Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, June 25, 2020

Official Report 585KB pdf

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Audit Scotland (Impact of Covid-19)

Item 2 is consideration of the impact of Covid-19 on Audit Scotland’s work. I welcome to the meeting Caroline Gardner, the Auditor General for Scotland.

Auditor General, we heard from you in both March and May on the impact of Covid-19 on your work and that of Audit Scotland. As I mentioned on those occasions, your work is intrinsically linked to that of this committee, so it is helpful for us to receive an update on how Audit Scotland’s work is being reshaped due to the current exceptional circumstances and what that means for the committee’s work programme. I invite you to make an opening statement.

Things have moved on since we last discussed the impact of Covid-19 on our work. The Scottish ministers have extended the audit timescales for national health service bodies by three months to 30 September and for local government by two months to 30 November. The deadlines for laying central Government and college accounts in the Parliament are unchanged, but audit reporting on central Government bodies is likely to be later than in previous years.

The format and content of annual reports and accounts have not changed, including for governance statements, but audited bodies have the option to streamline their performance reporting and management commentaries. We are working closely with audited bodies to complete audit work in line with the new timetables, but at this stage we cannot guarantee that we will be able to meet all audit deadlines this year. The work is taking longer, there will be some difficult audit judgments to make and we will continue to prioritise audit quality and the health of our colleagues.

Meanwhile, we will carry out a substantial programme of work to respond to the pandemic, including an early review of the Scottish Government’s financial response, which we hope to publish in July, and overviews of the NHS and local government responses planned for early 2021. There is more detail in the briefing paper published on Audit Scotland’s website to coincide with this meeting, setting out the range of issues that we are looking at.

As we start to emerge from the pandemic, we are committed to playing our part in recovery and renewal by providing transparency, supporting parliamentary scrutiny and sharing good practice and innovation. Our work is likely to cover how public services are adapting in response to Covid-19, financial sustainability and the impact of increased costs and reduced income on the economic and fiscal consequences of the pandemic

Convener, as always, I am happy to answer the committee’s questions and we are also keen to hear your views. Thank you.

Good morning, Auditor General. In the document that you published in May on how Covid would affect public audit in Scotland, you set out a phased approach to your audit work to help Parliament and the public understand how public money is being used throughout the crisis. What phase have we reached in that? What are the next steps?

It is clear that we are now through the immediate emergency response to the pandemic and seeing a range of United Kingdom and Scottish Government programmes in place to support the economy and individual people and families across Scotland. It is also clear that we are now starting to ease out of lockdown, with the economy beginning to return to something that is more like normal, and that there are different views from forecasters and others about how quickly that might happen and how much long-term change there will be, so we are keeping a close eye on all that.

We are trying to keep in close touch with the Government and other bodies that we audit to make sure that we understand the responses that they are making, the challenges that they are facing and the need for them to have good governance in place as they work in unprecedented ways and at an unprecedented speed. As I said, we are now focusing on getting the audits of all those bodies—from the Scottish Government through to NHS bodies and councils—complete in line with the revised timetables. That will provide a lot of assurance. We have reshaped and reprioritised our planned performance audit work to make sure that we respond to what Parliament and the committee will need in order to carry out their responsibilities. None of us yet knows what the full effect of the pandemic or its effect on the public finances will be, but we are confident that we have positioned ourselves to be able to provide you with evidence and assurance about that, as we move into the next stage.

Over the past few years, this committee has looked at a great many of your very good reports which, a lot of the time, have suggested that some of the many things that the Scottish Government has promised are not capable of being delivered. Following the crisis, I suspect that a common refrain will be, “Look, we could have delivered those things, if only coronavirus hadn’t happened.” Will your auditors stress test that assertion whenever it is made?

I can say with confidence that we will do so. The committee will recall that the past two times I have given evidence to you, it has been on reports where that has been the case. I reported on affordable housing and on early learning and childcare. In both cases, I said that there were risks that the Government commitments would not be met in the expected timescales, and the pandemic made it clear that that would not happen. In the case of early learning and childcare, the Government has laid regulations to remove the statutory requirement for councils to offer 1,140 hours of early learning and childcare to eligible children.

