I am pleased to introduce the Governance Statement for 2012-13, which explains Transport Scotland's approach to corporate governance. Good governance is vital to effective financial and risk management.
The Scottish Public Finance Manual (SPFM), issued by Scottish Ministers to provide guidance on the handling of public funds, summarises the purpose of the Governance Statement as being to provide a clear understanding of the organisations internal control structure and its management of resources. The Statement should provide a sense of how successfully the organisation has coped with challenge and risk.
This Governance Statement will describe how the Agency and it's supporting governance structures work, how they have performed, and provides an assessment of how the Agency has been managed, including the effectiveness of the systems of internal control, risk management and accountability.
Accounting Officer's scope of responsibilities
Transport Scotland's role is to oversee the operation and improvement of the trunk road, ferry, inland waterway and railway networks in Scotland; the air passenger facilities and routes in the Highlands and Islands; the national concessionary travel schemes and for the provision of travel information services. It also supports Ministers in prioritising future transport policy and investments and promoting sustainable transport and road safety.
As Accountable Officer for the Agency, I have responsibility for maintaining a sound system of internal control that supports the achievement of Transport Scotland's policies, aims and objectives set by Scottish Ministers, whilst safeguarding the public funds and departmental assets for which I am responsible, in accordance with the SPFM. I am supported in that role by a senior management team of six Directors and an Audit and Risk Committee, chaired by a Scottish Government non-executive member and including two further external members.
Transport Scotland Audit and Risk Committee
The Audit and Risk Committee comprises three external members to bring independent judgement and challenge to the governance of the Agency. The Committee meets four times a year, although the Chair of the Audit and Risk Committee may convene additional meetings as deemed necessary. Audit and Risk Committee meetings will normally be attended by myself as Accountable Officer for the Agency, the Director of Finance and Analytical Services, the Head of Internal Audit (IA) (or representative), and a representative of external audit (Audit Scotland). In addition, the Audit and Risk Committee may ask any other Transport Scotland officials to attend to assist it with its discussions.
The Audit and Risk Committee advises on strategic processes for risk, control and governance; the accounts of the organisation, including the process for review of the accounts post audit and prior to sign off by myself as Accountable Officer; and assurances relating to the corporate governance requirements.
Principles of Corporate Governance in Transport Scotland
Corporate governance is the system by which organisations are directed and controlled and is concerned with the structures and processes for decision-making and accountability. Transport Scotland, in line with all public bodies, must have at their head, a group which is responsible for:
- giving leadership and strategic direction;
- defining control mechanisms to safeguard public resources;
- supervising the overall management of the body's activities; and
- reporting on stewardship and performance.
Within Transport Scotland, that group is the Senior Management Team who adhere closely to robust principles of Corporate Governance, namely:
All members of the Senior Management Team are subject to an annual objective setting exercise and year end performance appraisal, which are both formally recorded. Transport Scotland's delivery priorities are firmly focused on and closely linked to the Governments National Outcomes. Each year the Agency sets its objectives within the Corporate Business Plan and performance is monitored throughout the year and measured against targets at year end. Key achievements and progress are reported. In addition, every Directorate within the Agency sets key performance indicators for the service it provides and progress against these is noted at Senior Management level. Transport Scotland is also set an annual target to achieve efficiency savings across all areas and progress is reported to the core Scottish Government on a quarterly basis.
The Transport Scotland Senior Management Team ensures that the principles of best practice contained with the Scottish Public Finance Manual are closely adhered to in all areas and also ensures that appropriate arrangements are in place to ensure that the public funds they are responsible for are properly safeguarded and used economically, efficiently and effectively.
I, as Chief Executive and Accountable Officer for Transport Scotland, formally delegate financial management responsibilities to each Director for the propriety, regularity and good financial management of expenditure within their Directorate. This delegation is formally recorded and reviewed each year and is subject to audit scrutiny.
The Management Team reviews financial performance across the Agency on a monthly basis as well as overseeing the timely production, on an annual basis, of an Annual Report and Accounts, confirming that it has complied with relevant standards of Corporate Governance. Transport Scotland's budgets are determined in the context of Spending Reviews, and continuous monitoring and accurate forecasting of out turn are essential in order to highlight significant deviations from budgets and to identify any potential corrective action. The management team has a key role in strategic financial decision making and reviewing in year spending priorities and has a duty to work corporately to secure sustainable outcomes within the authorised budget for the Agency.
Programme and Project Management
Transport Scotland adopts a comprehensive approach to programme and project management. All projects are overseen by a Project Board, chaired by the Project Sponsor. This includes the Queensferry Crossing, the Borders Railway, the M8/M73/M74 Improvements Programme, the Aberdeen Western Peripheral Route, Balmedie Tipperty and the Edinburgh to Glasgow Improvements Programme. The Project Boards incorporate a range of expertise including procurement, legal, technical and financial at a senior level. Their role is to oversee the delivery of the projects, including associated risk management, to ensure completion on time and budget. This includes the development and approval of associated business cases in line with the requirements of the Scottish Financial Reporting Manual.
