 We welcome to the sixth meeting of the Public Audit and Post Legislative Scrutiny Committee in 2017. Can I ask everyone please to switch off their electronic devices so that they don't affect the work of the committee this morning? Item 1 is to decide whether to take item 3 in private. Do members agree? Item 2, we will now take oral evidence on the Auditor General for Scotland's report entitled the 2015-16 Audit of the Scottish Police Authority. We will take evidence from two separate panels today. I welcome to the meeting John Foley, chief executive and Andrew Flanagan, chair of the board of the Scottish Police Authority, and Philip Gormley, chief constable and David Page, deputy chief officer of Police Scotland. Before I invite an opening statement from Andrew Flanagan, I want to put today's evidence session into some context. Policing is a crucially important public service and is vital that the people of Scotland have full trust in the capabilities of those who lead the SPA and Police Scotland. However, when we took evidence from the Auditor General, she said that the SPA has not yet been able to demonstrate that it is living up to the standards expected of people who are responsible for spending public money. She highlighted on-going and unacceptable weaknesses of financial leadership in both the Scottish Police Authority and in Police Scotland. The Auditor General also confirmed that she had not before prepared audit reports in consecutive years on such a relative lack of progress in such a significant area. I will also briefly highlight some of the more alarming specific concerns that are highlighted to us by the Auditor General and her colleagues from Audit Scotland, concerns that we will fully interrogate this morning. The first potential funding gap of almost £200 million, facing the SPA and Police Scotland, is described as a conservative estimate. It is not clear what reforms have been achieved from the £200 million worth of reform spending. The SPA approved a one-line budget for Police Scotland of almost £1 billion, with very little detail on the money that would be spent, a situation that is described as not acceptable. Numerous errors in the valuation of assets that were held for sale and investment properties. Very unusually, Audit Scotland received nine draft versions of the SPA's annual report and accounts to audit. Finally, I will repeat the Auditor General's recommendation that she has been making since November 2013 that the SPA needs to develop a long-term financial strategy. In fact, the Auditor General considered a financial strategy to be of such importance that she and her colleagues made reference to it 19 times in her evidence to us. That stands in sharp contrast with the SPA's written submission to this committee, which made no reference at all whatsoever to a financial strategy. Neither did the SPA consider it worth mentioning to this committee that it has prepared an action plan for the Auditor General's section 22 report, which was presented at its board meeting last Friday. I invite Andrew Flanagan to make an opening statement. Good morning, committee. Thank you very much for the opportunity to make some introductory remarks. The written submission that was provided last week by John Foley provided further context for the 15-16 audit, so I will restrict my remarks today to the development of the operational and financial strategy to bring policing in Scotland on to a sustainable footing. As the Auditor General has indicated to you, there is a projected revenue deficit in the policing budget. Our own detailed work indicates that, without an effective transformation plan, that deficit would be around £60 million in the coming financial year. The Auditor General has given a projection of what that deficit might look like over the remaining years of this Parliament, and I take no issue with her projections, although again those would be on the basis that no remedial action would be taken. As the Scottish Government has not conducted a spending review beyond 1718, it is more challenging to state with accuracy what deficits may be beyond the next year, as that would necessitate an assumption about funding levels. Given the indications from Scottish Government that they will protect the policing budget in real terms, our assessment is that the deficit of around this level would be an on-going feature. The key variable in all of this is the assumption that there will not be an effective transformation plan. I would like to be clear with committee members today that both the SPA and Police Scotland have identified the clear strategic need for just such a transformation plan. Earlier this week we began that process addressing the twin issues of service development and financial sustainability with the launch for public consultation of our 10-year strategy for policing, policing 2026. Subject to the outcome of that consultation, Police Scotland will develop three-year implementation and financial plans, and the SPA will then approve these and hold them to account for delivery of them. The Scottish Government has given the SPA a commitment to continued funding to support reform and change of £61 million for 1718, and that is very much welcome. Our initial focus for that investment will be on the transformation of Police Scotland's corporate services and business support functions and on improvements on officer productivity. Corporate services and business support functions will be leaner and operate with fewer people as they are transformed. We will support our staff through that process with a continued commitment to consultation, no compulsory redundancies and retraining where possible. There will be no change to the number of police officers next year, but as operational productivity increases, Police Scotland will be able to reduce the levels of recruitment of police officers over 18, 19 and 19-20. Through its governance and scrutiny role, the SPA will ensure that phased and modest reductions in officer recruitment will take place only after we have seen demonstrable improvements in Police Scotland's operational capacity. We do not believe that it is possible to move faster to achieve financial balance. There are only three major cost elements, officer pay, staff pay and non-pay costs. Officers cannot be made redundant, redundancy for staff is not compulsory, and the current VR-ER scheme often results in upfront costs equivalent to a year's salary. Non-pay costs are not sufficiently large to release the required level of savings, and in any event we are often locked in to contracts of more than one year in length. The only realistic way of moving towards a position of financial balance by the end of 1718 would have been to begin to reduce officer recruitment without an effective transformation plan being in place and before improvements in officer productivity are realised. This was not an approach that the SPA considered as prudent or consistent with our responsibilities to maintain policing or to achieve best value, nor would it have been one that the chief constable considered acceptable in the terms of operational viability and risk. Instead, we expect that the early benefits of investments in 1718 will result in a reduction from the predicted operating cost deficit, but will not immediately eliminate it. However, we are confident that it will demonstrate real progress towards arriving at a financially sustainable position by 2020. It will then be a matter for the chief constable at that time to demonstrate to the SPA the required proportions of staff and officers based on his or her operational assessment of threat, risk and harm, as well as available budget, and that key performance measures can be maintained and delivered. These are the assumptions underpinning our strategy. However, it's important to recognise that it is a draft strategy. We've embarked on a 10-week consultation, and our assumptions will be refined and our plans finalised in light of the views we receive. The SPA board will then recommend a final strategy in June to the Cabinet Secretary for Justice for Approval, following which detailed three-year implementation and financial plans will be developed for approval by the SPA. I'm conscious, convener, that the committee has rightly focused on leadership in its consideration of this and previous audit reports. A key leadership responsibility, perhaps its primary responsibility, is to set out a long-term direction for the service so that the decisions taken and the priorities set in the short to medium term are the right ones. In our strategy document, I believe that we have set out a very cogent and compelling proposal for doing just that. I also accept that the other half of that equation is ensuring that we implement change effectively and deliver improved outcomes for the public and workforce alike. The refreshed leadership of both the SPA and Police Scotland, that the chief constable and I have worked together to build, should also provide increased confidence on that front. We believe that the implementation of this strategy, the delivery of financial sustainability and reinforcing the financial leadership will resolve the matters raised by the Auditor General. Mr Flanagan, can I first of all ask you why this action plan wasn't referred to committee? I think it's simply a matter of timing in terms of when it went to the SPA board. I apologise if we shouldn't have followed that up with that action plan. Okay, I think it went to the board on Friday but I assume it must have been prepared in advance of that. Mr Foley, I think you prepared it, is that correct? Yes, my office has prepared it in conjunction with officers from Police Scotland. Okay, the committee needs all the information available to be able to do its job. I accept that, convener, and I apologise and give an undertaking that in future we will make such information available to the committee. Thank you very much. Colin Beattie. The Auditor General tells us that it's absolutely unprecedented in the public sector for three section 22 reports in consecutive years to be produced. Doesn't that indicate a real problem in terms of competency? Yes. The issue that presents itself in relation to that is that we did recognise as a result of the 2014-15 audit that there were serious issues in relation to financial leadership in both the SPA and Police Scotland. At that point, we took actions on board, which we made public in relation to appointing interim senior chief financial officer support within both the police authority and Police Scotland. We reorganised the functionality of finance to create a single chief financial officer position that will sit within Police Scotland. That's important. We also strengthened the financial team within Police Scotland with the addition of some more professionally qualified accountants. We had a complement of around 20 at that time, so we're increasing that, increasing the experience and skills mix. One of the issues that had emerged in 2014-15 and followed into 2015-16 was in relation to capital accounting, which, by and large, results in the auditor's modified opinion. We have strengthened that area and we have increased training on the fixed asset system, asset 4,000, which we operate. We have also implemented a procedure where a teacher in every audit committee of the police authority is incumbent upon the senior accountants to present technical updates and give assurance to the authority that they have been implemented. We took those range of measures. They were all implemented when we came before the Public Audit Committee last time. It was on 10 February, so that was approximately six weeks before the accounting period that you're looking at at the moment. Those measures that were being applied at that time hadn't been applied and wouldn't have had full effect in 2015-16. The measures are well under way. We're also recruiting a permanent chief financial officer at the moment and we would hope that person would be in situ for April next year. If you'll forgive me for saying so, we've heard all the reassurances now. This is the third time. At last year's audit, the chair of the SPA in his opening remark said, I've been a charter accountant for almost 40 years and I've never before received such a serious audit report. It's important for me to say that I fully accept the Auditor General's recommendations and that they will be implemented. I do not expect such a report to be repeated and I'll do everything necessary to ensure that it is not. It didn't work, did it? That's right. In addition to Mr Foley's comments, I would say that not only is it unprecedented to have three audit reports of this nature, but I think that the challenge of the amalgamation of 10 legacy organisations into one and the speed with which it's done has meant that the challenges and the problems go deeper than I had envisaged when I was here after only being in post for five months. I think that it is taking longer to achieve that, especially with bringing in the kind of skills that we need to fix the problem. I fully acknowledge what I said last time and I think that perhaps if I'm guilty of something, it was the naivety of the depth of the problems and the changes that needed to take place and the time that it would take to implement that. However, I believe that the improvements that we've made in the past year and that the Auditor General does acknowledge that improvement has been made. I think that we are now on the right path and with a clear strategic direction and with the recruitment of additional financial skills that has already been embarked upon and the appointment, as John has said, in terms of a new financial leader for Police Scotland, we can make far more rapid progress in the year to come. Last year, you employed an officer on secondment from Price Waterhouse Cooper for a period of six months between June and December and the cost of that was £131,100. Does that seem like an act of desperation to bring somebody in from outside at huge expense at a time when your budgets are under pressure? I think that it's not an act of desperation. The requirement there was to have senior financial resource which had capability to deliver moving forward because capability was part of the issue. One of the, in the reorganisation, we decided to create one chief financial officer position, as I've said, and that resulted in the finance director within Police Scotland leaving the service. We were in consultation with the finance director who was within the police authority in relation to potential redundancy. You make it sound as if all this was coming up towards the beginning of last year. The reality is that we're three years into this and we're still sitting here listening to frankly a bit of platitudes about what's happening. No, I think that we're absolutely taking action. We identified where the problems were last year. As I said around about the time that we came before this committee, which was the 10th of February, and we took actions to address that. There were issues of competency in relation to the finance function, so it was necessary to bring on board a senior finance person with appropriate skills. I actually took the action to go around on a trial round the public sector to see if anyone of seniority and experience was available to do this. That didn't result in identifying anyone. There was no availability. I then had to go to the private sector to see if we could secure that resource. The person that we secured had the relevant skills and experience, having been the former finance director of a local authority in Scotland, who had been in a position where it had had its accounts qualified for several years. The profile fit is, so that was the reason for appointing the individual. I can just clarify that the question was asked by the committee what was the cost up until the end of December. The individual is still there because we need to have somebody there until we have the new chief financial officer in post. That cost is still on-going. Given the poor history on the financial side, how does the SPA scrutinise and challenge financial performance? Clearly, that has not been working. The SPA has a finance committee, and we have strengthened the finance committee recently as well. The challenge that comes across to the accountants is that they present their papers, which could be in relation to management accounts, forecasting, etc., budgeting and the committee scrutinises that and challenges on that basis. We also have an audit committee, which again scrutinises and challenges mainly financial information but also other types of information. If we stick to the financial information, the challenge— Is this a new process? No, the process has always been there. But it hasn't worked? No, it hasn't worked. One of the reasons that that is so is not because the committee hasn't