Public Audit Committee

Meeting date: Thursday, November 4, 2021

Official Report 631KB pdf

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Section 22 Report: “The 2020/21 audit of the Crofting Commission”

The principal business of the first of our two evidence sessions this morning is consideration of a section 22 report that was published on 13 October. I am delighted to welcome our witnesses: Stephen Boyle is the Auditor General for Scotland, and joining us remotely are Graeme Greenhill, senior manager for performance audit and best value at Audit Scotland, and Pat Kenny from Deloitte LLP, who worked on the audit and assurance in reference to this audit of the Crofting Commission. I invite the Auditor General to make an opening statement before we proceed to our questions.

Good morning. I am presenting this report on “The 2020/21 audit of the Crofting Commission” under section 22 of the Public Finance and Accountability (Scotland) Act 2000.

Crofting is a system of landholding that is unique to Scotland and an integral part of life in the Highlands and Islands. The Crofting Commission was established in April 2012 as a non-departmental public body, and its principal functions are to regulate crofting, promote the interests of crofting and keep under review related matters. It consists of a board of six elected commissioners as well as three commissioners who are appointed by the Scottish ministers, and it is led by a convener.

The commission is a non-departmental public body, and the relationship between the board, the senior management team and the Scottish Government sponsor division plays a key role in contributing to the effectiveness of its governance arrangements. A previous review of the commission’s governance, in 2016, highlighted concerns. Thereafter, an almost entirely new board took office in 2017, which included six newly elected commissioners, and membership of the board has stayed constant in the following four years.

The external auditors’ work by Deloitte this year identified that there has been a breakdown in trust between the board and its senior management team, and the board formally wrote to the Cabinet Secretary for Rural Economy and Tourism to express a lack of confidence in the commission’s chief executive. The auditors also highlighted a lack of involvement of the board and its audit and finance committee in the setting of the commission’s budget.

Serious governance deficiencies were identified, including the excessive involvement of the board and the former convener in operational decision making, which is normally the responsibility of the senior management team. In addition, I have reported on concerns about the leadership of the former convener.

At the core of those issues is a failure to respect established boundaries between the respective roles of the chief executive, the convener and the board. That transgression, when combined with a breakdown of trust between the various parties, means that the leadership and governance of the commission are currently falling below the standards that are expected of a public body in Scotland.

There is a pressing need to rebuild trust between the chief executive and the board and to ensure that the boundaries between both roles are understood and respected. The Scottish Government has a key role in supporting the commission so that it is operating properly.

The commission has now drawn up an improvement plan in response to the auditors’ recommendations. It is vital that the senior management team takes ownership of that improvement plan and works with the sponsor division to ensure that it is delivered on. The board must provide appropriate support and challenge to ensure that the necessary improvements that are set out in the plan are achieved.

Convener, as you mentioned, I am joined by Graeme Greenhill from Audit Scotland and Pat Kenny from Deloitte. Pat is the engagement lead and the external auditor of the Crofting Commission. As ever, we will do our best to answer the committee’s questions.

Thank you, Auditor General.

If Pat Kenny or Graeme Greenhill wants to come in at any point, they should please type R in the chat function and I will bring them in. I am sure that the Auditor General will prompt them to come in as well.

Some fairly serious conclusions are reached in the report, which is hard hitting and, frankly, critical of the way in which the Crofting Commission is being run and governed. The report points to significant weaknesses in the commission’s leadership and governance arrangements, so I am bound to ask what the accounting officer in the Crofting Commission has been up to.

I am happy to start, and I am sure that Pat Kenny will want to say a few words, given his interaction with the chief executive as the accountable officer. That is an important point to start with—the accountable officer is the chief executive, who is accountable to both the board and the Parliament.

The issues that are identified in the report are significant. In particular, the report refers to a breakdown of trust between the board and the chief executive and to the board’s lack of confidence in the chief executive, which culminated—most unusually—in the board’s sending a letter to the cabinet secretary, expressing its lack of confidence.

It is worth mentioning the complexity of the organisation. The Crofting Commission is a non-departmental public body, of which there are around 40 in Scotland. They do not all have the same governance framework for the way in which they operate—they all fulfil unique functions. However, what is different in this organisation is that the chief executive is appointed by ministers as opposed to the board of the Crofting Commission—hence the board’s decision to engage directly with the cabinet secretary. As we set out in the report, the commission felt that it was unable to take the steps that it considered necessary in respect of what it identified as weaknesses in the chief executive’s leadership.

I will pause there, convener, because I suspect that Pat will want to say more about the work that he has done and his direct interaction with the chief executive.

Good morning. There are a couple of important facts to outline for the committee. The board’s vote of no confidence in the chief executive has now been withdrawn. Our understanding is that the senior management team in the organisation has expressed its full confidence in the chief executive. Fundamentally, the issues with the chief executive arose because the responsibilities were blurred, which applies to all the main players in the governance structure. The board and the chief executive were getting involved in matters that they should not ordinarily have been involved in. For example, we found that the chief executive was much more involved in issues such as setting the budget, the medium-term financial plan and the workforce plan than would normally be the case. Such matters would normally be dealt with by the senior management team in a public body. That was symptomatic of—[Inaudible.] That was really the problem that we identified with the chief executive, rather than a problem with skills and competencies. It was more the case that roles and responsibilities in the organisation had become blurred.