As we reshape the work programme, part of what we are doing is to make sure that we come back at an appropriate point to look at what progress has been made, take stock of the impact of the pandemic and look at the way in which the Government is able to demonstrate the value for money that it is providing but also the way in which its planned outcomes under the national performance framework are being improved. That is a key part of our role in supporting your committee to do its work.

I have a final question in this section. The strength of the UK has resulted in around £3.8 billion coming to Scotland to directly address the coronavirus emergency. Will your team audit and report on exactly where that money has gone and where it has been spent, so that the public can see that it has gone directly to address the crisis and not to fill budget gaps elsewhere?

That is very much the point of the piece of work on the Scottish Government’s overall financial response that we plan to publish in July. As you said, a lot of money has come in as Barnett consequentials to address the effects of the pandemic. For good reasons, that money is being spent quickly; it is being passed out to businesses, delivered in the form of non-domestic rates relief and in a range of other ways. It is important that that money has the intended impact and that it does so quickly. Equally, it is important that this committee and people across Scotland can be assured that it is being spent properly, that the right safeguards are in place and that we can demonstrate what we have got for it. The piece of work that my colleagues plan to publish in July is intended to give you that overall picture, to highlight the specific risks and to identify areas where we think more detailed work might be needed in future.

I am very grateful.

Good morning, Auditor General. I begin by asking you specifically about the business support measures. I have not heard anything concrete, but I have heard anecdotal stuff about the legitimacy of some of the claims that have been approved. I am not criticising anybody, because the whole point was to turn those applications around quickly to stop companies going bust. Will you be looking into specific cases and doing a sample of the turnaround funds, for example, to check for any large-scale, systematic fraud? I am not suggesting that there is any; I am just saying that, if nothing else, it would reassure people that the money was spent wisely and legitimately.

In principle, absolutely—yes. As you say, it is important that the money gets out quickly to the people it is intended to help so that we can protect jobs, livelihoods and businesses for the future. That is what it is intended to do.

We all know—as auditors, we have seen this in a number of cases in the past—that, when a large amount of funding is available, particularly when it is available quickly, there is a risk that people will make fraudulent claims or that mistakes will be made, so we are mapping what each of those funding streams is, what the controls around them look like, whether they look robust enough, and what checks and balances are in place.

We will be reporting on that piece of work by the end of July, I hope. That might reveal some cases where we think that there are particular risks that need a much closer look. In those instances, we have auditors in the Government and in public bodies around Scotland who can go out and do exactly that sort of testing to make sure that the money is being spent properly and that proper records are kept.

It is probably also worth saying that we welcome hearing from people if they have concerns about particular instances, as it can indicate to us that there are problems that we should be alert to and may need to do some work on.

Not just providing business support money but all aspects of dealing financially with the pandemic have had to be done at speed. In many cases, we have been inventing new schemes, such as the furlough scheme and the business support schemes. As part of what you will eventually do once the pandemic is over, will you be producing guidelines or a framework for use in any future national crisis, such as another pandemic? Clearly, one of the lessons that we should all learn from this is that we have to be far better prepared right across the board the next time.

My understanding is that it is still the case that the number 1 item on the UK risk register is the threat of a pandemic. If that is the top risk, what about the third or the fourth risk, for example? Are we as well prepared for those as we were for the pandemic? As part of the exercise on learning lessons, which we all have to do, will you be giving some guidance on what lessons need to be learned?

You are absolutely right—the purpose of any risk register and any risk management process is to make sure not only that you know what the risk is but that you have good plans in place. Our objective throughout this is not only to provide the committee with the information that it needs to hold people to account for how money is being spent and services are being provided just now but to learn lessons and get good practice out there. Alongside the formal reporting that we do, it is likely that we will be doing much more in the way of using briefings, real-time reporting and round-table discussions—even things such as blog posts—to get information out quickly and to make sure that those lessons are learned as we come out of this phase of the pandemic and certainly so that they are built into any future plans.

