I welcome the witnesses: Dr Jim Logan, the principal of Moray College; Professor John Sizer, the chief executive of the Scottish Further Education Funding Council and Mr Eddie Frizzell, head of the Scottish Executive enterprise and lifelong learning department. I also welcome Margaret Ewing MSP.
We will ask questions in three main areas: the financial governance arrangements at Moray College, the apparently deteriorating financial position at Moray College during the period of the report and the roles of the Scottish Further Education Funding Council and the Scottish Executive enterprise and lifelong learning department in relation to the difficulties encountered at Moray College.
The report sets that out very well. In a nutshell, the department is responsible for setting up the funding council. Ministers make appointments to the council and the council is constituted according to ministers' decisions. We fund the council and expect the council to abide by the financial memorandum that we issue to it.
What do you consider to be the strengths and weaknesses of the arrangements? For example, are they adequate if the department or SFEFC has serious concerns about management or performance issues in a college?
The Government has taken the view that there is a strength in involving a body directly between the department and the colleges, which can bring together the expertise that is necessary to provide appropriate funding to discharge the Government's responsibility to ensure that adequate further education is provided. The benefit of that is that responsibility for decisions about funding do not lie directly with the department and politicians; there is a body between them and the colleges that can make a non-political assessment of matters.
Does either of our other witnesses wish to comment on roles and responsibilities?
I would be happy to answer any questions that members have. Mr Frizzell has explained clearly that our body lies between the Executive and the institutions. The funding council operates within the limits of a financial memorandum from the Scottish Executive, against which it monitors our performance. Similarly, I issue a financial memorandum to the management boards of the colleges and provide them with guidance, against which I monitor their activities.
Dr Logan, do you wish to add anything?
No, I am happy with that response.
You have all entered the situation during its most recent stages. As well as considering the immediate past, I would like to think about the future. What assurances can you give that lessons have been learned and that past mistakes and bad practice have ended?
The assurances that I can give are based on the action that has been taken and the fact that there has been close consultation between the department and the funding council on the follow-up. Several recommendations have been made in the different reports on the issue, which are either being implemented or—in the vast majority of cases—have been implemented. We expect and believe that, following implementation of those recommendations, similar situations should be prevented from arising.
Can the other witnesses give us guarantees? How can we ensure that past bad practices will not be repeated?
As I retire at the end of the year, it would be easy for me to give you a guarantee, but I shall not do that. No one can guarantee that there will be no examples of the misuse of public funds or weaknesses in governance and management. There would be no work for the National Audit Office, or the Auditor General in Scotland, if such guarantees were given and were watertight.
So you are both saying that at central Government level and funding council level, the mechanisms that are in place cannot stop such bad practice.
I did not say that. You asked whether I could guarantee—
But what you are saying is that the mechanisms cannot stop such bad practice taking place.
No. As you know, there are always examples of misuse of public money. We cannot guarantee that people will not be deliberately malicious and wish to misuse public money. The important thing is to create a framework in which it is difficult for that to happen and, if it does happen, to learn lessons from it. Those lessons can then be permeated throughout the sector so that, in my case, every governing body—whether it be in a higher education institution or a further education institution—learns from them. I would regularly issue reports from, say, the Auditor General and, previously, from the National Audit Office, and I would ask the governing body of the institution and its audit committee to analyse their practices against that report, draw up an action plan and ensure that that action plan has been implemented effectively.
So you are saying that you cannot give a guarantee but that you can give us an assurance that the mechanism will stop those kinds of practices. Is the machinery you have at central level adequate—yes or no?
I am sorry that I am not giving you a direct answer. As the Auditor General's report—
I would just like to know the actual situation. You have had some time now to act on the problem at Moray College and you have introduced some reforms. Are those reforms adequate? Can you assure us that the bad practices that took place could not happen again under your monitoring system?
The Auditor General's report recommends that the Scottish Executive undertake a review of the governance and management arrangements, to review the powers that the funding council and ministers have. Clearly, that review has to be undertaken before I can give you a yes/no answer.
If the present powers are not adequate, I presume that you would expect them to be expanded.
The recommendation in the report—that the Scottish Executive and Scottish ministers undertake a review—is appropriate. I agreed with the conclusion in the report; it is now for the Scottish ministers to decide whether they wish to undertake that review. The funding council and I would be happy to provide evidence to that.
I get your drift, Professor Sizer.
