Rhaid fawr, wrth gwrs, gynnar y wneud y cwestiynau yn cymaint o'r 7aw y Y Pwyllgor Gweithgrywau o Y Cymru'n 2015. A ddyn nhw'n gallu gwneud o'r gwasanaeth i ffrindfodol o'r Мrueulau Cyflaethol sy'n rhoi ei ddechrau'r gweithgareddau'n cefnod ag deployol. A byddwch chi'n gwneud o'r gweithgareddau'n cefnod o'r Y Cymru. Mae'n gwneud o'r Cfotol y greaddau ar Y Cyfr threatening o'r I, ac mae'n gwneud o'r I a ddóu gweithgareddau, The question is that we take agenda items number 5 and 6, and private. Is it agreed? Cumr後 is going to agenda item number 2 as she said. The Accounts Commission borrowing and Threasurmym Management and Councils. I would like to welcome Graham Sharpe and Pauline Wheatman from the Accounts Commission. Fraser McKinley, director and controller of Audit Scotland. Gemma Diamond, the senior manager of Audit Scotland It is understood that the Accounts Commission would like to make a brief opening statement. Good morning everyone. The report that we are here to discuss today on behalf of the Accounts Commission looked at borrowing and treasury management in councils. Borrowing is a major source of funding for councils to invest in infrastructure such as schools and roads, essential for the provision of key public services. At the same time, in today's environment, councils have on-going challenges of reducing public spending. The report looks at how councils are demonstrating affordability in making decisions to borrow. It looks at the different positions that councils are in as a result of historical borrowing and policy decisions. This report focused on long-term borrowing. We did not evaluate day-to-day cash investment and borrowing transactions or look at other forms of debt, including public-private partnerships. The report is aimed at councillors as the key audience and considers the clarity and purpose of treasury management reports presented to them, which are often very technical in nature. It considers the skills and expertise that councillors need to perform their key scrutiny role. During 2014, we looked at treasury management reports relating to 12 councils to get an indication of the clarity, content and variation of financial policy among councils. We interviewed officers and councillors from six of the 12 councils to get a more detailed insight. The report provides a summary of the main themes and conclusions arising from this work and identifies what more needs to be done. The messages and recommendations in the report apply to all councils and our expectation is that financial officers along with councillors will review their report, assess themselves against it and implement their relevant recommendations. If I now turn to what we found, borrowing by Scottish councils is £12.1 billion, around 82 per cent of councils' total debt. Councils take on this debt to invest in capital assets such as schools and roads. As I have noted, our focus for this audit was on the borrowing element. We looked at councils' borrowing since the introduction of the prudential code 10 years ago. The prudential code is a framework to support councils and help them to show effective control over levels of and decisions relating to capital investment activity, including borrowing. We found that just over half of councils have higher levels of borrowing now than 10 years ago. Councils are following relevant codes and regulations and they are clearly demonstrating short-term affordability of borrowing and other debt, but we have found it difficult to identify how they analyse long-term affordability and communicate that to councillors through strategies and reports for council. For example, councils have information on capital investment requirements for up to 10 years, on the timing and cost of repaying borrowing and forecasts for future interest rates, but there was no analysis bringing this together with budget scenarios to assess the affordability in the longer term. Treasury management is a professionally run function in councils. There are signs of more joint working and integration of activity with the capital investment function, which is a positive step. We do see potential issues in the future around the transfer and succession of skills and experience in this area and suggest that councils may wish to plan for this together. Councils have a range of governance and scrutiny arrangements, which is fine. The detailed arrangements are not for us to prescribe, but they need to be consistent across each council, enabling councillors to build up knowledge and experience in this technical area. We think that councillors need to ask and be equipped to ask more questions of officers around the affordability of borrowing and other financing options, particularly in the longer term, and about performance based on prudential and other indicators as reflected in year-end reports. We think that reports for councillors could be improved. There can be very technical documents and they should be written with councillors and the general public in mind. If I may now quickly summarise our recommendations, the report makes recommendations aimed at helping councils develop treasury management strategies to present a wider, more integrated strategic view of borrowing and treasury management, encourage them to be more open about and report on longer term affordability and help councillors scrutinise treasury management activity. The main recommendations are first for councils to prepare the treasury management strategy with councillors as the key audience and present a wider strategic view of borrowing and treasury management. It should include how the borrowing strategy is informed by corporate priorities and capital investment needs. Secondly, councils need to create more detailed and longer term borrowing and treasury management analysis as informed by the council's financial strategy. It should include scenario planning, the analysis of capital financing options and the use of prudential indicators over a longer period than the minimum three years requirement contained in the prudential code. Year end reports should provide an overall assessment of performance and treasury activity. Finally, councillors and officers should review governance arrangements to ensure that they provide councillors with a wider strategic view of borrowing and treasury management and that councillors have access to all relevant treasury management reports. They should also ensure that training for councillors provides the appropriate level and balance of treasury management knowledge and of scrutiny skills. We have provided a short guide on scrutiny questions for councillors to assist this process, and this is published separately from the report. Convener, my colleagues and I would be happy to answer any questions that the committee may have on the report. Can I first of all start the questions by referring the panel to page 31 of the report and paragraph 56, where it is referenced to the statement that council governance structures are in place but not all meet code requirements? I wonder if you could elaborate on that particular reference. Certainly. What we found was that they were all generally following the principles of the code, but sometimes the requirement for everything to go to be approved by full council was not always being done. It might be done by the full council approving the minutes of another meeting where that had been approved, so the actual treasure management strategy was not itself going to full committee to be approved. Could you elaborate on the number of councils that you found in that position? I think that there were two of the six that we looked at. In terms of the assessment that was carried out, it was only six councils? Yes, that is right. We looked at six in detail. In terms of percentage terms, it could be even higher than the number that we have. We do not have the evidence on the other councils, so I would not be able to comment on what the range of those would be. Is that not something that should have been pursued in terms of ensuring that that particular area of the code was pursued to ensure that the requirements have been met? The councils all consider that they are meeting the general spirit of the requirements of the code in that the full committee would have the opportunity to see the strategy and are approving the minutes of the committee where that strategy has been approved, and certainly the strategy is available to all members, but it is just not following the exact requirements of the code that the full committee approves that treasury management strategy. We can see if we can find out, as Gemma says, our approach to the work as we do often. We took a sample, but if it would be helpful for the committee, we can certainly see if we can find that specific bit of information across all 32. Connect me for a moment, but in terms of the opening statement from Mr Sharp, you referred to that the councils were meeting the requirements of them, and I am sure that you referred to code practice as well. Does that accept that paragraph? I think that in the opening statement I was saying that in material terms, they are meeting the code. The most significant point from our point of view is that we believe that the code does not go far enough in a number of respects, particularly in regard to the maturity of borrowing and looking far enough into the future, and that is the point that we are trying to get across there. Throughout the report, you often mention—in fact, it is page 5—that overall borrowing remains around £12 billion for the past three years and assets of £39 billion. That is mentioned quite often. Does that mean that you are quite content of a level of borrowing about a third of the level of assets? As a member of the committee, at what point should we be concerned at the level of borrowing in relation to assets? There are a couple of levels that one needs to deal with. First of all, those are total figures. Personally, I would not be content or discontent on the basis of the aggregated figures. I think that what matters is looking at specific councils and their financial plans and strategies and how they justify the borrowing and other debt that they have taken on in terms of its sustainability. One does not capture that in aggregated figures. Secondly, we have put in the asset figure to give a feeling for scale, because borrowings are serviced and repaid from future revenues, so one really needs to look at the future projections. It is not quite the same situation as you get in companies where you can have asset cover for properties that are realisable in the market, for example. Clearly, the assets councils have, to a large extent, infrastructure assets, and they are there to provide services rather than to generate an economic rent. It is a case of looking at individual councils and what their plans are. It is just that I am an economist, not an accountant, but you constantly mention 12 billion and 39 billion assets in the way that I am reading it. It is like there is a bit of comfort here. We do not need to worry. We have only got 12.8 billion borrowing. If it was 30 billion borrowing or if it was 38 billion borrowing against 39 billion assets, would that not be a cause for concern? You would simply be looking at individual councils and how they… As I say, I would assess it in terms of the individual councils and their specific financial plans and borrowings and not on the basis of aggregated figures. The thing is, I do not suppose that using those numbers, Mrs Scanlon, is designed to give comfort or otherwise. It is, as Criam said, designed to give a sense of scale. Similarly to some of the conversations that we have had with the committee in the past around levels of reserves, I do not think that it is right for us of the accounts commission to come up with a magic number about what is good or bad or worrying or not worrying. I think that, as Criam has explained, what is important—this is why we make this point strongly in the report—is that the levels of borrowing need to be understood in the context of a council's long-term financial plans. That is the bit that we think could be strengthened. I can just go on to my second question, convener. It is about the financial plans of individual councils, page 13, Exhibit 4. I notice that East Lothian and West Lothian are pretty well looking at the histogram here. Probably more than double their borrowing in the past 10 years. We have also got significant increases in Edinburgh and South Lanarkshire. Are there any specific reasons why those four councils have had a drastic increase for the rest of the councils? There has been very little decrease, as you said, Mr Sharpe. Is there any particular reason why those four councils have had a fairly dramatic increase in borrowing? I will kick off, Mr Scanlon. If we do not have the detail on that, I am very happy to come back to you with the detail on those things, because, as you said, the numbers are striking. I know from other audit work that we have done, the City of Edinburgh is the trams, so there was a very specific reason for the increase in borrowing there. Similarly, in East Lothian and West Lothian, there were reasons. Gemma, can you help us with that? I do not have the detail on all of it, but it really depends on what their asset management plan and their capital investment plan have been over that period. What I think this exhibit shows is that they have had all quite different plans over that period, so West Lothian has had significant investment in its assets over that period and has used borrowing as a means of funding that investment. Can I stop by asking a very basic question? Who is ultimately responsible for borrowing by the councils? Themselves? That is legally responsible for the borrowing. So the councils are responsible for the borrowing, not the Government? Correct, yes. So they are completely independent? They are. Thank you. Paragraph 16 states that 17 of 32 councils increased their borrowing, yet Paragraph 18 says that fewer councils are borrowing now than 10 years ago. Of course, if you look at the level of debt, it seems to be bouncing along within the same sort of margins. We have just heard from what Mary Scanlon was saying that some councils have substantially increased their borrowing. Presumably, we have councils that are decreasing their borrowing. Yes, you can see from the histogram that there are some councils that have reduced, and I think that there is an issue about timescales on the two paragraphs that Gemma may be able to expand on. This is one of the reasons that you need to look at it on a council by council basis. Each council is in a different position in terms of looking at the future requirement for services and what that means about infrastructure investment. They are in a different position in terms of the condition of their existing estate, and they are in a different position as regards their financial options in terms of what revenues they may look to in the future, whether they have any particular sources of revenue that might be specific to them, which is the case in some councils. All those things go together in terms of cycle and the absolute position to determine what is reasonable. That is why you see different patterns in different councils, as well as in different levels. I do not know, Gemma, if you want to add to that or not. That is what it takes us to paragraph 27, which says about the differences at a local level. You are saying here that the differences are likely to increase over time as councils' choices reflect local priorities. Can you expand a bit on that? I think that what we found since the Prudential Code was increased is that there has been a level of variability in what councils have chosen to do and how they have chosen to fund their investment in their assets. What we can see is that that variation will