Audit Scotland Annual Report 2010/11
Item 2 is the Audit Scotland annual report. I welcome Robert Black, the Auditor General for Scotland, who is accompanied by Barbara Hurst. They are both familiar faces at the committee. Would Mr Black like to address the committee?
Mr Robert Black (Auditor General for Scotland)
Thank you, convener, and good morning. I would like to put on record how much we are looking forward to working with the new Public Audit Committee. It was a pleasure to have the opportunity to become acquainted with members earlier this morning.
The report refers to the financial year 2010-11 and provides a summary of all our work and our use of resources. I should mention at the outset that the report will no doubt be considered in detail by the Scottish Commission for Public Audit, which holds us to account for our performance and use of resources. I note that Colin Beattie and the convener are members of the commission, so we will no doubt discuss the report further when it meets.
I will mention some highlights that might be of interest to the committee in setting the context for the work that we will undertake. My colleagues in Audit Scotland and I have been keen to demonstrate that we are aware of the serious situation of Scotland’s public finances. Some time ago, we set ourselves the target of reducing the cost of everything that we do by 20 per cent in real terms, through to the end of the spending review in 2014. You will see that partly reflected in the annual report, in the year-end numbers and so on.
As we are a professional organisation, meeting that target means reducing our staff numbers, and we are on target to do so by more than 40 in the period to 2014. I am sure that the SCPA will explore that more fully, but I wanted to mention that my colleagues and I recognise that, although Audit Scotland is a small body in spending terms, we must face up to the same challenges as the rest of the public sector.
I will pick up on a few of the highlights from this year’s report. The one that is most directly relevant to the committee is that we have outlined on the very last page all the reports that we published in 2010-11. You will see that there are a large number of reports that could broadly be called performance audits, including reports on the national health service and best-value reports on councils and the police board. There are about 26 of those in total, if one includes some of the improvement work that we have done, for example with councillors and officers on roles and working relationships.
That page goes on to indicate that a large number of reports on our audit work do not surface at this level, if I may put it like that. Each and every one of the bodies that we audit gets a final audit report at the end of the year, which captures the auditor’s independent perspective of its stewardship—how it has managed its funds—and its performance, and, equally important, any risks that we see.
A huge amount of work that goes on lower down in the ice pack does not surface here, but we build that information up into the high-level reports that the committee receives. For example, the “Financial overview of the NHS in Scotland 2009/10” drew extensively on the work of the local audit; the committee will receive the next one of those reports, which includes a look at the performance of the health service, before the end of the year. There is a large volume of work going on, and we are happy to answer any questions about it.
Secondly, I will highlight the national fraud initiative, which is a really useful exercise that is described on page 18. It attempts to use computer data matching between different records from areas such as housing benefit, payrolls, public sector pensions, permits and tax to try to ensure that significant fraud and error—people receiving payments in error or, unfortunately, occasionally fraudulently—is detected. We have been running that initiative for a few years now and, as we state in the report, the cumulative benefit amounts to £63 million of expenditure that has been inappropriately paid out as a result of fraud or error. We have new data-matching powers that came into law late last year, which allow us within the framework of the law to extend that work a bit more fully.
However, we are very conscious of the need to observe people’s civil rights. All the work that we do has been discussed in advance and approved by the United Kingdom Information Commissioner, because sometimes we are studying UK and not just Scottish data sets. That is quite a significant element of our work, which we do regularly.
I will come back now, briefly, to Audit Scotland itself, but without going into great detail. We carry out surveys of all the audited bodies that we cover, and we are pleased to be able to report that the surveys are returning the message that we are considered to provide a very high-quality service. For example, that was thought to be true by 100 per cent of further education bodies and some 94 per cent of health bodies. We always strive to do better, but that is an area in which the value of our work has been perceived to be improving over the past few years.
Audit Scotland put itself forward in the best companies survey, and we were one of the top 75 best places to work in the whole of the UK public sector. We made it to the category of being one to watch, which means
“on the journey to improvement and getting better”.
That was a useful independent and robust audit of how the way in which Audit Scotland sets about its business is perceived.
We do a lot of work in conferences and seminars, and we sit on working groups and so on. I would also like to mention—especially as we have our guests from Sweden here—that we do some international work. Our website contains a separate annual report on that, which I would encourage people to look at if they can find time in their busy diaries. In that international work, our main focus is on giving support to European countries—in particular, the developing eastern European countries. We have also done work in other parts of the world, and in that we have partnered the National Audit Office of the UK Government. In the past, we have also done work with the Swedish audit office, with which we have had a very successful and productive relationship.
As we note in the annual report, we have been invited to participate in the audit of the United Nations. For a small audit organisation, that is a little feather in our cap. It is very hard work for the staff involved, but it is certainly an experience for them.
In the past year, we have hosted delegations from Japan, Finland, Moldova and China. There have been several visits from China to Audit Scotland, and the Scottish Government has been interested in that. Through that work, we want to demonstrate high standards of governance and performance in the Scottish public sector.
I am intrigued by your comment about the United Nations—would you have time to look at the European Commission while you are at it?
No one has asked us yet, convener.
Although you are called Audit Scotland, you do not perform only auditing functions—looking at the books and checking the figures. You are almost regarded as an organisation that investigates quality. Some of your reports mention areas for improvement. You comment not only on figures but on how things could be done better.
As you have said, we are moving into a period of stringent financial pressures. There will be demands for doing things better and eliminating inefficient methods of operation. Those new pressures and new demands will bring a new workload. We all want things to be done much better than they sometimes are. If that demand is increasing, how will your organisation be able to sustain quality in the delivery of your service when you are shedding 40 members of staff?