It is important to realise that in any system of governance, people who are avaricious and intent on feathering their nests will attempt to thwart the control mechanisms that are put in place. What is necessary—I think that this is what the committee wants to hear—is greater confidence in the ability of boards of management to supervise the management of the college. We have to draw on people from the local community who have an understanding of the dynamics of that community and who are committed to ensuring that public moneys are appropriately spent, with probity and propriety. Such people are a major force.
If you cannot give us a guarantee, can you give us an assurance?
I give you an assurance that we will have a rigid system of audit, both internal and external, and a properly functioning audit committee that will bring such practices to light sooner rather than later. That is the best assurance that I can give.
I am perturbed at the lack of assurance on mechanisms to prevent people from acting as they should not.
We may be a little constipated in saying that we cannot give guarantees. It is always difficult to ask civil servants whether they can give guarantees.
I am happy to accept assurances, so try them.
There is a distinction between whether the procedures that are or should be in place under existing powers are adequate and the wider issue of the Government's powers. I assure you that we believe that we have done everything possible to ensure that the procedures that are in place are as watertight as they can be to prevent a recurrence of what happened at Moray College.
I want to zero in on an answer that Professor Sizer and Dr Logan gave about boards of management. Professor Sizer said that boards of management are the first line of accountability and Dr Logan mentioned the importance and value of the boards being rooted in the community. Paragraphs 2.2 to 2.4 of the report set out how boards of management are appointed—existing members appoint the subsequent members, which is self-perpetuation and a bit like the way in which the Tory party used to elect its leaders or the way in which popes emerge from conclaves. Does that system ensure a high enough calibre of boards of management? As Professor Sizer said, those boards are the first line of accountability, so is there a way to tighten up the appointment process to ensure that the people on the boards are of sufficiently high calibre and that we do not have inefficient or incompetent boards that are self-perpetuating?
Is that question for me?
It is for you all to comment on, as you all mentioned the importance of boards of management.
The position on the appointment of boards of management is set out in legislation. The issue is to balance the autonomy of incorporated colleges with proper accountability. Boards of management have not taken it on themselves to appoint their members—that process is set out in the legislation. Nevertheless, it is important that a board has an appropriate mix of skills. Financial skills are an obvious need. It is helpful to have people with legal experience and experience of managing property and physical assets. It is also helpful to have people from the community who have an interest in various aspects of education. When I give guidance to chairs in discussions about the boards, I stress the importance of having a balanced team.
I make two pleas. First, I ask for shorter answers. Secondly, I remind members that we are about to consider this matter in more detail, so I ask them not to stray into areas that we shall consider more fully later.
I am surprised that Professor Sizer, Mr Frizzell and Dr Logan have referred to avaricious people, financial impropriety and such practices. I did not find that in your report, Dr Logan. That gives me the impression that there was something going on and that you know something that we might find out later in the day.
I do not think that the Auditor General has suggested that the problem lies in having arm's-length structures. I did not think that the report suggested that.
I was referring to Dr Logan's report.
I do not think that one could draw that inference from what has happened in this case. It is possible to have arm's-length structures that work effectively in the interests of service delivery, but they need to be backed up with robust procedures. We have sought to make the procedures as robust as possible.
Within the confines of the structure that you have to operate in.
Within the legislation.
I welcome our colleague Dr Winnie Ewing MSP to the meeting and I ask Paul Martin to start the questioning on whether initial allegations of impropriety were brought to a satisfactory conclusion.
The allegations of misconduct at Moray College were first raised with the Scottish Office in an anonymous letter in May 1998. The report shows that some of the results of the examination into the allegations were presented to the college's board. Dr Logan, can you give us any insight into the discussions that took place and into the way in which the board reacted to the issues that had been raised?
I cannot give you a first-hand account but, from my analysis of what transpired, I would say that there were allegations against the former principal regarding the operation of his expenses. Concerns were raised about that. Shortly after he was suspended, he went on long-term sick leave; the matter was disposed of when he took early retirement on health grounds. I can say no more than that.
Did the board consider referring the matter of the alleged fraudulent activity to the police?
That was the first question that I asked myself: why was the matter not referred to the police? The board seemed confused about its real role. It seemed to be dealing with information that was arrived at through an investigation by another organisation and it did not feel confident or comfortable dealing with that other than by the way in which it proceeded.
Do you think that the board should have referred the matter to the police?
In my view, given the circumstances, the matter should have been referred to the police. I do not know all the circumstances but, on the prima facie case, I think that the matter should have been referred.
Why did the council not recommend to the board that the matter be referred to the police?
