“The 2014/15 audit of the Scottish Police Authority”
Item 2 is oral evidence on the Auditor General for Scotland’s report “The 2014/15 audit of the Scottish Police Authority”. I welcome Caroline Gardner, the Auditor General for Scotland; I also welcome from Audit Scotland Gillian Woolman, assistant director, and Mark Roberts, senior manager. I understand that the Auditor General would like to make a brief opening statement.
Thank you, convener. I wish the committee a happy new year.
I am presenting the report on the 2014-15 audit of the Scottish Police Authority under section 22 of the Public Finance and Accountability (Scotland) Act 2000. The year 2014-15 was the second year of operation for the SPA and Police Scotland, and the SPA’s accounts include Police Scotland’s financial results.
I highlight two issues to the committee. The first is the appointed auditor’s opinion on the SPA’s 2014-15 accounts. The accounts are unqualified, but for the second year running, Gilliam Woolman, whom I appoint to audit the accounts, has expressed a modified conclusion on those matters on which she is required to report by exception. She concluded that adequate accounting records had not been kept during 2014-15 for some aspects of property, plant and equipment.
Overall, the audit was very challenging to complete due to the poor quality of the unaudited accounts and major problems with information contained within the fixed asset register. In our experience of auditing public sector accounts, that is exceptional.
The second issue is the continued lack of a long-term financial strategy for policing in Scotland. I first recommended that the SPA and Police Scotland should develop and agree a financial strategy in November 2013. I drew the Parliament’s attention to the lack of progress last year in my section 22 report on the 2013-14 accounts, and I am doing so again now.
While some progress has been made, as detailed in the report, it has been slow. The SPA now plans to agree a long-term financial strategy for the next decade by the end of March 2016.
The Scottish Government’s draft budget for 2016-17 provides an increase in funding for the Scottish Police Authority. That will assist in meeting some of the immediate financial pressures, but it does not remove the need to continue to find savings and, in particular, to develop and agree a long-term strategy to secure the financial sustainability of policing.
Together, the SPA and Police Scotland represent one of our most important public services. In 2014-15, they spent more than £1.7 billion of public money and held assets valued at more than half a billion pounds. Collectively, they must provide stronger leadership for strategic and operational financial management if they are to put policing on to a sustainable basis for the future.
I will report to the Parliament again next year on the SPA’s progress in managing its finances, after the conclusion of the audit of the 2015-16 accounts.
Alongside me are Gillian Woolman, who audits the SPA’s accounts on my behalf, and Mark Roberts, who leads on policing and justice in Audit Scotland. As always, convener, we will do our best to answer questions from the committee.
Before we continue, I clarify for the record that David Torrance has given his apologies for today’s meeting.
Auditor General, I ask you to clarify for the record what budget sum is allocated to Police Scotland on an annual basis.
The amount that was spent in 2014-15 was around £1.7 billion in total—it is a lot of public money.
Given the scale of that public investment, would you consider that maintaining records should be pretty standard practice, even in the challenging position in which Police Scotland finds itself as a result of the merger?
It should be standard practice for any public body that spends public money, but, as you suggest, particularly for one that is responsible for such large amounts of money and providing such vital public services.
What explanations were you given during the process for why the records were not kept to the standard that they should have been kept to?
I ask Gillian Woolman, as the person responsible for carrying out the audit, to talk you through that.
I am happy to respond to that question. Fixed assets, which are now known as “property, plant and equipment” in financial statements, are always a significant part of the audit of public sector bodies. You will recall that, last year, in the statutory report “The 2013/14 audit of the Scottish Police Authority”, I drew attention to the fact that the accounting records for property, plant and equipment were not adequate.
This year, a significant exercise was undertaken by the Scottish Police Authority and Police Scotland to bring all the underlying fixed asset registers together. If you recall, there were 10 organisations, eight of which were police forces, so it was a significant exercise to bring all those records together. A new system called Asset 4000 was being used—we are familiar with that from other large public sector bodies. However, the exercise overran in terms of time and we were unable to undertake the audit work in a timely fashion. It was very late—it was some months after the financial year end—when we undertook the audit work, and we found a number of errors.
We had to work closely with officers to highlight those issues, and at one point we withdrew from the audit so that they could undertake a corrective action plan to improve their accounting records in the area of fixed assets. We returned to the audit and carried out additional work—more than was planned and more than would usually be done—in order to gain the necessary assurance about the results with respect to fixed assets in the financial statements.
