 Hei amser, a fawr yn gweithio i gynnwysg ddiweddau sceisio CPA yn 2014, mae'n gynhyrchu bod yn awgust ac mae'n ddweud cyhoedd o'n ddiweddau yma. Rwy'n cael ei ddweud ddymaeth iddyn nhw'n gwybod i gyd yn cael ei gwybod i gyd yn ei gwybod i gyd yn ei ffigurau electronegol. Ond rydyn ni'n fwy o'r pethon Pentland. Mae ymddangos ymddangos ymddangos i gyd yn ddechrau eu gyd yn eu gyd yn 3, 4 i 5 i gyd yn cael ei gyd yn cael ei gyd yn cael eu gyd yn cael ei gyd yn cael. Rwy'n deen i cael ei gwybod gŵr ond i chi混osid yn b MGG Bwyd-Greal Mwäthamol, ni'n cael ei Iddysgu'r paeth a ichidaf ar gyfer Gwincir meditationen pyth, fel eich meddwl a gw스타el yn Chyfleg gyda gydechar iech chi'r patience iawn o'r meytdeniatru a dadd meddwl! I would like to invite Audit Scotland, Caroline Gardner or Ronnie Clallan to make an opening remark. I'll take that responsibility if I might, convener. Thank you for the opportunity to give a brief statement. As you know, our board sets and monitors the strategic direction of Audit Scotland while overseeing its work and striving for excellent governance and management. The board's focus this year has been on making sure that we use the resources that we have to maximise the quality and impact of our work while identifying and preparing for the challenges of the future. We have done much over recent years to reduce our costs and become a more efficient streamlined organisation. I'm pleased that throughout this year we have maintained a high level of performance and audit service. And in looking forward, in addition to considering reports entitled Streamlining the Business and Expendations of Audit, both of which will help Audit Scotland prepare for the future, the board discussed the implications for Audit Scotland of the Scotland Act 2012 and other constitutional change. This has been a year of change for the board itself. I would like to thank John Bailey, who served for nine years including three as chair, and also to Catherine Bryan, who completed a three-year term with us. My thanks go to both of them for their very significant and distinctive contributions. I'm pleased to welcome two new faces to the board. Douglas Sinclair, who was chair of the Accounts Commission, replaces John Bailey. And Ian Leitch, who recently joined us as a new independent non-executive member. As you will be aware, convener, there will be further changes to the board when Heather Logan joins us in October. On the topic of board change, this is, in fact, my last annual report as chair of Audit Scotland's board. During my time in post, I have been struck by the enthusiasm, dedication and commitment to quality of Audit Scotland's staff. I would like to put on record my appreciation of their work and to thank them and my fellow board members for their support over 2013-14 and the preceding years. I'll now hand over, if I may, to the Auditor General to give our opening statement on the annual report. Thank you. Thank you, convener. First of all, I'm pleased to be able to tell you that the issue of VAT that we raised with the Commission last September has now been fully resolved. You'll recall that we were dealing with HMRC on two separate issues at that point. First of all, the registration date for income earned from our business activities like secondments. And secondly, the recovery of input VAT on local authority audit work conducted on behalf of the Accounts Commission for Scotland. When we met you last October, we'd agreed with HMRC a registration date of 1 March 2003 for income earned from business activities such as secondments. But we still had to finalise the VAT payment due and any penalties that might be levied. Following a recalculation of the VAT due and an appeal against the amount of interest and penalties, we received a repayment from HMRC of slightly over £217,000, which has included in our 2013-14 accounts. On the second issue, the recovery of input VAT, HMRC confirmed this April that they were content to allow Audit Scotland to continue to reclaim input VAT on behalf of the Accounts Commission under section 33 of the VAT Act 1995. This, as you'll know, confirmed the agreement reached with HMRC back in 2006. You'll be interested to know that each year we reclaim about £500,000 worth of input VAT on behalf of the Accounts Commission. And we use that sum to offset the fees for audit work paid by local authorities across Scotland. If we hadn't successfully resolved these issues, we expect that Audit Scotland would have had to make some difficult choices regarding our resources and our work programme. So, we're obviously very pleased to have a positive result to report to you today. Turning to the work of Audit Scotland during the year, I'm pleased to be able to report that we delivered 208 annual audits of public bodies during the last financial year. We also produced 20 performance and best value audit reports, of which 16 were performance audit reports, higher than our target and higher than the previous two years, and four best value audits. 12 of our performance audit reports were laid in Parliament and presented to the Public Audit Committee, and you'll be aware of many of them. They covered a wide variety of topics of national importance, including apprenticeships, care for older people, police reform, renewable energy, colleges, housing and transport. We also gave evidence to the PAC on the arrangements for auditing the new Scottish rate of income tax that's due for introduction soon, and to other committees, including the Finance and Local Government and Regeneration Committees, on a range of issues. We carried out further audits of community planning partnerships, and we're planning five individual CPP reports this year together with a national overview report during 2014-15. Moving on to audit fees. Audit fees for the 2013-14 audit year will reduce by 2% in real terms on average. The 2013-14 audit year is the final year of our four-year cost reduction plan introduced in autumn 2010. Over that period audit fees have reduced by 23.5% in real terms since the base year of 2009-10. We're currently in the process of developing our budget proposals for 2015-16, which will be with the committee by your deadline next month. Finally, convener, as Ronnie Clellans said, this year we've been focusing on getting the most from our resources. To enable us to make those reductions in spend that we have achieved, we have, as you know, reduced the size of our management team and changed our grade mix across the organisation. To ensure that we can do that while maintaining and developing the quality and the impact of the audit work we do, we need to make sure that our staff are trained to the highest professional standards, and as part of this approach we're continuing to invest in high quality professional and other training. We also continue to invest in training the auditors and financial managers of the future through our professional trainee scheme. We believe this is a cost effective way to provide the high quality staff we need to deliver quality audit right across Scotland. I hope that this year's annual report helps to demonstrate our continuing commitment to delivering the best audit service possible, while also demonstrating our commitment to live up to the standards we expect of others in terms of both good governance, good financial management and valuable money. Convener, as always, Ronnie Clellans and I and my colleagues are happy to answer any questions the commission may have. Thank you for that. Yes, I think there are a few questions. Perhaps I can start off. Page 9 of the report states that the coming year Audit Scotland will audit a number of local government charities for the first time. In their evidence in October 2013, you advised the commission that the actual number of charitable bodies that will be subject to audit was uncertain, and that discussions with individual local authorities were on-going to confirm the number of bodies that were requiring audit. Has there been any progress in finalising the numbers of local government charitable bodies that you will be auditing? There's been significant