Y Pwyllgor Cyfrifon Cyhoeddus - Y Bumed Senedd

Public Accounts Committee - Fifth Senedd

11/02/2019

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Adam Price
Jenny Rathbone
Mohammad Asghar
Neil Hamilton
Nick Ramsay Cadeirydd y Pwyllgor
Committee Chair
Rhianon Passmore
Vikki Howells

Y rhai eraill a oedd yn bresennol

Others in Attendance

Adrian Crompton Archwilydd Cyffredinol Cymru
Auditor General for Wales
Clare Pillman Prif Weithredwr, Cyfoeth Naturiol Cymru
Chief Executive, Natural Resources Wales
Dave Rees Swyddfa Archwilio Cymru
Wales Audit Office
Derwyn Owen Swyddfa Archwilio Cymru
Wales Audit Office
Sir David Henshaw Cadeirydd Dros Dro, Cyfoeth Naturiol Cymru
Interim Chair. Natural Resources Wales

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Claire Griffiths Dirprwy Glerc
Deputy Clerk
Fay Bowen Clerc
Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 13:49.

The meeting began at 13:49.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Welcome, Members, to this afternoon's meeting of the Public Accounts Committee. As usual, headsets are available for translation and sound amplification should you need it. Please turn off any mobile phones or turn them to silent, and, in an emergency, follow the ushers. No apologies have been received today. Do Members have any declarations of interest they'd like to make? No, okay.

2. Cyfoeth Naturiol Cymru: Adroddiad Blynyddol a Chyfrifon ar gyfer 2017-18
2. Natural Resources Wales: Annual Report and Accounts 2017-18

Moving on to item 2, and Natural Resources Wales's annual reports and accounts 2017-18. We've now had sight of the Grant Thornton report, which I know that the auditor general's office have commented on as well. So, in light of that, can I thank our witnesses from Natural Resources Wales for being in to take some questions from us today? Would you like to give your names and positions in the organisation for our Record of Proceedings?

13:50

I'm Clare Pillman and I'm chief executive of Natural Resources Wales.

David Henshaw, interim chair of Natural Resources Wales.

Great. Thanks for being with us. I'll kick off with the first couple of questions. The Grant Thornton report that I've just mentioned, the recommendations and the action plan focus on the need to improve internal processes and controls, and that obviously needs to happen. I think we're all aware of that. But Grant Thornton, in the executive summary, states that there are several root causes underpinning some of the governance failings that were identified, and these include cultural and people, and issues of insufficient urgency and accountability in dealing with those serious issues. So, generally, to start with, what actions is NRW taking to try and deal with some of these failings that have been identified?

Thank you, Chair. As you say, the Grant Thornton report focuses on a whole series of issues around processes and procedures, and we have in place an action plan to deal with those, but it goes much wider, as you say, and we're absolutely clear that there are lessons for the whole of NRW in the report.

The root causes that you refer to effectively stem, I think, from a difference of cultures coming together and the need for those cultures to come together—perhaps they should've come together more quickly in the past—but now to come together quickly and to work effectively together. That work is very much under way. So, we are in the middle of a process called organisational design, which is a complete restructuring of the organisation, basically to bring those three different elements together and to get them working well at a place-based level—six places across the whole of Wales—and I think that that will tackle many of the cultural root causes identified by Grant Thornton in the report. But, I just stress that that is alongside the very detailed action plan that we have to tackle the issues in the Grant Thornton report.

Thank you. We'll deal with the detailed issues, I think, around the forestry issues. I think, coming in at the beginning of November, I saw an organisation where, probably, a lot of these issues go back to the first formation of the organisation and bringing three very separate parts together, and a failure to bring those into one organisation with the proper culture and proper leadership, et cetera. We are on with that now; the board is very focused and sighted on that organisational recovery, which is grounded in looking at the way we operate, and moving from a top-down organisation based in Cardiff to a very place-based organisation, working with partners across Wales, with the appropriate culture and, indeed, budgets at place-based localities as well in due course to make a real difference that way.

The board itself is strengthening its governance procedures dramatically. There's no question that some of that was awry, in what's been found in the various reports, and, indeed, we're strengthening the audit function particularly and also putting particular measures around this particular project, which we can talk about a bit later on. I'm confident that what we're doing so far is making a huge change to NRW. I think, when Clare came in, she had three choices, really: to do nothing, which was clearly not an option, or to expect the organisation to recover it, and clearly, that was a bit challenging, or to commission a report to get to the root cause, the bottom, and to understand fully what had been going on, which we have now done and we're now actioning that. We'll come on to the detail of that shortly.

I should say that the committee does appreciate that you weren't in position at the time when a lot of these failings happened; you're very much here to try and put it all back together. So, we do bear with you on that. Having said that, we are sitting here now, and the accounts have been qualified for three consecutive years. We, as a committee, have received two reports from the auditor general and obviously commissioned our own work. We've received assurances in the past—I think a year ago we were told that we wouldn't be in this position now and things would improve—so, I welcome what you're saying in that you've got an action plan to try and sort all this out, but can we be sure that, next year or the year after, we're not going to be constantly revisiting these issues again and again, and that those cultural issues, those root, core issues, will be dealt with?

13:55

I can understand and appreciate your frustration. When I appeared before you in September, I think I made it clear that, coming in, I didn't feel that we had completely got to the bottom of things. The work that Grant Thornton have done over the course of the last few months, supported, I should say, by my staff, I think has been a real no-stone-left-unturned moment, and that was absolutely what I felt was needed. I think it is only by getting absolutely to the bottom of things and seeing what is there—and I'm absolutely clear, it doesn't make for nice reading, some of it—that you start to deal with the issues, and that's what we are doing. It's been a hugely powerful driver for action, and I am determined that we will get to the bottom of this, get past it and get on the way to enabling NRW to be the organisation I know it can be and that Wales deserves.

The Grant Thornton report hasn't just looked at areas where failures were known to exist; it's also identified some other areas and pointed to areas that I don't think anyone had looked at before. So, I see what you're saying—that it really is a turning-over-the-stones process that is probably difficult but, as you say, necessary.

And just to emphasise that, the report does make clear there are a number of themes here that are outside the forestry issues, about how the organisation worked and, indeed, the central functions and how connected they were to the different parts of the business, et cetera. So, we need to get across the whole-scale reform that's being undertaken at real pace. So, the project oversight group that I established around forestry is also looking at some of these lessons learned across the whole organisation to assure ourselves and give the board real assurance that we're safe in that area, and indeed the audit committee is doing the same thing. So, this is a whole-scale reform agenda now. It's not simply just about forestry, and I think we need to emphasise that right at the start.

Good. Okay. Time to bring in some other Members. Rhianon Passmore.

Thank you very much, and welcome. In regard to the period of time, this must have been a very distressing and turbulent time for staff at NRW, and I'm positive that we can make great steps in terms of turning this into an exemplary organisation for Wales. The Grant Thornton report makes various recommendations for improving the internal systems and processes within NRW, but in particular around the internal governance arrangements. So, in regard to the timber companies, as you are very well aware, there were a number that wrote to Welsh Government, to Ministers, in regard to how this was carried out. How do you, then, intend to restore the confidence of the timber industry in NRW, and actually the wider reputation of NRW, which has been very tarnished?

Well, as you say, I think it has been a turbulent time for the organisation, but also difficult in terms of those relations with the timber industry. I met the timber trade on 28 January and very much talked to them about working with them to establish a new and different relationship. I think they've had frustrations with us in the past. I think we've had frustrations with them. It needs to be a two-way relationship, and we need to do that with them in order to ensure that we have a vibrant timber industry in Wales, hugely important for jobs and the economy, and I do think that we can get there. We've had some very good meetings actually since that meeting on 28 January. My team have been meeting with Confor just this week, and I do feel that we together can move forward and transform the relationship.

