Meeting of the Commission

Meeting date: Wednesday, November 17, 2010

Official Report 469KB pdf

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Audit Scotland Annual Report and Accounts 2009-10 and Auditor’s Report

The second item on the agenda is to consider Audit Scotland’s annual accounts for 2009-10 and the auditor’s report on the accounts. The commission is responsible for securing the audit of Audit Scotland’s accounts and has contracted HW Chartered Accountants to undertake the role. We will hear first from representatives of Audit Scotland and then briefly from the auditors to confirm their opinion.

I offer a warm welcome to Mr Black, Auditor General for Scotland, who is the accountable officer for Audit Scotland; Mr Frith, assistant auditor general; and Miss McGiffen, chief operating officer for Audit Scotland. I invite Mr Black to make a short opening statement.

Thank you and good morning, convener.

I start by mentioning that, as some of you may be aware, there have been changes in the management responsibilities at the top of Audit Scotland, which might explain a little of who does what this morning. The deputy auditor general Caroline Gardner is now working for the Department for International Development as the lead officer in sorting out the finances and governance of an overseas territory in the Caribbean. She was invited to do that by the minister, and she will be away for a year. I have not filled her post; instead, I have asked Russell Frith and Diane McGiffen in particular to take on some extra responsibilities. Russell has widened his remit as the assistant auditor general and Diane has taken on the role of chief operating officer for all our business. They will be able to help me to answer your questions fully this morning.

I should say as an aside that, in a professional magazine, Russell was recently nominated as one of the top 50 most influential accountants in the whole of the world, so I have a reasonable degree of confidence that he might have mastered the Audit Scotland numbers—but time will tell.

I will turn to our annual report, in which we attempt to capture the highlights of 2009-10. There are elements of the work that are evident to Parliament; in particular, I put in that category the 23 performance audits and best-value reports that we published in the past year. Less evident to Parliament at this level, but possibly evident to members of the Parliament at a local level, are the 215 final audit reports that have been produced. Even less evident than that, but evident to the audited bodies, are the 881 separate reports on governance and financial management and performance produced primarily for the 215 public bodies that we audit. I am also pleased to say that our surveys of local and central Government bodies find that well over 90 per cent consider that we provide a high-quality service, which is reassuring for me as the Auditor General and the accountable officer.

Two points relating to our people and how we work are worth a quick mention. We are well into the list of the 75 best places to work in the public sector in the United Kingdom according to The Sunday Times independent survey, and we have again been awarded Shaw Trust accessible+ accreditation for having a website that is friendly and usable for people with disabilities. It was a significant year of achievement.

This year we started one or two things that I am sure we will talk about later. We are working hard to ensure that the audit effort is streamlined and addresses the major risks and performance issues in public bodies in Scotland. We have recently revisited our forward programme of performance audit work to put a new emphasis on risk and efficiency and how resources are used. That has been presented to the Public Audit Committee and has its support. For some time now, we have been taking action to improve our own efficiency and reduce our costs. Some of that work started last year, and I think that we are beginning to see the benefits flow this year. No doubt, we will come back to that when we talk about the budget submission.

Thank you for the opportunity to introduce the annual report. My colleagues and I will be happy to answer any questions to the best of our ability.

10:15

Thank you, and congratulations to Mr Frith.

I will start with some general questions on the management commentary. I was interested to read on page 1:

“This year we have received 250 requests from people wanting us to look at a number of high profile issues, often of a controversial nature. We examine all such requests.”

I am interested to know how many of those requests you go on to investigate and whether there has been an increase in the number of requests that you receive and follow through.

We monitor those requests every year. The profile changes between health, central Government and local government. Over the years, the number has risen, partly, I think, as a result of an increase in Audit Scotland’s profile. As we state in the report, we take every one of those requests seriously. Some of them are dealt with simply by correspondence—there might be no role for us—sometimes there are issues that require an exchange with the audited body that is affected, and very occasionally requests lead to higher-level reporting, including reports to the Parliament. That has been known to happen.

I doubt that we have much detail on that with us today, but perhaps Diane McGiffen can expand on what I have said.

The volume of correspondence on issues of concern in relation to public bodies has been increasing steadily. In 2007-08, there were just over 200 pieces of correspondence, and last year there were 250. We do a breakdown by sector, and the local government sector generates most of the correspondence that we get.