Thank you. We will explore the dynamics of the interaction between the Scottish Government, the sponsor division, the executive—including the accountable officer and the senior team—and the board. Auditor General, perhaps you can clarify my understanding: the board is a hybrid, with three members of the commission appointed by the Scottish Government and six being elected. Is that correct? I presume, therefore, that there are different lines of accountability even within the commission itself.

Your description is correct, convener. The board is a mix of appointed and elected members, and that important factor probably informed some of the behaviour with regard to the blurring of accountabilities. When a person becomes a member of a public body in Scotland, they are governed by codes of conduct and so forth. Aside from the lack of clarity about who was responsible for which aspects of governance, there was almost a dual dynamic going on—the dynamic between the elected commissioners and their constituents and the dynamic between those commissioners and the governance of the Crofting Commission. Some of that will be responsible for what has recently unfolded in the organisation.

Thanks. Committee members have a whole suite of questions to ask.

On your previous answer about those who directly represent crofting communities being on the commission, Auditor General, do you—or perhaps Pat Kenny or Graeme Greenhill can answer this—have any sense of the extent to which the issues raised in the report have affected the key services that the commission provides to those communities?

Appendix 1 to the section 22 report sets out the Crofting Commission’s recent performance, and it shows that, unfortunately, many of its performance indicators were not met over the course of the financial year. Pat Kenny will say a bit more about that in a moment. Although we have concluded that the disruptive nature of Covid had more of a consequence than governance issues for the performance indicator outturn, it is hard not to conclude, too, that all of the organisation’s governance issues would not have helped it to deliver the performance that crofters in Scotland expect from their commission.

I totally concur with those comments. We did not find a direct correlation between the governance issues that are identified in the report and the missing of the key performance indicators, but there is absolutely no doubt that the consequence of the issues that were identified and the blurring of roles and responsibilities was that the organisation could not, by definition, be as high performing as it might have been. That is why it is so important that the issues that we have identified be resolved as quickly as possible.

Thank you, Mr Kenny. Craig Hoy has some questions to develop that line of inquiry.

Good morning, Mr Boyle. You have partly answered the first question that I was going to ask, but I wonder whether you can elaborate on the subject a bit more. Paragraph 12 on page 5 of the report states:

“The Commission does not have an overriding ‘Code of Corporate Governance’ or equivalent.”

To what extent has the lack of a code of corporate governance contributed to the issues that have been identified in the report? Are there other contributing factors?

A range of factors have contributed to the circumstances that we are discussing this morning, but the absence of overarching documentation or a code of governance framework is a component of the ambiguity surrounding roles and responsibilities, and it is one of the main factors that we have identified in the blurring of the lines of responsibility. When, in an organisation, there is a blurring of responsibilities between the executive, the board and the sponsoring team, it is the documentation that makes clear who is responsible for what action.

Pat Kenny can update the committee on this, but we are pleased that progress is being made on an updated code of governance and a more detailed framework agreement. Having those in place prior to the report and the subsequent improvement plan undoubtedly would have helped to provide clarity, especially because, as we have talked about already, the board comprised elected and appointed members. All those circumstances would have helped.

09:15  

You mentioned that the vote of no confidence has been withdrawn since the original issue came to light. The report refers to the letter that was sent by the then convener of the commission to the then Cabinet Secretary for Rural Economy and Tourism, which notes that subsequent meetings have taken place between the board, the chief executive and the current cabinet secretary. Have you been made aware of the nature and content of those meetings? If so, will you update us on what might have occurred in them?

I will ask Pat Kenny to say a bit more about what we understand. Other than the conclusion that we have heard of since we published our report—that the vote of no confidence has been withdrawn—I am not party to the detail of those discussions. It is worth emphasising, as we note in the report, that the letter of no confidence from the commission was sent to the minister. There was no formal response to that letter, but there were subsequent discussions, as you note, between the Government, the commission and the members. I ask Pat Kenny to say a bit more about whether we are party to any of the specifics around that.

My understanding is that the interaction between the commission and the sponsor division has improved dramatically since the report was issued and that the convener now has a standing invitation to attend meetings with the sponsor division. Also, at every board meeting, there is a standing item for feedback from the previous meeting with the sponsor division. There has been a definite improvement since the report was issued.

Going back to the first part of the question, a major contributory factor to the Government’s issues was the process for the appointment and monitoring of the chief executive. That is a function of the Scottish Government, whereas we would expect it to be a board appointment in most other public bodies. There was an issue with openness and transparency in the organisation that led to the Government’s issues, which resulted in some of the key players in the organisation feeling that they did not have the information that they needed, so they went outwith their usual boundaries to get that information, which led to the blurring of roles and responsibilities. A lack of openness and transparency was definitely a contributory factor to the governance issues that we identified.

I will summarise what has been said so far. The report was published by Audit Scotland on 13 October. We are meeting on 4 November—22 days later—and the message that is coming from Mr Kenny is that all those issues have been addressed and rectified. Is that correct?

That is part of the story, convener. You are right in saying that we published the section 22 report in October. Pat Kenny and his colleagues, as the external auditors, have regular engagement and produce an annual audit report that sets out their findings, which I then draw from to inform my section 22 reporting.

