Agenda item 2 is consideration of Audit Scotland’s 2020-21 budget adjustment to the spring budget revision. Members have copies of the spring budget revision and budget adjustment in their meeting papers. I welcome to the meeting Alan Alexander, the chair of the board of Audit Scotland; Stephen Boyle, the Auditor General for Scotland; and Diane McGiffen, the chief operating officer, and Stuart Dennis, the corporate finance manager, both from Audit Scotland.
Today is Stephen Boyle’s first appearance before the commission in his role as the accountable officer for Audit Scotland, so I welcome him to this morning’s meeting. I invite Alan Alexander and the Auditor General to make some short introductory remarks.
Thank you. We are happy to talk through the proposals that you have before you, to answer your questions and to engage in discussion on how best to maintain the quality, integrity and impact of public audit in Scotland.
It hardly needs to be said that the world has changed. Covid-19 has refashioned how we live and work—perhaps permanently—and how we deliver public services in Scotland. It has also changed Audit Scotland’s role, and the budget proposal directly reflects that.
It is worth noting that we submitted the proposal to the commission in the early days of December. At that time, the rate of infection was slowing, a vaccine had been approved, restrictions were being relaxed across much of Scotland and many of us believed that the turn of the year would mark the beginning of a recovery and an exit from the pandemic. However, since then, we have seen the emergence of the new Covid variant and the imposition of much stricter rules for the festive period, and 2021 started with a return to lockdown conditions that are similar to those that we experienced at the start of the pandemic. Those restrictions have a knock-on effect on issues such as home learning and capacity and, earlier this week, we heard that they are unlikely to be lifted soon. That is perhaps a perfect illustration of the volatile and unpredictable environment that we now operate in.
As you are all aware, the pandemic has placed significant and, in some cases, unique pressures on Scotland’s public sector at a time when it already faced major stresses and strategic challenges. Public spending has increased by several hundreds of millions of pounds, and Covid-19 has exacerbated existing issues in Scotland, such as financial sustainability, public service provision, and economic and health inequalities.
There is increasing public and parliamentary interest in how money is spent, how well public services are responding and the longer-term impact on Scotland. For Audit Scotland, that means that we have to change and develop so that we can deliver the high-quality and world-class public audit service that Scotland will need more than ever.
That will mean more than incremental change and development; it will mean making step changes in how we work and ensuring that we have the skills and resources that are needed now and in the future. We also need to ensure the resilience and sustainability of the public audit model in Scotland, safeguard quality and maintain the safety and wellbeing of our workforce.
I emphasise that my board, the senior management of Audit Scotland and the entire staff are committed to demonstrating how the Scottish public audit model can rise to the challenges and exemplify the highest standards in the stewardship and application of public funds.
With your permission, chair, I will hand over to Stephen Boyle, who will speak in his capacity as the accountable officer for Audit Scotland.
Good morning. As Alan Alexander has outlined, and as is set out in our budget proposal, Audit Scotland is quickly moving from—[Inaudible.]—following new responsibilities to the Scottish Parliament to now dealing with a public health crisis and associated public service response at a scale not seen—[Inaudible.]
The financial risks and issues facing Scotland are bigger than they have ever been, and our audit role needs to respond accordingly. We need to move to ensure that we have the resources, skills and capacity to do the job that Scotland needs from us. Our budget proposal reflects that.
Our resource requirement for 2021-22 is £10.8 million, which is an increase of £1.9 million, or 21.5 per cent in real terms. Our proposals contain more detail of what that will deliver, including providing assurance on the significant new sums of public money and how well that is being used to rebuild and repair the economy and address inequalities. We will follow the pandemic pound.
Our total proposed budget of £29.5 million for 2020-21 equates to about 0.05 per cent of Scotland’s public sector budget. We need to make the most of the opportunities to change working patterns and practices and to ensure the safety and equality of opportunity of our current and future colleagues. That means investing in our digital infrastructure and other resources to support more agile and flexible ways of working.