As Bob Black said, we have a variety of ways of dealing with that. Sometimes people correspond with us when they know that we are working on a topic or have an area of investigation in our work programme, so correspondence does not necessarily generate a brand new piece of work. It might add to information that we already have or concerns that we are aware of as part of a piece of work that we are engaged in. In 250 pieces of correspondence, there will not be 250 separate items of concern. There might be a number of pieces of correspondence about the same broad issue.

Thank you. I am also interested in page 9, where you discuss the responses to your quality survey. It appears that you have a very high level of satisfaction from both local and central Government with regard to the impact of audit, but I notice that local government has higher levels of satisfaction in all the areas of impact of audit. Can you give me a feel as to why that might be?

It is difficult to put a finger on the precise reasons. I suspect that one reason is that, typically, council audits have more resource allocated to them and tend to cover a slightly wider range of topics than do audits of most central Government bodies, taking the Scottish Government itself out of the equation. Given the nature of the people who complete the surveys, I suspect that a wider range of work comes to their attention than is typically the case in central Government.

My final question for the moment is about page 5, where you state:

“We have a framework for assessing and reporting on the longer-term impact of our work, which provides a wider picture of the value of audit.”

You go on to state:

“We now routinely prepare impact reports”,

and you confirm that you published 15 of them in 2009-10. Are those reports on the longer-term benefits and impact of audit?

The short answer is yes. The first main assessment is done after about a year. We revisit topics further down the line to see what the impact has been, and we occasionally revisit a topic and report to the Public Audit Committee.

The payment of invoices is referred to on page 29. I think that I might have asked about this last year—I seem to recall that there was an improved information technology arrangement for dealing with them. However, 7 per cent of them are still not paid within 30 days. That is not a huge number, but why are 100 per cent of invoices not paid within 30 days? It does not seem to be too difficult a target to meet.

Included in those figures are invoices that are under dispute, which can lead to our not being able to agree either that the goods were received or that the price was correct. We are unable to pay a small number of invoices because we are clarifying or querying their content.

We have been working steadily on improving the payment of invoices within the 30-day and 10-day targets that we discussed with the commission this time last year. We are seeing a steady improvement in paying invoices within 10 days. In the six months to September this year, we paid 71 per cent of our invoices within that time. In the most recent quarter, that went up to 74 per cent. We are paying attention to that area and seeing an improvement.

The electronic system is a significant contribution to that, although it is not the whole answer to paying everything within the timescale. We are working with colleagues to ensure that priority is given to chasing up and resolving quickly any issues with outstanding invoices.

Page 10 has case study three, which is about streamlined audits and not having 20,000 bodies descending on a council. You indicate that you tested the new model of shared risk assessment at seven councils and reviewed the outcomes. That all sounds very promising. Does it lead to identifiable savings for Audit Scotland and for the councils that are audited? It sounds as if what has been tested ought to be helpful.

There is a three-part answer to that. First, Audit Scotland co-ordinated that exercise on behalf of the Accounts Commission, which has formal oversight of local government. It resulted in a 36 per cent reduction in the volume of scrutiny activity planned for local government, which is significant. A lot of the costs are compliance costs to public bodies as well as direct costs. However, the inspectorates are funded separately by Government and they have their own efficiency targets to meet.

Secondly, the Accounts Commission has mandated Audit Scotland to work hard on a revised model of best-value scrutiny—best value 2—which will place a much stronger emphasis on risk awareness through shared risk assessment, focusing on the key issues in public bodies.

Finally, as the commission will see when we talk about our budget, we are proposing to make quite significant reductions in our cost base in real terms during the next few years. Best value will play a part in that, but as we speak we are still working through the resource consequences of the rationalisation of best value. The director in charge of that, Fraser McKinlay, is working on the staff resources that will be appropriate to delivering a streamlined scrutiny model into the future. It is a bit like what is happening with the invoices: it is work in progress, but the direction of travel is pretty encouraging.

Do colleagues have anything to add to that?

