Item 4 is our inquiry into the Auditor General's report "How government works in Scotland". The Audit Committee is breaking new ground.
Yes, that is correct.
In today's session, we will be asking questions in relation to five main areas: accountability arrangements in the Scottish Administration; corporate governance; performance management; cross-cutting initiatives, including partnership working, joint ventures and pooled budgets, and earmarked budgets; and scrutiny by the Parliament.
The permanent secretary satisfies those responsibilities in a range of ways. Most fundamentally, he does so through his everyday work of managing the Scottish Executive. He does so through his management group, which consists of the heads of department, the principal establishments officer and me.
The Scottish Government is a vast and complex organisation at the very heart of Scottish society and based throughout the country. Paragraph 2.14 of the report states that the permanent secretary might designate others as accountable officers. How does the permanent secretary ensure that they perform their accountability responsibilities consistently, given the size and complexity of the Government machinery?
First, by clearly setting out the responsibilities of those accountable officers when they are appointed. Secondly, there is a range of guidance for such people. For example, within the Executive, we have a public finance manual that sets out a whole load of procedure and how particular accountable officer responsibilities are to be dealt with. We use that to ensure that those responsibilities are dealt with consistently.
Given that we treat the Scottish Executive as one department, rather than breaking it down to departmental silos as is the case in Whitehall, is it more difficult for us to gain that accountability?
It does not make it more difficult. In some ways the accountability mechanism is similar; in Whitehall, accounting officers are appointed by the permanent secretary to the Treasury. If anything, the Scottish system is more straightforward. It makes the same appointments, but it has a single corporate management structure, which makes it easier to ensure that those duties are fulfilled.
We need to consider the accountability arrangements for the Scottish Administration and explore whether the responsibilities and arrangements for holding sponsored public bodies to account are effective and robust.
Paragraph 4.5 states:
There is a model management statement and financial memorandum as part of the Scottish public finance manual. It effectively defines the relationship between the sponsored body and the Executive and the parameters for that relationship, especially the responsibilities and lines of accountability. Specific regard should be given to the individual function, scale and nature of the public body concerned. A structure exists that should be followed.
Paragraphs 4.23 to 4.26 detail the Executive's review of public bodies and the steps that are being taken to enhance openness and accountability to ministers and the public. What progress has been made to improve the accountability of NDPBs?
Various measures are on-going. A key objective of the public bodies review is to secure a set of principles that should underpin the organisation of devolved central Government services and public bodies in Scotland. During the review, several public bodies were targeted for abolition or review, and the progress that has been made on that is detailed in the Audit Scotland report.
Thank you. That was a very full response.
From what you have said, you seem to have a heavy work programme. I understand that there is to be a further review of 46 public bodies, which is a large undertaking. What is the current state of progress?
The Audit Scotland report reflects accurately the position of the review of public bodies, which is being progressed by Executive departments in line with the commitments that were made in "Public Bodies: Proposals for Change".
Could you give us a note on the state of play?
Certainly. That is no problem.
I will return to my point. I appreciate what you are trying to do with the management statement and financial memorandum setting out a framework. Different bodies behave differently according to their functions and the people who are in charge of them. That is human fallibility at work. I am concerned about the Executive's monitoring of those bodies' performance so that that does not get out of hand. I do not know how many people monitor the NDPBs. I am concerned about that monitoring and how quickly you can track whether an NDPB is getting into trouble.
The departments that relate to the bodies monitor those bodies. I am most familiar with the details in the national health service, for which the health department has a series of indicators. The health department receives and monitors financial and non-financial information about each NHS body. If a body appears to have problems, early discussions are held with it about whether there are underlying problems.
Monitoring is systematised. How do you deal with those vast quantities of information?
It is systematised in that the models set out the relationship between the sponsored body and the part of a department that it deals with and the information on financial issues that the department will expect to receive regularly from the sponsored body. The system looks vast because you are looking at all of it. People who are in any one part of the system see only their part of it. Typically, a branch of the Executive might sponsor one or two NDPBs. It is only when we stand back and look at the whole system that we see its scale.
