|Adam Price AM|
|Gareth Bennett AM|
|Jenny Rathbone AM|
|Mohammad Asghar AM|
|Nick Ramsay AM||Cadeirydd y Pwyllgor|
|Rhianon Passmore AM|
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Andrew Slade||Cyfarwyddwr Cyffredinol Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Director General Economy, Skills and Natural Resources Group, Welsh Government|
|David Richards||Cyfarwyddwr Moeseg a Llywodraethu, Llywodraeth Cymru|
|Director of Governance and Ethics, Welsh Government|
|Gawain Evans||Cyfarwyddwr Cyllid, Llywodraeth Cymru|
|Director of Finance, Welsh Government|
|Peter Ryland||Prif Weithredwr Swyddfa Cyllid Ewropeaidd Cymru|
|Chief Executive, Welsh European Funding Office|
|Richard Harries||Swyddfa Archwilio Cymru|
|Wales Audit Office|
|Shan Morgan||Ysgrifennydd Parhaol Llywodraeth Cymru|
|Permanent Secretary, Welsh Government|
|Lowri Barrance||Dirprwy Glerc|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Craffu ar Gyfrifon 2018-19: Llywodraeth Cymru||3. Scrutiny of Accounts 2018-19: Welsh Government|
|4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o'r cyfarfod||4. Motion under Standing Order 17.42 to resolve to exclude the public from the meeting|
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 13:18.
The meeting began at 13:18.
Nid oes recordiad ar gael o ddechrau’r cyfarfod.
No recording is available of the start of the meeting.
[Inaudible.]—one apology today from Vikki Howells who can't be with us, and no substitutions. Do Members have any declarations of interest they'd like to make? No. Okay.
Item 2, and a couple of papers to note. First of all, the Welsh Government have provided an update on the implementation of the remaining recommendations from our report on the regulatory oversight of housing associations. Members may recall their concern regarding the capacity within the Welsh Government's regulatory team. The recent board report appears to reiterate those concerns. As the response to the board report is from the Minister, who makes clear that staffing matters are for the Permanent Secretary, it isn't clear how the question of skills capacity is being addressed in the short term, notwithstanding that other developments in the arrangements may have implications for resourcing downstream. I think we should note the statement in the Minister's response to the board report that a social housing tenant is a social housing tenant, irrespective of whether their landlord is a registered social landlord or a local authority, and they should be able to expect similarly high-quality and good-value services. Are Members happy to note that letter? And perhaps you'd like to seek clarification from the Welsh Government? Welsh Government is in front of me at the moment, so you might like to—when we've done our evidence session—cover some of those points?
Secondly, the Auditor General for Wales has published a number of reports, which have been added to today's agenda for noting. They've also been added to the agenda as links. I'll just whisk through them. 'The "Front Door" to Adult Social Care'—this report will be complemented by the forthcoming audit office work on the implementation of the Social Services and Well-being (Wales) Act 2014, and the clerk is liaising with the Health, Social Care and Sport Committee and advising them on the report with regard to that. 'Fuel Poverty'—the Climate Change, Environment and Rural Affairs Committee are currently undertaking a consultation on this, and are scheduled to hold evidence sessions as part of their inquiry in the new year. I therefore suggest that we let the committee consider this report as part of their inquiry. I shall write to Mike Hedges accordingly. The 'Review of Public Services Boards'—this report is of interest to us as part of the evidence session in late November with the Welsh Government on local government issues, so we'll add that to the agenda at that time. Finally, the 'Public Spending Trends in Wales 1999-00 to 2017-18'—a document that I think we had sight of last week. You published that, auditor general, on 1 October.
'Over the two decades of devolution the relative levels of public spending per head in the four nations of the UK have remained consistent—Wales has consistently seen a higher level of per capita spending than England but lower levels than Scotland and Northern Ireland. But if one looks at individual policy areas, some interesting, and perhaps unexpected, variations can be seen in the pattern and relative levels of funding.'
I certainly found it a particularly interesting report. Anyone who hasn't had a chance to look at it, it really does shine a light on trends over the last 20 years.
So, if we can note all of those reports. And with regard to the last item, would Members like to have a detailed briefing on the public spending trends over the last 20 years? I think it would be interesting to have some further information on that. Yes. Okay, we can arrange that.
We got there—item 3, and continuing our scrutiny of the accounts 2018-19. I welcome our witnesses with the Welsh Government. If you'd like, as usual, to give your name and position for the Record of Proceedings.
Shan Morgan, Permanent Secretary to the Welsh Government.
David Richards, director of governance and ethics.
Gawain Evans, director of finance.
Peter Ryland, chief executive, Welsh European Funding Office.
Andrew Slade, director general, economy, skills and natural resources.
Great. Thank you for being with us today. Before we launch into our substantive questions, as you're no doubt aware, hot off the press about an hour ago was a written statement from the Welsh Government on Cardiff Airport, which I've been reading with interest, and towards the end of that statement there is the announcement of an extra £21.2 million for the development of the airport. I understand that's going to be in the form of a loan, but there aren't any details as to what this money is specifically going to be spent on, and the repayment period for that. So, I wonder if you could enlighten us.
I can pick that up briefly, Chair, if I may. I mentioned, when I was before you a few weeks ago on the airport, that we were in discussions with the airport about future financing. It plays also to the point that you made, Chair, about the nature of the airport's funding arrangements in future and where it will draw its money from. We've now reached agreement with the airport on that £21.2 million figure. It's a market operator rate, as is required under state-aid rules. I can give you the headlines, and it's probably better to follow up separately with correspondence on what the money is for. But we don't go into too much detail, as you'll recall from that session, in relation to commercial confidentiality between airports.
Sure. Yes, if you could provide us with more information. I think I'm right in saying that the last accounts that we saw, of the £38 million that had been given to the airport before, around £30 million of that had been spent—
Most of it had been drawn down.
I can't remember off the top of my head and it would be better for me to confirm the detail for you. But it was also related to the point that Wales Audit Office colleagues had raised in relation to the accounts of the airport. It's all part and parcel of that wider piece of work on the viability of the airport and its operating arrangements.
Would people be right in having concerns that, given the economic situation of the airport, there isn't a repayment timescale for this new loan? Is the Government hopeful that it is actually going to have that loan repaid?
There'll be a repayment schedule in the loan, on similar sorts of terms that we agree with Treasury in respect of financial transaction money, which I think, off the top of my head, is about 25 to 30 years. But, again, the precise details—two elements: one, I can tell you certain things that don't breach, certainly, in open fora, the confidentiality of the airport's operations, and then there's a further level of detail beneath that where, for a range of reasons that we've discussed previously, we don't disclose those publicly.
I appreciate there are commercial sensitivities, so I look forward to you providing that information. But I think these are considerable amounts of money, aren't they? First of all £38 million, and now £21.2 million. So, if you could provide us with the information—
—that you feel that you are able to, then that would be very helpful to our deliberations.
Okay, thank you. If I kick off with the first of the set questions: how have the changes to the Welsh Government's governance framework, introduced in 2018-19, aided transparency and decision making, and can you provide any examples to illustrate those improvements? Shan.
Thank you, Chair. I think, if you look at page 39 of the accounts, there's an overall diagram there of what's been done. I decided that I would like a little more clarity in understanding the decision-making processes and all of the advisory and follow-up procedures that we have in the Welsh Government. Those were the changes that were implemented in 2018-19, and I think, certainly for me, and I think for the organisation as a whole, the new structures have brought about a lot more clarity, and I certainly feel that I can see much more clearly where the lines of responsibility and decision making flow and have a much clearer sense of how follow-up action is taken forward. So, if you look at that chart, the executive committee, which we normally call ExCo—that makes the key decisions, largely corporate affairs, and then the board sits alongside that, providing advice and challenge and, as a result of that, assurance on what we're doing. There's a sub-committee structure that you can see there that covers a lot of the details—two committees beneath the board that are chaired by non-executive directors: that's the audit and risk assurance committee, the Welsh Government ARAC, and the remuneration committee that looks at roles and pay for senior civil servants.
One of the things we did was to establish a small secretariat, which manages the work programme, sets it out and follows it up and makes sure that there is an interrelationship between discussions at the board and at ExCo and the sub-committees. So, it's a more coherent structure overall. I can see who takes decisions when. It's got a much more strategic, forward-looking agenda, which is managed by the excellent secretariat. That's reflected in the information that we provide on our intranet. So, it wasn't that the system was operating poorly before, but I felt it could be clearer for everybody concerned, and therefore we carried out a governance review and that chart that you see on page 39 is the result of it.