progress on that, convener, and I'll ask Russell Frith to pick that point up if I may. Thank you. Yes, when we first realised we would have to do the audits of these charities, there were around 1,200 individual charities operated by local government in Scotland. Many of those have now been amalgamated by councils who have worked with OSCA to reduce the numbers down, and the number we will be finalising the audits of over the next couple of months is now down to somewhere between 2 and 300. The number is still moving as the amalgamation schemes are still going through the approval processes, so it's a considerably reduced number, and we would expect it to reduce still further next year. What is the criteria you're using? Is it the fact that they exist, or is it size? In 2005-2006 there was a new piece of charities legislation in Scotland, which formed OSCA and the Scottish Charities Register. England had had such a register since about 1960. There had never been anything similar in Scotland. All the charity had to do in Scotland to be treated as one was to write to the England revenue and convince them that the objectives were charitable. Consequently, the sort of registration ongoing cost of being a charity in Scotland was very, very low. Accordingly, there were far more charities being created than there were in England, and over many years Scottish local authorities, when they had received bequests, donations, had tended to set them up as individual charities, rather than put them into an existing charity. With the advent of the regulation, that's no longer the most efficient way of doing it. OSCA had allowed local authorities a considerable period in which to, if you like, get their house in order before fully enforcing the accounts and audit regulations. They were brought in over a five-year period, and this is the end of that five-year period, at which point Scottish local authority charities have to behave in exactly the same way as if they were not local authority charities, any other charities in Scotland, and that means preparing accounts and having them audited. Because of the interaction of local government legislation with charity legislation, it means that all the charities have to have a full audit rather than an independent inspection, which would be available to small charities if they were not local authority charities. So we're having to apply a slightly higher auditing standard than we would to the very small ones, but for the larger ones it's exactly the same as if they were private sector charities. Which leads into a slightly different area that we've perhaps discussed in the Public Audit Committee in the past, which is the auditing of allios, some of which are charities, many of which are charities, and obviously there's a lot of public money goes into allios, and there have been concerns expressed in the past about whether that public money was being properly audited. Is this now a case that you're going to be looking at the allios? I think the situation is slightly different in practice in this case, convener, because most of the local authority charities are very much part of the local authority administered by it in a closer way, and because the arrangements that the Accounts Commission has approved for their audit means that in almost all cases the auditor is also the auditor of the local authority. That brings economies of scale in terms of the cost of the audit, but it also means there's a much closer join-up between the activities of the charity and the activities of the local authority. There is still the issue of principle, as you say, about the different set-up arrangements that keep some funds slightly at arm's length, but I think they are less at arm's length in this case than they are in some of the cases that the Public Audit Committee has shown an interest in over the year. Do you want to add to that, Russell? Yes. Where there are charitable bodies, as the Auditor General has said, the commission will now be appointing the auditors. We have also discussed with the commission how to ensure that we can follow the public pound into the allios where there say limited companies rather than charities. For the moment, we believe that the commission's powers to look at the way in which the councils themselves monitor, regulate, control the activities of the allios gives us enough to provide some assurance on the way in which the money is being spent. So far, we need to push those powers, make sure we're using them to the full before considering whether any further powers would be needed. In my experience of council charities, many are relatively small compared to the size of allios when their set-up is typically a much bigger organisation. Is it a good use of resources to be focusing on the small charities run by councils as opposed to allios where there's a great deal of public money going in? All the allios will be subject to audit. Those that are limited companies, not necessarily by Audit Scotland, but they will be subject to audit by private sector auditors. In many cases, particularly the biggest ones, they do then come into the group accounts of the council concerned and therefore they are subject to some degree of audit involvement by Audit Scotland as the group auditors. To me, there still seems to be a bit of a gap there. You've got these organisations, a great deal of money is going into. The Audit Scotland as the public sector auditor doesn't seem to have quite the same grip there. Certainly at further arms length from the very direct oversight that Audit Scotland has of local authorities through the Accounts Commission and other public bodies through my own responsibilities. That does throw up some questions particularly about transparency, which we've discussed with the Public Audit Committee on a number of occasions. As we've discussed in those meetings, there are good reasons for allios and charities being set up in some instances and the question is whether that balance is right and whether there is enough transparency for people to have confidence in the way public money is being used. It's certainly an issue that the commission and I will continue to keep under review and I think may become increasingly important in the years ahead as public money becomes tighter so I'm sure we'll continue to discuss it with you. I'm sure that this one will be back in front of us at some point. A couple of those points can be in there before you move on. I shared your concern about allios and I think at some point that the Scottish Government may have to look at the relationship of allios to Audit Scotland because I do think there's a gap there. You were talking about large and small charities. What's your definition of large and small? Can you tell me that of the 2 to 300 charities that Audit Scotland will have responsibility for? Will you be doing those audits directly yourself or will you be doing private companies to do that? In response to the second point first, the commission, accounts commission appointed the auditor of the council to be the auditor of that council's charities so for the 20 or so councils where Audit Scotland is the auditor they will do the charities for the remainder where the private firms that the commission has appointed are the auditors then those firms will do the charity audits as well. Significant then will be the workload in order in those relatively small bodies? It's quite variable according to the way in which the council concerned has restructured so far. So there are some councils that have reduced the number of charities from over 100 down to 3. Those clearly take considerably less effort toward it than those where there's still 30, 40, 50 charities remaining. For those councils we hope that over the next year they will get through the reorganisation and they will all come down to small numbers which then reduces the burden quite considerably. In relation to the size question, if they were not council controlled charities then the charities accounts regulations specify the sizes above which the full audit is required and at the moment that's income