I would not characterise it as our report landing in October and leading to a series of actions, but it is a fair assessment that the audit work of Pat and his team publicly surfaced issues in the Crofting Commission, which has been the catalyst for the quite detailed improvement plan that, I acknowledge, the commission has instigated.

Many of the steps in that plan are very fresh, so they have not been formally tested yet. That will be an important part of the work that Pat and his team, supported by me and Graeme Greenhill, will undertake in order to continue to monitor progress, and we will report further next year if that is necessary.

I am sure that we will return to some of those themes. Willie Coffey has a laser-like focus on an area of the report that caused real alarm among the committee.

Thank you, convener, and good morning, Stephen. I want to talk about the commission’s budget. Your report makes clear some concerns relating to development of the budget. It notes that there was a lack of involvement by the board, or by stakeholders more widely, in setting the commission’s budget. It says:

“The draft budget had been developed without prior Board or Audit and Finance Committee involvement. There was also minimal involvement of the Senior Management Team beyond the Chief Executive and Head of Finance.”

Could you tell us a wee bit about what happened? First, who developed the budget? Could you take us through the process of whether it was, in fact, approved? Is that process still in place?

We absolutely share the concerns that are described in that paragraph of the report. I will ask Pat Kenny to describe the detail of the circumstances. What we describe are not normal effective governance arrangements. A budget for a public body ought to be developed as a consultative effort. Although that should be led by the executive, there is a clear role for governance steps throughout the process, up to full consideration by the board in advance of the new financial year. Typically, that would start in the summer months: there would be discussion with the executive team and engagement with committees. Clearly, the audit and finance committee would have a strong role under an iterative process, with feedback being obtained before striking on a final budget. That would typically be in January or February, before the start of the new financial year in April. There are some serious issues in respect of what did not happen in the Crofting Commission.

Pat Kenny will describe the work that he and his team carried out, what they found and what went wrong at the Crofting Commission.

I do not have much to add. Stephen Boyle outlined the principles that we expect to be applied in how a public body sets its budget in order to deliver the best outcomes. Clearly, that did not happen and there were fundamental weaknesses in how the budget was constructed.

On an issue that I mentioned earlier, we found that the chief executive was far more involved in setting the budget than we would normally expect. That would normally be a function of the senior management team, with a finance individual leading budget preparation. That is something fundamental on which the organisation understands it must improve.

If there was so little involvement by most of the principal players who should have been part of the process, who approved the budget? Do you know, Pat?

The budget was approved by the board.

Graeme Greenhill wants to come in on this.

Thank you, convener. [Inaudible.]—recognises that the Crofting Commission has developed an implementation plan in response to Pat Kenny’s audit work. One of the actions in that implementation plan is to formalise the budget-setting process—who should be involved, and when, in approval of a budget. It is an area in which the commission is taking action. As Stephen Boyle said, the auditor will look at implementation of the recommendations as part of the on-going work.

It is important to probe further what happened. When you were doing the audit, you must surely have asked what on earth the board thought it was doing by proceeding in such a manner, which basically breaks all the guidance for organisations that is known to us and has been known to the committee for many years. What explanation was offered to you for that?

I totally agree with the committee’s concerns. There was a fundamental weakness in the governance process that comes back to blurring of roles and responsibilities, with individuals not performing the functions and roles that we would expect them to undertake in a well-run public body. That blurring of responsibilities is the key factor, I think.

Ultimately, the board approved a budget that it had no part in developing—neither did its audit and finance committee. However, they all collectively decided to approve it and are, I presume, running with that budget. How are they getting on? Is the budget in place and working, or is the organisation in trouble?

We have not detected any problems with how they are running with the budget in the current year or with performance. No short-term financial sustainability issue has ever been identified. We have made points on medium-term and longer-term financial planning but, historically, there has never been an issue about the short-term financial balance or about keeping within the budget annually.

Has the board recognised that these are, as the convener noted a minute or so ago, serious and major issues, and has it accepted that that is not the way to develop a budget?

It has.

We note the comments that have been made on how the budget was put together by the commission the last time around. We will look with interest at how next year’s budget is put together.

Another theme that has exercised us quite considerably, and which we want to probe, is the relationship between the commission and the sponsoring division in the Scottish Government. The report says that, during the past year, the relationship has “deteriorated significantly”. Auditor General, will you expand on that and put some flesh on the bones?

I am happy to do so. The context is that the Scottish Government has a clear and important role. I appreciate that how sponsoring arrangements work in Scottish public bodies is not new information for the committee; it is a very clear feature of auditing and was discussed during the predecessor committee’s work in session 5.

The role of the Scottish Government, particularly in relation to small bodies such as the Crofting Commission, is very important. It has to set a context, it has to track and monitor progress and how the organisation is performing, and it has to relay ministerial feedback, instructions and so forth. There is a two-way dialogue on support and progress monitoring.

