Public Audit Committee

Meeting date: Thursday, May 12, 2022

Official Report 622KB pdf

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Section 22 Report: “The 2020/21 audit of South Lanarkshire College”

I welcome Graham Simpson, who is an MSP for Central Scotland and who joins us for item 2, which is consideration of the 2020-21 audit of South Lanarkshire College.

I am pleased to welcome the Auditor General for Scotland, Stephen Boyle, to give evidence to the committee. We are also joined by Rebecca Seidel, who is a performance audit and best value manager at Audit Scotland, and by Lucy Nutley, who is a director at Mazars and who I think carried out the audit on the ground at the college.

I invite the Auditor General to give us a short opening statement.

Thank you, convener. Good morning, committee.

I have prepared a section 22 report on the 2021 audit of South Lanarkshire College. The report highlights governance issues at the college, which resulted in areas of non-compliance with the “Code of Good Governance for Scotland’s Colleges”.

In July 2021, the Scottish Funding Council was alerted to potential governance issues and strained relationships at the college and decided to commission an independent review.

The college cancelled board and committee meetings in September and October 2021. That led to the college being unable to fully comply with the code of good governance. The board and the audit and risk committee were not quorate on occasions during the year. There were no formal meetings of the board for five months, or of the audit and risk committee for six months. The college was not able to meet its requirement to report on committee meetings to the regional strategic body. There were delays in finalising and approving the minutes of board and committee meetings, and in making them publicly available. There were also delays in approving and appointing an internal audit function and in approving the internal audit plan for 2021-22.

On 30 November 2021, the college board agreed to commission two independent investigations into complaints and grievances against the chair of the board and the principal and interim clerk to the board. At the same meeting, the board agreed to suspend the principal and interim clerk to the board and accepted the offer of the chair of the board to voluntarily step aside from their role while those investigations were being conducted. Those investigations have yet to conclude.

The college has taken steps to address the concerns raised by the external auditor and to ensure that it is now, again, compliant with the code of good governance. It has also developed a governance improvement plan. The appointed auditor and I will monitor the progress that the college makes in restoring good governance.

Finally, I will highlight two specific areas where I will be limited in the information that I can provide to the committee. Those are the content of the review of governance that was commissioned by the Scottish Funding Council, and the scope and conclusions of the independent investigations into complaints and grievances, which, as I mentioned, remain in progress.

As the convener noted, I am joined by the appointed auditor, Lucy Nutley, from Mazars, and by my colleague Rebecca Seidel, from our performance audit and best value team. Between the three of us, we will look to answer the committee’s questions.

Thank you very much, indeed, Auditor General. I also thank you for reminding us that active investigations are still taking place, which might make for some limitation in relation to the areas that we can probe into this morning. However, there is still an awful lot in the published report that we will seek further evidence on in the next hour or so.

The deputy convener of the committee, Sharon Dowey, will open up the questions.

Good morning. Paragraph 10, on page 4 of the report, states:

“Following discussions with ... the Lanarkshire Board ... the SFC commissioned a review of governance at the start of July 2021.”

What prompted the Scottish Funding Council to undertake that review?

We will do our best to share the information that we have. I will invite Lucy Nutley to come in to update the committee in a moment.

As we set out in the report, upon the conclusion of the review by the independent investigator, the information was shared in a number of phases with the principal and members of the management team and the board before a full consideration of the report in redacted form towards the end of 2021.

As was noted, concerns about relationships and grievances were prompted by both the Lanarkshire board and the principal of South Lanarkshire College, who raised concerns with the Scottish Funding Council to ask for its support. Lucy Nutley will say a bit more, if she can, about the nature and scope of that work.

To reiterate what the Auditor General said, I understand that the SFC undertook that review due to concerns that had been raised with it by the chair of the regional strategic body and the principal of South Lanarkshire College.

Is it normal for a body to take out a governance review and then not share its findings with an auditor?