of I think over a quarter of a million a year. Okay, just moving on to page 15 of the report, it states that Audit Scotland started a healthy working lives initiative for staff and we're aware that other public bodies have previously provided such schemes to staff and they've been withdrawn because of budget pressures. Now, can you provide a bit more information around this initiative and any indicative costs that you've got? I'll kick off, convener, and then ask Dan McGiffin to give you more detail about the costs and the schemes themselves. The background is that we're very conscious that we have reduced our costs over the last four years by more than 20% at a time when the volume of work we're doing and the expectations of that work continue to rise. And we know that we can't achieve those two things by simply expecting our staff to carry on doing what they've always been doing. At the same time, we're conscious that there have been significant constraints on pay and other conditions for staff right across the public sector which apply to us as well. So, what we've been trying to do is to look at the way we work across the organisation through the project we've done on streamlining the audit approach and through getting more flexibility into the way we put teams together for the work. Continuing the best company survey which gives us good information about the way staff across the organisation feel about their working lives. And then looking at how we can spend the money we already have in the budget for things like the occupational health scheme that we've used to see how we can use that better to get more benefits for the amount of investment we're making. So, it's part of a planned strategy to be able to reduce costs while doing it in a way that's sustainable. Diane, could you give a bit more detail about the content of that work? Certainly, so we started with a survey which is the healthy working lives organisation manages and delivers for us and we surveyed staff in October to find out what they felt would help promote health and wellbeing in the workplace and also where some of the stresses and strains occur and we developed a programme of training and development following out of that. So, the cost of those things were through refocusing some of our investment in learning and development. We've delivered training on personal resilience, working smarter, looking at ways to manage time, to manage pressures. And we've rolled out to all colleagues a taster session on thinking about the ways in which we can all make sure we're paying attention to the flags that signal that we're under stress or we're less effective than we might be. And we completed a couple of those sessions yesterday in Perth with about 60 of our colleagues. We've also been looking at getting better value out of other strands of work that we do. We have a health and safety committee, which has representatives from across the business and from our recognised trade union. And through the work that we've been doing there, we've been making sure that our workspaces are pleasant, that they support staff. We've been looking at the data we have on sickness absence and any other information we have and looking to provide through the existing programmes of work we have, more tailored support and responses to health and wellbeing. We took part in the cycle to work scheme this year, so we've been promoting cycling to work as a health benefit and there's been quite a healthy uptake of that scheme. And we've also invested in some of the usual things that you'd see under these programmes, such as first aid training. We've put defibrillators in our offices and supported training and awareness raising of some of the symptoms and signals of ill health across the piece. So there's been a refocusing of activity. We've had excellent support from the Healthy Working Lives initiative and we've got good involvement of staff in the programme. And what about the sort of indicative costs? There must be some projection on that. As Diane said, what we've done so far has really been about refocusing spend we already had, the training budget, the occupational health budget and the health and safety work that we've done. In all of those areas I think we had a sense that there had been good work done in those areas but it wasn't adding as much value as it could do for really safeguarding people's health and helping them to deal with the new reality. Of the size of organisation we are and the expectations of us. If you'd welcome a bit more breakdown of that we can certainly follow up with the detail after today. I think the important thing is from my point of view is that there's no additional costs being incurred in terms of rolling this out because obviously the concern is that it's been pulled elsewhere because of cost. We're very conscious A as I said in my opening statement that we need to demonstrate the same standards of governance and value for money as other organisations and secondly that this has to be sustainable. We're looking at people making sustainable changes to the way they work, the organisation doing that and it has to be within the budgets we already spend. We think we're redirecting that spend effectively and we can certainly follow up with more information if that would help, convener. Thank you. Good morning everyone. On page 17 of the annual report it states that Audit Scotland received 267 items of correspondence raising concerns which is a significant increase on the figure for 2012-13 which was 177. Can you advise if there are any clear and or recurring reasons or trends for the increase in the concerns raised? I think it's fair to say that it's always very difficult to see any clear trends coming through. First of all the numbers tend to go up and down from year to year anyway and it will depend on the particular issues that people are concerned about very often in their local area. It's also true that for some individual issues we will receive a significant number of items of correspondence either because there's widespread concern about an issue or because there's an organised campaign where people are encouraged to write to us. All of which we welcome as being a way first of all for us to be aware of what issues are out there that may raise audit issues and secondly as a service we can provide to the public in following up issues of public concern where it's appropriate for us to do that. I suspect it's also true that the profile Audit Scotland has had over the last couple of years in looking at issues that have been of public concern has made us more visible on people's radar when they're thinking about what avenues may be open to them. But underlying that there's no obvious theme or set of issues which are leading to that in a way which I think is a trend that we'd expect to see in future. Can the increase be attributed to organised campaigns for example? In some instances certainly yes so we have examples of redevelopment of particular sites in a particular area where there is concern either about the process or about the proposed use of that land where it's very clear because of the nature of the letter people using common word in common language that this is a campaign and we think that's entirely appropriate. People are entitled to raise their concerns in that way. In other instances there will be very much an individual issue where somebody feels that they are aware of something which hasn't been handled properly. In some cases they may not have been through the proper complaints process and will encourage them to do that. In others they may have been through the process and feel that their concern hasn't been properly investigated. And again we can provide a bit of a safety valve there as long as we're sure it's an older issue and that our involvement is proportionate and appropriate. Thanks and has Orbit Scotland experienced any budgetary pressures over the increase or through the increase? It's obviously fair to say that if there is a peak over a year or in a short period of time resourcing that becomes more difficult. And it's one of