I am trying to recall whether that issue was raised—I might need to be prompted by a colleague. In our report, we raised the issue of the tax position and said that the tax authorities should be informed of the parts of the report that implied that there had been some disregard of that position. I will check with my colleague on the police situation.
Was that set out in your report to the board?
No, that was not in my report because my report was about the misuse of public funds, the investigation and the allegations. You have seen the report and the recommendations that are in the summary of the Auditor General's report.
I do not want to labour the point, but it is an important one. Would you have considered it inappropriate for the council to recommend considering legal action?
That was something that I needed to consider. The investigation put me in a difficult position. I did not direct the investigation; I inherited the papers relating to the investigation from the National Audit Office and the Scottish Executive. I took it upon myself to write up the investigation, to clear the investigation with all the parties involved and to produce the set of recommendations, which are incorporated into the action plan in the Auditor General's report.
I know that Dr Logan wants to speak, but does Mr Frizzell want to respond to Paul Martin's question?
The question is difficult to answer because I was not there at the time either, so I do not know what was going through anyone's head.
It might be helpful to the committee if I were to produce a written response, given the sensitivity of the issue.
That would be helpful.
I do not have access to all the papers that members of the committee have, but I have access to other papers. I am surprised that it took so long for the investigation to commence, because I have folders of material—I was raising concerns about Moray College long before the investigation began.
The reports to which you refer were made prior to the establishment of the Scottish Further Education Funding Council and I cannot comment on what went on before its establishment. As part of my team's work in the financial appraisal and monitoring services, we monitor all those matters.
It seems to me that there was an element of complacency, as I had been asking questions and writing to ministers about my concerns. As a local MSP, I might not know all the intimate details, but a number of people wrote to me—not necessarily anonymously—or visited me at constituency surgeries raising deep concerns. I drew that to the attention of the minister with responsibility for education when I was still an MP in the House of Commons.
I regret to say that I cannot comment on that, as I was running the Scottish Prison Service at the time. The department received allegations in May 1998 and the investigation commenced in August 1998.
Under your current monitoring systems, how quickly would the council or the department pick up any such problems if they recurred?
As Mrs Ewing said, usually these matters arise when people send me anonymous letters setting out allegations. Often those letters are copied to the Auditor General. As soon as I receive those letters, I ask Mr McCabe, who is my director of financial appraisal and monitoring, to make contact with the Auditor General's staff, so that a judgment can be made on the seriousness of the allegation. Frequently we are able to inform the institution concerned of the allegation and to request comments on it. Sometimes I send the letter to the chairman of the audit committee of that institution. Periodically we receive allegations that have considerable substance. I have in mind the allegations relating to Glasgow Caledonian University. In that case, I agreed with the National Audit Office that we should initiate a detailed investigation. I think that I am being pretty diligent.
I am rather perturbed by the suggestion that you rely on anonymous letters to bring problems to your attention. What monitoring do you do of colleges throughout the year?
I am responsible neither for the external audit of the colleges, which is the responsibility of the Auditor General, nor for the internal audit of the colleges, which is the responsibility of boards. The board appoints the internal auditors and establishes the programme. My staff undertake an evaluation of the systems and procedures that are in place and produce a report. The committee has seen the report that we produced on Moray College, which sets out our view on where weaknesses exist in the college's systems and procedures. I am not responsible for carrying out audit, but I am responsible for ensuring that the boards and management understand that any allegations should be investigated fully. On their visits, my staff examine the internal audit reports. I receive and examine copies of management letters from auditors. I also follow up rigorously any allegations that I receive. However, audit is the responsibility of the internal and external auditors of the institution concerned.
Do you give clear guidance to the remuneration committees that have to deal with principals' salaries? Why did Moray College's remuneration committee begin to minute its meetings and deliberations only from 13 August 1998? Do you regard that as satisfactory?
My post was created only in July 1999. I do not regard the practices that the member describes as satisfactory. As the committee can see, in my investigation I commented on the inadequacy of some of the college's minutes. I provide detailed guidance on severance arrangements to senior staff of Scottish further education colleges. I would be happy to let the committee have a copy of the circular letter setting out that guidance.
We would be glad if you would.
On a point of order, convener. Is there much sense in our proceeding with this investigation when the three principal witnesses were not in post at the time and are constantly telling us, "I am sorry, I cannot tell you about that because I was not there"? Would it not be more sensible for them to come before the committee with the papers that cover the period that we want to investigate or for us to invite the three individuals who were in post at the time to give evidence?