14:00

It's worth noting that, in all the time, the volume of timber sales did not fall. So, in the sense of the industry getting the volumes they wanted, that happened. I think also a point I would make is that NRW was doing business a certain way, if you look at it like that, and I would expect the timber industry to step alongside us and change the way we do business together. So, part of our change agenda is about sharing what we're trying to do in the future, ensuring best value, transparency and the rest. I think that's a really important conversation to happen with the timber industry, because they may have been used occasionally to different ways of doing business, which we need to change. 

Moving on to the committee's November 2018 report, the committee recommended that, should the independent review findings on the failures of governance—and, obviously, there'll be much more to follow in that regard today—be insufficient, the Welsh Government should ensure that there's an immediate comprehensive review of governance arrangements within NRW, and examine how these failures were able to occur. Now, the Grant Thornton report didn't go into how these failures occurred, so, in that regard, in respect of the transitional timber contracts, has NRW—and I understand totally in terms of the wholesale transformational restructure and reform; the cultural makeover that's undergoing—and in regard to how important this is, have you carried out your own investigations into this? If not, have you contacted the Welsh Government in this regard—in regard to timber contracts?

In regard to the transitional timber contracts that we were talking about. 

Yes, in regard to how that was able to occur, and we will be talking in a little bit more depth later on around that. But, from your perspective, at this stage, have you looked into that? 

So, there was a hugely comprehensive review of the transitional timber contracts done by the Wales Audit Office, which was the basis of the qualification. We have not done more work—forensic work—around those transitional contracts. I think, for me, the focus has been very much on getting to the bottom of the issues within this area of the business, some of which, as Grant Thornton have described, probably are the same root causes as caused the transitional contracts to which you refer. We've been working very closely, obviously, with Welsh Government. We've been keeping Ministers and senior officials abreast of developments and, indeed, David and I are seeing the Minister tomorrow to talk this through further.  

I understand that completely, but bearing in mind how important this whole issue was in terms of where we're at today, and bearing in mind the wider issues that we're all very well aware of—and they are deep-seated issues and at the moment there seems to be action planning in place around that—do you think that it's wise to look into that more formally at some point in the future?   

I think it seems to be that we've, for reasons that you'll be aware of, decided on taking a route forward on the changes that are necessary to change the organisation around fully. I don't think another investigation at this point would help much. We've got a really detailed plan now, not just around timber, but the whole organisation, as we talked about earlier on. We are obviously undertaking investigations on things we find and further detailed looks at various things as we go forward. That's one of the points of focus for the task and finish group I've set up—to make sure that we've got a real grip on it from the board level.

But I don't, for me, at the moment, think that any further investigation—. We really do believe we've got to the bottom of this now, and it's important, again, to emphasise the point that this is about timber, yes, but, actually, these issues were probably about the way the organisation was being led, and we've let our people down, frankly, because we didn't lead very well. What we're trying to do now, through the measures I've talked about, is change the way we lead, empower our people, so they feel really part of an organisation that's going forward. That's the way you build a reputation forward, not by more investigations, et cetera.   

Thank you very much, Chair.

My question relates to the findings of the Grant Thornton review—a pretty dismal picture, or abysmal rather—whether it was the contractual agreements, which were totally—. There were a lot of anomalies. Contracts were often not properly authorised and not fit for purpose—serious reporting there. There was lack of control over contract overruns—you know, that sort of thing. It is not right. What lessons have you learnt and how are you going to put things right? This is a loss to the nation of public funding. It's people's money. There has been a failure to keep proper documentary and audit trails in this matter, which is again against the financial rules of running a company or a business. It's public money. Why was it done so badly?

14:05

As you say, the findings of the Grant Thornton report do not make pretty reading. We completely accept those findings and we have put in place an action plan to tackle every single one of them. We reckon that we are about 55 per cent of the way through delivering that action plan already. In terms of the wider lessons for the organisation, we're absolutely not complacent about the fact that this is just one part of NRW's work. So, there are indeed lessons for the whole organisation. Particularly taking your point about standards and documentation and the proper management of contracts, we published last week a new set of timber standards documentation, which all staff will follow. They are mandatory standards, and they are being trained on it as we speak.

Thank you. The thing is, there has been very poor budgeting and financial reporting arrangements in this whole affair and a lack of co-operation between NRW's forestry division and finance and legal teams. This is not the right way to run an organisation, is it?

No. I think there are many lessons, and that sort of thing is indefensible. We have learnt the lessons of the Grant Thornton report. We are working extremely hard to ensure that every recommendation is followed up, including those about the silo working that was described. One of the things that will address the issues of different parts of NRW not necessarily talking to each other is the changes that I alluded to at the beginning of the session, because we are organising ourselves in a different way. So, for the first time since NRW was created, we will be structured as a single organisation with integrated teams on a place-base—so, six places and then marine, with strong central services working closely with those place-based teams. So, it is a mixture of the action plan that I've referred to and organisational restructuring that I hope will deliver the very real change that David was just alluding to.

If I may. My experience suggests that organisations that get themselves into some difficulty's first response is to put sticking plaster, layer upon layer of sticking plaster—and I think that's what partially may have happened here. We are now in a fundamental rebuild. So, the first step of recovery is to confront the brutal reality of where you are, which is what we've done through the Grant Thornton report and other things that we've done. So, that's what we're in the midst of. I can't get into the detail of what happened previously, I wasn't here, but all I know is I can work off and see how things went awry for issues of governance, leadership, et cetera. What we're doing now is root-and-branch restructuring and reorganising and refocusing the organisation.

Thank you very much, David. The thing is, what lessons are you learning from your predecessors? What they have done—the contract is not fit for purpose, badly mismanaging financial affairs, no co-operation among the groups within the organisation, even though the auditor general mentioned three years before, then this committee, and then now Grant Thornton—

Just before you answer that and building on from that, going back to your previous answer, are you saying that when NRW was created and you had the different organisations brought together, they were never properly melded together in an operational way? It was one organisation but they were still operating in their own silos. Sorry, I interrupted Oscar, but there was an interesting point there.

It's been that ghastly word—a 'journey'. So, over the five years that NRW has existed, gradually, work has been done to bring together information technology systems, to bring together human resources systems, to bring together all the support that the organisation needs. But this process that we are now embarked upon is to create, effectively, teams who are focused on delivering our core purpose as set out in the Environment (Wales) Act 2016 and the Well-being of Future Generations (Wales) Act 2015. So, it is a real sense of bringing together the people into single teams. Yes.

14:10

If I can, I think we've perhaps overlooked the fact, because of the concerns about this particular issue, that every day, right around the country, NRW staff are doing extraordinary work, whether it be on flooding, environment or the rest of it, and they are—they carry on doing that. I've never met such a bunch of mission-driven people in an organisation, to be honest. But, as I said, some of the fundamental issues lie originally in the not fusing together of the organisation, and what we have to do is overcome that and create a new leadership context to enable our colleagues to seize the initiative themselves and take the responsibility.

It's been a very top-down-driven organisation from the centre in Cardiff, and when I talk to colleagues on the ground, the areas with local government, you get a real sense that they didn't feel NRW could really step up and play in the same way as they would like at the local level. So, we're changing that to try and really be across Wales in a very different way.

Other issues include the relationship between the executive and the board, which was perhaps not as strong as it could have been in some areas. Equally, the board could have been stronger in some of the ways it handled some governance. There's a whole raft of issues here that are not a single one—it's a whole set of issues.

Hang on, I think Adam Price had a supplementary. Then, Oscar, I'll bring you back in to finish your question.