As an auditor, you followed a technical process. If we look at it from the public’s perspective, the organisation is responsible for £1.7 billion-worth of funds. Most people would probably expect the maintenance of the assets that you refer to to be pretty basic. Is it that challenging?
We had every expectation that we would find better accounting records this year relative to last year, and it is our expectation—
Is there a potential loss to the public purse as a result of the poor maintenance of the records? Could we be losing money as a result of this? Could there be fraud?
No. In our audit work, we undertake a series of audit tests to be assured as to the nature of all the transactions. We have no concerns with respect to the regularity of expenditure and made no criticism relating to any potential loss.
The point that I am making is that, if an organisation cannot keep basic records, does that not speak volumes for the organisation’s effectiveness in making best use of the public funds that are available to it? How can an organisation deploy resources in the appropriate areas if it does not even know where its assets are?
In the section 22 report, we highlight that it is important to keep accurate records of fixed assets because we have to ensure that they are effectively managed and protected and provide the necessary management information for decision makers, and that best value is derived from the assets that are within the stewardship of the Scottish Police Authority and Police Scotland.
I thank the Auditor General for the clarity of the report and the answers that she has already given. Is the SPA financially incompetent?
The committee may recall that I reported on the reform process back in November 2013. At that stage, one of my major conclusions was that there was a lack of clarity in the roles of the SPA and Police Scotland, particularly in relation to things such as the management of finances and long-term financial planning.
I think it is fair to say that there has been progress since then in clarifying those roles and ensuring that there are appropriate people to carry out the functions that are required of the two bodies. However, the report that you have in front of you today and the report that I produced at the end of 2013-14 demonstrate that that progress has been slower than I would like.
Indeed. You have already mentioned—and the convener has asked you about—what you describe as the “poor quality” and “incomplete” nature of the audit. To me, it sounds as if the SPA is just straight incompetent. It is not up to this, is it? It spends £1.7 billion of public money, yet you say what you say in the report. Why should we have any confidence that it is going to get any better?
In my November 2013 report, I highlighted that the reform programme was one of the most significant that we had seen since devolution, and there is no doubt that that is the case. Taking eight former regional police services and merging them into one—bringing together different accounting systems and different approaches to financial management—was always going to be a challenge. I concluded that the challenge was made more difficult by the slow progress that was made initially and the lack of clarity about the roles of the two organisations that make up policing in Scotland now.
It is now becoming critical that the shortcomings that are outlined in my report are genuinely addressed. There is a chance for a new start, with a new chair of the SPA and a new chief constable in place. However, a financial strategy is not a nice extra to have; it is something that is critical to ensuring that policing remains financially sustainable in the future.
Some of us warned about the issue at the time—we had to produce a minority report to do it. I certainly do not take any credit in saying, “I told you so,” but some of us did say that this was going to happen, and it has all come to pass. When will they get this right? This is the second year in which you have produced a clear report on the financial failings of the SPA. Do you have any expectations that it will be better next year?
When I published my report before Christmas, I was encouraged by the SPA’s response in accepting fully my findings and outlining its plans to move forward and resolve the issues. It will not be straightforward to do that. The deadline that it has set itself for the financial strategy is challenging. We are not far away from March 2016 and Gillian Woolman and Mark Roberts are watching progress closely on my behalf, as you would expect.
I am sure that that is all true. Who ultimately is responsible?
There is an accountable officer for the SPA who is responsible to Parliament for the use of resources in the normal way. The overall reform process is a complex thing, which both the chair of the SPA and the chief constable have responsibility for.
It would be fair to say that the responsibility for the lack of clarity over the position of the SPA versus Police Scotland is a Government matter. The Government failed to provide that clarity, as we pointed out in November 2013.
My November 2013 report highlighted the lack of clarity at that point. There has been some progress since then and, as the committee will know, the cabinet secretary has asked the new chair of the SPA to carry out a review of governance, which may touch on some of those issues.
That is locking the proverbial door after the horse has well and truly bolted.
In paragraph 11 of the report, you mention that the accounts state that expenditure in a number of areas “accounted for £46.5 million” compared with a budget of £67.5 million. The report goes on to say:
“It is not clear what the remaining £21 million was spent on.”
Since your report, have you been able to find out what that £21 million was spent on?
I will ask Gillian Woolman to come in on that in a moment. As we say, of the £67 million that was covered in the annual report, it was clear what £40-odd million had been spent on, but not what the other £21 million had been spent on. Again, in my November 2013 report, I highlighted the importance of being clear on how the reform budget was being used as well as how the core police resources were being used.
