“The 2013/14 audit of the Scottish Police Authority”
We come to agenda item 5. I welcome the Auditor General for Scotland; Gillian Woolman, assistant director, Audit Scotland; and Mark Roberts, senior manager, Audit Scotland. I ask the Auditor General to make a brief statement.
I wish the committee a happy new year.
I am presenting this report, “The 2013-14 audit of the Scottish Police Authority”, under section 22 of the Public Finance and Accountability (Scotland) Act 2000. The SPA and the Police Service of Scotland came into being on 1 April 2013, and 2013-14 was the first year for which the SPA produced accounts. The SPA’s accounts include the financial results of the Police Service of Scotland.
As the committee is aware, the process of bringing together the eight predecessor forces and the Scottish Police Services Authority was challenging, and I undertook to keep the committee informed about progress since my last report in 2013.
Significant progress has been and continues to be made. I would like briefly to highlight three key issues. The first is the pressure that the SPA’s finance function was under during 2013-14, which was in part due to the substantial challenge of bringing together the finance systems of the eight predecessor forces and the Scottish Police Services Authority, and in part due to the fact that numerous finance staff left under the SPA’s voluntary redundancy and early retirement scheme. In addition, there were protracted discussions between the SPA and the Police Service of Scotland to establish where responsibility for the finance function should lie, which led to a delay in appointing a permanent director of finance and generated uncertainty among finance staff about their future permanent roles and responsibilities. The SPA appointed a permanent director of financial accountability in 2014, which puts the SPA in a good position for the future.
The second issue arises from the pressures that the SPA’s finance function experienced in 2013-14. The auditor—Gillian Woolman, who is on my left—gave an unqualified opinion on the SPA’s annual report and accounts for the year, but, unusually, she expressed a modified conclusion on the matters that she is required to report on by exception. She concluded that for certain areas adequate accounting records had not been kept during 2013-14, which meant that the audit was difficult to complete; more important, that limited the information available to support the decision making of the SPA and Police Scotland during the year.
Thirdly, the auditor assessed progress against recommendations in my November 2013 report on police reform. As exhibit 1 in the report before the committee today highlights, the SPA has made progress on or completed the majority of those recommendations. The key area in which work remains in progress is the development of a long-term—by which, for the avoidance of doubt, I mean into the mid-2020s—financial strategy that takes into account all the additional cost pressures that the SPA faces. Having such a strategy in place will provide a road map to help ensure a sustainable future for policing in Scotland. The SPA is continuing to develop the strategy based on its strategies for workforce, estate, fleet, information and communication technology systems and procurement. I have asked the SPA’s auditor to continue to monitor progress on that work as part of the 2014-15 audit.
Alongside me are Gillian Woolman, who is an assistant director of Audit Scotland and the appointed auditor responsible for the audit of the SPA, and Mark Roberts, who is a senior manager with Audit Scotland and leads on our work in the justice area.
As always, convener, we are happy to answer the committee’s questions. You will forgive me if I rely on Gillian and Mark more than usual, given the state of my voice today.
Thank you for your statement, Auditor General. We have questions from Colin Beattie first of all.
The important thing is that the auditor gave an unqualified opinion, whose basis, I assume, was that, despite the deficiencies that she encountered, she was able to satisfy herself as to the SPA’s accounts. Is that correct?
Absolutely. I ask Gillian Woolman to talk you through what happened and how she arrived at a clean opinion, with the modification that I have described.
That is clearly a very evident question to ask in the circumstances. At all times, the external audit was carried out in accordance with Audit Scotland’s audit guide, so that we could see all the audit evidence and seek all the information and explanations that we required to reach a final audit opinion. The audit opinion on the financial statements was unqualified.
However, since 2010-11 there has been an extra part to the audit opinion that highlights areas that we may have to report on by exception. Consequently, the modification arises in that area, which relates to the adequacy of accounting records and information and explanations that we received in particular areas. I assure the committee that we undertook very much a full-scope audit, in order to reach the unqualified audit opinion on the financial statements.
That is a very important point to put on record.
The scope of the merger was almost unprecedented in Scotland, and it brought together nine different financial systems. Was the level of difficulty in the first audit commensurate with that?
