Economy and Fair Work Committee

Meeting date: Wednesday, October 5, 2022

Official Report 686KB pdf

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Subordinate Legislation

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Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) (No 2) Order 2022 [Draft]

I welcome to the meeting Ivan McKee, the Minister for Business, Trade, Tourism and Enterprise, who is joined by Ninian Christie, solicitor, and Rebecca Winterstein, head of capital investment at the Scottish Government. I invite the minister to make a short opening statement on the draft order.

Thank you, convener. I am grateful for the opportunity to speak to the draft order, which relates to the audit of the Scottish Futures Trust. SFT is an non-departmental public body that acts as a centre for expertise on infrastructure. It works across the public and private sectors in Scotland to improve the efficiency and effectiveness of infrastructure investment.

SFT was established in 2008 as a public corporation and company and, as such, it was audited by commercial audit firms. In 2011, SFT was classified as a non-departmental public body by the Office for National Statistics. The majority of NDPBs are audited by the Auditor General for Scotland, and the Scottish Government and SFT have agreed that SFT should follow suit. The order will give the Auditor General the power to appoint an auditor to SFT in future.

The change is not a reflection on SFT’s previous audit arrangements and it has no bearing on its functions. SFT has always been audited by reputable commercial auditors. SFT’s annual accounts to date are available on its website and they have been laid at the Scottish Parliament each year. This is an administrative change to bring SFT’s audit arrangements into line with those of other NDPBs.

In practical terms, we do not expect the change to have a significant impact for SFT. Audit Scotland could undertake the audit itself or it could contract the audit to an external audit firm such as the firms that were previously used by SFT.

I am joined by Rebecca Winterstein from the infrastructure and investment division and remotely by Ninian Christie from the Scottish Government legal directorate. They will be happy to join me in answering any questions that the committee has.

Good morning. The Scottish Futures Trust was set up in 2008 and it became an NDPB in 2011, which was 11 years ago. Why is the change being made only now?

That is a good question. A number of bodies had to go through the process and we have been working our way through it. As a private company, the SFT will have had contractual arrangements with commercial auditors for a number of years and it will have had to work through them. That was not the whole period; it was the latter period. In effect, this is just an exercise to bring things into line.

Audit Scotland will now have the opportunity to look at the SFT. Do you know what its plans are? Will it be up to Audit Scotland to decide whether to look retrospectively at previous accounts? How will it work?

I do not know about looking retrospectively at previous accounts. I will ask officials to comment on the technicalities on that, but I think that there will be a discussion with Audit Scotland on the best arrangements. It is quite likely that it will look to continue using a commercial audit firm, as has happened in the past. However, that will be a matter for Audit Scotland. Rebecca, do you want to comment on the retrospective aspect?

The discussions that we have had with Audit Scotland have all been forward looking. It has not expressed any desire to look at accounts retrospectively.

Those accounts will have been published, so they are available to be looked at anyway.

Colin Beattie is attending remotely this morning.

Good morning, minister. I have a couple of small questions. First, it is not clear from the documents that we have whether Audit Scotland has formally agreed to take this on. I know that there have been lots of discussions about it taking on additional audit functions and I presume that this is part of that. Linked to that, is there any impact on resources for Audit Scotland? Will it need additional people, money or whatever in order to carry out the audit? Is there a cost attached?

Officials can comment on the discussion, but my understanding is that Audit Scotland will take this on as part of its role because the SFT is an NDPB. On additional resource, that will be part of the overall discussion with it on what resource it needs to do its overall job. As I said, it is quite likely that it will choose to use a commercial audit firm in that regard, which will be far less resource intensive for it. However, I do not know what discussions we have had in that regard.

We have kept Audit Scotland closely involved as we have developed the draft order. It is perfectly content to take this on and we have had no discussions with it about associated costs. The SFT currently uses a commercial audit firm. If Audit Scotland also chooses to use a commercial audit firm, the cost to the public sector will be balanced.

If Audit Scotland uses an external firm to do the audit, as it does in some cases, there will not necessarily be any additional staffing costs for Audit Scotland, but there will still be an absolute cost, because there is a cost to carrying out the audit. Who will absorb that? Will it be absorbed by the SFT or will it be absorbed within the existing budget of Audit Scotland? It would be useful to understand that.

At the moment, the SFT is paying for the commercial audit. On which part of the public sector will pay for it going forward, I assume that it will still be the SFT, but we can clarify that if it would be helpful.

Okay. Thank you.

Are any other NDPBs or organisations in a similar position? Are there any others that are going through the system or that you are intending to bring in?

That is a good question. I am not aware of any in my portfolio. There is one company that has already been through the process. It is a rail business, I think. I am looking for its name. It is Scottish Rail Holdings Ltd. Rebecca, are there any others across the piece?

Not that I am aware of at this time.

As members have no other questions, we move to agenda item 3, which is formal consideration of the motion to approve the draft order. I invite the minister to speak to and move motion S6M-05863.

Motion moved,

That the Economy and Fair Work Committee recommends that the Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) (No. 2) Order 2022 [draft] be approved.—[Ivan McKee]

Motion agreed to.

The motion is agreed to and the draft order is therefore approved. The committee will publish a short report on the decision soon.

I thank the minister and his officials for joining us. I will suspend the meeting briefly to allow a change of witnesses.

09:39 Meeting suspended.  

09:39 On resuming—