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SP Paper 663 SCPA/S2/06/R1

1st Report, 2006 (Session 2)

Audit Scotland’s Expenditure Proposals 2007-2008

Presented to the Scottish Parliament and published pursuant to section 11(9) of the
Public Finance and Accountability (Scotland) Act 2000
9 November 2006

Margaret Jamieson (Convener)
Brian Monteith
Cathy Peattie
Margaret Smith
Andrew Welsh

Secretary to the Commission:
Rosalind Wheeler

Assistant Secretary to the Commission:
Clare O’Neill

Audit Adviser:
Andy Munro

Report on Audit Scotland’s Expenditure Proposals 2007-2008

The Commission reports to the Parliament as follows—


1. The Commission took evidence on 27 September 2006 on Audit Scotland’s Annual Accounts and Report for the year to 31 March 2006, Audit Scotland’s budget proposals for the year 1 April 2007 to 31 March 2008 and the Autumn Budget Revision. The Commission took evidence from Robert Black, Auditor General for Scotland; Caroline Gardner, Deputy Auditor General for Scotland; Russell Frith, Director of Audit Strategy, Audit Scotland; and Diane McGiffen, Director of Corporate Services, Audit Scotland.

2. Further evidence was provided by Richard Gibson of Haines Watts CA, the external auditors of Audit Scotland. The Commission requested additional written information from Audit Scotland, which was provided by the Auditor General on 20 October 2006.  The Commission thanks Audit Scotland and Haines Watts CA for their cooperation in providing evidence.   

3. A report of the evidence session on 27 September 2006 can be found at Annexe A. Annexe A also contains a report of the meeting of the SCPA on 26 April 2006 where, amongst other things, the Commission took evidence on Audit Scotland’s Corporate Plan. Annexe B contains the submission received from Audit Scotland in advance of the evidence session on 27 September and their supplementary submission. Annexe C contains the minutes of both of these meetings.

Report on Audit Scotland’s Expenditure Proposals 2007-2008

4. 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.

5. Audit Scotland’s Total Net Expenditure for 2006-07 is £25,879,000. Its estimated income from charges to audited bodies is £19,294,000. The total resource requirements (expenditure which is payable out of the Scottish Consolidated Fund) for 2007-08 is £7,108,000: a net operating cost of £6,585,000 and capital of £523,000. (Table 1 in appendix 1 provides more detail on Audit Scotland’s resource requirements.)

6. Total resource requirements for 2007-08 represent a 3.0% increase on last year’s proposal and are based on a general price inflation assumption of 2.5%. The Auditor General informed the Commission that the difference can largely be attributed to increases in depreciation costs offset by decreases in employer’s pension contributions and reductions in a number of other corporate budgets.

Direct and in-direct costs

7. In response to a previous recommendation by the Commission, Audit Scotland has restated its allocation of direct and indirect costs (See Table 3). The statement is supplemented by explanatory notes outlining the basis of allocating each line of budgeted expenditure. The Commission acknowledges the efforts made by Audit Scotland in this regard and considers the level of detail provided in this clear format has aided the Commission’s scrutiny of the 2007-08 budget. The Commission recommends that this statement on direct and in-direct costs is prepared on an annual basis going forward to enable the Commission to better scrutinise Audit Scotland’s corporate costs and overheads.

Efficiency savings

8. The Auditor General advised that Audit Scotland has identified a number of efficiency savings and these have been included in the 2007/08 budget proposal. Efficiencies included in the budget proposal include a reduction of £160,000 in management costs arising from the departure of a member of the management team and the decision not to refill this post. An additional £75,000 in staff costs is proposed arising from the dissolution, and no requirement to separately audit, NHS Argyll and Clyde. Whilst the Commission acknowledges that the above are cash savings, it notes that these do not constitute ‘planned efficiency savings’, having arisen from unforeseen events out-with Audit Scotland’s direct control.

9. Reference was made to a number of planned cash releasing savings including: a decrease in recruitment costs arising from changes in the way Audit Scotland advertises for staff; and in training costs, due to the downsizing of a management development programme. The Auditor General made further reference to a number of other initiatives including efficiencies in the proportion of support staff to operational staff. The Deputy Auditor General has advised the Scottish Executive that efficiency savings should be defined in terms of measurement, methodology and eligibility. The Commission would recommend a similarly structured approach to Audit Scotland’s planned savings. The Commission recommends that, going forward, Audit Scotland provides a break down of targets for planned efficiency savings (analysed between cash releasing and time releasing).