Gateway reviews and other appropriate external reviews are undertaken at relevant stages to ensure that projects are capable of delivering their stated objectives.
As Accountable Officer, I am the Investment Decision Maker. I am supported by an Investment Decision Making Board, made up of senior managers, in reviewing and approving the key stages in all of Transport Scotland's major projects and procurements.
I have set objectives for the Directors within Transport Scotland to undertake a regular review process to ensure that improvement to the assurance and control environment within Transport Scotland is monitored closely and, where appropriate, actions are in place to address any weaknesses identified to ensure the continuous improvement of the system.
The System of Internal Control
The system of internal control is designed to manage rather than eliminate the risk of failure to achieve Transport Scotland's policies, aims and objectives. Consequently, reasonable and not absolute assurance of its effectiveness can be provided. The system of internal control is based on an ongoing process designed to identify and prioritise risks, to evaluate the likelihood and impact of them being realised, and to manage them efficiently, economically and effectively. This system of internal control has been in place in Transport Scotland for the year ended 31 March 2013 and up to the date of approval of the Annual Report and Accounts. It is in accordance with the guidance from Scottish Ministers.
Review of effectiveness
I, as the Accountable Officer, have responsibility for reviewing the effectiveness of the system of internal control. This is informed by the work of Internal Audit, the managers within the Agency, the Audit and Risk Committee and the external auditors in their reports.
Assurance on the maintenance and review of internal control systems is provided by each of the Directors within Transport Scotland who submit to me an annual certificate of assurance covering their areas of responsibility.
Transport Scotland's internal auditors (whose work is undertaken to Government Internal Audit Standards) submit regular reports to the Audit and Risk Committee which provide an independent opinion on the adequacy and effectiveness of the organisation's system of internal control, together with any recommendations for improvement. The three categories of assurance used in these reports are substantial, reasonable and limited assurance.
Follow up work is carried out to confirm the effective implementation of recommendations agreed as a result of the audits.
The Performance Audit Group (Halcrow working in association with Pricewaterhouse Coopers and Scott Wilson Plc) perform an external assurance role for all trunk road maintenance work.
Internal Audit Reports 2012-13
|| Audit Area & Scope
|| Anti-Fraud Measures
||Assurance Provided: Substantial
In general, controls were good. In particular, Internal Audit was impressed by the comprehensive reconciliation processes in place for direct running costs and also of the counter fraud culture encountered during the course of the review. Further evidence and assurance of this was taken from the recent Procurement Capability Assessment, which confirmed that Transport Scotland had retained its "superior" procurement status and that its overall score had increased from 84% to 91%.
|| Corporate Governance
||Assurance Provided: Substantial
Controls were also found to be good. In particular, Internal Audit was impressed with the business planning processes and the associated framework for reporting on progress. There were also robust governance frameworks in place in respect of delegated financial and purchasing authorities and also for risk management arrangements.
| Queensferry Crossing Construction Payments
||Assurance Provided: Substantial
In general, controls were found to be good, and there were no recommendations resulting from this review.
|| Post Project Evaluation
||Assurance Provided: Substantial
Controls were found to be good, and recommendations are intended to strengthen existing controls. Internal Audit was impressed by the quality of work within the development of the internal evaluation frameworks over the past year which incorporate Strategic Transport Appraisal Guidance (STAG) requirements and in particular, the draft Scottish Trunk Road Infrastructure Project Evaluation (STRIPE) guidance which is at an advanced stage of development.
|| Roads Maintenance
||Assurance Provided: Substantial
Controls were found to be good, and recommendations are intended to strengthen existing controls. Internal Audit was impressed with the work of the Project Team and their response to the impact of the unsuccessful legal challenge to the award of the tranche 1 contracts, and how this in turn impacted on the timeline for the procurement of the contracts, which at the time of fieldwork, were on track to be delivered on schedule.
In addition to the above reports, Internal Audit completed follow-up reviews on the following audits:
- Accounts Payable - 2011-12
- Scotrail Franchise Arrangements - 2011-12 audit
- Sponsorship Arrangements across Transport Scotland - 2011-12 audit (to be completed)
These follow-up reviews highlighted that all extant recommendations identified in the initial reviews had been implemented as agreed.
The duty of Best Value applies to all public bodies in Scotland, and is a formal duty on Accountable Officers. Achieving Best Value is about ensuring sound governance, good management, public reporting on performance and a focus on improvement. Transport Scotland's aim is to drive improved value for money, ensure tight management of funds and sound asset management. Subsequent efficiencies will assist with the support of the investment programme.
