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2nd Report, 2011 (Session 3)

The role of boards

CONTENTS

Remit and membership

Report
Introduction
Background

Committee consideration

Accountability of boards
The appointments process for board members
Board operations

Risk management

Annexe A: Extracts from the minutes

Annexe B: Oral evidence and associated written evidence

Remit and membership

Remit:

1. The remit of the Public Audit Committee is to consider and report on—

(a) any accounts laid before the Parliament;

(b) any report laid before or made to the Parliament by the Auditor General for Scotland; and

(c) any other document laid before the Parliament, or referred to it by the Parliamentary Bureau or by the Auditor General for Scotland, concerning financial control, accounting and auditing in relation to public expenditure.

(Standing Orders of the Scottish Parliament, Rule 6.7)

Membership:

Willie Coffey
George Foulkes
Murdo Fraser (Deputy Convener)
Hugh Henry (Convener)
Jamie Hepburn
Mr Frank McAveety
Anne McLaughlin
Nicol Stephen

Committee Clerking Team:

Senior Assistant Clerk
Jane Williams
Assistant Clerk
Jason Nairn
Committee Assistant
Jennifer Bell

The role of boards

The Committee reports to the Parliament as follows—

INTRODUCTION

1. This report sets out the Committee’s findings in relation to the report, The role of boards1, which was prepared by the Auditor General for Scotland (AGS) in September 2010.

BACKGROUND

2. The public sector in Scotland is made up of over 200 organisations serving five million people. There are a number of different types of public body in Scotland, including NHS bodies, non-departmental public bodies (NDPBs), executive agencies, non-ministerial departments, colleges and Scottish Water. In 2009/10 the Scottish public sector spent around £36 billion, following a decade of higher than inflation growth in funding.2

3. The Scottish Government recently published its Spending Plans and Draft Budget 2011-12 following the publication of the UK Government’s Comprehensive Spending Review. The Scottish Government indicates a real terms reduction of 11.3% or £3.3 billion over the period of the spending review. The Scottish Government has also established a Commission on the Future Delivery of Public Services to be led by Campbell Christie CBE. It also indicated within the draft budget its intention to: “continue the successful programme of simplification, looking for further opportunities to simplify and streamline our public bodies.”3

Committee consideration

4. At its meeting on 27 October 2010, the Committee received a briefing on the AGS report entitled The role of boards and agreed its approach to oral evidence taking.

5. At its meeting on 24 November 2010, the Committee took evidence from Philip Riddle, former Chief Executive, VisitScotland; Ronnie Mercer, Chair, Scottish Water; Ian Graham, Principal, John Wheatley College; Neil Cuthbert, Public Affairs and Communications Manager, Scotland’s Colleges; Mary Wilson, Chair and June Smyth, Assistant Director of Planning and Performance, NHS Borders.

6. This report does not comment on every issue raised in the AGS report but rather identifies those key issues on which the Committee wished to make specific recommendations or remarks.

7. The Committee comments on three key issues:

  • accountability of boards;
  • the appointments process for board members;
  • board operations - risk and transparency.

ACCOUNTABILITY OF BOARDS

8. The AGS reports that of the 106 public bodies examined for the AGS report, there are six different categories of accountability arrangements. Even within these categories, the AGS notes that there are differences between public bodies in the way they account for expenditure and performance and to whom they do so.4

9. The AGS then comments that relationships between college boards and Scottish Ministers are more complex and less clear. College boards are not directly accountable to Scottish Ministers or to the Scottish Funding Council.5

10. The Committee sought clarification from witnesses as to whom their boards are accountable.

11. Ian Graham of John Wheatley College explained that as a consequence of The Public Finance and Accountability (Scotland) Act 2000, and in order to preserve colleges’ charitable status, college principals are no longer accountable officers with colleges now accountable to the Scottish Funding Council.6 He commented that—

“I think that ministers can be held to account via the funding council, but it was a wrong move and a mistake to take accountable officer status away from individual colleges because I do not really believe that the funding council is in a position to answer for 43 colleges. It also gives the funding council an excuse to ask for vast amounts of information from institutions and there is an opportunity cost for us to provide that.”7