the things that we have to play into our resource planning every year. We clearly don't seek to come back to the commission to ask for additional fees at that level of detail. But it's one of the pressures that we take account of when we're doing our budget planning. And we are at the moment looking at how we can use our resources better to manage the peaks and troughs in that work and to make sure it's better connected into the foreseeable and predictable work that we do in ways that help us manage those pressures that they can be tricky to manage in the short term, you're quite right. If I could go back, convener, to the number of concerns raised, can you give an indication as to how many concerns were raised internally by whistleblowers within your organisation? I'll ask Diane to pick that up as the person who oversees the process for us. We have a whistleblowing policy and we have an annual report on whistleblowing to the Audit Committee of Audits Scotland. The Audit Committee considers that annually. So this year there were no complaints that fell into the category of whistleblowing, although we did consider some concerns raised by staff which didn't fall quite into that category. Would you contend that your internal investigation procedure falling up from any whistleblowers is fit for purpose? Definitely. We've worked with Public Concern at Work, we've reviewed our whistleblowing policies, we've had discussions with our Audit Committee and we've developed our policy in line with best practice. We are both a designated body under the whistleblowing legislation to receive complaints from external parties and we apply the same principles internally. Thank you, convener. Sticking to page 17, sometimes the words used in a report seem to throw up a question. The report states on page 17 that most internal audits in 2012-13 achieve substantial assurance, the highest standard available. That throws up the question, which audits didn't achieve the substantial assurance that was mentioned and which level of assurance did they achieve? Our internal auditors have used a process which gives three categories, substantial, moderate and limited assurance, and I'll ask Diane to talk you through where we sat within each of those bands. Of all the auditing programme, we did two audits receive reasonable assurance, which is the middle band, which means that there's satisfactory processes in place but some areas for improvement. Those were on data security and the improvement areas there were tweaks that we could make to how we test the resilience of our systems and so on, which we've implemented now, and just better documentation of reviews of user access. So, you know, when you have file structures and people have access to different things, just introducing some tweaks to the processes we have in place but ways in which we can improve and we're very pleased to have internal audit come in with a fresh pair of eyes and help us look for some of those areas. The other area which received reasonable assurance, which again says there's sound systems and processes in place but some areas for improvement was on IT procurement where we could make some improvements to some areas of supplier management and the processes we have for documenting purchasing online and so on. So, we've implemented all of the recommendations. Again, on the subject of internal audit, the report notes that a procurement process to appoint an internal auditor from three-year period 14 to 17 has commenced. Is there any specific reason for making a relatively short appointment of three years rather than a five-year appointment which might have been expected? The audit committee has considered the timing and alignment of the rotation of internal and external auditors and there is scope to extend the three-year appointment should the audit committee wish to do so. But with three years we have the ability for internal auditors to come in, develop a plan, there's flexibility about timing, reappointment or extension depending on where this commission would be with its consideration of the external audit appointment and so on. So, there is some flexibility. On that subject, has there been any progress in the appointment process since the report was published? Yes, the procurement is complete and TIA have been appointed as the internal auditors and they have already begun working with us for this year. Thank you. On page 20, the report states that £1.6 million of efficiency savings have been delivered below. You only had a target of £0.8 million. That's commendable and I think that the commission would want to recognise the effort that's been made by Audit Scotland in generating and achieving those efficiencies. We understand that it can't have been easy but can you confirm that the efficiency savings of £1.6 million will actually be recurring savings and will they be factored into your future budget bid? The answer is that the budgeted amount we had in the budget is certainly recurring. Some of the other savings are one-offs and the best example for that, I guess, is in relation to staffing costs. Within the overall target that we had, £409,000 were budgeted staff efficiencies which we've achieved. In addition to that, our staffing costs were under budget by £314,000 as a net figure because of vacancies that occurred during the year, because of staff being appointed at a lower cost than staff who had left, for example. We've counted them as an efficiency saving because we did deliver all of our planned work within the costs for the year but they are timing differences that will be made up in future years. In relation to property, the budgeted savings were £91,000, we made savings of very close to £91,000 and that will be recurring but within the total £1.6 million the full amount isn't because there are some timing differences that have given us a one-off boost in that year. So if it can be clear then the £800,000 will be recurring but the remainder won't necessarily be recurring? That's exactly right. Some of it will be and will continue to keep pressure on our costs where we can but some of it is one-off efficiencies that simply occurred during the year that we have been able to deliver our work within but we don't expect to be able to maintain those savings for the longer term. If I could move on to page 21, the report shows that the fee income across all public bodies had increased from 12, 13, 13, 14 by roughly 10 per cent, for example fees paid by the Scottish Government and sponsored bodies. On page 7 the report states that the cost of audit to public bodies had actually decreased in real terms by 2 per cent in that same period. So what we have is fees paid by public bodies increasing but the cost of the audit actually reducing. So what's the reason for the increase in fees? It's one of those areas that's very difficult to explain, convener, and I'm going to ask Russell Frith to do that on my behalf. Thank you, Auditor General. The fee income recognised in our accounts is based on the activity undertaken in the financial year. So that's 1 April to 31 March, whereas our fee setting process and the 2 per cent that you referred to relates to audit years, which broadly speaking run to the end of October. So for the audit year, 13, 14, we did reduce the fees that bodies will pay for that year. But in the accounts we're recognising the activity level undertaken in the financial year. And if you were to compare, go a year further back, the total fee income was 18.064 million. So as you can then see the 18.064 comes down to 17.2 million for 12, 13 and then back up to 18 million. The reason for that is the amount of work that auditors do in the financial year. So if they do more work towards the start of the audits for 13, 14 before 31 March, we recognise more fee income. Then the balance is picked up in the subsequent year. So the two sets of figures are based on different timings. So you contending then that any increase reflects additional work and can you then give us an assurance that if the costs to the public bodies decreases, then the fees charged will reflect that