Public Audit Committee, 13 Jan 2010

Meeting date: Wednesday, January 13, 2010

Official Report 290KB pdf

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Section 22 Reports

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“The 2008/09 audit of Transport Scotland”<br />“The 2008/09 audit of the Mental Health Tribunal for Scotland Administration”

Item 3 is consideration of two section 22 reports. I invite the Auditor General to brief the committee.

These reports are designed to inform the committee and Parliament of remuneration arrangements in two public bodies. Both relate to the departures of senior members of staff during 2008-09. The bodies in question are Transport Scotland and the Mental Health Tribunal for Scotland.

I will talk first about the arrangements relating to the chief executive and the former director of finance and corporate services at Transport Scotland. The committee has some knowledge about the departure of those people, which was obtained during evidence sessions on the report "The First ScotRail passenger rail franchise". As the committee is aware, both the chief executive and the director of finance and corporate services left during the 2008-09 financial year.

The chief executive had planned to retire in November 2009, but discussions between him and the Scottish Government concluded that it would be mutually convenient if he were able to retire earlier. He left Transport Scotland in February 2009. His contractual notice period was three months, but the Scottish Government agreed to pay him six months' salary in lieu of notice and untaken annual leave, as it considered that the earlier departure would provide organisational advantages in respect of Transport Scotland's delivery programme. The financial details of that are disclosed in the Transport Scotland accounts.

The director's remuneration arrangements are not disclosed in the Transport Scotland accounts. As the committee will recall, the Scottish Government has indicated that, under the Data Protection Act 1998, Transport Scotland is not in a position to disclose that information without the director's consent. The director's contract of employment contains no clause that specifically requires him to disclose the information, and he declined to allow the information to be disclosed. That is permitted by the Government financial reporting manual 2008-09, which is produced by HM Treasury and applies to all the United Kingdom's devolved Administrations.

The director left Transport Scotland by mutual agreement in November 2008. At that time, the Scottish Government put in place a compromise agreement. The auditor reviewed the remuneration arrangements and confirmed that they were in accordance with the rules and regulations and that the Scottish Government had concluded that they represented value for money. The auditor has highlighted the importance of openness and transparency in the use of public money in the area. As I note in my report, I will ask the auditors to continue to encourage disclosure of remuneration, wherever that is appropriate. I will return to the issue of disclosure in a moment.

I turn now to the remuneration of the former president of the Mental Health Tribunal for Scotland. Until April 2009 the Mental Health Tribunal for Scotland administration—which I will simply call "the administration" from now on—was an executive agency of the Scottish Government. The administration provided support and services to the tribunal. The work of the administration is now undertaken by a unit within the Scottish Government.

The core work of the tribunal concerns legal decisions about the compulsory care and treatment of people with mental disorders; the administration helped to manage and progress the administrative casework associated with tribunal hearings. The administration also accounted for the tribunal's costs, including the remuneration of its members and president.

The president of the tribunal formally resigned in October 2008, although she was absent from her duties for the whole period between November 2007 and October 2008. During that period the president continued to receive her remuneration. The administration paid fees to the president of between £146,000 and £153,000 and incurred further costs of about £78,000 in relation to her pension. The administration secured the approval of the Scottish Government to continue to pay the president during that period. The accounts of the administration do not provide any further information about that situation and, for legal reasons, I am not in a position to comment further.

A general issue arises from the two reports, regarding the reasonable interest of Parliament in how public money is spent. There will be occasions when compromise agreements are appropriate and personal information about individuals who hold public office is, quite properly, not disclosed. As a general principle, however, I think that Parliament and the committee have the right to know the sums of public money that have been spent on the remuneration of senior public officials, including any sums spent on financial packages when those public office-holders are absent from or leave their posts.

The sums involved might come to a relatively small amount of the total spending of the public bodies in question, but the presumption must be that such items may be of interest to the Parliament and the public. In my opinion, the full amounts and nature of such expenses should always be disclosed in the audited accounts.

