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Meeting of the Commission 10 December 2015

10 Dec 2015 · S4 · Scottish Commission for Public Audit

Item of business

Audit Scotland Budget Proposal 2016/17

Caroline Gardner Watch on SPTV

It might be helpful if I remind the commission of the framework that governs our overall funding and fee-setting process and of the work that has been done so far. There are a couple of areas outstanding that, because of the procurement exercise, it will not be possible to complete until 2016. Under the legislation that set up Audit Scotland, we are entitled to impose charges for the work that we carry out on most of the bodies that we audit. Those charges are required to be set while having regard to the particular classes of bodies, or the individual bodies, that we audit. The aim is to break even, taking one year with another. The papers that the board has reviewed over the past year or so have explored what that means in practice and what issues need to be resolved as part of the review, as the chair of the board has said. One issue that we have reviewed is whether it is appropriate to continue to raise three quarters of our funding through fees with, broadly, the other 25 per cent coming from the consolidated fund with the oversight of the SCPA. The board’s decision was that it is appropriate to do that and that having that fee mechanism helps to ensure the accountability of auditors to the bodies that they audit while maintaining their independence. The second big area of work that has been done is how the board gets oversight of the balance between the amount that is raised and the amount that is spent in each sector, particularly in local government and the bodies in my area of responsibility; and, within my area, in central Government, health, further education and so on. As the chair has said, there have been some imbalances that have tended to increase over the life of an audit appointment. The latest figures, which we reported back to you in June alongside the presentation of our annual report and accounts, showed that there was a broad balance between local government and the rest but that health was slightly over-recovering and that there were some imbalances between the chargeable and non-chargeable central Government work. The board has taken the decision that it makes sense to fix those imbalances when we make the new audit appointments from next October onwards. 10:15 As for individual bodies, that is one of the issues that the board is still considering. We know from previous consultations that the bodies that we audit value predictability in their audit fee and are not keen for significant year-on-year moves. To bring each body into balance in terms of the amount that its audit cost and the amount that we charged would, given the variances, also make it difficult for us to manage our finances on a continuing basis. There is already some capacity in the system to reflect the quality of a body’s internal controls and governance; you might recall that we set an indicative fee for each body and, in the current system, the auditor and the audited body are able to vary the fee up or down by 10 per cent. Any variation beyond that has to be approved by Audit Scotland. We know that there are some imbalances between larger and smaller bodies because of the fixed cost, if you like, of auditing a small body, and we want to review that when we set the indicative fees for the new audit appointments. Over the past few months, we have also strengthened the governance of the balance between sectors, with the board agreeing a new policy that makes it very clear that the interpretation of taking one year with another should be that the figure is no more than 10 per cent up or down for each sector in a year, with the aim of its being resolved the following year. The board will formally review that annually to give itself an assurance about where it is going. As the chair has said, a lot of work has been done, but we cannot resolve some parts of the equation finally until we know the costs of the audit procurement exercise and make the new audit appointments next autumn.

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Meeting of the Commission 10 December 2015

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