reduction in costs? Yes, absolutely. Moving on to page 22, the report states that two new additional staff members contributed to the increase in staff costs from 2012-13. Are these new posts and what are the respective roles and responsibilities of these posts? They're not straightforwardly new posts, Mr McDonald. In reducing our overall costs and within that particularly our staff costs, we have been focusing on reducing the costs rather than the number of staff particularly and within that for the main body of staff we've been reducing management costs and investing in the staff who carry out audit work. So the grade mix has changed, the number of staff has increased very slightly in the figures there, but it's not two separate posts, it's a shift across the levels of the organisation. Alongside that we've focused on reducing the size of our management team. You'll see that one member of the management team left last year, we've reduced it by a further post this year and that's to make sure we get the right balance between the management we need to run the business, but really investing in the staff who deliver audit work on behalf of me and the Accounts Commission. Okay, thanks. On page 22, the report further notes that the cost reductions of £73,000 have been recorded for building's rent and depreciation. However, note 4 on page 50 states that the rent and rates have increased by £69,000 at a time when you've been rationalising your overall accommodation, including closing one office in the west end of Edinburgh, as I think you reported to us that was planned last year. Can you explain why there's an increase in rent and rates given that Audit Scotland occupies fewer premises? Certainly, it's another accounting adjustment and again it's heading towards Russell if I can ask you to pick it up please. In this case, it's that the 2013 figures include a release of a provision for rent increases in the building that we vacated, which was no longer required as the landlord didn't pursue rent increases and the provision was released in 2013. So it's the 2013 figure which is, if you like, slow in terms of the trend. Yes, I'm going to be cap on a few things here and then see if we can clarify. The recruitment costs for 2013-14 were £148,000. Page 15 of the report states that you targeted recruitment to achieve a more effective balance of skills and capacity to 10 new graduate trainees. Page 22 also appears to state that two additional members of staff were recruited. The answer you gave to Angus Macdonald's question a few moments ago, I'm not entirely sure whether that was new members who were recruited or not. But in summarising, can you confirm how many staff members were recruited in the year funded by the £148,000 recruitment expenditure? I think Diane will be able to give you that figure. If I can clarify what's happening in terms of the movements, the two additional staff in Mr Macdonald's question is a net figure. So we have the continuation of ending our recruitment freeze, which had given us a number of vacancies that helped us reshape the workforce and reduce our staff costs. We had normal turnover where staff leave to go to other public bodies or other jobs across the economy. And we have the annual recruitments to our professional trainees scheme, all of which give rise to the need to recruit staff even as the net change in numbers is very small. Diane, I'm not sure if you can pull that figure out at this moment. If not, we can certainly provide it later. So in total, we filled 50 vacancies, just under 50 vacancies. Yes, some of them were internal promotions, so when some of the graduate trainees will qualify their vacancies, there will be a competitive process that some of them will be successful in. We ran 23 campaigns. There's a lot going on in the recruitment mix, which is I think why the figures are not so straightforward to track. We had something like 13 maternity leaveers, maternity absences during the year, and we have to recruit to fill them. Some of them will be filled internally, some of them will be temporary acting up, some of them will be external fixed term contracts coming in to help us. So the recruitment budgets covering a lot of movement internally, both the opportunity for promotion, some of the virary structuring, and then also the routine turnover that businesses get as well as things like maternity cover. We've also had three people go out on secondment and that's created vacancies internally for temporary promotions while those were happening. And we've had four members of staff, four colleagues come in to the organisation on secondment. So there's a lot going on in there. We ran 50 recruitment campaigns. So the numbers that I covered are simply the top line on a substantially more active churn within the organisation. We have had a lot more recruitment activity this year because we recognise that as we've been reducing in staff, if we're not sharper at filling any vacancies, we've got the strain on the businesses too great. So we've been very proactive about recruiting and our objective was to recruit up to establishment, which is very difficult for organisations because there will always be some form of turnover and so on. But we've been very good and we've been much closer to establishment last year than we have in previous years because of the volume of activity, but it covers a range of things. I'm just picking up on that. Can you provide a breakdown of the recruitment costs internally compared to the recruitment activity outside the organisation? I think we spent, in 2013, we spent about just under 80,000 on selection costs, which is assessment centre type activity to give us information about the strengths of different candidates. And that's both internally and externally. I'm not sure I can break those costs down internally and externally because we'll run single centres for internal and external applicants, but I could have a look at what we could do. We spent £50,000 on advertising costs across the year using job boards linked in and more conventional print and press recruitment. We spent £16,000 on systems maintenance and development. There's a lot of backroom work on the portals that we have for interested candidates to apply that needs maintenance and development. And there was about £4,000 on other expenses such as candidate expenses, the costs of getting people to and from interviews and so on. Just to try and clear up an anomaly that's in my mind here, Audit Scotland's gross administration costs in 1314 were around £24 million. Note 4 on page 50 states that the external audit fee was £25,000. The external audit fee charged by Audit Scotland to the Scottish Public Services Ombudsman was £19,500 against the budget of about £3 million for the same period. All audits have an element of fixed costs and complexity, volume of transactions, various things that come into it, but it does seem to be a relatively high cost of audit versus what you pay for your own audit. I just wondered what the logic was. I'll ask Russell to come in in a moment, convener, but I'll sort of step back and give you the picture of the way our audit fees are set and what they cover. You'll know that our own external audit fee is set as a result of the process this commission goes through to appoint our external audit every year. And it's generally for a straightforward financial statements audit looking at governance and reporting back to you under the terms that are set. The audit fees that are set and charged for the work done by Audit Scotland on behalf of myself and the Accounts Commission are covering three quarters of the costs of Audit Scotland in the broad sense. So that covers the 208 annual audits that are carried out every year, which is analogous to what Alexander Sloan do to us on your behalf. But it also covers the other performance reports, best value audits, community planning partnership audits, support to parliament, investigation of correspondence and complaints that comes through. So there's a wider cost base being recovered through the audit fee. And then, as you say, the way that converts