asked the right questions. On several occasions throughout last year, the committee sought assurances from the accountants that all was well with fixed assets, which is the issue that primarily presents itself in the modified opinion, and assurances were given by the accountants that all was well. That's shocking. The competent accountants would have known that it wasn't right. They ought to have done, but that is part of the problem, and that is why we had to reorganise the finance function and begin the recruitment process of a chief financial officer and also strengthen the reporting into the authority. But a chief financial officer is not going to change the competencies of the accountants that you've got there that have been feeding you wrong information. Presumably, those accountants are no longer there. Well, some are no longer there. I would hope that the chief financial officer can influence a better performance from the accountants. I would expect that to be the case. That would be a prerequisite of the job, and we would expect that to be so. One of the other aspects that we introduced to strengthen matters was that, in the period for the accounts to which you are looking at today, there was no reporting line at all from the finance director within Police Scotland into the account of the officer of the police authority. That has now changed. There is a reporting line from the chief financial officer. It took three years to work that out? It did, yes. Members will be aware that there are early difficulties in the relationship between the Scottish Police Authority and Police Scotland, which we've been working on at the time. What you're describing now is a very passive system of challenge, to be honest, even at this point. No, I don't agree that it's passive, because they are formal committee meetings. What we also have now, which we didn't have before, is that the chair of the finance committee is also a qualified accountant. That wasn't the case in the past. For the vast majority of the year that we're looking at at the moment, there wasn't a qualified accountant in that position challenging. That has changed, and the challenge now is very real at each and every committee. You're saying that the accountants were giving reassurances? Yes. Were these not qualified? Were these not qualified people? Yes. This person that is brought in as a qualified accountant? Yes. What are the implications of that? You're implying that other people weren't? No, it's not that the other people weren't qualified. We are qualified To clarify what I was saying there is that the chair of the finance committee is now a qualified accountant, so that helps strengthening, but when we recruit the new chief financial officer, that person will have a degree of competency and experience, which will be tested both at interview, but it will be clear from their CV that they have the capability, capacity and experience to do the job. So when are you going to have this chief financial officer? We would hope to have that chief financial officer in place in April. We are recruiting at the moment. We are at quite an advanced stage of that. Interviews will take place shortly, but prior to appointing that person, we will have the services of the interim chief financial officer from PWC up until that point. I think it's also worth putting a little context around this discussion. The amalgamation of the 10 organisations into one inevitably meant that the people who had been working in finance before had not experienced the kind of scale of operation that they were now being asked to account for. They were also working with legacy systems, which had not been rationalised and streamlined into single systems. Have those systems now been integrated into one single system? No, they haven't. Therefore, when the challenge came, and I have to say that what I inherited was a situation where the level of challenge from the SPA to Police Scotland was so strong that it had resulted in some breakdown in the relationship between Police Scotland and the SPA, but the issue wasn't only competency of the staff. It was when they were being asked questions of detail, that it was very difficult for them to dig down into the legacy information that they had and bring forward sensible consolidated responses. If you are still working with these legacy systems, it must still be difficult for them to dig down and get adequate information? It is, and an example of that would be in the auditor's report. This is three years on, surely? We are still working on eight systems. This was supposed to be a method of improving efficiency as much as saving money. I think that those opportunities still exist, but the decision of Police Scotland, rightly in my opinion, in the initial period of time, was to focus on operational policing and ensure that that was maintained at the level that had been provided by the legacy forces. That was their focus. They were less interested in getting the financial systems in processes. What you are telling me is that we have had a problem over the last three years with our financials. We have still potentially got that because we have still got eight systems, these legacy systems, that are difficult to dig into and get information. Are we satisfied that it is fit for purpose when this is working? As the policing 2026 strategy sets out, we believe that there is a need for a transformation of the back office functions of Police Scotland, not just in finance but across the piece. Has there been a need for three years? There has indeed. We are now tackling that, and we are setting out a long-term direction. But we are being told that every year? I do not think that, in terms of the changes that have taken place, the changes in the leadership, we now have an opportunity to tackle this in a much different way. Just a very quick supplemental arising from that question. The two interim CFOs that were in post, do you recall how much they cost in terms of the running cost, the salary, and did they receive a payoff when they ceased in their post of any form? The answer to your latter question was no payoff received when they left. The first interim CFO who joined us was an experienced ex-finance director from local authorities, and her daily rate was £350 per day. She was part-time three days a week, so the cost was not as significant as you might expect to pay for that type of resource. The cost of the interim chief financial officer on to the government from PWC is £950 a day. When we appointed the person from PWC, as I said, I went through an exercise of contacting the wider public sector, but I did not manage to achieve my goal of securing a secondment, which would have been better terms. Thank you. Mr Vanaghan, you said that the legacy systems have taken three years to come together and are still not come together. Is that a fault with the initial legislation? No, I do not think that it was a fault with the legislation. Following the legislation, there was an extended debate between the SPA and Police Scotland about who should have responsibility for managing the finance and other back office functions. The final deliberation on that was that Police Scotland should have responsibility for it rather than the SPA. That creates a situation where the SPA's role is simply of governance over finance. As I mentioned earlier, having that decision made, Police Scotland's focus at its leadership level was more about operational policing than it was about some of those other issues. Therefore, there has been a delay in tackling some of those issues. So, that was due to focus on other things by leadership and also a delay in making decisions on those issues by leadership of both organisations? I think that inevitably it was the case. I think that given a choice of priorities— That it was down to leadership? I think that the chief constable of the day decided that he would prioritise on policing matters as a first aspect and that those other issues would resolve themselves in due course. The administrative function that you say and its delay in coming together, is that in any way due to the amount of redundancies that have been made to lose the jobs of police staff across the country? I do not think that that is the issue. I think that redundancies have taken place where they are possible. Unless you transform the underlying systems and processes, then what you have is a workforce that is working very hard to stand still. But those very people that were made redundant, administrated those underlying processes. Mr Gormley, do you have a view on that? I am biased for what the chairman said in the sense that the decisions made were clearly in the early days of focus on operational policing. Do you have a view on the fact that the underlying processes were administrated by police staff who have since been made redundant? Well, I think where the redundancies fell is across the whole of the organisation. I think the principal point here for me is that we do not have a set of corporate functions that are properly constituted yet to deliver for a national police service. What we are embarking upon this year in terms of the production of 2026 is a plan to deliver corporate functions fit for a national service, because at the moment, as the chairman has described, we have inherited eight, some might say, ten legacy arrangements, and they have been connected. They have not been transformed. So we have got resource in those areas which we know we can redirect into operational policing. We know that we can deliver those functions much more effectively, and we know that we have got systems issues underpinning them to deal with. There needs to be a recognition that this is where, from my point of view, this is where I start, and what I need is a set of corporate functions that enables me to lead the organisation and make the right resourcing decisions to protect the public. No, I understand these reforms have still to be made. I think that the point I am trying to make is that there were people in post to perform the backroom functions. Mr Flanagan tells us that there has been a delay in getting these functions together. Is it any way due to the expertise that you lost through the redundancy process? No, I do not think that it is, because I think that the sort of expertise, experience and skills that you need to run corporate services for a national organisation are fundamentally different of a different order than for the precursor arrangements. Some of the issues that we are confronting is that some of the individuals who are very good, hardworking people, but they simply were not experienced in the transformation that we needed to make or the scale of the operation that we now are responsible for. But clearly they have not been replaced by people with that experience, because the transformation still has not been made. That is the point of the plan with respect, convener. It is actually a recognition and part of the restructuring that together with the police authority we are putting in place is to get that level of expertise in place. One of the first things I had a conversation with the chairman when I arrived around was that absence of capability at the right level. What I wanted to do and was supported in doing was reshaping the top of the organisation. So I have got a deputy chief officer now, not a police officer, David, who has got deep expertise around finance and transformational change at the level of a deputy chief constable. This is a demonstration that we are taking this as seriously as operational policing. Ultimately, if we do not organise our resources and manage them properly, it impacts on operational performance. I started where I started, but in terms of a determination to get the right skills in place at the right level with the right expertise and supported by people who understand how to operate in this environment, that is where we are and that is what we are starting to build. Mr Foley, you have described a situation in which you have been going round 20 headhunt to attract credible senior financial people, but it sounds like those people do not want to touch Police Scotland or the Scottish Police Authority with a barge pole. What is the reason for that? It is all very embarrassing, isn't it? I am sorry if that is the impression that I gave. That is not the case. When I trawed around the public sector looking for a senior chief financial officer, there simply was not one available. It was not that nobody wanted to take on the roll. Somebody would have to have been free for a considerable period of time to cross over into Police Scotland. No one could make themselves available, and we are now paying £950 a day for someone to enjoy a secondment. Is that correct? No one could make themselves available, but, as I said, I then went through the process of going round within the private sector. My approach to that was to a combinational looking round the audit firms in Scotland to see if there was any available resource there. I also went to headhunters in the private sector to see what they had available. The person that we appointed, as I said, did have particularly relevant experience to deal with some of the issues that were presenting themselves. He had experience of working for a local authority in Scotland who had had their accounts qualified for a number of years, so he was well versed in understanding how to get financial redress. The rate of pay for the individual at £950 a day is much less than I was quoted from headhunters who were all quoting me well in excess of £1,000 at that time. Okay, so you are telling us that you are getting good value for the public pounds? I think that we are getting good value from the point of view that we need to have someone who is experienced and knows what they are doing because the risk of not having that is much greater. It is our risk situation that we are trying to manage here. We are not pretending that the finance function is anything other than in a difficult place, so we need to have someone with the appropriate skills and experience to lead that. We need to do that while we recruit a permanent chief financial officer. Now you noted the job of this committee to follow the public pounds. We are not talking about just a few pounds here. Your budget is almost £1 billion. Why did you think that it was acceptable to present a one-line budget? Well, the budget that was presented to the members at the particular meeting, my recollection of the paper, was that it had the summary number contained within it, but the members had well debated the detail of that and the accountants in Police Scotland had worked on this for a number of months. There had been quite a lot of discussion among the senior finance people and, indeed, among the committees and the members prior to the budget being approved. However, do not you accept that the criticism that is out there has been a real lack of clarity and transparency? We had evidence from Audit Scotland just in January and what they described of your process is very unusual. How many drafts and reports? I think it was nine. Do you think that that is acceptable? No, I do not think that that is acceptable. Again, you would expect your finance people who produce these reports to be doing a better job in that respect, but that has been recognised. We accept all of the auditor's recommendations. There is absolutely no question of that. We accept all of them in full, and we are taking appropriate steps to address them. Part of that involves the recruitment of additional resource, not just the chief financial officer, but additional resource has been recruited and will be recruited to strengthen the position to ensure that we do not present nine drafts of the accounts to the auditor again. Sticking with the audit process, why did the SPA try to get the £198 million figure taken out of Audit Scotland's report? That goes back to my opening remarks. First, I would stress that the auditor general's figure of £198 is based on our workings. It is not—she did not do her own workings on that, she is based on ours. We have provided that information. The only debate around whether she provides £60 million as the coming year or a longer-term position, which is what she preferred to do, was, as I said in my opening remarks, that a deficit is only a deficit once you know what the funding levels are. We do not know what the funding levels are for the two outer years on which she was basing her calculations. Her preference was simply to work on a known number, which was the £60 million. That was, in anybody's eyes, sensibly three times £60 million, £180 million. It makes no practical difference. The issue for us is, how do we tackle that £60 million? If we tackle the £60 million, the subsequent years will be lower than they are at the moment. That is the important factor that we start to