We will move on to considering whether sufficient capacity exists for the Scottish Executive and ministers to intervene in the day-to-day management of public bodies that operate at arm's length from them.
That rolls on from Dr Collings's response about the view and how close we should move in. Normally, such bodies operate on a day-to-day basis without interference from ministers. In the chamber and in committees—but not this committee—we often have difficulty in pinning down who set which framework and the public body's performance in that. Will you explain the rules that govern how ministers can step in if they feel that something is wrong with a body that operates at arm's length but which is expected to deliver Government policy?
There are two sorts of action. One is purely administrative—that is the norm. The other involves statutory mechanisms. Even if problems exist, the norm is administrative action. Somebody talks to the people in the public body, analyses the problem and agrees with those people what they will do about it.
I do not want to be a sneak, but we have been fairly close to using that power on occasion. When matters are handled administratively, does the relevant sponsoring department go straight to the body concerned or does it inform the minister that it intends to speak to the body to try to discover what the difficulty is?
That depends entirely on the scale and urgency of the matter. If the problem is a big one, the minister will be alerted quickly; if it is a warning sign, the officials will try to find out more before reporting back to the minister.
So the sponsor department acts as policeman and, to a minor extent, judge and jury in deciding whether a matter should be taken to the relevant minister.
Usually, the minister will have meetings with the NDPB's board, so there are direct routes of communication.
We pick up from paragraph 4.26 of Audit Scotland's report that the Scottish Executive is developing guidance on the establishment and degree of independence of NDPBs. When will that guidance be completed and why is it necessary to develop new guidance?
The guidance on corporate governance and financial management has been completed, although other aspects of the project are on-going. What was the second part of the question?
Why is it necessary to upgrade the guidance? Is it a normal process of rolling forward or are you trying to start again?
It is a combination of the two and is based on the fact that guidance should be subject to continual review. After the review of public bodies, we were keen to examine closely the framework of guidance and that work has been on-going since that time.
To consider the matter from another point of view, I ask Dr Collings what procedures there are for NDPBs to have a poke at potential ministerial interference.
Typically, the chairs of NDPBs do the job because they want to help with public service. If they feel that they have problems that make it difficult for them to carry out that function, they might decide to do something about those problems.
Is there a formal procedure for that?
There is not a formal procedure that enables NDPBs to hold the Executive to account, but there are ways in which they can make their concerns apparent.
You referred earlier to speaking softly but carrying a big stick—you said that we wrote to you sweetly and did not require you to attend. However, ministers intervene sometimes. One example is the direct intervention of a ministerial task force in Tayside Health Board. I do not want to ask a loaded question, but to what extent does raising matters in the Parliament accelerate ministers' responses or interventions? Have you noticed a difference since the Parliament began?
There is certainly a difference because the greater scrutiny means that, in general, we are under greater pressure to examine our procedures and to ensure that they are fit for purpose. Clearly, the speed at which things happen and the extent to which there is openness and scrutiny means that we must respond to that. There have been similar cases before devolution, where there have been problems in particular areas and particular things have been done. It is not new, but it is probably more common now than it was then.
I want to follow on from that. This committee has examined Tayside Health Board and problems in further education colleges in depth. Do you believe that there are enough departmental early-warning systems?
In general, we have a reasonable compromise between the need to give public bodies some space to operate and the need to hold them to account and have them report on how they are performing. It is a fine balance because if one takes it too far, one might wonder why we have bothered to establish the body at all if we want to manage it ourselves. Generally, we maintain the right balance, but obviously there are occasions when the arrangements do not work as well as they should.
We will move on to consider whether sufficient priority is being given to developing and maintaining sound corporate governance in public bodies.
How does the Scottish Executive ensure that the necessary corporate governance arrangements are in place across public bodies? To what extent do you depend on individual accountable officers to oversee that?
There is a range of factors. We have internal guidance on corporate governance, covering aspects such as the establishment of an audit committee and the need to comply with the Turnbull recommendations and to have statements of internal control.