As I think I said in my opening statement, first, we absolutely recognise that complexity; there is no doubt that it was a very big merger in any terms. That would always have had an impact. Over and above that were the delays that were caused in reaching agreement about who had responsibility for the finance functions between the SPA and Police Scotland and the consequent delays in appointing key members of staff. Added to that were staff departures under the voluntary severance and early retirement schemes and the uncertainty that remaining staff experienced about what their jobs would be. All that added to the unavoidable complexity that Gillian Woolman and her team had to deal with.
I have a couple of specific questions on those inadequacies. In your report you state:
“adequate accounting records have not been kept.”
Can you define that?
Yes. I am happy to provide the detail in response to that question. The audit opinion highlights aspects of the accounting records in the areas of fixed assets, bank and cash and the supporting documentation for the calculation of key accruals in the balance sheet at year end. We discussed what we were looking for through the planning process, working closely with finance officers, and our expectations about what accounting records would be readily available in the course of the audit work during 2014.
In due course, there was a delay in the production and passing over of particular records relating to fixed assets. Although they were forthcoming after a period of time, they were not right up to date for the transactions for the year, but we worked closely with client officers to determine where the transactions were recorded, which was directly into the financial ledger. Consequently, we revised our audit approach and did audit work that was additional to what we might otherwise have done.
That gives you an idea of that particular area.
It was not that the records were incorrect; it was that they were incomplete at that point—they were not up to date. Is that correct?
Yes. We were seeking audit evidence for 2013-14. Normally for the audit of fixed assets, we would look at fixed-asset registers, which we would expect to be up to date. However, it was only at the end of August 2014, which was several months after the end of the year that we were auditing, that there was clarity that the registers had not been kept up to date but that the transactions had been recorded elsewhere—that is, directly into the financial ledger. It took time to receive explanations that enabled us to progress with the audit work—quite a bit later than would have been the case otherwise.
Okay. There were delays, and I imagine that there would be some cost involved in that. Can you quantify the cost?
We are currently discussing with the client the additional time that was incurred and what that means in terms of cost.
Do you have a ballpark figure?
We have not raised that directly with the client at this stage.
You are talking about property, plant, equipment and accruals. Was that the only problem that was encountered? It seems to be the main focus of what you are talking about, but were other aspects of accounting involved?
We have produced a year-end report—an annual report—that has gone to members of the Scottish Police Authority. We also produced reports during the year and interim management letters, which went to the audit and risk committee. We highlighted weaknesses in the internal control systems. The full report at year end is quite extensive but, for the purpose of the audit opinion, we drew out the areas that we felt were of materiality to the overall opinion. Those were the areas that we homed in on.
I go back to my original question. Would you say that the deficiencies that you found were broadly commensurate with the complexity of the merger of nine different areas? Presumably, those areas were all using different systems. Although the accounting principles might be the same, physically bringing that all together within a fairly short period must have been quite difficult.
The organisation that had responsibility for the preparation of the financial accounts was in no doubt as to the size of the challenge. As the external auditors, we were in no doubt as to the size of the challenge for the first year of the two new organisations. Nevertheless, over time, and over the period of the audit, additional weaknesses came to light. As well as our identifying findings that required amendment in the accounts between the draft and the final report, the client also identified additional information that came to light at the client’s end that meant that changes had to be made to the accounts.
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Would you say that the SPA finance people were aware of those deficiencies and were working on them, or were they unaware of them?
There were changes in the personnel leading the finance functions over the period. Also, they had to work with a wider community of finance officers across Scotland to glean key pieces of information, and some of that information came late—that was to do with internal communications.
To add to that, the underlying causes come back to the two things that I highlighted in my opening statement: the delay in agreeing where responsibility would sit, and the consequent turnover and instability of staffing until after the end of the first year. The posts have now been filled and people have much more certainty about their roles and responsibilities. However, in the period from before the establishment of the SPA and Police Scotland to after the end of the first financial year, the need to fill some key posts meant that there was a great deal of pressure on individuals and a lack of ability to make progress on the things that we would all agree are the basics for good internal control and financial management and reporting.
Ms Woolman, you said that you issued reports to the SPA on various issues. Have you had responses? Has the authority taken on board those reports and is it actioning them?
