I welcome people back to the Public Audit Committee. Agenda item 3 is further consideration of the 2023-24 audit of UHI Perth College. I am very pleased to welcome our three witnesses: Dr Margaret Cook, former principal and chief executive of the college; Graham Watson, former chair of the college board; and Iain Wishart, the former vice principal for operations. I think that you were all in post during the financial year in which the audit was conducted. We have a number of questions to put to you, but I give you the opportunity, before we get to those questions, to make some opening remarks.
Thank you, convener, for allowing me to do that. For us, a very important point to make is that the structural position of UHI Perth within the University of the Highlands and Islands has an impact on the financial position of the college. From everything that I have seen and read, I do not think that there is any recognition of, or any information on, how that relationship works and the impact of that on the college. That is really what I want to explain to the committee this morning, with your permission.
We acknowledge the financial position of the college and of the sector. That has been well discussed at a number of your meetings and at meetings in other fora in the Parliament. However, we did not have a direct relationship with the Scottish Funding Council, because the regional strategic body is the University of the Highlands and Islands; therefore, our relationship was with the University of the Highlands and Islands.
The funding for UHI Perth comes through the University of the Highlands and Islands, and, as it comes through that process, it is top-sliced. The college receives 65 per cent of the income for its higher education students and 35 per cent of that income is top sliced by the university. For further education students, £2.5 million from the SFC is top-sliced and comes via UHI, and that £2.5 million is spread across all the academic partners in UHI. So, from a higher education perspective, depending on our student numbers each year, the university top-slices somewhere between £4.5 million and £5.5 million from UHI Perth. That has a big impact on the organisation and its ability to deliver, and that fact has been missing from discussions on the financial position of the college. I think that it is really important for this committee to understand that that is a major contributing factor to the financial position of the college.
Regrettably, students at UHI receive the lowest per capita funding in Scotland for both FE and HE, and that has an impact on the college itself, the students that we have, prospective students and the communities that we seek to serve. I feel very strongly that that is a really important piece of information for this committee to have in its consideration of how the college has dealt with the financial issues that it faces.
Thank you for making that opening statement. That is now on the record. In the interests of openness, I should say that we expect to have an evidence session with UHI and the Scottish Funding Council, as well as with the new principal and chief executive, in the new year. Those are important points on the record that we will be able to put to them.
Before I turn to Mr Watson, to see whether he wants to add anything, do you accept the findings of the Audit Scotland section 22 report, Dr Cook?
There is not quite a yes/no answer to that question. We did not prepare a budget in that year. However, that does not mean that we did not know what our financial position was. In December 2022, when—in Mr Wishart’s words recently—a red flag was raised, because all of our projections were very clear, we knew exactly what our financial position was going to be and what the forecast was going to be going forward. I defer to Mr Wishart to give you a more detailed answer about what we did at that point.
Okay. We will get into that this morning. Are you saying that you do or you do not accept the findings and the recommendations in the section 22 report?
As I say, it is not quite a yes/no answer.
Okay. We will come on to some of the detail of that.
Dr Cook, I think that you mentioned this in your opening statement, but did you see the Auditor General’s evidence session at this committee on 8 October?
I have read some of it. I did not see it and I have not read all of it.
You have not read all of it. Which bits have you read?
Sorry—I have not done this before. Yes, I have read the full report.
Did you read the Official Report?
It was circulated to us with the papers. Yes, I read it.
That is fine. It is just that, in the course of this morning, we may turn to things that the Auditor General said.
Mr Watson, do you want to say anything at the outset?
Yes. I will pick up on the general sentiment from Dr Cook. I think it is extremely important for this committee to understand the context within which UHI Perth was, on a day-to-day basis, operating throughout the period in question. While I do not take issue with the nature of the Audit Scotland findings or, indeed, the Deloitte work—the background to it, the nature of the work that they were doing and the snapshot of a moment in time that it provides after the event—I think it is extremely important to get a full picture of the dynamics.
I am a chartered accountant of long experience, and there is some interesting background as to how I became the chair of UHI Perth. For eight years, I was on the court of Heriot-Watt University, and for eight years I chaired the finance committee of that organisation, which was turning over north of £300 million. For public accountability, I put on record that, throughout that period, I was also on the board—and was the chair—of the audit committee of the Scottish Futures Trust. So, I have a good understanding of the dynamics of publicly funded organisations. I certainly hope that, during the course of our evidence, we get the opportunity to talk about the environment in which UHI Perth was operating throughout the time that I was initially interim chair and subsequently chair.
I wish to pick you up on your expression that this was just a snapshot in time. Given your professional background, do you recognise the point made in paragraph 18 of Audit Scotland’s report that weaknesses in the financial team went back to 2018? Do you recognise that the annual audit report from Deloitte, the external auditors, said:
“In response to the significant risks identified, no reliance was placed on the work of internal audit and we performed all work ourselves”?
That suggests to us that there was quite a systematic long-term problem.
11:00
First, I think that the committee had in its previous session on the report a good discussion about the difference between internal audit and external audit, so I will not repeat that for the time being. In the context of work that was on-going, it is important to note that you are correct, convener, that prior to my time as chair, the financial position and the internal audit reports at UHI Perth were challenging. However, throughout the period over which the committee has sight of the organisation, the work that was done internally—you will see it from internal audit reports—significantly reduced the number of issues to a relatively small number. The committee has already explored in some detail the challenges in how the finance function at the college was resourced, given the environment that it was in and the attractiveness—or otherwise—of the roles that needed to be filled.
Perhaps understanding some of that background gives the committee a context for why it was difficult to have the level of continuity and corporate knowledge of the organisation that would have been helpful in the overall context of work that was being carried out on the organisation. As was pointed out in the committee’s previous discussion, during the year in question, eventually—there are a number of reasons why I used the word “eventually”—there was what those of us in the profession would call a clean audit opinion in the work that Deloitte carried out. For the board, that was an important factor to consider.
Yes, but I do not think that any of us would accept that there was nothing to see here, Mr Watson.
That is correct—there are certainly a number of issues to explore further.
I will turn to you again, Dr Cook. Paragraph 4.8 of the UHI Perth financial regulations, which have an effective publication date of June 2021, says:
“The College Principal is responsible for the detailed administration of the College”,
including various headings, which we can explore. One of them is that
“The College has a sound system of internal management and control, including an audit committee”
and
“an effective internal audit service.”
