Auditors urge improvement in Scotland’s financial reporting

27 Mar 15

Auditors have called on the Scottish Government to set out proposals to improve its financial reporting to take account of the new fiscal powers being devolved to Holyrood.

In a report published today, Audit Scotland said the government had a good record of financial management, and has continued to improve and develop its financial reporting framework since the watchdog’s last report in July 2013.

For example, the report highlighted the creation of an independent body, the Scottish Fiscal Commission, to scrutinise and report on tax forecasts included in its draft budget for stamp duty and landfill revenue for 2015/16, which ministers intend to put on a statutory footing. Auditors also noted that in December 2014, the Deputy First Minister John Swinney told the Scottish Parliament’s finance committee that he has asked officials to develop proposals to improve and enhance financial reporting.

Auditor General for Scotland Caroline Gardner said a transparent financial reporting framework was more important than ever as Scotland's public finances were on the cusp of significant change. From next April, new powers to set a Scottish rate of income tax will increase the revenues in which the Scottish Parliament and councils have a direct say from £4bn to about £9bn. In addition, the proposals of the Smith Commission, which developed plans for extra powers following the No vote in last September’s independence reform, are intended to devolve income tax and some welfare spending to Scotland.

‘A transparent financial reporting framework to support these changes is more important than ever to safeguard public confidence and ensure accountability,’ Gardner stated.

‘It's encouraging that the Scottish Government has recognised the benefits of having a full picture of the public sector's financial position, and we welcome their efforts to build upon good practice to continue developing their financial reporting. The next step for the Scottish Government should be setting out details of how it proposes to improve and enhance its financial reporting.’

In particular, the report called for publication of consolidated accounts for the whole of the Scottish public sector to improve understanding and transparency of the country’s financial position.

This was also backed by CIPFA Scotland head Don Peebles, who had also called for improved reporting during last year’s referendum.

‘During this testing period of budget cuts and increasing service demands, it is of increasing importance that there is public confidence and trust that the taxpayer’s money is being spent effectively,’ he stated.

‘Devolution has led to significant divergence in policy choices between Scotland and the rest of the UK but the current UK financial framework does not enable the financial position of a devolved Scotland to be separately reported.

‘We are pleased, therefore, that Audit Scotland agrees with CIPFA’s recommendation that a balance sheet for the Scottish public sector would provide a sound basis for the scrutiny and assessment of the future affordability and sustainability of Scotland’s public services.’

Responding to the report,a Scottish Government spokeswoman said: ‘We welcome the Auditor General’s acknowledgement that the Scottish Government, and the Scottish public sector generally, have a good track record in financial management and reporting and a strong platform from which further development can take place.

‘The Scottish Government is committed to maintaining the highest standards of financial reporting.

'This update paper explains the programme of work that is in progress, working with the Scottish Parliament, to implement the financial provisions in the Scotland Act, with initial steps already reflected in the financial information produced for the financial year 2015/16. As the report highlights, the Deputy First Minister has asked officials to develop proposals to improve and enhance financial reporting.  This will include consideration of consolidated public accounts and, as is proper, the Scottish Government will consult with the Parliament before proceeding.’

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