There are particular circumstances here. As we note in the report, much of the independent investigation, which is the Scottish Funding Council’s investigation as opposed to that of the college—our audit work and our report today are about South Lanarkshire College as opposed to the Scottish Funding Council—relates to personal data. It clearly matters that, where possible, bodies should be transparent, but I am tempering my remarks somewhat because much of the report concerns what could be deemed to be personal data, which it may not be appropriate to share. However, in order to arrive at a stronger position and more effective governance for the college, the college board will need to be satisfied that it is aware of all the relevant factors that led to a deterioration in effective governance during the year.

We also understand that the college will shortly consider its governance improvement plan, which ought to satisfy it that it has addressed all the relevant content of the investigation. To assure the committee, we will be following the college’s progress against that governance improvement plan through the work of Mazars over the course of the year.

Paragraph 11, which is also on page 4 of the report, states:

“The SFC shared a redacted copy of the report with the principal and chair once it was finalised in August.”

As we heard, it was highly redacted. The paragraph then states:

“Other board members and the senior management team received a redacted copy of the report in October and December 2021 respectively.”

Paragraph 12 states:

“The redacted SFC report was formally considered by the board in December 2021.”

Do we know why it took them until December to formally consider the report?

There is a combination of factors. Lucy Nutley will give an appointed auditor perspective.

The investigation influenced the events that followed in terms of the availability of the chair of the board, the principal and the clerk to the board. That meetings were cancelled during the period will no doubt have led to one reason why it took so long. However, that is not really an excuse. Good governance requires that meetings are held, that scrutiny is effective and that the board can satisfy itself at appropriate regular intervals that it is discharging effective scrutiny of the college’s affairs.

As I highlighted in my opening remarks, the board and the audit and risk committee did not meet for significant periods of five and six months of the year, which led to the overall conclusion that they were not meeting the code of good governance for colleges. That is probably as much as we are able to say. It may be a line of questioning for the committee to explore directly with the college. However, I will pause for a second as Lucy Nutley may wish to add to that.

There was a lot for the board to get through at the meeting in November, as there had been quite a gap, so the December meeting was the first normal meeting, if I can use that phrase, at which business was undertaken. That is why it took so long.

In paragraph 12, the report states:

“the independent auditor notes in their annual audit report that they ‘have no assurance that the action plan covers all the recommendations made, due to the level of redactions in the [SFC] report.’”

Has the Scottish Funding Council reviewed the action plan? Is it happy that all the action points have been covered? Is it involved in making sure that the action points are actioned?

I understand that verbal assurances that the governance improvement plan covers all the recommendations in the unredacted and redacted versions of the report have been given to the South Lanarkshire College board, but I have had no such assurances from the SFC.

Colin Beattie has some questions in an area that the committee is very interested in.

Auditor General, I want to fully get my head round the different investigations that are going on. I understand that the SFC started a governance review in July 2021, which it delivered in August 2021—in other words, it did so extremely quickly. Do we know what the terms of that investigation were?

At the extraordinary board meeting on 30 November 2021, it was agreed to commission two independent investigations. I assume that one of those was on the chair of the board, with the other being on the principal and the interim clerk. It is now May 2022. How did the SFC manage to do its governance review in four weeks, while, months after the other investigations were commissioned, nothing has come out the other end?

I will take your questions in reverse order. I will answer the question about the two latter investigations, and I will ask Lucy Nutley to update the committee further, as much as we are able to, on the scope of the SFC investigation and the timing of it.

Following receipt of the SFC review, the college board considered the redacted version of the SFC review. At that point, it decided to suspend the principal and the interim clerk to the board. The chair of the board also voluntarily stepped aside at that point.

As you said, two independent investigations were commissioned, both of which are being undertaken by a law firm. The first investigation is reviewing matters relating to the chair of the board, while the second covers the principal and the interim clerk to the board. We have been closely monitoring the progress of those investigations. When we inquired in advance of today’s meeting, we were told by the college that the investigations are still on-going. In other words, they have not concluded.

It is probably difficult for us to say much more about the nature and timing of those investigations, which relate to individuals. We know that the timing and duration of such investigations can vary, and that the scope can broaden, depending on what investigators may find while they are carrying them out.