I think that that is the picture. The best-value resources that Audit Scotland spends will reduce in line with Audit Scotland’s overall expenditure reduction. We have to put resources into the co-ordination of other people’s activities, so there is an investment in making reductions happen in local authorities. More of our effort is put into the shared risk assessments that we do with inspectorates than was the case previously. However, there is less time on site with local authorities, which frees up their officers’ time to do other things. The process is much simpler. Local authority officers understand for the whole year who will come in to do what and when they will do it, and information and expertise are shared across all the inspectorates before anyone goes on site. The process is much more streamlined and all the scrutiny bodies are committed to improving it.

That is very good. It is helpful that that will reduce budgetary pressure on people instead of increasing it.

I have a final point, which might go a little bit beyond our remit. Page 4 of the report refers to the impact of your work and how local government has done rather better than central Government on joint purchasing arrangements and so on. There is a lot of discussion about issues such as having a single police force for Scotland, collaboration across emergency services and councils joining together—it is almost a centralisation agenda. The general impression appears to be that there are savings to be made from such an approach. At the same time, some of the smaller councils are generally regarded as being at least as efficient as the bigger ones, if not more so.

Is the balance between shared costs and centralisation on the one hand and greater local autonomy and localisation on the other fully reflected in the work that you do on all that sort of stuff? Centralisation sometimes seems to lead to bigger costs from higher salaries and more important officials at the top of the organisation.

It is not unfair to say that progress towards shared services in Scotland has been slower than a lot of people might have hoped and that the delivery of results has been patchy and limited, so it is still early days. As you will know, over the years, there have been some major initiatives in the west to deliver shared services: Sir John Arbuthnott is fully engaged in that process at the moment. We will certainly need to monitor what is happening in that area.

Shared services have two core purposes: one is to do with the quality of service that is provided and ensuring that it is the best; the other is to get the cost out. It is entirely reasonable to expect audit to be able, in due course, to report independently on whether efficiency savings are being achieved, but it is rather early days for it to do that yet.

We have done pieces of work that are relevant to that. Most recently, as Mr Henry will be aware, we did a major piece of work on the Scottish Police Services Authority, which is a shared-services organisation. On the back of that report, we have attempted to distil a checklist of all the key questions that should be asked before a shared-services project is entered into, and in evaluating whether it is delivering the anticipated benefits.

The SPSA has recently had a number of successes in improving efficiency, but it had a troubled start and we thought that there were lessons to be learned, not only from that but from our general knowledge of what was happening across Scotland. We hope that the work that we have done will be a useful starting point and will act as a framework that we will be able to use in future years to assess whether the various public agencies have approached the issue in a business-like fashion.

Hello. On page 10 of the report, in the ethical standards section, you say:

“The independence of public audit helps ensure its effectiveness.”

I agree with that, and I see that Russell Frith has the relevant responsibility.

I understand the importance of the excellent work that you do on increasing efficiency in the public sector and on best value—the best-value reports are very good—but there is a fine line between doing such work and moving into public policy, particularly in relation to cuts in services and priorities. You know that I raised that issue at a recent meeting of the Public Audit Committee in the context of a particular report.

In the current financial climate, there is widespread but not universal support for the idea that there ought to be cuts; I am one of those who do not support that idea. What are you doing to safeguard your independence and to ensure that you are not put under undue pressure to move into making recommendations that justify or support cuts instead of advocating efficiency and best value?

10:30

There are two aspects to that. Do I have licence to widen the question slightly? In my experience, pressure is more likely to come from audited bodies saying, “You don’t really want to report that, do you?” or, “Have you got a right to investigate that issue? We’re not sure about your rights and powers to look at that.” I would prefer not to give chapter and verse. There is no doubt in my mind that a great strength of the Scottish model is the fact that Audit Scotland—on my behalf and on behalf of the Accounts Commission—appoints the auditors independently of any council, health board or non-departmental public body, remunerates them independently in a transparent way that we report and holds them to account for the quality of their reporting. That is the intrinsic strength of the model.

I acknowledge the importance of not being drawn into policy. We are extremely vigilant about that. We have long years’ experience of observing the boundary between being involved in policy advice or consultancy and carrying out the proper role of audit. I agree that there is a fine line between using the knowledge that we have and the expertise that we build up to help audited bodies to understand their issues and make improvements and engaging directly in the policy agenda.