continue. We saw that councils have very different strategies in terms of whether they are going to borrow or not going to borrow. We have seen now new debt models that are starting to be used. For example, the tax incremental financing in the growth accelerator model and city deals, which councils are starting to look into as ways of investing in their assets, so that we can see that this variation is something that will continue over time. This particular report is about the borrowing element. As non-borrowing options may increase in the future and may be used more in future, differences in the borrowing levels will follow. I think that an important aspect of this is also about the quality of the borrowing that councils are making. There is an assumption that it is all PWB borrowing, but I know that councils, for example, have bermudan interest rates swaps and such like, which are rather more exotic and carry higher risks in terms of the councils. There is no mention of that in the report. What we found at the moment is that councils are largely borrowing from PWLB, as that offers the best interest rates at the moment. We know that, historically, councils have used other borrowing options, but at the moment it is PWLB borrowing. The last question was about short-term borrowing that you are saying is increasing, which is a bit of a concern if it is not linked to longer-term planning. In principle, I would agree with that. I think that if you look at the figures, one effect of the increase in short-term borrowing has actually been to rather even out the maturities, which is, in principle, a good thing, but it has been driven over the past few years, I think, by the interest rates available, particularly from PWLB. Are there indications that they are borrowing short-term and lending out on to the market to make a term? I am not aware that we have come across that, but I have heard that it has been harming. Related questions around the role of councillors, which is a major focus of your report. Can you maybe indicate that, in terms of the balance of this, whether your concerns are around all councillors, particularly the councillors who are involved in executive decision making or have a scrutiny function, particularly to this within the council? Also, if you could indicate in terms of your concern and interest in that, whether that is primarily, and I suspect it is both, around decision making over borrowing or around scrutiny of the accounts? I will make a general comment and then ask others to come in. In general terms, compared to, say, 10 years ago or 6 years ago, finance cannot be put in a separate box and we can get on with the business of the council and the financing issues can be dealt with separately. I think that because of the economic conditions that everyone faces, in particular the public sector, the assessment of boring sustainability, debt sustainability and financial decisions in general have to be much more integrated with strategy in providing services, particularly future services. To that extent, I think that all councillors need to be aware much more, perhaps, than years ago of the financial position and the issues that that raises. We provided guidance questions, which we believe all councillors are capable of asking, and we are trying to encourage councillors not to be afraid of the terminology and the jargon and to have very straightforward questions that they can ask on a scrutiny basis. Why are we borrowing? Are we getting the best deal? How long will it take to repay? What are the implications for our future revenue streams if we commit these to interest payments and repayment of borrowing? Those are questions that any councillor should have the confidence to understand. We are saying to them, do not be afraid to ask these questions. They are legitimate questions in the scrutiny role or in any role as a councillor. I suppose that that maybe takes me on to—are there any examples of best practice where the information is communicated clearly and therefore you have got a greater culture of scrutiny around it? I suppose that the other question that I wanted to come on to about this perhaps takes me to it is later on in the report that you mentioned, the use of external advisers around borrowing. Is there an issue about reports being prepared or information being prepared externally for officials? Perhaps then the officials may be understanding the information that they are receiving externally, or are the officials within the council, the people who are preparing those reports and might have a better idea of how to communicate it to their elected members? Again, when we were looking at the borrowing and treasure management strategies, we saw quite a lot of variation in the quality and content of those strategies. One that we found told a better story for members about why the council was borrowing and explained what that meant was that Scottish Borders Council was one that we found told quite a nice story to members about the borrowing strategy. In terms of external advisers, all 32 councils have external advisers for borrowing and treasure management advice, but we found that all the officials within the treasure management and borrowing departments were appropriately qualified, so either financial qualifications or the treasure management qualification. We are taking advice from the advisers but certainly writing their own reports to members. That is quite reassuring, because I suppose the question that I wanted to ask, if I can convener, is around, if an external adviser is given, and you mentioned that there is one particular adviser capital, which is the contractor for 28 out of 32. On one level, you could understand that someone engaging a contract like that has a vested interest in their being borrowing amongst local authorities, because that is the basis of their contract. Is the increase in that a replacement of expertise that may be previously existed within local authorities or is it a reflection of the fact that there is a greater burden on councils in terms of scrutiny and reporting of those issues, and therefore they have taken the advice? Or is it just good practice? I think that all councils recognise the need for that specialist advice in this area, so from the treasure management advisers who are in the market and who can give them the best advice as to what is happening in the financial markets, and certainly it is something that happened in England and Wales as well, with councils taking external advice. We would see it as they are making sure that they have the best information they can to make their decisions in terms of getting that advice. If one looks at it, it is a technical area, and one would expect councils to have their own expertise within the council that understood their own financial requirements and knew what options were for them to be met, but they would not necessarily be able to replicate external advisers' knowledge of what was out there in the market. What is important is that they represent, if you like, a smart client who is sufficiently knowledgeable to challenge external advisers' advice if it does not seem suitable for their circumstances. The final question was just on the recommendations that you make, as the Accounts Commission is for council officers and councillors to take forward. Do you have any general comments to inform me on recommendations for the role of government from the point of view of the committee's interest in public sector borrowing in general and as a whole? I think that, as we said, borrowing and other debt issues are the responsibility of the individual councils, and they have to be held to account for it. That is done on a council by council basis through primarily the financial audit cycle and the risk reviews that are part of that and on individual reports as required. I do not think that there is a specific role for government in intervening in that process. I absolutely agree with that. I guess that we might come on to this later in the session. There are principles that are important regardless to do with transparency and long-term planning and ensuring that it is clearly reported and integrated in what you are trying to do with the money. The borrowing is not an end-in itself, so let us remember that. The commission has absolutely focused correctly on recommendations on councils. I think that there are principles about that that would apply to other parts of the public sector. I follow straight from there. If I look at Exhibit 5 on page 15, which tells me about maturity dates, which has already been commented on, is becoming less skewed, which would be in principle a good thing, that does not tell me the one thing that I absolutely have to know, which is what the interest rates are. You have not told me that because it is not there. Who is auditing the results? Will that be down to the individual council audit? I think that to aggregate all the interest payments would not be a terribly useful statistic for this particular report, because one would need to look at essentially the discretionary spend available council by council that is available to cover that. You get into a very complex... That was not my point, but I do take... You are entitled to that interpretation, forgive me. That was not where I was going, but it was more a matter of you have told us about making sure that councillors are in a position to ask the right questions. I am still slightly concerned as to whether they are actually capable, most councillors, and I was one, of understanding the answers, but nonetheless being able to get the right questions is a good start. We then finish up with councils, as you have said, being responsible for what they do. I am really very concerned as to who is going to make sure that the councils have actually got a strategy, because I think somewhere in here you talked about five to ten years has been long term. I am afraid I do not think five to ten years is long term. I am expecting my local council to be running in 30 years time. The fact that it has got debts that will be paid in 30 years time is something that somebody somewhere really should be worrying about. If it is just the council internally, I think people are well capable of fooling themselves. That is what is really concerning me. Most people will not, of course, but that is my real concern. If the accounts commission is not worrying about that, who really, really overall is? First of all, one of the main messages from the report is that we are not satisfied that councils are looking far enough into the future. I think that the five to ten years links with the capital investment structure of how they look at things, but Fraser, do you want— I think that those points are extremely well made. The reason that the commission asked us to do that piece of work is exactly because I do not think that it has had an awful lot of light shone on it in the past, certainly not since the code was brought in. I think that it is also worth saying that, up until this point, councils have got a pretty decent track record of doing this, so it is not a kind of on the critical list, if I can use that phrase, but at the same time we say in the report that there are definitely things that they can do better. The role of audit is an interesting question. As ever, I think that the role of the local auditors would be to get assurance that the councils themselves are doing the things to understand what interest rates they are paying over what period and what that means for the sustainability of finances and, in particular, the impact on the revenue budgets into the future. I do not think that it is for audit to make an assessment of whether they are getting in quotes a good deal or not, or whether it is the right kind of interest rate or the right kind of loan that they have taken. I think that that is absolutely, properly, a decision for management and, ultimately, councils and counsellors. However, the reason that the commission has asked us to do this is because we think that it requires some focus. It is probably right to say that the commission will continue to look at this area and begin to look at maybe some of the other forms of debt that we mentioned in this report, but we have not looked at it specifically. I would expect this to be a bit of a stream of work that the King's commission would ask us to do over the next few years. Could I endorse the view that you should be doing that work because I am thinking that if it was a business that was doing what the local council does, the shareholders would be at risk, but the shareholders can worry about that. This is the public domain, this is public money, and local people are effectively the shareholders, and they cannot go bust. I am very conscious that it is eight years since I was a counsellor. I think that, as Mr Champ has already said, a lot has changed in those eight years, but one of the things that has changed is that very low interest rates have now become the norm, which, again, I suspect, means that it is very easy for councils to believe that they can borrow lots and not worry about it, which is why I just wanted to re-express the concern that I think that if you are going to look across all those other issues, you really should be because somebody should be looking at the end result. I can only follow up what Fraser said and see absolutely the low interest rates and the ability to borrow are clearly concerned, although councils can only borrow for capital purposes, they cannot borrow to supplement revenue, but it is absolutely one of the reasons that we have carried out the work. As Fraser indicated, we intend to look at the more complex area of debt in the future, where, if one is looking into the future, I think that there will be more of that coming down than, possibly, conventional borrowing. You are talking about borrowing for capital, but I understand that the borrowing charges, in other words, the interest repayments, come from revenue expenditure, so it does impact on— Absolutely. The point that I was making was that the fact that councils can legally only borrow for capital is a constraint on their ability to take borrowing. They need to have a capital reason to do it. I understand exactly what you are seeing in that paragraph. It stated there that in the sample, none of the councils presented councillors with a longer term view. Why not? None of the councils are presenting more than the minimum three years as required by the potential code. The potential code requires them to use potential indicators to look forward for three years and that no councils are going further than that. Many councils do not have that long-term financial plan in place, which would inform the analysis that they would need to do around about affordability. Three of them? How many? What we found was that the capital plan would go up to about three to five years, but the revenue was round about one to two to three years across all local authorities. The local government overview has a figure on the number of councils that did not have a long-term financial plan, and I can certainly get that for you. Thank you. Is that why that paragraph goes on to say that there is no analysis bringing this together with budget scenarios to assess affordability? That's right. What we found was that councils will know when they need to make repayments on their borrowing, what the interest rates are, where those are fixed, when those will fall, but what they hadn't done was got the revenue line to be able to work out the affordability. You need the revenue line to figure out if that's affordable or not, and they didn't have that over the longer term. The revenue line is only available because of three-year budgeting by the Scottish government, two local government, right? What we explore in the report is the use of budget