Unfortunately, that relationship was not working as was intended with the Crofting Commission. In the report, we describe a blurring and lack of clarity about the roles and responsibilities of the executive team, the board and the sponsor team—we have used those phrases a few times already. We found that, instead of the dynamic being between the sponsor team and the convener, as typically takes place with public boards—the convener or the chair of the board tends to have the most direct relationship with the sponsor team—the chief executive had the most direct relationship with the sponsor team. As we mentioned already, that might be a consequence of the nature of the chief executive’s appointment, in that they are appointed by the Scottish Government rather than the Crofting Commission. The phrase that we use in the report is that the “relationship of consequence” was between the chief executive and the sponsor team, as opposed to there being much wider engagement.

It is positive to note in the improvement plan that the engagement of the sponsor team with the commission has been formalised; it now appears as a standing item on the board’s agenda. However, those are relatively new events and it is probably not possible at this stage to draw any conclusion as to whether that represents a reset of, or improvement to, the relationship that we describe in the report.

How confident are you that the new arrangements will allow issues to be spotted and addressed early, without the need for another section 22 report from Audit Scotland?

09:30  

It is too early to give a definitive assurance on that. We will have to take a view on progress during this audit year, and Pat Kenny will set out his conclusions in his annual report following the 2021-22 audit.

On the face of it, the new arrangements look reasonable. You would expect the board to be aware of the interactions with the sponsor team outside the board meeting. The sponsor team has the opportunity to attend board meetings in an observer capacity. That is not an untypical arrangement.

The important thing to note is that, sometimes, the effectiveness of relationships is not always bound up in processes and structures. Those elements will be evaluated, but the relationships are between people.

As I said, it is probably too early to tell, but we will continue to monitor and report.

Did your team look at communications between the sponsor division and the commission, including the board, in order to understand what that relationship was like? Were you able to amass any evidence that pointed to relationships—or lack of relationships—that rang alarm bells?

I will pass over to Pat Kenny in a moment. In our report, we talk about the fact that, to an extent, what manifested in the structures was a situation wherein discussions were—very prominently—being conducted between the chief executive and the sponsor team. That feels like the wrong place for discussions about how the organisation is run to take place. They would be better taking place between the board and the chief executive, with information passing to the Scottish Government sponsor team as appropriate. That is probably reflective of the breakdown of the relationships between the three parties that we set out in the report, rather than being the cause of it.

I will pause; Pat Kenny might talk a bit more about that and any other examples that Deloitte picked up.

It would be fair to say that we saw some unusual interactions between the body and the sponsor division. For example, the report identifies the chief executive interacting with the sponsor division on trying to change the senior management structure in the commission, which we found very unusual. We understand that that was because the chief executive expected board resistance to the changes that were being proposed.

There were definitely some extremely unusual interactions that we would not expect to see in any public body. Again, I note that that is symptomatic of the blurring of roles and responsibilities and—as was mentioned previously—of the chief executive being appointed and monitored by the Government rather than by the board, which is the usual position. All those issues were contributory factors.

In the previous session, the Public Audit and Post-legislative Scrutiny Committee raised concerns about the adequacy of sponsorship arrangements between the Scottish Government and public bodies, especially non-departmental public bodies. I think that those arrangements are set out very clearly in the Scottish public finance manual. Accountable officers in organisations, as well as, I presume, board members in those organisations, should receive some training on, or be led to some understanding of, their roles and responsibilities and what sponsorship arrangements should look like. What is your sense of that? To what extent has that happened in the past and is it happening now?

You are quite right, convener; there is no shortage of guidance on how the sponsoring arrangements should operate effectively. You have mentioned the Scottish public finance manual as a primary source; in paragraph 11 of the report, we also refer to “On Board: a guide for members of statutory boards”, “Model Code of Conduct for Devolved Public Bodies” and Audit Scotland reporting in recent years—not to mention the work of your predecessor committee on the need to improve sponsorship arrangements across public bodies.

None of the guidance on how the relationship ought to work to best effect should come as a surprise to public bodies. A somewhat disappointing feature of the situation is that although the Scottish Government has been providing training and has been reviewing its sponsorship arrangements across the piece, we are still seeing examples as acute as the one that we have set out in the report. The issue needs to be considered further by the Government, with a resetting of the relationship with regard to who—the executive, the board or the Government—is responsible for delivering functions.

Mr Beattie has a series of questions that will probe governance and the different areas of responsibility.

Before I ask any specific questions, I will just say this: here we are again with an NDPB in trouble. We have had a series of examples over a number of years, and they all seem to rotate around much the same issues. The big one is governance, but there have been problems with budgeting, technology and all sorts of other things. The issue comes up time and again. Is there a fundamental problem with how NDPBs are run and monitored? Is the system broken? Should we be considering something totally different?

There have been far too many examples of breakdowns in governance and leadership, deficiencies in sponsorship arrangements and so on, so I understand why you might conclude that there is a more fundamental problem. If I can say anything in mitigation, it is that such examples, although they are significant, are not necessarily representative of all sponsorship arrangements or of the effectiveness of the running of NDPBs. There are more than 40 NDPBs in Scotland, and only a very small number of them have been subject to section 22 reports on their deficiencies. However, one is still too many, and the fact that isolated examples appear year after year points to the need for a considerable review of the effectiveness of relationships. We know that the Government is undertaking work on that, but the issues are so significant that more urgency is required.

I can remember at least half a dozen without even thinking about it, so I do not think that it is a small percentage. If the total number of NDPBs is 40-odd, that makes it 10 per cent or more, which I would call significant.