Let us go back to the case that I mentioned, which related to concessionary fares for elderly and disabled people. Towards the end, the report seemed—to me, at least—to verge on advocating that the Scottish Government should consider limiting eligibility. That is a public policy issue; it is nothing at all to do with efficiency and best value. Is there a danger that you might get caught up in a wave of belief that the only way in which to deal with the current financial problems is through cuts in public services, leading you to get carried away and recommend that?

Yes, I think that there is a risk of that. I personally encouraged the auditors to provide in the final paragraphs of that report on the concessionary fares scheme in Scotland an objective analysis of the sums of money involved as well as the sums of money that would be involved under different future scenarios. That was purely and simply providing information. I apologise if the report gave the impression that we were advocating a policy; that was certainly not the intention. We used words carefully to say what would happen under different scenarios. Under the do nothing scenario—if I remember correctly—an uncapped cost to the public purse could rise to something in the order of £500 million. There were also options to draw back from that, and numbers were provided simply so that policy makers and decision takers would have them.

I venture to suggest that, in the current climate and the climates that we are heading into, it is probably right to encourage the auditors to be a bit bolder in producing clear numbers in that way—not to advocate a policy line, but to provide the financial numbers that they think are attached to the policies that are currently conceived of.

On the subject of fine lines, I remind members that the focus of this item is the accounts as opposed to operational matters.

Well, I did refer to page 10.

As I say, it is a fine line.

A very fine line.

I have another question. Unlike Robert Brown and Derek Brownlee, I do not find all the detail of the figures as important as some other things, and the question that I am about to ask may seem trivial. The reports that you produce on your work are generally some of the most readable and digestible reports that we get in the Scottish Parliament. However, this report is turgid. Why can you not get the people who design and produce the reports on your audit work to do the reports on your annual accounts?

Lord Foulkes, I entirely agree with you that this accounts report is a very dense narrative. I encourage you—as we have done the Public Audit Committee in the past—to read the Audit Scotland annual report, which is given to every member but has not been circulated with your papers. It even has photographs in it to populate it with human interest.

Oh, good. I will get a copy of that.

To be serious, though, the annual report is designed for public consumption. It does not have all the detailed numbers that are in the accounts report, but it does give the highlights and some of the key performance measures. I encourage the commission in future to use the annual report, which has been well received out there and might be more suitable to the high-level questioning that you may have.

That is an excellent answer—well done again.

Thank you. While I have some sympathy with Lord Foulkes’s preference for words as opposed to numbers, do we have any more questions with respect to the accounts?

I would like to ask a question that relates to the remuneration report on page 27. You will be aware, I think, of the general drift of what the Cabinet Secretary for Finance and Sustainable Growth is likely to report this afternoon. We do not yet know the details, but it has certainly been well trailed that we can expect a salary freeze for many public service employees. I do not know whether there will be any suggestions of a cut for those at the top. The Scottish Parliament budget has been reported as being significantly reduced over the next few years. The money for Audit Scotland will come from the Scottish Parliament budget. Will you reflect those constraints in the way that you manage your resources? What do you intend to do in relation to the salaries of senior employees, given the constraints that are being discussed elsewhere?

The short answer is yes; we will take them seriously into account. We were one of the early bodies to require a pay freeze, which has been in place since this last April and applies to everyone in the organisation. As we will no doubt touch on when we come to the budget, we see that pay freeze being in place for this year and next.

We are very mindful of the overall public sector environment and have been taking costs out, including senior management costs, and will continue to do so. For example, in the audit services group, which is the largest group of staff, we are reducing the number of assistant directors from seven to five. We are also, as part of the rearrangements that I mentioned earlier with Caroline Gardner going, running for a period with one director in charge of that whole area of business. I encourage you to think in terms of the total salary bill at the senior level rather than to concentrate on individual posts.

With regard to individual posts, we have frequently checked our remuneration against remuneration that is paid in other comparable areas and it has been robustly assessed by the remuneration committee of Audit Scotland. We are taking money out of senior posts as we speak and we will continue so to do.

I accept what you say about the total bill and your exhortation that we look at what is happening overall. However, given the close relationship between funding for Audit Scotland and the Scottish Parliament budget and given that certain decisions will be made in relation to senior employees in the Scottish Parliament and given what may happen across the public sector in relation to senior employees, will you follow the same example in relation to individuals and not just in relation to the total bill?

