How can we create a world-class approach to public finances?

The Scottish Parliament may have been in recess since my last blog, but you wouldn’t know it from all of the activity that’s been underway at Holyrood over the summer. It’s been a pleasure to be involved in some of this work, including contributing to the business planning days for different parliamentary committees and joining colleagues in the new budget review group, taking a fundamental look at how this important process should develop.

There has also been plenty of work under way at Audit Scotland over the summer. Colleagues have been busy signing off the financial audits of dozens of central and local government bodies, and I’ve reported on a number of different policy areas, including higher education, colleges, and broadband, to name just a few.

And today, I report on the Scottish Government Consolidated Accounts for 2015/16. I’ve set out the Scottish Government’s budget, how it works and how it’s reported, as well as my findings on the Government’s financial and performance management.

The Consolidated Accounts are an integral part of the Scottish Government’s accountability to the Parliament and of course, the public. They cover about 90 per cent of the spending approved by the Parliament, and show what the Scottish Government has spent against the overall Scottish Budget.

This is the second year that I’ve produced a report to accompany the accounts. The new financial powers flowing from the Scotland Acts 2012 and 2016 mean it’s increasingly important that the Parliament and the public have comprehensive, transparent and timely information about public finances. For example, one of the key changes in this year’s consolidated accounts is that they reflect the revenue collected through Scotland’s new devolved taxes – Land and Buildings Transactions Tax and Scottish Landfill Tax – for the first time.

The Scottish Government has made some progress since my last report in improving the transparency of public finances. However, there is still no set of consolidated accounts for the whole of the Scottish public sector – something I have reported on previously. These would give a fuller picture and understanding of public spending and the longer-term implications for public finances. This is especially important considering the uncertainty created by the EU referendum result and the continuing pressures on the public purse, alongside the impact of the new financial powers.

I’ve also highlighted some significant issues and risks to the Scottish Government budget, including management and control of European Funding; an important income stream for the Government.

I look forward to taking the report to the Parliament’s Public Audit Committee later this year, and supporting MSPs to discuss and scrutinise some of the issues highlighted in my report.

As I’ve mentioned before , managing the new financial powers brings both opportunities and risks to Scotland’s public finances and with this in mind, Audit Scotland has pulled together a paper looking at some of the key issues. This paper is accompanied by a high level overview of the new powers, how the funds flow through the system and which organisations are involved. I’ll also be reporting again next spring on how well these powers have been prepared for and managed.

There are undoubtedly hard decisions ahead but I believe we’ve got a rare opportunity to create a world class approach to public finances. Let’s not waste it.

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About the author

Caroline Gardner is the Auditor General, and Accountable Officer for Audit Scotland. She started her term in July 2012, and has 30 years’ experience in audit, governance and financial management. Follow her on twitter @AuditorGenScot

Supporting economic growth: A complex picture

A strong, sustainable economy is important for a successful Scotland, and the performance of our economy has been subject to a great deal of debate and scrutiny in recent months.

In July, Audit Scotland published a review of the roles of Scottish Enterprise (SE) and Highlands and Islands Enterprise (HIE), which spend around £398 million a year delivering the Scottish Government’s economic priorities, as outlined in Scotland’s Economic Strategy.

This strategy was the starting point of our audit work, as this determines SE and HIE’s plans and activities. Although it sets out the Scottish Government’s high level priorities and overall approach to supporting economic growth, we found that the detail on how specific policies and initiatives would be implemented is missing.

The strategy states that the Scottish Government’s National Performance Framework (NPF) will measure progress, but this cannot be used to measure the contributions of policies and initiatives to delivering outcomes. We’ve therefore recommended that the Scottish Government strengthens its approach to developing, delivering and monitoring the economic strategy. This is particularly important due to the complex nature of supporting economic growth and the uncertainty surrounding public finances for the foreseeable future, as a result of new financial powers flowing from the Scotland Acts 2012 and 2016, and the outcome of the recent EU referendum.