Pension liabilities

10. In supplementary written evidence received on 21 September 20061, the Auditor General advised the Commission of a potential pension liability of £300,000 arising from former Scottish Commissioners (the Commissioner for Local Administration in Scotland, the Health Service Commissioner and the Scottish Parliamentary Commissioner for Administration). Prior to the establishment of the Public Services Ombudsman by statute in 2002, Audit Scotland provided administrative and back office services for the Ombudsman’s predecessors. Audit Scotland had assumed that the liability for pensions for former commissioners and a pension enhancement for one of their former staff members had transferred to the Scottish Public Services Ombudsman’s office post 2002 via the legislation establishing the new SPSO. However it has emerged that responsibility for former staff, (i.e. those who did not transfer to the Scottish Public Services Ombudsman following the legislative change in 2002) has remained as a liability to be met by Audit Scotland as the Scottish Public Services Ombudsman Act 2002 did not achieve the intended outcome of transferring liability to the SPSO.

11. Having identified this issue, the SPSO and Audit Scotland have jointly sought the opinion of Senior Counsel. The opinion expressed in the response, that liability falls with Audit Scotland, appears unequivocal. Audit Scotland have since written to the Scottish Executive asking it to consider the options for resolving the difficulty. The Auditor General outlined what he considered to be the options for action to resolve this matter stating2:

“The options that seem to us to be open are: first, that the Scottish Executive agrees that we make an additional request for funding through the Scottish Commission for Public Audit; secondly, that the Scottish Executive assumes direct responsibility for the costs; or thirdly, that the Executive amends the legislation to transfer the legal liability to the ombudsman. Until we receive a response from the Scottish Executive on those three options—or on other options that we have not identified—it is difficult for me to advise further.”

12. The Commission considers that action from the Executive to resolve this issue is unlikely to be immediate and Audit Scotland do not appear to have any indication as to which of the options outlined above the Executive will take. Given the uncertainty as to when this situation will be resolved and what the outcome will be, the Commission is concerned that Audit Scotland has not accounted for this liability within its 2007-08 budget proposal. The Commission intends to take additional evidence from Audit Scotland in an attempt to resolve this issue, however, the Commission considers that reflecting this liability within the 2007-08 proposal would have constituted prudent financial management.

13. The Commission understands that the issue of this liability arose after the finalisation of the audit of Audit Scotland’s 2005/06 accounts by the external auditor. Indeed, Haines Watts were unaware of this issue until it was raised in evidence with Audit Scotland on 27 September when Haines Watts’ representative Richard Gibson was present. It does not constitute good practice for Haines Watts to learn of a £300,000 liability during a public evidence session as a result of a particular line of questioning being pursued. The Commission considers that it would have been appropriate for the Auditor General to have formally notified the external auditor as soon as he was aware that, according to independent legal advice, the £300,000 liability rested with Audit Scotland.

Annual Accounts and Report on Accounts for the year to 31 March 2006

14. In accordance with section 25(3) of the Public Finance and Accountability (Scotland) Act 2000, the Scottish Commission for Public Audit (“the Commission”) must receive a report on Audit Scotland’s accounts, together with a qualified auditors report.

15. During the evidence with Richard Gibson (Partner, Haines Watts CA) on 27 September, the Commission received assurances that he and his team had received all the information and explanations required by them to form their unqualified opinion on Audit Scotland’s annual accounts.

16. The Commission sought explanations from the Auditor General on a number of specific matters arising from the annual report and accounts on 27 September and these are outlined below.

Income from local authorities

17. The Commission sought further information on an apparent increase of 38%, year on year, in income from local authorities (from £9,619,000 in 2004/05 to £13,229,000 in 2005/06). The Auditor General has advised that this is entirely due to the timing of Audit Scotland’s business year versus its accounting year. The actual year on year increase in charges to local authorities in the 2005/06 business year was 3.5% which reflected inflation increases in Audit Scotland’s costs.