scenarios, so that forecasting and to use scenarios of the what-if, and to make some assumptions about what that revenue might be, to see what the risks are to the affordability of the borrowing. Local authorities only have certainty of a three-year, well, degree of certainty of a three-year budgeting. They know nothing beyond that, do they, unless they are going to make heroic assumptions about what the central government might give them? Can I come in there? We hear that a lot, Mr Scott, from councils, and I think that we buy it to an extent. We absolutely do not have absolute certainty of clarity beyond that period, and we think that it is reasonable for them to be making some assumptions, hopefully not heroic ones, but assumptions that they need to be looking ahead. I think that the points that have been made already, particularly in the context of this report, they are making decisions already that will have an impact well beyond that three-year time period, so we do not think that it is unreasonable to expect them to make those kinds of assumptions, which of course need to be monitored and changed as you go along. I take that point, so a long-term financial plan would be what, 10 years, or to take Nigel Don's point, I mean, is it a five-year scenario? In reports that we have done in the past, we have talked about up to 10 years. I mean, I absolutely take Nigel Don's point about, in this context, when you are investing in taking out loans, I have a 50-year period, but I think that we are trying to strike some balance between what is reasonable and practical and what the constraints are. We tend to talk about five to 10 years as being medium to long-term. It would also help them if central government was setting out a longer term strategy as well in relation to how much they are going to fund, even the totality of the whole government. There is an argument about the bun fight between councils, but the totality of the whole government, because that would help them with that 10-year plan. There is an interesting debate to be had there, I think, that might come up in some of the later sessions with the order general about exactly that kind of longevity of view that all tiers of government can take. So we fear to say that there would be a recommendation for central government there in relation to at least providing some degree of clarity all, but no central government can bind a future so that that's always the caveat all ministers use that we can't bind the next lot. It wouldn't half help local government if that was the case. Well, as I say, I think there is a debate to be had there, and I'm sure that'll come up this afternoon. You're using very civil service language for me. Can I ask one other question? The other point I get from the whole government a lot is that the hub cause and the Scottish Futures Trust do not provide the transparency of borrowing detail that would allow elected officials to give certainty to elected members about what that means in the longer term. Do you think that's a fair concern that elected members have? Well, this report is specifically about the borrowing element of debt and does not address other debt, which would include the various sorts of schemes that you're referring to, so I don't have the evidence to comment on that from this. I can say that the other debt schemes are clearly more complex than conventional borrowing, and therefore the requirement to provide good information explaining exactly what those schemes mean is even more important. Paragraph 62 is my first question. It's actually for that point of clarification, first of all, if I may, where you highlight the Scottish Borders Council appoints non-executive members. Are those councillors who are in the opposition, or are those individuals who are not part of the local authority? I would need to check the detail on that. I'm sorry, I don't have the detail. The general public kicked me for doing this, but I'm pretty sure that it's the latter. I think that when we refer to non-executive members, we mean that they are people who are not councillors, but we will confirm that for you. That was my interpretation of the particular paragraph, but it struck me, therefore, that if there are individuals who are not elected and who are providing advice and assistance, which is not necessarily a bad thing, I hasten to add. How is that fully transparent in terms of democracy? Yes, it's a good question. I should say that we know that the borders aren't the only council that do this. A number of councils either do or have in the past have non-councillor members from local communities sitting on the audit committee, and there is a balance to be struck. I think that it's really important that people are clear that it's the councillors who are there to do the democratic scrutiny bit, but we also think that it can be a good thing to have a different perspective, to bring in some expertise from the local community who can help with some of that. I absolutely take the point that there is a balance to be struck there, but if it's managed carefully, I think that it can be effective. From a governance point of view, decisions or recommendations coming from the committee come from the whole committee, which will be dominated by councillors and any non-executive member should have been selected to serve to inform the level of debate at the committee. When you go to double check the point and come back to the committee, can you also please find out how the selection process occurred? I can certainly also mean that the committees in the Parliament also do bring in external advisers on their regular currents, and also there is a process that takes place. External advisers do provide that additional assistance and do help committees. Paragonar 71 highlights the situation regarding the reports being published online, and the lack of clear and accessible information. What recommendations would you provide to local authorities in terms of how they present the information online? You suggest that it will make it a bit easier to find, but would you recommend that it actually have a particular area that is easily accessible for members of the public? I tried it as a member of the commission, and I couldn't find all these reports. It's really difficult, so a section. When you have a company, there is always an accompanying investor section, and you know exactly how you can type in investors or investor relations, and you'll find that section, and all this stuff that looks rather dry to some people is there available, and I would like to see all councils have a section that has this governance information and reports as a separate section. That would be enormously helpful, and I think that there is also something about presenting slightly different views for different people with different interests, so there will be people who want to go and find out the issues of borrowing and treasury managers from that lens. You may also want to know how your new school is being paid for, so I think that the integrated word that Graham used earlier is about councils' understanding, telling the story, as Gemma was saying, about what are we borrowing these things for, where is it coming from, how much is it costing, what's it building and what's the longer term implication of that. It's about absolutely making it easier to find, and it's also about the way in which the story is told about borrowing that isn't quite as technical and jargon-y as it is at the moment. The final question is paragraph 73 regarding the issue of training and support to improve councils' understanding and attendance. I would imagine that, after an election, when there is a new intake, it would be quite a challenging task for the officers to put together a training plan for all, particularly the new intake for all councils, and people have got other commitments that they might not have expected to be elected as a councillor for a start, so there might be a fair amount of juggling that will have to take place in the short term. And also the situation is the same with a by-election, anyone who is elected there. In terms of what councils could potentially do, if the financial reports are simplified, first of all, could the training be delivered in smaller chunks, but on a more regular basis? I think that that's one of the points that we've made in the report, that that might be helpful to recognising the fact that it may be difficult for councillors to attend a full day course at a particular point in time, so anything such as breaking it up or indeed providing online materials are things that we're recommending should be explored. I think also on the training side that there's been a recent... I mean the first thing to say is that the commission and Audit Scotland are acutely aware of the pressures on councillors. It's a big job and increasingly complex these days, so we recognise that you can't do everything all the time. The good news is that just this week, Sipfa, who, as you know, are the public sector accountancy organisation, have announced that they have launched a new training programme specifically for councillors on borrowing and treasury management that they are offering up now as a new offer, partly, although not exclusively, but partly in response to the commission's report. So the combination of that with what councils do themselves, with the bit of work that we've published alongside this, and of course councils can always ask their external auditors to help them with some of this. We hope that there's enough support there for them. Obviously, we need people to want to do some of that, and I hope that this opening up of this area, which has been seen as a technical thing that's been done by the director of finance, hopefully that will encourage more people to come forward and do the training. Is there an expectation for councils to become experts in public finance? No, absolutely not. As Pauline has already said, you don't need to be an expert to ask some basic questions about borrowing maturity and how you're going to repay debt and what you're using it for, and is it the best option or the alternatives? I think you've answered quite a lot of the questions I had. There's just something you said earlier on, Mr Sharp, and it was about the reports written with elected members and public in mind. Now, I know you've answered some of the stuff there. Are we looking at, for the sake of the councillors, who are looking at making a decision for one thing, they're going to need some fairly technical information to follow a treasury plan. Now, if that's the case, they're going to need it a bit more than perhaps a generalisation that may appear. We've heard from this diamond earlier on that some of these reports that go through to full council are references to, I assume, the local audit committee or an officer's report, but they're not actually giving them reins and reins of report material. It's been, there is a reference. Of course, if the councillors get it wrong when they're decision making, the local press is likely to come back at them and say he hasn't done, or she hasn't done, the necessary homework, if you like, to come to a decision when it was there in black and white, et cetera, et cetera. It seems to me that we're asking of a bit of a double standard if you're looking at what's available for a general public report, if you like, as against what somebody needs to make an informed decision. How do you reconcile that? The full report is there available to the councillors and they have it in all the minutes. The way in which he was explained, certainly in Scottish Borders, I found very helpful in that the explanations were in the report. So there was a good paragraph of explanation together with each piece of financial information. So they had the three-year prudential indicators, but they had a really clear explanation of how this affected the council. I contrasted that with one which just said, here are the prudential codes, we satisfy the prudential code and the story. Some councils seem to give it a very kind of closed description, which didn't encourage any questions. But I think that the Scottish Borders one was an example of where you can combine the detail information and the understandable explanation. You read them in some detail. What we found was that when it came to members asking questions, because there wasn't that level of narrative in the report, that they had to ask a lot of questions about the content and ask for clarification on the content rather than the scrutiny questions, so that if a report does tell the story more, does explain why the prudential indicators show the trend that they're showing and what that means for the council and what their strategy is, then there's more opportunity for the members to be able to ask those scrutiny questions on that information rather than spending the time clarifying exactly what is in the report. So we're just asking, really asking that officers think about explaining in their reports in a clear fashion exactly what they're doing, why they're doing it and what that means for the council. We're looking at it from both ends. On the one hand, we are recommending that education for councillors is improved, but on the other hand, we're recommending that the information that's fed to councillors is clearer for the layman. For example, to say that all our borrowing meets the requirements of the prudential code conveys a rather different message from we've checked and all our borrowing is sustainable for the next three years. That's the sort of thing that one needs to get behind. My experience in this is really as a councillor in Edinburgh and what was brought through in terms of treasuring management here in the city could be quite complicated at times because I assume the nature of the size of the city budget and all the other things that come through, but it's really a case of just determining if we're trying to simplify things for people who are not qualified in treasuring management, obviously I have to pitch the training at a particular level that the basic minimum standards of scrutiny could be adhered to. How do we get around the fact that there are, shall we say, and there has been examples in the past in various authorities, that the view of officials want to be put through in a particular manner of they wish a decision to be made by the councillors and the wording. The councillor's got to understand the wording that is put in that makes sure that they're the ones who understand what the decision is through, shall we say, the public sector officer, jargon speak, and how to break through that. Well, as I said, I think that part of the responsibility is on officials to make sure that they inform councillors in a clear and objective fashion such that proper decisions can be made and that's part of the equation, but in Fraser. And I think that's the million dollar question really, which is that there is a bit of a cultural issue at the heart of all of this, which is historically this has been seen as a thing that's been done by the finance people who do it well and it's professionally run, as we say, and members completely understandably place their trust and reliance on those people. I think that what we're saying is that, while we're not challenging that relationship because it's important, it needs to be opened up a bit. It needs to be less of a black box. There needs to be more explanation in a way that councillors understand and can properly challenge and ask questions on. And I think that, as Pauline mentioned there, there is a way of writing reports that either seeks to close down or minimise debate and discussion, or you can write a report in a way that actually openly seeks that kind of debate and questioning. And I think what the commission is saying is that we want councils to be moving