Turning to the economic development agencies, SE and HIE provide a range of financial and non-financial support to businesses and other customers and we found that overall, they are performing well. Often their investments in projects will be significant and high risk. Our audit sought to raise awareness of how much is spent and where, and what’s achieved as a result. To help inform our conclusions we pulled together case studies which looked at specific types of support, such as SE’s work to help rejuvenate the Dundee Waterfront and HIE’s investment in the Harris Tweed industry.

Both agencies regularly meet or exceed their individual performance measures, despite a 12 per cent reduction in their spending since 2008/09, and they undertake a range of evaluation work to help demonstrate the impact their support has. There are also good examples of partnership working to achieve positive outcomes, such as creating jobs and increasing business turnover.

Where things could improve is in the way that SE and HIE often offer similar support, which means that there’s scope to deliver some activities more efficiently. We recommended agreeing common performance measures, aligned to the NPF, to allow the agencies’ contribution to Scottish Government outcomes to be identified and clearly tracked.

The Scottish Government announced a comprehensive review of enterprise and skills services in May this year, which should offer the opportunity to address our findings and we’ll consider the outcomes of this review and what it may mean for any future audit work in this area.

The responses to the report have been very interesting; we’ve discussed our key messages with a number of stakeholders, including the Scottish Parliament’s Economy, Jobs and Fair Work, and Rural Economy and Connectivity, Committees, and tomorrow (Thursday, 29 September) we present our findings to Holyrood’s Public Audit Committee.

And there’s more to come, as we’re exhibiting the report and other information about our work in this area at the Scottish Business Exhibition in Novemberforward to meeting business people face-to-face to chat through our findings. If you’re there on the day, please say hello!

About the author

Mark Pentland is a performance auditor and joined Audit Scotland in 2013. Since then, he’s worked on a number of different audits, most recently contributing to Supporting Scotland’s economic growth: The role of the Scottish Government and its economic development agencies.

Social work audit raises tough questions for us all

Until I worked on this audit my perceptions of social work came from the media: overworked professionals in a very challenging environment, constantly trying to do the right thing and having to make decisions which would likely have a serious impact on people’s lives.

And, unless you have had recent personal experience, I suspect many people think that when there is a need, the state will step in to provide help.

During this work the team learnt that the challenges we are confronting as a society are huge. The number of elderly people is increasing, there will be fewer people of working age, and more children and adults living chaotic lives or longer lives with complex needs.

While we are living longer, the number of years we spend in good health is not increasing, and in order to live independent, fulfilling lives, many of us will need help for longer. So we all have a responsibility to make lifestyle choices which will keep us healthy.

One thing that surprised us was how much we rely on unpaid carers to provide support. One in six adults in Scotland and almost 1 in 25 children under 16 are caring for someone. And the amount that saves the public purse is estimated at  nearly 11 billion a year.

The audit threw up a lot of philosophical issues for me.

Legislation gives certain groups rights but how do we balance them with other’s needs, such as the difference between a 64 year old and a 65 year old with the same needs? Or children who lose benefits and opportunities once they become adults?

How do we pay for the care we need? How much is it the responsibility of the individual or their families and how much should society pay from a finite and reducing public purse?

During this audit the team had a privileged opportunity to meet with those working in social services at all levels in six council areas. We were surprised to find that, in spite of the size of the challenge, social workers  were positive about their work and confident that they can help people change their lives for the better.

It was interesting to see how different the principal issues confronting different councils were; for example, providing care for people living in rural and isolated communities in Eilean Siar or coping with wide scale deprivation, and the consequences of drug and alcohol abuse in Glasgow.

But the overall thing I have taken away from the audit is that we as society have to make some really difficult decisions about how we define need, how we want to support those in need of help – and how we will pay for it.

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About the author

Liz Ribchester joined Audit Scotland’s Performance Audit and Best Value group as a Senior Auditor in 2004. She was a member of the Social work in Scotland audit team.

Learning lessons from young people

Audit Scotland and Young Scot have been working with a group of young people over the past few weeks on CheckSee. This has been something completely different for Audit Scotland, working with young people to think about how we do our audits and the topics we look at.

The pilot was a great success and we’re very grateful to all the young people who took part. At the final session the group shared their thoughts and insights about what they see as being the big issues relating to education, skills and employability, and also their recommendations. There was a great buzz in the room, with loads of enthusiasm, and it was fantastic to see things from their point of view. They came up with some great ideas.