into the audit fees for individual bodies will take account of a wide range of factors that reflect the characteristics of that individual body. Russell, do you want to add to that? I think that was an absolutely fair summary other than to say that, yes, we run the competitive process for the firms that are appointed and the fees charged by an in-house team will be in line with the results of those, of that process. You, of course, run a separate exercise yourselves, and it would be difficult for us to comment on the relative outcomes of those exercises. Can I ask the members of any other questions they would like to ask at this point? I've got one or two questions turning to the annual report and accounts, and if you'll bear with me while I just flick through and look at the bits I've highlighted. On page 5, the welcome, the accountable officers report, third paragraph down, you're talking about a lack of a complete picture of the public sector's assets and liabilities. Could you expand a little bit on that? You might recall that we published a report round about 12 months ago called Developing Financial Reporting, which was really looking ahead at the implications of the changes we're seeing coming through the Scotland Act as it's implemented over the next couple of years and potentially further financial devolution, whatever the outcome of the referendum in six weeks' time. And recognising that the changes we're seeing mean, for the first time, significant tax-raising powers coming through this Parliament to the Scottish Government, borrowing powers, and a general need to manage the greater variability that that brings, and a more complex picture of looking at what the public sector's finances are. We were also drawing attention to the fact that, although there are a whole of government accounts for the United Kingdom, which pull together all public bodies into one place so you get that picture of what the public sector owns and what it owes, what it spends and what it raises, we don't have a comparable picture for Scotland. There is a Scottish consolidated account, but it excludes quite large parts of the public sector. And we were really developing the argument that, as Scotland is managing greater financial autonomy and greater variability, the need for that sort of picture to make good decisions about the public finances, to ensure greater transparency about the long-term commitments that are associated with the revenue streams, and to help to build confidence in the future. That confidence on the bond markets and other lenders became more compelling, and that's really what the reference in here is referring to. So assets that are basically UK assets tend not to be captured in the same way in Scottish Government accounts? They're not, and at this stage I wouldn't expect them to be. The argument is really that even the things that are very clearly within the Scottish boundary as it currently stands are not captured in a single set of accounts in that way. So the Scottish consolidated accounts do include, for example, the health service assets and liabilities, but don't include the assets and liabilities of local government and some other fairly significant bodies. And the case that I was making in the report was to say that, as the Scottish Government and the Scottish Parliament are forecasting and raising taxes and having increasing borrowing powers, having that picture becomes increasingly important for the Parliament to understand the impact of the financial decisions it's making for transparency to taxpayers, citizens and for building confidence among those who may be lending money to the Government in future. Thank you. Moving on to page 7, I'm looking at the objectives box where it says best value audits, and I'm looking at the way they've dropped from 12 to 8 to 4. The best value audits, certainly from my past experience, are very valuable tools for local government. I was wondering why there had been such a drop there. The Accounts Commission has been focusing on its approach to its best value responsibilities over the last couple of years, and what you're seeing there is the impact of a very much more risk-based approach that they've been taking. That's partly historical. The best value audits were introduced around 10 years ago, and at that stage the approach that was taken was a rolling cycle of audits which covered all councils at least once and possibly twice over a five or six year period. It became clear to the Commission, I think, at that stage, that to simply keep on rolling out that basis wasn't going to have the biggest impact on local government. So they asked Audit Scotland as part of the shared risk assessment process that happens with the other inspectors and scrutiny bodies to use the information and knowledge auditors have to identify the councils where the need was greatest. You'll see, therefore, I think that some of the best value audits that have taken place in councils like South Ayrshire, Argyll and Bute Council, I think Aberdeen, have focused on councils where the evidence from the auditors and inspectors suggested there were particular issues which would benefit from that tailored audit. I know the Commission is currently in the process of reviewing whether that approach is still the best way forward, and you may see a rise again, and indeed the number may rise in response to circumstances in individual councils, but it's a deliberate attempt at making the work more risk-based. It's also fair to say that that risk-based approach is what's released some resource that's enabled the Commission to make its contribution to the audits of community planning partnerships without increasing the overall resources that are required. So both of those things are going on. The Commission and I published three audits of community planning partnerships in the last year. There are five being done this year, so there's a shift there from best value to community planning, which may or may not be a permanent feature of the way we organise the work. Well, hopefully it will be kept under review because I certainly value the best value reviews. Page 8, final sentence. One qualification was issued on the Scottish Consolidated Fund account. I think I've heard that. I can't remember what it was now. It was brought to the committee's attention, I think, earlier in the year, and it was a very small-scale issue, but a technical one that was required. Russell, can you talk the convener through that? Yes. Audit Scotland operates the control of function under which we are required to approve drawdowns from the Scottish Consolidated Fund by the Scottish Government or other public bodies. The amounts we can approve are based on what is in the Budget Act and subsequent budget revisions. Towards the end of the year, the spring budget revision is passed by the Parliament and comes into force on a given date. Unfortunately for 2013-14, the spring budget revision didn't come into force until 31 March, which also happened to be Easter Sunday, a non-working day. Therefore, the amount that one of the bodies required, I think it was the Forestry Commission from memory, wanted to draw down that had been approved by the spring budget revision, couldn't legally be approved within the same financial year. It was an oversight in the drafting of the statutory instrument. If it had come into force a few days earlier, then everything would have been fine. The amount involved from memory, I think, was around £150,000. It wasn't a significant amount. That's a very much technical issue. Moving on to page 9, second sentence, most accounts are prepared under international financial reporting standards. Which accounts aren't? The accounts of further education colleges are prepared under UK GAAP and the SOARP, a statement of recommended practice for those accounts. The new SOARP, which will come into effect in 2015, is much more heavily based around IFRS and indeed new FRSs in the UK. The fourth paragraph down a significant extension in the scope of our work on European agricultural funds. What does that imply in terms of resources? There's