Meeting of the Commission

Meeting date: Thursday, October 25, 2012

Official Report 171KB pdf

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Audit Scotland Autumn Budget Revision 2012-13

The next item on the agenda is Audit Scotland’s autumn budget revision 2012-13. Again we have Ronnie Cleland, Caroline Gardner, Russell Frith and Diane McGiffen. Does Audit Scotland want to make an opening statement?

I will keep it very brief, convener. This year, our end-year flexibility proposal is solely to fund fee rebates to audited bodies and not for any other projects. As the commission can see from the proposal, our underlying underspend was just over £700,000, mainly as a result of our progress in being ahead of where we expected to be in relation to our four-year cost reduction target. We think that our proposal is an appropriate way to return those resources to the audited bodies and to the Scottish Parliament block.

Thank you. I throw it open to questions.

Audit Scotland has requested £515,000 for end-year flexibility. It will be returned to audited bodies by way of a reduction in audit fees to be levied in future years. The effect of that will be an average 4.9 per cent reduction in audit fees for one year. Why is the amount requested lower than in previous years?

I ask Russell Frith to take you through the detailed figures.

We have used the same underlying mechanism to work out the amount to be refunded to audited bodies. We start with the level of overall underspend that Audit Scotland had at the end of last year. As it was lower than at the same time the previous year, less money is potentially available to return to audited bodies. The request is entirely a function of the underspend that occurred in our accounts for the previous year.

If you are going into an overspend or creating an end-year flexibility contingency, that will have come about because organisations have been overcharged in the first instance. They can ill afford that at this time, but they will still have to wait until later to get payback. Is there a more secure charging mechanism so that it is not necessary to create those big contingencies?

We have been trying—generally successfully—for the past few years to tighten up our budgeting so that the level of underspend at the end of the year comes down. However, in the past two years, in comparison with our plans, we have accelerated our ability to reduce our costs. If we were in a totally steady-state environment, I would say that your raise a fair point. However, the amount is available because we have been more successful than we anticipated in relation to the speed at which we have reduced our overall costs. In effect, the audited bodies are benefiting from something that we did not originally think they would be able to benefit from, because we thought that it would take us longer to reduce our costs.

Okay.

When we spoke to you last year, we asked if you had been making it clear to the audited bodies that the discount was non-recurring and unlikely to be applied year on year. Did you do that? How did they respond?

Yes, we made it clear that we thought that the discount would be non-recurring because, at that stage, we did not anticipate the degree of success that we would have in reducing our costs. As ever, those bodies are happy to receive a refund, however it is described.

I presume that you will be keeping them informed that is not likely to recur unless similar progress is made.

Indeed we will.

Thank you.

If the discount recurs, will that be made explicit in the advice that Audit Scotland sends out to audited bodies?

Yes, and it is covered in the letters that we send out informing the bodies of next year’s fee levels.

It is probably difficult for you to answer this, but do you anticipate that in future the amount of end-year flexibility might be at the same level as this year’s level? Is that your plan?

We would expect it to be lower in future. As Russell Frith said, last year’s underspend reflects faster-than-expected progress towards our 2014-15 target. As we approach that target, I expect that our ability to deliver much below budget will be reduced. It is worth stressing that we do not have any other mechanism for carrying forward reserves from one year to the next. One of the worst things that I could do would be to deliver an outturn that is higher than budget and a qualified set of accounts for Audit Scotland. We are very careful to make sure that we have enough confidence in our approach to the budget that there is no risk of overspending.

The underspends should reduce, but you will probably always see underspends because we simply cannot afford to overspend against our budget because of our own reputation for probity and financial management.

10:30

Are there any other questions?

Is the audit fee that Audit Scotland charges when it goes into an organisation the same as the fee that it charges when it sends in a private company? Do you make a percentage profit from sending in a private company?

Russell Frith will talk you through the way that works in practice.

We aim to break even across the piece. We do our utmost to make sure that there is no difference in the amount that an audited body is charged because of who the auditor is. An audited body should not see any difference in the amount that it pays whether an audit is carried out by one of the private firms or by one of our in-house teams.

Does Audit Scotland make any money from sending in a private firm?

No.

As there are no more questions from members, would Audit Scotland like to add anything to its evidence?

We are comfortable that the proposal before the commission sets out our requirements for the year ahead and balances the pressures on all public bodies with the need to keep quality up. If the commission has any further questions after the meeting, we will be happy to answer them; otherwise, we thank you for your time this morning.

Thank you for attending and for your evidence. We now move into private session to discuss the evidence that we have heard.

10:32 Meeting continued in private until 10:42.