We will certainly have very close regard to what is happening to pay policy at a senior level in Government and in the public sector more widely.

Can you explain for me how the figures in the line headed “Lump Sum” have been calculated? Is it to do with length of service?

Yes—for all the people on the list. The four of us cover three different pension schemes. The lump sum is essentially a multiple of the annual pension—usually three times—which is earned in relation to service in the organisation.

So it ignores previous service that was accrued in other organisations.

Yes—in other organisations or under other schemes.

What is reflected by the real increase in cash-equivalent transfer value—CETV?

The transfer value is effectively the value that would need to be transferred if moving the pension to another scheme were attempted. The figure is after inflation is deducted, which is why it is termed a real increase.

Will the constraints on budgets and public sector pay be reflected in the amounts that are to be contributed to real increases in CETV?

That will depend heavily on inflation. The real element is there. As we are all members of national schemes, it also depends on the policies for those schemes.

So although public pay might be constrained, there could still be substantial increases in the contributions that are made to pensions.

If the contribution rates for the local government pension scheme or the principal civil service scheme increase—yes.

There is discussion elsewhere about increases in the region of 18 or 20 per cent. Is that trend in increased contributions likely to continue?

It is difficult to say. An actuarial valuation of the local government scheme is due at the end of March. It is a triennial valuation. The valuer will take into account what has happened to investment yields, discount rates and inflation rates.

Contribution to the schemes is explained in a bit more detail on page 43 of the report and accounts. Who determines what the rate of increase is for pension contributions?

The actuaries. In this case it is a firm called Hymans Robertson, which advises on the local government pension schemes. For us, that is the Lothian part of the local government pension scheme. The trustees—a group of councillors—take the advice of the actuaries and set the rates for the next three years.

So the figures that we see on page 43 will apply to every member of the Lothian scheme, irrespective of their salary.

They will apply to every member in Audit Scotland. The rates are set differently for each of the major employers in the scheme, on the advice of the actuaries. Our rates happen to be slightly lower than those for some of the bigger employers in the scheme, because we have a workforce with a younger profile.

That raises a slightly wider concern, not specifically in relation to Audit Scotland but in relation to the management of public finances. Although budgets are being constrained you are telling me that, for a very significant part of organisations’ finances, employers might be facing increases upwards of 20 per cent. Further cuts in real services could be required to pay for that. It is an issue that I can perhaps pursue elsewhere.

I have a small technical matter to raise. On page 44, the “Legal and other professional fees” seem to have gone down by about a half, from £1,242,000 to £794,000. Can you give us some background to that? It is obviously a welcome development in budgetary terms, but does it entail some oddity of policy or practice?

10:45

It is largely a matter of timing. The phrase “Legal and other professional fees” covers a multitude of subheadings that include all the professional support that we get for our performance audits. For example, if we use the services of a palliative care nurse—as we did—to advise on our palliative care study, it goes under that heading, as do the payments that we make to the Audit Commission for the national fraud initiative and any consultancy-type expenditure for running our own business.

The amount has varied; it has gone up and down over the years. If you examined the trend over four or five years, you would see that that is the case. It varies significantly according to the study profile and the nature of the studies that we undertake.

So there is not a policy in the background; you are not deliberately holding those things down.

We have been careful in what we commit to, as we have been with all other expenditure, but there is not a deliberate policy not to spend on support in that fashion.

On page 44 on administration costs, under the heading “Fees and Expenses to appointed audit firms”, does the increase between 2009 and 2010 reflect an increase in workload or the charging of higher fees?

For that period, the increase in remuneration rates for the firms would have been the same as for our own staff. It is a very low percentage; I cannot remember the number. It was around 1.5 or 2 per cent; it would have been no more than that. The rest would have been volume related.

We discussed constraints on budgets earlier. There will certainly be a difficult few years. It is obvious from the work that we see in the Public Audit Committee that demand is unlikely to reduce. The convener asked about inquiries from individuals and organisations; I suspect that they will continue to increase in number as people become exercised about what is happening, feel resentful and want to ensure that money is being properly used.