Yes, just staying with this core theme then of the failure to create a single organisational culture, which is highlighted in the report. Is there a dimension to this that is very specific to the forestry division or department or whatever it was after merger? Because, on the one side, you've got—essentially, NRW's work is about regulating the environment, on the other hand, you've got a land-based industry that is producing product that, actually, needs to be regulated because, of course, it can have a positive but also a negative impact on the environment. Now, what most countries do is they separate those two out, don't they, because of that conflict, essentially. So, my question, really, is: is part of the problem that actually, you are merging two things that, in most cases, don't sit very well together?

I would take issue with them not sitting well together. Clearly, it is an issue that has occupied many people over many years, but coming into NRW, and seeing the potential for what you can achieve by having the three legacy organisations alongside each other and working differently as a result of being one organisation, I genuinely believe that Wales is just doing what others will do in future. Because if you bring together the land-based, the land-management element of this with the policy and the regulation, you start to make a real difference. I'd love to take you and show you some of the stuff we're doing at places like Talybont where we're working on a catchment-based approach with Welsh Water, where we've got our biodiversity staff working alongside our water quality staff, working alongside—

We always like to get out of this building and visit nice parts of Wales. [Laughter.]

Well, you'd be very welcome. So, I just—

Could I just ask you a specific—? So, the positive argument in favour of integration would be that the more holistic goals, for example, set out out in 'Woodlands for Wales', which are partly about forestry and timber management, but also about sustainability in the context of woodlands, right—that we're better able to reach those goals. Those targets—have we done better since the merger, on the indicators set out? So, things like hectares of new woodland—did we do better, do you know? Did we do better after the creation of NRW, or did we do worse?

14:15

A number of indicators spring to mind. One is about amount of timber brought to market, and we have consistently met our targets in terms of the amount of timber brought to market. Obviously—

But specifically that core target, because there was a very ambitious '100,000 hectares of new woodland over a 20-year period'. This was going to be transformational. How well did we do in the latest year for which figures are available, do you know?

This year we've planted an additional 3.3 million trees. Now, I don't know how many hectares that is, but we have an ambitious plan going forwards in terms of compensatory planting, so, the planting of land, which—. So, the Welsh Government woodland estate, as you say, has many purposes, one of which has been renewable energy. So, land that has been taken out, we will be replanting.

Can I just stop you, because I—? The figure that we have, this official figure—and this isn't just NRW land; you have a responsibility in which you regulate the rest of the industry as well—is 200 hectares a year, against a target of 2,000. So, it's about 10 per cent, and that's been the pattern over the last few years. We're only achieving 10 per cent of the target. So, don't you accept that we're not doing well in terms of our target for woodlands? I come back to the original question: wouldn't it have been better to have stuck with a specific organisation focused on that side of it?

If you believe that the original organisation would have achieved that target.

Well, I think the argument must be about how, given the scale of Wales and given the scale of the different organisations, the integration of these organisations, particularly with a place-based approach to work with partners on the ground, will be more effective to achieve the sort of target you're talking about. Having a separate organisation just off on its own with more fragmentation in the system, I think, would be potentially open to big challenge. Now, I would argue, and I have looked at this in some detail before I undertook to do the role, that it's whether, in fact, you believe this is sustainable. I do. I see NRW taking itself into a position where it's indispensable to the rest of the stakeholders, at the area level and nationally. Now, I see no arguments at the moment to suggest that forestry should be put out on its own. I think there are some big issues in forestry that need to be attended to. The proof will be in the making as we go forward, and I pick up the points you made, but I don't think seizing at—. You know, I've learnt a lot in my own career about how the last thing you do when you've got a problem is reorganise. Often, you don't achieve what you need to achieve in terms of the principal objectives. It's a matter of debate, but I wouldn't go—

Well, it's certainly true as far as the merger and forestry are concerned, I would contest, but thank you.

Thank you very much, Chair. I'm coming back to this Grant Thornton review, in the light that you clearly mentioned earlier that there's the root cause of a different culture. So, in that context, could you elaborate on the lack of corporate oversight and scrutiny of forestry division, including the NRW's audit and risk assurance committee and internal audit function—how it is going to be changed, in your view, which you've just mentioned earlier.

So, a little bit about the audit and risk committee and then a bit about the internal audit function. I'm sure, David, you'll pick up on the audit and risk as well. I think that the audit and risk committee accept that they could have done more in terms of oversight of this area of the business. They did a very soul-searching review themselves last summer, and I think that we're very honest about the lessons that they could learn from the episode. As David says, they have been strengthened, and will be, I think, working closely with the rest of the board in order to ensure, going forward, that the audit and risk function is as strong as it possibly can be.

Did you want to—?

14:20

Yes. There's no question that the audit and risk committee did not provide good enough oversight here, for a whole variety of reasons. So, one is business systems. One of the things I looked at when I first arrived was risk management. There are some extraordinarily good risk-management procedures and processes at project level in some of the things that the organisation is doing. The line of sight from the board to those projects—we've got some work going on there to improve that dramatically, and the audit and risk committee needs to approach matters rather differently. That transition, the journey towards that, is being assisted by the project group I've set up, the task and finish group I've set up, which I lead, with three other board members, including the chair of the audit committee, to put in place arrangements that strengthen that function.

But there's no question that things did go slightly awry. I think—. We can go into the granular detail of this, and one of the problems is we haven't got the perspective from where we sit of what actually happened. If you look on paper, the minutes of the meeting suggest things were done properly. The question would be then: were there enough challenges put in, et cetera, et cetera? Now, we can't judge that. The Wales Audit Office are now drawing some conclusions about that, which we're very attentive to and will be focusing on very much in the coming months. But I think—. I feel confident now that we've got enough things in place that will actually create a very firm assurance process, both through the sub-committee, the audit and risk committee, as well as the full board.

And the second part of your question was about internal audit, was it? Just really to reassure you that we have strengthened our internal audit function and refocused it following last summer's qualification. We've added some additional resource into it and we have made it clear to them that the focus should be on compliance as we move forward during this period.

Good afternoon. So, I just want to come back to the audit and risk assurance committee, because it seems to me that, once the accounts had been qualified—the 2016-17 accounts had been qualified—that should have been a wake-up call for everybody. So, the audit and risk assurance committee is where one would expect this sort of examination to take place, and it seems to me that either they were asleep on the job or they were being lied to. So, what was the conclusion of the review that they undertook in the summer of last year?

So, from the point at which this issue, these issues, were first raised with them, which, if I remember rightly, was when Wales Audit Office had a complaint made to them in the summer of 2016, the audit and risk committee have discussed this issue at every single meeting they have held. The review that they undertook last summer was undertaken by the previous head of audit and risk committee and he—

Was that the person who was then replaced by Karen Balmer, or—?

That's right, yes. I think they were very honest about the fact that they should have challenged more and I think there are lessons probably for all audit committees in that—that you can have a lot of information, you can see stuff as it goes past, but are you genuinely challenging the executive on particular issues? I think there was a sense that that challenge had not been as powerful as it should have been.

Okay. So, asleep on the job rather than being lied to.

I think that they did not sufficiently challenge the executive during that period.

Okay, but was the executive providing information that they simply failed to interrogate?

I think that, from the review that they undertook, the audit and risk committee recognised that they had not sufficiently challenged the information that had come towards them.

In fact, looking at the paperwork, I would argue that the audit committee didn't challenge enough. If it had challenged enough, it would have exposed some of the issues in the paperwork. So, I think it's one of those situations where people are leaning against each other here, and that goes back to an assurance function that could have been more effective.

14:25

And, given your experience, were you surprised, given that the accounts had been qualified, which is, obviously, quite a serious matter?

