Thank you, convener. I am very pleased to be back reporting to the committee in this new session.
Obviously, a lot has happened in the past week and, however events unfold, the committee’s role in scrutinising the public finances will be even more important in this session of Parliament. Big changes are under way with the Parliament’s new financial powers, and they are sure to be high on the agenda for the committee, and for Audit Scotland, in the months to come. I look forward to building on the excellent work achieved by the previous Public Audit Committee and to continuing to support members in their vital role.
The first report in front of you today looks at the progress that the Scottish Government has made with its common agricultural policy futures programme. This is my fourth update on the programme, and it covers progress up to April.
Before I outline my findings, it might be useful if I reflect briefly on the result of last week’s referendum on the European Union. I recognise that there might be implications for the programme, but it is too early to know what the impact might be. We will continue to keep a close eye on developments over the coming months, and we will consider carefully the implications for our audit. The developments do not detract from the need for the Scottish Government to stay focused on making payments to farmers, crofters and rural businesses as quickly and effectively as possible, both to mitigate the impact on rural businesses and to learn lessons from how the futures programme has been managed to date.
In that respect, the programme’s IT system is central. It is intended to process, to validate and to make payments to farmers. The system is in place and operating, but it has not worked as well as it needs to, and some parts of the system are still being developed and redesigned.
I want to acknowledge the continuing commitment of Scottish Government staff to delivering the programme. However, although that commitment is truly commendable, I am concerned that the level of effort is not sustainable and that there is a real risk of burn-out.
I will briefly summarise the report’s key points. First of all, a number of milestones and ministerial targets for making payments to farmers have been missed. Farmers report that payment delays have affected their cash flow, with a knock-on effect on the rural economy. The Scottish Government announced three loans schemes, paid from the Scottish Government budget, to get some money to farmers more quickly. In spite of that, however, some farmers had not received a payment by April 2016, when they would normally have expected to receive a payment in December.
I reported in April that the Scottish Government was unlikely to meet the June deadline and could incur financial penalties as a result. Since then, the European Commission has moved the deadline for payments from the end of June to 15 October. A later payment date puts back the immediate risk of financial penalties, but the underlying concerns about the programme remain.
I also highlight in my report that estimating the potential financial penalties is difficult. The matter is ultimately subject to assessment by Commission auditors, and that assessment goes wider than just the number of payments made by the deadline to include the quality of the checks and other controls that were in place before payments were made. Our report highlights a risk of disallowance arising from delays and the workarounds that the teams have put in place to enable them to make payments.
A second issue is the complexity of the programme. There is no doubt that the external environment for the programme is challenging. The EC regulations are complex and have been clarified and developed over the life of the programme. At the same time, decisions that the Government has made, in discussion with the farming industry, on how the CAP is designed and delivered in Scotland have added to the complexity.
Thirdly, on decision making and governance, we identify some occasions when significant decisions were made outwith the programme governance structures. The programme board was not given the opportunity to fulfil its role in offering advice and support to the programme sponsor. We also identify occasions when decisions took too long, which affected programme delivery. The IT team and the programme team did not work well together, and basic information on delivery and timescales was not shared with those managing the programme. That led to a lack of trust between the two teams and affected delivery.
Finally, there was, as the convener has mentioned, a significant conflict of interest, which was not dealt with effectively. The delivery director, who was a contractor, was able to benefit financially from recruitment decisions. I should note for the record that a police investigation is under way. The Scottish Government put arrangements in place to ensure that decisions were not taken by a single individual, but the delivery director, as a senior member of the resources group, still had the opportunity to influence decisions.
Overall, the programme will not deliver the full range of planned benefits and the Government now aims only to deliver a system that complies with EC regulations without some of the planned enhancements. There is also a risk that the current programme budget will be exhausted before a CAP-compliant system is delivered. I do not expect the programme to deliver value for money.
The report contains a number of recommendations, many of which I have made before in relation to the management of IT programmes. The Government first needs to get the IT system working more effectively, which I know it is committed to doing; it needs to complete a detailed assessment of the risk of financial penalties for all the remaining elements to enable informed decisions about priorities to be made and to manage the remaining budget; and it needs to ensure that appropriate governance arrangements are in place, together with plans for disaster recovery and knowledge transfer.
I have with me the colleagues who prepared on my behalf the report and previous ones on the issue. We are obviously happy to do our best to answer the committee’s questions.