitable, but I do think that there was a huge amount of change happening at one time in the FE sector based on the post-16 reform act at the same time as there was a shift in government policy and a reduction in government funding. So I think all of that together gave a very unusual set of circumstances. Colleges had a lot to deal with, the funding council equally had a lot to deal with at that time, and I think there may be lessons for future reform programmes about prioritising particular changes rather than the big bang approach of doing it all at one time. When it becomes apparent that there is a lack of understanding, who's responsibility would that be to try and flag that up? I think that it will differ in different circumstances. In the case of Luz Castle College, we had the University of Highlands and Islands, which was a long established university in relative terms to this, taking on new responsibilities for overseeing and funding FE colleges, and it took them some time to work it through. We had a number of very small colleges—you'll see that both Luz Castle and Murray are small—and had their own capacity challenges. I know that this isn't an answer that sits comfortably with the committee, but I think that there's no individual responsible for it beyond the individual accountable officer responsibilities that sit up through the chain of accountability to work it through. Every accountable officer has a responsibility to make sure that they've got effective controls in place to manage the public resources that they're responsible for, and that runs through from the funding council to UHI and the individual college. Michael, is there anything you'd like to add in that context around the understanding of the issue from Luz Castle and the University of Highlands and Islands perspective? Not a great deal, to be honest. I do think that, as you said, the range of changes that has been going on in the sector have had an impact here. I think that the College and UHI have flagged up that there was potentially misunderstandings that, in this case, they feel led to the activity targets being set for Luz Castle College under the credit scheme and effect being higher than they should have been, and that being the principal driver for their underachievement, mainly in 1560. Going forward, as Mark mentioned, there have been discussions within the regional body now that mean that going forward to Luz Castle College credits targets will be lower now. It seems to be more achievable, although the College will have to take into account the fact that it will reduce income as a result of that. I'd like to add that it's worth bearing in mind that the targets are meant to be agreed between the region and the SFC. In that regard, the UHI and the colleges themselves should have an opportunity to say if they believe that the targets are not being set at the appropriate level and should continue with negotiations if they feel that that is needed to get to the right figure. I've just got one more question, convener. It's the part of your report where you highlight the set of reasons for under-delivery. Lewis College, in an attempt to give an explanation, pointed to the national policy focus on full-time courses. Now, I see that Lewis College previously catered for a large proportion of part-time learners and older learners. I don't know this part of the country terribly well, but in terms of the local demography, I see that there has been a reduction in the number of young people within that catchment, and that's clearly contributed to the colleges' difficulty in delivering the target. Given the previous discussions that we've had on this committee, how realistic is it that a college like Lewis College can comply with national policy when, clearly, on the ground locally, the demography in the community is quite different? What impact does that have? Clearly, there was a demand before for part-time learning and for people returning to education. What impact does that have on student experiences and trying to minimise and not increase inequality in that part of Scotland? We've reported previously on the Scotland-wide picture and the shifts in the student body that we've seen as a result of Government policy to focus on younger full-time students whose courses are leading to a recognised qualification. That has meant a reduction in older learners, in women learners and part-time learners. That will have different effects in different parts of the country, as you say, depending on the demography. The college feels that the demography that it is serving means that it's had a disproportionate effect on their ability to meet their targets and therefore to balance their finances. As Mark said a moment ago, the responsibility really is between the college and the regional body to negotiate their targets with the funding council to make sure that they're achievable. Negotiation has to take account of both what the national priorities are and the student body that they're serving the needs of employers in the area, all of those sorts of issues. What's had an effect here is the late recognition of what that shift in policy and the shift in the target meant for this college. The review that has been under way should, if it's been carried out effectively, deal with that, but there may well still be an impact of the national policy in this area, which means that some students who previously would have been eligible for further education won't in future. That's an inevitable consequence of a policy shift of that nature. Is there sufficient flexibility in the national policy to accommodate those local differences? I think that the national policy has been very clear, and it's for any government to set policy of that type, and I'm specifically precluded from commenting on it. The question then is how you implement it. There is room within the negotiation between the funding council and the regional body in regional areas to have that negotiation, but there is obviously still a cap on the overall funding that's available that will feed through so that the target is so great. I'd like to continue on the governance thing. I'm sorry to be worrying about that. In paragraph 13, there's a pretty damning statement saying that there's little evidence of the board taking effective action to adjust the college's operations to address these risks. Clearly, there was an expectation on, or at Scotland's part, that the board would be rather more proactive in what it was doing. Then, in paragraph 16, you said that seven experienced members left, including the chair. Was that a result, one on