It has been suggested to us that that did not exist.
I am of the view that that did exist and continues to exist. What the audit has shown is a matter of a budget. Significant other controls were in place and significant other documentation went to the audit committee and to the board on the position that we were in at that time.
That is not how the Auditor General viewed the situation when he gave evidence to us on 8 October, and we can return to that.
One of the things that have been reported is that, under your tenure as the principal and chief executive, there were five different finance directors. Why was that?
We struggled to recruit and retain a finance director. Some of those appointments were interim roles. Recruitment is often quite difficult, given the salaries that are paid in the sector. Perth’s geographical location allows people to travel widely in Scotland, and it is quite difficult to recruit and retain finance staff—not just a finance director.
We will get into more detail as the morning progresses. I invite Colin Beattie to put questions to you.
Obviously, I am going to ask about the absence of a 2023-24 budget. Paragraph 10 of the Auditor General’s report says:
“Some initial work began in February 2023 to gather information for the budget. College management asked budget-holders to supply information to inform the preparation of a draft budget. The college is unable to explain what happened to that information and there is no evidence of it being collated or summarised.”
I am not sure who might want to comment on that.
I can comment. I do not recollect any gathering of information in February 2023. We were not going to kick off a normal budget cycle because, in December 2022, we produced a forecast for three years that showed that we would potentially have a £2 million operating loss in 2023-24. Solving that would mean looking at staff numbers, because staffing made up more than 75 per cent of our costs. The resource was focused on finding a solution for that problem.
A budget is a plan, so you need to know what your plan is to solve the problem. There was no kick-off of a budget, because we already knew what the problem was and we had to spend time working on whether we were going to lose heads here or there and whether we were not going to spend on this or on that. That work took us into union consultation, so a lot of time from February to April 2023 was spent on looking at how we might solve the problem.
We did not go into a normal budget cycle, because a budget is a plan. You need to know what your plan is to get back to break-even so that you can make a budget for that and measure yourself against it. I do not recollect any gathering of information in the initial phase because, if we had just done a budget roll-up, it would have come to a £2 million deficit.
Will you describe that a bit more for me? I would have thought that you needed a budget to understand what your deficit would be and to determine how to plug that gap.
No—that is done by creating a financial forecast. A forecast shows what is likely to happen on the basis of all the information that you have. We had information at the end of 2022, when we heard the terminology “flat cash” for the first time, which meant that there would be no increase in funding. We knew that our HE numbers were down, which meant that figures would be not flat but down. At the same time, salary increases were being negotiated for a two-year deal of about 9 per cent. Back in 2022, we were able to forecast for three years—the year that we were in, 2023-24 and 2024-25—so we did not need a budget to tell us the position; we knew what was going to happen from forecasting exercises.
That was when the red flag was raised to the board of management and senior college staff to say that we had a really unprecedented situation and we would have to find a solution. If we had gone into a four-month budget exercise, it would have rolled up at that figure and told us that in May. We already knew the number and what the problem was back in December 2022.
I have been involved in many budget processes. The process of putting the budget together and of individuals who hold part of that budget putting in their input sometimes throws out unexpected things that can be incorporated into the budget. You see what your bottom line will be and you determine what you need to do to adjust that to where you need to be.
As I said, we already knew what was going to happen. You will remember that 75 per cent-plus of our costs were from staff, so unless any departments said that they would cut their department in half—nobody does that—the budget was going to roll up to a £2 million deficit, and we would have known that five months later. In December 2022, we already knew and the board already knew why that was going to happen and what was going to happen. The urgent focus had to be on how we were going to solve the problem. We did not have to run a budget to tell us what we already knew from forecasts.
You are saying that the budget was not produced because, on the basis of your forecasts, you knew where you were going to be, and you had commenced negotiations with unions and so on because staff are one of the most expensive components.
Yes. A budget is your plan—what you would like to happen. We had to work out what we would like to happen, which was to get back to break even. What was the plan to do that and where would we cut costs? It was only costs that we had to cut and, with a £2 million deficit and 75 per cent of costs coming from staff, there would be staff impacts. That never evolved into a budget—a plan—because we could not get to the point of the plan.
I will give you an idea of some of the difficulties in achieving that. Today, in December 2025, those involved are still finding the solutions and actions are still happening. Some people left just last week, which was part of trying to find a solution. Finding a solution was not a straightforward exercise but, if you do not have a clear plan, you cannot budget for that plan.
The process was in place over the first several months of 2023. Did it come to any conclusion, as far as you were concerned?
No. From our perspective, we went into different exercises and various union consultations. We tried to take out one of our loss areas in the college, which was our nursery. When we went to speak to nursery staff, we were met by ITV cameras, the press and a group outside saying that that was not what they wanted to happen.
Each time we tried to look at something or do things, that was met quite strongly with people saying that they did not want that to happen. We were trying to do things. Several months into negotiations with the unions, they said that we had to do direct staff consultation, so we had to devise a way to get all the staff input. The cycle of finding a solution kept rolling on.
The board and senior management did not have just a forecast in December. When we met the finance committee or the board every quarter, we revised the forecast to see whether it was still looking like a £2 million loss, and the answer was that it was. People still had the management books that showed actual spend from the previous year against actual spend for this year, and we linked any variances back to the forecast.
Everybody was aware—the SFC was aware, UHI was aware, staff were aware and the board was aware. From a board and senior management point of view, that was from December 2022.
Another quite important point in the Auditor General’s report is where it states:
“The board’s view on the absence of a budget is not documented in the minutes of relevant meetings.”
Is that correct?
Yes. From our perspective—I will let Graham Watson talk about the board perspective—all the focus was on the problem and how we were going to solve it. At no point did anyone say, “Let’s not do a budget”. If we had found a solution in three months, we would have tried to budget for that. If we had found the solution in four months, again we would have tried to budget for it. Six months after the start of that particular year, we still had not found a solution, so we could not construct a budget because there was no plan. The work was still about trying to find solutions to the problem.
But surely the board would have been apprised of the situation, because a budget is quite an important thing. Surely it would have wanted to be informed and briefed about it, and papers would have been minuted. Did that happen? The Auditor General says that it did not.
11:15
The picture that Iain Wishart helpfully paints is that, from a board point of view, it was evident from December 2022 that, under any normal description of a business, UHI Perth was not a going concern.