Salary increases

18. Audit Scotland reports that its five most senior staff members are in salaries bands of £5,000 (e.g. Salary between £70,000 and £75,000). The Commission noted that salaries for certain senior staff had increased by more than one salary band in the year from 2004/05 to 2005/06. The Auditor General reported that the average salary increase for the five senior staff reported in the period from 2004/05 to 2005/06 was 8.12%. The highest percentage increase year on year was 15.81% and the lowest 3.13%. The Auditor General advised that the increases recorded were largely due to an independent market salary benchmarking exercise undertaken during 2005.

Staffing levels

19. The Commission has previously noted a trend of year on year increases in Audit Scotland’s staff. The average number of staff directly employed by Audit Scotland during 2005/06 was 279, an increase of 5 posts from the previous year. During the evidence session on 27 September, the Deputy Auditor General advised that the staffing establishment of Audit Scotland was currently slightly higher than 279. The Auditor General added that the increased staff establishment was due to more efficient working arising from less use of consultancy and agency staff and more use of in-house staff.

20. In contrast to Audit Scotland’s establishing legislation, the Public Finance and Accountability (Scotland) Act 2000, which allows the Auditor General to appoint any necessary staff, certain commissioners and ombudsman are required to actively seek approval from the SPCB for additional staff. Whilst the Commission acknowledges the distinction between the roles of commissioners / ombudsman and Audit Scotland the Commission would appreciate being provided information which allows it to keep more of a watching brief on changes in Audit Scotland staffing levels.

21. The Commission recommends that, in the interest of good governance, the Auditor General should write to the Commission with notification of any proposed increase in Audit Scotland’s overall staffing complement and include details of the cost and justification of such an increase. The Commission would also appreciate similar information for any proposed staffing restructuring.


22. The Commission draws the Parliament’s attention to the observations made and recommends, on the basis that the Commission will pursue the pensions liability issue with Audit Scotland, that the bid for a budget of £7,108,000 for the year 2007/08 should be approved by the Parliament.

Appendix 1

Table 1: Summary of Audit Scotland’s resource requirements

Summary of resource requirements    
  2007 ~ 08 2006 ~ 07
  £(000) £(000)
Accounts and governance 18,241 17,359
Performance audit 7,416 7,610
Other 222 222
Total Net Expenditure 25,879 25,191
Income from charges to audited bodies 19,294 18,798
Net Operating Cost 6,585 6,393
Capital 523 508

Table 2: Subjective breakdown of Audit Scotland’s running costs

Cost breakdown in gross terms        
The table below analyses the expenditure estimated to be incurred by Audit Scotland:
2007-08 Budget TOTAL Local Government NHS Further Education Scottish Executive
  £(000) £(000) £(000) £(000) £(000)
Accounts and governance 18,241 8,669 3,768 525 5,279
Performance audit 7,416 3,962 1,898 100 1,456
Other 222        
Total Net Expenditure 25,879 12,631 5,666 625 6,735
Income from charges to audited bodies 19,294 (12,631) (4,368) (525) (1,770)
Net operating cost 6,585 0 1,298 100 4,965
2006-07 Budget          
Total Net Expenditure 25,191 12,311 5,401 644 6,613
Income from charges to audited bodies (18,798) (12,311) (4,351) (544) (1,592)
Net operating cost 6,393 0 1,050 100 5,021

Table 3: Subjective breakdown of Audit Scotland’s running costs by cost classification (Direct / Indirect)

      Direct Direct Indirect Indirect
  2007 ~ 08 2006 ~ 07 2007 ~ 08 2006 ~ 07 2007 ~ 08 2006 ~ 07
  £(000) £(000) £(000) £(000) £(000) £(000)
Salaries and temporary staff 10,950 10,815 9,527 9,352 1,423 1,463
Employer's oncosts 2,750 3,059 2,393 2,645 357 414
Total employee costs 13,700 13,874 11,919 11,997 1,781 1,877
Approved auditors 6,089 5,502 6,089 5,502 0 0
Performance audit and other consultancy 1,162 1159 952 932 210 227
Training and development 510 561 444 485 66 76
Travel and subsistence 833 846 833 846 0 0
Recruitment & Other Staff Costs 265 268 0 0 265 268
Professional Subscriptions 40 44 35 38 5 6
Premises 1,419 1,429 0 0 1,419 1,429
Office expenses 511 588 0 0 511 588
IT 451 392 0 0 451 392
Publications and media 273 283 0 0 273 283
Depreciation 610 319 0 0 610 319
Cost of capital 50 20 0 0 50 20
Total Audit Scotland expenditure 25,913 25,285 20,272 19,800 5,641 5,485
Accounts Commission costs 157 159 0 0 157 159
Sundry income (215) (253) -100 -138 -115 -115
Total Net Expenditure 25,855 25,191 20,172 19,662 5,683 5,529

Notes to Table 3

Basis of allocating direct and indirect costs

Direct and Indirect costs can be apportioned in many different ways depending on the nature of the business and the purpose for which the analysis is required. The essential requirement is to enable comparison between years.