It is my expectation that we will carry out further work on the matter once we are clear about the conclusions of those investigations. I anticipate that we will report on that during the 2021-22 audit of South Lanarkshire College.

I invite Lucy Nutley to update the committee further on the SFC investigation.

I understand that the SFC review was a lot more limited than the current investigations, which would explain why it was carried out much more quickly. It is probably inappropriate for me to comment on the content of the redacted report in the terms that it was shared with me, but I understand that the terms of the SFC review were a lot narrower than those of the current investigations, for the reasons that the Auditor General set out.

Without looking for the conclusions, which clearly are a different issue, do we know what the terms and scope of the different investigations were?

09:15  

I have seen the scope of the SFC review, but I have not seen the scope of the independent investigations as yet.

Can you share the scope of the SFC investigation?

It is the SFC’s report, so I would need to speak to the SFC before that could be released.

As we set out in paragraph 10 of the report, the SFC’s decision to undertake an investigation followed discussions with the principal of the college and the regional Lanarkshire board. We talk about

“potential governance issues and strained relationships”

in the college. The SFC’s independent investigation was carried out by an experienced college professional from elsewhere in the UK. You can probably tell from the nature of the investigation that much of it contains personal data about individuals. We were therefore limited in the extent to which we could set that out publicly in the report while other related investigations are on-going.

However, we are entitled to look at the outcomes of those strained relationships and the impact on the board and the functioning of the college.

That is absolutely right, and that is really the basis of the section 22 report that we are considering today—the aim is to highlight publicly that, although investigations are on-going, governance in South Lanarkshire College did not operate in accordance with the expected standards. We note that meetings were not being held, minutes were not being published and an internal audit function was not in place as expected, although investigations are being carried out in respect of those matters.

So you are satisfied that what we can see visibly as the impact of the poor governance is manifested in your report.

Indeed. We set out that, for a period during 2020-21, South Lanarkshire College’s governance was not operating as intended and the millions of pounds of money for which the college is responsible was not being overseen properly, in accordance with the code of good governance for Scotland’s colleges. It is important that I say that, as we note in the report, the college has taken steps to rectify the areas that we highlight that were non-compliant with the code of governance. The college now has an internal audit function and the board is meeting and is publishing minutes and so forth. Nonetheless, as Mazars and Lucy Nutley considered prior to the signing of her audit opinion and consideration of the governance statement, the college was not compliant for a period during 2020-21.

To go back to the investigations, I was going to press you on the timescales for completion but, from what you say, it seems that you do not really have a grasp of that at this time.

As I mentioned, we continue to engage with the college through Mazars to track progress. However, other than reporting to the committee today that the investigation is on-going, there is little else that I can offer the committee, unfortunately. I suspect that, as is the case with such things, the investigation will take as long as is deemed necessary. It is a matter for the college to consider the conclusions and to give an update when it can do so.

The two internal investigations are being handled by the same law firm—it is the same investigation, really.

That is our understanding. The same law firm is carrying out both investigations.

There are two separate teams, though.

Okay.

I have one final question. Obviously, we do not have the results of the independent investigations and you cannot comment on the conclusions of those. Will you be able to give us more comment once the investigations have been completed? Will you come back to the issue?

As I set out in the conclusion of the report, given the nature of investigations and the circumstances, which are material to good governance at the college, I commit to undertaking further audit work on the matter.

Mazars will complete its 2021-22 financial year audit of South Lanarkshire College and report publicly through its annual audit report. On seeing the conclusions of the report, I will decide whether to do another section 22 report, but that seems more likely than not, given that this one feels like an interim report.

Lucy Nutley, you said that the same law firm is carrying out the two independent investigations with separate teams. How does that work? Is there a Chinese wall between them, or does it not matter that the two investigating teams are from the same firm? Is it intended that they all come together?

I am not aware of all the details, but I understand that Chinese walls will be in place. The college deemed it important that the independent investigations were undertaken by two separate teams, with one looking at complaints about the chair and the other looking at those about the principal and the clerk to the board.