We were faced with the likelihood of a £2 million deficit, which is what the deficit turned out to be, broadly speaking, after the audit, with nowhere to go to get the money. We were running out of cash and, as Iain Wishart has pointed out, the board and the executive team were focused on ensuring that we did not run out of cash. UHI was not offering us any cash—it never did during my tenure. The SFC has offered cash, in the form of, effectively, short-term advances of future funding.
The reality of the underlying business at that point, in December 2022, was that it was not viable. That is why the focus of the board in directing the operations of the finance function through the principal was on asking, “How do we bring this business back quickly, if we can, into a break-even situation?” As directors, at some point during every year, we were asked to sign a set of accounts that said, “Looking forward for 12 to 18 months, the organisation is a going concern.” We were not in a position to do that. We had no certainty around who was going to provide the cash to meet the cash deficit that Iain Wishart and his team were projecting. That was the emphasis of all the work during that period, and that was communicated, including to UHI in relation to our voluntary redundancy programme. Early in 2023, after the £2 million deficit became evident, it was reported through UHI to the SFC.
We needed to take costs out of the business, and we needed to do that quickly because otherwise the organisation was going to run out of money. The focus of everyone was on cash. Information about profit and loss and profit and balance sheet snapshots in time are very helpful. Indeed, they are fundamentally important to the running of any business—I well understand that, as I am sure you can appreciate. However, when you are in a crisis management situation, as we were, all that matters is cash.
This is where perspective is important. Why did I become interim chairman? I became interim chair of the organisation because, for whatever reason, UHI did not want to reappoint the previous chair, who had been very articulate and very vocal about the challenges facing UHI Perth and how it sat, and still sits, within the financial challenge facing UHI as an institution. When you speak to the UHI people, you will see the scale of the financial challenge facing UHI. I think that it is unfortunate—it is worth putting this on record; I made the same point when I was chair through the UHI channels—that UHI, with all the influence and all the effective levers of control that it exercises with its regional strategic body status and as the recipient of higher education funding, did not, and still does not, produce consolidated accounts. You cannot see the scale of the challenge and the problem within UHI as an institution. UHI Perth was one element of that.
Another area that I think is very important for the committee to understand is that, throughout this period, the two colleges that were most vocal in their challenge to UHI were UHI Inverness and UHI Perth. Through the course of the work that you are doing, it is perhaps worth trying to understand a little bit more about why the chairs of those two colleges—myself and the chair of UHI Inverness—both chose to resign.
Let us look at this from a governance point of view. From what you are saying, the board was aware of the difficulties. Did any board members challenge the situation and the fact that there was no budget?
Absolutely. The board of UHI Perth was at that time a strong and diverse board, with people from very different backgrounds, whether it be in education, business or commerce. In the work that has been done on the review of governance, you can see comments around the quality of the board and the leadership, and of the governance that was applied. I do not know whether you have had sight of that. As an institution, we went through a regular cycle of corporate governance reviews that were conducted by an independent organisation, as is required for a publicly funded body. If you are able to acquire the documented evidence, I think that you will find that it supports the contention that this board was a robust and challenging board that sought solutions, rather than just seeking to pile pressure on the executive team, who were already under enormous pressure.
Having announced a redundancy programme in June 2023, in an ideal world, we would have said to Margaret Cook and her team, “Go out and spend whatever money you need to spend to get the right level of resource within the finance function”, given that, as has been pointed out, that function was probably not where it needed to be. In theory, that would have been a great thing to do. Of course, in practice, with academic staff facing redundancy, suddenly spending large sums of money on your professional services team is probably not something that will be particularly well received. The board was walking a tightrope throughout that period, making sure that governance was strong, that we would not run out of cash, and that we had the evidence to support the actions that needed to be taken to take cost out of the business. As Iain Wishart pointed out, when so much of your cost is staff, there are very few levers that you can pull.
I do not think that you have seen this evidence, but I wrote to the chair of UHI in December 2024—I copied my letter to the chair of the SFC—about the picture that, looking forward, we were seeing at that time. It was the same picture of deficits and no ability to fund our way forward. I made it clear that the board of UHI Perth did not want to go through a compulsory redundancy process. However, critically, I asked the UHI, which holds the purse strings and is in receipt of the funding, to give us guidance. In order to fix the problem, I asked it where we needed to take cost out of the business or quickly increase revenues. I asked, “In your discussions with the SFC, tell us to make compulsory redundancies if that is what you want us to do, although we don’t agree that that is the solution. If that is not what you want us to do, lend us money to cover the deficits. Alternatively, tell us to make a lower level of compulsory redundancies and lend us less money. Finally, reduce the top slice that you retain.”
That final point is the key point that Margaret Cook alluded to at the very start of our session here today. You have to understand what the top slice is doing—what it is used for—and whether that represents value for money to the students and staff of UHI Perth. That is what our board was challenged with doing, and that is why the previous chair, whose appointment was not renewed, and I as chair were focused on how we could work towards getting UHI fixed, if possible, so that the top slice could be reduced. If the top slice had not been at the level that Margaret Cook said that it was at, we would not have had a £2 million deficit. We would not have been in a crisis management situation, worried about running out of cash. We were faced with a cash-flow position that, quarter to quarter, was critical. We had pay awards coming through that were backdated—they had eventually been agreed, so there was a big backlog of payments to make. Over a period of 12 months or 24 months, your cash might seem in place, but if it is not in place quarter to quarter or month to month, you cannot pay salaries.
It was a very challenging position, and you have to understand it. That is why I made my earlier point. I absolutely agree with the importance of external audit and the work that Deloitte and Audit Scotland do and did. I am not wishing to challenge that in any way—it is absolutely essential to good governance. However, you have to recognise what that work does. It looks back—the auditors are not necessarily in the room as these crisis issues are unfolding.
Mr Watson, you have painted a picture of an active board, a board that is alert to and aware of the situation, and a board that understands the issues around the budget and has apparently had discussions on it. Yet there is no real evidence of that from a governance point of view. There is nothing in the minutes. What evidence is there that the board was on top of the job?
If you look at my letter—this is subsequent to events—of 20 December 2024, you will see what the board was discussing then. If you look at the communications with the principal of UHI in June 2023 about the voluntary redundancy scheme, you will get evidence of the communications.