Only this week, HM Treasury started a consultation on proposed changes to how public bodies should report senior staff salaries in their accounts in future. In general terms, the proposals include a new requirement for public bodies to publish summary information about the number and cost of all exit packages for senior staff that have been agreed in any year. The information is to be provided in a note to the accounts, and it will therefore be subject to audit. The consultation period closes early next month. We do not know what the outcome will be, but my initial judgment is that the proposals are a step in the right direction.

To return to the cases that are covered in my reports, I am restricted in what I can say regarding issues that are covered by data protection legislation, but my colleagues and I will do our best to answer any questions that the committee has.

I welcome your comments about the consultation that is being carried out by the Treasury. The committee may wish to make a contribution to it—we can come back to that later.

I intend to separate out the two reports. First, we will consider the issues around Transport Scotland. I welcome the agreement of the chief executive to the information being released. That is in sharp contrast to the problems that we experienced with the director of finance and corporate services. There remains an issue, however, around how public resources are being used. It is my understanding that Dr Reed could have retired at any time he chose, given his age. Is that correct?

That is correct, yes.

So, if he had chosen to leave, he could have done so and drawn his full pension, and there would have been no need to remunerate him. The suggestion is that the civil service felt that there were organisational benefits in his leaving early, so it may have suggested that. People can draw their own conclusions about the fact that he did so in the middle of a parliamentary inquiry into events at Transport Scotland. If there were such organisational benefits, did you look at whether any changes were made to the structure of the organisation and whether any savings were made by allowing the chief executive to go early?

The report that I have made to Parliament is a section 22 report, which is a commentary on the audited accounts that are laid in Parliament. It is therefore not a full audit examination of all the circumstances surrounding that particular issue. My understanding is that, as I mentioned, the Scottish Government saw organisational advantages in the chief executive going earlier to allow a handover of responsibilities and that those advantages were such that the additional three months' pay in lieu of notice would be recovered within a 12-month period because of the consequential knock-on effects for the organisation's management costs.

We can explore that issue further.

So that I can get some clarity, can the Auditor General tell us when a new chief executive took up their post and whether their salary was the same as or lower than that of the previous chief executive?

I cannot personally give you the exact date when the new chief executive started—perhaps my colleagues can. It is our understanding that the new chief executive was appointed on a lower salary than his predecessor. Because it was an internal appointment, there were also savings from not going to external recruitment to backfill the post.

The new chief executive joined in February 2009.

That coincides with the previous chief executive's date of retirement. In effect, the taxpayer was paying for two chief executives for an extended period of time. I think that we have heard that before.

It is familiar.

I have a general point. Is there a requirement on an organisation in the public sector to list reasons when deciding that a departure is in the best interests of the service—or whatever phrase is used—so that those reasons can be tracked and audited?

There would be an expectation that, if it were necessary to do so, the auditors could find documentation that provided a justification for such a development.

Just to follow up on the convener's point, I think that some of this is unusual, unique and perhaps trailblazing and that we should contribute to the wider review of these issues that is taking place. Some of the matters that we have still to discuss, as well as the issue relating to the chief executive, should be included in the review. I have some points about the position of the director of finance and corporate services, but perhaps we will come on to that next.

Are there any other points of clarification on Transport Scotland? Remember that we are not discussing at this stage what we will do; we will discuss that later in the agenda. This discussion is merely to get any more details from the Auditor General.

Robert Black said that the appointment of the chief executive's successor was an internal appointment.

That is correct.

So it was not advertised publicly in any way.

It was not subject to external advertisement.

Is that normal?

It depends on the circumstances. A judgment is made within the senior civil service about whether a post should be advertised externally or internally.

My recollection is that, when Dr Reed was appointed, a great deal was made of the fact that he had a lot of experience of transport and had been director general of the Strathclyde Passenger Transport Executive. Is it right to say that his replacement is a career civil servant with no transport experience at all?