We are looking to do that in a range of ways. For example, one of the things that my colleagues are putting together at the moment is guidance for audit committees so that they know what questions to ask about the controls in their organisations and about what procurement should look like in an emergency. How do you make sure that you are buying the personal protective equipment that you need, for example, as a matter of urgency, while making sure that you are safeguarding public money in doing that?

There will be lessons to learn and we can play a big part in helping to share those and to make sure that they are baked in for the future.

I think that we might have lost the connection with Mr Neil. We will move on to a question from Bill Bowman.

I want to return to an aspect of how you are doing your work, Auditor General. Previously, we asked you about the ability of the auditors to carry out their work remotely and, at that point, you said that Audit Scotland was still working its way through how that might be managed. Will you give us an update on that?

11:15  

I am happy to do so. We have been pleasantly surprised by how much our audit teams have been able to do remotely, which applies both to my colleagues in Audit Scotland and to those in firms that we appoint to do audits around Scotland. Most of us have been able to move all our work online practically overnight. I was able to give you the assurance back in March that Audit Scotland could work remotely and that has continued to be the case.

Under revised timescales, a lot of audit work is now well under way in line with the plans for audited bodies. We expect at least three audits—those of Skills Development Scotland, NHS Orkney and NHS Western Isles—to be signed off this week. Those are the early ones, but others are in the pipeline and expected to come through.

It is fair to say that there is more variation among the audited bodies in the extent to which they have found it possible to work remotely and provide the information, explanations and records that auditors need to do their work, but, so far, we have been pleasantly surprised by how well we have been able to take the work online. I am grateful to all my colleagues for the efforts that they have put in to do that.

I should caveat that by saying that we know that there will be some bodies that will struggle and that there will be some difficult audit judgments, particularly around things such as valuation and verification of physical assets, in which we have not yet been tested. However, it is a case of so far, so good.

The challenge is that it was not possible to do some of the interim work that would normally have been done in March and April, so we have a slight snowplough effect, with things moving out towards later deadlines. We are managing that in real time, trying to stay agile and flexible and to prioritise in ways that keep the flow of work as steady as it can be, while protecting our colleagues’ health.

I know that external confirmations are an important part of audit work that is not directly linked to how the audited bodies do their work. Are you having any difficulty with banks or other organisations giving you direct confirmations?

So far, we have not had difficulties and we have been able to get such confirmations from banks and financial institutions as required. The challenges have been more around things such as stock verifications—as you know, there are often physical inspections of significant stocks or stocks that are subject to particular valuation judgments. There have been innovative approaches with people taking iPads or iPhones around with them and streaming video to allow auditors to satisfy themselves that assets are there. People are learning as they go and being innovative, but that is not to say that there will not be stumbling blocks that we cannot overcome remotely and which might lead to delays, depending on where we are in easing out of the lockdown at that point.

You mentioned how certain bodies are able to cope with this. In that regard, is there a difference between the types of body—for example, between public bodies that are particularly connected to people, as opposed to those that provide a more general service? Is there a pattern?

I do not think that we have seen a pattern of that sort. It is much more about how well advanced they were in using digital technology as part of remote working and, in particular, in moving their digital services into the cloud. That is what has made our services much more robust and resilient than they would have been a couple of years ago. It has also enabled people to readily hold online meetings and to have access to all the records, transactions and back-up documents that they need to satisfy auditors. Bodies that have invested in that have been able to move online smoothly, while others are finding it more difficult. Some finance departments have a significant number of staff on site, which is a challenge and concern in its own right.

Do you anticipate any serious qualifications in or modifications to your audit reports?

I am not aware of any at this stage. We know that that is a theoretical risk that we have to plan for. I suspect that the risk is more about limitation of scope. If we were not able to get the information to verify the audit judgments that we need to make, we would need to limit the scope of the audit opinion that we were making on annual reports and accounts. However, at this stage, it is a risk that we are aware of, rather than one that we are having to actively manage.

Good morning, Auditor General. In March and May, we discussed with you the performance audit reports that you were planning to publish, and what might happen to them. Will you update the committee on the approach that you are taking, and the discussions that you have had with the relevant public bodies?

