SNP finance crisis: party faces imposition of outside auditors

The Commission said the scenario remained “hypothetical” for now, however the clock is ticking.

The Herald on Sunday can also reveal the SNP knew it might miss the July 7 deadline for filing its accounts before Nicola Sturgeon resigned, yet failed to warn her possible successors.

SNP HQ, which at the time was run by Ms Sturgeon's husband Peter Murrell, told the Commission in a phone call in “early February” that auditors Johnston Carmichael had resigned the previous September.

At the same time, the party asked about the process for seeking an extension for submitting its accounts, showing it was already worried about missing the deadline.

UK election law allows the Commission to grant a discretionary extension.

Although extensions are not uncommon - there have been around 50 granted to parties of all sizes over the last decade - imposing auditors would be unprecedented.

It was not until February 15, after SNP HQ had spoken to the Commission, that Ms Sturgeon announced she was standing down after more than eight years as SNP leader and First Minister.

Her announcement triggered one of the greatest periods of turmoil in SNP history.

Amid a bitter and divisive leadership contest, the party’s Holyrood media boss Murray Foote quit after being misled by his own colleagues over a slump in membership.

READ MORE: Humza Yousaf denies SNP going bankrupt as party finances strained

Mr Murrell then resigned after two decades as SNP chief executive for his part in the membership scandal.

It was only after Humza Yousaf narrowly defeated Kate Forbes to become First Minister in late March that he was told about the gravity of the problems with the SNP’s finances.

He learned that not only had the auditors resigned six months previously, but that the party had been unable to find another company willing to take them on as a client.

Mr Yousaf said this week that finding new auditors was one of his priorities as leader, and that while the party would try to file its account on time it would be “a challenging task”.

Johnston Carmichael also ceased to act as auditors for the £1.5m-a-year SNP Westminster Group, which provides staff for the party’s 45 MPs.

Besides the July 7 deadline for filing its accounts with the Commission, the Group faces a second, urgent deadline with the parliament’s authorities.

Around two-thirds of the Group’s funding comes from public funds known as Short Money, which the Commons gives to opposition parties based on the the number of their MPs and election votes. 

The SNP Westminster Group must give the Commons an auditor’s certificate by May 31 to confirm the £1.15m of Short Money it received in 2022/23 was spent correctly.

If it fails to do so, it will not receive any Short Money for 2023/24 until it does get a certificate, potentially depriving it of more than £1m a year.

That would not lead to immediate redundancies, as the Group is surprisingly well-off. 

At the end of 2021 it had £586,000 in the bank, four times as much as the national party.

However failure to meet the Commons rules would be deeply embarrassing.

Scottish Labour MP Ian Murray is demanding to know what Stephen Flynn, who became SNP Westminster leader in December, knew of Johnston Carmichael’s exit and when.

Most SNP MPs were unaware the firm had left until the Herald reported it.

The failure of SNP HQ to be transparent about the firm’s departure has this week come to symbolise its kneejerk secrecy.

Its ruling body, the National Executive Committee (NEC), was also kept in the dark.

The NEC met yesterday to approve a new transparency and governance review, including the potential use of forensic accountannts, experts commonly used to detect fraud and malpractice.

Police outside the home of Nicola Sturgeon and Peter Murrell as it is searched as part of Operation Branchform (Image: PA)

National Treasurer Colin Beattie told the NEC the SNP's income had been hit by the exit of 30,000 members and their fees, a lack of donations, and legal costs related to a police probe into the party's finances. 

He told the meeting the party was “having difficulty in balancing the books" and a looming Westminster byelection in Rutherglen & Hamilton West -  which will cost the the SNP up to £100,000 - would add to the "pressure". 

Campaigning in the seat after the meeting, Mr Yousaf insisted he would have cash to fight the byelection, where Labour hopes to gain a seat won in 2019 by the SNP, and scoffed at speculation his party was bankrupt.

"We're not close to bankruptcy. This is something that I've read in some social media circles, but the party is solvent," he said.