Can I just ask you: you mentioned the governance review, which was completed, I think I'm right in saying, in 2017-18, but there were still actions required to improve the working of the audit and risk assurance committee and the remuneration committee. So, what's been the reason for that—I don't want to use the word 'delay', because that's too strong, but why haven't some of these actions been completed yet?
They have all now been completed [correction: The majority have been completed, with all others in progress.] Some of them—. We were very transparent in what we included in the accounts, obviously. At the point that the accounts were sent off for audit, not everything had been followed through, because it was quite a wide-ranging review and involved setting up a number of new bodies, changing others, changing the membership. But they have all now been actioned—the key recommendations for the ARAC and the remuneration committee. And I have to say, I was very grateful to the Auditor General for Wales for giving further advice in addition to the governance review about the kind of best practice that you'd expect to see embedded in our assurance system. So, that was very helpful. We've now implemented all of that, and I do feel that the system is now pretty comprehensive and clear.
When do you think you will revisit it in terms of an assessment of the effectiveness of the changes?
Of the whole structure? Well, we keep it under constant review. It's only been fully operational, really, for about six months now. I would expect to review it after about a year, but there are different elements within it that have a different timescale of review. So, for example, the board will carry out a self-assessment every year, which will look at its effectiveness. I will keep it continually under review, and different elements of it will have a specific timetable.
Yes. And this time around we had a fairly detailed overhaul of the terms of reference. The first time around, and this last year, we reviewed them again. It was really just fine tuning and updating to reflect the changes to the overall governance model, the names of the different committees, the membership of the different committees, and all of that, and to bring out very clearly the purpose of the board, and make clear that it's there to give me assurance as principal accounting officer, to give strategic advice about delivery of the Welsh Government's priorities and, in particular—and this is something I find extremely valuable—to give challenge and advice on our delivery and our organisational and corporate strategy.
Has it purely been an internal process, or have you had any outside independent evaluation?
This year, it was purely internal. We used our knowledge and analytic services team to make sure that we were putting in place the right kind of processes, and they gave us advice on the kind of questions to use. We had an online survey tool. I think we got something like 14 responses to it altogether from all the members of the board, and then the analytical services people looked at the outcome to make sure that it seemed to be objective and delivering what we needed for the self-assessment.
So, this time it was all internal, including, obviously, the non-exec directors. We are required once every three years by the Government code of conduct [correction: by the corporate governance code for central Government departments] to include external input, so we will obviously do that. But it seemed right, given all the changes that had been made last year, for the first self-assessment review to be internal, but we could, perhaps, next time use external input. But, certainly, once every three years we are required to do that, and I think it's very valuable.
The First Minister has a formal engagement with the board. He met the non-exec directors on 13 September, and that was just the non-exec directors and me, to discuss the First Minister's delivery priorities for the Welsh Government, and then to have a very interesting session about how the non-exec directors could contribute stronger external challenge to the Welsh Government's delivery of Government priorities. That was a very good session and, as a result of it, the non-exec directors sent a joint letter to the First Minister to explain how they're going to follow that up. We've since had a discussion at the board, I've discussed it with the First Minister, and we're going to do two things directly as a result of their conversation with the First Minister. One is to introduce what we'll call 'challenge sessions', chaired by non-exec directors, probably two at a time, of senior officials, directors and above, across the Welsh Government who are engaged in delivery of the key priority areas. So, non-exec directors will chair and manage challenge sessions on each of the priority areas that are set out in the budget, and the second thing that they're going to do is that, in future, each board will include, which it doesn't at the moment, a session, a sort of deep dive, on one of those priority areas so that they have the opportunity to ask questions of all the officials in the room, and make sure that they have the opportunity to really challenge us on delivery of those priorities. So, the First Minister was keen to make best use of the expertise and experience that the non-execs give to us by bringing in stronger external challenge. And, of course, you'll be seeing two of them—
On 11 November, I think, so it will be interesting to hear their viewpoint as well. Finally from me, before I bring in the other Members, in terms of your own role, can you explain your role and that of the board and the audit and risk committee in respect of the review of the consolidated accounts prior to them being presented for audit?
Well, the accounts are reviewed really at all levels. So, it starts with a very thorough review of the tables, the text, the contents, with the team of top officials. Obviously, I work very closely with Gawain and his team on that. Then, it goes through the different parts of the organisation to make sure that we're looking at it rigorously, and the non-exec directors are included in that, as are the group audit and risk assessment committees and the Welsh Government ARAC [correction: as is the Welsh Government ARAC]. We revised the timings this year so that they could all scrutinise the accounts, and that then came up to the Welsh Government board. I had contact with the WAO who gave us very positive feedback about the involvement of the Welsh Government ARAC in that process, and that's something we'll definitely build on for the future. The overall board of the Welsh Government obviously reviews the accounts before they are submitted to the WAO for the final audit [correction: before they are finalised], so there's a process at all levels of consultation, scrutiny and challenge of the accounts before they come for audit by the WAO. If there are any further lessons to learn for the approach that we adopted this year, I'm very keen for us to take those on board and we'll be discussing those with colleagues from the WAO.
Thank you very much, Chair. Good afternoon, panel. My question relates to risk management and some uncertainties. Internal audit has identified gaps in the Welsh Government's risk management arrangements that need to be addressed, and also the consolidated accounts for 2018-19 report that Brexit is the most crucial matter on the corporate risk register, especially in the area that Welsh Government, Welsh NHS organisations and local government will have 'insufficient capacity or capability' to deliver the transformational ambition and future vision set out in 'A Healthier Wales'. So, my question to the chief exec will be: what gaps were identified in the internal audit review of risk management arrangements and what are the related consequences and how will they be addressed?
This relates to page 60 of our accounts on the capacity to handle risk and we report there a reference to that review. They identify two main gaps. The first was that we didn't have a risk appetite statement for the Welsh Government and therefore the internal audit team felt that we didn't provide sufficient support to help decision making across the Welsh Government by setting out very clearly the nature of the different kinds of risks that we were prepared to accept. So, they felt that there should be a much more consistent kind of template or barometer, if you like, to assess whether we have an appetite for particular levels of risk. So, what have we done on that one? A draft risk appetite statement went to our executive committee, the decision-making body, for agreement, and has also been agreed by the ARAC of the Welsh Government last week. They had, I thought, a very good discussion on it. We talked through in a lot of detail at both ExCo and the ARAC about the nature of the risks and very precisely how to phrase them so that there is clarity across the organisation. Obviously, that's what we're doing now, making sure that, across the whole of the Welsh Government, there's a very clear understanding about what those risks are, what are acceptable, how to approach them, so that there's consistency. So, that was the first one on page 60, the risk appetite statement.
And the second gap that they found was related, really—that the risk framework was out of date in relation to the new governance structures that we've brought in and that I described earlier. So, therefore, there was a feeling that the routes for escalating and taking decisions about risks weren't as clear as they should be, so the review highlighted that and—. We went through the same process on that, that ExCo reviewed some minimum standards for risk management and that sets out a revised corporate risk management framework—again, very carefully described and delineated—and those set out frequencies of risk reporting and escalation and everything. That, again, was agreed by the ARAC at its last meeting. So, in other words, we have adopted measures to fill the gaps that were identified by—
Thank you. In regard to the biggest risk that you cite in terms of the corporate risk register, you state that it's a high-level risk, but is there any narrative as to why there doesn't seem to be any mitigating actions outlined? I'm struggling to understand that.
In relation to Brexit, do you mean?
Yes, as the biggest risk factor. Why, therefore, is there no mitigating action that we can look at in this context?
The biggest risk is, obviously, of a 'no deal' Brexit. Welsh Government Ministers have made very clear their concerns about what that would involve for Wales, and, in September, I think it was, we published the 'no deal' action plan, which set out very clearly the action that's being taken across the whole of the Welsh Government to mitigate the potential risks of Brexit. I should say that, on Brexit, we are preparing for three scenarios, basically: a 'no deal'—
I understand that, in regard to the corporate risk register. It's just a reasoning and a narrative as to why there are no mitigating actions outlined within that, for this particular purpose, for the register. Because you've got that other document, you're saying—
It is a whole separate subject, really, and the 'no deal' action plan is the mitigation, but I recognise we could have included in that—
You've just said—you didn't finish—that you were preparing for three outcomes, possible outcomes. There's a deal, there's the 'no deal'—I'm just trying to work out what the third is, unless I'm being dense.
No, no. The third is continued membership of the EU for a period of time—who knows how long? Because, of course, there are some huge decisions coming up on agreement of future funding, the budget of the organisation, the agricultural support schemes and so forth. We are having to put—Andrew in particular—considerable resource into making sure that we are in a position, if it comes to that, to influence those decisions if we do remain in longer. So, we're on a triple track at the moment, but, I have to say, the urgent work is, obviously, on preparations for the possibility of a 'no deal', because that would have—
That is the biggest risk and would have the largest impact on Wales.
