Audit Committee, 26 Nov 2008

Meeting date: Wednesday, November 26, 2008

Official Report 140KB pdf

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Section 22 Report

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“The 2007/2008 audit of Highlands and Islands Enterprise”

Item 3 is a briefing from the Auditor General on the section 22 report "The 2007/2008 audit of Highlands and Islands Enterprise."

As the committee will know, Highland and Islands Enterprise is the Scottish Government's economic development agency for the Highlands and Islands of Scotland. My report on the 2007-08 accounts is not qualified, but I have decided to make the report to bring to the attention of the Audit Committee matters relating to the decision by HIE to take over Cairngorm Mountain Ltd, which was the operator of the Cairngorm funicular railway.

The Cairngorm funicular has been the subject of public and media interest since before it opened. HIE contributed both funding and other support to it. However, despite that support, the operator was unable to develop a successful business model, which resulted in HIE's decision to take over the operation.

I acknowledge that HIE attempted over the life of the funicular to place the operation on a firm footing. However, because of the long-running difficulties in the scheme's operation, culminating in HIE's decision to take the operator into public control, I have asked Audit Scotland to undertake a review of the project.

In the review, we will examine the history of the project, and consider and report on HIE's plans for the future operation of the funicular. The project goes back many years, as members are aware. For example, the HIE board agreed to recommend approval for funding early in 1996, which was after several years' deliberation on the case for the scheme. Approval was therefore given before devolution and the creation of my office. That means that the team might have problems in finding all the relevant paperwork and evidence.

I should also mention that private individuals have made representations to the European Commission in connection with the funicular. They have queried whether HIE's support for the operator constitutes a breach of state aid rules. I have no more details, and I understand that the Commission's investigations are on-going. The outcome of those investigations might have a bearing on the timing and content of my review.

As ever, I will be happy to answer any questions, supported by Audit Scotland, but we might be unable to say much until we have completed our main review. I intend to report to Parliament in 2009. Again, I cannot be absolutely specific about the timescale, but the best indication that we have at the moment is that HIE's new business strategy is planned to appear in the summer of next year, so it is likely to be after the Scottish Parliament's summer recess before I submit my report.

Thank you for that. This is a contentious issue that has attracted considerable interest. I understand what you are saying about the further work that you intend to undertake, and I am sure that we can consider that once it has been completed.

I open the meeting up to general questions and comments, rather than getting into detail just now.

Mr Black, I appreciate what you say about getting historical information about HIE's decision to recommend the funicular. However, I assume that some form of business plan would have been presented at the time to HIE's board that allowed it to make a decision and that evidence would be in the board's papers. Presumably, further information would also have been presented to the Secretary of State for Scotland. Do you intend to look at the evidence held by HIE and seek whatever evidence the Scottish Office received from HIE that allowed the secretary of state to come to a decision in 1997 to approve the project?

The short answer is yes; we expect to have access to papers held by the Scottish Government. Strictly speaking, my remit does not run back before the creation of the Scottish Parliament but, in the past, the Scottish Executive has always been helpful in giving me access to papers on projects that straddled the point at which devolution occurred, and I am sure that it will be helpful in this case also. However, I have to add the caveat that the decision was taken quite a while ago, so getting the full picture might not be that straightforward.

I am not sure that we can do a lot today. I suspect that we will all have much more to say when you return with your report. I therefore suggest that we note your remarks and agree to return to the matter when the full report is published.

Members indicated agreement.