Over the past three and a half years, this committee has seen in various areas—Tayside Health Board and Argyle and Clyde NHS Board are examples in the health service—where individual accountable officers have allowed things to get out of kilter. Those individuals have not been pulled up by their departments and have been allowed to go down that road. How can you then say that you are in control when that can happen?
I return to my earlier point. With those bodies, we must strike a balance between looking after the public purse and the public interest and allowing bodies sufficient operational freedom to carry out the responsibilities effectively. Our systems attempt to get that balance right. We will not get it right all the time, but continually intervening in the operation of those bodies, apart from being extremely costly, would also make it extremely difficult for the bodies to function properly.
This committee has found that there are feelings of isolation and helplessness among the people who are carrying out those functions. People in Moray College felt that they were not being given the necessary back-up and that they were alone in their task. What can be done to alleviate that? Are you sure that the situation in Moray College is not replicated elsewhere?
As Fiona Robertson said, we do not consider any of what we are doing to be finished business. The range of development work that is under way is important and we have to get better in that area, which is why we have the programme of work that I have described.
In the Scottish Executive, who ultimately makes the decision about how far down the route you should go from interference to a hands-off approach? Would it be the department head or somebody above that?
That largely depends on the size of the body. If it is a large body, one would expect both the head of the department and the minister to take quite a close interest in the arrangements. If it was a small body, as some of the public bodies are, one would expect most of the attention to be at a much lower level than that.
Are you saying that, in the Executive, there is no firm policy line and that there is a degree of flexibility in management about who would be the person who was accountable and responsible?
We are dealing with bodies with budgets that range from several hundred million pounds a year to ones that employ three staff. We have to have a range of responses to those bodies.
I accept that, but I would like to know how the responsibility is set up in the system.
In formal terms, the responsibility would be with the head of department, as the accountable officer, and with the accountable officer of the body. In day-to-day terms, the various responsibilities would be exercised at various levels.
As we saw in Tayside, things can slide out of control quickly. I am concerned about the number of bodies that are involved. There are 43 colleges in the further education sector, there are 22 drug action teams and so on. There is clearly a move in the FE sector towards having joint-financed administrations. Fife College of Further and Higher Education and Glenrothes College, for example, share a chief financial officer. Would having fewer people to deal with make the job of monitoring the bodies easier? I expect that it would certainly cut the cost of administration and enable more to be spent on front-line education.
The joint-services approach is effective from the point of view of improving quality and saving money. There is a range of areas in the public service in which that is being pursued. It can offer some help in terms of monitoring and accountability as it makes standardisation easier. Often, however, the key factor is the interpretation of the numbers and that will typically still be done by people from the body concerned.
On the question of the point at which the approach would become interference, particularly with reference to relationships with board members, would accusations of interference be staved off if we operated a regime of proper training standards for board members in further and higher education institutions and in health boards?
As I said, the training of board members is an important issue and is more readily dealt with in a relatively homogeneous area such as health. It is being considered for other areas, but jobs can vary a great deal.
Precise training requirements vary from board to board. Many public bodies have established for board members well-advanced training and induction packages that can involve the Scottish Executive. We included a commitment in the public bodies review report to produce an induction pack for board members, which will set out in great detail some of the broad and generic expectations for board members of public bodies. That work is on-going.
I fully appreciate that. However, I am suggesting that we should set standards instead of simply examining the variations between, for example, health boards. It has become clear to us over the past three and a half years that some of the people on health trust boards and boards in the FE sector are simply not up to standard. Surely it would improve performance and prevent accusations of interference if we made people accountable by introducing a clear set of benchmark standards, if not an exam.
My immediate reaction is that, although your suggestion is attractive for the reasons that you have mentioned, it could also narrow the range of people who participate.
Would that not be a good thing? At the moment, we have a broad range of people who, frankly, are incapable of doing the job. Perhaps we should narrow things down to ensure that we do not have people of a particular nature who say that they are prepared to serve on boards and then do not give up any time to do so. Such people simply use their board membership as a badge of status within their community. We do not need them.