Thank you, Chair, and thank you, Permanent Secretary. The governance statement reports that the board reviewed corporate risk only twice in 2018-19. Do you think that is sufficient for the board to discharge its responsibilities? How are the corporate risks considered by other committees in your organisation?
Yes, we make it clear there that the corporate risk has been reviewed by the board twice in the year—that's set out on page 60. The board has done two in-depth discussions and reviews of the corporate risk register, but, of course, beneath the board sits a whole additional process of assessing risk. So, I now feel very confident that we have the right kind of overall structure.
We've got at group level—. So, directors general like Andrew have a group risk register, which they keep under constant control, managing risks that are very specific to their individual group. Our non-execs provide external scrutiny and challenge, particularly through both group-level ARACs and then, of course, the Welsh Government overall ARAC. So, there’s scrutiny of risk registers at group level, then the ExCo finance sub-committee looks at group and wider risks as a whole and puts up any changes that they think are appropriate to the overall corporate risk register. And, of course, there’s—a non-exec director for the board sits on those sub-committees, so there’s a linkage there. Those discussions take place on a quarterly basis.
And then, ExCo, the executive committee, decision-making committee, looks at recommendations that come up through that system to the finance sub-committee and finalises the overall corporate risk register. So, that in itself is a quarterly discussion. So, it is a continual process of examining risk at group level, then at the finance sub-committee, then at ExCo and at the board. So, that’s a constant cycle that we’re undergoing.
Thank you. In what way does your risk identification process prompt action to mitigate risk, or is it just used as a log?
I think that process I’ve just described automatically includes prompts—the fact that those meetings are scheduled at specific times and that, in fact, we also have business processes that include identification of risk, of course, so no policy proposal or project would go forward without an assessment of risk being an integral part of that planning process. We use various different tried-and-tested methods of doing that, depending upon what kind of project or programme we’re talking about. And then, when things come to the executive committee or to sub-committees for decision taking, the template for each paper that goes to that body includes an assessment of risk and triggers a discussion of risk. So, through that continuous cycle that goes on throughout the year, there are trigger points built in, and then, for the agreement of any new scheme or grant or policy, they include a risk assessment process as well.
I just wanted to probe a little bit further on the risks around delivery of 'A Healthier Wales' that you've highlighted as being high risk. The process of describing this as a high risk, how does that—? What impact does it have in terms of Government decision making? There are concerns about the pace of change in primary care, which, clearly, is going to have an impact, if it’s not moving fast enough, on the delivery of ‘A Healthier Wales’. What does putting it as one of your four new risks actually—? What impact does it have on the way you and your officials are doing their work?
I think it sharpens our focus. It means that we have—. It challenges us to make sure that we do have a plan to respond to the risk. Four were added in the course of the year to the corporate risk register. They’re, as you see, very different kinds of risk. You’ll be aware of the work that’s gone on, in particular in relation to implementing ‘A Healthier Wales’, and mitigating or removing the risks there. There’s a whole programme of work. The transformation programme’s been set up with a core team, there’s been close engagement with NHS and social care delivery organisations to make sure it’s being taken forward successfully. There’s a programme budget of up to £10 million to support delivery of actions that are in that document, ‘A Healthier Wales’. And, of course, overall, there’s the transformation fund. So, I think having—
And they're all being used.
It's a risk we need to constantly keep under observation. It is such a major policy and programme, and it's complex, very wide-ranging and fundamentally important to delivering one of the Welsh Government's top priorities, and, indeed, the priorities that came out of the work by the Assembly. And therefore, I think it would be strange if we didn't include it on the risk register so that—it comes back to your point, Mr Asghar—so that it's a trigger. Those things are on the corporate risk register as triggers to make sure that we don't forget them; that we are constantly reviewing them and that we have good answers to what's being done. So, I would expect some of those to remain on there for a while until we are absolutely confident that everything is in hand and that they are well on the way to delivery.
Arm's-length governance is second risk on page 59 there. I'd expect that to move off the corporate risk register fairly soon, because that is all about completing an internal review, following it through and making sure it's working in practice. So, that work can be completed in a much shorter time frame, but delivery of 'A Healthier Wales', I think it would be wrong not to have the trigger in the corporate risk register to remind us.
Thank you very much, Chair. You have identified Brexit as the most crucial matter facing the Welsh Government—we all agree with that anyway. What are the other principal risks you face and how are these being mitigated? And, why don't you include information about the other principal risks in the accounts, please?
What we try and do is highlight the key risks. If we included all of the risks, the document unit would be pretty unmanageable and you wouldn't really get a sense of the proportion and the most important risks. So, what we've tried to do is, in fact, what the guidance tells us to do; we follow the Treasury guidance on how we address risk in the annual accounts. So, we would have to set out any newly identified risks and that we've done, and that's the four there. There's a bit of detail on them. I'm required to set out if I had had to seek a ministerial direction for anything; that's flagged up on page 60, the process of a ministerial direction. And we also have to flag up a summary of any lapses in data, protective security, and we've done that. So, our accounts do comply with guidance and, basically, what we're trying to do is always maintain a balance between transparency and, in this case, for some of the risks, confidentiality, because there are risks in some aspects of transparency about risk, but also we want them to be comprehensible to the general public, so that they have a good idea of what we see as the big risks ahead.
Sorry. David, did you want to add something on this?
If I may. I just wanted to come in on the 'A Healthier Wales' risk. As a member of the board and ExCo, one of the things it does for me is to help raise awareness of how, corporately, we can address this. So, for example, I'm the mental health champion for the Welsh Government, so one of the things for me when this risk comes up is, 'Is the way that we are looking after the mental health of our own staff in the Welsh Government, working with Peter, consistent with, actually, the healthier Wales objective?' So, it kind of makes sure that it's not just something the health department see as something they're trying to do, but we all get brought in.
Thank you. Could you just extrapolate in regard to the value of the contracts initially assessed as €33.1 million with regard to the European agricultural funds, the rural development account? And then, how is the differential between a quantified value of €8.9 million? I just don't understand that differential as to some wider context around that big difference?
I think that relates to the points on EC funding here on page 50. I'll ask Andrew to come in and give more detail, but basically there is a discussion between us and the European Commission about what can be included, what is correctly in scope. We believe that we put in bids that were entirely within scope. And, in fact, I'd like to say that Welsh Government and Rural Payments Wales in particular have an absolutely outstanding record on compliance, and we have seen the lowest levels of repayment in Wales over the last five years. So, to put this in perspective, this is the first time that we've been in this situation, and that's something that we're very proud of, that it's the first, although of course we wouldn't want any occurrence. We've got a bilateral coming up in November and we'd certainly be very happy to update you on the results there.
Well, just to add to what the Permanent Secretary said, the initial process that came out of the certification audit identifies a figure where there are a set of concerns, and you then go into discussion, dialogue, competitive or contradictory dialogue, which I think is the correct term of art with the European Commission. And we seek to give assurance on the points that have been raised to get that figure down. So that's, I think, in relation to the figure that you quoted, about €9 million. So, the original figure identifies around €33 million; as we understand it in our discussions with the Commission to date, we've got that down to an argument about €9 million, and that process will continue. These things will play on for months and months, and in some cases, years and years.
So the figure that's mentioned in this document has already been refined down.
That's our assessment. We will know, in terms, once we've looked the Commission in the eye next month, and that's all a little bit Brexit dependent in terms of how—
We'll try and ignore the elephant in the room and just stick to this particular line of questioning. So, in regard to your—
If there are any elephants in the room, we want them out, that's all. Scrutiny. Effective scrutiny.
I'll deal with this bit first because I don't know if we've got time to go into the other big issues. But in regard to that control framework, why didn't it identify and manage that risk in terms of that big envelope of €33 million, now probably whittled down to €8.1 million, bearing in mind that's still a lot of money that could have gone somewhere?
Absolutely. We don't treat these matters lightly and, indeed, I think that's borne out, for me, by the fact that we have the best performance in this area across the UK. And, actually, if you look at the EU's figures, we have slightly better performance than Germany, which is the leading member state. So, our record to date has been really, really good, and that's because we've put an awful lot of effort into getting the control framework right.