Indeed, yes. I'm not sure I can add much more there. It's—

Okay, fair enough. All right. I suppose one of the other things I just wanted to ask you about was that the Grant Thornton report mentions that a key person left somewhere in the middle of 2017, and that this, in relation—

I think it was a bit earlier than, maybe—. Yes.

And I just wondered—. It is the job of the board to interrogate the then management that, whatever restructuring is being done, because of, obviously, limited resources, it isn't going to leave a massive hole in the structure. That doesn't appear to have happened. If, as Grant Thornton seems to think, this was a key appointment—you know, this post was eliminated.

I'm afraid I don't know whether the board challenged that at that time. Certainly, the structure that we are putting in place is more robust.  

Well, if I may, I think it's—

It can be both.

It's—. To give you an example of this, the project group, which is this small group of our non-executives, working with the executive, is—. We are having very challenging meetings where we are holding the executive to account, also picking up your own point about have we got the capacity and leadership in this area to do the job that needs doing. Those are testing conversations; there's no question about that. And that's enabling a far higher degree of assurance to the audit committee and the board that, actually, we're on top of this. 

Okay. So, could you give us some examples of how the board is changing the way it operates to, if you like, be able to assure themselves that the information that they're getting is fit for purpose, that there aren't further issues they need, and that it's watertight—the information they're receiving?

If I may, there are a number of building blocks here. One is simply the relationship between the executive and the board non-executives, which is far more of, if you like, a collegiate, collaborative relationship, which is open and transparent. That's an important building block.

Secondly is the degree to which we've organised—. Let's use timber as the example. Obviously, the board meetings we have, we concentrate on strategic issues, going forward, on things we've talked about. On timber, the board wants assurance through its audit committee and indeed the task and finish group that we're right on top of the job to actually get this sorted. We're providing the granularity of that detail through the task and finish group, which feeds into audit and into the board. And there's a very focused conversation, not just about timber, but other issues now. I'm led to believe that we're having quite challenging conversations—supportive and challenging; they're not hectoring or pejorative, they're actually what you should do as a proper non-executive. And we're not actually—. The big difference for me is I'm not seeing reassurance being given to the board; I'm seeing assurance being given to the board. And there's a big, big difference between those two things.

Okay, thank you for that. Have you got a particular board member who's taking a particular interest in timber matters, or—?

Well, we've got four of us at the moment.

On the task and finish group. We're obviously looking at how we organise in relation to the new area organisation, and we've got some issues we need to—. We've, clearly, as you know, just recruited five new members and myself—or six new members, actually, and myself, and we're just organising how we deploy their best—. They're very talented. The whole board's very talented; it was just a question of using those talents to make sure we apply ourselves to the challenges.

And, just from an executive point of view, I think we feel genuinely scrutinised and challenged, but also supported and led.

Jenny, just before you go on—Rhianon Passmore, did you have a supplementary specifically on that?

I think you've almost answered my question. It was just simply in terms of, since summer 2016, is the board the same make-up or are there new—? You said there were five or six new—.

Well, at my first board meeting, there were six new members. 

Okay, that's fine. And, finally, just in this regard, you mentioned the assurance functionality. What state of development is that in, in terms of your new assurance mechanisms, or is it now complete in terms of the—

No, it's work in progress. It's work in progress. It's not just at the board level; it's working through the whole—. Again, I mentioned risk. It's about putting in place, embedding, processes in the organisation. So I feel, as a chair, that my line of sight from the board to what's happening on the front line is clear and assured.

14:30

I just want to go back to the point made by Grant Thornton that internal audit was inadequately resourced and didn't carry out effective risk assessments. I wonder if you could tell us how internal audit has been or is going to be strengthened to ensure that the quality of the service is—

So, we have an in-house internal audit function, and during the course of the summer we strengthened that in terms of additional numbers of in-house auditors, but we've also contracted with an external company, who can provide additional services to us. So, we've got that flexibility. We've also reviewed our audit plans and, with the agreement of the audit and risk committee, we have refocused a bit. I think when I started I was a bit concerned that the audit function was doing a lot of advisory work into the organisation—advising on operation of systems—and less in the compliance area, and we have swung that right back and it's much more supporting us in terms of compliance, and that's obviously something that I very much need but also the board.

Okay, because there's a bit of a theme running round the Grant Thornton report, which is that there was a disconnect between internal audit and the operational issues on the ground. It feels like people were just failing to pursue matters. If somebody didn't come back with the answer to the question, it was just left, it would appear.

But, if I may, that's deeply cultural. It goes back to the point about three separate organisations and the extent to which these central functions were being allowed into those spaces. So, if you're not getting support from the top of the shop to drive into those parts of the organisation, it's often explainable why a junior member of staff or a middle member of staff will feel they can't make any further progress. I'm confident now that we've created a, if you like, leadership context with the executive team where there's an understanding that these central functions are our eyes and ears and method of actually making a corral in the organisation to make sure standards are maintained and the rest of it. So, some of this is cultural as well as organisational, but I wouldn't—you know, if you're an auditor, a middle or low-ranking auditor, and you get pushed away by a part of the organisation and then don't get support from the centre, where do you go then?

I agree that that causes the problem we are now examining, but are you saying that internal audit is now clear that, if they're not getting answers—

Absolutely, and—

So, all outstanding audit recommendations come to the executive team once a month and to audit and risk committee every quarter. So, there's absolute visibility. So, if something isn't followed up, it's very clear.

Is there somebody at board level who has deep sector knowledge or experience within timber or forestry?

No. Our board members aren't sector specialists as such. So—

Do you think—? In that you've brought all these new board members on and there was a particular, to say the least, problem in timber and forestry; you produce, what is it, 750,000 tonnes of timber yourself and you regulate—[Interruption.] Sorry?

Eight hundred and fifty thousand, but it was very close.

Eight hundred thousand. Oh, there we are; okay. And then you regulate the other 50 per cent of timber production in Wales. Surely, you would have thought you would have had somebody that had that deep subject matter expertise on your board.

David, I think, will answer for the board, but I think we have that deep expertise of forestry within the executive, and the board are there to set direction, support and challenge.

Sorry, if I may—

Yes, but, with respect, don't you, in order to ask good questions and to provide that critical challenge, need to have somewhere in the mix in the board somebody who actually knows what they're talking about? And what you've said to me is that, currently, you don't have anyone there who has that deep sector expertise in a sector that has a lot of specificities attached to it. Isn't that part of the problem—you didn't have somebody at board level who could ask these knowledgeable questions?

14:35

Well, if I may, from the board level, these appointments are made through the public appointments process, which NRW had no involvement in, save the chair, my predecessor, being on the appointments panel.

Ah, right. So, it's the Welsh Government's fault that—

No. If I may finish the point—

Hang on. You made the point there, so who's responsible for that, then?

Well, it's not a board—I'm trying to indicate it's not a board responsibility. It's probably an appointments process—

So, it's the Welsh Government who appoint the board, and therefore, it's a question I should put to them.

If you wish. Then, our view that the scale of expertise round the board table—. For example, we have a professor in environment studies who has a wide and deep knowledge of land management and forestry on the board, with huge experience. So, forestry—in that sense, the environmental dimension of it, is well represented. The commercial dimension, commercials, is well represented around the board table by some very seasoned businesspeople. So, that's another angle of it. We haven't got a forester—no, that's accepted, but we have got other expertise. We've got a Welsh farmer, for example, in north Wales, and we have a range of other expertise. I humbly suggest that some of this is about running boards well and actually running the organisations well. So—

Just to clarify, though, I understand that there are experts in—people who have studied woodland science and the rest of it, but, specifically—and the chief executive did give me a straight answer to a straight question—you don't have anyone on the board who has experience within forestry and timber.