Instead of having a rigid exam process, we have strengthened the process for selection to public appointments.
A well-defined process has been established for appointing members to the boards of NDPBs. After discussions with the chair of the body, the body itself and the Scottish Executive, there should be a well-defined and tailored induction procedure for a new board member. As I said, we are supplementing that approach with a generic induction pack for all board members.
Paragraph 5.8 explains how the Scottish Executive has acted on the committee's recommendation to consult on governance and accountability arrangements in the FE sector, in particular the power to intervene directly in colleges that have poor governance. To what extent has the Scottish Executive considered the need for similar exercises in other types of local public spending bodies?
That was a particular response to particular circumstances in the FE sector. We have not considered extending the power.
So you are considering the power only in relation to the FE sector. Are there any lessons that could be transposed into other sectors?
We will certainly consider what emerges from that situation and find out whether there are any lessons that we can apply more widely. That could include a range of issues, from the way in which the department conducts its business to matters to do with the bodies themselves. However, at the moment, we do not have a programme of carrying out the same reviews for other public bodies.
It would be difficult to transpose that thinking into other areas, because in further education there is, in effect, a middleman—the Scottish Further Education Funding Council. That area caused us concern, because it was not responsive in getting information back to the Scottish Executive. The question related to the FE sector, but there will be lessons that you can use in other areas.
I agree.
Organisations such as registered landlords and social housing providers are increasingly taking on bigger amounts of the local state expenditure with regard to housing provision. There are some quite complex issues in what we expect those organisations to do.
We have tended to adopt particular solutions for particular sectors because of the variety that Sarah Boyack mentioned. With registered social landlords, that sits squarely with Communities Scotland, which was recently created as part of the consequence of the NDPB review.
I understand that. That was not my point. My point was more about to what extent you review those corporate governance guidelines in response to new challenges, which clearly exist with regard to major expenditure from central Government. I will leave that as a thought. I do not expect a lengthy answer; it was more of an observation.
I will flow through the drivers behind that. In the recent spending review, which made the decisions about those extra resources, we set out the objectives and targets that were to be met with the resources. Where those relate to the work of public bodies, the department concerned is having a dialogue with the relevant public body to ensure that its role in helping to deliver those objectives and targets can be met. We are also having to set up monitoring arrangements to ensure that those targets will be met. That mechanism requires the interaction that you mentioned.
Is the process dynamic or static? Do those guidelines evolve with the changing circumstances that we have heard about?
They change as the policy framework changes in that, if ministers have said that they want a public body to deliver certain things, the emphasis will very rapidly shift towards monitoring performance in those regards. The process moves about.
So it is reasonably dynamic.
It is quite a dynamic process in that sense.
We will now consider whether sufficient priority has been given to performance management and performance reporting as a central part of the accountability arrangements.
It is clear that performance management and performance reporting provide essential information on the achievements of public bodies. More important, they properly support the accountability process. Without performance management and reporting, accountability could be undermined or, worse, could become superficial. That is quite clearly not what the creation or development of devolution was about.
We publish a range of performance information. Our annual expenditure report includes a considerable amount of performance information. The budget—
I asked why a report that analyses the results is not produced.
What I am saying is that—
I am aware that there are reports, but there is no analysis. The key question is why we do not get an analysis of targets that have or have not been achieved.
We have from time to time—I think that the last time was last year—produced information, I think in response to a parliamentary question, about how—
You see, that is the key.
Please let Dr Collings finish his answer.
We have produced information about how we were performing against the targets set out in the programme for government. We put a great deal of information into the public domain, in a range of ways. We are considering whether we can do that in a more helpful way.
The reference to parliamentary questions as a means of getting information into the public domain is entirely at odds with the Parliament's principles of accountability and transparency. There is no question about that.
That is an opinion.
Sorry?
Could we have a question please—or have you finished?
No. I am still seeking an answer to the question why we cannot have a report of an analysis, rather than the lodging of parliamentary questions in order to publish the same information, which is a huge waste of public money. The newspapers regularly make an issue out of that. For the sake of accountability and of performance measurement, would it not be better to publish such a report?