This particular issue stems from an assessment about what the law requires in respect of particular types of project identification and approvals. We're arguing that we've got it more right than the Commission are making out. I wouldn't claim that we've got everything right, and that's the sort of nature of the discussion that we're having. But I think the wider look by colleagues in the WAO and the European agricultural fund for rural development wouldn't suggest that this was a sort of systemic problem, and if there's a particular issue that we need to address in respect of how these sorts of projects are managed, then we will pick that up as part of our lessons learned. But we keep going with the Commission until the eleventh hour and beyond to whittle that sum of money down.
So, you don't feel it's a systemic issue, assuming that this would continue into the future. And you feel that the control mechanisms that we do have in terms of identifying and managing risks in this particular area are sufficient.
We have a suite of controls, the management of those controls is a very, very important part of how RPW operate, just as it would be in other parts of our grant funding architecture. We then have internal audit reports, external audit reports, WAO come in and act on behalf of Wales plc—
So, what went wrong in this particular instance? I understand that our record, to date, is good, but—
It's an interpretative matter, I think, about how projects are selected and approved, and that's what we're in dialogue with the Commission about.
Okay. We'll get feedback, I'm sure, to this committee in that regard.
You will, and as Shan as said, we will follow up.
In regard, then, to technical assistance matters—even though, I believe, there was no financial loss in terms of the system that was in place—have any changes been made to ensure compliance and control in light of the issues that occurred? Or do you feel that the system actually worked rather than—?
The controls haven't changed, to my knowledge, anyway. The controls that were in place were the correct ones. What we have done is gone out to, I think, all staff involved with some renewed guidance and training about the application of those controls, and making sure that they're alert to some of the issues that come up through the audit process.
Just for clarification on that, Andrew Slade, the €33.1 million. When did that first come to light, or when were you first aware that there was an issue?
I think it came to light through the certification audit. I'm trying to remember which year. Colleagues in the WAO might know. I think it's the one that went across earlier this year.
Okay. Thank you. So, as far as the technical assistance matter, in terms of what was played out, you feel that the system failed or do you feel that the system worked in respect of the fact that no financial payments were made?
We don't think that the control arrangements are wrong, but we have reinforced the application of those and staff being alert to some of the issues around time recording and other points like that, associated with the control, through training and repeating the guidance.
But I think the key point is the one made about no loss of funds to Wales as a result of that.
So, my question, in a sense, is: do you think the system in place is sufficient as it obviously picked that matter up? Or do you feel it can be tweaked further?
Any time where we get a situation like this, as I've said to the committee before, and there's stuff that we can learn from the process, we take that on board. If that requires revised training or updated guidance, we do that. If there's something more fundamental at stake, we will address that as well.
Okay. Thank you. I'm going to move on to write-offs. Is there any way that the loss from 2018-19 with regard to expired drug stocks may have been potentially avoided, and if so, can you extrapolate upon that?
Yes. This is the £7.6 million that's referred to on page 52 and included in the losses statement on page 77. This was out-of-date pandemic flu vaccines. It is, of course, part of standard practice for the Welsh Government to write these off as part of our effective health response in the event of a pandemic. It's really important to keep them up to date. All stocks have a very specific shelf life; we have to observe that. When the expiry date is reached, then I think we have to be absolutely clear that those are written out of the Welsh Government resource accounts and new stock is immediately purchased to fill the gap. And all—
Can I just stop you there? Sorry. In regard to, particularly, pandemic flu vaccine, in regard to the importance that it is held to be, how much is this put down to overbuying in the first place?
It's difficult to assess, isn't it? There have been various periods at which there has been a threat of, for example, avian flu, and I think it would have been negligent not to respond to a very real threat. So, these have occurred at different times. This is, as you say, it is a significant scale of losses, but we all, across the whole of the UK Government, we follow the same approach and, obviously, we replenish the drugs before getting rid of the expired stocks. And I'm told that the arrangement that we have with the drug suppliers is that those stocks will be replenished at a significantly reduced cost compared with the initial cost of purchasing the—you know, the normal full cost of the drug.
I mean, it's not an exact science, we would agree, but then we are purchasing at a great amount for a very great, important reason. But the balance of getting that right, how is that mitigated for?
I think we simply have to respond to the risks, the perceived risks, and take them seriously. We cannot afford to take risks with the health of the people of Wales, so when there is evidence of the possibility of a pandemic—and as you will be aware, there have been at several times—then we have to invest in the stocks.
The thing I would like to get clarified is why the write-off is so much higher than in the previous four years. Because presumably there are always these public health risks that we have to mitigate.
Yes. Absolutely. But the drugs do not have simply a 12-month shelf life. Some of them have longer shelf lives.
So, some of them could have been bought four years ago and are having to be written off in this—
I believe so. If you'd like to know the detail, I'll have to turn to Andrew Goodall to advise me on the detail.
We don't expect you to know every detail of every pharmaceutical drug provided in Wales.
The figures are just—. It's £7.6 million against £0.5 million in 2017-18. and £1.7 million in 2016-17, so the figures are considerably more.
Yes, absolutely right.
So, that would be useful to know. And I suppose the other thing I would be keen to know is do we simply put them down the drain? I'm sure we don't put them down the drain, but are they used? Is there any consideration given to passing them on to third countries that can't afford these sorts of things, shortly before the expiry date?
I don't know whether that is at all possible. Again, I can follow that up, but if they've expired, then, obviously, there's a danger in administering these drugs.
Indeed. But, you can see the expiry date is coming up, and if it's in the summer and we haven't used them—
Well, we will try and minimise the gap between replenishment and expiry for the benefit of Wales. We don't want to be buying well in advance of expiry—
There could be health issues there. I think that's something you'd have to discuss with pharmaceutical companies.
It is a significant figure, and I'd be very happy to write and explain exactly why that is.
Thank you. Obviously, the alternative would be that we are getting rid of something that is unfit for purpose, despite the mitigations. In regard to the data matching exercise that involved data from the Student Loans Company and HMRC, has the total value of this, potentially as an error, been quantified? Or would you give me a different narrative?
This is the data matching exercise that we're talking about at the bottom of page 52, between the Student Loans Company and HMRC. I don't believe it has been quantified. Gawain might be able to correct me if I'm wrong. We are still in the process of looking at this. There were some issues, to be honest, with the quality of the data in that particular exercise, so we weren't able to draw firm conclusions on it, and it was a pilot exercise to see if that kind of data matching approach was worth adopting and using more widely across the student funding control framework, because, obviously, that kind of spend is very volatile, and anything we can do to try and manage it is very helpful.
We concluded that that kind of approach has value, which is why we're running another data matching exercise at the moment, and those revised data sets are going to be looked at by the UK Cabinet office, who have a data analytics team, so we're liaising with them, and I think we're hoping for results later next month that will give us more information. We do already, thanks to colleagues in the Wales Audit Office, take part in the national fraud initiative, which is co-ordinated by the WAO. And we're looking at whether there is scope to broaden out this kind of data matching approach to look at other anomalies.
Your current evaluation is that there would be in terms of wider public expenditure.
We think that there would be value in doing this. It's complex, but we think it is very worth doing.
So, in regard to that—and you're on the second evaluation, or scoping pilot scheme now—is there any timeline attached to that in terms of when this can be more broadly run out across Wales, or are you still in the very early stage?
We're still at an early stage. We're expecting results of this second pilot by the end of November. So, we'll take stock of it then. We'll want, obviously, to discuss it with WAO colleagues and get their views on the value of that kind of approach and the assurance that it could bring us, as well as talking to London. And we also talk to the UK Government review board on data matches between public bodies, and we're considering whether, actually, there might be some value in setting up an equivalent body for Wales to oversee this kind of work. But you're quite right, it's at an early stage, but we think it's important and our conclusions so far are that it shows value. David, did you want to add anything?
As the auditor general will know, the world of audit is changing with technology and the way you do audit, and data mining gives you a whole different way to approach audit and get a lot done with less resource. Some of the things that Helen Morris, who is our head of assurance division, is doing is seeing how she can reshape her team so that we can bring in the kinds of skills and attributes that we actually need to make the most of this, because you need a different kind of audit skill to work this. So, one of the first things we're doing is actually asking have we got the skills to maximise these opportunities.
I was reading, on the same value added tax arrangement, that HMRC commenced their investigation or their inspection in 2016, and it's written that it's still ongoing. So, is there any particular area where—because it's a bit of a long time to satisfy, and you've got in the same paragraph that, to avoid penalties, you are very co-operative. Wonderful. But what about the interest and others, and are there certain areas in the organisation where the VAT is due?
This is higher up on that page, isn't it? The VAT inspection that we refer to is HMRC and including Cadw. I don't have any more up-to-date information than is in the accounts, but, Gawain, you might.