On the appointment of the investigators, the college will want to be satisfied that the appropriate scope has been agreed and about how the investigations will be discharged. We can surmise that the law firm will have offered assurances about that.

Again, it is a matter that we have not audited thus far, but there is an opportunity for it to be reported on publicly as part of our work next year and for the committee to be assured on that point.

We will need to consider what point is the right juncture to bring in the accountable officers, if that is the route that we decide to go down. I will bring in Willie Coffey at this point.

Good morning, Auditor General. I want to drill down a wee bit into the non-compliance issues that you raised. I realise that you might be limited in what you can tell us; nevertheless, we have to try to get to the bottom of it.

Your report and comments have told us that the audit and risk committee and the board suddenly stopped meeting around May or June 2021, and that there were no more formal meetings of either body. What explanation has been given for that? The staff and the wider student body must surely have been aware of that and asked questions about it. Were any explanations given to anyone about why they suddenly stopped meeting?

Good morning, Mr Coffey. I will ask Lucy Nutley to set out the circumstances that we know about for the board and the audit and risk committee. One aspect that Lucy might want to elaborate on is the fact that there was a change of membership during the course of the relevant months. People stepped down and new members were appointed, and we have identified factors about new member induction that might have had an influence on the situation. Of particular relevance is the fact that the interim clerk to the board and the committee was part of the review and the subsequent suspension, which will no doubt have influenced the timing of meetings and people’s availability to allow them to take place. Lucy will set that out in more detail.

I can comment only on the audit and risk committee meetings, as those are the ones that I am invited to, as standard. The September meeting was cancelled with about three hours’ notice, and no explanation was given for why it was cancelled. I understand that the other meetings that were cancelled in that period were also cancelled at relatively short notice, but perhaps not as short as three hours.

The board and committee did not meet again for a considerable period. Is it correct that five or six months elapsed before they decided to meet again?

It took a while to manage diaries and to get to a point at which all board members could meet, which they did on 4 November.

There is a vice-chair, surely, and the audit and risk committee is pretty autonomous and able to act on its own behalf and of its own volition. Why on earth did the board and committee not meet? I cannot understand why the meetings did not continue. As you have said, that is a requirement of good governance. Is there a vice-chair? Why were meetings not convened with the vice-chair stepping in?

Lucy Nutley might want to comment further.

There is a vice-chair, who has stepped in as part of the chairing arrangements while the chair has voluntarily stepped aside because of the investigation. There has been turnover among board members, which has contributed to timing problems.

However, that does not offer a satisfactory explanation for why effective governance in the college fell below the standards of the “Code of Good Governance for Scotland’s Colleges”. You are quite right to say that an audit and risk committee plays a key role in overseeing the effective running of any organisation with regard to public reporting, transparency, oversight of risk, internal controls and so on. It is therefore unsatisfactory that that committee did not meet for six months.

Do the minutes—I presume that there are minutes—from the meetings when it met subsequently refer to the gap? Has anyone explained the reason for the gap? Did the audit and risk committee catch up on the business that had not been done in the six months that had elapsed, and did it report that formally in the minutes? Were the minutes published?

I can give you some background on that. The college documents require that there are three members of the audit and risk committee. One member resigned from the board during 2021 and then, as the timeline in appendix 1 of the report shows, the audit and risk committee chair resigned from the board on 7 September 2021. That took the audit and risk committee’s membership to one, which meant that it was unable to meet without additional members being co-opted, which did not happen. There were too few members. The college was aware that a number of members were due to end their tenure at the end of September, and I understand that a decision was taken to wait until new members were in place, and then to use them to bolster the audit and risk committee membership.

I understand that. Has anyone assessed the wider impact on students and staff? Is an examination of that within your scope? Is the board looking at that issue? Has anyone come to a view about the impact that the hiatus has had?

In terms of our work, there is also an important role for the Scottish Funding Council as part of the arrangements. It is responsible for overseeing the performance of the college. Our work looks at accountability in relation to use of public funds, compliance with financial reporting requirements, and governance arrangements. In the report, we consider non-compliance with the code of good governance.