Certainly, the accounts show that £67.5 million was spent during 2014-15 on reform-associated activities. Only £46.5 million of that has been identified under specific headings and, as regards the other £21 million, the challenge is the inability to distinguish that expenditure from normal operational expenditure. It was spent but it is difficult to distinguish that expenditure from other expenditure during the year.
When you asked the Police Authority to say what it spent £20 million of public money on, it could not tell you.
The expenditure was aggregated with normal operational expenditure and not distinguished as specific spend associated with reform activity.
In your auditing view, should it have been quite specific, and should it have been auditable in that sense?
The management commentary on the annual accounts is an opportunity to demonstrate where specific reform moneys have been used, in order to demonstrate that that investment is achieving a specific return at a time of transition for the organisation, because that investment was only for a finite period of three years.
I could not agree more. You will understand my suggestion that the organisation is pretty incompetent financially. I would not get away with that; indeed, most businesses would not get away with spending £20 million and being unable to say how they spent it. Why should this public body, which is spending taxpayers’ money, get away with it?
As I reported in November 2013, this was a specific budget to support reform. As Gill Woolman said, it will not be available indefinitely and therefore it is important that it is not underpinning continuing expenditure. Also, because this is a major reform programme that has been promoted and accepted by Parliament, it is important that how the reform budget is spent is clear.
Would it be fair to say that this is not the only example when vast amounts of money have been spent on reform and you have concluded that we are not absolutely sure about where that money was spent? It is a wonderful budget to set up for the people who are on the end of it and using it, is it not?
10:15
The other example that I can recall reporting on in those terms is the further education college reform. It is clearly important to demonstrate how specific funding is used and, as Gill Woolman said, it is not always easy to do that because funding is spent under headings such as staffing and investment in information technology systems in the same way as it would be spent for day-to-day management. That is why it is important to be clear from the beginning how it will be reported.
It is just odd. If the SPA asks the Government for a budget of £67 million for reform and then cannot say how it spent it, that is extraordinary. Does the Government not care about that? Does it not mind that £46 million is spent in a way that people understand but another £21 million just goes into a black hole and no one knows where it has gone? That is an appalling waste of public money, is it not?
I do not think that I can add to what I said. I reported in 2013 that there should be transparency and we have not seen it for part of the budget this year.
Absolutely. I completely agree with that.
I think that it was a couple of years ago that the members of the committee took the unprecedented step under Hugh Henry’s convenership of writing a minority report because we had very serious concerns about the SPA and the merger process.
You said, Auditor General, that you were encouraged by the SPA’s response. I remember being encouraged by what Vic Emery and Stephen House said in the long evidence sessions that we had with them. They said that they had a long-term financial plan, a financial strategy and their efficiency savings all set out. Three years later, there is still no sight of a financial strategy. All the responses, assurances and reassurances that we were given three or four years ago did not mean a thing.
I do not want to say that Vic Emery and Stephen House lied to the committee but, according to your report, none of what we were told was in place in relation to a long-term financial strategy—and I will ask about the efficiency savings—was there. We are still looking for a financial strategy and the promised efficiency savings three years later. Do you agree with that?
I understand your concern, Ms Scanlon. I was referring specifically to the response to the report immediately before Christmas, with the new chair of the SPA accepting my findings and outlining a plan for responding to them.
I wanted to compare the situation to the past.
I understand the concern. It is also important to say that some progress has been made but that progress has not been rapid or wide ranging enough to address the challenges that we know policing in Scotland faces. One of the drivers for reform was to ensure that policing remains financially sustainable at a time of tight resources and growing demands on the service. That is why it is important to have a robust financial strategy that demonstrates how that circle will be squared.
My point is that we are still looking for what we were told was in place three years ago.
Progress has been slow. My report certainly says that. The strategy is not now in place. You are absolutely right.
I am concerned about what you say in paragraph 1. The accounts were “incomplete” and “poor quality”, and you have said that it is “exceptional”. How bad is it? How exceptional is it in the public sector? That is quite a guarded word to use.
It is extremely unusual. As the committee knows, I appoint the auditors of every public body in Scotland outside the local government sector. Every year, we take stock of the experience of auditing the quality of financial reporting and financial management, and it is exceptional to find a such a case where, as she described, Gill Woolman had to suspend the audit, go away and allow the SPA time to correct the problems in its accounts before she could go back and do the audit work.
Despite the SPA correcting the work that it was doing, we still have £21 million unaccounted for.
We do not have a breakdown of that £21 million of the reform budget, and Gill Woolman has modified her opinion because of that.