One of the things that I instituted when I took on the chair role was to ensure that I invited the chair of UHI to all our board meetings. The chair of UHI had access to all our board papers as an observer. He was very active in attending, which was helpful. He came to most of the board meetings. It is very hard to say that the knowledge of the picture that Iain Wishart painted from December 2022 was not well understood within the broader UHI family. We were not seeking to withhold information. At no stage were the board or the audit committee of UHI Perth saying, “You are not giving us the right information,” or, “We are sceptical of the complexity or the completeness of the information.” That never happened. We were getting the information and taking action on that information.
Did the board make a decision to defer the budget?
The board made a decision to focus on sorting the cash position out in the way that Iain Wishart has described, and he has described why we did what we did.
Is it specifically minuted that the budget was being deferred in order that those steps could be taken?
I cannot answer that question. I do not have the minutes in front of me.
Okay. Thank you, convener.
I will bring in Joe FitzPatrick in a second, but can I just take you back, Mr Watson, to some of the fundamentals here? When we took evidence from the Auditor General on 8 October, he said:
“I ... cannot recall, from my time in this role and during my career of auditing public bodies in Scotland, an organisation that has not prepared an annual budget.”
In your time—in your career—Mr Watson, have you ever been part of an organisation that has not prepared an annual budget?
I have been part of an organisation that had such a disaster with a massive IT implementation scheme that it was unable to prepare one. It did not have the information, so it had to work off prior-year accounts and the fact that, as in this case, the vast majority of its costs were salary costs. As long as you know what your salary bill should be, which is what is going out of the account every week or month, you can be relatively assured that the overall picture will not be massively different.
Again, I absolutely agree that, in an ideal world, you have all this information and you spend time preparing budgets and forecasts. However, as Iain Wishart has alluded to, that was not the important thing to do here. I think that he made the decisions that we as a board supported very explicit in his earlier comments.
We are the Public Audit Committee and we are not talking here about an ideal world; we are talking about a world where there is some accountability. Even your own document, the June 2021 UHI Perth financial regulations, which I presume was signed off by the board, says that the very first responsibility of the finance director—it is bullet point 1—is
“preparing annual budgets and financial plans”.
The financial plan is a forecast. That was done, and everybody knew what was going on. The budget can only be done when you have the plan, but the budget is a plan of what you would like to happen in the organisation. What was going to happen in the organisation was a £2 million deficit. What was our plan to make that not happen? Then you bake that into a budget, so that your budget will roll up at break even. We were focused on working out that plan.
On the comments from the Auditor General, I spent most of my career on the private side, and we spent most of our time working from forecasts, not budgets. Yes, we created budgets, but the solution on the private side to a situation such as the one that we were looking at in UHI Perth would have been to deal with it very quickly. There are different rules in play as to how you would solve it. On the private side, you would solve such a problem within a month or two months, and then you would be able to budget. We did not have the solution to budget for.
11:30
We are talking about an organisation that is governed by the Public Finance and Accountability (Scotland) Act 2000 and is subject to the Scottish public finance manual. We are not talking about a private enterprise. We are talking about public money, which is why we expect certain standards to be met.
The Auditor General said:
“a budget gives an organisation an anchor with which to measure how it is progressing during the year.”
Margaret Cook, do you not accept that that is a fact?
We had reporting of our financial position, as Iain Wishart has outlined, to every audit committee meeting and every board meeting, and we discussed it as management teams.
This is my final question before I bring in other members of the committee.
I would be interested in your view on the Auditor General’s comment:
“we cannot help but conclude that that”
budget’s
“absence must have been a significant factor in the board of management being less able to control financial arrangements during that time.”—[Official Report, Public Audit Committee, 8 October 2025; c 5, 6, 2.]
You are shaking your head, Mr Wishart. I take it that you do not agree with that view.
We have tried to outline that everybody knew what was going on without a budget. Everybody here has said that: the SFC knew what was going on, and UHI knew what was going on, without a budget because we used financial forecasts.
A budget and a financial forecast are future projections, but they are different things. A budget is your plan of what you want to happen. As I said at the start, you need to know for your budget where the costs are coming out. You cannot construct a budget unless you know that. You need to be able to tell department managers, “You have 10 heads—only budget for seven. You have this amount—you only budget for two.” The whole solution has to be in place before you can create a budget.
On the Auditor General’s comment that you just quoted, convener, we have said several times, and the board has agreed, that everybody knew exactly what was going to happen in December 2022 without a budget.
Okay, but my point is that you have set aside your own financial regulations, both in your position and the position of the former principal and chief executive. I would also suggest that the people on the board have set aside their obligations under those financial regulations.
I will invite Joe FitzPatrick to come in on this budget question, before I invite Graham Simpson to ask his questions.
Thank you, convener—you have covered a lot of what I was wanting to cover.
I am finding it incredibly difficult to grasp, in terms of governance, how all three of you could think that it is okay that there was not a budget. A budget is not just an ideal circumstance; it is something to work to, and it is about transparency. If there had been a budget that was clear on what you were doing to reduce the deficit but that there would still be a deficit, at least there would have been that transparency. At least you would have been working to something that was in line with the financial regulations that you are covered by. Is it honestly the case that nobody on the board thought there was anything wrong, and that nobody said, “Wait a minute, we have not done the budget”? Really?
We had many discussions on the board about the financial position of the college. Presumably we would not be here if not for the fact that there was no budget, but the crux is that we felt that what we were doing was giving that absolute transparency to our board, the SFC and UHI in our forecasting work. We have all been very clear that that was discussed extensively in all the forums, and the issue was not raised—no one from UHI or SFC ever said to me, “You do not have a budget.”
You all had a legal responsibility.
I am not disputing that. We were satisfied with the level of information that we were giving to our board, and our board was satisfied with that level of information because it was very thorough, it was forward looking, and it was the basis on which we were managing the college in the state of crisis that Mr Watson has referred to.
It still sounds pretty incredible that you did not put something down on paper as an actual budget.
All the forecasting was done on paper. As they went through committee stage, all of those documents exist. That is all there.
Iain Wishart talked about how difficult things were, and I get it, but you were faced with calculations saying that there is such a big deficit. Not to put that down and create a budget that tries to reduce that deficit is incredible. Iain, you talked about having to consult. Surely that should have been started in 2022 when you started realising that there was a deficit, and I guess that that is when you should have been starting to prepare the budget in order to square it.