12. In relation to accountability for delivering major capital projects, Ian Graham noted that post-capital-project reviews are undertaken by the relevant college which are then provided to the Scottish Funding Council. Ian Graham, however, also commented that “those reviews are not being regularly disseminated to the sector” and that such reports “should be published, because the lessons are being learned and it is quite possible that some of them would be picked up.”8

13. The other witnesses all concurred that their accountability lines were clear, with the Chief Executive accountable to the Permanent Secretary and the chair accountable to Scottish Ministers on policy and other issues. Mary Wilson explained that “The duality of accountability is a strength – it acts as a check and balance.”9

14. The Committee notes the range of accountability relationships that exist in the Scottish public sector and acknowledges that most witnesses were clear about their lines of accountability.

15. The exception was the role of the Scottish Funding Council in holding Scotland’s colleges to account which is not clear. The Committee also heard concerns over the amount of information provided to the Scottish Funding Council as well as how such information was then disseminated, particularly in relation to the lessons learned from delivering major capital projects.

16. The Committee therefore requests further information from the Scottish Government on how it will support the Scottish Funding Council and Scotland’s colleges to clarify the lines of accountability.

17. The Committee would also welcome confirmation from the Scottish Funding Council of whether (and if so, by when) it would propose to make post-capital-project review reports publicly available to all Scottish Colleges.

THE APPOINTMENTS PROCESS FOR BOARD MEMBERS

18. The AGS reports that excluding colleges, four-fifths of non-executive board members are appointed by Scottish Ministers through the Scottish Government’s public appointments process. The Commissioner for Public Appointments in Scotland (CPAS) overseas the public appointments process and assesses it against the Code of Practice for Public Appointments.10

19. In 2008/09, the number of applications across 55 public appointment rounds ranged from 6 to 30 with an average of 19. Between 2004/05 and 2008/09, the number of applications for each round of public appointments more than halved.11

20. In September 2008, CPAS produced a strategy to encourage a wider range of people to become non-executives. An action plan including recommendations and targets for the Scottish Government was developed to implement the strategy but progress against it has been mixed.12

21. The Committee sought the views of witnesses on the reasons for the falling number of applications and what work they may be doing to address this.

22. Philip Riddle explained that there were many reasons for the fall in application numbers but particularly the weighty application nature of the application process. He explained that—

“the use of rather elaborate, heavy and anonymous application procedures to cut out direct approaches actually deters some people.”13

23. Mary Wilson also commented on the importance of attracting people from diverse working backgrounds rather than only those who have had successful careers. She noted that her application for the post of Chair of NHS Borders had been 13 pages long and that there is a skill to filling in such application forms that not all, who wish to apply, may possess.14

24. Neil Cuthbert explained that the makeup of college boards is specified in the Further and Higher Education (Scotland) Act 1992 (“the 1992 Act”) and the boards must have representatives of the business community, staff and students. As a result the parameters within which college boards work to recruit members are reasonably narrow.15

25. He then explained that Scotland’s Colleges sometimes gets feedback that there was not the type of response to an advert that would have been liked and that—

“I suspect that the overall picture is similar to the picture for public appointments more generally.”16

26. Ian Graham stressed the importance of attracting the local community to want to be involved in the governance of colleges such as involving local people in the recruitment process for his successor. He also noted that John Wheatley College makes use of co-option which can provide a relatively long induction to those who might want to join the board. This then ensures that, if people leave the board, relatively quick appointments can be made to the board of people who can make a contribution almost immediately.

27. Ian Graham also highlighted the issue of age limits for some posts, explaining that the 1992 Act restricted board membership to those under 70 which had resulted in the loss of valued board members once they turned 70. He called for the 1992 Act to be “reviewed to take such overt discrimination out of the system.”17

28. Boards are crucial to ensuring the good corporate governance of public bodies and it is essential to attract board members who between them exhibit a broad range of skills and experiences. The Committee is concerned that the number of applications for board membership is falling and recommends that the Scottish Government investigate this and take action to reverse this trend.