You are right to suggest that we see our role as being one of supporting improvement to the best of our ability—though we must always do that from the independent perspective of auditors and not slip into being management consultants. Barbara Hurst and her team have given a lot of thought to this issue, and I will ask her to talk about how the performance audit programme is now framed around helping to improve on the big issues of the day, and about how we attempt in all our reports to produce practical guidance, with checklists at the back, for public managers to address.
10:15
Barbara Hurst (Audit Scotland)
We are very aware that there are always pressures on us to answer every question in the public sector. With the national performance audit programme, we have tried to identify areas in which the risks are greatest and audit can add value. As the Auditor General says, we cannot second-guess experienced managers, but we have tried to use a set of key themes around reducing budgets, the need for investment in big capital projects and the invest to save agenda. We have framed our programme around some of those big issues, and I expect that we will bring the programme back to the committee.
We are very aware that that approach means that we need to work differently. We are keen to contribute to the savings agenda for Audit Scotland in the performance audit programme, but we are also considering how we can do our projects differently and get smarter about scoping them so that they are doable in shorter times.
When we do a performance audit, we are keen to learn from the good practice that we find and to promote that. Members will note from the “Transport for health and social care” report, which we will consider later, that we tried to identify areas in which there are lessons that can be applied more widely across Scotland. Something that works in one area might work elsewhere, although it might have to be adapted slightly. As part of our audit work—I stress the word “audit”, as we are not managers of the services—we try to identify improvements that could be made. As the Auditor General said, we try to include checklists so that non-executives of boards and elected members in local government can use our recommendations to challenge locally what is happening in their areas.
I have a question about audit fees. At the outset of the report, you mentioned that you have reduced audit fees by 5.5 per cent. I noticed from the table on page 32 that the fees paid by various bodies reduced in 2010-11 compared with 2009-10, except the fees paid by local authorities. Why did the fees paid by local authorities increase? Obviously, local authorities are in a difficult budgetary position, and audit is a statutory function, so they cannot turn around and say, “We’re not paying.” What efforts are being made to ensure that the costs for local authorities are kept within a manageable level? Obviously, if audit is a statutory function and the audit fee is increasing, that money will have to come from somewhere else in the local authority.
We are committed to reducing our audit fees significantly across the whole of the public sector over the lifetime of the spending review. The figure is getting on for 20 per cent. We always have a problem at a financial year end, and I am sure that the SCPA will be interested in that. The audit year runs roughly from November to November, so 31 March is an artificial deadline for us. If we were running the organisation as a business, we would not bother terribly much about that deadline, but we must prepare accounts for the public sector. A lot of the issue is to do with the stage of completion of audits, when the charges go out, and when the income comes back in, but we must keep in mind the longer-term issue beyond the financial year—the direction of travel in audit fees, which are significantly down over the period.
It would be fair to say that, although the figures on page 32 are an indication of the financial year, they are not necessarily an indication of the overall audit year.
That is indeed so.
I am interested in the results of the quality survey, which are on page 15. One point that stands out is that the responses from health seem to be at such variance with the responses from further education, particularly in the areas of “Economy and efficiency” and the “Effectiveness and quality of services delivered by audited bodies”. The text states that
“These results compare favourably with previous surveys”,
although we do not have those in front of us. What is behind that discrepancy, for want of a better word?
That is a good question and it is one that I am asking Audit Scotland, too. I can give a partial answer. I do not want to sound complacent, because we continue to work on the issue. The survey measures the extent to which chief executives or senior managers of public bodies consider that our work had an impact on the effectiveness and quality of what they do. The studies in the health service tend to be high level and all-embracing, such as the NHS overview or the “ Review of Community Health Partnerships”, which is a major piece of work that the committee considered just before the summer recess. Such pieces of work do not impact directly on the audited bodies and often contain challenge messages. Another strand of our work, of which there are examples in the appendix, involves considering clinical areas such as the operation of locum doctors in hospitals, which might not have a direct impact at the high management level. It is right to ask the question, but there are issues around how we interpret the data.
I ask Barbara Hurst to add to that answer without going into a lot of detail.
The results are interesting for us, and we need to understand better what is going on. However, there is a slight discrepancy, although that is perhaps too strong a term. When we do follow-up work and examine the impact of our work, we find that the health sector is probably the most advanced in implementing our recommendations and doing something with them. We are working hard to bring some of the other sectors up to the same recognition of the importance of our work. We need to understand the figures better, but they do not quite fit with the evidence that we have from other bits of our research into the impact of what we are doing.
If I may, I will offer a further comment before we move on. One thing that I did not say at the outset was that I would like to pay tribute to the work of the Public Audit Committee. I have been in my job for many years now but, before I became the Auditor General, I spent a short period running the audit organisation the Accounts Commission before devolution. It used to be a source of considerable frustration and disappointment that our work did not have an impact. The committee’s role in follow-through is vital. In other words, we take work as far as we can by producing a report that is evidence based and often raises challenging questions for accountable officers in public bodies in Scotland. It is then for the Public Audit Committee to carry that forward. When we get visitors to Audit Scotland, they are intrigued by the good relationship between us and the committee.
A review is being carried out of our relationship with the Public Audit Committee. I think that the relationship has been great for the past 10 years and that the procedures have worked well. I have had the opportunity, outside public meetings, to help the committee to shape and focus its thinking on how it does its business, as the reports are often complicated. I hope that, in the course of the review, I have the opportunity to express my views to you on how we can work in the future, which I have not been able to do so far. In the past, the relationship has worked extremely well.
Thank you for that. I share your aspiration that we should have the opportunity to continue to work together. Some of the work that has been done has been telling.