towards those things. So there's a bit of a push and pull here thing. I think that councillors need to be saying we want and need different information presented differently and councillors need to, sorry, officers need to be in a position to be providing that. Page six of the report has a whole list of recommendations for council officers, which address many of the points that you've raised about explaining more clearly the affordability, the links to capital investment, why we're doing this and not just saying can we borrow full stock? Actually write it in such a manner that it's understandable for the public. Okay, thank you. Thank you, convener, and good morning. Do councillors really understand borrowing and treasury management and their commitment as role as scrutiny? Because when you go to page 37, Exhibit 15, when you look at attendance at scrutiny committees, by councillors it's pretty low on which is something that's a real vital function within the committee's structure, within councils. I have to say looking at the table, one can't be other than disappointed at some of the attendance figures, but I don't know what the stories are behind that. We touched earlier on councils perhaps being a bit more thoughtful about how they present training to improve the take-up, because, as we've been saying and said earlier, financial sustainability isn't something that you can put to the side, and you can deal with main council business and then financing can be done as a sort of separate exercise. These days it is a major constraint on the ability to provide services and it has to be in centre stage integrated with the other council decisions. On page 15, Exhibit 5, 2012 to 2013, 60 per cent of the borrowings to be repaid between 10 and 50 years. With uncertainty, nobody could predict budgets, the future budgets of councils. Is this not storing up a problem for the future? Well, to the extent that one can't see where we'll be in 50 years, I'm not sure how best to answer that. Again, you need to look at the specifics of individual councils. Clearly, if you had a council that was struggling to meet its financial obligations and you saw that those financial obligations were going to continue and perhaps even increase for a very lengthy period of time, that would be a considerable concern. If, on the other hand, a council can reasonably well cope with its financial obligations looking at, say, 10 years, one might be a bit more sanguine about the assumption that that could continue for the 40 years after that. So, certainly, there's an intergenerational issue that one can't and certainly wouldn't wish to supplement current funds at the cost of the future. I think that one's got to be measured about it, and if we could push the three years out to 10 years and you're getting sensible results at that level, then I think one could be more relaxed about the 40 years following. I don't know if there are a few. The training issue concerning councils is that, has it ever been considered that training for councils on the financial elements or the decisions that are taken should be compulsory? I mean, there's many other jobs and roles where people are required to carry out training as part of their contractual obligations, and I see that as a form of councillor as well. So, I think that that's a very good question, convener, and we do say in a recommendation on page 7 that they should consider, so councillors and councillors should consider whether it should be mandatory. I don't think the commission felt it was for us to go as far as to say that it definitely should be, but I think that what we are saying is that, on a couple levels, both for all councillors, as Graham mentioned right at the start, there is a need for a level of financial literacy and understanding that probably wasn't the case 10 years ago, so there's a kind of basic level. I think that there is also a case for people who have specific roles, either in a finance committee or a policy resources committee or an audit committee, to have a deeper level of understanding, and we would strongly encourage councils to be doing that. There are compulsory courses in other parts of the council, I think, in licensing the arrangements there are. I think that's right, in terms of some of the statutory regulatory functions for sure, and I think that, while this isn't one of those, it feels like such an important issue that, if you were considering anything else to be mandatory, this would have to be pretty near the top of the list, I think. Okay, a very brief final question from Bruce Smith. I suppose that a general point that we've discussed, how you encourage councillors to take part in training and also their understanding of the reports that are given to them and the role of officers in improving and encouraging all that. To who, though, are officers responsible in the sense that they have a number of different responsibilities? Do you believe that the balance is right in terms of the responsibility to the clerk, the chief executive of the council, to the administration in the council, or is this part of the work that suggests a responsibility to the council as a whole and to the area that the council is responsible for? Yeah, there's a whole bunch of interesting stuff in there, and I think that for the purposes of this, it's worth remembering that in every council there is a section 995 officer, a proper officer finance who, statutorily, if that's a word, is responsible for giving advice to the council. Regardless of what the political make-up is, or the chief executive, the section 95 officer role is absolutely key in all of this, in the same way that the chief executive as head of paid services is accountable to the council and not to the administration of the day. That, for the purposes of this exercise, the section 95 officer is a key role, I think. I thank the panel for their contribution. I understand that there's a number of recalls and a number of commitments to follow up with correspondence, so I'm sure that that'll take place. Thank you very much. I just want to brief suspensions for our couple of minutes, colleagues, just to allow the change of it. Agenda item number three will take evidence from Audit Scotland on the AGS report entitled update on developing financial reporting. I'm delighted to welcome Caroline Gardner, the Auditor General for Scotland, Mark Taylor, the Assistant Director and Gordon Snail, the Senior Manager of Audit Scotland. I understand that Auditor General is a brief opening statement. The report I'm bringing to the committee today provides an update on the actions that the Scottish Government is taking to further develop its approach to public financial reporting. The committee might recall that I've previously emphasised the importance of comprehensive, transparent and reliable financial reporting in my report of July 2013. Scotland's public finances are now on the cusp of significant change, with the introduction of new financial powers through the Scotland Act from today and the prospect of further financial devolution in future. This is obviously happening at a time when public services are facing considerable pressures from falling budgets and increasing demand, so the quickly changing environment for public finances means that the case for financial transparency, as part of a strong fiscal framework, has never been stronger. The Scotland Act 2012 and the changes that are anticipated to flow from the Smith commission agreement mean that the Scottish Government will in future be responsible for raising more of its revenue and will have more responsibilities for spending. Its budget will also become more dependent on Scotland's economic performance and the amount it raises through taxation and spends on welfare will be more directly affected by its own policy decisions. As a result, the Scottish Government will have more control over and more responsibility for its finances. That provides an opportunity for new approaches and also brings new financial risks. Transparent reporting is more important than ever to support decision making, safeguard public confidence and maintain effective accountability. That position is of course reflected in the Smith commission's recommendation that the Scottish Parliament should expand and strengthen the independent scrutiny of the public finances. The Smith commission also called for an updated fiscal framework to support further devolution. Maintaining and enhancing transparent financial reporting of the public finances in Scotland is an essential component in this quickly changing context. In the light of the new financial powers for the Scottish Parliament, we think that information could be enhanced to show more clearly things like how the different elements of funding support total government spending, how the performance of the economy is affecting budgets and the financial position of the Scottish public sector as a whole. I think that it is important to be clear that the audited accounts of the Scottish Government and other public bodies already provide a good starting point for understanding their financial position, but they do not show the overall position of the devolved Scottish public sector as a whole, including the balance between funding and spending and the overall level of borrowing. Consolidated public sector accounts that pull together information in one place on what the Scottish public sector owns and owes overall, we think would provide a better understanding of the financial position. This would give the Scottish Parliament taxpayers and decision makers a fuller picture of where money is spent and the longer term implications for the public finances. The Scottish Government does recognise the need to further develop its financial reporting and it is currently considering options for the future. The next step is for the Scottish Government to set out the details of its proposals for consultation with the Parliament. We in Audit Scotland will continue to monitor progress and report publicly as the Scottish Government develops its plans. We will also continue to play our part in helping to develop a high quality fiscal framework for Scotland that reflects the new financial powers and the related opportunities and challenges. As always convener, my colleagues and I are happy to answer questions from the committee. Okay, thank you and can I just start with the first question and you made reference or the general made reference to the consolidated public accounts. Can I just ask you to provide some of the history into why we have not arrived at the position where we have consolidated accounts and what happens in other parts of the UK and perhaps further than that? I'll ask colleagues to chip in but I'll sort of just outline the broad picture first if I may convener. I think our starting point is that up until this point actually there hasn't been a particularly strong case for consolidated accounts for the whole of the Scottish public sector. Until now what the Scottish Government has been doing is broadly putting forward a budget to the Parliament that sets out how to spend the bulk of the money that comes through the block grant from Westminster and some small additions from things like non-domestic rate income and small amounts of money for it from other sources. As of today that's changing quite markedly. From today the Parliament also has responsibilities for raising taxes this year through the land and buildings transaction tax and the Scottish landfill tax from next year through the Scottish rate of income tax proceeds. It has some limited borrowing powers from this year increasing in the years ahead and the Smith commission sets out a clear direction of travel for more revenue to be raised here in Scotland through decisions of the Government and the Parliament and for more responsibilities in terms of borrowing and likely welfare responsibilities in future. All of that means that the financial reporting that we've had in the past suddenly doesn't give you a full enough picture to really understand the implication of decisions about taxation, about the balance between different types of tax about borrowing and potentially in future on welfare spending. So it's very much a moment in time where we think that this becomes necessary. It's interesting to note that the Scottish Government does have the power to produce those consolidated accounts already. We think that there's not been a strong case for using it so far but we think that that is changing quite fast just now. Mark, do you want to add anything to that? I think the only thing I would add, Auditor General, thank you. I think that this issue came up to the degree earlier is that the Scottish Government are quite clear about where accountability lies and are quite clear that there is an existing set of accounts for the Scottish Government consolidated accounts and there are different sets of accounts for different bodies. I think that in the history that Caroline set out, it's been felt that those vehicles are the vehicles for that accountability and to provide details on the expenditure of those individual bodies. As Caroline said, we're in changing times and we're quite clear that as the level of responsibility increases, that there's a real opportunity to bring in consolidated public accounts from here. I mean, would it have been considered a good practice to do it though? I mean, or would it have been difficult to pull together such accounts in the first place? I mean, what's been the potential barrier to that? I mean, historically, going way back to when the panel was first formed, I don't mean even just the last. I think as I said, back in 1999-2000 there wasn't a strong case for it anyway but this is also a field that's changing quite hard across the UK and globally. So, for example, the United Kingdom Government now produces whole of Government accounts but it's only done that for the last five years. The fifth set were published just last week and during that period, their ability to do it has been increasing the usefulness of the accounts, the information included has been growing and developing. So, it's not that the Scottish Government, I think, is behind the pace. It's that this is an area where good practice is evolving quite fast and what makes sense for Scotland is also changing. There clearly is a cost to doing this although we don't think that it's a significant cost in terms of the benefits but the balance of what you get in return for the effort for producing the accounts we think is tipping markedly in favour of producing them. Thank you, Vera. Just a matter of interest, to what extent is Audit Scotland working with the Scottish Government on this issue? Quite closely, I think, as you would expect, Mr Beattie. It's an issue that we discuss in terms of our own views about what good practice looks like and the plans that they have. We've reported in here the Scottish Government's commitment to developing its financial reporting in this context. Marcus, the person who leads the Audit of Scottish Government for me each year, is in close contact with the director general responsible for finance and colleagues about it and may want to give you a bit more flavour for the way we go about that. I think that it's fair to say that we've been in active and constant discussion about what plans are and how those are developing. I think that it's also fair to say that there is an important distinction between our role as auditors and, of course, the role of the Scottish Government in making the decisions around this. I think that what we do is we put questions to them, we make suggestions, we get into an engagement and discussion around that. Ultimately, it's for the Government to decide and ultimately for us as auditors to come back at the back of that and to begin to audit how well that system