We are slightly talking in semantics here. The board, UHI and the SFC knew that we were running out of cash. We could not produce a break-even budget at that stage; we knew that there would be a deficit budget. Our job was not to produce a deficit budget. Our job, as a board in receipt of public funding, was to produce a break-even budget, and we could not do that unless we focused on taking cost out of the business.
The whole effort during the early part of 2023 and throughout—it is an on-going challenge for UHI Perth—has been to take cost out of the business without completely destroying its ability to deliver education to students. There were things that we had to do. We had to pare back significantly on maintenance, but then what happened earlier in 2025, for example, was that the main lift in the building broke, which is £100,000 that had not been budgeted for.
We were working in a situation where cash is all that matters—it really was. The cash flow forecast that we had was guiding the decisions. In the previous minutes, you had evidence of the workstreams that were going on, and there were workstreams to look at where we could reposition the curriculum and how we could make better use of our buildings. There were a multitude of decisions taken under the principal’s leadership that were designed to save cost without destroying the student experience.
That is not a great place to be, and I admit that. If anyone on this committee thinks that it is an exciting job to be asked to take on the chair of a college on a completely voluntary basis, when virtually all the levers of control are taken away and you are faced with running out of money, let me make it clear that that is not a great job advert. We as a board exercised our responsibilities as diligently as we could, and we eventually delivered an outturn.
Responsibility for the delayed audit was not wholly attributable to the management. It did not come through particularly clearly in your previous evidence session, but there is plenty of correspondence on the shared responsibility for the delay in the 2023-24 audit. The audit produced a clean audit opinion that said, “The outturn was broadly what you said it would be with the cost savings.” Obviously, going through a big cost-saving programme and 75 per cent of costs are staff, there is an up-front cost designed to reduce cost in the longer term. We were taking decisions to spend more money to be able ultimately to save money in a way that continues to deliver a student experience in Perth.
Convener, I do not think any of us has been suggesting that this is easy to do, but I think Mr Watson has articulated why a budget would have been so important.
Thank you very much. Graham Simpson has some questions as well.
Following up that issue, Mr Watson, I note that board papers show members discussing the possibility of agreeing a deficit budget, and UHI saying that that was an option and that it would discuss it with the SFC. Did that happen?
We continued to discuss that possibility. Again, when we got to December 2024, we approved a deficit budget running forward, but that is where the position was so difficult. In December 2024, we were looking at a deficit budget of £1.25 million for 2024-25, a deficit budget of £750,000 for the following year, and then £1.25 million for the year after that.
The recurring theme here is that, even with all our efforts as a board and a management team to take costs out of the business, UHI Perth was not viable under UHI’s current structure. I, as a director, am not going to sign an audit report that suggests that an organisation is a going concern when I do not think that it is. At no stage was there enough evidence for me as a director to say, “Someone is going to lend you money, reduce the cost burden significantly, or make an investment in you that will provide enough cash to avoid your running out of money.”
I know that we are digressing a little bit here, but I think the UHI model is fundamental to where this whole discussion should be going. The model of UHI—indeed, the model of funding colleges in Scotland—is not broken yet, but it is in grave danger of being broken. You cannot continue to run a business in which 75 per cent of your costs are staff if those costs are continuing to increase but your ability to generate matching income does not exist.
As far as this problem is concerned, I accept all the discussion that is being had—and, again, I am not arguing with Audit Scotland’s work, which I always find very comprehensive and thorough—but I think that you have to understand the bigger picture, and I am glad to have the opportunity to have a little discussion about that this morning. This is a massively challenging position to be in, and in December 2024, UHI Perth was definitely not out of the hole.
Why did you not produce a deficit budget?
That is not what we are asked to do. We are asked to manage the business on a break-even basis—
But you discussed it.
We took the view that producing a deficit budget when you do not know how the deficit will be funded is not particularly good governance. That just tells you, “We’re going to run out of money.” Instead, you need to ask, “How do we get to a break-even budget? How do we get to a position where we will not run out of money?” and then take the decisions that are necessary to enable you to remain viable.
That is what UHI Perth tried to do throughout this period. I am sure that Margaret Cook will have the detailed numbers, but significant costs were taken out of the business, and it was still not enough. Part of the reason for that is, as Margaret said at the start, the top slice that goes to UHI, and which UHI Perth has no ability to negotiate. That is massively problematic. There is certainly correspondence between other colleges within UHI and UHI on the same subject, so it is not a UHI Perth-alone problem, but a structural problem of the institution itself. When I decided to resign, it was in discussions with the SFC about how to fix that position, because as an institution, it was not, without doing something dramatic, going to be viable in the longer term.
11:45
But this is not the only college that is facing financial difficulties. The committee has heard compelling evidence from the sector about the state of the college sector in Scotland. Perth is not the only college to face these challenges, but every other college manages to produce a budget.
We have had evidence from Colleges Scotland outlining the position going forward, and stating that if there were, say, a flat-cash settlement, a number of colleges could go under. The college sector is in a dire state. This is not the only college that is having problems, but you are the only college that somehow managed not to produce a budget.
What I am trying to get at is this: why were you unique in not being able to produce a budget when all the other colleges, with all the challenges that they were facing, managed to do so?
We produced cash-flow forecasts. Iain Wishart has already gone through what we did, how we were transparent and how we knew the severity of the position. I do not think that every other college in Scotland has a top slice to pay, so their situation might be a little different from Perth’s.
If we look at the evidence from the audit committee, the finance committee and the board—and every board meeting was attended by the UHI chair—we see that at no stage did any of these directors or external observers say, “You are not doing or prioritising the right things. You have a cash-flow forecast that shows, effectively, that you will run out of money. You need to fix that.” We were focused as a board on trying to give the management team the challenge and the support to come up with plans to try to address what was a terminal position.
Mr Watson and Dr Cook, you have both outlined what you see as the perceived problems with the funding arrangement for Perth college. Has the situation changed since you left, or is it still the same? If it is still the same, how would you fix it?
I was in post for eight years; a number of iterations of changes were proposed during that time, and each and every one of those changes failed. There is a lot of acceptance within UHI that change was absolutely necessary, because of the sustainability issues that Graham Watson has outlined, but the reality is that, when you try to change things, you will, as in all such change situations, have winners and losers. You find yourself sitting around a table with a number of independent bodies that are voluntarily—potentially—giving up certain things for their own communities and students. It is a very difficult position to be in. Huge amounts of work have been done by all the UHI institutions to try to make those changes, and they have come to nothing.