the other? The short answer to your second question is no. The board, as we say in paragraph 13, was aware of the risks associated with under-delivery and put in place some changes to its marketing, its employer engagement and its curriculum strategies, but they weren't sufficient to address the scale of the challenges that it was dealing with. The departure of board members was a result of the post-16 reform act and the fact that a number of board members have been appointed at the same time and their terms of appointment ended at the same time. That's also the case in the Murray College report that you'll come to. Again, it's another effect of reform that made the whole thing more difficult, I think. Michael, do you want to add anything to that? No, I think from the work that was carried out, we didn't see a direct correlation between the two. It's to say that the phasing of board members' appointments is one matter. Although you can see historically that whatever actions were taken and discussions were taken at board level, in hindsight, they've been shown to be not effective in making sure that the college can meet its activity. So they did take action, but the action was inadequate. I think looking at the historical information, as I say, from the work that we've carried out, we can see that there were discussions at board level. There were actions taken as a result of those discussions. However, when you look at the figures that are shown and they said that, one, those actions have been shown that they haven't meant that the college can achieve their agreed activity targets. I understand from this that there are 13 board members. Seven stood down, which clearly created a number of problems. I think that there is something about the standing committees that did not meet from memory a year, almost a year. You also said that there was no evidence that the absence of that caused any problems. I said that there is no evidence that the departures of the board members were a direct result of the problems that had taken place. If you look at paragraph 17, we say in here that there is no indication that the absence of meetings affected delivery targets, but, obviously, boards play a key role in the governance of FE colleges, as much as any organisation. Had the board and its committees been meeting, it is possible that the action that they took could have been more effective. Paragraph 17, you say that of the current 13 members, six had served on the board in the years immediately prior to 2015-16. So that would be the balance of the 13 carrying on. Is there any sort of question mark over the continuation of members when there has clearly been an indictment of them and the actions they have taken? What is the board done to reform itself? What is the board done to do a better job? Has it been retraining? Has not just induction, that is a routine process, but has there really been training of this board? A good chunk of the members that are still there failed in their duty before, how do we know that they are not going to fail in their duty going forward? I will ask Michael in a moment if he can give you more information about other forms of board development or action that has been taken. I think that the continuation of the six members is a natural result of the desire not to lose all of the experience of the college that is already in place on the board, given that seven had departed during this period, albeit that one was reappointed. There is a question, I think, for the college, for UHI and potentially for the funding council about whether more is required to help board members to understand and carry out their roles effectively, but I think that it is not surprising that six members continued, given the need for some continuity in understanding this. Given the size of this college, 13 seems quite a large board. We have discussed with the committee previously the variation in the size and composition of boards and the fact that some of them to us look very large for the role that they are asked to carry out. I would agree with you that 13 looks like a large number here. There are requirements for staff and student representation, for example employer representation, but I think that a balance has to be struck between hearing the voices of stakeholders and having a board that is small enough to carry out its governance role effectively. So, back to what has been done to make sure that this board is going to be effective in the future. It is difficult for us to comment, because the audit cycle has now moved on and my firm is no longer the appointed auditor, so we do not have sight on the on-going training and development of the board. A lot of the movement happened around about the year end, so just at the end of our appointment process, we flagged up that in our annual report that inductions had not even taken place for some of the board members. We can see that, as was updated in the auditor general's report, that induction process has now taken place, so there is some development going on. My understanding is that UHI, as a whole, is involved in the kind of on-going induction and on-going training development of board members, and that takes place potentially on the mainland. Lewis Castle College may have some difficulties in getting the cost in relation to getting board members over for training that it has to work out with its regional body and its partners, so it is hard to talk about specific on-going development for the board members in that case. I would flag up also that, given that the activity targets now look like they will fall for Lewis Castle College, it may be that you may infer from that that the performance that underperformed since 1516 is potentially not misleading, but it is overstated, because if the actual activity targets have been found to be too high, albeit that it could still be underperformed, it may not have underperformed to that level, if that makes sense. Given all the comment on boards and issues around their effectiveness and so on, in future audits, would you consider whether to comment more strongly on the effectiveness of boards? In the case of Edinburgh College, they were almost invisible until the latter stages there. Michael referred to the new audit appointments that came into effect in November of last year for the next five years. Those new appointments are accompanied by a new code of audit practice which strengthens the expectations that I place on the auditors that I appoint to comment on the wider dimensions of public audit, and one of those is governance. The audit always covered those wider