HMRC are actually conducting audits of the three devolved Governments in the UK. They've actually been going at the Scottish Government more than five years now. These are not quick processes they undertake. They're periodic, so they're not with us constantly; they come back and visit the organisation, effectively, when they have the resources. So, we're expecting this to go on for at least five years, if not longer, in line with what has happened in Northern Ireland and in Scotland already. So, it's not that they've highlighted specific areas; they're being very thorough, they're working through the organisation, effectively, from top to bottom, and on the basis that they're coming back not on an ad hoc basis, but on a planned basis, without having a team on site constantly, it just takes them a very long time to go through, obviously, the complexities of an organisation like the Welsh Government. But, as I say, in Scotland, they started the audit earlier than us, and they're still going.
But HMRC and VAT are only one section. I'm concerned about VAT here, not the whole Inland Revenue here. Only the VAT section is involved for five years, you're saying.
They've been going at Scotland, as I said, at least five years now—
Sorry, in Wales, we've been going since 2016. They've looked at a couple of areas, but they haven't really scratched the surface in terms of the organisation. They do a very thorough evaluation. One of the areas they have looked at is Cadw, for example, and they did a very, very in-depth review of the VAT position in Cadw. It took them a number of months just to do that small element of the Welsh Government. So, we are expecting it to go on for a number of additional years.
Okay, time is moving on. We've still got a fair number of questions, so, Rhianon, back to you.
Very briefly, then. The bar for the Information Commissioner's Office on data breaches has been lowered, so I presume that more of them meet the test. In regard to unauthorised disclosures of personal data in regard to information governance, in your view what is that down to? Is it down to a lowering of a bar, is it down to control errors in terms of human error or systemic error? How would you summarise that rise?
It's still quite early days, because the general data protection regulation was only introduced about 18 months ago. It was a huge initiative, and we invested in an awful lot of training and support for staff so that they were aware of what the new requirements were, and I think it was something that was hitting the headlines in the press and media very extensively. So, I think the first thing to say is that there is, rightly, much greater staff awareness now of what they need to be reporting by way of breaches of data privacy. So, we generated far wider staff awareness.
I think it is certainly true that the GDPR lowered the bar for reporting data losses, and it also, in parallel, widened the scope of incidents that are actually identified as data losses. So, it's both sides. I feel that, overall, our systems are sound, but, of course, human error does happen, inevitably—
But then, obviously, where that leads in terms of the rise in unauthorised disclosure, what—
Although it's a significant rise to 64 from 34 in 2017-18, I think it's fair to say that these are minor incidents that don't need to be reported—those particular ones. I think where things are reported, there's a monitoring follow-up process that swings in so that any breach that needs to be reported is immediately followed up. So, I think the bar has come down, I think the scope has broadened, and people are more aware, which has got to be good, and they're much more sensitive to data privacy. Let me give you a recent example. I was at the conference run by Academi Wales in Swansea recently for public leaders, and I said, 'Could I have a list of the people attending?' and I was told I couldn't because that would have been in breach of GDPR requirements unless people had in advance been asked whether they were content for their details to be included on that. So, to be honest, we are being very, very cautious and careful about how we apply the GDPR, not least because, of course, the consequences of any breach at all have been increased. So, it is a mix. There will continue to be human error. We will continue to alert people to the risks and to sensitise them to the importance of data privacy.
Thank you. On the issue of unauthorised disclosures, you were involved in a fairly high-profile issue that related to the possible unauthorised disclosure of information regarding the ministerial reshuffle at the time of Carl Sargeant's death. You published a document titled 'Leak Inquiry Report (Cabinet Reshuffle)' on 24 January, which was essentially a summary, I believe, of the investigation. Was there another document that that document, which you did publish, effectively summarised?
There wasn't. I think, to be honest, at this stage the First Minister has made clear that he is going to be consulting with interested parties on what happens next on everything associated with that, with the tragic death of Mr Sargeant, and, to be honest, I wouldn't want to make any intervention that cuts across that. The First Minister will be consulting all of the interested parties about what happens next.
Yes, I just want to be clear because, obviously, this is a matter of ongoing public interest and, indeed, debate in the Senedd and elsewhere. So, just to be clear, what you're saying, Permanent Secretary, is that there is no other document that this document, which you have put into the public domain, summarises.
There is no other document. I think the First Minister in his statement made clear what the process was. I think I've here got a—
If it's helpful, because I know time is limited, I could just ask a further supplementary. If the document that was published is not a summary of another document, is it a summary of other documents? Is there other documentation that the report that you have published summarises?
What I should say is that that investigation was conducted by our head of security, who's a former policeman, and he conducted it using standard civil service processes, and, in fact, Cabinet Office subsequently confirmed that they would have approached it—UK Cabinet Office would have approached it—in the same way. And neither I nor, I think, other officials have seen the documentation. I felt it was important for the head of security to conduct his inquiry in the usual way, so I have not seen any other documentation. But the First Minister made clear in his statement that he was—
Could I just—? I think that's very helpful. So, there is other documentation; you have not seen it. Has anyone else in Welsh Government seen that other documentation?
The other documentation, I believe, is only notes of interviews. That is my understanding. And if I can just go back, please, to the First Minister's statement, he said that he intended to publish the leak inquiry report after the coroner's inquest and, at that point, all the relevant reports that relate to Carl Sargeant's sad and untimely death will be published in one place—the outcome of the coroner's inquest, the operational protocol for the investigation, the leak inquiry report itself and the Hamilton report. And that has been done.
I'm grateful for that, that it's obviously all on the record. Just to be clear, in terms of my question to you, the documentation that you said basically consists of notes, no-one else in Welsh Government—
I think the Permanent Secretary also said that this had been dealt with independently, effectively, so you haven't seen—
Just to have clarity about this, you said that you haven't seen that other documentation, the notes et cetera. No-one else in Welsh Government has seen that, other than the head of security.
Perhaps I can explain how these things operate. The head of security will interview people who are assessed as having an interest. I saw this, for example, in the inquiry into allegations about a leak of information on the Circuit of Wales. So, I can assure you that exactly the same process was used. It's the standard process, where the head of security interviewed people who were considered to have an interest and, on the basis of those interviews, produced a very short report responding to the request. And the inquiry into the unauthorised release of information in relation to the reshuffle followed exactly the same process.
I understand that, I just simply want to have clarity on this. Has anyone else seen those documents, those notes?
Chair, I think this is not, perhaps, quite the place to embark on a discussion that is extremely sensitive, including for the family, and I would not want to cut across any follow-up investigations that may be coming along here.
I think Adam Price has asked you quite extensively there, and you've given answers to those questions.
So, you're not able to say, or you would prefer not to say whether anyone else has seen those documents—
I think the Permanent Secretary has answered that line of questioning. I think we should move on.
Okay. Just finally, in relation to costs, there was an update, I think, in a written question to Bethan Sayed in terms of the ongoing costs of the inquiry. Presumably it will be possible to continue to monitor those costs in due course in the same way.
Yes, of course. There have been a series of questions that have been answered in the Assembly, yes.
Okay. We'll move to another matter, which is the procedures for calling in, in terms of arm's-length public bodies. In your replies to the committee's recommendations last year, you maintained that the Welsh Government's position is that the removal of the calling-in procedure, as it's called, doesn't pose an unacceptable risk. Could you just say a little bit about how you've come to that assessment in terms of the way that you've managed the risk associated with that change in the accountability framework?
I'm conscious I've written to the committee on this and will continue to update you on progress, obviously. How did we approach it? We reviewed the purpose and value of all of our interactions with the arm's-length bodies. We did that with the arm's-length bodies themselves, with the sponsor teams within the Welsh Government and, indeed, with colleagues from the WAO. As a result of that review, we identified the calling-in procedures, as they stand, as an area that doesn't have a great deal of purpose or add considerable value. It was, in the view of the ALBs, often adding delay into their operations.
I think I said to the committee last year, what we've been trying to do with the review of the arm's-length bodies and the establishment of a public bodies unit is develop a much more transparent and strategic relationship with them, obviously built on assurance that they are correctly configured and operating effectively. So, that's what we've been focusing on. For me, the real focus needs to be on making sure that arm's-length bodies have got the right governance and decision-making structures that are in place to give me assurance, and to enable their accounting officers to take the right decisions.
So, rather than focusing on those individual transactions under calling-in procedures, which can be marginal, some of them, we decided that we would, on a transitional basis, change those arrangements and, in the meantime, we'd collect data on what was going on to make sure that we were informed. But really, for me, the focus has got to be on having the right chair and chief exec who are both competent and trained, to have a capable and well-functioning board overall, a good audit and risk committee, and a properly trained accounting officer who is applying effective financial controls, and that we also have the right level of scrutiny through internal and external audit, and also, obviously, through Assembly committees. Obviously, we want to build an effective relationship with the Welsh Government as part of that.