It is part of our normal practice for any audit to issue interim management letters during the year. All our findings are discussed with officers before the finalisation of the report, and we get management responses on how it will take forward the actions. Such reports are discussed at the SPA’s audit and risk committee, the members of which provide effective scrutiny to ensure that officers engage with the issues that internal and external audits have raised. We are confident that actions are being taken to address the issues.
Will you continue to follow up on that?
We will.
My first question relates to the recommendations. As a member of the Public Audit Committee, I imagined that the recommendations would be about issues such as scrutiny and effective spend, so I was surprised that seven of the eight recommendations recommend that Police Scotland and the SPA “continue to work together”. Do those bodies need to be reminded by the Auditor General and Audit Scotland to work together?
It is worth reminding ourselves that the recommendations on which I am reporting progress appeared in my original November 2013 report on police reform. At that stage, there had recently been an agreement about who would play which roles in relation to the central services that are required. Clarity was emerging on who would take lead responsibility for which issues.
The recommendations date back more than a year, and we are now reporting on progress. I certainly feel that it is good news that, for most of the recommendations, the work is either complete or very much in progress. I bring them to the attention of the committee given the level of interest that there has been in the new service over the period of its life since April 2013.
Given the public spend on the single police force, we would take it for granted that the two people at the head would work together.
My second question follows on from Colin Beattie’s point. In the conclusion, paragraph 9 states:
“certain accounting records were not adequate”.
It continues:
“and difficulties were encountered in conducting the audit”.
I have heard the response about the accounting records of the different police authorities not being the same, but what difficulties were encountered on top of that in conducting the audit?
The two were very much related. The issues were about trying to establish where the up-to-date accounting records were and who was responsible for them at the time, and gleaning sufficient audit evidence to pass over to the audit team to enable us to carry out our standard audit work and to reach conclusions based on the assurance that we could draw out. Again, that links to the fact that it was a period of transition for the finance teams as they came together. Some people departed, some roles were changing and some permanent roles and functions were not yet known.
It is just that you say that apart from accounts being “not adequate”, you encountered “difficulties”. We will leave it there.
I understand that the ICT system is still under development and has been postponed again, this time to September 2016. Will you give us an update on that? I also understand that in certain areas the payroll is administered by local authorities but that there will be a single payroll system from March. Will you give us an update on whether those issues will lead to duplication and whether the delay will have an impact on the savings that we are all expecting?
This report is not about doing fresh audit work on new areas. We did the work that was required for Gillian Woolman to sign her audit opinion and look at progress against the eight recommendations in my November 2013 report. Mark Roberts might pick up on the broader question of ICT and how we plan to look at that in future.
On ICT, some of my colleagues have been in discussion with Her Majesty’s inspectorate of constabulary for Scotland about the work that will go on over the next few months to monitor and evaluate progress on the implementation of the i6 programme. As the Auditor General said, we do not have more detail, based on the report that we are considering. However, i6 is one of the key areas of ICT development in the public sector that we are interested in monitoring and assessing as work goes on.
Gill Woolman might want to comment briefly on the payroll system.
In the 2013-14 audit, on which we are reporting, we are right up to date with the payroll arrangements and the legacy arrangement with the local authorities that acted on behalf of the joint boards in that regard. Our interim management letter drew attention to the service level agreements and the period for which they would continue.
We have yet to find out more information, as we undertake our 2014-15 planning, to determine future arrangements for the payroll system. I have yet to glean that information, as the auditor.
Is the system on target for March 2015? That is six weeks away, but you still do not have all the information. That is perhaps something that we can look at.
As the external auditor I am not in a position to say whether the payroll system is on track for March 2015.
Okay. Does Mark Roberts know whether it is correct to say that the IT system has been postponed to September 2016?
I do not know, to be honest. I will come back to the committee on that when I have spoken to colleagues. We had a meeting with HMICS to discuss the subject yesterday. I will reply to the committee in writing, if that is all right with the convener.
I will take the convener’s guidance on this, but given that we have not had evidence on information and communication technology, payroll systems and so on, we really have no basis for discussing these matters.