dimensions, but often what we were seeing was a description of the governance arrangements rather than a conclusion about their effectiveness, so I hope that the code of audit practice will support more clarity in the auditors' work about whether the governance arrangements are effective or not, and that will obviously provide a firm basis for me to report to the committee about them. I will lose a wee bit, but there is a huge difference between Edinburgh and the last one. We discussed with, I think, about 30,000 students in the capital city of Scotland, and we are going on over to losing the western aisles here. The measurement criteria that we use here is that we are saying things like the college has persistently failed to meet its targets. It is a small college, and it is hard to see if the main problem is losing young people from the islands, it is hard to see how they can meet those targets. Is there a case to be made that the way we measure all of the colleges is a bit unfair when it comes to a college like Luz? Are young people leaving the island because the college courses are just not there for them? Are they choosing to go to Inverness and beyond? Is there a reason there behind that? I think that there is a case, convener, to say that. Are we looking fairly at Luz and by judging it in terms of Edinburgh and by applying the same judgment criteria to Luz? I think that it is a very fair question to ask. Obviously, the college is accountable for the funding that it receives, and that funding is linked to activity targets agreed with the funding council. I think that there is a challenge in that all of that changed very quickly, and both the college and the new regional body did not fully understand the implications. I think that we are hopeful that the revised targets that have been agreed will help to make that adjustment. Obviously, there is a much bigger question about how we do meet the learning needs of young people and other learners in remote parts of Scotland, particularly in the islands. I think that that was a big drive for the establishment of UHI as the regional body for FE to be able to join up the provision in the individual colleges, among themselves and between the colleges and the university to help to get better planned provision and better journeys for learners to build their qualifications and their experience within their local area. It is too early to see that working yet because the UHI is still in the process of agreeing revised targets with the funding with the FE colleges locally, but it is well worth keeping an eye on how that is developing. It is certainly something that we will be looking at throughout our audit work. It may also be something that the committee is interested in, given the particular issues in that part of Scotland. Absolutely. I am just a minor technical lawyer on the query on page 6. I was referred to in the table a minute. What is the correlation between the weighted sum totals and the credit totals? You can see that it has dropped the weighted sum total. It was 9,000 and it is now down to 6,000 in terms of credits. Is that a direct correlation or is there a different formula? We have tried to explain it in footnote 3 on page 7, but I will ask Mark for the benefit of the report to give you a quick summary of what the shift was. I am just interested in the fact that something has been revised down to try and accommodate it. They are related, but they are measuring the same thing in a different way. Mark can talk you through how it works. The main difference is that previously there were a number of factors and weightings included in the allocation of the weighted sums units. That has now been removed as far as the SFC is concerned to simplify the model in a way and to categorise things under five separate categories. There are still weightings for things like rurality, but they do not bear as much on the overall figure. Our understanding is that the credits target, while being broadly comparable to W sums, will not be exactly the same as that. Partly that is why they have offered a degree of protection for a number of years of no college being any worse off than more than 1 per cent over the period. If there are no further questions on Lowe's Castle College, we will move to Murray College. I invite members who would like to go first, Liam Kerr. Murray College, I am interested in staffing. It would appear that the staff costs are unsustainable going forward and appear to be rather high or certainly higher than the average across the rest of the country. Historically, do you have any oversight on why that is? Is that because the staff that is being overpaid or is it because they are overstaffed? Is there anything that you can offer into the staffing costs of the college? In terms of the numbers that are currently recorded, there should be no change in the college numbers through reclassification of colleges, so that is a different position from other colleges. Others have been involved as a way of making efficiencies. They have been looking at the service that they are providing and they have been streamlining activities. Murray's so far has not felt that they needed to do any of that, so as a result of that, their configures are looking higher compared to other colleges. That leads to the conclusion that there will be staff losses coming down the line. I notice that there is reference to a voluntary severance scheme that is in the planning. Where are we on that? You will see in the report that we make reference to a recovery plan. A significant element of the recovery plan is the assumption that a severance scheme will go ahead. That has been approved by the college board and has been submitted to UHI and SFC, so it is currently with them for approval. The delivery of the severance scheme will be dependent on funding coming forward from SFC through UHI. My understanding is that initially that will focus on looking at trying to review the support to the support staff and back office activities. That concerns me, because whenever we do one of those schemes, it is real people. It is people's jobs. It is also the student experience. Monica Lennon mentioned that earlier on. I always have a concern that, at the end of the day, management-made decisions to recruit and hold the estate as it is and now talk about the support staff in the first tranche, if I can put it that way, paying the price and the students paying the price. Presumably, that is factored into the discussions to the recovery plan. Is that correct? Are people having an oversight of those sorts of issues? At this stage, my understanding