So, we have been focusing on those big-picture issues that, actually, involve a lot of detail as well. I've written to you about the detail of what we're doing on the calling-in procedures. We'll keep you informed about how that's going, and I am confident that we are heading in the right direction to have the right kind of relationship with the ALBs for the future.
As part of the detail, you presented or proposed this tailored review process. Can you say a little bit about what you see as the main positive features of this revised approach?
That's being developed by the team in the public bodies unit, and the whole purpose is to give me and Ministers assurance that all of those things that I discussed just now are actually in place and working properly. The idea is that we'll conduct what we're calling a tailored review of each arm's-length body once during every term of Government. That review will focus on the overall purpose and role of the ALB, its capacity to deliver the control and governance arrangements that are in place, how the board is functioning, how decision-making structures are functioning, the relationship with the Welsh Government and, in particular, with the sponsor team; also, issues like value for money, whether there's scope to make savings, what is the digital readiness of that ALB, given, as David said earlier, how fast things are moving. All of that will be done in partnership—a mix of Welsh Government officials, arm's-length bodies and independent members as well.
There will then be a process of a challenge panel at the end of that, which will come through the efficiency board, which is chaired by the finance Minister, and co-chaired by me. Where are we on that at the moment? We’re currently piloting the approach with the National Library for Wales. They volunteered to be the first pilot. And I think we’ve got the first challenge panel coming along in January 2020. And then we will set out a full programme of tailored reviews. We will time them according to a risk assessment of which bodies that most urgently need that kind of review. David, do you want to add anything to that summary?
I think the first—. We’re learning a lot from the first pilot with the national library. But one of the things that is working is that this kind of seems to be working. So, we’ve had really good seminars with stakeholders, and good conversations with the organisation itself. So, it works, but we want to tweak it. The risk factors—we haven't developed the programme going forward, but it will be things like areas where organisations about which the Auditor General for Wales has raised concerns, areas where there might be a fast-moving policy development, areas where people have raised either concerns or opportunities for an organisation to work more effectively, to work differently in a different way. So, so far, it's looking good and exciting.
Okay. Do these tailored reviews take the place of the sort of old-style quinquennial—horrible word—reviews? So, it's the kind of twenty-version version of that, is it?
It's very similar, but, if I may, we have tried to make them rather more inclusive, because the old quinquennial reviews—if you were an arm's-length body, it was kind of done to you. A reviewer turned up and he wrote a report on you. This one is much more partnership with the body and bringing in some external advisers as well.
Yes, I think I did one myself actually as a consultant. But there we are. Happy days.
Very briefly. With regard to April of the next coming year, in terms of the tailored review process, how can you reassure me with regard to those transitional arrangements being in place, in terms of moving from that system to where we need to go to, that everything is going to be properly phased in in terms of that ability to be able to see risk?
This is the calling-in procedure.
Well, this goes back, really, to the point about what we put on the risk register, and the arm's-length body governance is on the corporate risk register precisely so that we don't lose track of these kinds of issues, and it builds in a trigger for us to make sure that we are considering it. As I said, these are interim arrangements. They'll be subject to review, and at the end of this transitional period, we'll get an assessment from the audit and risk assessment committee of the arm's-length body itself. We'll obviously keep in very close contact with colleagues in the WAO about how it is working. So, we will make sure that we have a rigorous assessment of what has happened. We'll have all the details of what ALBs have actually done, and we'll be able to assess that we're happy with those arrangements. David, anything to add to that?
No, I don't think so. The calling-in procedures, of course, are only a very small proportion of the contact that we have with our arm's-length bodies. So, we expect the sponsor teams to have regular conversations. We're trying to replace with kind of an adult, grown-up dialogue for a kind of a parent/child, 'You can't do this unless we let you.' So, we'll draw on that dialogue. The Auditor General for Wales has got a meeting coming up—there's a conference of all the chairs of the audit and risk assurance committees and public arm's-length bodies shortly, and the head of public bodies will be going there to talk to them about the changes that we're bringing in, so we can have the ARACs of these bodies themselves seeing how this this fits in, and kind of reporting back on the experience.
So, we'll get the hard data from the transitional arrangements. We'll have the softer data from the conversations with the sponsor teams, with the Wales Audit Office, with—[Inaudible.]—and that will give us a kind of picture to say, 'Is this the right thing to move on to the next stage?'
And with regard to where you are now, in terms of a rigorous and a more robust approach, it seems, moving forward, what contemplation was there still to having that calling-in procedure as the final stick to that parent/child relationship? Or do you feel that it's not concurrent to the new regime?
In the end, Ministers can instruct arm's-length bodies to do anything that they want to. So, if we really had to intervene, because we felt very strongly, then we would have the powers to do so.
But the other level of intervention we've got is that accounting officers of arm's-length bodies aren't appointed accounting officers by their organisations—they are appointed by us. If we felt that an accounting officer in an arm's-length body was not up to the job, we would have to consider whether we wanted to withdraw their designation of accounting officer. So, there's a big lever that we could press if we felt we had needed to intervene. And it would be a more strategic lever, rather than relying on seeing a bit of what's going on in the organisation.
And just to add that, David said we're strengthening the governance arrangements; in fact, David and the head of the public bodies unit are part way through a programme of governance awareness sessions with each of our arm's-length bodies. I think you've done 27 of them now—obviously, there are more to go. But the purpose of those sessions is to make sure that each ALB has a very strong awareness of their obligations.
No. The public bodies unit—I might turn to that. Can you provide examples of how the public bodies unit is improving engagement and the governance arrangements between Welsh Government and arm's-length bodies? How do you measure its effectiveness in particular?
I think the first thing is it's pulling together oversight of the arm's-length bodies in one place, and making sure that we've got a consistent approach. Of course, individual sponsor teams, across the organisation, are responsible for the direct relationship, but it means that we now have a body that is building expertise, and ensuring consistency across the whole of the Welsh Government, and strengthening engagement, as David said. One of the things that I've been very struck by is the public leaders forums that we've been holding. I think they meet every six months now. They're very popular, and they bring together chief execs and chairs of all the arm's-length bodies. It gives us an opportunity—. Mark Drakeford was the keynote speaker at the last one, Jane Hutt also spoke, I talked to them about Brexit, and they had a session from our head of digital about what the future might hold in relation to Brexit and digital, as well as what the future would hold in general. So, the public leaders forum, which was created by the public bodies unit, is a great centre for spreading good practice, building co-operation and engagement, and enabling us to give briefing updates to all the arm's-length bodies. And, obviously, the Wales Audit Office attends those as well, and provides very helpful input.
We have, as well, regular meetings of the heads of finance and human resources, with the arm's-length bodies' equivalents. So, that is there to discuss progress and how we work together on best practice. We've set in place a system of quarterly meetings between sponsor bodies and the chief execs of the arm's-length bodies, so that is strengthening those relationships and exchange. And the public bodies unit now is looking at wider important policy issues, across all of the arm's-length bodies—things like building a new diversity strategy, so that we can attract and support a much more diverse range of candidates to join our arm's-length bodies, and also looking at pay parity across the arm's-length bodies.
So, there's an awful lot of work going on, which is building on best practice, and sharing best practice. So, I can see a real strengthening since this work of the public bodies unit was introduced, about a year ago, so about a year—about 18 months after I arrived, probably. And I can see a lot more consistency, stronger engagement with arm's-length bodies, and much better sharing of information between them. Now, when I go into the public leaders forum, it does feel like a genuine group of people with shared interests, concerns and partnership working with all of us, so—
You would have hoped that that sort of culture—maybe being optimistic—kind of worked anyway, but it wasn't evident before these changes.
Well, sometimes, you have to strengthen it, don't you? I'm sure, individually, they were collaborating, but this builds a different kind of relationship, including with us, and I think that's really important. It goes back to what David was saying about having a much more adult relationship with them.
Could I just ask in general terms? I think that when you look across the world—it'll be interesting to hear if you have looked at different models across the world, because it's not a simple trade-off, but I suppose there's a continuum between old-style command and control, micro-managing from the centre, through to a kind of light touch, almost laissez-faire within the public sector context. Is the Welsh Government moving somewhat along that continuum? I don't want to stretch the metaphor, but is the arm getting longer in the arm's-length relationship and is more autonomy being encouraged? The quid pro quo for that is you can't have more autonomy and still expect the same kind of directive relationship dirigiste from the centre.