Okay. No, that's fine. Could we move on to the executive summary of the Grant Thornton report—

Adam, just before we do move on, Rhianon, did your point relate?

[Inaudible.]—because this follows on from the point I was taking in terms of capacity within the board and also skills being absolutely essential to be able to challenge effectively. So, I just wanted to pick up, as the Chair has kindly let me, in that regard; this is a really important question. Do you feel, then, that your board currently has the skills and capacity necessary to do the job of work in front of it?

At the moment, yes, because we are taking, obviously, outside advice on forestry. So there's plenty of advice available to us in terms of what we've been trying to do. And equally, a fundamental part of what we're facing here is building a new business process and a new organisational framework for the forestry functions, so I would argue, at the moment, I feel that with all the outside advice we're getting, the help that we're getting from the Welsh audit office, our own work, and the skills and capability around the board table—but it's clearly something we can take away. I mean, I'm very comfortable with the advice we're getting at the moment, but it's a point well made, I concede it, but it's something we'll look at.

Grant Thornton, in their executive summary, note their

'concerns about the operation of formal and informal complaints processes'

within NRW. Are they right to be concerned?

Our complaints process is well understood and well used. It has been an issue and, coming into NRW, I was very aware of staff concerns and, you know, you are all aware that there were a couple of very hard-hitting staff engagement surveys. Staff didn't necessarily feel that they could raise issues. That's something that I've taken extremely seriously, and I was really pleased that staff felt comfortable coming forward and talking to Grant Thornton. I felt that was a real breakthrough. So, that—creating an environment where staff can raise things with me, raise things with my senior team, raise things with the board—is really important. Clearly, backing that up is a formal whistleblowing process, but, in a way, I always feel that you've sort of failed if people feel they have to go through that because you haven't enabled people to raise issues with you just in the normal course of business, which is how it should be.

In the report, they do refer to 'a number of concerns' raised by staff that weren't acted upon. Have you been able to identify why those concerns weren't acted upon in those specific cases?

No. I think it was—. I mean, they were raised with Grant Thornton and presented to us in the context of the report, but no, I don't know why they weren't acted upon.

14:40

Just to be clear, these were concerns that were raised again with Grant Thornton, having previously been raised internally, but there not having been any action—

The Grant Thornton report—well, the Grant Thornton exercise enabled staff to raise issues, and I was very conscious that that was one of the things that it needed to do if we were going to get to the bottom of the issues. And, yes, I think there were some issues raised by staff that they felt that they had raised before, but they were able to raise within the context of the Grant Thornton report, and they formed part of that report, and clearly, we will now act on it.

There is a specific reference to the handling of a whistleblowing complaint where Grant Thornton expressed their concern at the lack of timeliness and, indeed, I think you've acknowledged that. Can you say a little bit more about why there's been a failure to deal with this properly?

I can't obviously say much about the detail of the complaint, but it was a complex complaint that included a formal complaint about NRW, so it was two processes needing to interact properly with each other so as to ensure that they were rightly taken forward together. I'm expecting that to conclude within the next few weeks.

Without going into detail for the reasons that are understood, are you able to tell us at all whether this, in part or in total, refers to the timber division?

I can't, I'm afraid, give you more detail.

Okay. I understand that. Are you able to tell us whether there are any other extant complaints or whistleblowing allegations that have been raised with you?

There's only one other whistleblowing case that is open at the moment, and that is also shortly to report.

Okay. The report does, in looking at some of the root causes or potential explanations for what happened, refer to fraud, and it says, 

'We consider...the nature and extent of the issues...indicate that NRW has a heightened exposure to the risk of fraud.'

And it refers to 'certain potential irregularities' that it has identified as a result of its investigation. Could you say more about the nature of these potential irregularities, and does that potential include at least the possibility, which could not be ruled out, of fraud?

Yes. We absolutely accept that where controls are weak, we are at greater risk of fraud, and that is why we have put together this new timber standards document and are training staff on it in order to tighten up every aspect of this to reduce our exposure to fraud.

The Grant Thornton report mentions a number of areas for further work, and we are doing that work at the moment. That has been done by a senior internal auditor, and there has been nothing that she has uncovered to date that suggests fraud. But should, at any point, anything come to light that does, we will obviously deal with it immediately, using our counter-fraud policies.

Could you give us at least a sense of the nature of these potential irregularities? I mean, a failure of record keeping, a breach of policy in certain areas—just give us a sense of what we're talking about.

So, the irregularities that Grant Thornton were referring to—they did give some detail, one was about volumes of chip over logs. We've looked hard at that and it is clear, and there is documentation that supports the reason for choosing to take stuff out in chip form rather than logs, because, effectively, this was diseased larch timber and it was not appropriate to take it out in log form. Now, that's the sort of thing that we're looking into in more detail.

14:45

So, for example, you refer to this further work—. So, for example, on page 20 of the report, Grant Thornton refer to the sample of 20 contracts that they looked at, and they note there may be—in this particular context they're referring to addendums, and they note they've been unable to look at all the contracts at this stage, they weren't able to have all the information, but you've given an undertaking to do a comprehensive review.

And that's exactly what this senior auditor is looking into at the moment.

Not in any way, shape or form questioning the integrity of your senior audit team, but you'll appreciate, given the high level of public concern in this area—will that information then be available, for example, for oversight by the Wales Audit Office as part of normal procedure?

It will come to our audit and risk committee, and Derwyn attends our audit and risk committee.

So there will be other sets of eyes looking at the output of these further investigations.

And indeed, if it's helpful, at the last meeting of the task and finish group, we were very clear that we wanted as wide as possible a look at this, so we've asked our executive to contact the appropriate authorities to have conversations about where there might be potential areas that we would be exposed to—an intelligence-sharing exercise, which you'll understand I can't go into in any more detail.

Would you accept—we touched upon this, I think, in a previous session, but given the nature of this sector, which is in global terms, I would say, a relatively small sector with relatively few dominant players within it, would you accept that, under those circumstances, as you have the most dominant position of all as an organisation, both as a producer and as a regulator, you need to be putting in place a strict anti-fraud policy, both in reality but also in terms of perception, so that there isn't even the question that issues of this nature could arise?

I totally agree, and I think I don't want my staff operating in any other environment than one like that.

And in partnership with the industry, so that we're all decided on the same objective, so there's transparency, value for money, et cetera. That would be—well, is—one of the points of conversation we're having with the industry now.

Can I just ask you—? In answering Adam Price's questions, you alluded to—I think it was a woodchip contract. What's your awareness of the nature of that contract? Is it the case that it's being continuously extended over a considerable length of time, and have you been looking into what's gone on there?

It's part of the remaining long-term contract. There is an element of that long-term contract that was highlighted because of the large amounts of chip coming out, and that was a concern raised by Grant Thornton, and we've looked into it, and we'll continue looking into it, but it appears that it is documented and the reasons for taking chip are, effectively, that this is poor-quality timber that is better taken as chip rather than log.

And in terms of the price that's been got for that woodchip, do you think it's been undersold over the last few years?

So, the contract was let competitively and there was a price review in 2018. So, it's been recently reviewed—the prices. 

14:50

And you're continuing to look into that aspect of that contract. 

As a supplementary to my own set of questions, just to return to this issue of perception as well, are there rules in place in relation to the employment of former employees of relatively senior position within the organisation then going to work in the private sector—a revolving-door syndrome it's often referred to in other contexts?   

I'm not aware of people having done that. Certainly, we have strong conflict of interest rules that all staff working in this area would have to adhere to. 