The role of the board is also clear. Again, it needs to be satisfied that the college is functioning properly and can evidence that through effective scrutiny.

The report sets out the governance issues that we found but—pending the conclusion of work on the investigations—we have not seen that they have directly impacted on the effective functioning of the college. Inevitably, however, there will be concerns among staff, students and the local population about the effective running of the college and what the governance issues might mean in that regard.

The report also says that

“Papers for board and committee meetings held after June 2021 were not publicly available on the college’s website at the point the auditor signed their opinion on 24 March 2022.”

Has that been corrected? Is material now published online so that people can see what is going on in the college?

Our understanding is that relevant material and minutes are being published and are available online. However, it is not acceptable to have a diminution in transparency about how public money is being used by the college. That clearly contravenes the requirements of the good governance code.

Good morning. I have some questions about the composition, roles and capabilities of the board. However, before I do that, I have a technical question.

On 30 September, the tenure of four board members ended, and the board’s membership therefore fell below the numbers that are required by statute. However, the board met on 4 November. Given that it was not statutorily competent at that point, what status did that meeting have?

09:30  

The college’s standing orders set out the appropriate quorum of members for a competent meeting.

I will say something about the nature of appointments for Scotland’s colleges. The chair is appointed by the Government and the public appointments process is followed, but the board is responsible for the appointment of individual members of the committee. The duration and endpoint of an individual member’s term is known, so there ought to be reasonable anticipation of when the individual tenure of a member is coming to an end. Public bodies, including colleges, can take reasonable steps in anticipation of that, so that they preserve good governance and have members in place to support the functioning of the college’s business. That was clearly an issue in the circumstances that we set out in the report.

Lucy Nutley might want to comment more on the detail of how that affected the meeting to which you referred.

As the Auditor General said, the end of tenure was known. The college had taken appropriate steps, in line with all the processes that are required, to have six new non-executive members waiting in the wings and ready to be appointed. However, due to the cancellation of board meetings, they were not ratified by the board at the point when the other members left. The regional strategic body—the New College Lanarkshire board, which is known as the Lanarkshire board—approved the six new non-executive members in October 2021, then the South Lanarkshire College board approved them formally at the start of the meeting on 4 November 2021.

One would assume that the board is fully aware of its role and responsibilities for good governance. The board was appointed on 4 November but members were not fully inducted until the beginning of February 2022. Will you talk me through what the normal induction process would cover and what the risks are of having board members who have not been through that process?

The good governance code recommends that inductions be done promptly following appointment. We understand that all members were sent weighty governance documents and the college’s standing orders, but a decision was taken that they would prefer a face-to-face meeting, which was impossible at that point because we had the omicron variant outbreak. Therefore, they elected to have a face-to-face meeting in February 2022.

Hindsight is a wonderful thing, but given the seriousness of the issues that were at play in the college, would not it have been far better for the college to have made sure that the board was fully aware of its roles and responsibilities at that stage?

You mentioned the benefit of hindsight, Mr Hoy. There were circumstances to do with a new Covid variant. Perhaps because we were, at that point, collectively unsure how long the outbreak of that variant would last, and there had already been governance issues in the college, an alternative arrangement to support the induction of new members could have been found instead of waiting for a face-to-face meeting. As we look back on the situation, we can say that that might have been a better approach to have taken rather than waiting for an unknown date for when face-to-face inductions could resume.

Did you ask or get any indication as to why inductions did not take place virtually?

As we set out in the report, there was a preference for induction sessions to take place face to face rather than in a virtual setting.

Lucy, do you have anything further to say?

No, not really.

You outline in the report not just one but a number of headings under which there was a failure to comply with the code of good governance. We have gone through a few of them. The induction of new board members, which Craig Hoy just spoke about, is one example. Another example, which is quite worrying for us as the Public Audit Committee of the Scottish Parliament, is the failure to appoint internal auditors. The existing provider’s contract expired on 31 July 2021 and the appointment of a new provider was not confirmed until November 2021, so there was no internal audit function at South Lanarkshire College for three months. Will you explain why that was and what impact it had?