tackle this issue, not whether you present a one-year number or a three-year number. Is it not part of the problem in all of this that there has become a real breakdown in confidence and trust in the reliability of information that we get? Part of that problem, from evidence that we have heard, is that the board is largely conducting itself in private. There has been criticism not just from members of this committee, but from one of your board members who has recently resigned from the First Minister and from Derek Penham, the chief inspector of Constabulary in Scotland. Is not the policy of holding SPA committee meetings in private, therefore completely untenable? I think that you have to go back to the governance review itself before you start to make those conclusions. The governance review was based on the fact that it was perceived that the SPA's approach was not working. I was asked to conduct that review when I started. I took six months and I did extensive consultation over that process. We benchmarked a lot of other organisations, both in the public sector in Scotland and other police governance models elsewhere in the UK and abroad. Fundamental to the governance review is that it is about more openness and transparency. Some disagree with specific recommendations, but I think that you have to take it in the round and look at them as a whole. It was published last March. The cabinet secretary approved the recommendations in May. The HMI comments only came in December. At that 11th hour it was too late to go back and change the recommendations at that point. I cannot cherry pick which recommendations that I go with once the cabinet secretary has decided upon it. The important thing is that it has only been implemented since January. In terms of that, we need to have a chance for these recommendations to work. I have promised a review at the end of June. I will take all views from everyone into account, but we will base that decision on the evidence of how it is working in practice. I do not think that we should be taking it based on an item-by-item basis. Let us do a full assessment at the due time. The appointment about the board member's resignation is that it is not about openness and transparency. I am personally very committed to openness and transparency. Despite what has been written in the press, this is not about an issue about the board member's approach to this. It is actually about the proper running of the board. The issue for me is that the board members, if we are going to conduct ourselves in public, must be clear about their intentions and communicate their positions ahead of time. In this case, the board member did not. That is what I took issue with—not whether or not there is openness and transparency. I think that dissent is okay, but you have to be clear about your intentions. That is what I took issue with. Encouraging constructive debate is very important in terms of going forward. In this instance, the openness and transparency was about justifying a position rather than doing it. It is ironic that, if there had been openness and transparency from the member, that situation would not have arisen. The issue is not just about dissenting and having different opinions. The board members are there because they have the right skills in order to carry out effective scrutiny. How do you, as a chair, ensure that people who do not have the right opinion that they want to hear? How do you ensure that those voices are heard? It is really important that they are heard, because I strongly believe that that is how you get better decisions. You do it in public, but you do it from a position in which you understand where each person is coming from and what their actions are going to be. I am not sure how many of your meetings are in public and how many are in private. That is an important point. In this debate about the committees being held in private, what is not being recognised here is that the Governance review increases the number of public board meetings from six a year to eight each year. We have in terms of closed meetings, we have squeezed down those agendas and pushed far more of it through into the main board meeting, which was actually a point raised by the Auditor General. We have decided that committees cannot make decisions privately, which was going on before. All board decisions now have to be made in the full board. We report on any board decisions that are made outside of the public board meetings, because sometimes for experience or speed we need to do that. The committee's work will be reported at the public board meetings as well. I think that if you take the Governance review as a total, we have actually increased the amount of openness and transparency rather than reduced it. I think that this morning probably illustrates why I am going to ask this question, but the convener raised the fact that we only received the board paper from your Friday meeting this morning, so I think that a few of us have the time to read it word for word. My question is why are public board papers only made available a short time before board meetings? Do you recognise that that makes it difficult for politicians, the public and the media to scrutinise the papers in good time? I think that it is one of the recommendations from the Governance review, and it is something that has been commented about. I will take those comments on board when we do the review in June. That said, one of the issues is that you cannot look at the papers in isolation from the discussion that takes place at the board. What was happening previously was early publication of that led to speculation in the press, which I do not think was the right thing. It did not inform it. In terms of dealing with it, in terms of seeing it in advance, those are not public board meetings in the sense that the public engages in the board meeting. They actually just observe what is happening. It is important not only that they see the papers, but that they actually listen to the discussion that is going on at the board meeting. The two things cannot be dealt with in isolation. Mr Flanagan, you had a resignation from the board last week, as we have just discussed. Can you confirm for us that the board member had never raised issues of transparency? Not ahead of me raising the issue with her about what happened. So she had not raised issues with you about transparency? Her position on the committees themselves being held in private was a long-standing one. Moai was actually part of the... So she had raised issues with you about transparency? But that was not about transparency. What is the board meeting in private? It is not an issue of transparency. The issue about her taking a dissenting position and not communicating that in advance was what the issue was about, not about openness and transparency. We have been very public. The governance review was published back in March, and it said this very clearly. Moai contributed as a member of the reference group for the governance review, and her position had been consistent. At the board meeting in December, I recognised the consistency of her position. The issue was not that she disagreed with the decision. The issue was about taking that and surprising me at the board meeting by making it a position that she wanted to admit it. So she had or had not raised issues of transparency with you? Only on that very narrow point. So she had raised issues of transparency with you? Yes, and that is a matter of public record. What I have said is that the point was not about openness and transparency. Mr Foley, had she ever raised issues of transparency with you? Yes, as the chair said, Moai was a member of the reference group for the governance review, and Moai's position was consistent that she believed that meetings should be held open. That is not in question, and that is in line with what the chair has just said. The Herald newspaper reported that she felt that she was being punished for raising those issues of transparency, which she has just confirmed that she raised. Is that correct? No, it is not. What I did was I took exception to the fact that she dissented publicly without informing me beforehand. That was a surprise, as I said. That was not demonstrating openness and transparency on her part, and I took issue with that. However, when I did— Is it in your standing orders that members of the board must inform you of any dissent before you go into that meeting? I think that it is a professional courtesy, actually. So I do not expect to have to write it down. I think that it is what I would normally expect and what most board members in my experience have always done. So that is what was a surprise. The issue is not that it is a punishment, but it needed further clarification because she had said on many occasions prior to that that she would support the board's decision on that. Ross Thomson Thank you, convener. Following on from the point that was made by Monica Lennon, there were nine drafts of the accounts that were first received by Audit Scotland 31 of July and then finally signed off by them in the middle of December. The Auditor General said at committee that this is longer than she would expect for any public sector body. In fact, it was twice as long in any other public sector body. Now, with the numbers continuing to change in between and clearly mistakes being made, ultimately it is the chief executive of the SPA that is accountable. I am sure you will agree that that situation is unacceptable. So my questions are, can we have confidence in the figures that we have? You have admitted today that you need to do a better job and take appropriate steps to deal with that. Exactly what are those steps going to be to rectify the weakness in financial leadership? What assurances can we get from you? It is not going to happen again. Ross Thomson Absolutely. The audit did take longer than you would expect. Absolutely no doubt. As I have said earlier, to present nine drafts of statutory accounts to the auditor is wholly unacceptable. There is no defence against that. The measures that I have outlined in relation to the reorganisation of the finance function will certainly help to address that, but I believe that the most significant aspect of change is that we now have the line of accountability from the chief financial officer within Police Scotland to me as a accountable officer. That is a big change. I can see the improvements working on that currently. Even this afternoon, I am sitting down with the interim chief financial officer to go over next year's budgets, etc., and these one-to-one exchanges weren't something that were a regular feature before. The measures are in place. Additionally to that, some of the situations that arose—I go back to fixed assets again—is the implementation of the reporting of technical updates to the Audit Committee, the improvement in terms of competency within that particular function of finance, and the additional training that is being applied and the additional recruitment will all help to support that. We will apply additional processes as part of the audit plan to have more regular communication and sharing of information between the chief financial officer and the accountable officer prior to being presented to the Auditor General. We have appointed Scotland Creeff within the last year to 18 months, and the review of the accounts and, in particular, this year, a detailed review of fixed assets will be undertaken by Scotland Creeff again prior to that being signed off and passed over to the Auditor. All of those actions should ensure that there is no repeat of a situation where nine versions of the accounts are sent to the auditors. I raise the issue that Police Scotland had made a record level of compensation payments in 2015-16, with Police Scotland paying about £1.27 million in damages. A claim is made almost every single day. Why are those payments increasing? What steps are you taking to reduce the amount of taxpayers' money that is being paid out in damages? Is that not another example of an unintended consequence of making decisions in the absence of a financial strategy? In damages, people raise claims against police services—that is a common factor across the UK. The financial strategy itself would not necessarily have an effect of reducing claims that are made by members of the public, serving police officers or former police officers. Each claim that is made is thoroughly investigated and legal advice is sought. At that point, a determination is made as to whether the claim is at an acceptable level or if it is something that should proceed through the courts. There is a process that is wrapped around it. I was trying to dig down a bit deeper, because the figure in the previous year had been £1.17 million. We have now gone up to £1.27 million to find out what the rational behind that increase was. My comment about the unintended consequence of making decisions in the absence of financial strategies was not my own words, it was the words of the Auditor General at that meeting of the committee. I appreciate your answer to that. The Audit Scotland report identifies that there is a funding gap of £198 million, and within that it highlights the poor wheat leadership. Do you recognise the scale of the challenge that is ahead? In what steps are you going to take to fill that particular funding gap? In doing so, is there not a serious risk that, with the financial mess that we have got, it is going to impede Police Scotland from doing its basic day job? That is what 2026 is intended to answer. We have been very clear about the changes that need to take place. In terms of 2026, the key aspect of that is to drive up the effectiveness and productivity of police officers, and I will allow the chief constable to talk about that more. It is about restructuring the back office, and David Page is here, and he can talk about how he sees that happening, as well as driving out some further savings from non-pay costs. The whole thrust of 2026 is about addressing this issue and driving up the quality of the service from Police Scotland. What we have done with 2026 is, for the first time, take a really deep look at the sort of demands that we are now confronting, what we think Police Scotland needs to deliver to the people of Scotland over the next 10 years, and what are the capabilities that we need to keep people safe? That will be a blend. It will be a blend of police officers, and we can make better use of them. We can provide them with better technology that means they can spend more time in communities, and they can be more effective. They have the information to make them make better decisions. We need police staff, not in the transactional back office, where we know, and we have already described this morning that we have too many people sticking together legacy systems, but in providing some of the capabilities around the complex needs that we are now dealing with around vulnerability. We know, because of the work that we have done, that less than one in five of the calls for help from the public into our control rooms actually result in a crime. They are much more complex issues that we are needing to deal with, and the solution is not necessary to arrest somebody. It is about vulnerability. If you think about the way that we are now having to deal with child abuse, child sexual exploitation, the way that cyber has changed, the way that old crimes are committed and it is inventing new crimes, and it is making it on occasions impossible to understand where that crime was actually committed. Those are new skills. They are not the sort of skills that I had 30 years when I joined, so police staff with the right level of expertise in these sorts of areas are what we need, and we also need infrastructure, because we have inherited a range of systems, as you have heard this morning, a range of investment decisions by the legacy forces, some of whom made different decisions and they perhaps would have done if they did not know that they were heading for a single service, and they were funded on different levels. So there is a big transformation job to be done here. I am not going to do anything other than be straightforward around that. We have got some of the best policing that I have seen in 30 years in Scotland. The challenge is to make sure that we use as much of the public resource we are given on operational effect. What 2026 does in my view is provide us a route map to do two things. It provides us a route map to develop the capabilities, the sorts of skills and services we need to keep people safe now and into the future, which is different from those which we needed 10 years ago. It also provides a route through to a balanced budget, because we need to get to the point where actually we are operating within whatever financial envelope we are