Audit Scotland is an organisation that people can identify with and trust, so the level of individual inquiry will increase, but demands from bodies such as the Scottish Parliament to ensure that money is being used properly will also increase. There is a dilemma: you face a period of constrained resources while demand might go up. Alternatively, we can consider the situation as individual consumers. The members around this table will—quite rightly—have their salaries frozen, like many others, but utility bills will go up significantly, particularly for the low paid, so people’s living standards will start to fall.

It is clear that the private sector will not necessarily be constrained and freeze fees and charges simply because the public sector has frozen—or is cutting—its budgets. Is it likely that there will be not only an increase in demand but an increase in charges from private sector companies? How will you cope with that?

I will start with an answer to that and invite Russell Frith to come in with more detail.

We touched on the operation of the public audit regime in Scotland earlier in the meeting. The fact that auditors are appointed and remunerated independently makes it possible for us to set the target rate for the cost of an audit. Russell Frith will be able to explain that more fully, but I know that the SCPA and the external auditors have already done a lot of work on that. Aside from that particular control, we have recently imposed on the firms the same efficiency targets that I have required Audit Scotland to deliver. In other words, the firms have to march in step with us. Similarly, we will tie the firms’ remuneration to movements in our own staff costs to get the relationship right.

We are also in the midst of retendering the portion of the work that the firms carried out hitherto, and Russell Frith has introduced an element of price competition to see whether we can achieve more efficiency gains over and above the top-down efficiency requirements that we have imposed on firms in the past. That exercise will have an impact on the issue you raised in the first part of your question. I on behalf of the Parliament need to be assured that the work of auditing public bodies is sufficient and fit for purpose. I am not expecting this to happen, but one could imagine a scenario in which a firm came in and—to use an old-fashioned phrase—low-balled its bid to win the work. It would be for Russell Frith and his team to evaluate very carefully the inputs and the quality of work that that firm would deliver before we would take such a bid seriously. In that way, we are trying to lay the need to get costs down off with the need to secure the minimum quality of audit necessary to do the work.

Speaking more strategically, I do not think that it will come as a surprise to anyone that I have a growing concern about financial risk out there. Public bodies are going to face quite challenging reductions and there is a risk of financial performance falling off, budgets not being absolutely deliverable and so on. At some point, we will have to tell the auditors to be vigilant about risk assessment and we cannot pare the work of audit to a level below what we are asking for in the budget.

Russell Frith will say a bit more about how we are driving down costs with the firms.

I am fairly confident that the price competition element that we have introduced into the current procurement exercise will reduce the costs of firms below the level that we bear at the moment. In essence, we will be able to lock all that in for the next five years, which means that the firms will not be able to use any upturn in the short term to raise charges.

I have a final, brief, question. I am aware of the change in accounting policy, but why was a provision for property dilapidations created in 2009-10 and not in previous years?

Provisions for dilapidations are routinely made by organisations as they reach the end of their leases. One could argue that such a provision should be introduced at the beginning of the lease, but the reality is that that does not happen very often. Normally, as they get towards the end of their leases, organisations start to review whether they are likely to renew them or whether they will leave the premises and go elsewhere.

Quite early in 2009-10, we looked at our property portfolio and took more formal decisions than we had previously taken. We decided that we would vacate one of our Edinburgh properties when the lease comes up in 2012 and that we would look to relocate out of the two George Street premises when their leases expire in 2014-15. Having come to a firmer view on those things than we had in the past, we felt it appropriate to take advice on the likely level of provision for dilapidations across those properties. We did that, and I have accordingly made provision for it.

So you have decided to move out of 110 George Street when the lease comes to an end. Is that right?

Our ideal scenario is to move into a single Edinburgh-based or east-based building because it is likely that that will be more efficient and effective.

Right. There are plenty of buildings around, are there not?

There are at the moment.

The figure for dilapidations is quite substantial, bearing in mind that it relates to one building. I guess that there will be decorating and other things to do when people have been in a building for a year or two, but why is the figure so large?

The figure relates to at least four buildings.

So it is not just for the building that you are moving out of.

It is for both buildings in George Street, the building in Haymarket, which we will vacate first, and one of our northern buildings. The figure is the adviser’s view of what we may have to pay. Obviously we will seek to reduce it. I hope that we will, but the prudent approach is to make now the provision that we have been advised to make.