Certainly. The team has stepped back and looked at what is already in the performance audit programme, and made a judgment for a proposal to the Accounts Commission and the new Auditor General about the priority that should be given to those things.

For example, it is clear that the educational outcomes audit, which was on the stocks and which we would normally be working on in March, will, as we come out of the pandemic, be just as relevant as before—if not more so. The team is engaging with colleagues in the Scottish Government about what the right questions are to ask now and what actions the Government is taking, and therefore what role audit can usefully play. We will pick that up again, so that the work continues through 2021 and can provide a picture of the progress that the Government was making on increasing educational outcomes and reducing the attainment gap, and how that has been affected by the pandemic.

In other instances, we are looking at new pieces of work that have become much more important because of the pandemic, including the economic interventions that the Government expects to make, which we have heard a lot about this week in the report of the advisory group on economic recovery. It is likely that we will plan some work to look at the way in which those decisions are made, and at the trade-offs between investing in different types of company and the Government’s aspirations for renewing the economy in the longer term.

Some pieces of work will simply need a bit of refreshing and relaunching, some will be new pieces of work that come into the programme, and some will drop out, because they simply do not seem that important after what we have been through in the past three months.

Just out of interest, have any public bodies said to you, “We are so busy at the moment—give us a bit of space. We cannot commit resources to supporting an audit at this time.”?

The expectation that they might do that was very much why we paused the performance audit programme in March, when we all went home. We absolutely recognised that audit was unlikely to be anybody’s number 1 priority at that stage, so we pulled out of that planned work and took the time to review the programme. Since then, as I said in response to Mr Bowman’s question, we have been surprised at how ready and able people are to engage with us on all the audit work, and we appreciate that very much.

However, we are still working through some things. For example, on the piece of work that I mentioned for July, on the Government’s financial response, we need to make sure that the Government is willing to commit the time to clear the report’s factual content in the normal way, and that the timescales that we have in place are appropriate to providing assurance to Parliament, during the slightly odd recess that you will have this year, while not placing unreasonable demands on our colleagues in the Scottish Government and other public bodies.

I think that things will continue to flex over time, but we are clear that accountability and good governance are more important than ever, and we therefore expect the Government and other public bodies to engage with us when that is appropriate.

We also discussed Audit Scotland’s work programme more generally and how it might change as a consequence of Covid-19. Will you update the committee on what stage you have reached on that, and what discussions you have had with Audit Scotland staff and your successor on the approach that might be appropriate to the planning of reports in the longer term?

I am sorry; I missed the beginning of that question. Would you mind repeating it?

Of course. We discussed Audit Scotland’s work programme more generally and how it might change as a consequence of Covid-19. I was asking you to update the committee on what stage you had reached on that. Did you get the rest of the question?

I did, thank you very much.

As you know, the work programme is formally agreed by the Auditor General and the Accounts Commission, to make sure that it is a joined-up piece of work that covers all public spending and all public services. At the moment, the intention is that a revised programme will be approved in September by the commission and by my successor Stephen Boyle. However, we are not holding off until then from doing work on the response to the pandemic.

The work that is going on at the moment is very much about monitoring what is happening in Government and in other public bodies and ensuring that we are sighted on the risks and the value that audit can add. We are also working on producing almost real-time outputs, such as what we plan to produce in July on the financial response, questions for audit committees and red flags on procurement. September will be the milestone for formally agreeing the programme. Obviously, that ties into Audit Scotland’s budget cycle for 2021-22.

The committee is concerned to know that proper follow-up work on the section 22 reports that we have received will be prioritised, particularly given that the response to Covid-19 is putting financial and manpower pressures on public services. Will Audit Scotland be focusing on those weak points in its programme?

Very much so. Section 22 reports are the main vehicle by which I, as Auditor General, and my successor can report to Parliament and to the committee on matters of public interest that come out of the annual audit work. In my opening remarks, I said that the deadline for laying reports in Parliament on central Government bodies has not changed; it is the end of December. NHS audits are due to be completed by 30 September. We will do our best to hit those deadlines. If anything slips, it will be the timing, not the content. If there are issues that we think need to come to Parliament, we will ensure that they are fully reported in the usual way and that the committee is fully supported to explore them.