I am not really in a position to give you chapter and verse on the background and qualifications of the new appointee. That question would be better directed to the Scottish Government.

In the Auditor General's section 22 report on Transport Scotland, particularly in those paragraphs that deal with the departure of the director of finance and corporate services, he reminds us that a key principle of the use of public money is that its use must be transparent and open to public scrutiny. We will all sign up to and agree with that 100 per cent, and so should all our civil servants, who are paid for out of the public purse. If that is a key principle to which our civil servants should adhere, at whatever level they work, why do we have guidance that allows agreements to be reached that prevent the public from getting access to the information?

The Scottish Government will be in a better position than I am to answer questions about the policy matter of the formulation of guidance in the past.

It is worth my making one point. Senior levels of the Scottish Government have been caught by the fact that a compromise agreement is in place and that data protection legislation relates to the individual in question. Everyone is under a statutory constraint, which means that there is an inability to release the information. However, as I think I mentioned earlier, the UK Treasury is making moves to ensure that such an arrangement will no longer be appropriate in future.

There are two issues there. One is about what is declared and whether that is covered by data protection legislation or anything else. The other issue for us is the fairly cavalier use of public resources. Murdo Fraser has already alluded to the fact that, during our inquiry into NHS Western Isles, we found that we were paying for three chief executives at one time. In the Transport Scotland case, we were paying for two chief executives at once and, indeed, someone who could have gone with a very generous pension was given a fairly large sum of money to go a few months early when heat was applied to the organisation by a parliamentary committee. We are about to look at another report that suggests that we were paying for two presidents of the Mental Health Tribunal at the same time.

For a whole year.

Yes. It is a staggering situation, in which public resources seem to have been used in a very cavalier manner by civil servants. We need to look at accountability, which we will address. Are there other points for Robert Black to clarify?

I have looked at the correspondence between the Scottish Government and the Information Commissioner's office on the compromise agreement. I take on board what Mr Black said, which was that we should

"encourage disclosure of all remuneration, wherever possible."

To be honest, this sort of thing has gone on for years and I have always been against it.

The Information Commissioner's office has written back to say that, in the circumstances,

"disclosure to the public of the details of a compromise agreement, without the consent of the data subject, is likely to be a breach of the DPA."

Does that mean that any review that the Treasury is doing will require the Data Protection Act 1998 to be changed?

That would be best addressed by the clerk and officers of the Parliament.

We will check that out.

My general perception is that it is important not to confuse the overarching framework of the data protection legislation with the contractual arrangements that are put in place with any individual. It seems to me that a good position would be one in which a compromise agreement was available as an option in certain circumstances, as it can be quite a useful mechanism on occasion, but contracts should not permit the withholding of details of the cost to public funds of a severance agreement. That seems to me a simple administrative act that could be achieved beforehand and would avoid such circumstances arising. It strikes me as common sense that the UK Treasury's proposals would in no way cut across provisions in data protection legislation.

That is probably a good idea. It would be interesting to find out how much has been spent over the past five, 10 or 20 years on people leaving their jobs unexpectedly, but I suppose that we could not do that.

If only one individual left in a given calendar year, would not the information be fully revealed anyway? How can that be squared?

If there was a data protection prohibition on such amounts being disclosed, the details would not be separately identified in a note to the accounts.

Perhaps Robert Black and Audit Scotland could help the committee to shape our views in making comments on the issue to the UK Treasury. I think that Audit Scotland's support and input on that would be extremely valuable.