is working. From our whole system perspective, we'd looked to be able to do that. I think that it's important that, although we have that engagement, we don't muddle up who's deciding how that should work. Your close relationship with the Scottish Government in this regard do you believe that they're on the path to delivering the enhanced financial reporting that you're looking for? I think that that's hard for us to say for two reasons. One, as Marcus said, the Government is responsible for developing its own plans. We know that they're doing that. We haven't had detailed involvement on what those plans look like. The second reason is that whatever the Scottish Government produces in terms of financial reporting needs to meet the needs of this Parliament. We understand that there is a commitment to consulting on the Parliament about how far the reporting needs to go to do that. I think that what we're looking to do is to move forward the debate to help the Parliament to think through what it requires and to set out our view as auditors of what good practice would look like to help inform that debate. Obviously, quite rightly, your paper here focuses on the Scottish Government and its need for ensuring the greatest transparency, but with the delegation of further powers and a much changed relationship with organisations such as the Treasury and so on, is there an extent to which the need for more transparency in that interlocking relationship should extend to UK bodies? The short answer to that is clearly yes, and I think that there will need to be a dialogue about the extent to which this Parliament needs greater insight into potentially oversight over some of the bodies that play an important part in achieving the Scottish Government's objectives. However, in broad terms at the moment, we are in a position where the UK Government produces whole-of-government accounts, which includes the whole of the Scottish public sector. What we haven't got is that intermediate layer that gives the Scottish public sector as a whole for people here in Scotland starting with this Parliament to use, as well as for the Treasury, the UK Government and people on the wider UK stage to show an interesting. I would like to thank all of Scotland for pushing this agenda really hard, because I think it's very, very important. How difficult would it be to produce consolidated accounts? It would require effort. We don't think it's at all impossible for the Government to do, as part of the UK whole-of-government accounts. The Scottish Government and all other public bodies already produce returns, which allow that consolidation to happen. Those returns are funneled through the Scottish Government to HM Treasury, and our auditors play a part in providing assurance on them. The missing step is pulling it together for Scotland, so there would be more effort required, but we're not starting from scratch. A lot of experience has built up over the last five years as the UK whole-of-government accounts have gained currency. When you described that earlier on, there are whole-of-UK accounts. That presumably means that we produce a whole-of-Scotland account, because how can we produce a whole-of-UK one if we don't produce a whole-of-Scotland one? Colleys will keep me straight, but that's actually not quite the case. What happens at the moment is that each of the 200 or so bodies that make up the Scottish public sector produce their returns, and it's a complicated process to do that, to allow you to take out the transactions that go on between individual bodies and between Scottish bodies and UK bodies, that those are then transmitted through to the Treasury for consolidation to happen. The consolidation for Scotland doesn't currently happen, and that would be the additional step that's needed. The information and the processes are all there already, I think. Broadly speaking, if we decided to have consolidated Scottish accounts, we could do it within a financial year. It would not be an enormous accounting challenge. It would be doable, and I would expect that, as at a UK level, there would be lessons to be learned on the way. The first set, I think, would have improvements to be made. Mark may want to talk about some of the complexities that we think would need to be worked through in doing that. I think that what's there at the moment is the basic building blocks in that individual bodies prepare information in a broadly consistent form. I think that there's a real challenge in putting those building blocks together and also presenting the right information, appropriate information that reflects the Scottish context in a way that the accounts themselves are not just a dry document that adds up figures, consolidates figures, although there's value in that, but it also has the right commentary in there and the right disclosures and notes in there. I think that that's where I get a bit more of the investment, might need to be put in. I think that, inevitably, there are technical challenges. It's not simply adding up the numbers. One of the main challenges is in eliminating transactions between individual parts of government, funding from one part of government to another part of government, identifying the exact amount and even more challenging in that who is who, what. Although there's detailed information available to all bodies on to where their debts are, there's real challenges in aggregating that up and having some of the the elimination of those transactions and some real technical challenges in that how that happens and those are some of the challenges that NEO have identified in putting together our whole of government accounts at a UK level. There's a number of us who recall, we passed this legislation in 2000, so we must have envisaged it at that time that it was possible to do this. One point on your observation about what's not in the accounts, the moment some of our schools are not going ahead because they're being delayed because of an accounting procedure relating out of Europe and so on and so forth. Is this the kind of thing that could potentially be tidied up by having consolidated accounts because that seems to relate to how the hub calls are either on balance or off balance all this debate that's been in the UK accounts for a long time. Could we clean all that up by having consolidated accounts? I'll start off and I think Gordon may want to come in behind that. One of the things that we don't have clear oversight of because we don't have a Scotland whole of government accounts is on the one hand all of the assets that we have across the Scottish public sector that's important to know whether you're maintaining them or if they're being allowed to degrade in the face of financial challenges. It also can help in thinking about how you make the best use of assets across the public sector, but also some key liabilities like the public sector pension liability for Scotland as a whole. It appears in a number of different places. We don't pull it together to say what is it across Scotland, so it's those sorts of insights that we think would be very useful to this Parliament, but also much more widely in terms of decision making and accountability. Don't go back to the point that was being asked about earlier on. You're not aware, as Audit Scotland, whether the Scottish Government are currently looking at that consolidation as part of their entirely correct approach to more transparency and greater accountability of government accounts. I think that would be a question for the Scottish Government. Absolutely, you're right. Can I ask one other area, if I may? I thought, are you recommending or are the conclusions very strong on forecasting? You've also made some, in my view, pertinent observations about the Office of Budget Responsibility being independent of government and, therefore, able to provide that. Do you think that it is essential that, in the new machinery that we have in Scotland, the Fiscal Commission is independent so as to be able to provide exactly the correct check and balance irrespective of who the Government is as happens south of the border? I think that the details of the remit of the Scottish Fiscal Commission is a policy matter and one for this Parliament. The principles that are set out in OECD guidance of transparency, non-partisanship and independence are absolutely central, and the legislation that is being proposed to put out on statutory footing needs to protect those. I know that that is a very strong theme in the consultation paper, but it seems to us critical, as it is for our own work. Paragraph 21 to 25 in the report that I would suggest are positive because it does appear that the Scottish Government is very well aware that, also with the changing financial landscape, it is prepared to look at improving the financial makers. Is that an accurate assumption? We have tried in the report, as in all our work, to give credit for what the Scottish Government has achieved, including a good record of financial management so far, strong financial statements for each of the individual bodies and a commitment to taking it further. What we would like to see in the light of the speed of change happening in the environment is more information for the Parliament about the plans, the detail of those plans and how they will give effect to our recommendations in practice. Paragraph 28 highlights the situation regarding the Scottish budget documents, but there is a particular sentence that says that the Scottish Government's budget will become more dependent on Scotland's economic performance and the amount that the Scottish Government raises through taxation and spends on welfare will be affected by its policy decisions. I accept that they are very much accurate comments, but you go on to highlight that it has been recognised the need to further develop its budget documents and annual accounts to reflect those new responsibilities. If a Scottish Government of whichever hue, if it is putting forward a set of proposals to try to improve the economic situation in Scotland, but because our budget process takes some six months whereas the budget process at Westminster is a different process altogether, then there is a potential for last minute decisions to come from Westminster to then have that effect upon Scotland and as a consequence the budget documents, budget proposals put forward by a Scottish Government, part of it might actually be either well-negated or have an adverse impact. How then could a Scottish Government of the day try to deal with that and particularly when it comes to the reporting and the auditing? I absolutely recognise the challenge. I'm not sure whether people are to help you with the answer to it. What we're saying is that the need for that budget scrutiny by this Parliament increases further from what we've had over the first 15 years because of the importance of those taxation and welfare decisions that will need to be taken in future. Clearly, in the political context that we're working in now, there are challenges about the way that's joined up with what happens in Westminster and the way decisions about things like adjustments to the Barnett formula are made as well. All of that requires a great deal of thought and attention by both parliaments and ideally working together. I think what we can help you with is some of the things that we think should be there in terms of the good practice on fiscal responsibility, which is a strong commitment that this Government has made since its election in 2007. That's helpful, thank you very much. Stuart McMillan highlighted the issue of forecasting for economic uncertainty. To what extent and the impact that the changes in Scotland's economic performance would then have on the money that is available to fund public services and other things, to what extent is that the driver of the need for a consolidated account that you need to know how much you're spending because you have this concern about what you'll be taking in the future? I don't think that's particularly a strong driver. Clearly, the Scottish Fiscal Commission in its first report endorsed the Government's forecasts but also recommended the development of more data and the development of a better understanding of things like the behavioural impact on taxation changes of likely responses. I think what we're saying is very much in line with the conversation that you were having with my colleagues from the Accounts Commission earlier on but at the Scotland wind level. Having that overall picture of what your current financial position looks like helps to make better decisions about tax and other spending decisions and also we know already that in the UK the whole of Government accounts are a very important input to the OBR's fiscal sustainability report that it produced twice a year, so it's information that can be used by other people in helping exactly that decision rather than necessarily doing it itself. Mark, do you want to add to that? I think that the main thing that the whole of Government accounts equivalent or Scottish public consolidated accounts would give is that overarching view that allows you to essentially manage longer term financial risks to know based on the decisions that you're taking today, what some of the potential implications on those risks might be down the line, both in terms of the liabilities that are being carried across the whole system and where assets lie across the whole system. One of the things that the National Audit Office reports in its report on the whole of Government accounts is the last version that was just published within the last week or so are some of the uses that whole of Government accounts now that have been available for a number of years are increasingly put to. I think that one of the key things from a set of accounts is that they are pulled together in accordance with clear standards and international financial reporting standards and audited and therefore the information that's available there can be used by others, can be used by the Parliament with that real trust in the information that's there. Thank you. I don't usually do points of order, but I didn't want to interrupt the auditor general with her comments. I just wanted to get it on the record that I at no point did I use that language to the Drew Smith alleges that I did a few months ago, particularly regarding the point. To the options here, I mean, Drew can reconsider it all. I'm upset, Mr McMillan. I thought he was referring to the fact that there'll be an element of variability in the future revenue that Government has as a result of decisions that it chooses to make around the raising of revenue in Scotland, but if that's not an accurate reflection of what he meant, then I'm happy for Mr McMillan to clarify what he did mean, if that's easier in the record. Just say that, obviously, Drew McMillan has clarified that point and hopefully we can move on from that. If there's any further information, we can refer to the official report at the later stage. Just to add in response to Mr Smith's question. Sorry, it was a very minor point. I just emphasised the importance of whole-world Government accounts, and so far as an audit range that's around about that, because I think it's important the information that's brought through the whole-world Government accounts in the UK sense and whatever's down the road for Scotland, that they are audited, so there's an independent checking process behind that that forms a good basis for discussion in Parliament and for other people to have confidence through that process. Tread carefully, but if I understood your response to Mr Scott, you said to an extent that all this information about public bodies in Scotland is already collected, it's just that it goes to the UK level and isn't consolidated in a Scottish manner, hopefully