The overview reports on the NHS and colleges provide an opportunity to step back and look at common themes that are coming through, and the commitment to an annual section 22 report on the Scottish Government’s consolidated accounts remains in place, so you will receive all those reports.

You mentioned procurement. Will you be looking at our procurement structures as part of the work in the next phase? There has been a lot of procurement throughout the crisis—PPE is a prime example. Will there be a specific look at procurement practices and at any lessons that we can learn for the future?

That is certainly one of the risks that auditors will look at in their audits of 2020-21. Most of that procurement will have happened in the current financial year. Auditors are alive to the risks of making large purchases at short order from, in many cases, new suppliers.

In general terms, we will report if there is something useful to report to the committee—either lessons learned or problems that have been uncovered. We are all conscious of the risks relating to procurement as we go through this emergency period and, indeed, as we move into the next stage and think about what is required for public services that are starting to adapt and renew themselves in the future. That will be a big area of focus for auditors.

Will there be a specific piece of work on the procurement of PPE and so on?

I do not want to commit my successor, Stephen Boyle, to that at this stage. However, I absolutely give the assurance that, as we map out where we can best use the audit resources that are available and prioritise between them, procurement is right up there as an area that we are conscious of. It might well be picked up as part of the overview reporting on the Scottish Government and, in particular, the NHS that always comes out of the year’s audited accounts.

The biggest failure during the crisis has been in the care sector—specifically, in care homes. There have been issues with patients being discharged without testing and care homes being unprepared. What can Audit Scotland do to shine a light on the significant failures that there have been in the care sector during the Covid-19 crisis?

I can give you assurance on two things. The first is that the NHS overview, which we produce annually and which looks at the health and care system, will be expanded to look at the effects of the pandemic and the way in which the NHS and social care responded to it. The questions that you raise will certainly be part of that. We are planning to push back the timing a little bit to allow more time for the NHS audits to be completed and for work on those wider questions to be picked up.

Before we went into the pandemic, a significant piece of work on social care was just getting under way, which is another one of the audits—such as the one on educational outcomes—that has really gone up the priority order, given everything that we have seen over the past few months.

There are important questions about how we ensure that the social care system is fit for purpose and much better linked into the NHS, and that the integration authorities are able to do their work of ensuring that services are designed around people and their needs rather than expecting people to fit in with services that operate in separate silos. Two big pieces of work are under way that will help to shine some light on the really important questions that you have raised.

11:30  

Good morning, Auditor General. My colleague Liam Kerr asked a question about borrowing and the strength of the UK, which was a bit of a rascal question. I wanted to make the point that any money that comes to Scotland is, of course, Scottish taxpayers’ money coming back to where it should be, but that is a political point that I would not expect you to respond to.

Who audits the process in which the UK Government—or any Government—borrows those amounts of money from additional markets, and who casts an eye over that process to ensure that Scotland gets its fair share of the moneys that have been borrowed on its behalf?

Mr Coffey knows that I take great care not to get involved in the political questions, because of the value of our being independent and non-partisan. I am responsible for auditing the money that either comes to the Scottish Government as funding from the UK Government or is raised directly here in taxation of various forms.

My colleague the Comptroller and Auditor General and the National Audit Office play the same role at the UK level. As the committee knows, we have worked closely together as the lines that set out the devolution settlement have gotten more blurred over the past five years or so since the Scottish Parliament’s financial powers were raised significantly.

We aim to set out the Scottish Government’s overall financial picture as clearly as we can and we might talk about that later this morning. The NAO does the same for the UK’s whole-of-Government accounts, and that picture is there. We have been working together and we have been talking to this committee, the Finance and Constitution Committee and the UK Parliament about the need for more clarity around parts of the fiscal framework, such as the way in which Barnett consequentials flow through, and which increases in funding are subject to Barnett consequentials and which are not. The confusion that we have seen about that over the past few weeks does not help the Government to plan and it does not build confidence that the system works well. I certainly am in favour of more transparency at the intergovernmental level about how that is working.