I understand your frustration but, although the witnesses were not in post at the time, they have investigated the matter and should know what happened. You wanted to ask why the college has taken so long to remedy the weaknesses that have been identified. If you pose your question, it may receive an answer.
I think that the witnesses will know what my attitude is before I ask any questions.
That is a fair point. I agree that the college's response was slow. We must take on board several factors. When the colleges were established, the arrangements at incorporation for providing outline or draft financial regulations, procedures, schemes of delegations and standing orders did not exist. Our concept of probity and propriety began to develop. We are more acutely aware of impropriety today than we were seven years ago.
That is fairly clear from your written submission. You say that most members of the board were about to resign and a new board was put in place. It strikes me—you and Mr Frizzell have said this—that what could be at fault, or could be a key element of the governance failure, is the structure of the board of management. What do you say to that?
You are right. The problem at Moray College was a lack of governance. The board of management had a structural problem.
Where did the principal breakdown in the structures of governance lie?
The principal breakdown lay in the failure of the then chairman of the board to exercise due control.
Was that a problem with the individual or the structure? You have said that we want to find the best structure to prevent the situation from being repeated.
I believe that it was a problem of the structure. The role of the board of management and the role and status of the colleges were misunderstood.
Who misunderstood—board members, the chairman of the board, the management of the college, the funding council or the Scottish Executive?
I do not think that the problem lay with the Scottish Executive, which was giving out clear signals at the time. We had the Nolan committee's report on standards in public life and a whole new concept of local public spending bodies. The problem had to lie within the college, in the understanding of the relationship between the board of management and the principal.
In light of that statement, clearly you would find it difficult to agree that the structure for governance was sensible. What steps have you taken to improve that structure and to enlighten individuals on their real responsibilities? When do you expect those improvements to bear fruit?
They have already begun to bear fruit. By the time I arrived, the board of management had become more confident in itself. The iterative process of the development of financial regulations is apparent. Over the past three months, there has been a good example of that kind of growth in confidence and there has been discussion about the appropriate level of control. The answer to your question about preventing things from happening is not to let anyone spend any money. A college cannot be run like that. The situation must move on.
I have a brief supplementary to an answer that you gave to Mr Quinan. You said that your role was laid out clearly as being an agent to the board. That implied that in all things you are a servant of the board, albeit a servant working with freedoms granted by the board. By that statement, were you implying that, at the time of the difficulties at the college, there was not an adequate control relationship between the board and the chief executive?
Absolutely. Without a doubt.
Please explain that, because three principals are involved. You are one; there were two others. What was the relationship between the two before you and the board?
I cannot comment. I am not sure which three principals you are talking about. There was the chap—
Dr Chalmers. There was also an acting principal. Were they agents of the board or did they have a different role?
Without a doubt, the acting principal was an agent of the board. The previous principal, Dr Chalmers, had a relationship with his board of management.
Which was what?
It appears that he did not recognise the responsibilities or the role of such bodies as a remuneration committee and that he frequently thwarted requests for information from the board of management.
The situation with Dr Chalmers—a dominant principal with a weak governing body—was a classic, as a number of reports have shown. I recall that, at my first meeting with Dr Chalmers and some of the governing body, I had to spell out that he was accountable to the governing body and explain the governing body's role.
You have clarified matters.
Can I ask my supplementary question on the board of management, convener?
You can ask it later.
Dr Logan's submission says that
The college's board of management has responsibility for staff development.
The problem is that we always return to the board of management. Perhaps I will be able to ask my supplementary question eventually. However, the question is important: could the funding council do more to help with staff development, training and induction?
That would be of great benefit. There is much to be said for such help through the funding council or other organisations. There is growing realisation that there is a need for much more robust management of finances and human resources, particularly in colleges such as ours.
I apologise to Paul Martin. Do you want to ask another question on the funding council, Paul?
No.
We will move on to discuss why Moray College incurred a financial deficit of £2.5 million.
On Lloyd Quinan's point of order, it is difficult to question people who were not around at the time. However, the witnesses who are before the committee today should try to answer the questions.
There are a number of factors. The easiest reply is that we needed a bigger cake—however, people are appointed to manage within the resources that are allocated.
I accept an awful lot of what you say, but it seems to me that there is something more fundamental going on. The Auditor General's report catalogues poor financial management at the college and failure to produce annual accounts on time, and highlights the fact that there was a delay in the accounts being audited, as the college did not meet even the revised deadline. The report also highlights the college's inability to manage its own budget, with a budget deficit forecast at £200,000 turning out to be nearly £750,000. That is not all the result of the reasons that you gave us. There seems to be something more fundamental wrong with the internal financial organisation of the college, as opposed to all the external factors that may or may not have a bearing on that.