We publish our performance against a range of targets, not least when we set targets for all our spending and report outturns against those targets in the budget documents. We also set out a range of performance information in other publications, including the information that we publish on the social justice milestones, and the annual expenditure report. We are considering whether there are more helpful ways in which we could present the information. It is not, in my view, a matter of what we publish; it is about whether there are more helpful ways of bringing together the information. We are considering that at the moment.
Would it be possible for you to give us a written note of what is done along the lines that you have described? The matter is complex, and it might be better if you could give us a detailed note.
Paragraph 3.14 of the Auditor General's report says that the Executive is developing
Ministers announced in September the targets that they are setting. They have not yet made an announcement on reporting against those targets.
Has there been any discussion of how you will monitor, as opposed to report?
There has been substantial internal discussion about monitoring. I believe that ministerial commitments have been made to the Parliament that there will be proper monitoring and reporting. Ministers have not yet announced any decisions on the precise form of that.
Could you give us any idea of the time scale for that?
No, but there is an event in May next year, and I assume that we would want to be ahead of that.
You had to remind us of that.
You touched on the fact that presentation is crucial. MSPs lodge a lot of parliamentary questions about information that exists but which is buried away. It is a matter of ease of access. In terms of openness and transparency, we should not have to dig any more than is strictly necessary. A lot of budget books—for example, in the States or in some European countries—are better presented than our own. Are you constantly reviewing that situation?
Yes. In response to requests from committees, we have made major changes to our publications but one of our difficulties is that, thus far, those changes have all been additions. The publications have got fatter and fatter and that might have made them less helpful than they were previously. We are considering ways in which we can provide the committees with what they are asking for without making our basic documents so large as to be unwieldy.
Appendix 5 takes as a case study the drug misuse cross-cutting initiative. Paragraph 3.18 makes the point that a health board is individually responsible to its minister for its spending on tackling drug misuse, but the success of that expenditure might depend upon the other bodies that the health board is working with in the local drug and alcohol action team. To what extent is the Executive moving towards collective accountability in an area such as drug misuse and making the DAAT accountable as well as the individual health board, which is just one component of the whole?
That is not my specialist area, but I understand that the DAATs report on drug misuse to the Cabinet sub-committee. The setting up of that sub-committee indicated that ministers give priority to that issue. They expect public bodies to work together to deliver the direct results and they are monitoring the situation to ensure that that is happening.
I am just pursuing the issue as a case study. The amount of money that has been spent in treatment is £140 million. An additional £100 million will be spent over the three years from 2001 to 2004. The police are incurring expenditure of £200 million on enforcement. It is difficult—even as convener of the cross-party group on drug misuse, I find it difficult—to track the money. The situation has been made more complicated by the fact that 19 of the 22 teams are now drug and alcohol action teams. Some people see the DAATs as a barrier to the money getting to the front line.
I am trying to work out what your question is.
The question arises from the fact that cross-cutting initiatives are complex and it is therefore more difficult to ensure that the money is getting through. We had a reference to that before. The sums of money are vast. Are they getting through? What is the accountability mechanism? An individual health board's spending is not enough. The DAATs make reports, but there is not enough monitoring of joint and collective expenditure. What will the Executive do to try and make them more accountable collectively on the financial front?
In the consideration of cross-cutting issues, the key element of accountability needs to be on performance not on finance. There is heavy emphasis on whether results are being produced with regard to drug misuse.
It is difficult to monitor outcomes in many cross-cutting areas. We do not even know how many drug addicts we have; we have only Neil McKeganey's estimate of 55,000. The danger is that it is difficult to know what impact we are having on the problem. The financial accountability is important, but the performance, which is also important, is almost impossible to measure.
I can only agree that that is difficult and say that we have made considerable efforts to do better. That sort of area is difficult.
Would it be helpful for you to supplement in writing the evidence that you have given?
Yes.