Having been here at the time, I recall that most parties—perhaps apart from Tavish Scott’s—supported the merger process. We supported it because there would be more front-line policing and more sharing of resources and expertise, and because we would have economies of scale in procurement and better estate management. However, I am struggling to find the promised efficiency savings.
I highlight the overspend of £25.3 million for the 2015-16 financial year. Paragraph 14 of the report says that there are measures that
“could deliver revenue savings ... and ... one-off capital receipts of £22 - 34 million could be achieved”.
I appreciate that that is about capital receipts with a non-recurring saving, but what about reasonable financial management? My concern is that there is an overspend of £25 million, and a capital receipt could wipe out that overspend, at least for this year. I am concerned about front-line policing and maintaining police numbers in future. Where does the money come from to cover a £25 million overspend? It could come from a capital receipt, but that is unlikely because of poor financial management. Where will that money come from, and where are the efficiency savings that we were all promised? That was the reason we gave the process our vote.
I will ask Mark Roberts to talk you through our current understanding of the financial position, the point about where efficiencies have come from and what we know about plans for the future.
If the savings in running costs that have been made to date are extrapolated out, they would contribute towards meeting the proposed long-term savings of £1.1 billion by the end of 2025-26. As the committee may recall, additional cost pressures were built in and were not taken into account in the initial plans. Those still exist, and additional savings will have to be found.
As the Auditor General said, there are additional pressures on policing in terms of new demands, which are well publicised. Those will create more cost pressures in the long term. The ultimate savings will probably need to be greater than £1.1 billion in order to reconcile those various factors.
As for the £25 million projected overspend in the current year, that figure comes from an update that was provided to the SPA in October. Our understanding is that the SPA and Police Scotland are working hard to work out how they can resolve that in the course of the current year. That will be a focus for the 2015-16 audit that Gillian Woolman and her team will conduct.
Will they have to go to the Government for brokerage? Does the same process apply to the police as applies if the national health service overspends its budget, for example? Do the police have to get a loan from Government to cover the shortfall?
The SPA has been very clear. It is very determined to be able to deliver a balanced budget by the end of the financial year.
So there will be cutbacks and efficiency savings between October and April to get rid of the projected overspend of £25.3 million, and the budget will be balanced by the end of March.
The SPA asked officers to go back and work out a plan to deliver a balanced budget by the end of the financial year.
The report is disappointing, Auditor General. Some progress is being made, but far from quickly enough. I return to what Tavish Scott was speaking about. Has the structure of the finance area been put in place properly? Is it adequate? Does it work?
I will ask Gill Woolman to talk you through her views on that. She is much closer to the workings of the finance function in both the SPA and Police Scotland, and she has engaged with the SPA’s audit committee over time.
As the Auditor General highlighted earlier, back at the time of the November 2013 reform report, we were still observing and reporting that the corporate services areas were subject to much discussion and deliberation before a particular structure was settled on. There are finance functions in both the Scottish Police Authority and Police Scotland. Part of the time, the authority’s role is to hold Police Scotland to account, but there is just one set of financial accounts. Their preparation is led by the Scottish Police Authority, and the chief constable of Police Scotland must co-operate for the preparation of those financial statements. There are clearly significant systems within the control of Police Scotland, where 98 per cent of the spend is processed. Nevertheless, the accountable officer of the SPA is ultimately accountable for all of the £1.7 billion spend.
In our long-form report to the Scottish Police Authority, we reported that there were tensions in those structures and processes. Nevertheless, we had expected them to work better for the purpose of preparing quality financial statements to be presented to external audit, for the smooth running of that audit and for a completely clean, unqualified audit opinion on those financial statements. From the response that the Auditor General received at the end of December 2015, it is clear that the Scottish Police Authority is putting an interim chief finance officer into place to assist with progressing improvements in processes. That is to address some of the tensions in the structure.
Have we not had chief financial officers before? Was there not a whole series of them and was that not a problem in the past?
Yes, we reported at the conclusion of the 2013-14 audit that there was a series of interim directors of finance for the Scottish Police Authority. It was intimated to us in December 2015 there will be an interim chief finance officer, who will be senior to the two directors of finance in the SPA and Police Scotland. That post will have a number of priorities, one of which is to address the projected deficit through to March 2016. Another is the improvement of the accounting records.
Is that not just adding another layer of management? The previous layer of management did not work, so is the SPA not just putting somebody above it to see whether that works?
As Gill Woolman said, it certainly is an additional post to the two directors of finance in the SPA and Police Scotland. The rationale is that the post will deal with the specific, short-term challenges that the policing service faces at the moment and carry through to the implementation of the governance review that the new chair of the SPA is carrying out.