The group also gave us a strong, good challenge about what we need to be doing better ourselves – like thinking about other ways of getting our messages across, rather than long written reports. The group had some really good suggestions and they were very honest in their assessment of our current reports! That’s exactly what we need to hear so we can improve.

We’re thinking about the next steps now, and we’d love to keep working with some of the group. Young Scot will be sharing their learning from the project in due course, and I’m looking forward to hearing what the young people who took part in the sessions thought of CheckSee.

At Audit Scotland, we got such a lot out of the session, and people were really fired up afterwards. As things move on, we’ll share more information about what we’re doing and what’s changed as a result of working with the young people. This is the start of an exciting new phase for us.

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About the author

Tricia Meldrum is a Senior Manager with Audit Scotland’s Performance Audit & Best Value group. She joined Audit Scotland is 2001 with a background in health economics, and currently oversees audits in the education and children’s services sectors.

 

What could Brexit mean for Scotland’s public finances?

I’ll remember the morning of 24 June for a long time. Whatever your views and vote in the EU referendum, it was clear something momentous had taken place. Certainties were swept away and now, nobody really knows what comes next.

And the vote came at a time when Scotland’s public sector was already dealing with significant change, including new financial powers, building pressure on the public purse and service reform. Add into the mix a new Scottish Parliament, a return to minority government and renewed debate about the possibility of a second independence referendum, and you have a future that’s far from fixed, and filled with both opportunities and risks.

The key question on everyone’s mind in the wake of the Brexit vote is what will it mean: for the country, for our politics, for me?

Of course, we don’t really know yet, but we can begin thinking through the implications and start exploring what it might mean for Scottish public finances.

Even with the devolution of further tax powers, the Scottish Government’s overall budget will continue to be linked to UK public spending decisions, and the state of the economy.

Following the EU referendum vote, the UK Government has set aside its deficit targets and Chancellor Philip Hammond has indicated scope for a ‘fiscal reset’ in the Autumn Statement, depending on early signs about economic performance.

And for its part the Scottish Government is proposing to delay the Scottish budget until it knows more, and has decided not to hold a three-year spending review at this point.

For now, all bets are off as to how things will pan out and how this will ultimately impact on Scotland’s public finances.

We know that European funding it is highly focused on a few areas in Scotland – agriculture, economic development and skills, fisheries and research. However, it’s hard for people and organisations to commit time and resources to planning if they don’t know which future is more likely to occur. The Chancellor has recently guaranteed that funding will be in place for projects established before the autumn statement but not everything is covered.

And there are other areas affected by EU rules to consider, such as procurement, environmental rules, entitlement to public services (for example, university tuition fees) and social security payments.

So a lot of questions and, at this stage, not many answers.

In Audit Scotland, we’ve extended the scope of our work on new financial powers to consider the implications of the EU referendum result. This brings together known and prospective constitutional changes affecting public finances, and will help us to identify the audit risks that we need to address in our work.

Key issues that we will need to consider are likely to include potential challenges to financial sustainability for public bodies exposed significantly to the end of EU funding streams, and the effectiveness of policy implementation in any areas that are transferred from EU to Scottish Government control and links to overall objectives, outcomes and performance

And of course, while the final destination isn’t yet known, further devolution in Scotland continues apace and the Scottish Parliament is receiving substantial new financial powers via the Scotland Act 2016. Whatever happens as a result of the EU referendum vote, these new powers need to be managed and integrated into the Parliament’s scrutiny processes and there is definitely a role for Audit Scotland to play. We’ve committed to supporting the Parliament to develop world-class arrangements for holding government to account and improving the use of public money.

We will therefore continue to work with its committees to strengthen the Parliament’s oversight, in line with the recommendation of the Smith Commission, and to support scrutiny of the implementation of the new powers.

If you’re interested in this area of our work, keep an eye on our New Financial Powers webpage for more updates.

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About the author

Mark Taylor is an Assistant Director in Audit Scotland. He oversees a wide portfolio of central government audits, including the Scottish Government audit, and is the lead on our work on new financial powers and constitutional change.