29. The Committee would also welcome further information from the Scottish Government and the Commissioner for Public Appointments in Scotland on any steps it is taking (including any IT based innovations) to improve the application process especially in relation to the length of the actual application form.

30. The Committee was particularly concerned to learn that age limits exist for college boards resulting in the loss of valued board members once they reach that age limit specified or preventing those with beneficial skills and experience from applying.

31. The Committee therefore recommends that the Scottish Government takes urgent action to identify and remove any unjustifiable age barriers to board membership, and in particular the age barriers contained within Schedule 2 of the Further and Higher Education (Scotland) Act 1992.

BOARD OPERATIONS

32. The Auditor General notes that budget reductions may increase the risk of failure to deliver public services and there will be raised public scrutiny of the decisions made by boards.18 He then comments that boards are not as focussed on risk management as they should be.19 In all of the boards visited by Audit Scotland, the main responsibility for risk management was delegated to the audit committee and in some cases risk was not reported to the board.20

Risk management

33. In oral evidence the witnesses commented on how their boards considered risk.

34. Ronnie Mercer explained that at Scottish Water—

“The audit committee covers the risks in depth - it considers the top five risks and all that stuff. That work goes to the board for approval, so that the task is not just landed on the three or four people who run the audit committee.”21

35. Ian Graham confirmed that John Wheatley College follows the Chartered Institute of Public Finance and Accountability guidance for colleges and universities on risk management which means that it undertakes effective risk management at every board and standing committee meeting.22

36. Mary Wilson confirmed that the board of NHS Borders addresses two types of risk – on an annual to 18 month basis, the board considers strategic risk in a workshop facilitated by external auditors. She explained that—

“We also have operational risks, which are divided into clinical and non-clinical, so we have three risk registers [...] every board paper that comes before us has a risk analysis attached to it.”23

37. Both Ian Graham and Mary Wilson confirmed that any capital projects would also have a separate capital risk register.24

38. The Committee concurs with the AGS that where responsibility is delegated to the audit committee, it is important that the whole board regularly considers risks and any preventative action that can be taken.

39. The Committee is particularly aware that there is a greater risk that public sector performance may suffer as public bodies and boards seek to deliver services with a tighter financial settlement.

40. The Committee would therefore welcome further information from the Scottish Government on how it is supporting boards to better focus on risk management (as well as organisations’ performance and financial information).

Transparency

41. The AGS comments that the extent to which boards are open and transparent to the public and stakeholders varies by type of organisation. For those boards that held closed meetings, it was not clear why the public were excluded as most agenda items did not appear to have a high degree of sensitivity.25

42. The Committee sought the witnesses’ comments on making board meetings more open to the public.

43. Ronnie Mercer explained that it may not be appropriate for board meetings to be held in public noting that, in relation to Scottish Water—

“I have never done it, and the feeling was that it had not worked before [...] I find it quite difficult to separate out the confidential things. We spend £10 million a week in capital.”26

44. Instead the Scottish Water board holds four advertised public meetings a year, at which the executives explain what they are doing across the country and what they are doing in that particular area. Such meetings are open to the public who can ask questions of Scottish Water executives. Ronnie Mercer commented that these public meetings are better than having public board meetings, which would not really interest people.27

45. Philip Riddle confirmed that at VisitScotland board meetings were kept to discussions about specific issues, projects and, possibly, problems. He then stated that “if meetings were public, there might be a tendency to have open discussion about general progress, and some of the value of a board meeting would be lost.”28

46. Ian Graham noted that, in relation to John Wheatley College there was no specific reason why members of the public could not attend board meetings but that there had never been a request to do so. He noted that the college provides regular reports on its activities at community planning partnership boards whose meetings are open to the public. College board agendas, papers and minutes are also available on the web.29

47. Mary Wilson confirmed that all NHS Borders board meetings are held in public and the public do attend. Their annual review is also held in public and part of that meeting enables members of the public to ask questions of the Board. In addition a public involvement network and the local authority’s citizens panel are also used for consultation and engagement.30

48. The Committee recognises that not all board meeting agenda items may be appropriate for discussion at public meetings. However transparency in decision making is all the more important during times of financial constraint when difficult decisions regarding service levels and provision are being taken.