The analysis in the table is based on apportioning costs based on the nature of the cost or on the type of work being undertaken.

Staff costs, training and development and professional subscriptions are apportioned on the basis of headcount. Those staff working in the Audit Services Group (planning, delivering and reporting annual audits of audited bodies), Performance Audit Group (planning, delivering and reporting national performance audit studies and best value audits) and Audit Strategy Group (supporting auditors with professional guidance) are regarded as direct costs. Those staff working in the Corporate Services Group (HR, Finance, Information Systems, Communications and Office Services) are treated as indirect costs.

Other categories of costs are allocated as direct or indirect based on their type or, in the case of performance and other consultancy, allocated according to the purpose of the expense eg consultancy to support national studies is treated as a direct cost whereas corporate legal fees are treated as indirect.

In previous years the analysis was presented between the different parts of Audit Scotland and analysed certain costs such as premises, IT and depreciation according to the type of activity being supported. The 2006/07 figures have been restated on the new basis of allocation.


Scottish Commission for Public Audit Official Report Wednesday 27 September 2006 [PDF]

Scottish Commission for Public Audit Official Report Wednesday 26 April 2006 [PDF]



Dear Secretary

In your letter to me on 15 May 2006, you wrote that the Commission would appreciate further information on the specific savings targets which all business units in Audit Scotland are committed to each year.  I write to provide further information to the Commission on this issue, provide an update of our work on impact and quality, and to inform the Commission of a potential liability facing Audit Scotland.


A key driver for our business is the level of increases in charges to audited bodies, which account for around 75% of our income, and the level of increase in funding from Parliament. Increases in charges to local authorities are subject to scrutiny by the Accounts Commission and those for all sectors are subject to comment from the audited bodies themselves. Over recent audit years the basic average increases in charges have been:

  2003/04 5%
  2004/05 2%
  2005/06 3.8%
  2006/07 3.0%

When proposing increases in charges Audit Scotland also provides an indication of the likely increase for the following audit year in order to allow audited bodies, particularly those working to three year budgets, to plan their future costs. For each of the audit years 2005/06 and 2006/07 Audit Scotland has been able to reduce the actual average increase from those previously notified (from 5% to 3.8% for 2005/06, and from 3.8% to no more than 3% for 2006/07). 

As detailed in our budget proposal, in NHS audits the final elements of the reductions in cost arising from the abolition of trusts will be in place for the 2006-07 audits, meaning that the total recurring annual savings are in audit fees are £264,000 and the cumulative total up to the 2006-07 audits some £675,000.

We have consistently managed our business to improve our performance and contain fee increases to a minimum consistent with ensuring that we can respond to essential increases in our underlying costs and securing the quality of our audit work and compliance with international accounting standards. 

Efficiencies are reviewed and targeted during our budget process.  After reviewing the potential for efficiencies, and based on previous performance, we set a challenging £s target for expenditure for each business group, rather than a percentage efficiency target.  Groups must deliver the same or increased levels of outputs for that target.  For the 2007-08 budget which the Commission will be considering, for example, the Corporate Services group received a budget reduction of £115,000, and other budgets were reduced by nearly £250,000.  In addition, we have made a reduction of £160,000 in senior management costs.  These reductions equate to 2% of total Audit Scotland expenditure.

As the Commission knows, we have been going through a process of reviewing and modernising our core business processes to deliver the audit, and that process has not yet been fully implemented across all our sectors.   Once the implementation is complete, we will be able to review the costs and benefits of the new process across all sectors and make informed decisions about potential percentage efficiency targets. The modernisation process is already delivering efficiencies, however, as it has incorporated revisions to auditing standards in our core work without additional cost.