Are you seeing that Governments across the world are, in essence, borrowing their way out of this crisis? That money clearly has to be paid back in some form or another over time. When a pandemic or a health emergency occurs anywhere, is the only solution in our hands to borrow our way out of it?

As you say, it is a global pandemic that has hit countries across the world with specific effects that none of us could have predicted. We have seen Governments respond in ways that are quite unprecedented, from the amount of support that they have provided to businesses, families and individuals to the way that public services have pivoted to meet critical needs, particularly in health and social care. The only way to fund that in the short term is to borrow, and Governments are in a very privileged position to do that.

The crisis has shown the value of government, which has maybe come under pressure over the past 20 years as market solutions have become more popular and prominent. The crisis has reminded us all that there are some things that only Governments can do. We will have to turn attention in due course to how that borrowing is repaid. As you said, most of the borrowing at the moment is UK borrowing, simply because that is where the power to borrow sits—the Scottish Government does not have power to borrow on that scale at all.

The UK Government will have to make choices about whether it wants to return to austerity, raise taxes or accept that having a high level of Government debt is not the worst way forward in some circumstances. I have said elsewhere that, in my personal view, cutting public services and public spending at this point would have the very unfortunate effect of adding to the economic shock that all this is causing. However, those really are political questions and there are people in better-suited positions than me to make those decisions. We need to be very clear about the longer-term impact and the choices that are involved about raising taxes and spending on public services, so that we can have a democratic debate about that.

My final question is about Audit Scotland’s work over the coming years. We are all talking about new ways of working, and many more people are able to work from home, which is providing some benefits. If a continuing number of people work from home, how will that impact on Audit Scotland’s ability to audit processes? Will you be able to adapt and modify your programme to take that into account?

We are in the middle of doing that. As I said, we have surprised ourselves by how much audit work we are able to do this year remotely, both because our staff are working remotely and because the bodies that we audit are doing so. We will take some positive things from this experience. We already build a lot of flexibility into the ways that our colleagues can work, and this situation has shown that we can take that to a whole new level. Equally, there are some people who value being able to come to the office some of the time, and we know that colleagues need to spend time together. Part of the value of work is that informal cross-fertilisation and the pleasure of being together with colleagues.

We are learning as we go and the bodies that we audit are learning, and it probably goes without saying that those sorts of shifts are likely to lead to changes in the patterns of expenditure that we audit. In the future, there might well be less demand for office buildings and more demand for technology, and there might be changes to the sorts of internal controls and safeguards that we need to make sure that public money is being spent well and that records and accounts are being kept properly. We are learning fast. As always, with these very difficult situations there are opportunities as well as real losses.

Are those positive changes here to stay, or will we revert back to the old ways of working where everybody piles into an office to carry out their work?

I am sure that some of them are here to stay. In Audit Scotland, we have already made the decision that our planning in the future will be digital first rather than based on our being an office-based organisation. We will be a digitally enabled organisation, but we will need some space for our staff to come together, for people who have caring responsibilities to work in a focused way away from the home and for people to be able to share expertise and build relationships in ways that are hard to do when you are looking at each other through a screen. There will be changes; we are just not sure yet how much of them will be permanent and how much reversion there will be to the way that we worked before. We and other public bodies will need to put plans in place, and businesses right across the economy are grappling with the same questions.

I see that we have Alex Neil back, so I will hand back to him so that he can complete his questions.

I am afraid we—[Inaudible.]—Mr Neil. We will pause for a moment. We will try again, as we could not hear you that time.

I am sorry; we still cannot hear you. We will try to resolve your issues. You might need to unmute yourself. Have you unmuted yourself? We will move on, but we will try to get Mr Neil back in for the next session and we can take his questions then—unless he wants to try one last time.

Nope. I apologise, Mr Neil; we will need to take you in the next session.

I thank the Auditor General for her evidence.