It seems to me that we are talking about the inappropriate use of public funds. Clearly, where there are allegations of criminality, the data protection legislation is swept away and the police are given full access to all the information that is required, but where we are dealing with the inappropriate use of public funds—even scandalously inappropriate use of funds—there seems to be no appropriate scrutiny as long as things have been done within the rules. Perhaps a change to the data protection legislation is required, but my instinct is that we could probably implement change in other areas that would greatly improve the situation and strengthen the position not only of the Public Audit Committee but of Audit Scotland. At times in our inquiry, committee members were very anxious to reinforce the position of the Auditor General and of Audit Scotland when that position was being quite seriously challenged by the civil service.

We will move on to the issue of the Mental Health Tribunal for Scotland. During the 11-month absence of the tribunal president, someone else acted as the president and was presumably paid a similar amount of money. The previous president received anywhere between £146,000 and £153,000. Can Mr Black confirm that, for that 11-month period, the pension contribution from the public purse was £78,000? Am I reading that right?

That is correct, yes.

That is unbelievable.

Is that a full-time position?

Yes.

What is the salary? If the president gets between £146,000 and £153,000 in 11 months, what is the annual salary?

We believe—we advise the committee to check this with the Scottish Government—that the remuneration is equivalent to that for a sheriff principal. As I said, the banding at that time was somewhere between £146,000 and £153,000 per year.

Quite apart from the scandal of having two tribunal presidents overlapping for nearly a year, the salary level is quite astonishing. That the president of the Mental Health Tribunal for Scotland is paid more than the Prime Minister—which is the comparison that we use these days—seems astonishing, given that the president of the tribunal is responsible for far less.

Also, the pension contribution seems to have been at something like 50 per cent of the annual salary.

The lawyers are on to a good thing.

Why was the tribunal president absent? If she was off sick, it is standard that she continued to be paid while someone else was paid to do her job, but that would not have applied if she was just not coming to work. Is there any information on why she was absent for that length of time?

Unfortunately, I cannot help with that due to data protection legislation.

If need be, we can pursue that elsewhere.

Can the level of pension contribution be explained?

I do not know whether we have details on that. Perhaps Dick Gill can help us.

The pension contribution was subject to advice from a Government actuary. I am not an expert on judicial pensions but, as Bob Black mentioned, the tribunal president's salary is equivalent to that of a sheriff principal. I cannot confirm this, but I expect that the pension arrangements are also probably equivalent to those of a sheriff principal. We know that the tribunal administration received advice from the Government Actuary's Department or an equivalent body. Part of the reason for the cost in the final year in 2008-09 might have been an actuarial adjustment, such as a catching-up payment for underprovision in earlier years. However, we would need to look at that more carefully before we could give a proper answer.

My instinct is that the payment would be part of some negotiated agreement on departure. There might have been a compromise agreement in this case as well, as that seems an exceptional payment to receive in one year. The payment must be to do with either underpayment to cover previous years, as Dick Gill suggested, or what might have been achieved in the pension fund if the individual had remained in post for a longer period.

We can examine that in more detail.

Let me just clarify that the £78,000 cost was not a payment to the former president but a provision for the future cost of making pension payments to her.

However, making that provision cost the public purse nearly half the president's salary. We can return to that point.

During Mr Black's oral briefing on the paper, unless I picked him up wrongly, he mentioned a figure for expenses for the individual. Is that right?

I think that Bob Black might have referred to fees, which is the terminology that is used for the remuneration of the tribunal president. As I understand it—I am not quite sure about the legal complexities—the position of tribunal president is not a salaried position, so "fees" is the terminology that is used in the accounts for the total payments that she received as the president.

So the figures are as we have them before us in the paper.

Yes.

Who is the accountable officer?

There was an accountable officer in the form of the head of the administration, but the policy decision on the treatment of the issue was taken within the Scottish Government.

I think that Dr Woods said earlier that the matter came within his directorates.

Yes, I think that Dr Woods indicated that it was within his directorates.

Okay, thank you for that. We shall return to that item later in the agenda.

Given the time, I suggest that we hold back agenda item 4 until our next meeting. Therefore, I draw to a close the public part of the meeting.

Meeting continued in private until 12:44.