We have been driving efficiencies in our internal management through more effective use of staff.  In our corporate services, for example, between 2002-03 and 2005-06, the ratio of HR team members to staff has moved from 1:56 to 1:70.  Similarly, in the same period, the ratio of IT support and infrastructure team members to staff has moved from 1:45 to 1:56. 

This demonstrates efficiency gains in our internal support services.

Best value reviews

To improve on the targets set during our budget process, we also have a programme of internal best value reviews to 2009-10.  In 2006-07, we are reviewing the following areas:

  • Corporate printing provision
  • Correspondence and complaints handling
  • Best value audit in local government
  • Programme and project management in corporate services

In 2005-06, we completed a best value review of our facilities management and corporate administrative support services which resulted in a restructuring of internal resources designed to deliver improved quality of provision.  We have a corporate approach to best value reviews which ensures a rigorous process.

We are taking part in a support services benchmarking exercise, and although the project is not yet complete, early results on IT show that support costs are lower than comparable organisations.

Impact of audit

In your letter, you report that the Commission would be interested in receiving a copy of the findings of our work to improve the assessment of the impact of all of Audit Scotland’s work.  Although this work has not yet concluded, I thought the Commission might welcome a progress report on this. 

Our work has two dimensions:  actions internally to improve our ongoing assessments of the impact of our work; and working with the other national audit agencies to progress improved ways of consistently assessing impact.

We have been piloting ways of assessing impact without conducting a specific follow up study.  Over the summer we ran three pilots to test how impact could be assessed using existing information.  The pilots were testing:

  • The availability of information
  • The staff time required to collect and analyse information
  • How regularly data sources should be reviewed
  • Whether there is sufficient robust information to answer questions about the impact of a study
  • The degree of commonality across studies in terms of the sources that need to be reviewed.

Following the pilots, we have now revised our project management framework to include specific comments about impact when we consider the study selection criteria, and how potential and actual impacts are assessed during the planning and post implementation periods of studies.

We have also been contributing to work by the Public Audit Forum (PAF) over the summer involving all audit agencies in reviewing methods for assessing the impact of audit.  The next meeting of the PAF is considering an interim report on this work, and, with the Commission’s permission, I will report how that will be taken forward on a national basis at our next meeting.

I will be pleased to provide further information on the progress of this work as it develops.

Quality process

Our first annual report on our quality processes will be finalised in October, and I shall ensure that the Commission receives a copy of this when it is available.

I will be happy to discuss any of the issues contained in this letter at our meeting on 27 September.

Potential Liability for former Ombudsman Pensions

Finally, I wish to draw the Commission’s attention to a potential liability.  When Audit Scotland was established it took over the statutory responsibilities of the Accounts Commission as the “designated body” for the local government ombudsman. This was a statutory arrangement under which the Accounts Commission/Audit Scotland provided all the back office services for the Ombudsman and incorporated the financial transactions within its accounts. This activity ceased when the Public Services Ombudsman was established under the 2002 Act and the Act attempted to transfer all assets and liabilities of the various former ombudsmen to the new Public Services Ombudsman.

However recent legal advice obtained at the request of the Ombudsman is firmly of the view that the Act was ineffective as far as pension liabilities relating to former local government ombudsmen are concerned. This means that Audit Scotland may be left with a liability of up to £300,000 which was not intended under the legislation and for which no provision has been made. Audit Scotland is in contact with the Scottish Executive to seek their assistance in resolving this matter and implementing the intention of the legislation. At this stage no amounts relating to this potential liability have been incorporated into the Autumn Budget Revision or the Budget proposal for 2007/08 but I felt the Commission should be aware of the issue now, as it may be included in future papers.

I will be happy to discuss any of the issues contained in this letter at our meeting on 27 September. 

Yours sincerely

Robert W Black
Auditor General for Scotland


Dear Auditor General

I am writing to thank you and your colleagues, Diane McGiffen, Russell Frith and Caroline Gardner for the evidence you gave to the Scottish Commission for Public Audit on 27 September 2006. I attach the report from the meeting for your information.