We will be developing new methods, tools and approaches to retain and attract the people we need, whom we will be supporting with the right training and development. We are clear that everything that we do now and in the future must be built on the principles of wellbeing, quality, equity and sustainability.
As ever, my colleagues and I will do everything that we can to answer the commission’s questions.
Thank you, both, for those introductory remarks. Before we move to questions, I remind witnesses and members to take a small pause before speaking, so that the broadcasting team has time to switch on your microphone. If any member has a supplementary question, please type R in the chat box and I will bring you in when I can. As always, I would be grateful if questions and answers could be kept as succinct as possible.
I will start off. Will Audit Scotland provide an update on whether its most recent assessment of work continues to suggest that the figure of £1.44 million remains accurate? Is the income shortfall of £1.44 million a one-off issue specific to the financial year 2020-21?
I will start, and I will perhaps invite Stuart Dennis and Diane McGiffen to supplement my remarks.
As Alan Alexander mentioned in his introductory remarks, the spring budget revision, which we submitted in December, reflected what we thought was a stabilising, or potentially improving, picture in relation to the scale of the pandemic and what that meant for the pace of our work. Clearly, we have seen in—[Inaudible.]—that is no longer the case.
As you would expect, we have done additional modelling and forecasting of what that means for our financial position. In the past few days, we have drawn from the December month-end figures, and our remodelling suggests that, for a range of scenarios—the mid-point, low point and end point—we are looking at a deteriorating picture of our expected completion of work. However, we think that we can still absorb that in our request to the commission for an additional £1.5 million. Stuart Dennis might wish to say a wee bit more about that in a moment.
The second part of your question was about whether the income shortfall is a one-off for 2020-21. The timing of our work—the pace at which we can complete audits and therefore our ability to recognise income—is the key factor. Therefore, it is probably too early to tell.
Like everyone, we are optimistic about what the pace of vaccination and recovery might mean in signposting a return to normal activity. The pace at which we recover timing feels more difficult to predict accurately. However, we know that the timelines that we are used to will still be elongated during 2021, and, to an extent, that will also probably run into the following financial year. As ever, the picture is hugely volatile.
Auditor General, you said that you did some remodelling based on the situation at the end of December, which was very early in the current lockdown and its impact. You also said that you think you are able to absorb any additional costs within your current ask. How confident are you about that? None of us has a very clear picture. What was the basis of your modelling at the end of December, which led you to that conclusion?
I will start, and I will invite Stuart Dennis to give the commission a bit more flavour of some of the variables that we have considered.
The one thing I would say is that we have now done almost all the audit work that relates to the 2019-20 financial year. That has been no small task, although the timescales are more stretched than we expected. Had you asked us at the start of the pandemic, in March or April, whether we anticipated completing all of the 2019-20 audits by this point, I do not know that we would have. It is important to me to put on record my thanks to all of Audit Scotland’s colleagues for their effort and work in delivering that result.
There are a number of variables. I ask Stuart to talk through the measures that we considered as the basis for our forecast for the year end.
As the commission will be aware, we have been modelling the situation. The December submission was based on a mid-point scenario.
We have considered various options for how the current lockdown will affect Audit Scotland’s fee income recognition, and we realise that it will have an impact. As the Auditor General said, we feel that £1.5 million should be sufficient, as things stand, and that we are able to cope with the volatility. Part of the reason for that is that we were in a better position at the end of December, as we started the 2020-21 audits, than we had anticipated in the original scenario. The income recognition is the main reason why we need the extra funding. As the Auditor General said, we have made a significant achievement in that, at the end of December, we had achieved 95 per cent completion of the 2019-20 audits.
We lost a little bit of what you said there, but thank you.
Good morning, everyone. I have a couple of questions, the first of which sticks with the figure of £1.44 million. As I understand it, you do not have issues with receiving fee income in terms of its recoverability. However, does the issue become a timing difference—that is, will there be additional fee income in 2021-22 as that delayed work is either completed or recognised?