The question is whether the issue has been recognised by the Government and, if so, whether it is taking steps to do something about it. There is no indication of that in the report. How do we take the issue forward? How do we emphasise it? Should we be investigating it? Should we be really focused on it and driving forward with it? There seems to be a real issue, here.

I absolutely recognise that it is an important issue that needs to be resolved. You asked whether the Government has recognised the matter and is taking steps to address it: I can tell you that it is. We know that it has reviewed and changed the process of induction and how it supports the boards of NDPBs, and we know that it is currently reviewing sponsorship arrangements. The test, though, will be how effective its steps are and whether they actually work, because the work that is taking place all feels relatively new.

I accept your challenge to me that there have been too many issues with the adequacy of sponsorship across NDPBs; the committee might wish to explore that directly with the Government. Given the variety of issues that we have seen, there is undoubtedly a concern and a problem.

The biggest problem that I see has been governance. Typically, what we have is a small organisation operating out there semi-autonomously that turns in on itself and becomes a little knitting circle that gets out of control. The question is how that can be dealt with, because the organisation is semi-autonomous. What should the Government do to bring it back in and ensure that, while the Crofting Commission or Bòrd na Gàidhlig, for example, retains the autonomy that it needs to carry out its job, the necessary support and overview are in place?

Ultimately, it will be for the Government to determine how it wishes to apply its sponsorship arrangements. As the convener mentioned, there is no shortage of guidance on how that structure and framework ought to operate effectively.

You have to open the book first to see what those are.

Well, quite; it is about how the Government chooses to enforce or apply the training or any iteration of it. With regard to the Crofting Commission and some of the small public bodies, I appreciate that the committee has previously explored the extent of involvement of the sponsor team in public bodies, and that is a question of balance. In some cases, we have seen far too much involvement and, in other examples, not enough, so that process has to be iterative. It is important that Government and public bodies listen, take stock and review the governance arrangements. I think that the point that you are driving at is that stress testing is not about times of relatively plain sailing for organisations; it is about how the board responds to a time of pandemic, or the behaviours of a chair or chief executive that cause the relationship with the board to break down. Those are not imagined scenarios; we have seen them across public bodies. Maybe there needs to be a bit more rigour in the stress testing to see how the board or organisation would perform and whether a sponsorship arrangement would stand up to some of those risk scenarios. All those things might be a route forward but, ultimately, it is for the Government to determine how it will take that forward.

I will put you on the spot a little bit. You have obviously recognised the issues and problems that repeatedly arise. What communications have you had with the Scottish Government, other than through the section 22 reports? What relationship do you have with the Government? What communications have you had with the Government to put forward your concerns and get it to understand and take them on board, and take action?

I will speak specifically and then more generally. Specifically, the Government has seen and cleared the report, and the report reflects the Government’s understanding and feedback. For factual accuracy, we look to do that for all organisations that are represented. In previous sessions, the committee has heard that Audit Scotland has engaged with the Scottish Government on the sponsorship arrangements. We are part of training and induction sessions for non-executive directors on the role of public audit and how accountability works in Scotland. I also interact with the Scottish Government’s executive team on matters that come out of public audit work, and the theme of sponsorship is part of those discussions. Therefore, the senior civil service is not unsighted on these issues and, as I have mentioned, it is undertaking a review of the arrangements. However, the question that I am left with is whether there is an opportunity for a more fundamental audit of how sponsorship arrangements work in Scotland so, rather than focusing on individual organisations, I am considering whether it is now time to refresh those arrangements. In recent times, Audit Scotland has undertaken work on the role of boards and how they operate. I am happy to speak further about that, but it will probably be when we have refreshed our programme.

After seeing so many failures, I certainly encourage you to consider looking at the whole rather than the individual parts.

I will carry on with one or two more questions. The report raised concerns about the leadership of the former convener of the Crofting Commission and, clearly, that person did not really recognise the distinction between their role and that of management. Do you think that the role of the convener has now been set out clearly enough? Is it understood by the current convener?

09:45  

I will ask Pat Kenny to come in, because he will be sighted on the new convener and on how that relationship is working.

Again, given how recent some of the changes have been, it feels like early days to be offering that level of assurance. To be positive, what we have seen in the improvement plan feels reasonable and credible. However, it is perhaps not enough to allow us to say that that relationship is currently operating effectively.

On what went before, I ask Pat to describe what we saw during our audit work.

I agree with the Auditor General that it is far too early to draw any conclusions on the new convener. Across the board, the organisation still has a significant way to go. As we have mentioned, we will monitor that as part of our on-going audit work. The issues with the previous convener related, again, to a blurring of those roles and responsibilities. There was far too much involvement in operational matters and in issues such as the grading of junior members of staff. Those issues were documented in our Deloitte report earlier in the year. As I have said, however, it is far too early to draw conclusions on how well the new convener is operating.

On the confusion of roles by the previous convener, should the role of convener have been clear to that person? Was it laid out in such a way that there should not have been any ambiguity when it came to the issues that are listed in the report?

Yes; it should have been clear.

The report states that the former convener “retained the confidence” of the board in spite of all the issues around his leadership, such as “failing to appropriately chair” board meetings and arranging private decision-making meetings. That raises a question that was briefly touched on earlier: were those board members offered, and did they attend, the training that is usually made available for board members? That would have equipped them to challenge some of the actions that were taken by the convener.