that's acceptable to Tavish Scott as a rephrasing of his answer or the answer that he was given. That presumably then would, thinking about our previous session, that would then include local authorities in Scotland, which we don't currently have a Scottish Government or a Scottish level accounting of that. Because it does exist at the UK level, I suppose that the fact that it already exists at that level gives me less concern, but is there a tension between the pulling together this information and then presumably the scrutiny of it for other purposes? Referring back to what we said earlier, I mean local government is independent and these are all independent bodies, is there a danger that we are accumulating any information at the Scottish level which suggests the degree of scrutiny and concern that's actually properly for the local level? I think that's a really important point and I was interested in Mr Beattie's question earlier around it. There's no question that local authorities in Scotland are responsible for their own finances, including borrowing and other long-term commitments that they enter into, and nobody wants to blur that accountability either for good reasons of principle or because there's a risk of spooking the people who are lending the money. There's no question about that at all. What we are saying, though, is that in Scotland, as in the UK, local authorities make a significant contribution to the delivery of the Government's policy objectives and the services that it's responsible for. If a local authority were to find itself in a position where it couldn't meet its obligations, there is a strong likelihood that the Scottish Government would need to step in not so much to service the debt but to ensure that the services could continue to be provided. There's therefore a relationship between the two sets of accounts, which we think needs to be recognised as it already is within the UK whole of Government accounts. They do consolidate all local authorities across the UK into that overall picture. That hasn't caused any confusion about the accountabilities or where the liability sits. It has, though, helped to give that bigger picture of what the liabilities are, which is what consolidated accounts would do, and to provide information about things like the maturity dates, the lengths of loans and other commitments, pensions liabilities, and the assets that sit alongside that, so that you get that whole picture of what the risk really might be at the high level, as well as at the level of each of the individual bodies that make up the Scottish public services. That's helpful, just finally, if I could. If the UK Government has this information accumulated at the UK level, and I have no objection to the Scottish Government taking the lead to provide the same information at the Scottish level, are you aware of any discussion with the Scotland office in terms of if the information is held at the UK level? Surely it would be a simpler job for the Scotland office to accumulate that information across the UK Government and consolidate information for Scotland in that way, rather than separately trying to do it from the point of view of the devolved administration. Given the way that the devolution settlement is evolving, it's entirely appropriate for the Scottish Government itself to keep that ownership of the picture for Scotland and to be contributing to the UK-wide picture as well. The information, the technical administration, is already handled by the Scottish Government working with Treasury. Our auditors work closely as part of that process, and I think that what we're looking for is a straightforward pulling together at the Scotland level that doesn't happen, but, as Mark has said, all the building blocks are there at the moment. Thank you very much, convener, and good morning. I'm conscious that audited consolidated accounts take time to produce without worrying about how long that does take. Surely Scotland is now entering a point where we're raising taxation, which is to some extent variable and to some slight extent unpredictable, and therefore our ability as a Parliament to scrutinise our financial affairs is now somewhat time dependent. I'm just wondering, because I haven't heard any part of that in this morning's conversation, what your thoughts are as a general about how quickly we can be provided with meaningful management accounting data, rather than what I might otherwise describe as the financial accounting a year or two later, which I think is what we've previously discussed. That's a really good question, and one that we've been discussing ourselves and with our colleagues in the Scottish Government. At the moment, the Scottish Government's consolidated accounts, which exclude some important parts of the public sector, are produced over the summer each year, audited and laid in the Parliament during your autumn term. There's no question in my mind that, if the Scottish Government were to commit to introducing consolidated public sector accounts, that would take longer. Just to give you an example, the UK whole of government accounts that were published last week related to the 2013-14 financial year, and that's the quickest they've ever done them, so they have a sort of six-month lack. I would expect that it would take longer here in Scotland as well. Having said that, we've been looking at international experience as part of our thinking, and the Government of New Zealand, for example, publishes monthly management accounts effectively, where at the end of each month it publishes its financial position as at that month, and that's part of the overall financial management approach that they take. That's absolutely an aspirational goal, not something that we think Scotland should be working for short term. However, I think that there is a debate to be had between the Government and the Parliament and other interested parties about what your direction of travel should be and what's a reasonable investment to be making given all of the other things that the Government needs to be delivering in the context of the Scotland Act, the Smith clauses and so on. There are decisions to be taken, and we're certainly not looking for perfection in that, but the direction of travel seems to us an important thing to have clarity around at this stage. Mark wants to add to that. The other thing that I've added to that, and I agree, of course, a bit with all of that, is that one of the real values that we see in consolidated public accounts is yes, the information about this year, but much more valuable than the information over a long trend period and what's happening through time. Although there's a real challenge in getting the most up-to-date information out as soon as it possibly can be, that trend information that has continuing value and one of the real values in there is understanding what's happening with pension liabilities, understanding what's happening with debt, understanding what's happening with PPP and NPD commitments over that longer trend. On behalf of the committee, I thank Dr General for our presentation. I can move the committee into a brief five-minute suspension. I reconvene and take us to agenda item number four, accountability in audit and further devolution of powers. On this particular item, we take evidence in accountability and audit arrangements of the proposed further devolved powers. Members will be aware that the committee has issued a call for evidence on the subject. The committee will also hold a further evidence session with the Cabinet Secretary for Finance, Constitution and Economy in May. Today, we'll hear evidence from, once again, the Auditor General, Carline Gardner, from Russell Firth, Assistant Auditor General from Fraser McKinley, Director and Controller of Audit and, finally, Mark Taylor, Assistant Director of Audit Scotland. I understand the Auditor General waiver brief statement. Can I just ask the first question, Auditor General, in connection with the scrutiny of the current UK public bodies? We know that there will be public bodies such as the BBC of CHEM and a number of others who we will now be able to seek evidence from them, potentially, and that we will be able to lay financial reports for the benefit of the Parliament. I wonder if you could elaborate further on how you think that that will be progressed. I should say, first of all, convener, that we are delighted to have the chance to talk to you as part of your inquiry on future scrutiny under the Scotland Act and the Smith commission particularly. We have looked closely at the Smith commissions that we think may have implications for us and for this committee. The list of bodies that is referred to in the Smith commission report and picked up in the clauses are all bodies that carry out functions that can have a significant impact on the Scottish Government's policy objectives. It is fair to say that they are a wide-ranging set of bodies that do that in different ways. Taking out at one extreme the Northern Lighthouse sport, most of its functions are carried out here in Scotland. There is already a fair amount of reporting about that, which is available. At the other end of the spectrum, we have got off-gem, which regulates energy companies right across the UK, including companies that are based here in Scotland that serve the whole of the UK and companies based elsewhere in the UK that serve people in Scotland. The starting point is that there is no single model that will work for this. It very much needs to start from the purpose of what is it that they carry out here in Scotland and what is it that the Scottish Parliament wants more oversight of. It is also worth noting that there already are UK-wide bodies whose annual reports and accounts are laid here in the Scottish Parliament, including, for example, the security industry authority. The fact that the accounts are laid does not mean that this committee necessarily needs to do anything with them, so I think that there is a debate there about what the Parliament and the committee's interest is that should then be leading to a debate about the way in which that might work in practice. Can I ask, in using the BBC as an example, and when the financial reporting comes from the BBC, would that also relate to the BBC licence fee revenue? That is a very good example to try and pick apart what this Parliament's interest is. Clearly, the BBC is a UK-wide organisation that serves people of the UK as a whole, as well as the people of Scotland as a separate grouping within that. At the moment, I think that I am writing saying that the BBC currently produces a management review for Scotland, which provides information about the services that it provides here. It is not linked to financial information about what is spent in Scotland and the revenue raised from licence payers here in Scotland. That is a good example of exactly the sort of body where the Parliament may want to have a discussion with the UK Parliament about the development of further reporting about Scotland, in the same way that you have been having with the UK Government and HMRC about the reporting on the Scottish Rate of Income tax, which will continue to be collected by a UK-wide body, but with a very definite Scottish interest. Will there potentially be some challenges here in respect to the—because you have made the point there—about discussions with the BBC? It is quite clear in terms of the Scotland Act and the role of the Public Audit Committee in that respect in terms of the reports that are laid before it. Is that something that you would expect for the UK Government to legislate on in terms of how the Parliament would interact with those bodies? I think that there are two sets of issues to be resolved. The first is that the number of bodies that play a role in Scotland is obviously very high and the committee may want to think about which are its priorities in terms of having a very clear oversight of the UK-wide bodies activities in Scotland to make the best use of your time. The second is that it will be easier for some bodies than for others to produce annual reports that contain Scotland-specific information, so Northern Lighthouse Board has no problem. Most of what it does here is already Scotland-specific. The BBC has some parts of its activities that are very clearly Scotland-specific, and I think that it would be a very productive dialogue to say what information do you want about both spend and performance to allow you to carry out that oversight. For a body-like off-gem, I think that it would be much more difficult to think what information would make sense about Scotland specifically in their overall business, as opposed to specific projects that are being carried out that have an impact on Scotland alone. I think that that demonstrates the range of different types of bodies that we are talking about here and the need to be clear what your interest is, so that that information can be developed and reported in ways that you can use. I can appreciate that there is some complexity here. We are in preparation mode. We have got quite a few additional powers coming today and a whole load of significant powers coming down the line. I can appreciate that one size of auditing may not fit all, but I wondered what examples such as the Food Standards Agency has been devolved for many years, although it becomes Food Standards Scotland as of today. The Forestry Commission, where it is a Great Britain cross-border body audit Scotland, is the auditor under statute, and the agency reports directly to the Scottish ministers. With the Food Standards Agency, as was, or perhaps the Forestry Commission, would that be a good example of the experience of both agencies? Would it be a good example to fit with the further devolved powers coming down the line that the convener just mentioned? I will ask Russell to talk you through the way that has worked in the past. I can then draw out what it might mean for the future. There may be some lessons from the Forestry Commission, but I am not sure that it provides a perfect example, partly because, ever since the first Scottish devolution, the business of the Forestry Commission has been very clearly divided up between England, Scotland and Wales. It has had its own management boards, committees and groups. It has produced separate sets of financial statements in each country. The policies that have been employed in each country have differed as the devolution has gone on. They still have a lot of central functions, which it is economic to provide on a GB basis. However, the business itself has been very clearly divided on a geographic basis. However, some of the bodies that are now proposed to lay their reports in Parliament are not such a clear, separate business in each of the geographical areas. Is there anything already existing that would be a better fit than, say, the Forestry Commission and the Food Standards Agency? Is there any element of good practice out there that could be adopted to fit some of the new powers coming? For a body like the BBC, the nearest parallel is probably the discussions that you have already been having with HMRC about their role in collecting the Scottish Rate of Income Tax and, in future, obviously, the VAT, part of which will be assigned to Scotland. The challenge, I think, comes for the bodies, like off-com and off-gem, that very much work on a UK-wide basis and are regulating for the UK companies that serve the whole UK. We do not yet have a model of that and I think that that is where there is more thinking to do about what this committee and what the Parliament needs to receive assurance about the performance of those bodies in relation to Scotland and where there may be more difficulties in breaking down the information in ways that are meaningful to you without doing that at