Best Value provides a common framework for continuous improvement in public services in Scotland, and is a key foundation of the Scottish Government's Public Service Reform agenda. The Scottish Ministers expect all Accountable Officers to comply with the duty of Best Value placed upon them.
During the year 2012-13, Transport Scotland conducted follow up reviews and implemented further improvements in financial management procedures and in the processes for governance and accountability. Best Value Reviews in the previous financial year had highlighted that, whilst the Agency was operating efficiently in both of these areas, there was potential for enhancements which would further strengthen the processes.
In addition, a Best Value service review on sustainability was completed. This highlighted that overall Transport Scotland has arrangements in place to demonstrate a robust and forward looking approach to sustainability, with a key recommendation being that continued improvements such as utilising performance indicators and promoting the incorporation of sustainability into all projects and dealings with partners and stakeholders should be driven forward and continuously reviewed.
In 2013-14, it is the intention to conduct two further Best Value reviews in the areas of Risk Management and Asset Management.
Risk management forms a central element of the Agency's internal control framework. Risks are managed at the level most able to deal with them, with the most serious risks being escalated to the Senior Management Team. Each directorate has a designated risk co-ordinator who is responsible for facilitating an effective and regular review of risks to the delivery of objectives.
There is a robust framework of responsibility for risk management within Transport Scotland in accordance with the SPFM. The system for assessment and control of risk within the Agency is as follows:
- I, as Chief Executive, in conjunction with the Directors, review the strategic and operational risks to the Agency's business throughout the year, and this is a regular item at the monthly Management Team meetings;
- the Audit and Risk Committee has provided oversight of the Agency's risk management processes and strategy and Corporate Risk Register throughout the year;
- managers identify and evaluate risks to successfully deliver the Agency's operation and control objectives when they prepare and monitor directorate and business management plans; and
- I, as Chief Executive, hold regular meetings with Ministers where both strategic and operational risks are discussed.
A high level Risk Strategy is in place, which sets out a consistent approach to the implementation of risk management within Transport Scotland at strategic, programme and project levels. The Transport Scotland Risk Management Group is responsible for developing and maintaining the Corporate Risk Register and for facilitating the ongoing production and management of risk registers within project teams and Directorates and for enhancing the management of risk across all areas of the business.
Managing information and information security
Transport Scotland is committed to ensuring its information is managed and valued, with appropriate protection and use of our information assets.
The handling of data and information carries significant risks to Government departments, and Transport Scotland takes information security very seriously, in compliance with the ISIS (Information Security Information Systems) Security Frameworks and Data Handling policies.
Transport Scotland follows the Scottish Government key principles for good information management that all staff must follow. In basic terms the principles are that:
- We treat information as a Scottish Government resource.
- We are all responsible for our information.
- We make information accessible to others who have a need to use it.
- We keep records of what we do.
- Our information is accurate and fit for purpose.
- Our information complies with regulations and legal requirements.
All staff and users of information technology within Transport Scotland must comply with the IT Code of Conduct and be familiar with its contents.
Counter Fraud / Review of risk of financial loss.
Transport Scotland takes a zero tolerance approach to fraud. All cases of actual or suspected fraud are investigated vigorously and promptly and disciplinary action is taken where appropriate. Transport Scotland have fraud, bribery and whistleblowing procedures in place to make clear how cases will be dealt with and how staff can report suspicions or concerns.
Transport Scotland also has a designated Fraud Officer and a Fraud Response Plan in place to ensure that timely and effective action is taken in the event of a fraud. Trained and experienced staff are available to advise, guide and assist in efforts to counter fraud. We also have a dedicated fraud hotline and are using more integrated fraud alert systems.
Details of cases of actual or attempted fraud that come to light during the financial year are reported within a Fraud Log for that year and are reported to the Transport Scotland Audit and Risk Committee.
The Agency actively participates in the fraud alerts system run by the National Fraud Authority, which seeks to share intelligence about specific fraud risks encountered across Government.
Within Transport Scotland there is a separate Concessionary Fares Fraud Team operating under the same policy as the rest of Transport Scotland. This is required due to the unique operating environment of the Concessionary Fares Scheme.
The Agency participates in the National Fraud Initiative (NFI) in Scotland, which is a counter fraud exercise led by Audit Scotland assisted by the Audit Commission in England. This is a data matching process to help public sector bodies to prevent and detect fraud and error in their financial systems, using computerised techniques to compare information about individuals held by different public bodies on different financial systems.
Transport Scotland has a functional Business Continuity Plan, which has been reviewed during the year. The objectives are
- to identify risks;
- to establish clear areas of responsibility;
- to ensure Transport Scotland continues to provide essential functions and services;
- to identify measures to recover/ repair assets damaged or lost; and
- to identify a medium and long term recovery strategy.
7 August 2013