You are quite right, convener: we set that out as one of the important areas of non-compliance. We share the committee’s views about the necessity for audit. Internal audit is a core part of the effective running of governance arrangements of public bodies, including colleges.

I will turn to Lucy Nutley in a moment to set out some of the circumstances. I will cover the implications of that.

We are not in doubt about the importance of internal audit for any organisation, and it matters at a time of handover between outgoing internal auditors and incoming appointed internal auditors. In the college, it matters—for continuity and sharing of intelligence—that the audit and risk committee can be assured of the transfer of information, and that the incoming internal auditors are aware of the circumstances as they shape their internal audit plan to support good governance and the college’s internal control environment.

There is an important gap in the governance and internal control at the college. We have just had a conversation about the appointment of board members. Likewise, we would reasonably have anticipated that the time of conclusion of the internal auditors’ contract would have been known and therefore prepared for, so that there was not an important gap, as we set out in the report.

Lucy Nutley will say more about why events transpired as they did.

The response will be much the same as the one that I gave about the board members. Everything was in place; a procurement exercise had taken place and a preferred supplier had been identified, but because of the cancellations of audit and risk committee and board meetings, the appointment could not be ratified.

In those circumstances, would it not have been expedient to roll over the contract of the existing provider until the procurement deal could have been ratified at the appropriate level in the college governance structure? There must surely have been an alternative to a gap with no internal audit facility whatsoever.

In theory, that is possible—probably with agreement from the outgoing internal auditors that they were prepared to extend their contract. I suspect that they would have concluded their final work. As Lucy Nutley said, the procurement exercise had been undertaken. The question is, rather than accept a six-month gap without an audit committee meeting, could other arrangements have been explored—to have a virtual meeting or to co-opt other members of the board—so that that important part of the college’s governance infrastructure could have been implemented? It seems that more clarity from the college is needed on that. Why wait for six months with no audit and risk committee meetings and that important part of its governance left in abeyance?

That is helpful. I do not wish to labour the point, but for the benefit of people who are watching the meeting and people who have an interest in the good governance and working, and the success of, South Lanarkshire College, will you explain in layperson’s terms what the implication is, or what the risks are, of there being no internal audit function for three months?

I will do that, convener. Internal auditors have a plan that they discharge over the year; it covers the key risks to the college’s functioning. They will want to be assured that financial management and governance are operating effectively, and they will align their programme with other aspects of delivery of the college’s strategy. The fact that that did not happen increases the risks that financial transactions were not happening as intended, that governance was not delivered properly, and that aspects of the college’s overall strategy were interrupted.

Internal audit also plays an important reactionary role. Internal audit exists as a deterrent against fraud and corruption in an organisation, and as a conduit through which people can raise concerns that they feel unable to raise through other means. Not having an internal audit function matters—it is a gap in the internal control environment and the effective running of an organisation.

Thank you for that illuminating response, which was helpful and will inform our future evidence-taking sessions with the principal people from the college.

I know that Graham Simpson is anxious to come in, but before I call him, I want to ask about ownership of the governance improvement plan, which you have identified as an issue in the report, and particularly the role of the Lanarkshire board and the Scottish Funding Council. What is your understanding of the role that those bodies will play in monitoring the progress of implementation of the governance improvement plan that has been agreed?

I will start, convener, and then bring in Lucy Nutley and probably Rebecca Seidel to say something about the role of the Lanarkshire board, which is changing in the light of recent considerations that the Scottish Government has consulted on.

The SFC is responsible for overseeing the performance of Scotland’s colleges. As we have already discussed, it commissioned the initial investigation, following concerns having been raised by the Lanarkshire board and the principal with regard to grievance, conduct and so forth. The Scottish Funding Council will want to be assured that the improvement plan is complete, that it reflects its report and the reports of the independent investigations, and that good governance is maintained in the college.

Rebecca Seidel will say a bit more about the role of the regional board, given the uncertainty about its duration.