As noted during the evidence session, the Commission would appreciate further information on the following:

  • Staff turnover year on year since Audit Scotland’s establishment;
  • Salary increases for senior staff year on year for the same period and how this compares with senior staff in other parts of the public sector;
  • The specific basis for the 38% increase in income from local authorities;
  • Details of how the efficiency savings achieved by Audit Scotland are divided between cash releasing savings and time releasing savings, and the definition of an efficiency saving adopted by Audit Scotland;
  • A copy of the legal advice from the Queens Council on the local government ombudsman pensions liability issue;
  • A copy of the letter from Audit Scotland to the Scottish Executive seeking action on the pensions liability issue;
  • Any correspondence with the SPCB or the ombudsman in relation to this issue; and
  • Clarification as to whether any provision has been made within the SPSO’s budget for the liability.

In order to submit the SCPA’s report on Audit Scotland’s budget proposal to the Finance Committee in time to inform its Stage 2 report on the 2007-08 budget, the finalised report will need to be agreed by members and published by 8 November at the latest. Given the short timescale for the drafting of this report I would very much appreciate a response by 21 October.

In addition, as noted at the meeting, I would be grateful if you could ensure that the 2006—07 management report, which I understand is currently with you for clearance, could be provided to the SCPA in advance of its next meeting on 22 November.

Yours sincerely

Margaret Jamieson
Scottish Commission for Public Audit


Dear Convener

Thank you for your letter of 5 October 2006 following the Commission’s meeting on 27 September requesting further information on several matters. Responses to the request are set out below.

Staff turnover

Audit Scotland’s staff turnover for the last 4 years is set out in the table below:


Number of Staff leaving Percentage of staff
2002/03 18 8.4%
2003/04 18 7.0%
2004/05 13 5.5%
2005/06 20 7.0%

Staff turnover is reported quarterly to the Management Team and Audit Scotland Board.

Salary increases for senior staff

Audit Scotland’s senior management gradings were not comprehensively reviewed when the organisation was created.  The TUPE requirements were applied.  Audit Scotland has experienced some difficulty in attracting suitable candidates to its most senior posts, and in one case (during 2004), the salary was increased to ensure the candidate did not experience a financial disadvantage compared with their former post.  In 2005, once the business needs of the organisation were clear, a market salary benchmarking exercise was undertaken by external independent remuneration advisers Adams Associates.  Some salary adjustments were made in the light of the consultant’s analysis.  The table below provides details of awards for the Audit Scotland Management Team (including the Auditor General, although he is not an employee of Audit Scotland and his salary is not set by Audit Scotland.)

The table below provides details of awards for Audit Scotland Management Team:

Year Number Highest Lowest Average
April 2002 4 3.01% 2.84% 2.97%
April 2003 4 3.01% 2.34% 2.84%
April 2004 5 17.19% 2.14% 8.68%
April 2005 5 15.81% 3.13% 8.12%
April 2006 5 3.39% 2.95% 3.04%

Public sector awards

The table below provides details of the median public sector pay settlements:

Year Median Settlement
2002 3.6%
2003 3.5%
2004 3.0%
2005 3.0%
2006 2.95%

Source: Incomes Data Services

The table below provides details of the Senior Salaries Review Body settlements:

2002 3% for 60% of senior civil servants, range of 0 to 10%
2003 Average award 4.5%. Pay bands increased by 2.25%. Range of 0 to 9% merit increases
2004 3.7% average earnings growth
2005 4.2% average base pay award. Pay bands increased by 2.5%
2006 Average individual award 3.25%. 1% with remainder of award worth 1.75% on paybill.

Source: Incomes Data Services

Increase in income from local authorities

Audit Scotland’s business cycle means that work from two audit years will be included in each financial year. The table below shows how the income for each of the last two financial years is made up of income from more than one audit year.  


Audit year    
Included in Accounts for Financial Year 03/04
work £000
Total for
financial year
2003/04 3,372        
2004/05 6,502 2,956   161 9,619
2005/06   8,657 4,304 268 13,229
2006/07     7,691    
Total for Audit Year 9,874 11,593 11,995    

The increase in charges between audit years 2003/04 and 2004/05 were 17.5% comprising a 2% basic increase for inflation, 8% to reflect the change in Audit Scotland’s VAT status and 7.5% for the new statutory best value audits for which authorities had been specifically funded by the Scottish Executive. The increases for other sectors were all 10% reflecting the inflation and the VAT change.

The increase in charges between audit years 2004/05 and 2005/06 of 3.5% reflected inflation increases in Audit Scotland’s costs and was the same for all sectors.