I cannot comment on what has happened since I left—I have not kept in touch with what is going on—but I personally, my team and the teams across the partnership have done huge amounts of work over the years to try to get to a position that is sustainable for all the institutions. There have been many discussions about having a single institution, instead of the independent institutions that we all are, and there have been discussions on shared services; indeed, I led those discussions. There has been a huge amount of work, but it has not reached a conclusion that would make UHI more sustainable.
Okay.
A number of people have left the college, including all of you. In fact, five members of the board, including the chair, resigned between April and May 2025, which is quite a turnover. Perhaps I can go to you first, Mr Watson, because I think that you might want to tell us why you resigned.
Yes, I am very happy to do so.
Part of it goes back to the previous chair. As I found out, the reasons why, ultimately, he was not reappointed were of a very similar nature—they were about the relationship that existed between UHI Perth and UHI. I felt that I had got to a stage where, as chair, and with all the responsibilities of chairing the organisation, I was completely constrained by what could be done by UHI. There is no point in chairing an organisation when the real influence and power is somewhere else—that is, in UHI. The work that has been going on to try to fix UHI, and the control that it was, at that time, seeking to have over the colleges, is indicative of that. Despite the minister having articulated in a letter to the principals that the future of UHI should be guided by the colleges, in discussion with UHI, the reverse was actually happening.
You might also want to explore why the chair of UHI Inverness resigned—they resigned earlier than I did. Eventually, if you are chairing an organisation, you want to feel that you have the levers and ability to chair in an effective manner. I obviously did not feel that at the time, so I took the view that enough was enough.
Again, as I have said, I am a volunteer. I am not doing this because someone is paying me large sums of money. If you look at the independent review of our governance, you will see the comments that were made about the leadership of the organisation, and I was not going to have my integrity and reputation damaged any further than I thought that they were being damaged at that particular juncture.
I cannot speak for other directors, but I assume some of the other directors who resigned must have felt similarly.
So, in summary, you felt that UHI exerted too much control over UHI Perth, and you wanted a bit more freedom. Shall we put it that way?
I will answer that for you, Mr Simpson. I was very disappointed at what happened when I wrote in very explicit terms in December 2024 to the chair of UHI, with a copy to the chair of the SFC, saying that we were supportive of the principal’s work in delivering the recovery plan. I said in that letter:
“The cash position of UHI Perth has been supported recently by £1.5m of long-term, interest free, liquidity funding from the ... (SFC). It is unlikely that any of the substantive recommendations to be contained in the Recovery Plan will provide a ‘quick fix’ to the continued deficits currently projected, especially given the scale of risk surrounding the budget and outer two-year projections.
Accordingly, in the view of the UHI Perth Board”—
which at that point had its hands so firmly tied behind its back that it could not do anything—
“it is inevitable that UHI Perth will require some form of additional short to medium term support from the SFC to remain solvent and a going concern.
To complete the Recovery Plan, the Board therefore requests that the ... (RSB)”—
that is, UHI—
“urgently seeks direction from the SFC on support options for UHI Perth.”
We then outlined some options that might exist.
There was no formal reply from UHI to that letter other than to say, “We cannot give you any direction”, and there was nothing from the SFC. You set out the position and the problems, all of which are well understood by the board of UHI Perth; you ask for help; you say, “We need to fix the fact that we are—or are about to be—insolvent”; and no one steps in to give assistance. Well, with all due respect, I was not going to stay on as chair of an organisation in that situation—it was too bleak.
I am sure that the SFC will find ways, as it did at that time, of continuing to give some additional liquidity funding. However, it was just money being moved from perhaps a future pot in order to help out; it was not going to fix the root cause of the problem.
At the end of the day, I took the view that I had tried my best. The previous chair, as I have said, had left, because UHI did not want to renew his term of office, and I stepped in as interim chair for a period before becoming chair. I had done as much as I felt I could reasonably do in the circumstances.
Okay—that was pretty clear. I shall leave it there, convener.
Mr Watson, would you be willing to give us a copy of that December 2024 letter and for it to be placed in the public domain? Also, did you write that letter on behalf of the whole board, or was it a personal letter?
The letter states:
“Further to the UHI Perth Board Meeting held on 18 December 2024”—
that is, two days earlier—
“which you”—
that is, the chair of UHI—
“attended as an observer, I wanted to confirm the Board’s position on its forward financial outlook.”
Thank you. That is helpful.
Before I sent the letter, it was in draft form and the secretary made sure that the board was comfortable with it. I am happy to put it on record.
That is very helpful.
My last question on that is: why did it take you six months to resign, if that was such a critical point?
It did not take me six months. I think that it took me until about April 2025, and I wrote the letter in December 2024. With threats of resignation, you cannot continue to say, “If you do not do this, I am going to resign,” and not do it.
We have not touched on this yet, but there is history behind why I was the one who was put forward. As it happened, I was also chair of Air Service Training, which was difficult, as you covered in your previous evidence session. Without labouring that point, that is a classic example of some of the challenges that we faced.
AST was a fantastic little business in Scone, near Perth, with a tremendous history and a fantastic market opportunity in front of it in training aircraft mechanics, but it did not have any cash. There were reasons why it was running out of cash that were fixable. UHI Perth, as its owner, was not able or allowed to invest in that business, which was its subsidiary. I kept saying to UHI, “We should look at how we can sort out that business, because it is a great little business.” There was no support for that.
I was not only trying to deal with the UHI Perth issues and helping UHI with its plans or attempts to plan a future strategy; I was also volunteering to help AST. That all became quite difficult. As I said, AST was a tragedy and it should not have been allowed to go, but UHI Perth was not able and was not allowed, under the regulations, to invest in it.
I resigned from UHI Perth, but I was the UHI Perth representative on the board of AST and I said at the time of my resignation from UHI Perth that I was willing to stay on as the chair of AST, because it was heading towards an insolvency process, if that was the wish of UHI Perth or UHI. I never received any response to that suggestion, and therefore I also resigned from AST.
You might not know it, but that has neatly teed up the deputy convener, who has questions on AST as well as broader questions, which I am sure that he will want to put not just to you, Mr Watson, but to Dr Cook and Mr Wishart.
Good morning—it is just about still morning.
Mr Watson, you have just answered my question on AST, so there is not much to add. What happened at AST is clear. It had a future in a market that is booming and growing in Scotland and across the world. It should have been supported by as many parts of the public sector as possible but, due to its structural arrangements, it was simply unable to stay solvent. That is my summary.