The regional strategic body—the Lanarkshire board—is responsible for ensuring that both colleges in the Lanarkshire region provide high-quality further and higher education. The regional arrangements were established in 2014, but in its review in 2020, the SFC found that those arrangements were not working as was originally expected and were, in fact, probably having a negative impact on the functioning of both colleges. It also found that the arrangements were not well understood or, indeed, accepted in both colleges, that they were causing some friction between them and that they were distracting from the core day-to-day delivery of their mission to provide better outcomes for students.

On the back of that review, the SFC recommended that the regional arrangements be dissolved and that both colleges manage themselves as separate entities reporting directly to the Scottish Funding Council. That recommendation was made in 2020, but legislative change is required to allow it to be implemented, as the Lanarkshire arrangements are based on the Lanarkshire Colleges Order 2014 and Scottish Government consent would therefore be required.

The Scottish Government endorsed the recommendation towards the end of 2021 in its response to the SFC’s wider review of provision of tertiary education, but at that point—I think that it was October 2021—a lot of the issues that we discuss in the section 22 report were happening. As a result, there has been no further action to take the recommendation forward and a timetable for dissolution of the regional arrangements has not yet been agreed.

I think that all this speaks to a level of uncertainty about who, other than the SFC and, which is as important, South Lanarkshire College’s board, will oversee the improvement plan. However, as Rebecca Seidel has rightly highlighted, the role and duration of New College Lanarkshire as the regional board remains uncertain.

That raises wider policy implications that are not necessarily for us to pick up but which are of interest to us as MSPs.

My final question relates to paragraph 24, which talks about “additional costs” incurred by the college in its attempts to understand the situation and to plan for improvements to the governance structure. Do you expect further additional costs to arise as a result of the improvement plan that has been agreed to?

09:45  

The brief answer is that we do not know precisely how much will be incurred in additional costs as a result of the investigations. That is part of our audit of the current financial year. We expect that the college will set out those costs in its financial reporting for 2021-22. I anticipate the scale of the costs to grow, given that the investigations remain live, but we are not able to give a precise figure, because we do not have that information at this stage. The matter remains part of our audit for the year ahead.

That is reassuring.

I will bring in Graham Simpson, whom I am delighted to welcome to the committee this morning.

Thank you very much, convener. It is good to be back at the committee. I served on the Public Audit and Post-legislative Scrutiny Committee in the previous session, but I should say that I have no relevant interests to declare—I do not think that what is declared carries over from one session to another.

It has been interesting to listen to the lines of questioning from members. I will pick up on some of what has been said, but I also have questions of my own. I have been aware of concerns about the college for some time now, and I have been approached by people at the college. Willie Coffey asked about the impact on staff. I have been an elected member—both as a councillor and as an MSP—for some time, and I have never come across a situation in which people are as scared as they are in this case. That applies to current staff and former staff. I have never seen anything like it. I will give the committee some background to that, because it has not had it yet.

Craig Hoy mentioned the meeting on 4 November last year, at which there were six new board members. Of course, that was the meeting at which the principal, Aileen McKechnie, and the interim clerk to the board, Brian Keegan, were suspended. There is a question about whether a board with six new members who had not gone through proper training should have taken such a big decision. A representative of the Scottish Funding Council was also present at that meeting. Was that appropriate?

You are right in relation to the date of the meeting and the circumstances that you set out—the principal and the interim clerk to the board were suspended at that meeting. [Interruption.] I apologise. I ask Lucy Nutley to come in.

The suspensions did not happen at the meeting on 4 November; they happened on 30 November, at a separate meeting.

So it was in November.

It was a separate meeting, though.

Okay. I think that the same point applies, though. There were brand-new members who had not gone through proper training by then, and a representative of the Scottish Funding Council was present at that meeting, so the same question applies, whether the suspensions happened on 4 November or 30 November.

As we set out in the timeline at appendix 1 to the report, an extraordinary board meeting took place on 30 November. Although the new board members had not been through an induction—as we have touched on, we would have expected that that would have been planned and programmed to have taken place—they were, at that point, appointed board members. If a board takes a decision that is consistent with its standing orders, and if the meeting is quorate, the decision is not ultra vires. That is how we see it, Mr Simpson. Notwithstanding the fact that the induction had not taken place, the board was competent to take that decision.