Yes, that is right. Just to clarify—we do not have fee income concerns about the receipt of income from the bodies to which we charge a fee. The issue is a timing difference, as you suggest, that relates to the progress of our 2020-21 audits. Typically, as Stuart Dennis mentioned, we would be well progressed in our planning and preparation for commencing the final part of the financial statement audits. However, that has now slipped back from where we would have expected it to be.
10:45That timing difference equates to a large component—which we will, no doubt, come on to—of our budget request for the 2021-22 financial year. Our planning expectation was that we would be able to re-accelerate our audit work to reduce the timing difference. However, that now looks a bit more uncertain, given the current circumstances.
So, the 2021-22 budget will see that money pop back into it—is that what you are saying?
Yes. There is a timing difference, exactly as you suggest. However, what we will also face during 2021-22 is perhaps not an identical set of circumstances to the situation that we are in at the moment, but one that—
An extra—[Inaudible.]
Yes, it is the time lag effect that we are dealing with.
So, it is not, in effect, an extra £1.44 million in 2021-22; you are taking out of the back end something similar for the next year.
Exactly so.
Okay. Thanks for confirming that.
When you produce these forecasts, do you forecast a cash flow behind them that mirrors them, and do you produce a balance sheet at the end of the periods that are being forecast?
I ask Stuart Dennis to talk through the range of monthly financial reporting.
That is correct—we do a cash-flow analysis. We do not invoice as work is completed; we have an arrangement whereby we invoice in instalments—three times during the year, principally—and we predict when we will get the cash that comes in from that. It is not the same as firms invoicing as the work is completed; we invoice regularly—normally in December, May and September. We have a plan whereby we guarantee that that cash will come into our bank as well as the cash that we get from the Scottish consolidated fund.
That £1.44 million does not impact your cash.
No—that is correct.
Can I ask just one other question, on office costs? From your presentation, I presume that you currently have empty premises. Have you had any negotiations with landlords about what you are paying for your premises during this period?
I will ask Stuart Dennis to say a wee bit more about where we are at with that. The first thing to say is that the offices have remained closed since the middle of March 2020, with all of our colleagues working remotely and covering audit work remotely.
We refer to the issue in our budget submission for 2021-22. In the longer term, the plan is to look at what that means for our property estate and our property strategy. We need to reflect potentially different working patterns and different—[Inaudible.]
In our submission, we refer to the fact that our offices across Glasgow, Edinburgh and Inverness are on long-term leases. Stuart Dennis may wish to say a little bit more about the content of any conversations that we have had with our landlords.
As the Auditor General said, the offices are on long-term leases. As it has been our decision to shut down the offices and not have them open, the arrangement is that we are continuing to pay for them. As the Auditor General alluded, we need to develop a property strategy, which is something that we will be doing, and that is where we will focus on our long-term planning in relation to office use.
So, you have not done anything, such as at least asking the landlord for some form of reduction.
Not at the moment, and that—
Sorry—the office in Edinburgh is due a rent review. That has started, with a representative that acts on our behalf, but it has been very slow due to the pandemic situation.
The accountable officer’s cover letter highlights that the spring budget revision is needed in part because of the inability of Audit Scotland’s
“funding and fees model to withstand ... shocks in-year”,
such as the shock from Covid. The Auditor General said in his opening statement that Audit Scotland will “follow the pandemic pound.” Can you provide a bit more detail about how your funding model has been impacted so far? What consideration has the board given to how the model might be strengthened to enable it to respond effectively to future shocks?
For us, the fundamental point about the funding model is that we cannot hold reserves that would allow us to absorb volatility. I would go further and say that our funding model was not designed to deal with the level of shock that there has been from the pandemic and the implications that it has had for our financial position. That has brought us to today and the detail of our spring budget revision request, the significance of it and what it means for our funding model—[Inaudible.]