One of the other problems that we have just addressed is the question of who is financially accountable. We had a centralised control system and the expenditure took place at the periphery. We have moved responsibility for financial management down to the unit of activity. We now have monthly management reports—not only on expenditure against budget, but on activity against target. We are moving towards having a much more robust financial management system that will enable us to control costs.
As soon as I had finished writing my report on the allegations, I asked my financial appraisal and monitoring team to visit. Members have seen that the team's report found significant weaknesses in the financial management control systems and in the budgeting and reporting arrangements. The data that we were receiving were not robust. We have pursued the issue vigorously and have given as much help as we can.
We will come to financial appraisal and monitoring services later.
Would you say, Professor Sizer, that the weaknesses that you found in Moray College were unique to that college, or are there similar weaknesses across the further education sector in Scotland?
I would not say that such weaknesses existed across the FE sector. As I said earlier, I have not had to investigate allegations of misuse of public money in any other college. Few of the current members of the committee were present when I commented—as, I think, the first witness to come before the committee—on the financial health of the sector. I will report on that again later in the year.
Are those weaknesses related to incorporation? Dr Logan spoke about what happens when there is no grand plan. Clearly, the circumstances at Moray College were, as you have implied, partly to do with the individuals involved, so those weaknesses were unique to the college. However, apart from financial weakness in individual colleges, are there structural financial weaknesses in FE in Scotland?
I would not say that there are weaknesses across the sector. As I said the last time I gave evidence, when many colleges became incorporated, many of them had principals and teams who were not familiar with such systems. There had been excessive reliance on the local authorities, so there was a period of transition and that was difficult for some management boards and some principals.
In how many colleges have you intervened to make suggestions on how the colleges could have more robust financial management?
I would not say that I have intervened. I have produced reports of varying—
Okay—for how many colleges have you felt the need to produce a report on such issues?
I have produced reports on 42 colleges. All those reports contained recommendations. That is the whole purpose of having an appraisal and monitoring service—to comment on the systems, given that the institutions do not have the experience—
How many colleges have a deficit?
How many have a deficit? At a particular point in time? We inherited 13 colleges, I think, and when I last appeared before the committee—
Today. How many colleges have a deficit today?
I cannot tell you how many colleges have a deficit today, but I can tell you how many have forecast deficits for this year. Perhaps the figure will pop out of the woodwork in a second.
You said that some colleges have not wholly got to grips with their financial problems. To put Moray College's position into perspective, are those problems small or large? What size of deficits are we talking about?
I am having difficulty in getting a robust recovery plan from one college, and my powers are limited in that respect. In 1999-2000, 19 colleges had a historical cost deficit. I just reported to the funding council on the financial forecasts that give rise to those figures. I shall provide them to the Auditor General, who will include them in the report that he will produce on the sector, which I shall discuss with you.
So, just under 50 per cent of the colleges on which you wrote reports had deficits.
No, I am saying that the financial forecasts of 19 colleges for 2001-03 show a deficit for 1999-2000. It must be remembered that the minister is allocating significant extra funding. The forecast is that the number of colleges will rise to 20 in 2000-01, then fall to eight, three and five in the years to 2003-04. Those situations are under control, although there is one college for which I am not satisfied that the board has recognised the need to produce a robust recovery plan. I shall invite the chair and the accountable officer of that college to visit me in Edinburgh for a robust meeting. A number of other colleges are implementing recovery plans.
Let us now consider the way in which the college proposed to recover from the deficit.
Moray College was asked to produce a financial recovery plan by June 2000, but the attempts failed and the college's deficit increased further. Why was it so difficult for the college to produce a recovery plan?
It is hard to know where to begin. First, the staff denied the existence of a problem. It may be hard to believe, but they could not believe any information that was given to them because of the level of mistrust that existed as a result of the actions of the previous incumbent of the post. They did not engage with the local community or address the issue of enterprise, but continued with their practices. That was partly influenced by the fact that, in essence, funding is based on teaching hours, although lifelong learning and enterprise require us to move to much more facilitated learning rather than didactic teaching.
I understand you to be saying that a recovery plan was produced but that no one at the college believed that it was necessary or valid. Is that right?