The increase in income between the 2004/05 and 2005/06 financial years is therefore a combination of the timing effects of more work being carried out as explained at the Commission meeting, a small impact from additional work (mainly additional fees for work such as opinions on proposed PFI/PPP projects) and the residual impact of the higher charges from 2004/05 audits onwards for the change in VAT status and best value audits.

Cash savings and time releasing savings

All of the savings referred to in the 2007/08 Budget paper and at the Commission meeting are cash savings.

Audit Scotland will include a saving as an efficiency saving if it arises from a reduction in expenditure or staff time which is not anticipated to have an impact on the quantity, quality or timing of audit work or if it arises from deciding to stop doing something which is no longer regarded as necessary. An example of the former type is the reduction in senior management costs and an example of the latter is the decision last year to no longer publish separate paper versions of local authority performance indicators and to make them available on the web only.

Potential Liability for former Ombudsman Pensions

Copies of the Counsel’s Opinion, the Memorial instructing Counsel [not reproduced in this report, copies available on request from the Secretary] and the subsequent letter to the Scottish Executive are attached. There has been no correspondence between Audit Scotland and the SPCB. Much of the earlier discussion with the Ombudsman was by telephone and e-mail and the position of each party is set out in the memorial.

We understand that no provision has been made in the SPSO’s budget for the liability as they are acting on the Counsel’s opinion that the liability has not been effectively transferred to them.

I trust that this response will assist the Commission in making its report and I confirm that we will work with Haines Watt to ensure that the Management Report is available before the next meeting of the Commission. 

Yours sincerely

Robert W Black
Auditor General for Scotland


Dear Ms Parsons

I am writing to ask for your help with an issue concerning the Ombudsman service.  There is quite a bit of history attached to this, and I apologise in advance for the lengthy explanation which follows.

When the Local Government Ombudsman service was established in 1975 the legislation provided that support services for the Ombudsman would be carried out by a designated body.  We believe that the intention of this provision was to avoid unnecessary duplication in the establishment of a small office.  Ministers decided that the Accounts Commission for Scotland would be the designated body, and thereafter the Commission’s organisation met the expenses of the Ombudsman and recovered the cost from local authorities as a separate item in its invoicing process.  The relevant statutory provisions governing this are in the Local Government (Scotland) Act 1975.

In 2000, with the establishment of the new public audit arrangements under the Scottish Parliament, support services for the Accounts Commission transferred into Audit Scotland.  As the Commission no longer had the power to incur expenditure, arrangements were made for Audit Scotland to become the designated body for the Local Government Ombudsman.

When the unified Ombudsman service was created by the Scottish Public Services Ombudsman Act 2002 Audit Scotland ceased to perform the function of designated body.  Since then there have been issues about the inherited liabilities from the former Local Government Ombudsman’s service.  The first of these related to the occupation of premises in Walker Street, where the lease had been taken in the name of the Accounts Commission.  Following extensive discussions, the Scottish Executive assumed responsibility for that building when the new Public Services Ombudsman moved to her premises in Melville Street.  The second issue relates to liability for pension costs.

The Ombudsman has argued that the cost of pensions for Local Government Ombudsman staff who retired before her service was created should be met by Audit Scotland.  Audit Scotland, on the other hand, has argued that the liability for those costs transferred to the Ombudsman service.  The legal arguments for this are rehearsed in the attached papers which culminate in an Opinion of Senior Counsel to the effect that these are liabilities of Audit Scotland.

There would seem to be little point in pursuing the legal issues any further, incurring expenditure on an argument between two public bodies.  We in Audit Scotland believe that the intention of the legislation setting up the Ombudsman service in 2002 was that the previous liabilities of the constituent Ombudsman services would transfer to the new service.  It appears that the legislation did not have that effect in relation to liabilities of the former Local Government Ombudsman service.  This is an unfortunate result, as Audit Scotland must now accept responsibility for expenditure which does not relate to the audit of public bodies.

We are particularly concerned about the costs of the early retirement of the former Secretary of the Local Government Ombudsman.  The decision to give the holder of that post early retirement was made following a recommendation by the then Ombudsman and resulted in substantial savings to the Ombudsman’s budget.  Those savings are now enjoyed by the Ombudsman service, but the costs are to be met by Audit Scotland and we do not feel that this is an equitable outcome.