I will again ask Pat Kenny to come in on what we know about the training activity that took place with board members.

Before I do that, it is worth stressing that the very clear feedback that Deloitte and Audit Scotland received during the clearance process for the report was that the board members were supportive of the former convener. That, combined with the circumstances that we set out in the report, and which you mentioned, on the chairing of meetings and the fact that private decision-making meetings were taking place—as well as the fact that annual appraisals by the chair of board members, which are an important part of the governance framework, were not routinely happening—all feels at odds with good governance, effective governance arrangements and the leadership of the former chair.

I ask Pat Kenny to say whether training arrangements were effectively in place, from what we have seen.

I ask Pat Kenny also to touch on whether the board members, even if they did not attend such training, would have been aware that training arrangements were in place and that they should be attending.

We identified that there was a lack of training. That was definitely an issue that related to board members. I am not 100 per cent sure whether the board members were aware of the training that they could get, to be honest. However, in broad terms, yes, we identified a deficiency in the board’s training arrangements.

It would have been the responsibility of the convener to ensure that training took place, of course.

I want to ask about sponsorship. A bit of clarification might be needed here, Auditor General. The report states that the Scottish Government’s sponsorship division

“appeared to view its relationship of consequence as being with the Senior Management Team rather than the Convener.”

Earlier, you said that the sponsorship division’s relationship was with the CEO, which is slightly different. Perhaps you could clarify that.

My apologies, yes I can. For absolute clarity, Mr Beattie, the point that I was trying to make is that the relationship of consequence ought to be between the Scottish Government sponsor team and the convener or the chair of the board, through to the wider board, as opposed to what the audit team found, which was that the relationship was primarily with the senior management team, principally the chief executive.

Therefore, given the relationship that the sponsor team had with the senior management team, would it be correct to say that the sponsor team attended meetings of the senior management team and/or the board?

On the specifics of how that manifested itself, Pat Kenny will be able to speak about the frequency of Scottish Government attendance at senior management team and board meetings. We thought about, and looked carefully at, the role and presence of the Scottish Government sponsor team at board meetings. In and of itself, that is not wrong, but what is important is the extent of involvement. As we have seen through the very new improvement plan, the sponsor team’s interaction with the executive team is now a standing item at board meetings. The sponsor team has a presence at board meetings in an observer capacity. What really matters is clarity on what the sponsor team is there to do—how it will support the executive team. Pat will be able to speak about the specifics of what went before.

Again, I concur. We felt that the interaction was unusual. For example, an issue that we identified was the frequency with which the sponsor division attended board meetings in particular. As the Auditor General mentioned, there could be valid reasons for that but, again, we felt that there was a risk that such frequent attendance at those meetings would blur the overall roles and responsibilities of the key players in the governance mechanism. I look after 30-odd public bodies, and, in comparison, we identified that as an unusual occurrence that we did not see in the other bodies that we audit.

I will take a slightly different angle. Your “Crofting Commission Report to the Audit and Finance Committee on the ‘Audit Dimensions and Best Value’ for the year ended 31 March 2021” states that the commissioners

“were apparently unaware of the fact that the Commission can employ staff in their own right, rather than through seconding staff from the Scottish Government.”

Is that correct?

I will ask Pat Kenny, as the author of the report, to answer that.

Yes, that is correct.

How many of the commission’s staff, particularly at senior level, were seconded from the Scottish Government? To what extent did that secondment of employees lead to a blurring of the lines in the relationship between the commission’s management team and the sponsorship function?

I will start and then I will ask Pat Kenny to come in. As I think that I set out in the accounts of the Crofting Commission, all the employees are employed by the Scottish Government through the terms and conditions. As I mentioned earlier, there is a range of factors relating to how the employment of staff operates across NDPBs in Scotland. Some people are employed directly by the body and some are employed by the Scottish Government. We think that it is a factor, Mr Beattie—particularly in relation to how the chief executive saw his relationship with the sponsor team as opposed to the board as a consequence of that set-up. However, it is not the sole factor and it is not unique. There are other NDPBs in which the employees are Scottish Government employees. It is not an excuse, as it were, or a reason why the system cannot operate. However, it undoubtedly supports the line of questioning about there being a blurring of and confusion around lines of accountability and roles and responsibilities in that organisation.

I will pick up on something that you said there. You very carefully said that the staff working for the Crofting Commission were under Scottish Government terms and conditions. Is that the same as saying that they are employees of the Scottish Government who are seconded to the Crofting Commission?

I should say that I have not looked at the employment contracts. In terms of the disclosures within the Crofting Commission’s annual report and accounts, I must look at the specifics of the wording, if I may—[Interruption.]

A secondment is one thing; simply recruiting somebody under the same terms and conditions as the Scottish Government is another.

I agree. A secondment implies a different relationship from operating under Scottish Government terms and conditions. I think that it is the latter, as opposed to saying that it is a secondee-type relationship.

In particular, although the chief executive would operate under Scottish Government terms and conditions, they had the designation as the accountable officer of the Crofting Commission. That is in itself a formal process that results in a letter of accountable officer status from the permanent secretary. In my understanding, there is no ambiguity about that point, but that was clearly a feature of the circumstances in the Crofting Commission.