Dr Cook can comment on this but, towards the end, we were trying to find solutions within Scotland—for example, with Ayrshire—and through political channels. There were very tight timescales, because the position was not great. AST was being managed on a knife edge, because there was no ability to invest in it. That was a tragedy. We were looking at foreign partners.
That goes back to the point that the UHI model, in my mind, had flaws. For no charge, AST spent a considerable amount of senior management time on trying to help UHI Moray with the growth deal that was designed to produce a big partnership with Boeing up in Moray, because we all believed in that as a part of the UHI model. For whatever reason, UHI eventually pulled the plug on that deal—I think that it was partly because of things that were going on within Boeing. AST, having spent tens of thousands of pounds of unpaid senior management time on that to help, at the cost of being unable to run the day-to-day business, received no recompense at all for that.
That is an example of how I felt throughout the period. On critical issues, UHI Perth was being left largely on its own, and the same applies to AST.
12:00
The committee has looked a lot at the diversification of the college sector and its involvement with private or quasi-private companies or entities as a means of supporting business and skills in local communities and of generating revenue. We have considered whether there is an inherent conflict of interest between a college’s core function—delivering courses on a credit system for the SFC—and partnerships with third parties, such as the business sector, including big companies such as Boeing. We see examples of that across the country, some of which have not gone terribly well and have ended up in exactly the same situation as AST. Is there an inherent problem with that model? Alternatively, could it be developed if it was done properly?
I would definitely say the latter. AST was training and there were partnerships with UHI Perth for the degree course. It was a massive contributor to an important part of our future-looking HE model. However, as with any business, it needed to be properly capitalised. AST was never properly capitalised. It relied on winning contracts on a month-to-month or cycle-to-cycle basis, and if there were blips in business development and it did not win a new contract, there was no one else providing cash.
If you capitalise a business properly and set it up properly, with the right management and the right synergies with your college, it should be an enormously productive and profitable partnership, in the same way as colleges and industry are at the heart of generating economic growth in Scotland. It is a vital collaboration and partnership.
That is why, as I say, I was really disappointed that AST was allowed to shut. There was opportunity to save it, but that required people to take decisions very quickly. Unfortunately—you might share this view—as someone who has private sector as well as public sector experience, I know that sometimes in the public sector it is difficult to take quick decisions. That was a bit of an issue with AST. It was a sad demise of a business that had been an important contributor to the local economy for 100 years or whatever.
Indeed. As I said at the beginning, it was in a sector that Scotland could benefit from massively if it was to grow and be invested in.
I will move on. You have had your fair share of questions this morning about what happened on the budget, so there is no merit in rehashing any of that. I believe that you have answered as openly and frankly as you can in the circumstances. I am not yet 100 per cent convinced that I see appropriate levels of contrition, but I understand the circumstances that you have been in. I also understand the circumstances of the college financially and the wider sector, all of which I believe are perhaps mitigating factors in what happened and the need for a section 22 report.
Nonetheless, it is very unusual for Audit Scotland to produce a report of this nature. It is quite a short report. I do not mean this in any combative way, Dr Cook, but, at the beginning, you were asked a very straightforward question about whether you accept the content of the report. There are only 41 paragraphs and nine pages, so it is not the biggest report that the committee has considered. The answer to that question really is yes or no. If the answer is yes—that you accept all of it—that is fine. If the answer is no—that you accept none of it—that is equally fine. If you are somewhere in the middle, what I want to know is: which bits of it do you not accept?
When I came into the meeting, I was incredibly nervous, and there had been some communication about my attendance at the committee. Having settled slightly more into the process, which is completely new to me, I apologise to the committee if I have appeared not to be honest; that was not my intention at all. We accept that there was no budget—that is clear. I was not trying to say that we do not accept that. I think there are shades within the report to do with how it is expressed in some respects. However, fundamentally, there was no budget. We consider that what we did was appropriate. If that is not the case, I can only apologise, as the accountable officer, that that was not the case.
As I say, I apologise for my uncertainty in this environment when I came in.
I am not reflecting on anything that was said at the beginning; I am just reflecting on the fact that, for whatever reason, you could not genuinely accept the 41 paragraphs in the report. I was trying to unearth which elements of the report you felt do not reflect the true nature of what happened and what was going on. During the meeting, you have listed quite a lot of background that is not in the report—I say that with no disrespect to the Auditor General.
I should also say that we often have reports of this nature across quite a wide range of sectors and public sector bodies, and we have invited former members of staff and board chairs to appear, but they have not done so. The fact that you are here speaks volumes, and I would like to thank you for that.
However, there are one or two unanswered questions. Those are around signing off the accounts and, presumably, what would have been the signing off of a budget, had it been produced. Mr Watson, you said that you, as a director, could not and would not sign off UHI Perth as a going concern, because at the time it simply was not. Did you sign off the accounts in that financial year, though, for audit purposes? There is a bit of a conflict there.
No. I did not do that for the 2023-24 accounts as chair. Part of that was about the whole going concern issue. The other part was something that accountants would call a material post-balance-sheet event. In other words, we knew that AST was in difficult circumstances, so it would have been misleading to have signed a set of accounts that did not allow time for the AST situation to reach a conclusion, which we knew was likely to happen fairly quickly, whether that resulted in it being rescued or having to fold. My view was that I was not going to sign a set of accounts for UHI Perth with such a material uncertainty unresolved. We were so late in signing the accounts anyway, for a whole host of reasons, so waiting another two or three weeks would not have been the end of the world. Indeed, that would have allowed a set of accounts to be signed that were reflective of the situation.
As I said, although I did not sign the accounts, I would have continued to have discussions and want much more evidence personally to assure me that UHI Perth was a going concern before I signed the accounts. At the time, I did not have that and, as I said, I knew that the AST position would reach a conclusion within a short period of time thereafter, which it did.
So, in your view, not signing off the accounts was the right and proper thing to do.
Absolutely. That was correct at that time.
Thank you. Living quarter to quarter financially is not great for any organisation. You have staff wages to pay. I have spoken with some of the college tutors at Perth and they admit that they did not always realise the bigger picture of college finances, how perilous they were and that their salaries might not go into their bank accounts that month. I guess that you do not want to advertise on the walls of the college that you are running out of cash this month.
