Ministers 'fail' to comply with audit call for transparency over financial support for struggling Scots companies

It came after the Auditor General said there was limited public information about the extent of financial support to both Ferguson Marine and BiFab which both went into administration.

The Herald has been told that that the clear 'transparency framework' has not been drawn up.

Today (Thursday) the Scottish Government is expected to lay out its consolidated accounts for 2019/20 over which the Auditor General will make a judgment.

The Herald understands that ministers are to be told that more needs to be done on transparency over its dealings with private firms.

In December, last year, in response to a Freedom of Information question, Audit Scotland said that the Scottish Government in response to the transparency call, in August 2019, published guidance to support accountable officers on the steps to consider when investing in private companies.

But Audit Scotland said the Scottish Government had not yet developed a "clear framework" to outline its approach and reasoning to financial intervention in private companies.

The Scottish Government insists that the Scottish Public Finance Manual (SPFM) first introduced nearly 20 years ago after the Scottish Parliament was established sets out how it deals with private businesses.

Nicola Sturgeon on a visit to Ferguson Marine before he went into administration.

The revelation comes after it emerged that ministers stand to lose most of the over £130m of taxpayers money it used to bail out three struggling Scottish companies - Ferguson Marine, BiFab and Prestwick Airport.

In September it was revealed the Scottish Government has been unable to declare any returns from investment by way of interest payments or dividends from the multiple loans given to all three.

The value of what it had forked out to bail out BiFab and Prestwick Airport has plummeted to a tiny fraction of its original value.

According to official 2018/19 accounts, the equity value of a £37.4m loan to Bifab, which went into administration this week, reduced to just £2m because of expected losses.

Debts totalling £39.9m as a result of a Prestwick Airport bailout remain outstanding. In its 2018/19 annual accounts, Transport Scotland said the value of the loan had reduced by £33m to just £6.9m to reflect expected losses.

Some £5m in interest was owed after ministers ploughed £45m into Ferguson Marine over two years but it has been confirmed that not a penny was paid, after the shipbuilder fell into administration in August last year before being taken over by the Scottish Government.

The interest payment brings to £45m, the amount owed over the collapse of FMEL having used £7.5m of their debt to mount a state takeover of the company. According to financial papers ministers will expect to get some money back from the FMEL's collapse, but administrators have been holding just £8.4m for potential distribution to creditors.

First Minister Nicola Sturgeon has used FMELs shipyard near Greenock for election campaigning, and opposition parties say ministers failed to be transparent about the case for the loans.

Canadian-owned Bifab, with yards in Arnish and Fife, received a total of £37.4m in no-interest loans between 2017 and March, 2019 in a bid by the Scottish Government to save it from closure. That has been converted to shares in a process which started in April, 2018 and eventually gave ministers a 32.4% stake in the company.

But it has been confirmed that the Scottish Government has so far yet to receive any dividends.

A loan facility of £15 million was also provided to support working capital.

The Scottish Government has previously said it needed to intervene with Ferguson Marine and Bifab as both were strategically important businesses and that their actions saved hundreds of jobs.

Ministers were criticised over its handling of the state takeover of Ferguson Marine, after a secretly negotiated deal emerged which formed the pathway to a state takeover involving waiving £25m in performance bonds that acted as an 'insurance' against the company going under and not being able to complete two lifeline ferries.

In 2018, the Auditor General Caroline Gardner recommended that the Scottish Government should develop a framework that clearly outlines its role in financial interventions in private companies to support decision making over where, when and at what level to invest.

It would provide clear information on financial capacity, risk tolerance and expected outcomes.

It came as she again chastised ministers for not yet producing full accounts for all public spending in Scotland, despite repeated pledges to do so.

In doing so the Scottish Government will provide the Parliament with "greater assurance and better information" over its strategic objectives in entering these agreements and allow for "greater scrutiny of the risks and opportunities" that exist.

According to information released under FOI, the 2018/19 audit of the Scottish Government's accounts, the Auditor General continued to raise the issue of transparency in providing "significant public funds" to support private companies.

It pointed out that while the Consolidated Accounts focus on the government's finances - and that the reader is "unable to see the links between the money spent by the Scottish Government, what it has achieved, and progress made towards achieving national outcomes".

"As Scotland's fiscal responsibilities grow, it is increasingly important for the Scottish Government to produce more detailed and transparent performance reporting, that better links spending with outcomes," it said. "The revised National Performance Framework provided the opportunity for the Scottish Government to better improve the links between Government spending and what it delivers, but the performance report does not provide this detail.

"Greater transparency around the Scottish Government's own performance towards meeting its strategic objectives would provide greater accountability for its use of financial resources. This would provide a more rounded account of the Scottish Government's overall performance, enhance reporting to the Scottish Parliament and the public, and help strengthen accountability and scrutiny."

Last month, the Herald asked the Scottish Government whether transparency framework requested by Audit Scotland had yet been done and if it could be published and if there had been any examination of the risks in ploughing money into BiFab.

A spokesman responded: "We have operated as transparently as possible while respecting the bounds of commercial confidentiality in line with the clear guidance provided by the Scottish Public Finance Manual regarding investment in private companies including appropriate levels of due diligence and assessment of risk.

"Previous support [for BiFab] was based on a careful evaluation of the circumstances and strong pipeline opportunities."

In September, last year, the auditor general criticised the detail of budgeting at Holyrood.

She accused ministers of taking "a step backward" with the amount they are making available to the watchdog.

She said there was a lack of detail in the budget plans set out by Scottish ministers, at a time of heightened uncertainty for public services.

The auditor general also refused to sign off accounts for the new carer's allowance.

She said it was not clear how that money is being spent, partly through a Whitehall department.

A Scottish Government spokesman said: “The Scottish Government is committed to sound and transparent management of the country’s finances to deliver the best outcomes for the people of Scotland and to stimulate a sustainable recovery from the coronavirus pandemic," a spokesman said.

“The Scottish Public Finance Manual sets out the considerations and decision-making process undertaken by Ministers when considering investing public funds in a business.