Could we have clarification as to whether it is in fact a secondment or simply a matter of terms and conditions?

I will invite Pat Kenny to speak, as he may be able to offer support in relation to that clarification. However, if we cannot do that right now, we will certainly come back to the committee in writing.

My understanding is that it is terms and conditions.

That makes a significant difference. Would even that cause a blurring of relationships?

I do not think so. It ought to be clear. Regardless of whether you are employed on Scottish Government terms and conditions, if you are identified as working for the Crofting Commission, or any other public body, you are there to deliver the functions of that organisation—that is what you are accountable for.

I apologise for repeating myself, Mr Beattie. However, as I said, especially at senior level, if you are designated as the accountable officer for an organisation, the purpose of your function is to deliver the aims and objectives of that organisation. However, in spite of all that, there has been a breakdown and a blurring of the roles and responsibilities in this context.

I have one final question on the back of what we have been talking about. You have already indicated that it is not unusual for there to be seconded staff from the Scottish Government in NDPBs. Although you may not have an answer to this, based on what we are talking about, is that mostly staff being employed on Scottish Government terms and conditions, or is it actually staff being seconded from the Scottish Government, or is it both?

I may need to come back to the committee in writing to set out how that operates across Scotland’s NDPBs—we can do that.

However, I know that there are a range of factors. Before I finish, I will invite Graeme Greenhill to say whether he can add anything further on how that operates. However, there are examples where the NDPB itself is the employer. The terms and conditions vary in relation to appointment model, pension arrangements and so forth. There is no one single arrangement. The secondee model is more unusual. Even if the person is working under Scottish Government terms and conditions, they are there to fulfil the aims and objectives of the organisation for which they are working.

10:00  

The relationship between the Scottish Government and an NDPB is kind of changed if Scottish Government staff go in and hold a position in the body—at least, it is in my mind—so clarification on that would be good.

I am happy to write to the committee, but I will invite Graeme Greenhill to add to what I have said.

The section 22 report talks about a framework document that governs the relationship between the commission and the Scottish Government. In that document, there is reference to the Government providing staff to the Crofting Commission. It says that staff who are provided to the commission from the Government

“will retain the terms and conditions of Scottish Government staff.”

In other words, they keep their own pay, grade level, pension arrangements and so on.

Okay. Perhaps the Auditor General can provide the committee with clarification when he can.

I am happy to do so.

I am keen to move things on. I will bring in Sharon Dowey, who has a couple of questions to ask.

Good morning, Mr Boyle. We have talked quite a lot about the blurring of lines and whether people knew what their roles and accountabilities were. In respect of the discussions on proposals for an expanded role in grazings, who expected that the chief executive, rather than the convener, would update board members as necessary?

You are right. As we set out in paragraph 14, that was one of the other key breakdowns in effective governance at the Crofting Commission during the year. The expanded role did not follow expected governance patterns. A change in roles and responsibilities in an organisation should be subject to discussions and debate by the board so that there is awareness. Instead, there was retrospective approval by the Crofting Commission. It feels unsatisfactory that the commission’s roles and responsibilities were expanded without the board being given an opportunity to consider how best that could be done or what it would mean for the commission’s organisation, structures, finances and so on.

As we understand it, the discussions took place between the Scottish Government and the chief executive, rather than discussions taking place before the change in legislation.

Was any reason given as to why the convener did not continue to attend the discussions?

I am not sure about that. I ask Pat Kenny whether he can say more.

I am not aware of the specific answer to that question, but I am happy to look into it further. I have nothing to add to the Auditor General’s remarks on the issue.

Auditor General, as you touched on in your previous answer, the Crofting Commission was required to agree to an expanded role in grazings in the national crofting development plan retrospectively, as it did not have an opportunity to view and agree the final plan prior to the Scottish Government’s announcement. What impact, if any, did that have on the Crofting Commission?

We try to convey in the report that that is a serious issue. As I said, when the role was being expanded, the implications for finances, staffing and performance reporting ought to have been considered in advance, so that the commission’s arrangements and those for subsequent reporting to Government were known and understood.

I will ask Pat Kenny to say a bit more about the financial implications, the monitoring arrangements and whether any staffing changes were required. The fundamental point that we make is that there was a change to the organisation’s business arrangements and, in those circumstances, its board—collectively, not just the chief executive or the convener—ought to have had the opportunity to debate and consider what that would mean for the delivery of its functions.

The fundamental impact was the knock-on effect on the budgets, the financial plan and potentially the workforce plan. There could have been serious implications because of that. The approach identifies a weakness in the cohesiveness of the organisation as a whole. The board was not allowed to ask questions or scrutinise the outcome so that it could understand the full implications for the organisation. That is the fundamental issue that we identify in the report.

Willie, do you have any further questions?

I would like to look at your recommendations. We have been at this point before when we have had a report from you and we have looked ahead to how a situation will be monitored, reviewed and so on. The report makes seven recommendations on the financial aspects and 47 on governance issues. Who will do the follow-up and verify that the work is going to be done? Will it be Audit Scotland or Deloitte, or a mixture of the two? How will the committee and the public be assured that the organisation has taken your recommendations on board and is getting things done?