a new approach to agricultural funds that are dispersed from Europe right across the EU and the Scottish government is currently working hard to make sure it's ready to implement those changes. The amounts of money involved are very significant and obviously the number of farmers and others, other landowners affected by it are also significant. So we're in the process now of reviewing the results requirements that may come from that and Russell may be able to give you a bit more detail on the sums involved in a moment. It's worth saying at this stage that we expect the continuing costs of the audit work to be recovered through audit fees as they are at the moment. But there may be some transitional costs that we'll be bringing back to you as part of our budget submission in the autumn for 15-16. Russell, do you want to add a bit more colour to that? Yes, it is the work as the general says. It is the work that we do on the European agricultural funds which is required by Europe and the UK Audit Agencies as a group, work as a consortium to do that work across the UK. The EU has extended the requirements to require a great deal more actual testing taking place on sites, so on farms and agricultural premises across Scotland. That is going to significantly increase the work. We're still working through the exact resources but we are looking at several hundred thousand pounds in additional costs. Can that be absorbed within the existing budget? No, we will be charging additional fees to the UK Coordinating Board. So it's recoverable? Yes. It's not going to come back as a charge in the Scottish Government at any point? It's recoverable from the UK Ministering body, as Russell says. But as I mentioned earlier, it's possible we may come to you to ask for some funding for the transitional costs as we're double running the existing audit on the old agricultural funding arrangements and the new development work for the new arrangements. We don't expect that to be significant, but I just wanted to flag for you that there's a possibility. We're currently planning for what that work requires. As Russell says, it requires, because of the EU requirements, very detailed audit work on farms and parcels of land across Scotland. We're currently referring to it as the Wellyboot audit and we're mapping out what we think will be required and we'll talk to you about further about that in the autumn, convener, if we may. Page 10, looking at the little chart here in performance and best value reports, and I see that the totals have gone down 27, 26, 20. Is that resource issues or is there something else behind that reduction? No, it's really more a question of complexity, convener, that our planning is, to a great extent, resource led. We start off with the resources we expect to put into performance order and best value audit. And then the commission and I agree a programme of work that comes from that. In some years, there may be a number of smaller pieces of work which are done with fewer resources and more quickly. In other years, they tend to be big issues, complex issues of great public interest, like the work we did on reshaping care for older people last year. So it's something which does go up and down routinely and it really is more about the scale and complexity of the work. On page 15, I'm sparing you one or two points here. Second paragraph, obviously you've been very successful at reducing the fees over the last few years. Obviously there comes a point where that can't continue. Are we now at the point that that can't continue the reductions? I think so. As we flagged to you before, we had a four year plan which we have achieved and actually succeeded in reducing both costs and audit fees. We believe that it's not possible to take that further without compromising the quality of the work that's done. The commission and I simply aren't prepared to do that. We need to meet the international standards on auditing and we set high standards ourselves for it. We will continue to look for efficiencies wherever we can, but we think we're at the stage where we've taken out what's possible for now. We will be regrouping and looking at the likely future demands on us as a result of the changes that you were focusing on just now. Things like the Scotland Act, potential further devolution and seeing how we can best respond to those changes as the next step of our strategic planning. In page 17, internal audit and risk management co-opted a new member for a term of one year. One year seems quite a short time, I don't know if that's normal, and presumably there's a cost to that. I think the chair of the board may want to respond to that one. Perhaps recall, convener, that the composition of the board was changing quite rapidly. As I mentioned in my opening remarks with John Bailey's retirement and Catherine Bryant's retirement as well, we felt to allow for a consistent approach of the committee system and over the period that we would make a co-option. We have done that and I'm happy to say that that has worked successfully. In terms of the year, we did anticipate that that was all that we would require at this particular time to overcome the problem that we needed to have a consistent and lasting performance over that period. I think that that co-option course will end at the end of September when Heather Logan joins us in October and will bring the complement of board members up to speed. In terms of the cost, it's fairly minimal because it relates to the fee payable to a non-executive member and that has been budgeted for and absorbed within the cost of the organisation. Who approves co-options such as that? Does the board have unfettered discretion to make those kind of decisions? Strictly speaking, the answer to the question is yes, it is a board responsibility. However, we took the course of action of discussing it with this commission as it was a plan and kept them advised of our intentions and the reasons for doing so all through the process. I appreciate that, but is the board able, if it wishes, to co-opt as many members as it thinks fit? I think that there is, within the legislation, a facility to exercise the co-option. I think that it is written in a way that would enable us to have some freedom in how many we want. In practical terms, I think we would find that we have the numbers that are required at the moment in an ideal world and it takes us into another discussion, perhaps the shape that the board would be more easily managed if there was another additional non-exec but we are perfectly content to live within the rules as they exist at the moment. Perhaps just worth verifying, convener, that the ability for the board to co-opt is only to the board's committees. The membership of the board is a matter for this commission, so there is a separation there. On page 27, I understand, for example, the order of the general. I'm looking at the chart here on remuneration. I understand the general's figures are a wee bit out of kilter because of 2012 start date. Fraser McKinley, unless I'm reading this wrong, I notice that there's been a substantial salary increase. The way in which there are differences in the way salaries agreed through the table. First of all, my salary is set by the parliament and as you say is affected by the fact that I was imposed for part year in 2013. For other members of the management team, the salary is approved by the board's remuneration committee, the HR remuneration committee in line with the public sector pay policy. For one individual, as you've highlighted, there were changes, very significant changes to the role which had an impact on the salary for that person. For most management team members, the only progression that's been available has been in the uplift to the salary scale that's matched by the public sector pay policy, which has been minimal, plus progression towards the target rate for the role, which depends on performance. Outside that, there may be changes to individual's roles which have an impact and you're seeing the effect of that there for one individual. Over the page on page 