The board of management certainly realised that it was necessary. The senior management—or the college executive, as it called itself in those days—realised that it was necessary. Senior management failed to engage the rank-and-file staff of the college. Even today, there are members of staff in the college who honestly believe that a big pot of money will come from Edinburgh or somewhere else and solve their problems. We must get across the message that Moray College's situation may have been the result of poor management in the past, but that the solution to the problem lies in the future and depends on the staff, the senior management and the board of management working constructively to do what the Government funds us to do, which is to deliver high-quality higher education and post-16 education for the community that we serve.
Does the college have a satisfactory recovery plan?
We do.
What difference has it made? Has it been signed up to, or are you still experiencing the same difficulties?
Our recovery plan requires major restructuring. Some people, obviously, are concerned about the future of their jobs. I have assured them that, if we achieve 36,000 student units of measure—we can consider an SUM as a taught student on a module—we may have to make posts redundant, but no members of staff should have their contracts terminated on the basis of redundancy.
What assurances can you give us that the current recovery plan will be successful when the previous recovery plan, in which some staff apparently did not believe or which some did not think necessary, was not successful? What will be different this time?
The college staff now realise the importance of having an effective training unit that delivers rapid-response short courses to fit the requirements of the population that we serve. That has caused us to increase from around 32,000 SUMs to 34,100 this year between April and August, which is quite a big jump. Consider the recruitment to date and compare it with the recruitment this time last year: we see an 11.9 per cent increase in recruitment activity. All that indicates that Moray College will hit the 36,000 SUMs mark and get close to the 38,000 SUMs target that SFEFC has given us. That alone shows that the college has a much more enterprising culture.
I will visit the college shortly to meet Dr Logan. One of the aspects of the restructuring plan is that there will be no conservation of salaries or terms and conditions if staff are moved sideways. How is that being negotiated with the staff? Having the staff on side would seem to be critical.
One of the college's major problems was the tendency to pay certain grades of post more than the sector norm. We have to examine how the Moray College salary structure fares against the salary structure not of the central belt, but of the Highlands and Islands region.
In common with many FE colleges, Moray College is a small organisation. The college lacks expertise in the financial aspects that have been mentioned in connection with the business plan. What advice and assistance did your organisation provide to ensure that the business plan was robust?
Before Dr Logan's arrival, the college did not have a robust recovery plan that was owned by the staff. Early in 2001, it became clear to me that the acting principal of the college was not able to produce a recovery plan on his own. As is set out in the report, I had a meeting with the chair and the acting principal, first of all to remind them of their responsibilities, and to make it clear that they had to produce a robust recovery plan.
How do we overcome the problem of lack of financial expertise? We know that that is an issue throughout the further education sector and that it will always be present.
We are discussing with the Association of Scottish Colleges various aspects of staff development, from chairs and governors down. Dr Logan commented on the role of the funding council in staff development. We are working very closely with the sector. My colleagues meet the finance directors and finance officers of the colleges regularly. Nevertheless, the review of the management of colleges, on which the committee will receive a report fairly soon, highlights the need for colleges, particularly smaller colleges, to work collaboratively and to share expertise. No doubt the committee will want to discuss that report with me. For example, Glenrothes College and Fife College of Further and Higher Education share a finance director, which has allowed them to make a high-powered appointment. I have encouraged such developments, of which there are good examples in the Glasgow colleges group.
I want to refocus the discussion on Moray College. We need to ask whether the funding council could have done more to ensure that improvements in governance arrangements were implemented and to support Moray College in addressing its financial difficulties.
If I may refer back to Professor Sizer's previous answer, I recently visited Fife College and had lunch with the principal and the finance director, who impressively left lunch early to dash off to Glenrothes. I may return to this point later, because I do not want to incur the convener's wrath, but I think that the sharing of best practice between colleges is important. That was brought home to me during my visit.
If one were to map the rate of progress on a monthly basis, one would see that progress has been rapid over the past six months. The majority of the staff are on side and realise the gravity of the situation in which they find themselves. Having read the Auditor General's report, it would be difficult for them not to realise that Moray College has a serious financial problem. There is more and regular consultation with the staff. This week I will meet staff groups to discuss the next stage of the restructuring. Staff have contributed significantly to the restructuring. They have also contributed to the discussion about how many schools we should have and how we should group subjects together. We engaged the staff in the idea of taking responsibility. The staff realise that they must become more enterprising if they are going to be able to enjoy pay increases in future.
I am slightly concerned about the rapid progress, but I want to talk about the FAMS visits and reports, which are covered in paragraphs 4.2 onwards.