In paragraph 24 of the report, you say:
“The Scottish Police Authority and Police Scotland must collectively provide stronger leadership”.
Who is ultimately responsible for providing that leadership?
As I have said to the committee, in formal terms the chief executive of the SPA is the accountable officer and is accountable to the Parliament for the use of resources by the SPA and Police Scotland, but the structure that we have in place with the Scottish Police Authority and Police Scotland means that there needs to be clarity about who is responsible for what, how they work together and how that enables the accountable officer to fulfil his responsibilities.
That seems to be the same problem that we had before.
The changes that were put in place after my November 2013 report represented a movement in the right direction, but it is clear from what we have seen in our audit work and the financial pressures that policing in Scotland faces that those changes have not yet had the desired effect. That is one of the impetuses behind the governance review that the Cabinet Secretary for Justice has asked the new chair of the SPA to carry out.
Paragraph 8 talks about the introduction of the
“single fixed asset register … Asset 4000.”
That process was not completed by the time of your audit report. Will Asset 4000 be the answer? Will it do the job?
We are familiar with Asset 4000 from other audits of large, public sector bodies throughout Scotland, but implementing it was always going to be a significant exercise. The project to do that took an extended period and the project team did not have time to carry out the necessary quality reviews before the external audit team came along and found a number of challenges and problems with the integrity of the data that was available.
Is it correct to say that, on paper at least, the information has been put into Asset 4000 and the SPA is just now working through any discrepancies?
Yes and, in fact, that was happening at the time of the audit.
10:30
I would like to understand the structures. We are now into the third year and, if we have not yet got the structures right, the question is whether we will.
There are two directors of finance—in the SPA and Police Scotland—and there will now be another interim chief finance officer. There is also an audit committee for the Police Authority. Is there something similar in Police Scotland?
No.
So there is just the one—I see that Gillian Woolman is nodding.
Are you satisfied that the general structure is now right, or should there be a permanent chief finance officer over the two directors of finance?
I will preface the answer briefly by saying that the cabinet secretary has asked for a governance review to consider exactly such questions. I ask Gill Woolman to give you her professional view on what is working at the moment and what might be needed in future.
That would be helpful. Ms Woolman, are you being consulted about the matter because of your experience of doing an audit with different finance officers? You have the continuity, which seems to be lacking.
As part of our annual audit each year, we produce a number of reports and we have made a number of recommendations with respect to the finance functions for the two organisations. Indeed, yesterday, I had colleagues from the audit team meet officers to find out how they were implementing those recommendations. Throughout the process, those recommendations are intended to improve the structures and processes that are in place and make them more effective.
We welcome the fact that a governance review is being conducted. We have been consulted as a key stakeholder for that review in writing and in meetings with the team that is supporting the chair of the Scottish Police Authority in undertaking it.
On our proximity to the two clients and what the right structure for the future will be, there is no doubt that there has to be an understanding and a will to share ownership of the financial accounts. After all, they are the reporting in public of the financial performance of the Scottish Police Authority, including Police Scotland. It is a leadership issue. Leadership is necessary to ensure the ownership, quality and professionalism that are needed to have a satisfactory outcome each year with the preparation of the financial accounts.
I presume that that leadership has to come from the new chair and new chief constable.
Yes.
That is helpful. Are you willing to supply the committee with your observations so that the successor committee in the next parliamentary session can hold the SPA to account on the second set of aspirations for things to be right? If the committee can see your recommendations and consider them in light of the governance review report and the changes that are made following that report, it will have the opportunity to determine whether, three years on, progress is a little more speedy.
We can certainly provide the committee with Gill Woolman’s annual audit reports, which set out her observations over the past two years, and the response that we have made to the governance review about the issues that it needs to address.
That is helpful. I will briefly return to the £21 million. I have chaired charities, so I am aware of what being the equivalent of the accountable officer involves. We received funds that, in charity terms, used to be called restricted; we had unrestricted and restricted funds. The restricted funds had to be used for the purpose for which they were authorised and had to be audited separately. I do not understand why an organisation as big as the SPA, which presumably has very well-paid finance people, did not have the reform funding as restricted funds that were clearly determined and not thrown into operational use. I am very concerned that throwing those funds into operational use means that the SPA will not have them in two years’ time. If they are simply being absorbed into the general running, they will not be taken into account in determining future budgets.