28, for the Auditor General, the pension increase seems to be more than others. It is and I'll ask Russell in a moment to talk you through the way that figure is calculated. What you will see in terms of the variability in the table there is membership of different pension schemes. First of all, we have two broad schemes, the local government scheme and the principal civil service pension scheme and within the civil service pension scheme, two different variants that apply to the members of it. Past that, the increase in pension value relates to the length of service that people have and the value of that service, all of which plays into differences in the figure that you'll see. Russell may want to clarify that for you because it's another one of those complex areas. Sorry, convener, could I just clarify which table you were referring to there? Is the second table that has CETV figures? I'm on page 28, pensions, a table that's shown there. The figure for the Auditor General, as you quite rightly say, shows a significant increase during 1314. That is entirely down to the Auditor General having transferred service from previous schemes into the principal civil service scheme. Simple as that. I'm going to have a quick look to see if I've got anything else that's very significant. Can I just ask again if any members have any point that you'd like to raise at this? In that case, before we move on, Asrani Clown has already stated that he's coming to the end of his tenure as chair of Audit Scotland. I think that the commissioner would like to thank him and commend him for his work during his time in office. Obviously, I wish him very well for the future and his endeavours to come. Thank you very much. Thank you very much. I appreciate it. In that case, if we can thank the witnesses and move on. I'll just take a moment. I can just continue and welcome now to the meeting the representatives of Alexander Sloan, the external orators of Audit Scotland. I'd like to welcome Andrew McBean, the senior partner, and Stephen Cunningham, partner. Can I ask Andrew McBean just to confirm that Alexander Sloan has received all the necessary information and explanations to inform its opinion on the accounts and to provide an overview and any observations arising from its work? Thank you, convener. Yes, I'm happy to confirm that we've received all the necessary information and explanations to allow us to undertake our audit for the year-ended 31st of March 2014. I'd now like to give an overview of our work. The firm of Alexander Sloan has been appointed by ourselves to carry out an external audit of the accounts of Audit Scotland. We are required to provide an audit opinion on whether the accounts give a true and fair view, whether they have been prepared in accordance with international financial reporting standards as interpreted and adapted by the financial reporting manual, and to confirm that they've been properly prepared in accordance with the Public Finance and Accountability Scotland Act 2000 and directions by Scottish ministers. We carried out an interim audit in February this year, and our final work was carried out in May and finished off in early June. Our audit was carried out in accordance with international standards on auditing. As I mentioned earlier, we received all the information and explanations that were required to carry out our work, and the audit was completed without any problems. As mentioned earlier, VET matters were resolved with HMRC during the year, and the final VAT position is fully reflected within the accounts. We signed our audit report on 10 June 2014. Our audit report is unmodified. That is, the accounts do give a true and fair view, and there are no significant matters which require to be brought to the attention of the SCPA or to other readers of the accounts. We are also required to prepare a report to management. The purpose of this letter report is to summarise the key issues arising from our audit work, including falling up on the main audit risks identified at the planning stage, and to report any weaknesses in the accounting systems and internal controls. I have come to our attention during the audit. I am pleased to report, and of course of our audit work this year, we did not find any weaknesses in the accounting and internal controls. Finally, I would just like to record my firm's thanks to the staff at Audit Scotland and to the support staff at the SCPA for all their assistance during our audit this year. The Commission notes that Alexander Sloan issued a true and fair audit opinion following its work on audit to Scotland's annual report on accounts. Can you confirm that you received all the necessary information and explanations required by you to form the opinion on the financial statements? Yes, we received all the information that was required. Obviously, the purpose of the audit is to identify areas at the beginning of the audit from a review of management accounts, review of the minutes, review of other information, to identify audit areas of risk where we want to focus our work on. We did our planning, we identified these areas and yes, in the course of the work we received, all the information and explanations that were required. Thank you, Alex. Thank you, convener. There are many around this table who have been here this morning who have done a lot of hard work and endured a lot of sleepless nights over the VAT problem, which has been dragging on for a while. We have now received good news and assurances. The report states that you have considered Audit Scotland's treatment of VAT on behalf of the Accounts Commission. Can you confirm that you have received sufficient assurance that this matter is now resolved to the satisfaction of Her Majesty's revenue and customs? Yes, I can confirm that that is the case. We have reviewed, there was a considerable amount of work done during the year and a considerable amount of correspondence which involved Audit Scotland, which involved the agents that were brought in to deal with the VAT matters and obviously a lot of correspondence with HMRC. We have reviewed all the correspondence, we looked at the matters, we are raising HMRC's letter and we are satisfied that everything has been properly dealt with and that in a sense has been matched up with the fact that there is a debt on the accounts for money to be returned from HMRC and that money has in fact was returned shortly after the year end. That was one of the prime areas of our audit work, basically because of the significance of the matter, not just in previous years but during the course of the last year, so we put a considerable amount of resources into that area and were completely satisfied that the matter has been resolved, certainly to HMRC's satisfaction. It's always nice to hear folk getting money back from HMRC. You may have covered this in your introductory remarks, however I do have to ask, in your report to those charged with governance and in your report to the Audit Committee of Audit Scotland, did you raise any matters that the commission should be aware of? No, there were no specific matters. Obviously the purpose of the management letter that we have effectively presented, the document itself goes through a number of areas that identifies the responsibilities that we have as auditors so there's a lot of detail in there. It also identifies some of the key areas that we've focused on in the course of the audit and we've also identified that it was VAT being the primary matter so a lot of that is just information to show the completeness of the process that has gone out in terms of the audit but in terms of any significant problems with internal controls and systems. Again I can confirm that there's nothing that I need to bring to your attention either in the letter or to you today. That's great, thanks. Thank you. Do any members have any other questions that they would like to ask these witnesses? In that case, the law remains to thank you for your attendance. Thank you very much. And since that concludes the public part of the proceedings today, we will move into private session.