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Audit Scotland’s Expenditure Proposals 2005-2006

SP Paper 244
Session 2 (2004)


Margaret Jamieson (Convener)

Brian Monteith

Cathy Peattie

Keith Raffan

Andrew Welsh

Secretary to the Commission:

Terry Shevlin

Assistant Secretary to the Commission:

Clare O’Neill

Audit Adviser:

Andy Munro


The Commission reports to the Parliament as follows—

  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 Scotland’s proposals for its use of resources and expenditure for each financial year, and report on them to the Parliament.

  2. The Commission received a copy of Audit Scotland’s expenditure proposals for the 2005/06 financial year on 14 September 2004. The Commission subsequently met on 2 November 2004 to take evidence on the budget proposals from Mr Robert Black, Auditor General for Scotland; Mr Russell Frith, Director of Audit Strategy, Audit Scotland; and Ms Diane McGiffen, Director of Corporate Services, Audit Scotland. The Commission requested additional written information from Audit Scotland, which was provided by the Auditor General on 10 November 2004. We thank Audit Scotland for its cooperation in providing evidence to us.

  3. In addition to detailing its expenditure requirements, Audit Scotland’s submission provided information on its proposal for the Autumn Budget Revision, including how it will use end year flexibility funding.

  4. 2005/06 Budget Proposals

  5. Audit Scotland’s Total Net Expenditure for 2005-06 is £24,041,000. Its estimated income from charges to audited bodies is £18,009,000. The total resource requirements (expenditure which is payable out of the Scottish Consolidated Fund) are £6,525,000: a net operating cost of £6,032,000 and capital of £493,000. (Table 1 in annexe 1 provides more detail on Audit Scotland’s resource requirements.)

  6. While the total resource requirements represent a decrease of £580,000 (or 8%) from last year’s submission, once capital costs are removed from both years, the resource requirement represents an increase of £232,000 (or 4%) in revenue funding from last year.

  7. The Commission’s questioning focussed on Audit Scotland’s running costs (as detailed in annexe 2 of Audit Scotland’s submission), as we are concerned that there are a number of items where running costs have increased substantially from last year. For example, recruitment and other staff costs have risen by 114%, consultancy costs by 38%, office expenses by 20% and Accounts Commission costs by 21%. In addition, total employee costs and approved auditors have both risen by more than 10%.

  8. Audit Scotland explained that it is difficult to make accurate comparisons with the previous year, because VAT is now being applied to audit fees. Once the impact of VAT is taken into account, Audit Scotland claims that the increased costs for approved auditors, consultancy and office expenses (other than employee costs) are not that great. We return to the issue of VAT in paragraph 14 of this report.

  9. Audit Scotland acknowledged that there have been increases in staff costs but that these are a consequence of the restructuring of the organisation. For example, it is modernising the audit approach which needs different skills and experiences from people in the post.

  10. The Commission believes that the costs associated with restructuring the organisation should now be stabilising. We note the increased budget for the Auditor General for Scotland, but draw to the Parliament’s attention that it is for the Scottish Parliamentary Corporate Body to determine the terms and conditions for the Auditor General.

  11. The Auditor General expressed his confidence that, in general, audit activity is delivering tangible benefits, which are being reported in Audit Scotland’s annual reports. For example, previous Audit Scotland reports have identified that £6 million could be saved through improvements to hospital catering and that £14 million could potentially be saved through better prescribing by GPs.

  12. The Commission notes the substantial sums that Audit Scotland plans to spend on staff training to develop the new audit methodology. We welcome the principle that improved audit activity should deliver improvements in audit output, and look forward to continuing to receive evidence from Audit Scotland that this is actually being delivered. In order to monitor progress in securing efficiencies, the Commission has agreed with Audit Scotland that, in future years, it will discuss its annual report at the same time as it takes evidence on the expenditure proposals. We also trust that modernising the audit approach will not place undue burdens on public bodies, and that the new approach will be flexible enough to identify existing efficiencies and inefficiencies.

  13. Apart from the improvements to the audit approach, the other significant changes in the volume of annual audit activity will be the reduction in NHS audit arising from the abolition of NHS Trusts and the roll out of Best Value audits in local government.

  14. We share Audit Scotland’s aspiration that Best Value should be a significant incentive for improvement for local government. We also welcome Audit Scotland’s assessment that the cost of implementing Best Value in Scotland will compare favourably with England and Wales, and its statement that it does not want any extra resources on a recurrent basis to carry out best value in the rest of the public sector.

  15. The Commission would also like to place on the record its satisfaction that the question of Audit Scotland’s VAT status has finally been resolved, although this will result in an 8% increase in charges for all audits in November 2004. The issue has been ongoing since the inception of the Commission and has featured prominently in all its previous reports. We are therefore content that future Audit Scotland expenditure proposals will be more transparent and accurate.

  16. Autumn Budget Revision

  17. In addition to questioning Audit Scotland on its budget proposals, the Commission took evidence on the Autumn budget revision.

  18. Audit Scotland’s revenue underspend for financial year 2003-04 is £2,520,000, which represents more than 10% of its total expenditure for that year. The Commission is concerned to see such a level of underspend, which is extremely high.

  19. Audit Scotland is seeking to carry the full amount of revenue underspend forward through the budget revision, as well as £238,000 of capital underspend in relation to the refurbishment of its office on 18 George Street. In addition, Audit Scotland is seeking £700,000 through the budget revision to cover its VAT liabilities.

  20. As noted, the Commission is pleased that Audit Scotland’s VAT status has been resolved, but was concerned by such a high level of underspend. Audit Scotland explained that there is a lack of synchronicity between its business cycle and the financial year, which will mean that there is always likely to be an underspend for each financial year. The Commission acknowledges this explanation, and that Audit Scotland must never overspend if a qualification of its accounts is to be avoided. However, we are not content with the underspend and are pleased to note Audit Scotland’s assertion that in future years it should not be as great as it is now.

  21. In order to avoid any confusion between Audit Scotland’s expenditure proposals and its in-year budget submission, we have asked for the latter to be presented in a separate annexe in future years. We thank Audit Scotland for agreeing to meet this request.

  22. Finally, the Commission intends to write to the Scottish Executive to examine the implications of Audit Scotland continually sending its expenditure proposals to the Commission at a later date than that stated in the agreement between the Commission and the Finance Committee. The Commission raised this issue with Audit Scotland once again this year and was surprised by its claim that it is "complying with the Executive’s requirements for the submission of financial information".

  23. The Commission’s letter to the Executive will also ask why, in the Draft Budget 2005-06, Audit Scotland’s spending plans are combined with the Scottish Parliament’s. The Commission believes that these figures should be clearly distinguished, in the interests of accuracy and transparency.

  24. Conclusions

  25. We draw the Parliament’s attention to the observations made and recommend that Audit Scotland’s bid for a budget of £6,525,000 for the year 2005/06 should be approved by the Parliament.


Annexe 1


Table 1: Summary of Audit Scotland’s resource requirements

Business Bulletin 1999-2011

Minutes of Proceedings 1999-2011

Journal of Parliamentary Proceedings Sessions 1 & 2

Committees Sessions 1, 2 & 3

Annual reports