There is no formal requirement for those funds to be restricted, treated separately or audited separately, but that is why, in November 2013, I recommended that there should be transparency about how they were used. That concern remains a real, live one, because in the draft budget that the Deputy First Minister announced before Christmas, part of the additional funding for the SPA was a continuation of the reform funding. That was £55 million, I think. It is clear that that will go some way to helping to address the outstanding issues around police reform, but it is critical that it is not used to underpin continuing expenditure, given that the financial sustainability is still an open question in the absence of a financial strategy.
Should the Government not have said that that is a restricted fund? It does that for charities. The third sector is held to account for much smaller sums. Should the Government not have said that that is a restricted budget, that it must not be used for general operational things, and that it must be identified?
It is not common practice to place such formal restrictions on the way in which funding is provided, but it absolutely is good practice in reform programmes in which specific money is provided for a specific purpose to require clear reporting about how it is used. That is why I highlighted the issue in my report.
Finally, I turn to paragraph 19 of the report, as things are critical going forward. I am slightly surprised by your report. We rely on Audit Scotland to give us a much broader view than simply on the money. It is all about how the organisation is functioning. The major problem for us in Parliament has been the use of police officers in an inappropriate way in call centres. Police officers are an expensive resource, and there are to be no compulsory police officer redundancies. There have been significant complaints from the unions that the events and deaths on the M9 were associated with the inappropriate use of poorly trained police officers for the call centre function. I am slightly surprised that your report does not address the inefficiencies as a result of the requirement that compulsory redundancy can apply only to more poorly paid staff and not to the police officers.
In addition, although there are no compulsory redundancies, I have certainly received anecdotal evidence that senior police officers have been encouraged to take voluntary redundancy in order to bring in much less experienced officers and reduce costs. If senior officers are being removed at a fast pace in order to replace them with junior officers who cost a lot less, that is very damaging to the overall efficiency of the organisation.
There is no commentary in the report on either of those issues. Would you like to comment on them?
Certainly, Dr Simpson. The report and the report that the committee considered 12 months ago were both produced under my powers under section 22 of the Public Finance and Accountability (Scotland) Act 2000, and they are specifically on matters that arose from the annual financial audits of the authority. My November 2013 report was produced under my powers under section 23 of that act, which are the powers under which I can look at the efficiency and effectiveness with which money is spent.
It is worth noting that the report was produced alongside the annual report by Her Majesty’s inspector of constabulary on policing in Scotland for 2014-15, which focused on some of the issues that you described. We will continue to work very closely together to ensure that our reports are complementary, as they were in that instance.
Mark Roberts will be able to tell the committee a little more about how we are staying close to the operational and value-for-money impacts of the decisions that are being taken about staffing and other significant matters.
As paragraph 14 of the report says, the SPA intends to produce its long-term workforce strategy by the end of this financial year. We would expect that to address some of the issues that Dr Simpson raised about officers operating in what had perhaps previously been more non-officer roles.
One of the challenges that the SPA and Police Scotland face is the large amount of their expenditure that falls within staff costs. They have identified in a statement of long-term financial intent the fact that staff costs are 86 per cent of their total costs, of which the overwhelming majority are police officer costs. Given the other constraints on them, they are therefore relatively restricted in their action.
The operational impact of that very much falls within the realm of HMICS, which we work with very closely. We meet on a quarterly basis and co-ordinate our work and engagement with the SPA and Police Scotland.
That was helpful. I have one small comment. It was interesting that you mentioned that crime is down by 41 per cent, because it is down by 41 per cent in England, too, where they have cut the number of officers significantly. Therefore, police officer numbers are not the main driving factor in the reduction of crime. The reduction is a worldwide phenomenon in developed countries. There is a myth around the issue that is damaging to this organisation.
I have a couple of questions about Asset 4000. When reading the related information and listening to the evidence, I was struck by the timescales for the audit process. However, before I ask questions about that I have another issue to raise. Did the individual police forces have their own asset registers or did they populate Asset 4000?
The previous forces all had their own fixed asset registers.
When was the request put to the SPA to input the data into Asset 4000? When did your audit process start?
The first financial year for the SPA and Police Scotland was 2013-14, by which point one would have expected progress to have been made on pulling together key financial systems. However, at the end of 2013-14 we reported not only that fixed asset registers had not been brought together as one but that individual registers had not been kept up to date during 2013-14. During 2014-15, when they embarked on pulling together everything into Asset 4000 as the one fixed asset register for the new national organisation, two years’ worth of data had to be drawn in.