I want to pick up on what was said about DAATs. We might have an announcement about new moneys for drug addiction. The money can go into the teams in various forms. It can come via the health budget or via the justice budget for the prison service, and local authorities and voluntary organisations can also bring something to the table—it is all public money. The process is not transparent to ensure that the money that is announced is filtering through the organisations in the middle and reaching the heart of delivering to the communities the services that the Executive acknowledges they need.
The danger is that the committee is giving more evidence than are the witnesses.
In some instances, money has been ring fenced for specific purposes and, in most cases, we can be quite clear that the money has been spent for those purposes. The difficulties that you mentioned with regard to monitoring are why we have a ministerial sub-committee. We also have people working on the drugs issue across departments to try to ensure that things are working as they ought to and to try to pull together information about what is happening.
Dr Collings mentioned the ring fencing of money for particular projects. I am not talking about the drugs aspect in particular, but the Finance Committee is researching cross-cutting initiatives, because the giving end of the budget is fairly opaque, to say the least. What work is going on within the Executive to come up with a set of performance indicators across departments? Are you working on things like that, which can be applied to the different cross-cutting exercises that are going on?
Not across the piece. We look at performance indicators on specific cross-cutting initiatives. We try to set targets for what we are trying to achieve and to monitor progress against those targets.
So the targets are developed after ministers decide that there should be some form of cross-cutting initiative. There is no guidance at the beginning; the targets have to be made up as you go along, virtually on the hoof.
Ministers decide on the cross-cutting policy and we then consider the most appropriate ways of measuring its success and monitoring whether it is going to plan.
If you set a performance indicator, the monitoring sets the targets that people would try to work to.
That is why targets need to be set very carefully, once one has decided on the policy that one is applying in a particular area. One should not have monitoring and targeting arrangements that are divorced from the policy.
And the arrangements are reviewed as they go along.
Yes.
I have two quick questions. Presumably, sustainability indicators are examples of indicators that cut across departments.
Indeed.
How is accountability delivered when there is not a cross-cutting ministerial committee for that particular cross-cutting initiative? Is there correspondence between departments?
In most cases there is correspondence. In other cases there is a clear lead minister. For example, the Minister for Social Justice is the lead minister on "Better Communities in Scotland: Closing the gap". Very often, we have both.
We move to the last section, on effective parliamentary scrutiny.
We have spent the afternoon talking about scrutiny, but how could we improve accountability and effective parliamentary scrutiny?
Compared with the situation pre-devolution, I feel very scrutinised, so you have achieved quite a lot already. Quite honestly, a good start has been made in the sense that, for example, this committee is clearly trying to find out the facts about things and to arrive at whatever conclusions are best. That is exactly the right approach. It is not a witch hunt.
That may be something for us to reflect on.
I would measure it in two ways. One way would be through my personal contacts with people, who take such responsibilities extremely seriously. On occasions, accountable officers in public bodies have said that they have concerns about something that we are thinking about doing, because they feel that it will make it more difficult to exercise their responsibilities. I am fairly clear about that through my personal contacts.
That leads neatly to the final question, for which we switch focus to the Auditor General. Do you wish to add anything about how public audit can contribute to the way in which public bodies are held to account?
I would like to offer one or two thoughts, if time allows. Audit is about reporting independently and objectively on who spends the money, what it is spent on, whether it is spent properly—in accordance with law and good standards—and whether it is spent wisely, so that we get value for money.
I thank Audit Scotland for that sensible and sensitive pathway to the future. I extend a last opportunity to our witnesses to speak, if they have any final comments.
I hope that the document will be of use to the committee. We had not realised that we probably should have produced something like that ourselves for the benefit of the people who work in the public sector and for our own staff. We are grateful to Audit Scotland for producing that document and we can foresee various uses that we might make of it. It has been a useful piece of work and I hope that the committee and Audit Scotland will talk about how to keep it up to date.
Those issues are at the very centre of our democratic system. I look forward to exploring them on an on-going basis. I thank Dr Peter Collings and Fiona Robertson for their attendance and evidence today.
Meeting continued in private until 16:50.