I would like to follow up on a comment you made about what might happen at the end of the leases. You said that you will seek to move to one Edinburgh-based or east-based location. Are you considering moves beyond the Edinburgh area in line with other shifts by public bodies to disperse employment throughout Scotland?

We already have a significant number of dispersed staff. We have a significant office in East Kilbride and offices in Inverness and Aberdeen. We look to locate our staff near the work they carry out, and we seek to base them throughout Scotland because we carry out work throughout Scotland. We need to have a significant presence in the east to cover all the work in that area and the work in supporting Parliament.

I would recommend Livingston.

I went to see VisitScotland at its impressive new headquarters at Ocean Point. I had free parking and there were excellent views. I strongly recommend that area.

We should probably rein back the discussion before members of the commission start to argue about the respective merits of the areas they represent.

I thank Audit Scotland for the evidence on its accounts, which is useful. It has taken us into territory that we will discuss again later in the meeting. We are all casting an eye to the future.

There will now be a brief suspension to allow for a witness changeover.

10:58 Meeting suspended.

10:59 On resuming—

Good morning. I welcome Mr Richard Gibson of HW Chartered Accountants, external auditor to Audit Scotland. I ask Mr Gibson to confirm that HW has received all the necessary information and explanations to inform its opinion on the accounts and to provide an overview of any observations arising from its work.

Good morning, convener. Yes, I am happy to confirm that we received everything that we needed to undertake our audit for the year ending 31 March 2010.

I will say a few short words. HW Chartered Accountants was appointed to undertake the external audit of Audit Scotland five years ago, following a competitive tender. This is the fifth and final year in which we will undertake the audit under that contract. My job is to provide you with three things. The first of those is the external audit report, which is attached to the annual accounts and which I will return to shortly. The second is the report to management, or management letter, that we provide, which recommends improvements that we feel need to be made to the systems and controls at Audit Scotland. The third thing is the verbal report, which I am happy to give you this morning.

We undertook the audit from May into June 2010. We received all the information that you would expect to allow us to undertake the work and the audit was completed with very few issues. We signed it off in June 2010. I am happy to confirm that the audit report is unqualified—that is, we found no issues that we felt required to be brought to the attention of readers of the accounts. We are happy to confirm that it was what we call a clean audit report.

The report to management—the management letter—which you have also received among your written submissions, addresses matters that are not significant enough to be brought to the attention of a reader of the accounts but which are, nonetheless, the subject of recommendations for improvements that we feel may need to be made. Over the course of the five-year contract, we have made a number of recommendations to Audit Scotland via the management report, and every one of them has been adopted and implemented. I am pleased to say that, this year, the report to management contained no issues of significance that we felt should be reported. It has been a very smooth audit this year.

I record my thanks and the firm’s thanks to the staff of Audit Scotland and the support staff of the SCPA for the past five years—it has been an education and an entertaining process, at times. Over the past five years, the audits have become progressively smoother, and we are grateful to the SCPA and Audit Scotland for their support in allowing us to complete them.

Thank you, Mr Gibson. I suppose that it is appropriate for me to place on record the commission’s thanks for the work that you have done on our behalf, as the external auditor. I have one question. You will have heard the earlier discussion about the fact that Audit Scotland has created provision in its annual accounts to cover property dilapidation costs that may materialise when certain property leases expire. Can you confirm that you have reviewed the provision that has been created for property dilapidation and that you are content with the proposed accounting treatment?

Yes, I can. We had a meeting with David Hanlon, the director of finance at Audit Scotland, prior to the year end, at which point at which Audit Scotland had identified that it was probably going to vacate its premises. We discussed the appropriate accounting treatment and agreed the treatment that you see in the accounts this year. Audit Scotland then undertook an external review of the potential dilapidation costs through a firm of surveyors, which reported the costs that provided the quantum that you see in the accounts.

So, yes, I am happy with both the policy—the principle—and the quantity that has been allocated for the purposes of the accounts. It is worth noting that standard accounting policy would say that, until an organisation had decided to leave a property, it would not accrue for dilapidation. That is standard accounting practice. We are, therefore, happy that now is the time to introduce such a provision.

There are no further questions from colleagues. Thank you very much, Mr Gibson.

11:04 Meeting suspended.

11:05 On resuming—