As the commission will be aware, not only do we not hold reserves but we have to break even each year. The key component of what the pandemic has meant is that, with the timing of completion of work not being as anticipated, our ability to recognise income in the way that was projected has been severely reduced. We set that out in a bit of detail in table 1 in the spring budget revision document.
We have started thinking about what the longer-term environment might look like, and we are keen to do more of that thinking. I appreciate that that is a multifaceted conversation with the Parliament and the commission as well as public bodies and the Accounts Commission, particularly given the relative ratio of our funding arrangements, which are skewed towards fees that we charge to public bodies relative to the funding that we receive directly from Parliament.
We are keen to start and make progress on that work and to think about the implications for our funding, in the anticipation that the exact level of certainty might not return on an annual basis. We want to look at alternative ways in which we might better absorb some of the volatility.
I know that this is difficult to answer, but are you confident that, if—heaven forbid—things got worse and there were future shocks, Audit Scotland would be able to function effectively?
Over the past 10 or 11 months, we have been able to respond quickly and continue to deliver audit work. That is what the pandemic has taught us. As I mentioned, we have now delivered all the financial audit work for 2019-20, and we have done so while auditors and officials in public bodies have been working in their households. The work can still be carried out, but it is clear that it is taking longer. There has been an impact on productivity because of all the circumstances in our households. Some people have caring responsibilities and there are particular issues now, as we have returned to home schooling.
There is confidence that we can do the work. If circumstances deteriorated, we would expect that to mean that timelines would be extended, although we do not know that yet. We have confidence, given what we have been able to achieve over the past year or so. That gives us hope, but there is still volatility and there will continue to be an impact.
I understand that. Thank you.
Good morning. I will ask about the savings in annual wellness checks. It is stated in paragraph 30 that Audit Scotland’s savings of £0.5 million include savings on annual wellness checks for its staff. Will you tell us about the nature of those annual wellness checks? How has the board assured itself that those savings have been realised without compromising staff wellbeing?
Good morning, Ms Marra. I am happy to answer those questions, although I might hand over to Diane McGiffen and Alan Alexander to comment on the level of assurance.
Fundamentally, the wellbeing of Audit Scotland colleagues has been at the centre of our approach to dealing with the pandemic. Our incident management team, along with members of our senior management team, have continually communicated with colleagues to emphasise the importance of their wellbeing. We have signposted them to various levels of support and training that they can access to deal with all the unprecedented circumstances. The nature of the wellness activity that we undertook before the pandemic means that we have not been able to continue with it in the way that we would have done.
I will ask Diane to explain the background and the support that we have provided to colleagues that would have been provided through the wellness checks.
I reassure the commission that we are not trying to make savings on wellness, because investing in supporting the wellbeing of colleagues is paramount at the moment.
Last year, we were unable to deliver the range of wellness checks that we normally deliver, because those checks involve in-person, face-to-face, one-to-one consultations that include blood tests and a range of other diagnostic tools. We are keen to reinstate those when that is viable and possible, but it has not yet been possible to do that. That has inevitably resulted in some savings.
We are providing a range of routes to additional support for colleagues, including counselling, professional support and other wellbeing activities that we have run within the organisation, pending the resumption of the health check element of the wellbeing support, which is what we are talking about here.
We know that colleagues value the health checks that take place; it is simply the case that, with our partner, we are unable to deliver them in a safe way during the restrictions. We will resume those checks as soon as we can, but we have made some savings because we do not envisage being able to deliver them at this point. We place a lot of emphasis on supporting colleagues, and that will increase during 2021.
You mentioned blood tests. Does that mean that the wellness check is more like a medical?
Part of it is a medical test. Colleagues take a range of diagnostic tests, and that is the part that has been suspended. Those tests have been hugely helpful for us—many colleagues have been able to have early diagnosis of issues, which has resulted in their being routed to effective treatment—but it is not possible to conduct them at the moment.
Thank you.
As members have no further questions for the witnesses, we will move on to the next agenda item.