I want to talk about some of the mitigating measures that you took to make ends meet. If at any point you were running out of cash, how were you able to make ends meet? Were you given loan funding? Was there bridging funding from the SFC? Were you simply taking money out of future pots of cash to suck into this quarter from the next? I could not quite understand how you were able to pay the bills.
We never actually ran out of money, and some of that was because we had loan funding from the Funding Council. However, that, as Mr Watson said earlier, was the next year’s money. It was not additional money; it was a movement of money between periods of time.
That now sits on your balance sheet anyway as loan funding, presumably.
I am assuming so, but it is six months since I left so I could not answer that question directly.
Is there a fundamental issue with the model of the University of the Highlands and Islands? Colleges—providing HE, to be fair, as well as further education—are somehow umbilically linked to it and by default UHI top slices their revenue for whichever purpose, to contribute to its own revenue as a university. Does that model work? At what point could UHI Perth simply have said, “The model is not working. We would prefer to be a stand-alone college, an entity with a direct relationship with the SFC, providing college courses that meet the skills needs of our local community,” and cut that cord with UHI? Was that discussed? Would that have been of any benefit? Is that a model that could exist?
I will answer as the former chair and Dr Cook may pick up on it as former CEO.
From the day I joined the board, the future of UHI Perth was uppermost on our agenda. All the time we could see this potential problem coming down the road. Could we talk to other colleges that were more centrally located? UHI Perth is a little outlier. Were there other merger opportunities? This is partly, perhaps, the reason why the previous chair was no longer in post, but there was a lack of desire on the part of UHI, and there seemed to be a lack of desire on the part of SFC, to allow discussions to happen outwith the confines of UHI. It was, “How can you fix UHI as is?”
Again—I want to make this point—the board was thinking about how we could take responsibility for our position and not just continue to rely on others. In December 2023, we—confidentially, at the time—thought that it would be helpful if the two largest colleges in the partnership, Inverness and Perth, had some exploratory discussions about whether we could do something together. We had the most staff, we had the ability to sort central and shared services, and we could take decisions quickly. I thought that that discussion was worthy of being explored in outline and, if there were any legs to it, that it should be taken further forward.
I would like to hear from the former chair of UHI Inverness because he was quite forthright in his views, but he resigned for whatever reason. However, as the discussions unfolded, we were not able to take the idea forward. I do not have the exact reference here, but a letter was sent by the minister at the time, articulating that it was up to the colleges to fix this, in discussion with UHI. I am slightly paraphrasing, but the way that he phrased that letter seemed to suggest that the colleges should take responsibility and involve UHI. What was happening was exactly the reverse. We went through months and months of work to try to figure out if there was a new model for UHI, and I was part of a working group on that with UHI and other colleagues from the partnerships. Eventually, rather than producing a full options appraisal, UHI decided that, “No, this is the way we are going. This is the future direction.” I do not know where our discussion now rests, but it would have been a fundamental change to the structure.
12:15Now, the UHI Perth board always has to consider what is in the best interests of UHI Perth. That is its primary responsibility. However, as an independent board—or semi-independent board, given the control that UHI was effectively exerting—it does not necessarily follow that what is in the interests of the UHI as a central body, or the UHI partnership, is necessarily in the best interests of UHI Perth. In my tenure, we never quite got to the point of being able to reach a landing on that one, but it was interesting that both UHI Inverness and UHI Perth thought that it was worth while trying to be the architects of some action. As Dr Cook said, there are reports going back years and years that say, “You need to fix UHI.” People have looked at it and there have been reports, but it is difficult: there are a lot of different agendas and interests at play. We, as the two largest parts of that collaboration, thought that it would be helpful because we were looking at our own position and thinking that where we were sited at that particular juncture was not ideal and that we should explore whether we could collaborate in some way, which may or may not still be a partial solution here.
Sure, and again, you cannot answer for the current scenario because you are no longer in the organisation, so those are questions to be directed to others. From my point of view, what I have heard this morning is a prime example of what is wrong in the college sector in Scotland and of how perilous it is, how teetering on that cliff edge of financial meltdown some of the colleges are. Here is a prime example of that—there are others; we all have anecdotal stories from our regions—playing out in practice, unfortunately.
The Scottish Government is considering the transformation of the model or the role of colleges in the skills sector and in educating Scotland’s young people. Any such transformation would benefit from the sort of feedback that we have had from you this morning, particularly Mr Watson, given your industry experience. I hope that that is something that you would consider, if you are ever asked.
Absolutely. To be clear, I do not think that any of us would have accepted the invitation to join the board of UHI Perth in a voluntary capacity if we did not believe in the model. I had had experience, as I said at the outset—eight years on the court of Heriot-Watt University—so I was a passionate advocate of the importance of education and educating young people in Scotland, and colleges are in a remarkable position to do that if they are properly set up and properly funded. You have to fund it properly. The current model, as you have said, is definitely creaking, and Colleges Scotland is on record on a number of occasions saying that, but we are still not grappling the challenge.
You see the world out there unfolding at a massively rapid rate of knots. I am just back from San Francisco, where my younger daughter lives, and the pace of change is frightening. We are doing a lot of good things in Scotland but we have to get the college model right, working with industry, in the same way that graduate apprenticeships are important in the university sector—that is a fantastic model to build on. We must continue to invest in the college sector because it is vital to equipping young people with the skills that will be necessary in what is an increasingly competitive world out there.
I will end on that note. Thank you.
Thank you very much. We have heard quite a lot of useful evidence this morning and I think that you have been given an opportunity to put on the record some things that I know you feel inject some more balance into our committee considerations. As the deputy convener said, we very much appreciate you taking the time to come in and give us the benefit of your experience and your perspective on the Auditor General’s report.
As I said at the outset, in January 2026, I think, we are due to take evidence from some of the people who have taken your previous positions, as well as from the Scottish Funding Council and the wider University of the Highlands and Islands. That will give us an opportunity to put to them some of the things that you have said to us. You may wish to follow that with some interest.
Mr Watson, I think that you agreed to share with us the December 2024 letter. If any of you, on reflection after today, have anything else that you want to supply to us, we are quite happy to accept a note after today’s oral evidence session to help us prepare for the next round of evidence that we will take. Dr Cook, Mr Wishart and Mr Watson, thank you for coming in and for the evidence that you have presented to us this morning.
I move the committee into private session.
12:20 Meeting continued in private until 12:52.