I suppose—. I understand that conflict of interest rules, of course, are fairly common. I suppose the challenge is when they are forward-facing. Of course, it's the case of Ministers that's most well understood, but would a person working in a senior decision-making capacity in NRW, for example, be prevented for a certain period of time from then accepting a job in a company, let's be specific, that would be in a position to bid for work with NRW, or where NRW was in an important position of influence over their company? 

My understanding is that those rules are usually senior civil service level and above, so it wouldn't extend throughout NRW, no. 

Are you aware—? I think you answered this in a previous session, but through further investigations that you've made, have you identified any instances where this has happened in relation to the companies at the heart of these contracts?  

I'm not aware of what you describe as the revolving-door syndrome and, certainly, colleagues who were with me last time said that they weren't either. 

And do you think this is something that you might want to consider, potentially, because of the concern that's been expressed by other players within the industry as well of the overly dominant position of some of these large companies, and the influence that they're able to bring to bear?  

I'd be very happy to consider that. 

I think the issue will be how you do that legally, which I think is quite challenging from my experience elsewhere in my other roles. But probably the better route is to have a conversation with those in the industry to agree a framework that actually makes sure that that is avoided in the future, so you're not seeing a front-facing direct connection with NRW with anybody who got into that position, or whatever. You can only do the best you can in a partnership arrangement with the industry.  

But, clearly, we'll look at it from that point of view. 

Okay. Moving on now to standing sales contracts and related issues, and Neil Hamilton. 

Looking at this as a lawyer, it seems to me a rather odd idea that you bundle together a variety of discrete functions, from felling and sales to restoration of land, replanting, civil engineering works, and all those bundled together into one contract, the effect of which is that the sales revenue to you is reduced, as against the promise of various things that are going to be carried out in future years. In my experience, the more complex a contract of this kind in terms of its structure, and the longer the period of time over which it lasts until all obligations under it have been performed, the more likely that things are to go wrong, the more difficult it is to monitor performance and the more difficult it is to control. So, I'm just wondering: what was the rationale? I realise that you've now, in December, put an end to this until there's been a complete reconsideration of the form of these contracts. So, what was the commercial rationale within the organisation when these contracts were first entered into two years ago? 

I'll just say a bit about standing sales plus and hopefully answer your questions as I go through. So, they were introduced in Wales in 2016 on a trial basis, and then in 2017 they were formally introduced as one of our suite of sale mechanisms, as part of the timber marketing plan for the years 2017 to 2022. That was approved by the NRW board in December 2016, following a major consultation with the industry, and it went through all the sort of various governance stages within NRW. And from what I can tell, the concept of standing sales plus was developed in response to a desire from NRW, Welsh Government and the industry to create more innovative methods of bringing timber to market at a time when there were a number of challenges facing NRW—some really difficult sites to get timber out of, a massive increase in felling because of diseased larch, and the need to restock after that, going back to the questions that Mr Price asked. And many of the coupes that we were looking at were quite poor quality in terms of the timber on them, including diseased trees.

So, they've been used as a mechanism since 2016, and, to date, we have let 81 standing sales plus contracts, with a total value of about £9.2 million. And annually, standing sales plus represents about a sixth of our timber business. Now, Grant Thornton made some recommendations. We completely accept those findings, and that's why we took the decision, before Christmas, not to let any more standing sales plus contracts. But, for me, as you've absolutely said, the really critical thing is how we then manage out those extant contracts, because it is the robust contract management of the civil engineering work and the restocking, over a period of time, that we need to be working really closely with the industry on to ensure that we can demonstrate, without a shadow of doubt, that these contracts, which were let on the open market, represent the best value for money for the taxpayer. 

14:55

Well, Grant Thornton are pretty scathing in their criticism of the way these contracts have been devised. Let's rehearse what they say: no evidence to show that standing sales plus contracts represent value for money, a new contract introduced by NRW without knowing how contractual transactions were to be accounted for, or without being clear how it would monitor the quality of future services to be delivered under the contracts, or without evidence that your legal department was involved in considering the impact on contractual terms needed when these contracts were launched, and, also, without adequate involvement of the procurement functions in the development of standing sales plus activity. That's a pretty comprehensive demolition job on the nature of these contracts, I should have thought, and I'm highly disturbed that your previous board, allowed this to go forward. There may be all sorts of complicated and important things that might be discovered in due course about the legality of these contracts, about whether they fully conform with the Government's procurement policy. And who actually invented this? Who is ultimately going to carry the can for it?

I genuinely don't know who invented them, but it was after a thoroughgoing process of consultation with the industry, with others, during the course of 2016, which then led to the inclusion of standing sales plus as a mechanism within that 2017 timber marketing plan. I don't think anyone has suggested that these contracts are illegal in any way. They were tendered competitively, and the thing that I need to do is to make sure that we exercise the terms and conditions within them and get best value for—

15:00

Just on that point, Clare, before I bring Neil Hamilton back in, you’ve just said that you weren’t aware of how they came about in the first instance, or who—

I don’t know who invented them.

Sorry, who invented—I shouldn’t paraphrase you—who invented these contracts. But to what extent were NRW’s legal services and finance teams involved in scrutinising and reviewing them once they were in place?

Well, they came up through the governance arrangements within NRW at that time. So, they came up and were signed off at executive team and board level.

But Grant Thornton say explicitly that there is no evidence that your legal department was involved in considering the impact of these contracts on the existing contractual arrangements that you had. That seems to me a pretty serious matter, because this is a highly complex contract, and consulting with the people with whom you’re doing business doesn’t seem to me to be the sort of people you want to ask for advice upon whether this is a good thing or not—you know, it’s 'trebles all round' for those who are going to make money out of the contracts on that basis. So, it would be, I think, incumbent upon you, having come in to clear things up, to know how and who was responsible for these contracts, because I think there are a number of potentially serious issues that they might disclose.

Well, as I say, they were signed off at the various levels within NRW in 2016. I think legal advice was taken, but not from our in-house legal department.

Why was external legal advice sought, then, in these circumstances? What was wrong with your own legal advice within NRW?

We have a hybrid legal department, as many organisations do. We have some in-house lawyers, but we would not expect our in-house lawyers to be expert across the whole gamut of legal issues that we have. So, we do have contracts with law firms to provide advice on technical, contractual and commercial issues, on HR issues—things like that.

So, that, you think, is an insurance policy in this particular instance, simply because you sought external advice, and that advice is that, in legal terms, this is an acceptable form of contract, that then—

As I understand it, legal advice was sought at the time, but it wasn’t from our legal department.

If I may—so, I would expect, in an organisation that was running effectively, that the sort of consultation document of a proposal would have been run through legal, procurement et cetera before it got anywhere near a board process. So, at this point, we cannot see that to get that granularity of detail about it. The issue for us is to concentrate now, as we have these contracts, and we’ve stopped any more, is the extent to which we can control and ensure best value. To that end, again, the project group is looking at how we might put in, for example, in consultation and conversation with the industry, a bond structure or some kind, to try and make it, in the world I’m used to, to ensure compliance. So, we're looking at those sorts of alternatives, which, obviously, we'll have to do in partnership with the industry and seek their agreement to variation of the contract terms.

But the fact that we are on it and highlighting it in that way I think is a good thing, in the sense that there is a recognition that, from all of us, there are some issues here that we need to confront. But these have been in the distance for quite a while, and we now need to concentrate on the policing and the enforcement to get the best value for money.

Because as you say, in 2016, there were no such contracts. Within two years, they were a sixth of your volume of sales. So, that’s a very, very rapid increase, and I’m very pleased to hear that you are alive to the potential pitfalls that there are.

Have these SS plus contracts been found anywhere else, outside of Wales, or—?

No. I understand that Scotland looked at a sort of variation on them last year.