Paragraph 21 of the executive summary of the report states:
Before he answers, are you happy with the way that the audit arrangements are being carried out? Not only was the board not implementing an earlier recommendation, it was acting contrary to a FAMS recommendation.
It is easy to trawl through the past—
I am talking about the current report.
I have confidence in the board and in Dr Logan now that he has arrived. There have been significant changes. I am confident that the board fully understands what has to be done.
I am happy to hear that those points were addressed last month, but it does not take away from the fact that over a full year, there were eight major failures to take action, following a clear report on fundamental issues of conduct. Why did it take a whole year? In other words, if SFEFC makes recommendations, what can it do to implement them? You were ignored for a whole year.
I referred earlier to hard hats and soft hats. I am a pretty hard-nosed person, so I can be pretty tough. I can start off having a soft hat, then I can move, if things are not progressing, to being very hard, but the only sanction that SFEFC has is to withdraw funding, and if you withdraw funding, all you do is exacerbate the situation. That has to be balanced against the needs of the students. The last thing that we want to do is to take action that damages the education of students, because the Minister for Enterprise and Lifelong Learning has passed responsibility for the adequacy and provision of education to me. There must be a balance, which is why, I assume, the Auditor General said in the final paragraph of his summary that there is a need to review the council's powers. I rely heavily on being hard and tough with people and most people respond, but the fact is that if people do not take action, the council has limited powers.
Granted, but what bothers me—
You must ask your question of the board of Moray College.
Sure, but we are talking about there being no formal scheme of delegated authority, no independent clerk to the board and no register of interests or code of conduct. Those are fundamental matters. Can we be assured that the situation that you objected to in Moray College does not exist in any other college in Scotland?
As far as I am aware, there is not another situation like this.
And now you are clearing up Moray College and the fundamental points have been addressed.
Mr Quinan asked me about the other reports. I can say that I am not aware of any other situation like the one at Moray College. Most of my reports have been about areas where improvements can be made, rather than about a series of fundamental weaknesses of governance. As I said, in the end, members have to ask the board of Moray College why it took so long to address the issues. All I can do is keep up the pressure and I assure you that I am good at doing that.
I have a feeling that we may ask the questions of the people whom you mentioned.
I hope that the progress in the past month—which seems to have been more rapid than in the rest of the year put together—has not been due to your imminent appearance today.
The absence of bridging or recovery finance is difficult. It means that we have to go to the bank to secure it.
I was talking more about guidance.
It is difficult to know what other guidance could be made available to us. The valuable service that we receive from the financial consultant on restructuring, the relationship between the funding councils and the banks and how to address their concerns is absolutely critical. It has been a great asset.
We move on to ask Mr Frizzell what action the department could have taken in the light of the situation that emerged at Moray College.
Much of this issue seems to boil down to the board's ability to manage the staff and—through the staff—the college.
That is a hypothetical question, but I will try to answer it. The key point is that we would have to be faced with a board that refused to co-operate in any way with what manifestly needed to be done. We were not faced with that situation at Moray College. I agree that we faced a situation in which it seemed to take a long time to get certain things done and improved, but the board was not in rebellion and saying, "We are not going to play ball. We disagree with SFEFC and the department." The judgment was made that to exercise the significant option of removing the entire board or individual board members would not be helpful. Removing an entire board would leave an ungoverned college and education must still be provided. Professor Sizer made the point that it is necessary to maintain continuity for the customer. That must weigh heavily in the decision on what to do with a board. If we were faced with absolute non co-operation from a board, it would be necessary to take pretty drastic action.
Did your officials investigate the board during the downturn—shall we say—in the college's performance, so that a decision or advice might be given to the minister?
That would have been a consideration from time to time. Remember that there was an on-going process. The issue would have come up. The board was changing; key players were leaving and the opportunity arose for others to replace them.
Have those powers ever been used?
Not so far.
Have you changed your process for monitoring board performance since this situation occurred?
We still have the same formal arrangements between SFEFC and us. The council primarily would have to monitor the performance of colleges. There would be consultation between us and the council. If the council came to us and said that it thought that a board should be changed or removed, that would weigh with us strongly.
Is the department of the view that legislation, which was mentioned at the beginning of the evidence-taking session, should be reviewed?
The Auditor General has made a recommendation in that regard. I am sure that ministers will take it seriously.
You are not prepared to say how the department might advise the minister.
We are not supposed to tell the committee that, but I am sure that the recommendation will be considered carefully.
