Public Audit Committee, 23 Sep 2009

Meeting date: Wednesday, September 23, 2009

Official Report 192KB pdf

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Section 22 Report

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“The 2008/2009 audit of the Royal Botanic Garden Edinburgh”

For item 2, members each have a copy of the Auditor General for Scotland's report "The 2008/2009 audit of the Royal Botanic Garden Edinburgh". I invite the Auditor General to give us a briefing.

On 8 October 2008, the Icelandic bank Kaupthing Singer and Friedlander went into administration. At that time, the Royal Botanic Garden Edinburgh had £1.09 million deposited with the bank: that deposit was frozen, which is reflected in the Royal Botanic Garden Edinburgh's accounts for 2008-09. I will explain briefly to the committee why the garden had that amount deposited with the bank, and what has happened since 8 October last year.

As my report notes, the £1.09 million deposit was made up of two components. First, there was £456,000 of deferred VAT payments relating to the garden's John Hope gateway construction project; I understand that that gateway will open next month. The second element of the deposit was a board reserve of £635,000, which the previous Scottish Executive provided to the garden in 2005 to correct a long-standing deficit.

Ernst and Young was appointed as administrators of Kaupthing Singer and Friedlander, and wrote to all the bank's creditors, including the Royal Botanic Garden Edinburgh, in April 2009, suggesting that it anticipated being able to distribute a minimum of 50p in the pound to creditors. In the case of the Royal Botanic Garden Edinburgh, that implied a minimum of £545,000 being recovered. Ernst and Young have subsequently returned £220,800 to the garden, which is 20 per cent of the total amount that was frozen.

It is important to stress to the committee that, until a few days before its collapse, Kaupthing Singer and Friedlander was an A-rated institution. However, since October 2008, the garden has reviewed and strengthened its treasury management arrangements, as outlined in paragraph 12 of my report. I have asked the auditor of the Royal Botanic Garden Edinburgh to monitor progress on recovery of the funds.

I am happy to answer questions.

Thank you, Mr Black. Paragraph 12 in your report outlines the commendable approach that is now being taken, although I suppose that everyone can be wise after the event. This is maybe not a fair question, because it is not specifically about the RBGE, but do you know whether other public bodies across Scotland are taking a similar approach to that outlined in paragraph 12?

I cannot answer that, because the report refers particularly to the RBGE situation. However, as I am sure all committee members are aware from their general knowledge, action has been taken in that area across the public sector as a whole, not least in local government. There were widely reported problems in a few local authorities in particular. My understanding is that those have been addressed.

Who would be responsible for circulating suggestions of best practice in accounting practices and procedures?

That would depend on the sector. There would be specific requirements and guidance for local government, which I am not really qualified to speak on at this meeting—I would need to research that. However, in relation to public bodies in Scotland other than local government, as the report states, the "Scottish Public Finance Manual" is very clear in its requirement that bodies should gain approval from the Scottish Government for opening commercial bank accounts, but no further approval is required to place cash on deposit. There is therefore no doubt that, in this case, the garden should have sought authority from the Scottish Government before opening accounts with the bank in Iceland.

Had the RBGE failed to do that?

Yes.

How significant is that failure?

With the benefit of hindsight, it is obvious that it should have sought approval. In the grand scheme of things, the sum of money that is involved is not particularly great. Nevertheless, all bodies should always conform rigorously to the requirements of the "Scottish Public Finance Manual". As I mentioned in my opening remarks, the bank in question was an A-rated bank, so it would be fair to say that, in the normal course of events, the RBGE's not seeking authority as described would be seen as a technical breach, but not one of great substance. Had we not had the most unusual circumstances of the collapse of that bank in Iceland and others, I guess I would not be reporting on the issue, because there would not have been financial loss. It would simply have been a matter that would have been picked up in the audit, and which would be rectified.

You said that the RBGE had not obtained the Scottish Government's approval for opening the account. Is there any reason to believe that such approval would have been withheld?

That question should be put to the Scottish Government, but I will read into the question a little bit. It must be at least possible, if not probable, that opening an account with an A-rated bank would have been approved, but I am not in a position to advise you on that because I may be unaware of details of Scottish Government policy in respect of which banks should be used.

You remarked that wisdom increases with hindsight. How did the assessment process that gave the bank an A rating come about and has it changed since the Icelandic situation?

I would have needed notice of that question. I would be happy to help the committee if it wants further information about authorities' rating of banks, although the matter lies somewhat outwith my remit.

I imagine that the bank is no longer A rated.

The answer to Murdo Fraser's question is surely that the Scottish Government would have given permission. Was Iceland not in the so-called arc of prosperity?

It is not for me to comment on that. As there are no further questions, we will consider our approach later.