given. Of course, we could scale that up if more resource is made available, and if I had more resource that would be delightful, but I am a realist. Or we can scale it back if political decisions are made that they need greater public demands are needed in health or education. What I do know at the moment is that the way that we are organised is not the most effective and efficient as we look forward for the world that we need to prepare for. Following on directly from that, particularly around police staffing and the experience that is needed that you have talked about, my understanding is that about 1,400 officers have departed from Police Scotland since its creation. That equates to about 40,000 years worth of experience, which is huge in itself that very experience that we need. Given that we have a shortage of capacity and competency that has been highlighted by the Auditor General, it is deeply worrying that we are losing people. My question to Police Scotland would be, does that situation highlight something deeper perhaps that is going on that means that people want to leave the new force? My question to the SPA is that the Auditor General highlighted at committee that, in absence of the financial strategy, there was a risk of expenditure being reduced in ways that were not in the force's long-term interest, so to see your response to that would be helpful. Perhaps I could deal with the first and perhaps the authority with the latter. Absolutely not would be my unequivocal answer. What we see is a normal pattern of recruitment and retirement. Police officers, generally speaking, retire at a 30-year point. There is a normal churn. What we have seen, of course, is an aggregation. You come up with a much bigger number because we are one force, not eight. There has been no statistically significant difference between the rate of retirement and resignation under Police Scotland than there was under the previous arrangements. As if not more importantly, the quality of people who are coming forward to offer their services to protect Scotland into the future, our recruits, are first class and we are not struggling to recruit people. I have the great pleasure of swearing in every new recruit and attending the passing out craze. They are inspirational in terms of their quality and they come from across the age range from people of 18, not many actually from school leavers generally into their early 20s because of the level of maturity you need to do this job, through to people who have had successful careers and want to contribute to keeping Scotland safe. We are recruiting people from 18 through to 50 and the quality of them gives me enormous optimism for the future of policing in Scotland. There are challenges. We talked about some of them this morning, but I am inspired by the staff that I have. In terms of your other point, I think that you cannot have a long-term financial strategy isolated from a corporate strategy for the organisation. You actually need to know what you are trying to achieve and then work out with the affinances that you have available how you think you can best achieve that. That is what the problem was. The calv's cutting that was going on was in no strategic context. It was actually really just a tight squeeze without changing the underlying way in which things were done, not just by corporate services, but by the police officers themselves. Unless we invest behind them and give them the tools and equipment and the training they need to do their jobs, then we are not going to get those productivity gains that we have talked about. This is what is set out in 2026. Can I just briefly pick up on a point in relation to not struggling to recruit people? My understanding is that, in the north-east of Scotland, you are. I hear from officers in Aberdeen all the time that, despite recruitment drives, there is still a difficulty in recruiting and retaining staff. Is that not the case in the north-east? Historically, the patterns of recruitment will be different, but the north-east Aberdeen has had a very vibrant economy, which has an effect on the whole of the public sector. I would not want to say, and I will be distemblio it always, that there are not different pressures in different parts of the country. In terms of the total, we do not struggle. Of course, what we need to do is learn from the past. We have had national recruitment campaigns. Where we are moving to now, more is localised recruitment campaigns, because the challenges of policing in the Highlands and Islands are very different and the commitment that you are going to make to that is different from working in the central belt. As we go forward, we need to constantly reflect on our recruitment and our employment offer to make sure that it is competitive. One of the unintended consequences of the downturn is that we are not struggling in the way that perhaps we were in some of those more economically vibrant parts of Scotland. Thank you very much. Lastly, convener, it is to follow on from a question that was made by Alec Neill at the last committee meeting. I know that he cannot be with us today, but he had highlighted that within the Auditor General's report. You can see that there is an issue in confidence, in the finances and that we have to ensure that the public have greater confidence in the job of Police Scotland. Looking at being open, as we have talked about today and being transparent, his question, I am sure that no doubt, would be that looking at the condition of Police Scotland's finances right now, is it not a fair description to say that, right now, Police Scotland is in a state of crisis? I do not believe that to be the case. First of all, you have to put it in context that a £60 million deficit, although it is a large number and a challenging one, is less than 6 per cent of our total expenditure. Across the public sector, there are many challenges with financing. In terms of what has been achieved over the past year, we have made significant progress. The relationship between Police Scotland and the SPA has been repaired, and it is leading to more openness and transparency, more information, more dialogue and more influence from the SPA. Local engagement with Police Scotland and local authorities, scrutiny partners and other community organisations is unrecognisable to what it was 12 months ago. If you would not describe it as a crisis, as Mr Thomson suggested, what would you describe it as? I would describe it as there are a series of issues that we need to tackle, and we need to tackle them in a long-term perspective, as set out in 2026. Operational policing in Scotland is still at an exceptionally high level, as the chief constable has come from forces down south. You may have seen the press this morning in terms of some of the challenges that are happening in England. If you want to talk about crisis in policing, I do not think that it is about in Scotland, but it is about other parts of the country. Pass over to the chief constable. Respect if I can just clarify, this committee in this Parliament is not scrutinising other parts of the UK. We are solely concerned with what goes on in Scotland. Mr Flanagan, would you describe it as challenging the situation? It is clearly challenging. In my experience, trying to put 10 organisations together at one time in any business or any other public sector situation is an extremely bold thing to do. How challenging do you think it is? It depends on where you look at that. The financial situation of Police Scotland? I think that we have set out, again in 2026, that we think that it is a three-year project to get that fixed. I think that some of the elements of fixing that are not hugely difficult or hugely challenging. Introducing new technology to help police officers has, depending on the spectrum that you have, some challenges, but other areas are pretty straightforward. Overall, the whole financial situation, how challenging do you think it is? I think that it is a matter of just taking this steadily and dealing with it step by step, and I think that we can fix it. Is it pity that that step by step has not happened over the past three years? I was not there three years ago. If I may? Very briefly, Mr Gordon. Well, only in the sense that the crisis challenge was thrown out about operational policing and whether the finance, the operational policing in Scotland is amongst the best that I have seen, and Scotland enjoys a level of protection around some of the serious and organised crime threats in the UK. There are issues that we need to work our way through. We have a plan, but the operational delivery of Police Scotland is good. You say that operational policing in Scotland is the best that you have seen. Does that mean in your career in Scotland? No, I mean amongst 32 years in policing across the UK in a variety of both rural and metropolitan forces, I have seen some of the best policing in Scotland in my career. Okay, and do you think the current financial situation is a challenge or a threat to that? I think we've got a plan to deal with it. But do you think it is a challenge or a threat to that? I think it's a challenge, of course it is, and if we don't deliver on the plan, then it will start to impact on our operational ability, but I am completely confident with the quality of the staff I've got and what we're delivering, and what we're talking about in 2026 as we deal with both those competing, but complementary issues around balancing the budget and spending the money in the right place and understanding the changing nature of demand so that we organise ourselves to keep people safe into the future. Surely, as the man in charge of the thousands of police officers in Scotland, you need a strong administration and sound financial plan to actually allow your police officers to do their work, is that not the case? Absolutely, and in 2026 we've got the basis of a strategy that I am convinced that over the next three years we'll get us into the position where we have a balanced budget and we start to shift the spend into those areas where we need to develop the service for the future. Liam Kerr Thank you, convener. So I would like to look at the 2026 predominantly, the going forward piece. Just by way of clarification, Mr Gormley, because you talked earlier on about the crime figures and on page 22 of 26 you say the crime figures are not an accurate measure of demand and considering recording crime in isolation is not an accurate measure of demand. Could you mention that earlier? Would you mind just fleshing that out a little? Tell me what you mean by that. The public turns to the police for a whole range of services and of course recorded crime is always going to be important, but it's a small subset of what the public needs us to do. So we have an enormous task, for instance, of managing sex offenders in the community. So every time we lock up somebody and they put on the sex offenders register, we then have a regime that we need to put in place to keep them safe, keep the public safe to know where they are. That doesn't feature any crime report. We increasingly see demands coming through around an ageing population and dementia. People go missing. We have major events in Scotland. We've got an international set of events that happen in this city every year that we have to keep people safe from and we have very challenging sporting events. We have to keep people safe. We have weather events. This time last year we've just seen all of the flooding in Aberdeenshire in the northeast. We need to respond to that. People call us for a range of services that are not reflected in the important but incomplete measures of recorded crime. You know, and what the letters I get from people are very rarely about crime. They're normally about when my staff have been able to touch somebody at the point of crisis. It's how they'd be able to return somebody to their home who's wandered off with dementia. How we've dealt humanely with somebody who's been injured or killed in a road traffic collision. It's those areas where actually we have a really important point to part to playing How we enable communities to thrive and survive. How we deal with anti-social behaviour. A contribution in schools to enabling young people to learn in orderly environments. That's the point I'm making. There's a much broader expansive challenge than sometimes people like me reduce it to, which is a conversation simply about recorded crime. And in the context of that you're cutting 400 police officers by 2020, isn't that the case? No, absolutely. I'm glad you're giving me the opportunity to say that. What we are going to do is embark on it as the chairman's allude to a very measured process. So over the next three years we will move 300 officers, police officers, from corporate support from the back office. They will be refocused into communities. But what has changed in the back office then? Because they must have been there for a reason. Well, the reason that they're there is because it hasn't been transformed. So if you take 8HR, IT, whatever departments and you do not transform them, you actually end up putting more resources in to stick them together. So the point of the three year journey is let's take out resources presently mitigating some of the impacts of these legacy systems. And we will need to transform and invest in technology to do that. 2026 describes the journey that we will embark on. We will take that resource out and reintroduce it to the world it joined to deal with, which was policing. Police officers don't want to be doing this stuff. So that will enable us to refocus police officers into operational activity where they should be. As we achieve that, we will also be introducing technology that will improve their productivity so they don't have to come back to the station. They don't have to double key. They don't endure some of the frustrations they are at the moment. The number of productive hours available to them to do policing rather than bureaucracy administration will fall. As we get to that point, we are very tight for time, if you could. I appreciate your point. The back office function, my concern, is that someone will still need to do that. The requirement for back office to be done still requires to be done. Officers will be moved out of that onto the streets, if you like. However, what reassurance do they have that they won't still be doing the back office, as well as the extra resources on the streets? That's the point of the transformation journey. Actually, we've got a strategy. The plans will come forward as the strategy comes to a consultation conclusion, the budget set. It's going to be a phased, co-ordinated transformation programme that will do this in a logical and intelligent way. We will not disable our payroll or any other part of our organisation until we've got the measures in place that allow us to do that. But actually, we're going to shift resource from unproductive work around bureaucracy and mitigating the legacy issues we've got around the inherited position into operational effect. It's been characterised as a cut of 400. We will continue to recruit at the present level for the rest of the year. There'll be no reductions this year. We will start to introduce the transitional changes I've described. As they're implemented, we will slow down recruiting. I'll be held to account by the police authority and by a range of other institutions. It is once we have banked that transformation, we can then start to take the head count down and invest in the capabilities that we need that are not traditionally provided by police officers. The issues I was trying to allude to earlier some of the challenges around vulnerability, cyber and the areas where we know that the answer isn't necessarily a police officer to protect the public from that threat. In terms of that, there's a very small reference at page 55 of the 26 report about modernisation of terms and conditions. Just to be clear, are you changing the contracts of your officers in order to...? I can't. Those are set in regulation, so I don't have control around that. So what is modernisation? What we're talking about is a different kind of employment world. If you're looking out for 10 years, the notion that anybody will necessarily want to join an organisation or institution like I did and expect to spend three decades there is not the world we live in. And some of the skills we need around... If I take the example, I don't know. If you take some of the really deep technical skills, we need to protect people, children online. Now, we can offer a professional challenge like no other institution that I've ever come across, but we can't pay as well as the banks and the insurance companies. So actually, we need to recognise the reality of that. My experience in the national crime agency was we could