is that the scheme is being put in place as part of the recovery plan. I do not think that that is an advanced enough stage to understand where they are in terms of the detail and how that has been taken forward. Voluntary severance schemes always affect both the services being provided and the lives of the people who lose their jobs or move on as a result of that. That has affected FE colleges across Scotland, given the significant reduction in funding that we have seen over the past few years. Our concern is, in this case, the delay in getting to grips with the change in the funding model and the change in demand for courses means for this college, which limits the possibility of doing that in a more strategic and more managed way. As I think that you are hinting, there is always a risk that suboptimal decisions need to be made to balance the books, because the opportunity to take a wider look and to do it over a longer period has been missed. Colin Beattie has made the point a few times about the governance. You mentioned that there may have been a failure to get to grips with new guidance. Is this another example of management being challenged and not perhaps getting a full feel for what they have to do? What we are seeing in this case is slightly different. We are seeing a failure of financial management, which, at the highest level, manifests itself in the need to ask for effectively emergency funding from UHI in 2014-15 and, again, in 2015-16, simply in order to be able to pay their bills to meet their financial obligations. That should not happen in a public body. Public bodies should have a good enough understanding of their financial flows to avoid that sort of emergency action being needed. We describe in the report some of the things that made up the need for the cash advance in 2015-16 in paragraph 10. Some of those are things that, again, you would expect, a finance function that was staffed with people of the right experience and calibre to be able to see coming and to recognise. My view is that if you have a finance function that does not have the capacity to manage at that day-to-day level, it is unlikely that they are going to be able to either themselves or support the board to be taking that longer term view. We also say in the report that the information that was going to the board did not, for those same reasons, give them the emerging picture as it was coming forward. The only option was to ask for an emergency advance on funding rather than to have a longer term view. It is a slightly different issue about the capacity of the finance function in this college. Does that explain, just so that I am absolutely clear, because I found it very surprising that the college forecast end-of-year surplus £145,000, and three months later it was a half million-pound deficit? That is a capacity issue. That was just the circumstances prevailing at the time, was it? Exactly right. I think that it is not having a full understanding of what the real financial position looks like and not reporting that to the board so that they can fulfil their responsibilities as a result. I understand. One final question is just around—you mentioned the recovery plan in one of the earlier answers—and part of the recovery plan is increasing income generation. Do you have any thoughts on whether that is feasible? Can they really increase income generation from other sources to such a level as to form part of the recovery? The college has been looking at a number of options to try and introduce some new courses that will try to link in more with the actual area of money. For example, around about whisky, as an example. They feel that they have two or three valuable examples, but that cannot happen overnight and they need a bit of time to develop those. I understand. Back to governance. First, I want to clarify, is the existing board still in place at the time of the audit? There was a refresh at the board in August last year, so there are about four people who have continued from the previous board into the new board. How large is the board? 18 people. 18. Out of 18 board members, only four are continuing. Is that a concern in terms of experience? Of course. I said earlier that there is always a balance to be struck between refreshing a board for whatever reason and keeping continuity. Again, I think that the underlying reason for that degree of turnover was the post-16 education act and the implications of a number of appointments being made at the same point without thinking through that turnover question. Of a huge concern here, for example in paragraph 8, the board in committee minutes did not evidence decisions or agreed actions to address the college's financial challenges. It is pretty basic that you record the decisions that you take in the minutes, but you are saying that that did not happen. It did not happen and reported that in her 2014-15 audit report, so a couple of years ago now. Of course, the steps that were taken in the same paragraph, you say that they were not sufficient. So, whatever the board approved—you cannot be sure—was not enough. Again, it says that the audit highlighted the lack of financial expertise and so forth. Presumably, those audit reports went to the board and the board did anything. Do you want to come in on the receipt? Over the course of 2014-15 and 2015-16, there were certainly a lot of financial challenges faced by the college. As we have said earlier, it is a small college, a small finance team, so we are talking about five people in total. That is five full-time equivalents. We are talking maybe about eight people in terms of numbers on seats. Over the course of most of this period, the director of finance was absent through long-term sickness, so that definitely put pressure on the rest of the team. There were changes in staff as well, so there was quite a new—in terms of the main accountant who was there during the process. The board would have been aware of that. The main problem in 2014-15 was around the assumptions that were associated with the HE numbers and the funding that they were going to get from that. That led to the cash advance in 2014-15. That was not an issue in 2015-16, so, to a certain extent, the board felt that they were getting better information and that they were understanding more the context around the financial figures. Did they know that they were not getting good information or adequate information? They must have. They must have done. They took no action. On the back of our recommendations, there was improved information during 2015-16 in terms of a much improved narrative around