49. The Committee believes that the presumption of boards should be to meet in public and therefore recommends that the Scottish Government should review and update its guidance to boards to stress the importance of board meetings being held in public.

Annexe a: extracts from the minutes

16th Meeting, 2010 (Session 3) Wednesday 6 October 2010

Section 23 report - The role of boards: The Committee received a briefing from the Auditor General for Scotland on his report entitled "The role of boards".

Consideration of approach - The role of boards (in private): The Committee agreed to defer consideration of its approach to the Auditor General for Scotland's report entitled "The role of boards" to a future meeting.

17th Meeting, 2010 (Session 3) Wednesday 27 October 2010

Consideration of approach - The role of boards (in private): The Committee agreed its approach to the Auditor General for Scotland's report entitled "The role of boards".

20th Meeting, 2010 (Session 3) Wednesday 24 November 2010

Section 23 report - The role of boards: The Committee took evidence on the Auditor General for Scotland's report entitled "The role of boards" from—

Ian Graham, Principal, John Wheatley College;

Neil Cuthbert, Public Affairs and Communications Manager, Scotland's Colleges;

Mary Wilson, Chair, NHS Borders

June Smyth, Assistant Director of Planning and Performance, NHS Borders;

Ronnie Mercer, Chair, Scottish Water;

Philip Riddle, former Chief Executive, VisitScotland.

1st Meeting, 2011 (Session 3) Wednesday 12 January 2011

The role of boards (in private): The Committee considered a draft report on the Auditor General for Scotland's report entitled "The role of boards". The Committee agreed the report and the arrangements for its publication.

Annexe B: oral evidence and associated written evidence

Please note that all oral evidence and associated written evidence is published electronically only, and can be accessed via the Public Audit Committee’s webpages, at:

http://www.scottish.parliament.uk/s3/committees/publicAudit/index.htm

16th Meeting, 2010 (Session 3) Wednesday 6 October 2010

ORAL EVIDENCE

Robert Black, Auditor General for Scotland.

20th Meeting, 2010 (Session 3) Wednesday 24 November 2010

ORAL EVIDENCE

Ian Graham, Principal, John Wheatley College;

Neil Cuthbert, Public Affairs and Communications Manager, Scotland's Colleges;

Mary Wilson, Chair, NHS Borders

June Smyth, Assistant Director of Planning and Performance, NHS Borders;

Ronnie Mercer, Chair, Scottish Water;

Philip Riddle, former Chief Executive, VisitScotland.

WRITTEN EVIDENCE

Written submission from John Wheatley College (757KB pdf)


Footnotes:

1 Audit Scotland. (2010) The role of boards. Available at:
www.audit-scotland.gov.uk/docs/central/2010/nr_100930_role_boards.pdf [Accessed 16 December 2010].

2 The role of boards, paragraphs 1 and 3.

3 Scottish Government. (2010) Spending plans and draft budget 2011-12. Available at: http://www.scotland.gov.uk/Publications/2010/11/17091127/0.

4 The role of boards, paragraph 34.

5 The role of boards, paragraph 51.

6 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2254.

7 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2238.

8 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2240.

9 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2253.

10 The role of boards, paragraph 57

11 The role of boards, paragraph 67.

12 The role of boards, paragraph 71.

13 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2255.

14 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2262.

15 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2255.

16 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2256.

17 Scottish Parliament Public Audit Committee. Official Report, 24 November, Col 2263.

18 The role of boards, paragraph 90.

19 The role of boards, paragraph 102.

20 The role of boards, paragraph 111.

21 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2264.

22 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2264.

23 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2265.

24 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Cols 2265-66.

25 The role of boards, paragraphs 111 and 113.

26 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2268.

27 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Cols 2267-68.

28 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2267.

29 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Col 2269.

30 Scottish Parliament Public Audit Committee. Official Report, 24 November 2010, Cols 2269-70.