attract young graduates who were excited by the opportunity to contribute at that point. When they wanted to have families and had the sort of financial commitments we all come to as we enter and etc, they wanted to go and earn more money. We then found that at the end of it, people were prepared who'd satisfied those needs, wanted to come back and contribute. You need to organise your employment offer around how people will live their lives. So the ability to come into the organisation, go out, come back in, the ability to connect ourselves into other institutions that are relevant, be that the private or the public sector, the ability to develop our leadership skills because I think in the future is going to be less command and control and more negotiate and influence around some of these more complex challenges. It's about that picture of a workforce that we need to organise ourselves around. At page 50, we then move on to see that you accept that the underspending the capital budget to balance the books will not be sustainable. We've all seen reports, we were talking about the press earlier on, but there have been significant reports about the state of the estate, if I can put it that way. The Auditor General projects a £200 million deficit by 2020. Can you give any reassurance? How do you sort the estate whilst reducing the deficit? Or are we going to see a fire sale of some description? No, what the strategy will do is form follows function. So as we organise ourselves around what we know that we need to do now in terms of keeping people safe and we think about the sorts of capabilities we need to develop, from that you then make decisions about the infrastructure you need. We've inherited an estate that was not designed to service a national surface. It was organised around the needs of eight individual organisations. Inevitably, there will be some rationalisation that can take place. Inevitably, the world that we're talking about where we need to share information, share knowledge and innovate. There's a logical presumption there that actually being co-located with some of our most important partners would add better value, both in terms of our operational effect and the spend of public money. So as we move this strategy forward, and this is a consultation that we've launched, so let's be clear about that. We're in a listening phase of this. We need to think about what the estate needs to look like going forward and, of course, use public money in the best way that we can. In terms of that rationalisation, looking through, I don't immediately see a specific address to the more rural areas. In terms of rationalisation, people would have significant concerns that police presence is being cut, whether that be on officers, whether that be on the estate. And there just is no presence there, perhaps, because they're dealing with cybercrime and they're just not visible. How do you reassure those rural communities when, as I say it, I don't even see a specific mention within the 26 forward planning? Well, I think in the document we talk about the diversity of the communities in Scotland. And I take your point if that language needs to be clearer to recognise that we've got urban, city, rural. I absolutely take the point, and we can reflect that as we go forward through the consultation. But to your more substantive point around presence in communities, the whole principle behind 2026 is to enable us to put more out there that, actually, we have not got officers committed to non-productive work in the back office, that we enable them to be more visible for more of their working day in the community. There are plenty of examples elsewhere where the use of body-worn technology be that video or be that smart devices where they don't have to come back to a station to input material. They don't have to come back to be briefed. They can be made much more effective. So the whole principle behind 2026 is to improve our operational effects and our visibility in the communities, be they rural, city. We need to police private spaces in a way that we never did when I joined, so the issues around domestic abuse, abuse of children within the home, elder abuse, these are all new challenges we need to protect people from. And inevitably, and I don't want to overstate this, but we are seeing a whole range of vulnerabilities open up, particularly for young people, in the digital space. So what the strategy is talking about is making us visible in all of the places that we live our lives going into the future. Gil Ross. Thank you, convener. You said that the merge was difficult, and I think that none of us here would dispute, obviously it was going to be a difficult time. I want to touch on something that has been discussed back and forth quite a lot this morning. When Police Scotland became a single force, you did let a lot of staff go. You closed a number of police stations, but yet we are hearing that we still have officers that you want to take from backroom duties to put on front-line policing. Why then were the staff let go if now the officers are performing those background duties? Well, I think that it was one of the unintended consequences of the way that we were organised. I mean, I think that there was a lot of duplication, and some of the duplication has been stripped out. Officers have not left up beyond the normal retail rate, so we've maintained, as a matter of public record, we've maintained the level of police officers at or above £17,234. We've had to focus the cost-saving activity on the other parts of the organisation, which is Police Staff and the Non-Pay Cost. There are only three movable budget pots in a very simple... I'm not going to count on that, that's probably self-evident, but you can organise yourself around. So the point of the strategy is to get us beyond the position where we're making in-year tactical decisions to try and balance a budget. So the position where we've got a long-term plan that enables us to understand what do we need to do, and do it in an organised, safe, measured manner that delivers the improvements that we know we need to make. Talking about the long-term plan, I mean, we've got the 10-year strategy. In the opening remarks, you said that you were aiming to be financially sustainable by 2020. And in the document that was given to the board, one of the issues that says a long-term financial plan should be developed, that supports the delivery of the strategy, and I think nobody would disagree with that. But in the opening statement, Andrew Flanagan, you said that long-term financial planning was very difficult because you didn't know what the Scottish Government budget was going to be. So how can you plan financially long-term? Well, the reference to the spending review is that if you want to calculate a deficit, you need to know the level of funding. And because that hasn't been done, what an actual deficit is is not clear. That doesn't stop you planning what your own finances will be and what you think you can achieve through that. The other important point that I made is that you can only do a financial strategy in the context of a corporate or a total organisational strategy because you need to know what you are doing. And the two things are interlinked. You can't create a lavish corporate strategy without understanding how much money you've got available. And equally, you can't determine what budget you need if you don't know what you're trying to achieve. So those two things are completely interlinked. How we've set this out is that we need to consult on the 2026 strategy and then when we will have that completed consultation and we know what the final strategy looks like, we will build the final long-term financial strategy. And that's not to say that we haven't been working on that. There's a lot of work that's already done. The more immediate issue for us is the coming year's budget. We are clearer about that. Government has told us what their funding proposals are. It's involved an increase of the amount of capital that they're prepared to fund us for and also the further continuation of the reform money. That allows us to come up with a very clear plan starting down this path for the coming year and therefore the 2026 provides us with the direction we're going so that we can actually make decisions in the current year that are relevant to the long-term direction that we're going to do rather than perhaps some of the piecemeal cost cutting that has been done up till now. Why was there not a 10-year strategy put in place in 2013? I don't know the answer to that. I wasn't involved at the time. You also made reference earlier to the Police Scotland and the SPA making an agreement about who would take responsibility for the financial matters. Is that correct? It was agreed that Police Scotland would do so. When you realised that Police Scotland were then concentrating on operational matters rather than the financial side, why didn't the SPA step in and say that you would take over the financial side? Well, again, it's not a matter for me. I wasn't around at the time. I don't think that the model of the SPA running back off as services for Police Scotland is the right one, so I'm not uncomfortable with the decision that was taken place. My view, my focus, was making sure that Police Scotland would actually run those things effectively and put enough concentration and focus in order to do that. I think that we've got that acceptance from that position from Police Scotland, and I don't think that issue should be a major one going forward. Could it have been addressed earlier? Yes, it could, but as I go back to the point that I made in earlier questions, the focus had been through quite a difficult amalgamation to concentrate on policing at that time rather than the back-office functions. Just to get a little bit of a handle on how the money is spent, because I said in the last evidence session that when I had a look at the audit report, I thought that there was a lot of it missing because it's the lightest audit report that we've been given in this committee since I've been sitting on it, and it's very light on the detail of where the money is spent. I asked about the budget holders across the organisation and the different divisions, and then, obviously, you have the overall financial accountability. How low down-scale, if you like, to each individual chief inspector or chief superintendent? I made the point last time about if you needed a new police car in WIC, who would make that decision, and how does that fit into the overall budget? Again, I think that that's one of the areas that were not us, but Police Scotland are looking to change. I think that it's more appropriate that David Page answers that question. Going forward, one of the things that we're going to change is that we're going to devolve the budget responsibility to the deputy chief constables and then, below them, to the ACCs, and ultimately down to chief superintendent levels who are effectively like a business unit level to give them both accountability and responsibility. We'll set the budget, obviously, through the SBA along with the Government settlement, but what I want to do is change it from being a central finance problem where the police were doing one thing and then the requests would come over the wall into a central area. What I'm going to do is centralise the numbers, if you like, but then allocate the responsibility. We'll do monthly reporting as you would do with any business, if you like. The deputy chief constable and the chief constable have agreed to this model. Each deputy chief constable, each ACC, each chief superintendent will have their own budgets. Just one last question, convener, if I may. As you said, the Scottish Government has given you extra money for £17.18, £25 million. In the submission that you put into the committee, it said that reform funding is being spent on VAT. Is this sustainable? Reform funding has indeed been spent on VAT since the outset, since the first of April 2013. It is a draining resource. There's absolutely no doubt about that because we can't recover it. Each year, to date and going forward, unless the situation changes, it will cost us approximately £25 million a year. I'm looking at the written submission from the SPA, and there's reference made here to the internal auditors. Who are the internal auditors? We have internal auditors, Scotland Creef, who are a well-respected firm of accountants. So they provide the internal audit function? They do. At this present time, we also have two employees who are internal auditors as well. You've got a situation that you highlight here, where there was a technical change in accounting standards and it wasn't picked up by the internal auditors. There was a review carried out on the accounts posted on being handed over to Audit Scotland, but the review didn't alert the auditors that the change to the IFRS 13 standard had not been implemented within the finance function. I think that this is another example of internal audit failing, but none of your accountants picked it up, internal audit didn't pick it up. It just seems so unsatisfactory. I mean, this is basic stuff. It is. In some ways, I would expect that when you have around 20 qualified accountants in your organisation that at least one would pick up the fact that the standard had changed. You would think, wouldn't you? We've been discussing about your recruiting accountants. Looking at the situation where there were eight different police authorities and, obviously, accountants embedded in each of these, do we now have more accountants in total than we did prior to the merger? No, we don't have more in total than we did prior to the merger. At the point of time that you're looking at, we would have less, but subsequent to that, we've recruited into some key areas to strengthen some of the areas of weakness that the auditor rightly highlights within her report. But we're not recruiting accountants just to plug issues that we've got here. No, we're recruiting accountants into positions that are absolutely necessary to sustain us moving forward and mitigate against the risk of some of the failings that have occurred. What happened to all the accountants that were working in the different police authorities? There were some accountants who left under the early time at voluntary redundancy scheme over the first three years. Some? Is that a lot? I don't have the precise number, but I'm perfectly willing to furnish the committee with that. It's a sensitive area if you're just recruiting accountants to fill the problems that you've got. How many accountants, if you had an integrated system, would you need less accountants? Theoretically, you would if it all worked perfectly, but we don't have that integrated system. For example, at the moment, we have a large number of perils, and part of the plan is moving forward is to consolidate those perils. How many perils? It's in high teens, 17 and 18. Has there been any actual back office function that has successfully been integrated since the police merger? There has been areas of integration within functions. Significant areas? No, I wouldn't. To answer your question, in terms of a function being completely integrated in my view, no, they haven't. So it's been happening over the last three years. There will be elements of it within functions, so you will find if you looked into Police Scotland, for example, the HR department, there will have been elements of modernisation and improvement if you looked into it. Can you keep coming back to the same thing? There's been three years. You haven't been planning this for three years. There must have been some implementation, there must have been something put in place to bring these together. There have been some elements of consolidation within that period. But not major? Not consolidation of an entire function by function. So, for example, in the finance area, you would have a software package called E-financials, which is there, but it doesn't do everything for finance, which you would expect, perhaps, more consolidation to have taken place. Sounds like you've got quite a job ahead of you. That is, yeah. Very briefly on the line. I just wanted to ask a question. In light of the recent changes to non-domestic rates, what assistance has been carried out within Police Scotland? What impact will that have financially on the police estate? A reduction for this fourth coming year, but obviously that will come through in a published account, which I don't go to the board until the 22nd of March. Sorry, was that a reduction, you said? A reduction. A reduction overall. Mr Flanagan, the £188 million funding gap that is projected by the end of this Parliament, are you confident that you'll be able to fill it without cut to services? Yes, I think that we've got a proposal through