the figures and the differences between budget and variances. What they were failing to do was to explain the swings. In the report, we have talked about the significant swings, it failed to explain those fully as to why those had a risk and why they could not have been seen in advance. The report states that there was a lack of audit trails to support some of the figures that were included in the management accounts. There are two things here. First, were the board getting incorrect or inadequate figures? Secondly, for those audit trails, what about internal audit? What were they doing about that? The board was getting the best information that finance felt that they had at that point in time, bearing in mind the issues that I have already mentioned around the bad capacity. If there is a lack of audit trail to prove those figures, what I am referring to in terms of the audit trail is the lack of narrative supporting figures. The board was getting a statement with figures explaining the actual against budget, but it was failing to explain the movements adequately. That is what I mean by audit trails. Pretty basic stuff. If there was inadequate audit trails, what about internal audit? Who is responsible for the audit trails? Ultimately, that would be finance. But internal audit must have a role in their workplace. The programme that is carried out by internal audit in this case is outsourced to a firm, it is not an in-house internal audit function. A programme of work is agreed with the audit committee at the beginning of the year, so that will be directed, so that will determine what internal audit is going to look at. They would not pick this up, they would not pick up these sort of inadequacies. That was not part of the schedule that they looked at this year. I think that we have been through this before, Arthur General, with internal audit. The fact that they are so restricted in what they do by the contract that they have, as long as they take the boxes, everything is fine, there is no intelligent overall looking at these things. I think that is a huge gap and that gap has come out here. I think that, for me, the issue is a slightly different one. If you look at paragraph 12 of the report, it talks about the overall senior management of the college. Between April 2015 and February 2016, the college did not have a permanent principle. The director of finance was on long-term sick leave. The acting principle took on the director of finance role, and then there were problems within the overall audit team, all of which were flagged by Anna's the auditor to the board. For me, that is the bigger question, that internal audit cannot compensate for, but lack of capacity and lack of strength within the senior management who are responsible for providing the board with the information that it needs to carry out the responsibilities. The report says that very clearly. Only four of the original board are there, 18 on this board. Again, it comes back to what sort of training are they getting, so that it does not happen again. I think that we are likely to have the same issues that Mark highlighted in relation to Lee's castle, that the University of the Highlands and Islands provides induction training and the funding council provides support to board members. I do not know the answer as to how many of the boards have been through the induction training and other training, but it often is more difficult to provide it in a way that is readily accessible to board members in remote areas. It is something that I think the new auditor will be following up as part of the audit work for 2016-17, when that gets under way. It certainly raises a lot of questions about the boards and the actions of the boards, and the understanding of the boards as to what the responsibilities are and what they should be doing. In terms of the current board, although my audit appointment is now concluded, in terms of my experience with the new board from August through to Christmas, I would certainly confirm that there has been increased finance and business expertise on the committee. Also, one of the new initiatives over the course of the last year or so in the sector is the code of good governance. A significant element of that is roundabout the effectiveness of a board. As a result, as soon as it is so, it delayed implementing or looking at certain aspects of the code until the new board was in place. Since the new boards have come in, they have done a full review of looking at their skills, looking at what has happened over the last year or two in the absence of the director of finance and the change in principles. I was assured that I certainly had a lot of comfort that the new board was totally on top of the current issues and would be taking action appropriately. My attention is drawn to paragraph 10 in your report to Auditor General about cash advance and so on, but there are a couple of items in there that are of particular interest. For example, the funding clawback mentioned of £79,000 through the ERDF project. There is another one just below that, a delay in releasing European structural funds. Is there an issue in the college about managing the European bids and projects and why would that expertise advise guidance not be available from the UHI level at the top? It is a bit concerning yet. On the European funding, that was part funding for the construction of a new building as part of the college, the Alexander Graham building. The ERDF funding comes with a lot of conditions in terms of the information that is kept and how the funding is used. It is often the case that European Union auditors will come and review projects, and that was the case on this occasion. Separate from the audit that we do, there was an audit undertaken of the project by European Union auditors. Again, there were problems with the audit trails and the paperwork that was retained. It was a significant project for the college. It appointed external project managers. It was unclear from the outset as to who would be responsible for the record keeping and ensuring that all the audit trails were there for a sufficient period afterwards. They were able to bring most of it together, but there were some gaps. As a result of that, there was a clawback. The clawback is mentioned as £79,000 just to give you that into scale. The overall project was £6.5 million, of which £2.6 million was the ERDF funding. The clawback is £79,000 out of £2.6 million. If there are no other questions from members of the committee, can I thank the witnesses for their evidence this morning and now move us into private session?