If the information can be provided by way of background, that would not be unhelpful. I do not think that we should seek evidence on the matter.
It is in Police Scotland’s corporate strategy.
Yes—but I do not think that we are looking to take further evidence in that respect. We are working on what is before us today.
I want to clarify my understanding of the words that are used. Forgive me if I make this too simple. Am I right in thinking that an organisation gets an unqualified report on its accounts if the numbers add up, and that the comments that Audit Scotland has made are, in essence, about the systems that it found? Auditors want to be convinced that all the stuff that they have not seen—because they never see everything—is credible.
That is right. The audit opinion is a professional view that the financial statements give a true and fair view of the financial picture, in line with all the professional standards with which financial reporting and we, as auditors, have to comply. There is no question but that the financial statements give that true and fair view.
What the modified conclusion conveys to me as Auditor General, and on to the committee, is that the process of getting to that opinion was more difficult—because of the inadequate records during the year—than we expected, which is unusual. As Gill Woolman said, the requirement came in in 2010-11 and this is the first time there has been a modified conclusion. Given the level of public interest, I think that it is worth our while to draw that to the committee’s attention, but I do so in the context of our also having acknowledged the improvements that are being made in financial management and financial reporting within both the SPA and Police Scotland.
My colleague Colin Beattie made the point that one cannot really be surprised that there is some difficulty when nine organisations are brought together.
Turning to my second point, however, I note that you spoke about voluntary redundancies and the loss of what I presume were fairly important people in the context of the systems that we are talking about. I wonder whether anybody has reflected on the wisdom of that voluntary redundancy process and whether people have learned a lesson. My recollection from my time in industry is that voluntary redundancy was not made available to everybody because some people were plainly needed. I wonder whether that lesson has been learned in this context for public service in general.
You are absolutely right about the general point. Our report on managing mergers in the public sector made the point about the need to be clear about the key people and key skills that are required, and the need to ensure that they are in place during the transition.
There were particular challenges in this case because of the number of bodies that were being merged—the eight former police authorities plus the Scottish Police Services Authority—the fact that they were dispersed around Scotland and the fact that part of the rationale for the merger was to make savings that would help to ensure sustainable policing. Those challenges were there anyway, but the delay in agreeing who would take which roles and therefore which staff would be needed made it more difficult to ensure that people were kept during the critical period, were available to build the new systems and—to be frank—were available to provide information to Gillian Woolman and her team when they did the audit. The genuine complexities of the work were made more difficult by the delays that were encountered.
I think it is worth our while to note again that, as well as making the audit more challenging—that is a fact, and I am grateful to Gillian Woolman and her team for the work that they put in in order to deliver a clean audit certificate—that also meant that the information that was available to Police Scotland and the SPA to inform their decision making was not as rounded and complete as it might have been during the year, which has an effect on how public money is used. That is part of the reason why I am bringing the report to the committee today while fully recognising the progress that continues to be made in resolving the issues.
Thank you. On a simple point of information, are you going to go back for next year’s annual report?
Gill Woolman will be auditing the accounts of the SPA, including Police Scotland, every year. It is part of what we are required to do. My decision on whether to report to the committee and the Parliament will depend on what comes out of that audit, as it does in every other case. I am sure that at some point we will go back and have another in-depth look at the performance of Police Scotland, and particularly at progress in developing and delivering a financial strategy, but for now there are no firm plans for when that will take place.
Thank you.
I think that everyone recognises that it was always going to be a complicated business to bring together the eight forces and the SPSA. That was not a surprise, but it would also not be a surprise that somebody would need to be in charge of the finances and people would need to be clear about who that was.
We have seen the extraordinary spat between Police Scotland and the Scottish Police Authority being played out in public. What you show is the underlying reality of what that relationship between the two organisations created in terms of the flow of information and recording of information. You describe the negotiations to decide who was doing what as “protracted”. It was a squabble, basically, was it not?
You will understand, Mr Smith, that as auditors we aim to use language very clearly about what is going on, and we reported in full on the history of the merger in November 2013. I think that what we are seeing now is the legacy of the problems that were experienced in the early months leading up to the merger and the transition to the new arrangements.