the consultation on 2026 that sets out relatively clearly how we want to go about that. Fundamental to 2026 is that it foresees an improvement in service, not a reduction in service, and it will allow us to facilitate the necessary financial cuts in order to achieve balance by 2020. Can you just outline for the committee and the public where the majority of these cuts will fall? I think that there are four areas that we see. One is back office and we've spent a lot of time speaking about that today. I think that we can get substantial savings out of non-pay costs. We spend currently about £170 million in non-pay, and we believe that we can cut into that quite significantly. And what will be cut on non-pay? Well, mostly, I think that it will be a renegotiation with some of the contracts that we have. I mentioned in my opening remarks that often we have contracts in more than one year, so that takes some time to do that. And then I think that we would expect that, and we've signalled that, as we get the productivity gains coming through, there would be a small reduction in office and numbers, but that doesn't lead to a particularly significant impact on money because the proposal at the moment is that we would start to recruit the kind of specialist staff, the non-police staff that the chief constable talked about earlier. What kind of contracts are you talking about making savings in? One came to the board recently, which was, I think, for hard facility management, which is maintenance of our properties, whatever, and there were cost savings released from that proposal. So you're going to plug the funding gap, but you said the reduction police numbers, is that correct? No, that's not what I said. Okay, sorry, I thought you just said that. I said that there would be a modest reduction in police officer numbers at the end of the period, but mostly that would go to allow for increasing the employment of specialist resources that the chief constable mentioned earlier. Is that specialist police officers? No, that would be civilian staffs. Okay, so just so the committee is clear, or maybe I'm misunderstanding, you did say there's going to be a reduction in police numbers. We've said that clearly throughout this week. And the contracts, there's going to be sort of a rationalisation of those, and the first thing you mentioned was back-off as staff, there's going to be a further reduction in back-off as staff, is that correct? Yes, only after we've changed the systems and processes that go in there, I mean, perhaps maybe because David is more responsible for this area, it would be better if he takes that point. Before I bring in Mr Page, I mean that I'm aware that you're quite confident in the plan, so it must be pretty well-costed, and you must have figures next to the savings. You must have a quite clear idea of how many back-room staff are that will be made redundant in the next phase, so do you have an idea of that number? We have estimates, and as I said again, and it's spelt out in 2026, post the consultation period, once this is approved, detailed financial and implementation plans will be developed, which will formulate that. What are those estimates? I don't know them off the top of my head, and I don't think that... Do you know them, Mr Page? But at the moment they're still drafting, they've got to be submitted to the board on the 22nd of March. What we are doing, as you rightly say, is we're making some planning assumptions behind the scenes. One of the things that we've got to improve on, looking at the way that we've operated in the past, is engagement through the unions and the federations about our intent and how we do things, and making sure we've got robust business cases, so to the point that I think a number of members have made, which is if we are going to shrink the back office, this is just one of the things we've said in the strategy, we can't do it unilaterally and have police officers just walking out of jobs as work there. So we've got to work out what do we do with that work, how do we automate it, how do we do it in different ways. So that's part of the consultation process that we need to go through, both with the unions. I also need to develop technology capabilities to alleviate those pressures. I mean, we would fully expect there to be a consultation process, but I'm interested in the estimate. Can you tell the committee what that estimate is? I don't think that's appropriate until I've cleared it with the board, and actually I'd like to discuss that with the unions first as well. Okay, but you can confirm that these are planned. I have a planning assumption, yes. It's also important that we recognise that there are no facilities for compulsory redundancies in the public sector, and we would endorse that. I think it's also that we want to look at where we can retrain and redeploy staff rather than seeing them exit the organisation, because in terms of total cost, an exit is an expensive solution. Would you agree with me, Mr Page, that the last time hundreds of back-office staff were made redundant from their jobs in the police, we found that there was a lot of backfilling going on, police officers being paid a substantially higher salary to do the same job? Would you agree with me, one, that that happened, and two, that that was a false economy? I think that in all organisations when you're undergoing a transformation, it makes sense to use temporary resource, when you're releasing full-time resource, to bridge a gap as you do the transformation. I think that the issue that occurred within Police Scotland was that the intent was there to release staff, the police staff if you like, to reduce the costs, temporary bridge a gap where police officers are in a trans-history role, but we failed to do the transformation and they ended up being there longer than they should have done, and that is more expensive than doing it the way it should have been done. So it was temporary staff rather than police officers doing those backfilling jobs? No, no, sorry, what I meant was we've released full-time police staff from jobs, backfilled them with police officers on a transition role with the underlying assumption that you do a transformation, which means that you could release the temporary police officers who are doing that job back out into their day jobs, but unfortunately we didn't deliver the corporate back-office transformation, so those police officers have been there a lot longer than they should have been, that's more expensive than the way it should have been done. So that was bad financial planning? I think it's more about bad execution of transformation. You agree with me, it's a false economy. Mr Flanagan, I understand you're a chartered accountant. Why did you allow capital spending to be offset against revenue? That's not a decision for me, that's a decision for Scottish Government to allow us to do that. I think what I felt was that spending money on capital or reform without a clear sense of where we were going with this was not a sensible approach, therefore rather than spending money and then finding a year's time or whatever, that we'd made the wrong decision. It was better to slow that down, deal with only essential items or where there was an obvious need for that spend, and that on a secondary level did help to offset the operational or revenue overruns that we had. So the offset, whose suggestion was that? Was that the SPAs or the Scottish Government? I don't think it's a suggestion in that way, it's a sense that we knew that there were overruns, we knew that it would not be sensible to continue spending our capital in a particular fashion without a long-term plan. The fact is that the two things helped to balance or net out each other out. No, I understand that, but I understand that the Scottish Government had to give you permission to do that in your budget. Did the SPAs seek that permission from the Scottish Government or did the Scottish Government suggest that that might be a way to deal with it? Maybe Mr Foley can answer. Yes, thank you, convener. It wasn't so much a suggestion, it was based on a forecast because we knew what the, with a reasonable degree of certainty, what the final outturn position would be. So I wrote to Scottish Government seeking authority to offset in that exceptional circumstance, and it is an exceptional circumstance, but it was more based on what we knew the forecast was going to be for the year. So based on the SPAs' forecast, you sought permission from the Scottish Government to make that offset. Mr Flanagan, there was a long-term financial strategy published this time last year. How satisfied are you with that? Well, again, it had to be at a very high level, and I think that's something that's noted in the Auditor General's report, because in the absence of an organisational strategy, you could only make very broad brush assumptions about it. Generally speaking, over a longer term period, I'm quite confident that the assumptions that were made in that piece of work are still valid, but we now have a basis for a much detailed calculation of that based on where we are today and with the evolution of 2026. The police were given money for police reform, and it sounds like that money was needed, because Mr Foley confirmed earlier that all the functions of Police Scotland have failed to come together. They're still operating, perhaps, quite separately. Why was that money for police reform spent on recurring revenue expenditure? Perhaps, convener, if I could respond to that. Some of the money associated with reform were groups of individuals who were working largely on projects that you may define them as. For example, I6 or modernisation of terms and conditions, etc. It's not unusual in those circumstances for people who have been extracted from their normal roles to be grouped together to deliver projects that we consider to be reform and that they would be challenged against reform funding. Or, indeed, capital expenditures is another option at times. Okay, so it was spent on what specifically? Well, there would have been, for example, groups of people within Police Scotland who would have been working on the I6 project, which, as you will be aware, failed. There would also have been groups of people who were working on the modernisation, perhaps better described as harmonisation of staff terms and conditions, a major project that is ongoing. Those posts, at that point in time, would have been funded out of reform because it was determined that that was reform activity. Okay, Mr Foley, you confirmed earlier that there were nine drafts of the audit. Why was that? Frankly, there were a large number of errors contained within those drafts that were handed over to Audit Scotland. Errors by the accountants? Errors by the accountants, yes. If the draft would have been clean, it's not uncommon to have more than one version because clearly you send things over and the auditor rightly when they're doing their job, they will identify things that might require change or amendment or such like, but you wouldn't, in my experience, expect to see nine. No, indeed. Mr Flanagan, I started off this morning's session by talking about this paper, the action plan, that went to your board on Friday, Friday before last. Can you confirm that the board was satisfied with this action plan? We thought that the action plan was appropriate and measured and considered. The issue for us is more to make sure that it's actually executed properly and I've charged the chair of the audit committee to oversee that process. David Page had major inputs to the action plan and he has the resources that will affect those changes under his responsibilities and John Foley would oversee that process as well. The plan itself is a good one, but it requires a lot of detailed follow-up to make sure that it's implemented. One of the problems that we've seen this morning is that so many of those problems seem in your evidence to date back, but those people are no longer in front of us and accountable, so there's no accountability there. Will you personally be accountable for the implementation of this plan? Ultimately, yes. Both myself and the chief constable are ultimately responsible for everything that happens within our own organisations. Mr Gormley, the police officers across the country, some of them will be aware of this session today, but all of them will be aware of the financial challenges facing Police Scotland. The deficit figure of £188 million was widely reported. Has that affected morale amongst your staff? Almost certainly it will have an impact. It'd be naive to suggest otherwise. I think what frustrates them in equal measure probably is, in some respects, the way that Police Scotland is portrayed because actually they're very proud of what they do and they do a very good job, and it's not nice to read less than complementary things about yourself or your organisation because they're very proud of what they join to do. I think they're also frustrated. I think it would be fair to clarify there, Mr Gormley, that none of this scrutiny is against on individual police officers or the job that they're doing. This is about the finances that underpin their jobs. No, I know, but the overall narrative around the institution of Police Scotland, so I think that inevitably affects how people feel. I'm not saying somebody doesn't justify it, I'm just saying it's the reality of where we are. The other piece is around the finances. What I think they would probably say is that the approach to addressing the financial plan thus far has resulted in some piecemeal tactical decision making to try and solve in-year problems. They are confronted with a range of decisions that frustrate them, and they don't have access to some of the equipment and technology and approaches that they know are out there and they want. What we're attempting to do with 2026 and this strategy and the implementation plans that will be developed behind that is provide a strategic level of coherence to how we approach that funding challenge because there are two, as I said earlier, two twin imperatives for us. One is we have got to bring this off organisation in within the financial money made available to us and have the capabilities and the technology and the infrastructure and the equipment to enable the officers to do their jobs. The approach that has been taken thus far on occasions hasn't actually recognised those two issues as connected. From a police staff perspective, I think there's a slightly different dynamic because over the two or three years, as a number of the members have mentioned, they've taken the bulk of the cuts, so a lot of the pressure has been in the corporate back office. All those staff are hugely committed to trying to do the best job they can, but they've had to work in an environment where their numbers have been depleted, they've been supplemented by police officers who are very willing but don't have the right skills. We've not delivered the technology capabilities. If you look at the business as usual things that we need to do, which is my number one priority before you get into transformation, we set the standards they know where and what the standards are, and they will try very, very hard to do it. My immediate job is to make sure that when they set out to do that, because no one sets out to fail, when they set out to do that, their ambition in doing it to the right level, they've got the right skills and experience. I think for me, one of my first jobs tasked by the chief constable is to ensure that when people are committing to operating to new standards, they do have the right skills and capabilities, and that's going to be a process that we're going to have to go through over a number of months to make sure that if I don't have, and this is more of an executive responsibility, I have to make sure that they've got the right skills and capabilities to do the jobs that they're aspiring to do. Thank you very much, Mr Page. I thank all four of you for your evidence this morning, and I suspend the committee for a two-minute comfort break. We welcome our second panel on the AGS report entitled the 2015-16 audit of the Scottish Police Authority. I'd like to welcome Paul Johnson, director general of learning and justice, Dawn McGillvery, deputy director of police division, Ann Thomson, head of police powers and finance unit, and Kerry Twyman, deputy director of finance program management, all from the Scottish Government. I now invite an opening statement from Paul Johnson. Thank you, convener, and I appreciate the opportunity to give evidence today on the Auditor General's report on the 15-16 accounts for the Scottish Police Authority. The Auditor General, in her conclusions, sets out that the Police Authority and Police Scotland have taken steps to improve financial leadership and