It is a normal part of the annual audit process to carry out audit work on an organisation’s fixed asset register. We would not request that an organisation progress with a register; it would clearly need to progress with it for its own purposes.
We would normally carry out interim audit work on internal control systems before the financial year end, and we would carry out work on the transactions and balances after the year end. For the year 2014-15, we could not carry out any interim audit work on the new fixed asset register because the project was still under way and it was still a period of transition. Indeed, when it came to the final accounts audit, we could not commence our audit testing at the planned date; rather, it started six weeks into the audit—hence the protracted nature of the 2014-15 account and our concluding it much later than intended.
Is it fair to say that, because of the inherent legacy issues of the individual forces and their asset registers not being up to date, your job as auditor was made that bit tougher and you were unable to complete the process as you wished?
No. I must clarify that point. In the last year of the legacy forces, which was 2013, they all received unqualified audit opinions on their financial statements. It would have been very ambitious to try to achieve one fixed asset register during 2013-14, which was the first year of the new organisation. Consequently, the expectation would have been that, as a compensating arrangement, all the legacy fixed asset registers would have been kept up to date so that they could form the basis of our audit work for 2013-14. However, that was not the case. Nonetheless, I make it clear that the criticism is not associated with the period prior to 2013-14.
I whole-heartedly agree that the asset registers should have been up to date. I do not dispute that point in any way, shape or form. I am just trying to understand why you faced the issue and why the SPA—certainly in the period covered by your report—did not manage to have a full, up-to-date asset register.
10:45
Yes, there is no doubt that it has been a big exercise—over 21 months now—to get one asset register that is accurate and up to date. There was certainly a project in place during 2014-15, but it did not progress at the pace that would have been necessary to achieve a good outcome by the conclusion of that financial year.
If you were to push me as to why that was the case, I would say that it was because it took time to put the right people in the right place in the two finance structures and the people who were assigned to carry out the work were assigned late. There was a project in place and people were assigned roles to progress it, but they did so in a disparate fashion and no one person took ownership of the whole project. There was a lack of quality review of the data that was inputted. Consequently, when we carried out the audit work, we were the first to encounter a number of errors and problems, which we had to report back to officers who then had to correct them.
Did the SPA use internal staffing for that, or did it bring in external contractors to undertake the work?
The work was done largely by Police Scotland finance staff. We have said in our long-form report to the SPA, which comes from us at a local level, that there was a failure to quality assure the work that was carried out and a failure by the authority to scrutinise the fixed asset records.
Thank you.
Good morning, Auditor General. We have talked a lot about the systems, but I want to ask about the real value of what is involved in the asset schedule, which is a subject that I have asked about in other contexts. That is about the real value of the assets and their saleability and whether any of them is actually of much use to anybody else. Are the replacement costs appropriately measured? In the future, could any of the black hole be filled by selling assets? In practice, buildings tend to be overvalued—I think that you know where I am going, Auditor General.
Yes. You are absolutely right to ask the question. The reason that we have highlighted the failings in the asset register is not that we are bean counters who get excited by that sort of thing; it is that the register should be a really important source of information for making exactly those decisions. It could be a source of savings that would help to make policing sustainable in the future.
I ask Gillian Woolman to talk you through the way in which the valuation process works and how that ties in with your questions.
The Scottish Police Authority has accounting policies with respect to the valuation of its fixed assets. As we have highlighted, the value of fixed assets is now running at around £0.5 billion in the financial statements of the organisations. A number of valuations were carried out in relation to the financial year 2014-15, but they were carried out very late in the day and a number of accounting entries that were connected with those assets were made after the year end. For certain ones, there were impairments in value, and those are recognised in the 2014-15 accounts.
It is another area in which a number of errors were made in the accounting entries after the valuations were processed and, again, the external audit team had to engage with key members of staff to correct entries after the valuation of assets. However, we are comfortable that the organisations are now up to date with their own accounting policies for the valuation of land and buildings.
Does that imply that you are comfortable that they are up to date with the replacement or upgrading costs of the assets that they need in the long term?
We are content that they are compliant with their accounting policies. On occasion, that is a depreciated replacement cost value and at other times it is an existing use value. We are content with the arrangements that they have put in place. They used external experts for those valuation exercises.
I want to go beyond that. I appreciate that auditing is about asking whether things are consistent with an accounting policy—I have been there and done that. My question to the Auditor General is whether the accounting policy actually fits the task of having a police force that can do its job this year, next year, in five years and in 10 years. We are not talking about a company that is going out of business; it has to be able to operate for ever and ever.