disproportionate cost. My final question, convener, comes from the Parliament's information centre. It is the no detriment principle. In layman's terms, it states that the Scottish or UK budget should be no larger or smaller as a consequence of tax and spending changes. We suppose, for example, that the Scottish Government is going to increase its update of tax to 50 per cent. Should the Scottish Government compensate the UK for falling national insurance contribution, or, alternatively, which often happens with a higher rate of income tax, higher earnings could shift their income from earnings to dividends, or higher rate taxpayers could move elsewhere in the UK? In which case should the UK Government compensate the Scottish Government? I just see this as a very muddy area. Can we really expect the no detriment principle to continue clearly and effectively as we go forward with very different powers and very different economic and fiscal decisions? I think that your question has highlighted the challenges that we will need to be addressed in working through. You won't be surprised to hear, convener, that we are very clear of the challenges involved in this. I think that the way in which those challenges are resolved is going to be part of a political process. Our interest is in making sure that the process for making adjustments to the funding formula to Scotland—whatever that looks like in future—are transparent and clearly understood, and that there is a way of providing assurance to this Parliament as well as to the UK Parliament about the sums being received into Scotland for spending on Scottish policy objectives. There is lots of work to do in making that a reality. We are not the only people to say that, and it is one of the areas that this Parliament is rightly focusing on at this stage. Given the two examples that I have given, I appreciate that it is challenging. How can you, for example, relate increased revenue in the rest of the UK as a result of an increased tax in Scotland? How can you prove that that decision to invest in England was a result of an increased tax? I just can't see it in my mind. I don't know how you can trace that effectively in terms of the no-determinate principle. There are both technical challenges, as you are describing, but I am sure that that can be worked through with appropriate information and systems in place. Obviously, there are political challenges as well. I suspect that the political challenges may be the more difficult ones, but I am very clear that there is work to do to be able to make a reality of that recommendation from Smith. My understanding is that the Department of Work and Pensions may well be providing some of the services, but nonetheless spending money, effectively Scottish Government money on welfare payments. If I am right in that regard, how do you see them reporting to us for the way that they are spending that fraction of what is now going to be our budget? For the welfare responsibilities that are proposed to be devolved to the Scottish Parliament, the Government and the Parliament have a choice to make about how they are administered. Broadly, I think that there are three options. One is that the Department for Work and Pensions, as you say, could continue administering it under Scottish Government rules. The second is that the Scottish Government could seek to set up its own body to do that work in the way that it has done revenue Scotland. The third is that it could look at other options that are in place in the way that, for example, councils currently administer housing benefit and council tax benefit. Each of those would have different implications for the information that this Parliament would need and would have access to. I will ask Russell to outline that for you, if I may. If the Parliament decided to continue with the DWP administering Scottish benefits, then the HMRC arrangements that are being developed for Scottish rate of income tax provide a very good model whereby the UK legislation that gives effect to that could make similar arrangements for the DWP to report to the Scottish Parliament as well as to the UK Parliament and potentially follow that through with the similar arrangements for audits as well. The implication of that is that you feel that there is a model in there not only for the DWP, but potentially for any other UK Government department that is doing something for the Scottish Government, which it used to do for itself but is now spending our money. Where it is spending money that the Scottish Parliament has control over, yes? Yes, right. I wonder then if I could just convene to a different issue, which is somebody actually to return to the previous discussion, which is essentially about the risks involved in discretionary expenditure and discretionary income, and how, in the context of the developing situation, you feel that that could be audited. I don't think we would be looking toward it the risks. I think our interest is in making sure that the information is available for the Government to use in making decisions and making policy for this Parliament to use in scrutinising the Government's actions and for bodies like the Scottish Fiscal Commission to use in their own work on reporting on fiscal sustainability. That's exactly the way that the OBR currently uses UK whole of Governments at the moment, whole of Government accounts, looking at things like the Government's commitments on public sector pensions and other long-term liabilities to estimate over the longer term 25 years and out what that means against the changes in the population and known policy commitments. We would see the transparent reporting that we're proposing being used in the same way by the Scottish Fiscal Commission as all of this develops. That does leave me inexorably to precisely the same point that was in the last discussion about timing and how long do we have to wait because risk and time are inevitably intertwined. Do you feel we're moving to a point where information will be available soon enough for the right people to be making the right judgments and particularly for us as Parliamentarians to be able to scrutinise the risks involved in those decisions? I think it's hard for us to give you any assurance about that without knowing the detail of the Government's plans for developing its financial reporting, but I'll maybe ask Mark to talk in a bit more detail than we did in the earlier session about what we think is needed and what we think is likely to be possible. Thank you, Auditor General. I think that in terms of the timetable, I think that there's something about the information being made available as quickly as it can be and an investment around that, of course, but there's also something about the commentary around some of the risks that arise from not knowing that there is inevitably where there's more variability and less that's absolutely certain there's more risk in there and to be open about that and be clear where that uncertainty and variability is, I think that's where enhanced financial reporting would be more open about that and be able to talk about some of those things so that, yes, of course, you would like more information, but at least the decision makers are clear about where the information gaps are and what is known and what is estimated and what is forecast and as much as possible the reliability of all of that. It's worth making a point for those who might want to report this, that the word risk here is really being used as uncertainty. There's no risk in anybody falling over or going bankrupt or anything. This is actually about just not having accuracy in the information that you do have when it's historical. That's absolutely the way in which we use risk, because auditors are in the same way that you are using, Mr John. Thank you. Thank you, convener. I talked a bit earlier about the no detriment principle, which has seemed quite a lot of attention. In essence, that's about there being no detriment at the point of transfer, rather than it being in any way related to the policy decisions that you would then take, because otherwise it could easily become a no-benefit principle if you interpreted it in that way. From your point of view, I don't expect you to comment on the politics of the debate around that, but as the auditor, what is the need for independent sources of information and scrutiny of information in relation to how you agree at the point of transfer, whether it's at the point that something's devolved or at some subsequent point when there's a policy change? It's always very hard to talk about this in the abstract, because you're inevitably talking about hypotheticals and the way it might work through. I think that what we're seeing in the Smith clauses is a number of different sources of revenue-raising powers for the Scottish Parliament or spending responsibilities. For each of those, there will need to be an agreed mechanism for tracing through what, as you say at the point of transfer, is the likely impact and what the adjustment will be to the Scottish block grant on the back of that. First of all, I'm making sure that the information that's needed to underpin that forecast and the expectation being available and agreed will be important. Secondly, the ability for that to be scrutinised by this Parliament and by people more widely at the transparency around it will also be a key part of building confidence, but also highlighting where there may be problems that need to be addressed by developing new information sources. It feels like the word of the day has stuck record, but that transparency I think is a key part of it, as well as getting the technical process right of understanding what might change and what information can be used, what information gaps need to be filled, making sure that that is aired and understood as widely as it can be will be a key part of that. Russell may want to add to it that, in some cases, there may well be a very technically-based agreement that can be audited, if you like, through specific data. In other cases, the London building's transaction tax first-year agreement is probably a classic example of that. At the end of the day, it is a negotiated agreement between the two Governments. In the London building transaction tax case, it is a revenue stream that is very volatile over the economic cycle, according to house sales. You can audit what has happened in each year, but the agreement at the end of the day is an agreement between two Governments. That is interesting because, in a way, in terms of some of the policies, a lot of those are contested facts and are likely to be probably into the future contested facts at the time that things are transferred. As auditors, your interests will presumably be in the process rather than necessarily the amounts that are agreed or reluctantly or enthusiastically between either party. Speaking narrowly, as auditors, our interest is in the amount that is agreed and how that flows through into the Scottish Government's accounts. In terms of the stability of the fiscal framework, we have the same interest as everybody else in this Parliament in making sure that it is robust and stable. We will see the Scottish Parliament and the UK Parliament able to make sensible decisions moving forward for the good of the people that you represent. We all know that there are huge challenges in doing that, but it is very important that it can be done in a way that has that longer term view in sight and picks up the Smith Commission's recommendation about strong intergovernmental mechanisms as a basis for doing it properly. I think that it is important to read all of it in conjunction with some of the other recommendations that were there around that. I suppose that I am just interested in whether or not—I do not expect you to predict the future of your own work here in an environment that is difficult to predict—in theory, you could imagine circumstances where you might be commenting in the future on whether or not an amount of money that was earmarked for something was correct—that is a bit of a valued laden term—but making a judgement about the actual amounts that were transferred. Do you think that is likely? It might be helpful if we use the Scottish rate of income tax as an example here—the best one that we have the furthest work through that we have. We are in the position now where there is an agreement in progress between the UK Government, the Scottish Government and HMRC on how that will be done. In future, the Scottish Fiscal Commission will be commenting on the forecasts for the Scottish rate of income tax proceeds in the same way that the OBR is. Our formal interest will start at the point where that sum of money is transferred from HMRC into the Scottish Government's consolidated fund bank account. We will be auditing that in the Scottish Government's financial statements—whatever form they take at that stage. The memorandum of understanding that you have in front of you in draft today is attempting to move a bit further than that in saying, of course, that the Scottish Parliament also has an interest in making sure that the amount that is transferred properly reflects the amount collected from Scottish taxpayers under the agreement that has been made. The HMRC is a UK body that is audited by the National Audit Office and will continue to be so, but we are agreeing a mechanism by which they will discuss with us their audit work insofar as it relates to the Scottish rate of income tax proceeds. We will have the power to comment on their reports to the committee and to the Parliament if we think that there are issues that need to be drawn to your attention. That model provides a model that can be extended to other sources of income or expenditure that are administered by UK bodies on behalf of the Scottish Parliament. There will also be new taxes to be raised here in Scotland, like air passenger duty and the Aggregates Levy, where the focus will be much more clearly on what is done by the Scottish Government, where we will have a direct audit relationship. We are looking at a more nuanced landscape and set of arrangements in future. It is really helpful to have the chance to talk to you about what your priorities are and where are the areas of interest or of uncertainty that you will need assurance on in future. At the beginning, we had the example that the BBC used, and that is an interesting one. As a Scottish licence fee payer, I am interested in what the BBC does in Scotland and in its Scottish output. I am also interested in what the BBC does in terms of reporting on Scotland elsewhere in the UK, but that is probably, to be frank, a minority of my interest in terms of a licence fee payer of the overall output of the BBC. It would be difficult to see how you could audit that separately if we were going down the route that the BBC Scotland would lay accounts beside whatever report it would make to the Scottish Parliament, because I would assume that it would be an opportunity for scrutiny of their work and for a degree of influence over their forward priorities, rather than really an accounting mechanism. Is that fair enough? I think that that is a good way of framing the question. There clearly is an interest of this Parliament in the BBC's activities as far as they relate to Scotland specifically, and there is a debate to be had about how that operates. It would be possible, I guess, to take the current BBC Scotland management review and develop it further to provide you with more information about both performance and the amount that is spent in delivering its Scottish outputs. However, the BBC will continue to be, under the current direction of travel, a UK-wide institution that will report on a UK-wide level and have its accounts audited currently by KPMG with the ability for the UK Public Accounts