I wouldn't say the arm's getting longer. I would say I hope that it's much more of an arm-in-arm relationship. And, of course, we do have very tight controls. We talked earlier on about the risk management. Each arm's-length body has a framework document that sets out its purpose, the nature of the relationship with us, there is an accounting officer appointed—arm's-length bodies produce audited accounts—so we're certainly not casting them adrift at all. We want to work more effectively with them and use their and our time better.
Obviously, no session on this issue could pass without me mentioning Natural Resources Wales. To what extent have the very public issues there—to what extent have they informed your thinking? Are they reflected in the proposals that you're making? And are you satisfied, in particular, that the oversight arrangements are in place now in a sufficiently robust manner to prevent a recurrence of some of the problems that are well understood?
I am. I have confidence in the governance structure that's there now. I have confidence in the chief exec, Clare Pillman, who I think is really addressing some very long-standing issues with a great deal of determination and skill. She has also stopped letting any further standing sales plus contracts. So, she's taken a lot of firm action to strengthen her team. She's made changes to the leadership and management of NRW's forestry operations, for example. She's recruited a new head of commercial, head of land stewardship, she's done an awful lot to strengthen the controls within her own organisation. And I was very pleased that Grant Thornton recently evaluated NRW's progress against the actions recommended in the earlier Grant Thornton report and felt that progress was good. That includes, obviously, improved governance as well as stronger leadership and management.
Permanent Secretary, you've said there that the new management has stopped these sort of contracts happening in future, but there are still contracts working through the system, aren't there?
Do you think there's the right sense of urgency in terms of bringing those to an end?
I believe there is from what I see in my relationship with the organisation—you know, you can't rule out further issues emerging, but I was very heartened by the report of the—well, the qualified opinion from the WAO this year, which, whilst qualifying the accounts, refers to the qualification of last year as a result of historic issues, and the auditor general himself said that he's encouraged by the efforts that NRW are making. So, I have confidence in the structures that are now there. I have a great deal of admiration for the action taken by senior leadership of NRW and we will work very closely with them and with colleagues in the WAO to make sure that history doesn't repeat itself. I think it's worth saying it is a very large and complex organisation—that is not, in any way, an excuse, but it's why we will work very closely with them to provide them with our support.
Too large? [Laughter.]. That would probably be a political answer, wouldn't it? So, you're not going to answer that. Sorry, Adam, back to you.
Yes, just for one final question. Within the governance statement, the risks that flow from other Welsh Government subsidiaries or arm's-length bodies do not appear, if I'm right—entities like the Development Bank of Wales, WGC Holdco Limited, Transport for Wales etcetera. Why is that? Why the distinction between certain Welsh Government subsidiaries and related bodies and others?
Well, the governance statement is always going to include any governance issues that relate to local authorities and health bodies, quite simply because they account for, by far, the great majority of our funding. So, they are always going to be in there, as they are this year. The governance statement also includes any material items within ALBs—those which are consolidated in the annual reports that is—and that is why the references to NRW were included there, because they were material issues. There were no other issues that were considered to be material at the time that we submitted the accounts to the WAO for audit, and, of course, the governance statement is audited by the WAO. And I would expect them to have raised directly with me any omissions from that that they felt to be material and, of course, there weren't any issues reported. But, of course, every one of our arm's-length bodies, as I said, does produce it's own separate annual reports and accounts, and those are audited fully. So, any significant concerns we might have during the year, we engage with the arm's-length body on, as well as with the WAO, and with the sponsor organisation. We include everything that we are required to include. We include everything that we think—and with advice from WAO—is material to the governance statement, and we leave to their own accounts those things that are not material to the Welsh Government consolidated accounts.
So, for example, if Transport for Wales suddenly discovered that their assessment of the state of the track in the core Valleys lines area was much, much worse than had been anticipated, and that that would have a material financial consequence, then that would then be brought on to this register?
That would be included in the annual accounts next year, if that were the case, yes.
Okay, I appreciate that we were allocated a certain amount of time—we're coming up to that. Are you okay to stay with us for another 10 minutes or so?
Yes, of course.
We've still got some questions left. So, Jenny Rathbone, and then I'll bring Gareth Bennett in.
Thank you. I wanted to just explore the role of grants in the Government's suite of armoury. Obviously, most organisations get a block grant. What is the purpose of specific grants?
I think the report makes clear that we have about 323 different grant schemes, and that last year there were about 11,000 specific award offers. So, this is—. Grants are very, very wide-ranging in the type of grant, the purpose of the grant and the recipients of the grant. And we provide those grants across the entire portfolio of Government policy. So, capital grants, core funding for the third sector, support for sponsored bodies, support to the private sector and, as you'll see from page 14 of our accounts, those amounted to £14.9 billion in the 2018-19—
Okay. Looking at one fairly small grant, but one that’s come across my postbag recently is the free swimming grant. It was £3 million, it’s now £1.5 million. What do you expect to get from that grant to local authorities? What are the outcomes you expect and how do you know whether they're being fulfilled?
I'm not familiar with that one. I can follow that up in writing. But I can assure you, because of the process of designing grant schemes and then making individual grant awards, that each scheme and each award will have a very specific purpose and, where relevant, target attached to it. And that goes through all of our new, improved grant assessment process to make sure that those details are attached. So, I don't know—
Well, it would be fascinating to see what they were in relation to this one, because the First Minister last week revealed that only 6 per cent of the over-60s were benefiting from the free swimming for over-60s, so you'd want to know what was the target and why was it so—
It's been the subject of a pretty significant internal review and, I think, for the reasons that Shan outlines, it's sensible for us to write to you with some of the information that we've worked through as part of that process and what happens next.
Just on that point. We think that that grant you mentioned might have been from Sport Wales.
Yes. It isn't necessarily one of ours—it might have been more to do with one of our arm's-length bodies.
That's precisely my further question, which is that it's difficult to understand who is responsible for monitoring this. Is it Sport Wales, who get a grant in order to deliver on this particular aspect? And, therefore, is it the Welsh Government or is it Sport Wales who are responsible for monitoring the outcome of the more targeted approach that we're now—?
That will depend a little bit on the nature of the grant, as Shan is saying, and also what’s in the contractual arrangement or the framework arrangement with arm's-length body for the running of the particular programme. I think, on this one, there’s been a lot of work done by Sport Wales and ourselves looking at this particular area of funding.
Okay, this is a small grant, but clearly the money hasn't been spent in the way that the Government intended when it set out in 2003, in that, certainly for young people, it was the best kept secret in my local authority. Having to drag out of them the information was a perennial problem. So, if it’s that obscure with this small sum of money, how can we be confident that other grants are made with the clarity as to what the grant is actually for?
There's a very wide range of grants made, as the Permanent Secretary has outlined. With that one, the success with the delivery against the original aim was one of the things that was being looked at in the context of the review. That’s part of the reason why we've—. You know, we'll take a grant and we will look at it as built into the arrangement of setting up the programme in the first place, and the same would have been true in the establishment of this one working with colleagues in Sport Wales.
Okay then. Moving on, could you just tell us what the outcome of the evaluation of the flexible funding pilots were? What were the conclusions?
On the flexible funding pilots, that was an initial interim report published in October last year, which gave the first results for seven pathfinder local authority areas only. And then in February this year, the next phase began rolling it out. We've been working closely with local authorities on enhancing the funding flexibilities that are available, and our aim, overall, is to make sure that we have a system that means that different grants work together effectively and provide greater local authority autonomy and service delivery so that they are better able to match the specific local needs, which, of course, they are best placed to decide. So, the evaluation of that second phase was conducted from May through to August. I gather a report is planned for November, so we can certainly provide you with information once that is produced.
Okay. Thank you. Looking at a slightly larger fund, the integrated care fund, in the WAO report, the auditor general said that,
'the Welsh Government's central monitoring arrangements do not yet provide a
basis on which to assess the fund's overall impact'.
Obviously, this is a much larger and very significant sum of money around the future shape of health and social care. So, I wonder whether you could just tell us whether you think that's a fair description and whether there have been changes since that report was drafted.
I think you're absolutely right: this is a fundamentally important fund for delivering the Welsh Government's objectives. Andrew Goodall, the chief executive of the NHS and director general for health and social services, responded directly to the auditor general on 2 September, and we have accepted all of the recommendations that were made in the WAO report about the integrated care fund. So, we are taking those forward as a matter of urgency.
Okay, all right, thank you very much. Moving on to European matters, as of the end of March this year, only 77 per cent of the European social fund for east Wales had been committed. Could you just explain to us why that is the case and how the Government plans to ensure that there's no loss of potential funding to Wales?
I'll say a few words and then I'll invite Peter to elaborate, if that's okay. Peter, you've just written to the PAC responding to concerns. In fact, the situation has moved on in the right direction since the accounts were presented. So, we're no longer at 77 per cent; we're currently, I think, at 84 per cent. So, things have moved on.