So, this was a novel form of contracting, and as NRW has a responsibility to consult the Welsh Government on novel, contentious or repercussive proposals to comply with your framework document on managing Welsh public money—you mentioned that the Welsh Government was involved in this earlier on—were they fully engaged in this process of development of these contracts?

15:05

No. I think that they were involved in the development of the wider timber marketing plan. 

Yes, but not the specific contracts themselves. Okay, thank you very much.

Thank you, Chair. The Grant Thornton report says that in 2016 external legal advice was obtained by NRW that advised changes to the contract wording, including the wording for 'standing sales plus' contracts, but that this advice was never implemented. Can you explain to us why NRW would commission legal advice on contract terms and then choose to ignore it?

I'm afraid I have no idea. I can't—. I can't find out why we didn't take that advice on the terms and conditions.

Well, again, we were both not here. Going back to my original point, in these sorts of circumstances, you'd expect the draft reports and the propositions to be worked through internally with all the different facets of the organisation—finance, legal, et cetera—before anything got anywhere near the board. If it had got to the board in this form, I suggest a good board would have frankly challenged some of this on a commerciality point of view, apart from on best value. Picking up the point that's been made earlier, the structure would appear to be inviting opportunism. 

So, would either of you know who requested the advice initially and also who was responsible for the decision to reject the advice?

I'm afraid at this distance and, with the absence of the key decision makers—I'm afraid we haven't been able to uncover that.

Okay. Obviously, public bodies have a duty to make every effort to ensure that public money and assets under their control are well used, so could you explain to us why it was possible for these 'standing sales plus' contracts to be introduced without any evidence that they would deliver value for money? 

I think it was very clear in the timber marketing plan that the objective of that plan was to secure best value for money from the sale of timber by offering it for sale in a fair, open and transparent way. So, value for money was absolutely central to that timber marketing plan that was published in spring of 2017. The challenge with these contracts is ensuring that you get value for money for the work that is done in terms of civil engineering and restocking, which can often occur quite long into that contract's term. We need to work really hard to ensure that we can demonstrate that those contracts that are still extant do offer value for money and I'm determined that we'll do that and we will report that through the normal mechanisms, through WAO and to you.

Even if these type of contracts do offer value for money, isn't it the case that due to their nature most small or medium-sized timber companies wouldn't have the capacity to successfully bid for these contracts? They restrict competition. How many of the contracts have been awarded and how many awarded to BSW or Tilhill?

I think that's absolutely right, and I've had that feedback, and it's one of the reasons why I took the decision in December that we weren't going to use these contracts any more. They do favour those larger organisations who can take on that additional work—so, the civil engineering work and the restocking work. In response to your question about Tilhill and BSW, it's 37 per cent of those contracts. 

Thank you very much, Chair. You mentioned in your letter to the Chair, I think the last paragraph, it is—. Now, what confidence do you have to build the trust and confidence in the timber industry? I understand you had a meeting on the fourth of this month, only last week.

We had a meeting with them on 28 January, and we also met with Confor earlier this week—no, not earlier this week, last week. Today is Monday.

15:10

Yes, that's right. So, how are you going to build the trust between the people who are managing your industry with other groups and all the rest of it?

I'm sure David will have some thoughts on this, but I think the only way you can rebuild trust after something like this is to be as open, honest and transparent as possible. I'm not defending what went on in the past, but I'm absolutely clear that, in future, things will be different, and that I want a timber industry in Wales that we can all be proud of. It's a hugely important business in rural Wales—huge number of jobs—and I think that everyone involved wants it to work. But we've all got to make sure that it works in a way that is absolutely fair, totally open, transparent, and, as I say, something we can all be proud of. 

There are a lot of good intentions. Just going back to an earlier conversation about whether or not the board should have somebody with timber expertise on it—and, David, you said you'd go away and look at that—I can see there are problems in that because you instantly might have conflicts of interest, if they're still active or if they've been operating in Wales as opposed to Canada or somewhere like that. But I suppose—. There are lots of excellent new board members, but what is the financial or legal, contractual experience of board members? Because I don't think you need to be an expert in timber sales to understand whether or not a timber contract is fit for purpose. You could be an expert in widgets—that would do fine—so long as you understood the processes. So, could you just tell us—?

Well, I tried to answer that question earlier in the same sort of way. The blend of talent on the board now covers commercial, environmental interests, and some other colleagues with all sorts of very heavy-duty backgrounds, including existing members and new members, who bring a wealth of experience to that table. And you don't need to know much about forestry, frankly, to work out what the proper business process should be to sell things. You just need a good business process in the organisation, and you need to understand what the rules are, which are twenty-first century compliant, and you need to create a set of relationships with the sector you're serving that are collaborative rather more than adversarial, where you shout at each other across a field. So, I am certainly content, with the strength of the board now, with the whole range of interests, that we've got what we need to focus on the sorts of issues we're talking about.

Notwithstanding that, I do take the point that it's about how we take advice on forestry. We are about to appoint a land management role, and we are looking very carefully at the blend of person we're looking for, who can take that overview to look at forestry and the environment. But I go back to my earlier point: we don't appoint board members, as I understand it, to represent interests; we appoint a bunch of board members to actually run a board that leads the organisation. Clare runs the organisation; I lead the board. It's a very separate thing. So, it's about getting the highest calibre people to actually join that board, to operate in a collegiate way, with a range of interests, and it's part of my job to make sure those interests are marshalled in such a way that we deploy them in the most effective means possible. 

I am feeling very good about that at the moment. We've moved a few things around to strengthen some of the areas. The audit and risk assurance committee is a good example, where we're strengthening some of our considerations there. The task and finish group. The people and remuneration committee will be looking at other issues in relation to complaints, for example, and whistleblowing, and whether we should have a board member formally responsible for the whistleblowing. I'm used to organisations where you have a direct accountability for process, which we have, but it's whether we need to make that more visible to the organisation. 

So, there's a whole range of issues here, but I go back to the point that I've every faith in the competence of the board currently. 

Okay. I think one of the issues that confronts us is that, clearly, you're doing your best to clear up the mess created over the way in which timber sales were handled, but what assurances can we get that similar problems of a different nature don't exist in other parts of NRW, simply in terms of following processes, taking legal advice, and, where possible, implementing legal advice, and also referring things that are repercussive or novel to the Government?

So, the board is very focused on that. The task and finish group—project group, I call it—is very focused on that. The conversations that Clare and I have been having have been, very, very, very early on, about making sure there was nothing here else that we could say has a similar range of difficulty. So far, we've not found anything that gets into that neck of the park. I think the challenge—and it's a good challenge—will be to make sure that, on the area of leadership of the organisation, we make sure we've got the arrangements in place for our area leaders to actually actively lead at that area level in concert with the top of the shop, which obviously has to have a Wales consistency approach to the agenda. So, there's a bit of a job to do, but, again, I think we've got the right plan, we've got the right organisational design; we just need to invest heavily in the cultural stuff and the leadership stuff to make sure it works.

15:15

And I think two things just to add to that: training is really, really, really important, and we've done a lot, but we will be doing more. And I think that ensuring that people absolutely understand the operating environment in which they're working is critical. And then, coming back to my answers around internal audit, they are an absolutely critical part of that assurance mechanism, and they work across the whole of NRW and we need to make sure that they are working on compliance across the board.

Yes. Thank you. In regard to—you actually went to touch wood then; we won't go there. But in regard to any other issues that you may think are not within the organisation that you can actually see, with all of the extensive and comprehensive analysis and investigations that there have been, the standing sales contracts have raised a number of different concerns within the committee, and, granted you're not implementing any further ones and you've put a moratorium on that and you're running those out—. Bearing in mind those concerns that we've touched upon today, do you feel that there's any way that there is a greater concern from yourselves about these contracts? And if they weren't proving value for money—. So, my question really is: how are you evaluating that? If they weren't proving value for money—these are the existing ones that are running their course—would you be able to end them, and, if so, should you?