Okay.

You asked about the attendance of the representative from the Scottish Funding Council, which has a role in overseeing the performance of Scotland’s colleges. It is not for the council to take such a decision; such matters are for the board. However, it is not unusual or unreasonable, per se, for the council to be represented at, or to observe, board meetings.

Okay. A report from the Scottish Funding Council has been mentioned, we have investigations that seem to be stuck, for some reason—they do not seem to be going anywhere—and two key members of staff have been suspended for six months. That does not seem acceptable to me.

However, there is another report, which was commissioned by the now-suspended principal, Aileen McKechnie, from a company called Azets. Are you aware of that report and do you know what it covers?

Lucy Nutley can say a bit more about our understanding of the Azets report and the nature of the content of its review. Azets is a firm of accountants, auditors and advisers and, as you say, the review was commissioned by the currently suspended principal.

Our section 22 report on the 2021 audit notes the live status of investigations and, as I suggested earlier, it is something of an interim-style report. While we await the conclusion of other investigations, we are limited in the extent to which we are able to offer full and complete views on the circumstances at the college.

The Azets report, as the Auditor General said, was commissioned by the principal in early 2021. The report identified a number of recommendations for improvements in processes and controls around policies and procedures, for example, which we considered as part of our external audit. However, as we have said, it is not within the scope of the section 22 report.

I understand that, but the very commissioning of that report makes me feel that the committee needs a little bit of background to all this that it has not had.

I have the minutes from the 8 June 2021 board of management meeting. Under a section entitled, “Internal Audit Update”, it says:

“The Chair updated members ... on a number of allegations of potential staff misconduct within one of the college faculties. The allegations related to 3 separate matters:

Systematic bullying and intimidation of a number of staff over a prolonged period

Potential financial irregularities (of private businesses operating from college premises, using college materials and lecturing staff time)

Potential timetabling anomalies (fabrication of hours, of students, of classes).”

This has been reported in the press previously—I am not saying anything new. However, we have here, in black and white, in the board of management minutes, an allegation of private businesses operating from college premises.

Earlier, Auditor General, you said that millions of pounds of public money were not being overseen. That point is extremely relevant here. Were you aware of any of those allegations?

I was aware of the generality of the concerns, yes. I had not read those specific board minutes. I note some of the phrases in respect of allegations about behaviours, potential irregularities and fabrications, and there is no doubt that those are all very serious matters. I think that they speak to some of the earlier conversations that the committee has had this morning. In such circumstances, the issues around effective internal control environment governance, and the absence of an internal audit function, are all very serious.

In discharging their oversight of public funds, public bodies need to have effective control environment governance arrangements in place and I am sure that the board will want to be satisfied that all those allegations are properly investigated.

Of course, in the event that it is deemed that those very serious allegations have resulted in not just improper conduct but, potentially, financial irregularities, there is an obligation to report such concerns to Police Scotland.

My view is that this could be a police matter. Do you have a role, if people want to come to you in confidence with information?

I do, Mr Simpson. Under the Public Interest Disclosure Act 1998, Audit Scotland is a prescribed organisation and we welcome any members of the public with relevant information, any members of staff of public bodies, and indeed board members, raising concerns with Audit Scotland if they wish to do so. We are clear on our website about how they can do that, and we would actively encourage them to do so.

Convener, I have no further questions but I invite the committee to take these allegations extremely seriously. They relate to your brief and I think that you should be delving deeper into what has been going on at the college.

Thanks, Mr Simpson. I appreciate that pointer.

I thank all the members who have participated in this evidence session. I also thank the witnesses—the Auditor General, Rebecca Seidel and Lucy Nutley. Thank you very much for your co-operation and openness about the section 22 audit report that you have been required to produce. We will consider our next steps in relation to pursuing our interest in what, by all accounts—including appendix 1 of the report—looks very much like a public institution that has been in crisis.

I now suspend the meeting to allow a changeover of witnesses to take place.

09:57 Meeting suspended.  

10:00 On resuming—