He also confirmed the SNP had yet to find new auditors, and said finding new ones remained a matter of urgency.

Johnston Carmichael has been tight-lipped about why it resigned, citing client confidentiality. 

However it did so shortly after ensuring the SNP belatedly reported Mr Murrell had loaned the party £107,620 more than a year earlier, ostensibly to help with its “cash flow”.

It was the only one of 17 loans received by the SNP since coming to power in 2007 not to have been reported to the Electoral Commission on time.

Johnston Carmichael also dropped the SNP after conducting what its own transparency report for last year called a “risk review of our client portfolio”.

It said: “This has led to disengagement from clients where we perceive there to be a risk of failing to deliver a quality audit.”

Walking away from riskier clients wasn’t automatic, however.

Another option was “repricing”, meaning some clients could stay if they paid a bigger fee. But for the SNP it was “disengagement”.

The most obvious explanation is Operation Branchform, the police fraud investigation launched into the SNP’s fundraising appeals for a second independence referendum.

The party raised more than £660,000 specifically for Indyref2, and in early 2021 the police received multiple complaints that the money may have been spent on other things. 

Officers arrested and questioned Mr Murrell on April 5 before releasing him without charge.

They also searched the Glasgow home he shares with Ms Sturgeon and seized a luxury £110,000 motorhome from outside the Fife home of his widowed 92-year-old mother. 

It was later reported that the SNP bought the vehicle as a Covid compliant ‘battle bus’ ahead of the 2021 Holyrood election, but never used it.

Although the police investigation was simmering in the background when Johnston Carmichael quit, the firm was all too aware of it.

In September 2021, a year before it left, it was reported that the police had granted a warrant to seize documents from the firm as part of the probe.

One accountant told the Herald that the auditors would have been “very uncomfortable” with the situation, and the possibility of “reputational risk” to them as a result.

“It was just a matter of time before they dropped the SNP,” the person said. 

SNP National Treasurer Colin Beattie and Business Convener Kirsten Oswald (Image: PA)

There is now growing anger in the SNP about the role of Kirsten Oswald, the MP for East Renfrewshire, and Mr Beattie, the MSP for Musselburgh.

Ms Oswald is the party’s business convener - an unelected post in the gift of the party leader - and is technically “responsible for overseeing the operation of the party”.

READ MORE: Deposit scheme Scotland - Business leaders unite in plea to Yousaf

One Westminster insider said: “People are p***ed off. 

“Kirsten is coming in for quite a lot of flak because she’s been integral to shutting down any questions at NEC and she was [until December] deputy leader of the Westminster group.

“So she’s covering both camps and not looking very good in either.

“She has been a real active block to progress on the NEC. Yet she, Michael Russell [SNP president] and Humza Yousaf are now the panel to find the new chief executive.”

Mr Beattie has been SNP National Treasurer for most of the party’s time in power. 

The latest SNP accounts, signed off weeks before Johnson Carmichael quit, declared: “The National Treasurer and staff regularly review the financial plans and agree a series of activities to ensure financial stability in the years ahead. The SNP remains resilient through avoiding undue risk, combined with sound financial planning and management.” 

Words that ring decidedly hollow now.

The key law governing the SNP’s reporting duties is the Political Parties, Elections and Referendums Act of 2000, known as PPERA.

Under Section 43, the Commission “may appoint a qualified auditor to audit” overdue accounts and recover the cost from party funds.

A Commission spokesperson said: “The SNP informed us by telephone in early February this year that their auditors had resigned. They also asked what the process would be if they needed to ask for an extension for submitting their accounts.

“There is provision in Section 45(3) of PPERA to request an extension.

“Section 43(4) of PPERA gives us a power to appoint an auditor where accounts have failed to be audited on time. Clearly, we are some months away from this hypothetical scenario.

“At this moment in time we are not aware of any offences which may have occurred in relation to the laws we regulate, so we are not currently investigating either the SNP central party or the SNP Westminster Group.”