Clearly, we're managing this group of contracts very, very closely, and we will be looking at how we best ensure that we do get value for money. Now, one of the best ways is to have tendered them openly and fairly and transparently at the outset, and we have done that. And then, clearly, there is an absolute necessity to make sure that we hold the contractor to what they have promised to do under the contract. But, yes, as David said, we will look at all mechanisms to ensure value for money.

So, my question really is: how are you evaluating that? Because, obviously, all the upfront work should have been done originally, and they're running their course, you're not doing any more, which is—

We will do that through a number of mechanisms—benchmarking against costs of component parts of the contract. So, you can benchmark those costs against others. I think this is—. My sense is that this is such an issue of concern that the industry will want to talk to us about how we show this is happening. And I referred to it earlier on—I'm very keen on finding mechanisms that hold the industry to account, which we can add to the contracts by agreement. So, in my own world—in previous worlds—I'd be talking about a bond structure. So, the company will put a bond up, and, in the event of failure, we would take recourse of that bond. Now, clearly, we haven't got the powers to force that, but I think a good conversation with the industry, and particularly the setting, would suggest that, actually, they might be prepared to talk about this—I don't know; we haven't raised this with them yet, but I'm being very open about it. That's one mechanism.

The other mechanism is about measuring very carefully and clearly as you go along. We're going to have a separate focus on this inside the organisation to make sure we do deliver. It's obviously in all our interests to make sure we feel we can go back at the end of the year's accounts, and say, 'We're on top of this, we know what we're doing, we're seeing what we get, et cetera'. But some of these are quite long contracts, and there's a balance to be struck about, on a bond, for example, how much of a bond you can put in place, which might favour the bigger operations as opposed to the smaller operations. There's a whole raft of issues here, but the key bit is to start a dialogue with the industry, to actually start saying, 'That's where we're trying to get to'. And there's a burden of responsibility on the industry and ourselves to deliver something that gives confidence to yourselves and other colleagues.

And so is this then an ongoing stream of work in regard to these types of contracts?

Yes, definitely. So, as I say, they're being managed as a group, and we are delving into each and every one of them.

15:20

But we're not letting any more. That's the point that's critical.

Absolutely, and I understand that fully. Thank you for that.

Finally, then, I mean, there's clearly an awful lot of work gone into the reports and into the transformation programme that you are undertaking. So, obviously, that's been informed by the auditor general's reports and these committees' reports. How much of your current work in this regard, in terms of leadership and governance and cultural change within the organisation, is down to the reports, and how much of that is down to your own personal leadership?

It's really difficult to—

But no, I mean, in a sense, you know, when I took up the role, and when David joined, the issues that WAO and you have raised over a number of years form a background of information that, coming in, I took heed of and got into. I felt that we needed to do more, which was why we did the Grant Thornton review. I think that, in a way, the work that WAO, PAC, Grant Thornton did, it informs every aspect of it. So, it's whether, you know, if I think of what I'm doing in terms of leadership, in terms of improving customer service, improving stakeholder relationships, and sort of getting a real sense of values within the organisation, improving communications—all those things are informed and driven by a lot of what we're talking about today.

And if I could add to that, I can perhaps provide a commentary, because I'm recently arrived. I think Clare has made a huge difference as a chief executive. I get a sense of that in going around the organisation, but there's a long way to go in rebuilding trust and confidence amongst our employees who, I believe, we've seriously let down. So, that's the first issue.

I also believe it's about how we behave. We had a board meeting in Aberystwyth, I think it was, and I overheard one of our board members, executive members, not looking forward to the board meeting, thinking they were going to get 'beaten up again'. That was the phrase that was used. Afterwards, they said to me, 'That was very different; it felt like one team supporting each other, challenging.' So, it's about how you behave, how you lead, and actually give confidence to the executive from Clare to go forward with the agendas. My job is to support Clare, and I think we've a long way to go, but I think we've made big progress, and—

Do you think, Sir David Henshaw, perhaps one of the overriding messages of the Grant Thornton report has been—and the work done by the auditor general, actually—that operational change and change in structures are one thing, but there needs to be a deeper, a deep-seated cultural change in the organisation, and if that doesn't happen, then, in the future, things could relapse? And from what you've been saying, Clare Pillman, it looks to me like you've pretty much had to take this organisation apart and put all the constituent bits back together again to make sure that, in the future, these sorts of relapses don't happen.

And, I think, that's true, and I think it's a difficult message to sell to individuals who are finding their own worlds challenged in terms of roles, jobs, and the rest of it. We've created this story about all that, which I think is going down reasonably well. We're not far off the end of the restructuring, but it's all about how you lead the culture. It's all about behaviour. It's all about how you lead and, actually, the confidence our people feel they have in the way they're feeling they're being well led.

Like all chairmen, I was hoping to have the final word, but Adam Price is going to have the very, very last final word, because we are out of time. [Laughter.]

I was just struck by what you've just shared, really, about a board member—a board member it was, yes? A non-executive board member.

An executive board member.

Ah, right. Okay. An executive board member felt they were going to be, metaphorically speaking, I presume—

Metaphorically, yes.

—beaten up by the previous board, by the non-executives.

The non-execs, yes.

Right. That, to say the least—I can't think of the right—. That is an extremely unhealthy picture of how the board used to be or used to operate, isn't it?

It's a vignette. I can't comment on the generality. All I'm saying is that's what he said, and afterwards, he said to me very clearly, 'This just felt very different. It felt strategic, it felt supportive, it felt very challenging and holding to account, and we're on with the agenda.' So, I'm not dressing it up; it's important to recognise. And it's important to recognise what's been achieved so far. These reports provide, if you like, a framework backcloth, but you don't change organisations and achieve success by just reacting to reports, you have to grab the whole agenda yourself as a leadership group, particularly Clare and the executive, taking it forward. 

15:25

Because obviously, if staff and senior management feel they're going to be duffed up, as it were, then they're not going to be able to provide open information in a way that helps the organisation to improve, because you become naturally defensive.

Absolutely.

I think, going back to the answers I gave you earlier about whistleblowing and staff feeling comfortable about coming forward, clearly, that was something that I found when I arrived and what staff told people through those staff engagement surveys. I've got great staff and I just want them to be able to come and talk to me about any concern they have, not that they feel they can't raise things. Actually, we all know that the staff will have the solution to many of the problems that are here, and listening to them and supporting them to get the right solution is what I need to do and what I hope I've started doing. 

Perhaps we could invite you in summer/autumn to visit some of these staff on the ground to see some of the extraordinary things that go on. It is extraordinary, the range. The way I described it at some of our local meetings with staff is that, everywhere you go in Wales, NRW is around you—land, sea, water. It's extraordinary. You often miss some of the work that's going on, also the challenges they're facing. It would be good for you just to get a sense from a conversation with them.

I'm sure members of the committee would very much appreciate the chance to come out and see you on your turf for a change, rather than always in these hallowed walls.

Anyway, we are totally out of time now, so can I thank our witnesses, Clare Pillman and Sir David Henshaw, for being with us today? We wish you well in your endeavours to try and address some of the concerns that have been raised recently and over some time now. 

3. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o’r cyfarfod
3. Motion under Standing Order 17.42 to resolve to exclude the public from the meeting

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).

Motion:

that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).

Cynigiwyd y cynnig.

Motion moved.

With that, I'd like to move Standing Order 17.42 to meet in private for the rest of today's session, for items 4 and 5. 

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 15:27.

Motion agreed.

The public part of the meeting ended at 15:27.