governance, but these have not yet had a chance to have an impact, and I recognise this. We have already heard from SPA and Police Scotland about the action that they are taking to respond to the recommendations of the Auditor General. I expect to see clear progress on all the issues that are set out in their action plan. I and my colleagues in the Scottish Government will be working with the SPA and my expectation is that future reports from the Auditor General will point to significant and sustained improvements. Scottish Government is responsible for providing the policy and legislative framework for policing, and it is responsible for the financial envelope within which policing operates. However, the Scottish Police Authority and the Chief Constable are responsible for the detailed planning and delivery of policing. In terms of that policy and legislative framework for which Government has responsibility, the purpose of policing was set out clearly by the Parliament in 2012, namely to improve the safety and wellbeing of people, localities and communities in Scotland. In October 2016, the Scottish ministers updated a key part of the policy framework for policing with the publication of the new strategic police priorities. Those priorities focus on localism, inclusion, prevention, response, adaptability and collaboration, but importantly they also set out the need for transparency and accountability. This is so that public confidence in policing will be continuously improved. The policing 2026 consultation document sets out the way in which Police Scotland and the SPA will fulfil these important priorities in the years ahead and I welcome this. I also welcome the recognition recently from Derek Penman, the chief inspector of constabulary for Scotland, that overall policing performance remains strong and that the single service is better placed than the legacy forces it replaced to respond to future challenges. That is the policy framework. In terms of finance, the Scottish Government has and continues to make significant investment in policing. There is a commitment to protect the police revenue budget in real terms in every year of this Parliament delivering an additional £100 million of investment by 2021. As a result, the budget for the Scottish Police Authority sets out an increase to the resource budget of £19 million for 2017-18 on top of an increase of £17 million for 2016-17. The Scottish Government has also continued to provide reform funding in 2016-17 and 2017-18. The reform budget will allow Police Scotland to focus on the process of transforming the service, to reflect the changing nature of crime and society and to continue to meet the VAT costs that continue to be paid by Police Scotland, unlike every other territorial force in the UK. At stage 1 of the budget bill, the Cabinet Secretary for Finance and the Constitution announced a further £25 million of reform funding for 2017-18, taking the total for next year to £61 million. That will support the implementation of policing in 2026 and allow Police Scotland to deliver a police service capable of meeting changing demands of crime and society over the next 10 years. Those commitments from the Scottish Government provide the SPA and Police Scotland with greater certainty over their future direction and budget, enabling them to plan effectively for the future. Policing 2026 sets out a proposal for the future of policing and is subject to full consultation. Let me conclude by saying something very briefly about my role as director general for learning and justice and accountable officer for the learning and justice portfolio. I have a number of arrangements in place to support the discharge of my responsibilities. First, I meet regularly with the chair of the Scottish Police Authority. We agree and review his objectives. Governance, finance and organisational capability are regular items on our agenda. The importance of a clear and sustainable long-term financial strategy, along with robust annual financial planning, is well understood and has been taken forward under the leadership of both the chair and chief constable. I am supported in my responsibilities by the colleagues with me today and other colleagues in the safer communities directorate of the Scottish Government. Dawn is head of police division and is head of police powers in finance and Kerry is head of the finance programme management division in the finance directorate. Between us, we maintain very regular engagement with SPA and Police Scotland seeking to support their increased effectiveness. Those arrangements are underpinned by a governance and accountability framework that is publicly available and is kept under review. We will continue to work with and support the SPA and Police Scotland to reach a sustainable financial position and to ensure that the policing vision of sustained excellence in service and protection is delivered. I know that the committee will want to discuss specific issues raised in the Auditor General's report and we are happy to do so. Do you have confidence in the leadership and management ability of the Scottish Police Authority and Police Scotland? I recognise the fact that the Auditor General now in three reports has highlighted the need to strengthen the organisational capability of the Police Authority and Police Scotland. I have confidence in the steps that are being taken to do that, which have already been described to the committee by the previous witnesses. Do you have confidence in the people concerned? Yes. As I said in my opening statement, I work very regularly, as do my colleagues with those from whom you have heard this morning and with a range of other colleagues in the Police Authority and the SPA. I have confidence in the way in which they are undertaking the necessary steps that are needed to bring about the transformation. Given that we have had three years of lack of progress, it is hard to see where your confidence comes in here. I would answer that in a number of ways. First of all, it is absolutely crucial that we recognise the strong organisational and operational performance of policing in Scotland. That is a separate issue from what we are discussing at the moment. We have heard from those who have responsibility for leading policing. As I said, their performance in that regard is strong. I also recall appearing in front of the predecessor committee a year ago, where a significant number of issues were raised. I can point to the steps that have been taken to address many of those specific issues by the Police Authority and Police Scotland. That does not get away from the fact that I absolutely recognise that, again, the Auditor General has identified a range of very significant issues that must be addressed in order to ensure that confidence in the organisation of SPA and Police Scotland is maintained. The reality is that we are looking at three years of no substantial progress. We have just heard that there has been no substantial systems integration. There seems to be a bit of a tinkering around the side, but we are still looking at HR systems in the teens and trying to pull them together. We are talking about different accounting systems for the old legacy police areas that do not speak to each other. After three years, I find that incredible. I know that there is a lead-in time for doing these things, but there are no indications of detailed planning to cover this. There is nothing there. There have been a number of strategy documents to help to underpin the work that is coming in front of the committee, and they change every year. I absolutely recognise the challenges that exist and the time that it has taken to move from the stabilisation of the new organisation into that more transformational space. I think that the policing 2026 document sets out quite a clear and compelling long-term plan for transformation, and that is, as we know now, subject to. Why was that done two or three years ago? We seem to have wasted a whole load of time here that could have been spent productively making systems more efficient, yes, saving money, but making the delivery of support for police more efficient. I fully recognise that it has taken significant time to stabilise the organisation. I think that we will all recognise the scale of the reform that we have undertaken in recent years. I am sure that there will be lessons to be learned as we evaluate the success of that reform. Nonetheless, I hope that we can focus on the proposals that have now been set out, which I think should provide that long-term sustainability for the organisation. What point were you aware that there were difficulties and delays in integrating the back offices? I am clear that work has been undertaken to seek to ensure that operational, but a huge amount of work has been undertaken to try to ensure that the organisation functions effectively. I think that that is what we have seen happen over the past three years of policing. In terms of that real integration of the back office, I absolutely recognise, as we have heard this morning, that that is something that has taken time and it is something that must proceed at pace. It may be that my colleague Dawn, as head of police division, wishes to say something further about that. I think that the fundamental issue here, which I think came out very strongly with the previous panel, is the issue of financial leadership and capability. I think that what we have had is strong operational leadership from the police in the first three years. I think that it has become very clear over that period that the financial leadership has needed to be strengthened in order to deliver the kind of change and development on the financial side. We have seen some of those changes happen. We have had new interim chief financial officers appointed in Police Scotland and, for a period in SPA, we have seen a new deputy chief officer come in in Police Scotland. It became clear over that time that my view is that the real cause here is that financial leadership and capability. Most of the other issues are symptoms here of that fundamental. Certainly, in our engagement with Police Scotland and SPA over that period, there has been a very strong focus on what we are doing to improve that financial leadership and capability in order to improve the delivery of change on that corporate side of the organisation. Over the last 12 to 18 months, we have seen some fairly significant change on that side of the business. Not only have they got the people in place, they have now got the plan in place that they can execute to make that happen. We are talking about weak financial leadership and so on. Weak financial leadership does not explain why a management decision has not been taken before to integrate these back office systems. That is not about financial management, that is about leadership. That is about someone sitting the agenda and deciding that this is what should be done. The whole ethos for combining into Police Scotland was to gain these efficiencies in the back office. Now, we are hiring accountants to paper over gaps in the financial side. We do not know whether there are gaps in paper elsewhere, just because we have not gained these efficiencies yet. The efficiencies were not the whole objective of police reform. There were significant operational objectives in police reform in improving national capabilities and more effective national access to policing capabilities. I think that a lot has been achieved on that front. No one is arguing about the operational side. What we are looking at is the leadership that should be driving the efficiencies in the back offices, the human resources, the systems talking to each other, the eight systems and all that. We are agreeing with you that, in the first couple of years of reform, the leadership on that side of the business could have been stronger. What we have done over that period has become clearer is to work with the SPN Police Scotland to strengthen that side of the business. You have strengthened the financial side. What about the leadership? The financial side is only one piece of the back office. David Page's appointment is the key answer to your question. He is in a leadership position, and he is in a position equivalent to a deputy chief constable. He now has a much more senior person in the leadership team who is focused on the corporate side of the business and has skills from a range of organisations in his career, where he has created that kind of transformation and delivered that kind of change. I point to that as the key thing that has changed over that period. Leadership goes up and down the whole level. You can bring in the right person at the top, but unless you have the right people who are going to deliver, you are going to have difficulties. I absolutely agree. That is why I welcome the fact that, within the policing 2026 document, there is a specific focus on the development of that leadership at all levels. That is not what will happen without a real determined focus. I know that some work has been undertaken around the development of that greater leadership capability. I am also very clear from a Government point of view that we have sought to invest energy in the recruitment of very able and capable board members in order to provide that overarching scrutiny of the organisation, but I accept that that development of leadership capability is absolutely essential. Surely, there was some leadership within the eight police authorities before. Did that vanish overnight? No, I do not think that the work that has been achieved to date has required strong leadership. I think that we are dealing with a reform that has been very complex. I think that we need to recognise the challenges but also put them in their overall context. I have to confess that I am not yet convinced on this leadership side, but I will leave it at that just now. I would like to return to the issues around governance and transparency, which we covered in the earlier session. The Auditor General's report emphasises the importance of strengthening in Scottish Police authorities governance arrangements. Mr Johnson, you have explained that you are in very regular contact with the SPA, so you see up close how they do their business. What is your opinion of the Scottish Police Authority's record on governance and transparency? We have, as you identify, sought to provide support to the police authority as they work through their approach to governance and seek to become increasingly effective in it. As you heard from Mr Flanagan, he completed a governance review last year and that is now being implemented. I think that we see that many aspects of that governance review are already having a positive impact. Much of that, I think that there were 30 recommendations, a number of them focus on really strengthening the localism within the organisations and that is progressing well. In terms of the way in which the board itself operates, it is absolutely clear from the governance review that there is an attempt to ensure that the board itself meets more frequently—at least eight times a year—and does so in public. However, I recognise that there are still issues that need to be worked on by the police authority. It is very important that papers are available so that the public can be looking at the papers at the same time as a meeting is taking place. I am aware of some of the changes that have been made to committee arrangements and I think that they need careful examination. There are two things that I would point to. One is the fact that the chair is committed to reviewing the effectiveness of the governance arrangements later this year. The other is that Her Majesty's inspector of constabulary for Scotland, Derek Penman, has said that he will be scrutinising those governance arrangements in the course of the year. I think that that is welcome in order to ensure that we can all have confidence that the governance arrangements represent best practice. I think that we can all agree the shift to holding meetings in public is welcome, but it is only in the last few weeks—I know that you were sitting at the back during the last session—that a board member has resigned. A very experienced board member, who I believe has served on other public boards in Scotland, sounds from the chair in his own words. He is a man who likes to be in control, a man who does not like surprises. We want people when board vacancies arise to feel that their integrity will be valued and that their skills will be recognised and that they do not want to be stifled in any way. Given what we have just heard this morning and given the media interests and the public concern around Moai Alley's resignation, are you comfortable with the approach and message that the chair really wants to know what people think in advance so that there will not be any