There was uncertainly about whether the SPA or Police Scotland should lead on provision of support services. That took time to resolve, and eventually the Scottish Government moved in and brokered an agreement between the two parties. We are now seeing real progress, but we are also seeing the legacy of that delay.
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In order to have confidence that the arrangements that now exist will be successful, is it necessary to understand where the responsibilities lay between the organisations? Would you put it squarely that the organisations had different views about how the arrangements should work? Is the issue resolved, and is it now just a question of moving on? Was one organisation more overbearing than the other about how it wanted to do things? Was there a real difference in how they wanted to do the job?
That was a core issue in the report that I published in November 2013. As is often the case with problems and situations that are to a great extent about the roles that individuals play and the different perceptions that they bring, it is not possible to say that one person or organisation was responsible. I said at that time that the lack of clarity about who would do what, which was inherent in the legislation and the wider planning, did not help, and that there may have been scope for the Government to help to resolve the situation more quickly.
That is a different point, however, and we are not looking to reopen those questions. What we are saying now is that there were consequences of the delays during 2013-14. In Gillian Woolman’s view in particular, staffing has now reached a stable state, which is a good thing. We will continue to monitor how the people who are now in post are delivering what they are responsible for in terms of good financial management, good financial reporting and good use of public money overall to support policing in Scotland.
In paragraph 9 of the report, you mention:
“the suppliers were paid in a timely manner”.
How much of an issue was that? Was that a consequence of some bills or invoices not being paid during the previous financial year, which then carried forward to this year?
Gill Woolman will answer that in detail. The point that I was trying to make in that paragraph was that the finance staff in the SPA and Police Scotland were working very hard to keep the show on the road. Inevitably, there was within that a process of prioritisation of the most important things to be done.
As external auditors, we look at the financial accounts. In that paragraph, we are trying to provide assurances that the management accounting was being maintained throughout the year. Indeed, that was an important area for informed decision making to take place throughout the year. That paragraph was intended to give confidence that the finance staff who were in post were working very hard and that they knew that their priorities were at the interface for ensuring that supplies and payment were all kept up to date during the first year.
On the particular part of paragraph 9 that I quoted, was there an issue?
No—there was not an issue regarding payment of suppliers.
We have discussed the process that was followed. We are dealing with substantial sums of money regarding what both organisations are responsible for. Obviously, you are playing an important role in public scrutiny. In reaching your conclusion, you have made demands for information from the organisations, and you expect them to respond. Have you considered, on reflection, that more preparatory work should have been done to ensure that the information was provided, so that your job would have been much easier than it seems to have ended up being in the end?
You are absolutely right, convener. Policing in Scotland costs about £1.8 billion a year, and it is a service that we all rely on and expect to be there when we need it. In my November 2013 report, the point that I was making was that, for a change of such a scale, the run-up period was quite short, for good reasons. The fact that some areas were left uncertain left open the potential for the delays that we saw in the agreements about who would play some of the key roles in managing and reporting on finances.
The committee has had the Scottish Government’s assurance that the lessons will be learned for any such future moves. The underlying point that I would like to bring out is that for any organisation spending public money and delivering public services, having good financial information and good financial records is not something that we are interested in just because, as auditors, we are bean counters, but because it is one of the underlying ways in which we all, as citizens—and you as parliamentarians—know that public money is being properly used and accounted for.
I am very pleased with the progress that has been made within the SPA and Police Scotland, so I thought it appropriate to bring to the committee’s attention the challenges that were experienced as a result of the delays during its first year of operation.
Some of us are new to the committee, so we do not know all the background to this, but I wonder what lessons have been learned from the process. Significant public funds are involved. I can think of other organisations that receive significant public scrutiny that have been asked for information and see it as an absolute given that such information has to be provided or their organisations cannot continue to function.
You have highlighted some of the areas where information has been provided and that information has led to the report that you have given us today. My point, therefore, is that somewhere along the line the information has not been collated properly, or it has not been possible to collate it. What lessons have been learned to ensure that that has been dealt with in relation to the new organisation that has been created? I would expect it to have been dealt with in a robust manner to ensure that the significant public funds that have been spent are recorded properly.
