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The Scottish Commission for Public Audit

1st Report, 2003 (Session 2)

Audit Scotlandís Budget 2004-2005

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SP Paper 46

Session 2 (2003)


Presented to the Scottish Parliament and published
pursuant to section 11 (9) of the Public Finance
and Accountability (Scotland) Act 2000


Margaret Jamieson (Convener)

Brian Monteith

Cathy Peattie

Keith Raffan

Andrew Welsh

Secretary to the Commission:

David McGill

Assistant Secretary to the Commission:

Seán Wixted


Scottish Commission for Public Audit

1st Report (Session 2) 2003

Audit Scotland Budget 2004-2005


The Commission reports to the Parliament as followsó

1. In terms of section 11(9) of the Public Finance and Accountability (Scotland) Act 2000, the Scottish Commission for Public Audit ("the Commission") must examine Audit Scotlandís proposals for its use of resources and expenditure for each financial year, and report on them to the Parliament.

2. The Commission met on 8 October 2003 to take evidence from Mr Robert Black, Auditor General for Scotland and Mr Russell Frith, Director of Audit Strategy, Audit Scotland on Audit Scotlandís 2004/05 budget proposals. Subsequently, the Commission requested additional written information from Audit Scotland which was provided by the Auditor General on 20 October 2003. The Commission met on 6 November 2003 to consider its draft report to the Parliament on Audit Scotlandís budget proposals for 2004/05.

2004/05 Budget Proposals

3. Audit Scotlandís proposals for 2004-05 indicate a total resource requirement of £7.105m, comprising £5.8m for recurrent costs and £1.305m for capital. After taking account of a non-recurring provision of £0.5m in 2003-04, the bid represents an increase of 4.7% in the recurrent costs approved for that year. Additional capital resources are requested for a major refurbishment of one of Audit Scotlandís Headquarters buildings.

4. In addition, Audit Scotland is seeking approval of additional provision of £2.6m for 2003-04 by way of autumn budget revision, comprising £1.425m underspent in 2002-03 and £1.175m in respect of an additional VAT liability.


5. In its previous reports to the Parliament under section 11(9) of the Public Finance and Accountability (Scotland) Act 2000, the Commission has highlighted the ongoing situation regarding Audit Scotlandís VAT status. The establishment of Audit Scotland in April 2000 merged the staff, assets, liabilities and obligations of the Accounts Commission and the staff of the National Audit Office in Scotland. Each of these bodies had differing VAT positions. Audit Scotland has been in dialogue with HM Customs and Excise since early 2000 in order to seek confirmation that the VAT status of the previous Accounts Commission would be transferred to it. The Accounts Commission received special status under section 33 of the VAT Act 1974 under which it was treated as analogous to a local authority and therefore did not charge VAT to audited bodies but could recover all of its input tax.

6. In evidence to the Commission in November 2002, the Auditor General stated that he expected that a final decision on VAT would be reached by HM Customs and Excise shortly. However, in his evidence to the Commission the Auditor General has confirmed that no final decision has yet been reached by HM Customs and Excise and, as a result, Audit Scotland will be liable for additional VAT costs up to 31 March 2004. As no provision had been made in the current 2003/04 budget to cover this situation, the Auditor General has requested a revision to the 2003/04 budget granting a further £1.175m to cover the cost of any liability which may arise. The Commission therefore agrees to the Auditor Generalís request for an additional £1.175m, to be allocated to Audit Scotlandís current 2003/04 budget to cover the cost of VAT liability.

7. The delay by HM Customs and Excise in reaching a final decision on Audit Scotlandís VAT status has been an issue of some concern to the Commission since it first reported to the Parliament on the subject in 2000. The Commission has, on a number of occasions since then, offered to exercise whatever influence it could to assist Audit Scotland in achieving a quick decision from HM Customs and Excise. The Auditor General stated in the evidence to the Commission that, when it became apparent to Audit Scotland that a quick decision would not be forthcoming on VAT, Audit Scotland also became aware that HM Customs and Excise was in the process of conducting a general review of the VAT position of all audit bodies in the UK. This would, most likely, further delay any final decision on Audit Scotlandís VAT status. In the Auditor Generalís opinion intervention by the Commission in these circumstances would not have resulted in a quick resolution.

8. The Commission also noted with concern the firm view expressed by HM Customs and Excise to Audit Scotland in correspondence of 1 October 2003 that, while no final decision has been reached, it is clear that Audit Scotland will not be able to recover VAT under the provisions of section 41 of the VAT Act 1994. Such a view has major implications for Audit Scotland in terms of both its annual costs and any increase which may be necessary in the audit fee it charges to audited bodies in order to recover these costs.

9. The Commission agreed with the opinion expressed to it by the Auditor General that, in the light of the firm view expressed by HM Customs and Excise, officer level exchanges between the two organisations have run their course and, if a different result is to be obtained, the intervention of the Commission may be appropriate at this time.

10. Therefore, the Commission will write urgently to the Minister for Finance and Public Services to draw his attention to the potential implications of the view expressed by HM Customs and Excise for public expenditure in Scotland. The Commission proposes to write to the Chancellor of the Exchequer of HM Government, to bring this matter to his attention and exercise what influence it can to achieve a positive decision for Audit Scotlandís VAT status.

Capital Costs

11. The Commission notes Audit Scotlandís request for an increase of £0.9m in its capital expenditure budget 2004/05. In his evidence to the Commission the Auditor General stated that the requirement for this increase was as a result of an assessment of Audit Scotlandís accommodation needs, and its legal requirement to ensure all its premises comply with the Disability Discrimination Act 1995. The Auditor General stated that the bulk of this increase related to the decision to refurbish Audit Scotlandís premises at 18 George St, Edinburgh. The Commission agrees with the Auditor Generalís opinion that, following the results of the accommodation assessment, refurbishment of premises represents best value for money.

Autumn Budget Revision 2003-04

12. The Commission notes Audit Scotlandís proposals in relation to the underspend carried forward from 2002-03 and is satisfied that the resources can be used for these purposes. The Commission also supports the bid for resources to meet the additional VAT liability.

Corporate Governance

13. The Commission welcomes the production of a draft corporate plan for Audit Scotland as part of its programme in achieving best practice in corporate governance. As part of this process, the Commission recommends that Audit Scotland seek to develop quantifiable targets in its corporate plan against which performance can be measured. Such targets would assist the Commission in its scrutiny of Audit Scotlandís annual budget and would significantly contribute to the programme of achieving best practice in corporate governance.


14. We draw the Parliamentís attention to the observations made and recommend that Audit Scotlandís bid for a budget of £7.105m for the year 2004/05 should be approved by the Parliament. We further recommend that Audit Scotlandís submission for an autumn budget revision of an additional £2.6m to the 2003/04 budget be approved by the Parliament.

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