Within the current systems, does the department take the view that the cross-section of abilities that are required for boards to function is properly catered for?
That is an interesting point. If there were a review, that would be one of the areas that it would cover, to assess whether there could be provision that would ensure a spread of skills. We would have to think carefully about that, because we are talking about more than 40 colleges, which are spread around the country. It would be difficult to get the full spread of skills in some areas. It is a legitimate subject to consider.
I turn to how board members are appointed. We have had comments about the involvement of staff. Staff members are on the Moray College board, presumably to facilitate information flows and communication throughout the whole structure and to get across to the board of management what it is like to be in the front line. Are you happy that the current system of appointment and the spread of skills on the board are adequate?
The systems are laid down in statute.
That was not the question.
They are the best systems we have. If there were to be a review, I suspect that it might also cover the method of appointment.
The department is currently satisfied to leave things until somebody else creates a demand for change.
If I may say so, it is not for the department to take a different view from the statute. The statute is there and that is the position until ministers decide there should be a change. A review has been recommended and I am sure that ministers will consider the issue seriously. You have touched on areas which I think the ministers would want to consider were a review to take place.
Do you feel—this might be your personal view—that the wider public interest is well served by a board appointing its own members?
I am not supposed to give the committee a personal view. I am here to speak on behalf of my minister and the Executive.
Do you feel that that good practice was not observed at the time of the formation of the Moray College board?
I have not seen anything that would enable that conclusion to be drawn. I have not seen anything about that in the Auditor General's report. That is an inference too far.
Our last set of questions looks to the future and asks whether the powers available to the funding council and to the department are sufficient when a college underperforms.
I will make a bridge from Mr Davidson's impressions to my own, Mr Frizzell.
You mean if ministers decide to have a review.
We will do our best to encourage them. How long would it take, in your estimation?
That is difficult to say. It would depend on exactly how the review was conducted, but I think it would take at least six months.
Is there anything under existing statute that would allow us to tighten up the situation? I note your answers to Mr Davidson, but much clearer guidance, for example, could be given by the funding council to colleges about the kind of people that they need. I am not saying that your language is casual, but the phrase "the spread of skills" is inadequate. The requirement for particular expertise, such as chartered accountants, should be specified. Is there a way that that can be fed into the boards?
Lots of things can be done informally or by persuasion and consultation, but we cannot overstep what we are allowed to do by statute. That is always the limitation on us.
But it would be quite a good idea. Let us be quite honest and get to the core of this. The whole board management process reeks of amateurishness. How strong are the department's powers of persuasion?
We have no problem with disseminating good practice. There is always scope to spread good practice around.
Equally, I am sure that you take on board that we do not want what has been allowed to happen in that college to be replicated elsewhere on a larger scale, in colleges with much bigger budgets and a greater number of students.
That is a matter for the review. I am a bit reluctant to give a personal view. I am conscious that I retire at the end of the year and that it is important that I do not leave skeletons in the cupboard for my successor.
Would Professor Sizer go so far as to turn to the ever-cautious Mr Frizzell to ask him to urge his minister to have a review?
I have already told him that.
The fact that you have already told him that is now on the public record. Mr Frizzell can use that as ammunition in his discussions with his feisty minister to get progress quickly.
I assure you that I would talk to the minister if I felt it was necessary. The minister and I have an excellent relationship. I am sure that she would listen to me, but I am quite happy to give my advice to Mr Frizzell.
I suspect that we are on slightly dangerous ground.
A judgment always has to be made on how far I put the board of management through the hoop. When the board of management met, I could have created a situation in which people had to walk away. The problem was that I would then have had to find an alternative board of management. There is a difference between one's formal powers and one's informal ability to frighten people off. I made the judgment that the board was changing and that the catchment area for governors is limited.
Thank you for that clarification.
I have a final point for Mr Frizzell. Is he satisfied that the department used all the powers that it had to resolve the Moray College situation?
For the reasons that I have already given, we did not use our powers to remove the board. We did what we could to resolve the problem. It would have been good to have that resolution quicker, but we did as well as we could, while ensuring that continuity of education provision was maintained.
I am sure that you will contribute any lessons that you have learned to the review.
Yes, indeed.
That concludes questioning for today. I thank Mr Frizzell, Professor Sizer and Dr Logan for their presence and participation. We have considered important matters. The information that they have given us will be of great assistance in the committee's continuing investigations, from which I hope we will learn lessons and get advice about present and future improvements.
Meeting continued in private until 16:37.
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Audit Scotland (Work Programme)