We are very confident that the foundations are now in place for good financial management in the future in the SPA and Police Scotland. The people are there, the roles are clear and the backlog of work in terms of pulling the information and the system together is well under way, in Gillian Woolman’s estimation. We will continue to monitor that.
In relation to the bigger question of other such changes and mergers, the committee has the Government’s commitment to ensuring that lessons are learned for the future. Change on such a scale does not happen often, which is one of the reasons why it is so challenging. However, where there are future mergers or reforms that bring up the same sorts of questions, the committee has my assurance that we will continue to look closely to make sure that lessons are learned early, and not just when the reform is complete, at the end of the process.
I thank the Auditor General for Scotland and her team for their contribution today.
“The 2012/13 audit of North Glasgow College”
Before we move to item 6, I advise colleagues that I was the constituency member for North Glasgow College up until 2011. I understand that I do not have to declare that as an interest, but I just thought that I would draw it to the committee’s attention.
We have received responses from the Scottish Government and the Scottish Further and Higher Education Funding Council on the Auditor General’s section 22 report on the 2012-13 audited accounts of North Glasgow College. There have been several changes in the committee membership since this was last discussed on 19 November. Members should note that North Glasgow College no longer exists, as it merged with Stow College and John Wheatley College on 1 November 2013 to form Glasgow Kelvin College. In addition, we have the submissions from the committee’s consideration on 19 November and the Auditor General’s report on Glasgow Kelvin College.
I invite members to comment on the submissions that we have received and any action that they propose we take.
The submissions that we have received do not change my opinion on this from the last time we discussed it. The way the whole thing has been handled is outrageous. The fact that the main college concerned no longer exists creates enormous difficulties. Reading through everything, I think that there seems to be every evidence that, at the very least, there should be some sort of investigation into negligence and possibly even incompetence. I feel strongly that the whole thing has been badly handled. Some of the points that have been raised include the fact that the remuneration committee had not met for a number of years, that it received inadequate management support and that it was unaware of funding council guidance. All the paperwork shows that the case merits a proper investigation of how that happened.
The Public Audit Committee is not an investigating committee, but I ask your guidance, convener, on where we can take this matter next. If the entity still existed, it might be easier, but it does not, so where can we escalate the matter for further investigation?
I totally agree with Colin Beattie. It is outrageous and a sad reflection on the auditing procedures. We are constantly being told that lessons have been learned and things are in place, that we now have merged colleges that in future will adhere to the public finance manual, and that the same thing will not happen again, but the fact is that it did happen and that individuals awarded themselves around £750,000 of taxpayers’ money—thank you very much. Their defence was that they had not met for a number of years, that there was inadequate management support and that they were unaware of funding council guidance.
I read the funding council response and, to be honest, I really was not impressed by that either. It said that the guidance is on the website and that if only the college had looked at the website, everything would have been fine. It is gold-plated passing the buck. I do not know what the way forward is, but the entity does not exist any more, as Colin Beattie said. As an audit committee, we know that £750,000 is money that would go a long way towards home care and other things that are required in our public services, rather than being awarded to college principals and vice-principals. I do not know what we can do. It seems to me that they have probably got away with it.
I am pleased that the matter was brought to our attention by the auditors, Scott-Moncrieff, and I would like advice as to whether and how we can take it forward. I put on record that I fully agree with Colin Beattie about the very concerning information that we have had about these huge pay-offs.
I have a simple question. In the light of the reports on North Glasgow College and the work that has taken place on the issue, is a similar piece of work going to be done on the other merged institutions?
On the final page of the submission from the Scottish funding council, it states:
“It should be noted that the Scottish Public Finance Manual does not affect the non-incorporated colleges”.
How can we reassure ourselves that they are adhering to proper guidelines—if there are guidelines—to ensure that they do not encounter the same problems? They are publicly funded bodies, so there has to be some accountability. How are they accountable?
We need an assurance that it cannot happen again. That would be helpful and Colin Beattie makes a good point.
It is clear from those contributions that members feel strongly about the issue and believe that the response so far has been unsatisfactory. I suggest that we write to the Scottish funding council expressing our concerns and emphasising the fact that we are not satisfied with the latest response, and that we make it clear that we want to take the issue forward and seek a further response on that basis. Is that agreed?
Members indicated agreement.
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