You are exactly right. That is why the asset register is so important. I would also link it back to the financial strategy. One of the underpinning strategies is around property and other major fixed assets. It is clear that bringing together eight regional police services into one national police service may bring the opportunity to dispose of some assets—to sell them—and potentially to invest in others in order to have better, more fit-for-purpose buildings and assets with which to deliver the service. However, without both an up-to-date asset register and a financial strategy, it is not possible to do that.
In some instances, that might mean a change in the valuation basis. For example, if you decide that you do not want a police station any more—if you want to dispose of it and invest in something else—your valuation base may change to something that is more appropriate for assets that are held for disposal. However, you need the information to be in place in order to be able to make those decisions and to account for them to the committee and the public.
Are you confident that the people who are making those judgments understand what you have just said about changing the basis of valuation to fit the need? It is clear that there must be an asset register and up-to-date valuations—if they have not got them, they have not got the basic information. Are you confident that the management structure and the people involved are able to take account of the need to have the right accounting system and protocols to ensure a long-term Police Scotland?
People almost certainly understand that in principle, but it is not until they start work on the underpinning asset strategy and the decision making that comes from it that it becomes something that people are doing in practice and so understand the implications of. In a sense, it can only be done in practice as people start to think about the choices that they are making.
Happy new year to you all. There was a stand-off around VAT when Police Scotland was being set up—you mention that in paragraph 11 of your report. Allowing for the fact that there was no agreement and the Scottish force is the only force that has to pay VAT, I am a little unclear as to how much VAT it is paying. Can you clarify that?
I cannot remember what the exact VAT liability was in 2014-15. Gill Woolman might have the number to hand.
It was in the region of £20 million to £23 million. We can confirm that for you.
Another question that has been buzzing around for a while is about the way in which the police pension scheme is set up. Am I correct in saying that it is a UK-wide scheme?
In the annual accounts, there is a separate set of accounts for the police pension scheme. The scheme is similar throughout the United Kingdom, but there is a set of annual accounts that are specific to the Scottish police pension scheme, which is associated only with officers.
What are the liabilities from the legacy forces? I have heard that question asked in the past. There seems to be some doubt about whether, although audited in Scotland, those are part of a UK-wide scheme. Is that the case?
The police pension scheme in Scotland is an unfunded scheme that is similar to the national health service scheme and the Scottish teachers’ superannuation scheme. It was clearly going to be a step change when the eight forces merged. For the year 2013-14, we saw that unfunded liability for the first time, and the figure was £12 billion. For the year 2014-15, the unfunded liability in the accounts was, altogether, £15 billion, which reflects a 20 per cent increase in the liability. Unlike the NHS scheme and the Scottish teachers’ superannuation scheme, which are underpinned by Westminster, the police scheme is specific to Scotland.
Can you clarify that that has been the case since Police Scotland began, or were the legacy forces completely separate as well?
The legacy forces all had a pension liability. If you were to add up the liabilities of the eight forces up to the year 2012-13, the figure that you would come up with would be similar to the aggregated figure when the new merged force came into being in 2013-14. There has not been any change to the scheme, but there is now one set of accounts shown within the Scottish Police Authority accounts.
Was the scheme always separate from the pension scheme for the forces in England and Wales?
Yes.
I have a couple of questions to ask before we finish. In the report, you refer to constraints and challenges that the SPA will face in the future, including in relation to the no compulsory redundancy policy. Do you think that that is sustainable?
The legislation that governs my role specifically prevents my commenting on the merits of policy. In my report of November 2013, I said that both the no compulsory redundancy policy and the 17,234 officer commitment reduced the flexibility that the SPA and Police Scotland would have to balance their finances in the future. That statement of fact remains true.
My final question is on the asset register and the fact that some of the information has not been recorded as part of the process. Do you have any examples of things that have not been registered? When we talk about assets, we can mean buildings, plant and so on. Have any buildings not been registered, which Police Scotland might not have been aware of?
By the conclusion of the audit, we were satisfied with the adequacy of the accounting records at 3 December. Prior to then, we found problems with the accounting records. Sometimes that was due to the figures that had been drawn in, sometimes we found that depreciation charges had not been included and sometimes we found elements that had been capitalised that ought not to have been included in the fixed asset register.
Can you give me any specific examples—perhaps a police station or something that was no longer in operation that had not been recorded? Was there something significant?
No. No big items of land or buildings had been overlooked as you suggest. We found problems with including movements in the valuation of the land and buildings but no big omissions.
Okay. I thank the Auditor General for the report.
10:57 Meeting suspended.Next
Section 23 Report