Committee to have some oversight of that. If you want to develop arrangements here, that is something that would need to be negotiated with the BBC and with the UK Government. Under Smith, there is a mechanism for the annual reports and accounts to be laid—the question of how that might develop to give you the information that you need and what your purpose in doing it is, I think, is the area that has not yet been worked through. I will just ask one final thing, convener, and I will be cheeky into two related things on one question, hopefully. Do you believe that there is likely to be any need for legislative change in terms of your relationship with other bodies? Obviously, the National Audit Office and some of the other bodies that might be reporting to the Parliament are you confident that that can just be dealt with in terms of partnership and some of the stuff that is in memory and of understanding. The other one relates just an opportunity for you to say what you regard the biggest. Take Nigel Dawn's point about the use of the word risk, but what the biggest risks are from your point of view is an audit organisation on the transfer of the powers that we are talking about here. On the first question about legislation, I think that the answer, honestly, is that it depends. For something like DWP, if DWP were to continue to deliver some of the Scottish Government's new responsibilities for welfare, then I think that it would be very useful to have some of the arrangements around that enshrined in legislation, as we already have around the Scottish rate of income tax with the requirements, both for HMRC and for the NAO, to report into the Scottish Parliament. That is one parallel, but I can see circumstances where it would be very useful to have it in legislation. Other things, I think that there would be no need for it. It would either be too small in scale or your interests would actually not be in the accounts, they might be in something else. The second question about the biggest areas of uncertainty that need to be dealt with, I think that, as we were discussing in relation to the earlier agenda item, that question of the new volatility, the new uncertainties that come with raising revenue and welfare spending, both of which vary with the conditions in the economy more widely, is something that nobody in Scotland has really had to do before. It is why we think that the availability of more comprehensive and transparent information is a key way of helping to manage those uncertainties. I want to go back, dear, to no detriment. Given that there is no international illustration or definition of no detriment, do you think that it is fair to say that, ultimately, the rules that will govern that can only be laid down by the fiscal agreement that will have to exist between the UK and Scottish Governments? I think that that fiscal agreement has to be the starting point. I think that there will then be, as we have discussed, technical and political challenges in the way that operates. I do not think that that is entirely uncharted territory. I know that we talk about the Barnett formula, but I think that, within the Barnett formula, there are also areas that are the result of different levels of discussion and negotiation. The same is true for other strands of funding that come in here. That is on a different scale, but it is not entirely a new thing that we have had to deal with since 1999 when the Scottish Parliament was established. I agree with that. Do you think that it would be helpful if we considered, rather than considering no detriment in the context of any particular tax change that changes on a particular date, that it is considered in the context of a fiscal cycle—a three-year fiscal cycle—or whatever the agreed definition of that fiscal cycle might be? I am not sure that I agree that it is an either or choice, but I would absolutely agree that we need to be thinking about it both at the level of the individual policy measures and in relation to the big picture, not least because we know that some of the policy measures may interact with each other and that, therefore, it may not make sense to look at them each in isolation and coming up with the overall answer, if I can put it in inverted commas, to the way in which no detriment is protected. Some of the evidence that another committee that Stuart McMill and I serve on has been playing around with this for a while, and the evidence there suggests that, if you consider it over our cycle—again, that has to be agreed between governments, and this involves Cardiff and Belfast as well—then that is potentially going to be better for both reasons that you have given, but also for audit purposes as well. It just strikes me that considering it taxed to tax is a nightmare both politically and in every other sense, whereas in audit terms considering it over some kind of cycle might be a better way to achieve what is being sought after, if I understand the principle correctly. I think I would come back to my earlier answer that I do think you need both. I think you need measure-by-measure agreements that come up to it through a picture of the whole package, and it clearly makes sense to keep the big picture in mind over time, as well as as it comes together more generally. That's fine. Underpinning it, therefore, given your earlier answer, Auditor General, on the importance of the independence of the fiscal commission, do you think that there would be a logical role for that independent body in conjunction with the OBR to underpin the analysis that would then help Governments to come to a decision not to argue about the numbers so much, because we probably always will, but instead to agree or not agree that here is the dividing point and we need to come to a political agreement because that's what it will be on this particular scenario or that particular scenario? I think it's very clear that the OBR and the Scottish Fiscal Commission will need to work closely together on these issues in exactly the same way as Audit Scotland and the National Audit Office need to. What we don't want is huge amounts of duplication going on in our respective roles, but we do need to respect the fact that the UK Parliament has a set of interests and the Scottish Parliament has another which will overlap in many cases but which will be the same, and you both need the source of assurance in the case of the OBR and the Fiscal Commission about forecasts and the adjustments that are made to Government funding streams in our case around the results coming out of that on an annual basis through the financial statements. That's helpful, thank you. Can I finally ask, convener, do you think that the consolidated accounts, the whole Scotland accounts that we discussed earlier this morning, are important in this context or don't necessarily play a particularly significant role in how we'd consider Parliament best scrutinises the whole new detriment principle? I think there are very important building blocks, they're not the whole answer, but I think as colleagues earlier were describing to you having a set of financial statements for the Scotland's public finances as a whole which are prepared on the basis of international financial reporting standards, so we all know the assumptions and the conventions that underlie them that are audited in ways that give you assurance independently that they say what they purport to say is a really strong contribution both to your scrutiny as a Parliament and to the Fiscal Commission's ability to do that long-term financial sustainability job. Okay, thank you. Thank you, convener. So the first question, it's probably out with the area of Audit Scotland, but I'm going to pose a question in the last just so I can reconcile myself with what the answer is. In terms of the intergovernmental relations that it takes place at the moment and certainly going forward with further powers to come to the Scottish Parliament, are you aware of all the different mechanisms that are currently in place and are you content in terms of the information transfer that actually takes place within these IGRs? I'm not sure we could put our hands on our hearts and say we're aware of all the mechanisms that are in place. We're very deliberately not part of government, we're independent of it. We understand the parts which affect the areas that we have a direct professional interest in and we fully respect the Smith Commission recommendation that those intergovernmental mechanisms will need to evolve as the Smith Commission clauses come into effect. Following on from that answer then, are there any recommendations that Audit Scotland would like to put on the table just in terms of what's actually there at the moment? I'm not sure there's very much we would want to add to that. The issue that we've stayed closest to over the last 18 months or so for good reason has been the negotiations about the Scottish rate of income tax because they have a very direct impact starting next April on Scotland's public finances. From our perspective and from what we've seen here in this committee, that has focused on the right issues and good progress is being made but we're not party to the wider set of intergovernment relationships that cover all of the other policy and political questions that need to be managed. Earlier on, Mark Taylor, in his contribution, he said that information being made available should happen at the earliest possible time scale and decision makers should know and have accurate information. They should know how accurate that information is. Bearing in mind us the question that was posed in the previous session regarding the UK budget process and the Scottish Government's process, certainly from a different committee, Professor David Heald written evidence to the Finance Committee. This was on the 25th of June 2014. He has expressed that for more taxes to be devolved it would require the UK wide change, for example the UK Government budgetary timetable would require change to avoid gaming. Tabush Scott said that some of these issues have come up in a different committee. Do you think that Professor Heald's comments and submissions are a valid point so that when it comes to the intergovernmental relations, when it comes to the information sharing and the accuracy of the information for the decision makers, do you think that that would be a beneficial thing, particularly for the devolution of further powers? I would probably go back to Lord Smith's very clear recommendation that the fiscal framework needs to be updated to take account of all of this. From our perspective, the fiscal framework includes financial reporting, which is what we have been majoring on for obvious reasons, but it also picks up the budget and scrutiny cycle, the fiscal rules that will need to be agreed, and the other elements. I think that all of that needs to be reviewed. Our focus has been very much on financial reporting because that is where our professional expertise lies, but I can only agree wholeheartedly with Lord Smith's conclusion that that whole picture will need to be developed over the next couple of years as the Smith clause has come into being. One final question, if I may convener. I know certainly all the major parties in Scotland have signed up to Smith, and my question is not about asking you for a policy suggestion, but in terms of the further powers that are going to come to the Scottish Parliament, does all that Scotland actually have a view in terms of any other organisations that potentially could have an impact or could actually have a regular dialogue with the Scottish Parliament or the Scottish Parliament committees? I am thinking of one in particular, the links of the Bank of England, because of the boring powers that the Scottish Parliament is going to have. I think sticking with our interest, which is in providing this committee and this Parliament with assurance about the way in which public money is spent, the key bodies will be HMRC with the Scottish rate of income tax VAT, which will continue to be collected by a UK wide body. Depending on the policy decisions taken about the way the new welfare responsibilities work DWP, if they continue to play a major role, that will be particularly important, but universal credit means that there will be a read across anyway. Beyond that, it goes back to the opening questions from the convener. It depends very much on what your interest is. I would not at this stage expect the Bank of England to be a particularly high priority on that list. The borrowing powers that are coming through the Scotland Act at the moment are relatively limited. That is not to say that they are unimportant and do not need to be managed well, but they are limited. The extent to which further borrowing powers will be devolved is still something that will need to work through the legislative process. That relationship may change, but it comes back to clarity about the purpose. You can then work out which bodies need to be involved and what the relationship should be from there. I would like to build on the risk management side. Obviously, there are new risks coming on board with the new powers. There is a risk to public spending if the revenues from the devolved taxation come in under forecast. There are risks about demand-led welfare powers. To what extent can Audit Scotland audit and report on the risk to Scottish public finances arising from the proposed new powers in the areas such as taxation, borrowing and the welfare provisions? I do not think that we would be particularly reporting on the risks from those areas of policy themselves. I think that that is something that we would expect the audit work that we produce to be informing the Scottish Fiscal Commissions about. We can expect to play a role particularly over the transitional period of the way in which the new powers are being implemented and the readiness for them. You may recall that we reported at the back end of last year on preparations for the Scotland Act, which gave a good deal of assurance about the preparations that were in hand and raised some questions about the speed of implementing IT systems. That is a good example of our oversight of the preparations that are happening during the transitional period, which is when the risks are likely to be the highest. The command paper states that the fiscal rules will need to be agreed by both the Scottish and UK Governments. What is your role in monitoring adherence to the fiscal rules? I am not expecting it to be a significant part of my work or that of Audit Scotland in the same way that it currently is not for the Comptroller in Auditor General and the NAO in the UK. The OBR plays that role on a UK basis, as I said, drawing on some of the information that comes out of the Audit Audit Council Government. I would expect a parallel situation to develop here in Scotland. We would expect to have a close relationship with the Fiscal Commission, and I think that that is already developing very well from our perspective, so that we understand our work programmes and can explore areas of uncertainty or working papers behind the scenes, but I think that the two sets of responsibilities are pretty clearly demarcated. Obviously, the Fiscal Commission is going to have a clear role in the forecast element of tax and spending decisions. What do you see as the priorities for ensuring that there is an effective and independent Scottish Fiscal Commission? I think that the Government has done a very good job in establishing the Fiscal Commission early, so that it was in place in good time to comment on the first Scottish tax forecasts on land and buildings transaction tax and the landfill tax. I am aware, as you will be, that the Deputy First Minister has produced a consultation paper in the last week or so with proposals for putting the