Pat Kenny and his team at Deloitte will monitor the progress of the Crofting Commission’s implementation of the recommendations that he and his team made during the annual audit. During the financial year 2021-22, he will report on how that work has progressed. That will then come back to me, and I will have an opportunity to report publicly on that progress. I hesitate to commit to a further section 22 report at this stage, but I will have the option of reporting to the committee and the public on any progress that is being made.

Craig Hoy has another question.

The former journalist in me has alighted on what was perhaps the soundbite of the morning, which was Colin Beattie’s comment that NDPBs have the capacity to become little knitting circles that turn in on themselves.

I am struggling a little bit to see whether we are saying that the deficiencies and shortcomings of the Crofting Commission were based on personalities, culture or structure, but one of the recommendations is that the commission reconsiders the structure of its senior management team. That is shown in exhibit 1, and it looks to me like a pretty traditional structure. To what extent do you think that that is necessary? Has the commission accepted that recommendation? If so, on what timescale would it implement the recommendation?

Pat Kenny can say a bit more about timescales for the commission’s consideration of the recommendations.

I recognise that the commission has a traditional management team structure. It has perhaps not kept pace with some of the structures that we now see elsewhere in other public bodies. We also agree with Deloitte’s conclusion that it is quite a large team to deliver its functions for a relatively small organisation. We know that, even before the audit report, the executive team’s structure was being discussed by the chief executive and the Scottish Government, as opposed to the board. I think that the structure is a factor in what we are seeing in the organisation, but Pat Kenny can say a bit more about timescales.

The commission has appointed external consultants to conduct an independent workforce review, and a key component of that will be a review of the senior management team structure. My understanding is that that external review will report in the short term. We will keep a keen eye on that. It is encouraging that, by commissioning that review, the commission has recognised that the senior management team structure has serious issues that need to be addressed.

Once the section 22 spotlight on the commission fades, what steps will be required to ensure that the boundaries between the roles of the chief executive and the board are understood and respected? How critical will the Scottish Government sponsoring division be in ensuring that the dysfunctionality does not return in future?

Both parties have a key role in ensuring that things work effectively and that the commission can discharge what it is here to do—to support the functioning and effective monitoring of crofting in Scotland.

You are right: the work does not stop after the section 22 process, the public reporting and any subsequent consideration and evidence taking that the committee chooses to undertake on the report. Pat Kenny and his team will continue to audit the Crofting Commission. They will monitor and track the progress of the improvement plan, and they will report publicly on it. It will then come back to me as Auditor General to determine whether there should be a subsequent statutory report. As I mentioned in response to Mr Beattie, I can perhaps take away any broader consideration of how effectively the sponsorship arrangements are working. All those things are options.

The important thing, which we have mentioned a number of times in discussions with the committee, is that there is transparency about how well the commission is operating and that, as a public body, it can reassure its service users, the public and the Parliament that it is operating effectively. We will continue to report as necessary.

We are drawing towards the end of the evidence session. I will bring in Sharon Dowey shortly.

Mr Kenny mentioned the hopefulness that comes with the commissioning of an external consultant’s report. However, did I not read that there was a consultant’s report in 2016 that looked into the Crofting Commission? The question that that provokes is to what extent there is a similarity between the findings of the consultants in their 2016 report and what Deloitte uncovered in 2020-21. Is the Crofting Commission just dealing with the same issues? Are you as auditors having to deal with the same issues? Are we as the Public Audit Committee of the Scottish Parliament having to deal with the same issues over and over again?

Regrettably, convener, there are parallels with the issues that were mentioned in the independent report in 2016. As we note, it referred to

“strong personalities, differences of opinion and ... incongruent individual ... priorities”.

There is undoubtedly read-across between that report and what you see in the present report. Considering the support that the organisation gets, that suggests that, if the relationship between the Government, the chief executive and the board is not operating effectively, there is a real risk.

A broader review needs to happen regarding the Government’s work on how effectively the sponsorship arrangements are operating. That needs to be stress tested for when certain circumstances arise—as they always will when people are involved, as there are so many variables that can override well-intentioned, well-written documents that set out how governance ought to operate. Unfortunately, five years down the line from the 2016 report, we are now seeing elements recurring in the organisation.

We will certainly reflect on that. Sharon Dowey has a final point and question.

It is probably more of a statement for the record, rather than a question. Your report states that seven recommendations have been made in respect of financial sustainability and 47 in respect of governance and transparency. In your section 22 report, you state:

“I will continue to monitor the Commission’s performance, including how it takes forward its Implementation Plan, with a view to further public reporting in the future.”

Given the number of issues that were identified during the audit, the committee would welcome further public reporting in order to gain reassurance that the commission has addressed those issues. You said that they go back to 2016, with some similarities.

I confirm that, as I note in the report, Pat Kenny and his team will monitor progress against the plan. They will report publicly, and if appropriate I will take the opportunity to do further public reporting on that.

Thank you. With that undertaking, I thank Pat Kenny and Graeme Greenhill for their evidence this morning, which has been very helpful, and of course I thank the Auditor General for leading on the evidence that has been brought before us. Once again, I place on the record our thanks to him.

10:15 Meeting suspended.  

10:16 On resuming—