We would therefore like you to consider options for resolving this difficulty.  It seems to us that some of the options are:

  1. Audit Scotland requests additional funding from the Scottish Commission for Public Audit in order to meet these costs.
  2. The Scottish Executive assumes direct responsibility for meeting these costs.
  3. The Scottish Executive promotes an amendment to the legislation in order to transfer the legal liability to the Ombudsman service.

We will, of course, be happy to discuss these issues further.  As Audit Scotland must submit its budget proposals for 2007/8 to the Scottish Commission for Public Audit by the end of September we would welcome an early indication of your response.

I am copying this letter to the Ombudsman and to the Scottish Parliamentary Corporate Body who have been involved in discussions to date.

Yours sincerely

W F Magee




1st Meeting, (Session 2) 2006 

Wednesday 26 April 2006


Margaret Jamieson (Convener) Cathy Peattie
Margaret Smith Mr Andrew Welsh

Also present: Andy Munro, Audit Adviser, Steve Connors and Gibson, Haines Watts

Audit Scotland’s Provisional Expenditure Plan 2007-08 and Corporate Plan 2006-09: The Commission considered Audit Scotland’s Provisional Expenditure Plan for the financial year 2007/08 and Audit Scotland’s Corporate Plan 2006-09. The Commission took evidence from—

Mr Robert Black, Auditor General for Scotland;

Ms Diane McGiffen, Director of Corporate Services; and

Barbara Hurst, Director of Health and Community Care.

Members requested additional information in relation to savings targets.

SCPA Away day: The Commission considered the outcomes from its away day. The Commission agreed the following:

  • to invite Haines Watts, external auditors to Audit Scotland to conduct a 3 Es examination of Audit Scotland and to report to the Commission in advance of its meeting in November 2006;
  • to undertake a visit to the Public Accounts Commission, members availability allowing, and to bid to the Conveners Group for funding for any such visit;
  • to make a submission to the Finance Committee’s Inquiry into Accountability and Governance.



2nd Meeting, (Session 2) 2006 

Wednesday 27 September 2006


Margaret Jamieson (Convener) Brian Monteith
Mr Andrew Welsh  

Also present: Andy Munro, Audit Adviser, and Richard Gibson, Haines Watts

Apologies were received from Cathy Peattie and Margaret Smith

Items in private: The Commission agreed to take agenda item 6 in private.

SCPA Visit to the Public Accounts Commission: The Commission received a report from the Convener on the SCPA visit to the Public Accounts Commission. The Committee noted the paper on the visit and agreed that issues of best practice would be incorporated into the Commission’s legacy paper which will be considered at a future meeting.

Annual Accounts and Report on Accounts for the year to 31 March 2006: The Commission took evidence from—

Mr Robert Black, Auditor General for Scotland;

Caroline Gardner, Deputy Auditor General;

Russell Frith, Director of Audit Strategy; and

Ms Diane McGiffen, Director of Corporate Services.

and then from—

Richard Gibson , Haines Watts, External Auditors to Audit Scotland.

Audit Scotland’s Budget Proposal for 2007-08 and Autumn Budget Revision: The Commission will took evidence from—

Mr Robert Black, Auditor General for Scotland;

Caroline Gardner, Deputy Auditor General; and

Ms Diane McGiffen, Director of Corporate Services.

During the course of the evidence sessions Audit Scotland agreed to provide a number of pieces of supplementary evidence to the Commission.

Working Practices of the Commission: The Commission considered a paper from the Convener on proposed changes to procedures of the Commission. The Commission agreed to write to the Procedures Committee requesting it to consider changing procedures as outlined in the paper. The Commission also agreed to instruct the Secretary to arrange a specific cost centre for the Commission.

Audit Scotland evidence (in private): The Commission considered the evidence taken at agenda items 3 and 4 including the possible contents of its report on Audit Scotland’s Budget proposal for 2007-08. The Committee agreed to write to the Auditor General for Scotland on issues raised during discussions and agreed to consider a draft report on Audit Scotland’s Budget Proposal for 2007-08 by correspondence.


1 Letter from the Auditor General for Scotland to the Secretary, 21 September 2006

2 Report from the 2nd meeting of the SCPA, 27 September 2006

Business Bulletin 1999-2011

Minutes of Proceedings 1999-2011

Journal of Parliamentary Proceedings Sessions 1 & 2

Committees Sessions 1, 2 & 3

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