dissent when the very important board meetings take place? Those are matters that will be discussed further between the Scottish Government and the police authority in the coming days. Do you have concerns? We want to take seriously the concerns that have been raised by Moai Alley and ensure that they are fully and carefully considered. The on-board guidance, which applies to all public bodies in Scotland, makes it clear that board members should have the ability to express their views clearly and to express their dissent. What I heard from the chair is not his objection to that dissent being expressed but his desire to have some knowledge in advance of the likely position that board members would be setting out at a meeting. As I say, that is something that requires further discussion between the Scottish Government and the SPA. I recognise that there may be some timing issues around communication, but on communication we have learned that just last Friday there seemed to be another blunder in terms of the public papers being made available and they were only posted online 15 minutes before the meeting took place. Mr Flanagan said that it is useful for the public to read the papers while listening to the meeting, but we all recognise that that is not really how the public might want to choose to get the information. Are we going to see a recognition that the information should be available in a way that the public can choose to use that best fits with their daily life and how the media can go about the legitimate interest of holding public bodies to account? That is another matter that needs to be considered carefully as we look to review the arrangements that have just recently been put in place and I will ensure that that takes place. Mr Johnson, when did you come into post that your current post— I have been in my current post since June 2015. How long was your predecessor in post prior to then? My predecessor—sorry, I do not have the exact length—I think four years or so. Murdoch Llywydd, you stress and you don't need to be remarked about the close collaboration that you have got with your colleagues in the Scottish Police Authority in Police Scotland now regularly you meet and communicate. It may sound like a simple question, but given the financial state that we have just now, did nobody see this coming? Why not? We are absolutely aware of the fact that Police Scotland and the Police Authority need to grapple with the financial pressures that they, in common with all public service organisations, have been dealing with in recent years. We have indeed been seeking to support this SPA and Police Scotland in so doing. Indeed, it has been through that collaboration and close working in recent years that we have ensured that the policing budgets year on year have come in at the end of the year broadly on budget within a variance of less than 1 per cent each year. I am just trying to understand that I even know from my experience in council as you project and you look to the future that usually there is a clear dashboard and things will flash up red and you know that there is something to be addressed. I am just trying to find out how we got to the situation that we are in now without anything ever being flagged up earlier. Was that ever even flagged up to the minister earlier? No, I would not wish to suggest for a moment that we are not aware of the financial challenges that the Police Authority and Police Scotland have been grappling with. We are very much aware of the pressures that the police are facing and they have described some of the increased ways in which there is demand for their services and that is exactly why there has been that close engagement between Government Police Authority and Police Scotland as we have sought to ensure that they have adequate resources to fulfil all of their responsibilities while also seeking to ensure that there is value for money for the taxpayer. On that, on resources, the 2026 Serving a Changing Scotland document and it is also highlighted by Mr Flanagan in answer to questions. Within that it states that the workforce numbers will be protected in 2017-18 but there is no such commitment in place for future years. Mr Gormley again said this morning that we will have about 300 fewer officers by 2020 and I think that we need an urgent assurance to this committee and to this Parliament from the Scottish Government that any changes in made to Police Scotland's approach will not put public safety at risk. I think that that is absolutely recognised. If I could say just one or two things about that, firstly it is important to emphasise that this is a consultation document and the Government has made clear that it expects the full consultation to proceed and has also made clear that Parliament will be informed before any changes are made around the officer workforce numbers. One last question that is okay, convener. Would you not agree that if the Scottish Government does not sort out this mess, then as I asked earlier to the SPA, then it will heavily impede the work that Police Scotland is doing when it comes to keeping people safe? The Scottish Government will continue to work closely with the Police Authority and Police Scotland to ensure that there is a sustainable budget for policing, because it is absolutely essential that effective police services continue to be delivered in the future, as has been the case previously and as is present. Thank you, Liam Kerr. Thank you, convener. In the interest of time, just a very quick one. We heard from Mr Flanagan this morning that the challenges of the merger were underestimated, that it has taken longer than planned. Mr Johnson, you raised the VAT issue. The Scottish Government was clearly warned about the consequences of merging in relation to that. There was no integrated system. We heard in response to Mr Beattie's question there are 17 or 18 payrolls running. There is no significant back-it-office integration. This is an extraordinary lack of planning and project management. Who is responsible and who has been held to account for it? We are already doing work to ensure that there is a full evaluation of police and fire reform. Those have been described by the Auditor General as among the biggest reforms of the public service that have taken place since devolution. I would not accept any characterisation of them as having failed in any way. I am not suggesting that is the word that you have used. I absolutely would accept that we need to ensure that we take the time to learn lessons that will be fed into both the way in which policing and fire services operate in future and lessons that will apply to other areas of public service reform and transformation in future. There is a review going on that will identify where the ball was dropped and by whom, leading to the situation that we are in. Is that correct? There is a full evaluation of police and fire reform. That is looking at the original aims of police and fire reform, which were set out and agreed by Parliament. There is an independent exercise being carried out to evaluate the success of that and to ensure that lessons are learned for the future. When will that report? I do not have the timetable to hand. I will see whether my colleague Don has something on that. If not, we can certainly follow up with further information to the committee. I would need to check the exact dates on that and we can let you know. I will be very grateful. I am just going to ask the same question that I asked before. The 10-year strategy is being put in place now. Why was not it put in place in 2013? A strategy was put in place to take us from the years 2013 to 2016, which was focusing largely on that phase of bringing those organisations together and ensuring that there was organisational stability and that effective policing services continued to be delivered. That was the focus of that initial time. What we are seeing now is the long-term transformational plan, now that that stability has been achieved. Would you say that that strategy for the three years up until now has been a success? I would say that that strategy has certainly been a success in terms of the delivery of effective organisational policing. We can point to a great deal of evidence. I have already referred to the chief inspector of constabulary's views on organisational policing. I know that the committee's focus is on the finances, and we have recognised and we absolutely continue to recognise the challenges that have existed in terms of overall financial leadership and the importance of strong effective governance and accountability, and those are challenges that we continue to address. Thank you. Mr Johnson, you heard me ask the previous panel about offsetting the budget, revenue and capital. I think we eventually got to the point where the SPA said that they had sought permission from you. How comfortable were you with that? I will hand over to Kerry in just a moment who has responsibility for financing in the Scottish Government, but I would be clear, as I think you did here, that that was a request that came to us from the SPA as they sought to balance their different budget lines and ensure that, at the end of the year, they were coming in as close as possible to a balanced budget. I would be clear that the permission that we granted was something that is not something that we would expect to see happening year on year, but this is an area that Kerry's expertise in. She may wish to see more. As Paul has outlined, we monitor the financial situation closely, month on month, via returns that come in and discussions with the financial team. Once we became aware of the situation, as Mr Foley has described, and the request to potentially offset this, we looked at the wider Scottish Government position at our allocation proposals to make sure that we could incorporate that without further damaging or putting any pressure on the wider position. Once we decided that we could take this on board, this offset, we agreed to it via amendment to the budget allocation and monitoring letter and continued to monitor the position very, very closely. As we said, this is a reasonably one-off offset. We do look at the wider position. We are constantly managing budgets, but we would not expect it to become a precedent across the SG, reasonably one-off. If the same request was to be lodged with the Scottish Government next year, you would refuse it? No. We actually have had a similar request for 1617 and an amount was transferred at the spring budget review. In light of the fact that we decided to approve it on the same basis that we looked at the wider position, we were able to incorporate it, and we looked at the wider work around the 2026, and we were content that this would not be something that continued once the wider budget position was brought into balance. You have already had a request for the next financial year. How comfortable are you, Mr Johnson, with the consistent underspend and capital to offset revenue? Is that good for the police? It is not what we want to see on an on-going basis. It is very important that the reform money that has been made available for next year is utilised on transformational reform activity. Within Government, we are putting in place the processes that will seek to support the Scottish Police Authority. How much money do they have for reform next year? The total budget for this coming year is £61 million, but we need to recognise the chunk of VAT that has to be taken off from the 61. The balance of that will be available for reform activity. You would not expect it to be spent on revenue again? No, our clear expectation, and I know the expectation of Police Scotland, with whom we would discuss this, is that the available reform funding for the next financial year will be spent in order to ensure that the plan set out in policing 2026 can be delivered with the benefit of that investment. The reform budget contains both capital and revenue. That is set out by the Scottish Government, but the revenue part of it will be clearly focused on delivering change and the transformational change. There is a revenue component of the reform budget that pays for people who are doing real work to deliver change. We want it to be focused on that. It is not that it is all capital, but there is a revenue component of it. Mr Johnson, one, two and three years hence, will we still have 17,234 police officers in Scotland? Well, policing 2026 sets out a proposal from the chief constable and the SPA around the optimisation of the workforce mix in Police Scotland in order to respond to changing demands on the workforce. It makes clear that, this year and next year, there would be no reduction in officer numbers. I think that we have also heard that any subsequent reduction would be contingent on some of the efficiencies that have been described actually being in place. That is Police Scotland's proposal. It needs to be subject to the full 10-week consultation. In terms of what the Scottish Government's position will be at the end of this, that is something that ministers have made clear that they will set out to this Parliament in advance of any changes taking place. This year and next year, the Scottish Government can guarantee 17,234, but the year after that is not so certain. The proposal from the Scottish Police Authority and Police Scotland would, as I understand it, involve some changes being made the year after next. Does that mean less police officers? It means changes in the overall workforce mix, which could mean a small reduction in the numbers of officers, and it is possible to have that increased capacity of officers on front-line policing responsibility. It is important to put it in that context. Whether that takes place, as I say, is something that requires us to await the outcome of the consultation. The Scottish Government, for all the time that I have been in this Parliament, has used that 17,234 figure as quite a tectonic figure that they were not prepared to compromise on. What you are saying is that, after the next couple of years, we are very likely to see a reduction in the amount of police officers in Scotland. I think that what Parliament has heard has been a recognition on the part of ministers that it is important that, for the long term, Police Scotland has the correct mix of officers and staff in order to protect the people of Scotland and address future demands. However, in terms of specific numbers, I cannot make any definitive statements about them today. You will appreciate that that must await the outcome of the consultation and decisions by ministers as to what they see as acceptable for the future. The terms that you are putting in the language that you are using around skill mix, I understand, but it is often a sophisticated way of saying that there will be less police officers. Finally, if the current financial situation were not as it were now, looking at this 188 deficit, would ministers be even considering looking at the skill mix and the reduction in police officers? Ministers have made clear the fact that they want Police Scotland to have a very clear long-term strategy for the delivery of excellent policing in Scotland. I understand that. Any minister would expect an excellent strategy, I understand that. You have confirmed for me that the Scottish Government and the Scottish ministers will consider a reduction in policing numbers after the next couple of years. Is that due to the financial situation that Police Scotland finds itself in? I want to be very clear. I have said that I cannot now state what Scottish ministers will agree to. They have made clear that this Parliament will be informed on the outcome of the consultation as to whether there will be changes in the workforce mix. I really want to emphasize that. You cannot second-guess ministers, but you have confirmed that this will be on the table. All this will be considered, although you cannot second-guess their decision. I am asking you whether consideration is being made because of the current financial situation. Ultimately, I do not think that it is, because what I think we see as I look at the policing 2026 strategy is a case being made around the changing types of demand that Police Scotland are subject to. Of course there are financial pressures that are in the mix, but as I read the document I see, as we have heard from the chief constable, the fact that the demand that exists requires a varied type of response and requires to be met by members or staff who are not officers. I think that we need to ensure that Police Scotland can work on that strategy in consultation with the people of Scotland. At that point, we can come back to this Parliament with the conclusions of ministers on that. I thank all four of you very much indeed for your evidence this morning. I now move the committee into private session.