We have, reassuringly, a very healthy pipeline of projects coming through, and I think that you've got something like 11 projects that are at the business-planning stage now so that we can move quickly on those. Of course, if that leaves any uncommitted funding, we can always spend it by providing extensions to really high-performing projects that we think are worth supporting further, in order to make sure that we're not losing money to Wales. That's just my headline understanding of the situation, but Peter knows all of the detail.
That sums it up, really. We always expected that we'd be doing quite a number of extensions towards the back end of this programme, and that's for value-for-money reasons, in fact. This is something that we talked about with the European Commission quite a long time ago. They made the point that if you commit yourself to very long projects, even ones where you have no reason to expect them to stop—because we're not going to stop doing apprenticeships and so on and so forth—but if you commit yourself to long projects, then you don't give yourself the opportunity to revisit those projects in terms of value for money to see whether there's a better way of doing it.
So, there was always an expectation that we would be doing quite a number of extensions towards the end of the programme. The priority where those 11 projects in the pipeline that the Permanent Secretary referred to lies is the one that we introduced part way through the programme, so that, by definition, was a little bit slower to get going compared to the rest of the programmes. It's the one that is aimed, primarily, at supporting regional collaboration in the delivery of public services. I don't have to tell you that that's a topic that has been debated long and hard. It's taken a while for the potential beneficiaries to think their way through exactly how some of those projects might actually work in the context of that developing policy debate. So, they were a bit slow to get off the mark in that respect, but we're confident that the 11 projects or so that we're seeing coming through now will use nearly all of that funding, but we are in a process at the moment of moving just €2 million from that priority into, actually, the gender-specific elements of skills to be able to mop up that remainder. So, I'm comfortable that that's reasonably in hand.
So, we can be confident that we will get to spend all the money that Wales has been allocated.
Yes. Well, yes, as confident as I can be, at this stage. It's difficult to ignore the elephant in the room again at this stage because, obviously, when we're talking about commitment levels—and by the way, 77 per cent is about the European average, so that wasn't a bad place in the first place—but when we're talking about commitment levels, we are comparing against an estimated value of the funds that are agreed with the European Commission at the beginning of the programme period in euros. So, we have to estimate what that earmarked amount of funding for Wales is going to be. And as we work our way through the programmes and actually draw the money down, by having demonstrated that we've spent it on effective things, then we narrow down the gap. So, yes, I'm as confident as we can be at this stage. If the situation changes over the next few days, hours, weeks, then, obviously, we'll be looking to flex those arrangements to some extent.
I appreciate there are complications in that the grant is in euros, and if the value of the pound is going down and down compared with the euro, that gives us more pounds to spend, in theory.
If it stays that way.
Yes. So, I appreciate it's very complicated in light of all the other uncertainties. But in the context of all the complications, do you think that the—? Where does it leave Wales in relation to the UK Government's lack of clarity as to who's going to pick up the tab in the event that we suddenly crash out of the—?
I was looking at the transcript of this meeting a year ago, some weeks ago, and it's interesting to see how far we've come because we have, actually, in some respects, particularly with the guarantee. But one of the things, of course, that the guarantee would do is, at least, take away that uncertainty about the exchange-rate value because it would give us a sterling value for that guarantee. We have yet to see it confirmed ministerially, but we've got some very strong indications from Treasury officials now that they would set that guarantee at a rate that we would find reasonable. So, that's good news.
They've also confirmed that they would not be taking this money by carving it out of the Welsh grant, which was a concern around about this time last year, because it wasn't clear where it was coming from. It's still not entirely clear, to be perfectly honest, but it's not coming from Wales, so that's the main thing.
They have said that the basis for that grant would be on the basis of annuality— so, on the basis of annual additions to our budgets—and that does introduce challenge to the programme management that we don't have at the moment, because one of the great strengths of the European funding is that it takes a seven-year-plus view and is less hidebound by the conventions of the financial year. So, there are issues to be resolved still, but the key elements of it, I sleep quite comfortably about. They've made it very clear that, to the extent that the European Commission does not pay for the programmes, the UK Treasury will. So, that's the kind of open cheque book that you don't find very often coming from any kind of a corporate Treasury function, but they've got a very good idea of what they're letting themselves in for. We've done a lot of work with them to explain what our programme commitments are, under other managing authorities across the UK, of course. So, they know where the edges of that commitment are, if you like. They know what the maximum that they would be letting themselves in for would be, so I feel pretty comfortable that—
Rhianon, did you have a very quick supplementary? I need to bring Gareth Bennett in.
It's very quick but it's very important. In regard to the form of this commitment to this guarantee, you've mentioned discussions with Treasury officials. So, in what form are you reassured? Because we hear many different things on this matter. Do you have this as a binding agreement? How does this machination take place in terms of its communication to you?
Okay. The Treasury has issued guidance on what its guarantee will be. So, there are UK Government statements about the guarantee. That's sort of supplemented by the conversations that we have with officials around the edge. But there are very clear written commitments from the UK Government. What would put the final seal on it, if you like, would be to see it approved in revisions to the budget.
That would be in respect of budgets for after we leave, so it's a bit hard to tell at the moment.
—ask about the rural development plan. I'm told that, as of the end of August, 41 per cent of the allocated funding has been spent, and the National Farmers Union have been critical of the way in which the Government has administered the rural development plan, saying that it's been overly complicated and applicants have been turned away because of that. So, I wondered if you could just tell us whether you're content with that 41 per cent spend by the end of August and how confident are you that we're going to spend the maximum of the 15 per cent allocated to the RDP.
I haven't got the latest—. Do you want to—?
This falls within Andrew's domain, the RDP, so, yes, if you want me to say a few words, I can—
Yes, we can certainly write on that point. There are a number of demand-led elements to the RDP, which operates, as a fund, slightly differently from the structural funds, which makes absolute prediction a little bit less certain. But, within those parameters, we can write to you and update you on where we're going to be.
Okay. Because, obviously, it fits in with the post-Brexit sustainable farming plans.
I think it's worth saying that we achieved the EU's first spend target well ahead of schedule, so we're in a good place. We are at least in the average of the high performers, and, in fact, we secured additional funding from the EU for meeting our spend and other performance targets. We got an additional €21 million through the performance reserve arrangement, so I think that is a great tribute.
A positive note. Last but not least, Gareth Bennett, some closing questions.
Thanks, Chair. There are a couple of questions to do with local authority grant claims. Last year, you told the committee that the pilot you ran with the WAO to review the certification process for grants had been rolled out to the 22 local authorities. What lessons were learned as a result of the pilot, and has the pilot resulted in any changes to the grant offers made and to the terms and conditions of grants to local authorities and other bodies?
We worked very closely with local authorities, and, obviously, with the WAO, to improve our assurance, and also value for money, through this particular piece of work. We and the WAO reviewed the outcomes of the pilot, and we agreed together that removal of audit scrutiny by the WAO was the right course of action. We've communicated those changes to our grant managers, and, from 2019-20, the WAO will not be required to audit grants made to local authorities.
But I should say that we have introduced new assurance arrangements for grants over £100,000. Officials are going to take assurance from the statement of expenditure, what's often called the outturn certificate, which will be completed by a suitable officer from the local authority, normally the chief finance officer. Overall, we are aiming to simplify the process for local authorities and reduce their costs and administration, whilst maintaining rigour in terms of the purpose of the grants and the assurance that we get via the statement of expenditure.
Okay. Thanks for that. Now, you explained some of the reasoning as to why you decided to remove the certification—you wanted to simplify and remove costs. But the other side of it—how are you going to keep up the assurance that public money is going to be well spent? How are you going to cover that part of it?
Well, it's two main areas, really. As I said, for grants that are over £100,000, we will have additional assurance coming from this statement of expenditure or outturn certificate. So, that's grants over £100,000. For grants under £100,000, we get assurance via the claims process, which includes assurance, and of course all—. Here we're talking about hypothecated grants to local authorities, rather than the larger, unhypothecated grants, and all hypothecated grants to local authorities, like to all other grant recipients, have to comply with a mandatory template that sets out, as I said before, the purpose, monitoring arrangements, targets and outcomes. So, I think those two parallel processes build in a lot of rigour and certainly give me assurance about the use of the grant.
All done? Great, thank you. A marathon session, but thank you for being with us today, Shan Morgan and your officials. We will finalise a transcript of today's proceedings and send it to you to check.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
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.
I move Standing Order 17.42 to resolve to meet in private for the remainder of today's meeting so we can discuss the evidence session.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 15:11.
The public part of the meeting ended at 15:11.