Scottish Government: Commercial Loans

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Dear Audit Scotland,

FOI request: Scottish Government's Commercial Loans

I refer to the Scottish Government’s Consolidated Accounts 2017/18 (page 19): “The Scottish Government brokered an agreement in April 2018 to secure the long term future of Burntisland Fabrications (BiFab), a major fabrication supplier to the oil and gas sector; offshore renewables and wider infrastructure industries. As part of this agreement the Scottish Government will increase a previous loan facility made available to BiFab and convert that loan to a minority equity stake in the new company. That loan facility has been made on a fully commercial basis. The extent of that shareholding will be determined by the extent to which the loan facility is utilised but will not exceed 38%.”

“The Scottish Government is also supporting commercial shipbuilding through the provision of two loan facilities to Ferguson Marine Engineering Limited (FMEL). A £15 million loan facility was made available in September 2017 and drawn down in financial year 2017/18.”

I now refer to Burntisland Fabrications 2017 Financial Statements available from Companies House and specifically the section: “Material Uncertainty Related to Going Concern”

“We draw attention to note 3 in the financial statements, which indicates that the company incurred a net loss of £48,014,615 during the year ended 31 December 2017 and, as of that date, the company's current liabilities exceeded its total assets by £30,808,516. As stated in note 3, these conditions, along with other matters set forth in note 3, indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern.”

I now refer to Ferguson Marine Engineering Limited. FME Limited is significantly overdue in delivering its audited accounts for the year ended 31 December 2016 to Companies House. The company does not have approval from Companies House for this delay. The company has not filed audited accounts for the year ended 31 December 2017. The company last reported a financial loss of £2.7 million (for the year ended 31 December 2015) and was dependent upon the continued financial support of its parent company at that time.

I now refer to Audit Scotland’s audit of the Scottish Government’s Consolidated Accounts for 2017/18. Please provide a copy of Audit Scotland’s audit assessment of the gross valuation (before taking account of default and other risks) and net valuations (after taking account of default and other risks) of the commercial loans provided to (A) Ferguson Marine Engineering Limited and (B) Burntisland Fabrications Limited.

I request the information in the public interest of transparency and accountability in the use of public funds.

Please acknowledge receipt of my FOI request.

Yours faithfully,

Mr Paterson

Alex Devlin, Audit Scotland

2 Attachments

Dear Mr Paterson,

 

This email is to acknowledge receipt of your FOI request dated 3 November
2018 regarding the Scottish Government. Your request is now being dealt
with and will be replied to as quickly as possible and within 20 working
days.

 

Yours sincerely,

 

Alex Devlin

Corporate Governance Manager

Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN

T: 0131 625 1500 E: [1][email address]

[2]www.audit-scotland.gov.uk

 

[3][IMG]

 

[4][IMG]

 

References

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Ian Metcalfe, Audit Scotland

Dear Mr Patterson

This email is in response to your Freedom of Information request dated 5 November 2018. The information you have requested is being withheld under section 27 (1a) of the Freedom of Information (Scotland) Act 2002 – Information intended for future publication.
Audit Scotland’s annual report on the Scottish Government’s consolidated accounts is not yet finalised and is expected to be published on or shortly after the 10 December 2018.
I am sorry that I cannot provide you the information you have requested at this time however, I will inform you as soon as the 2017/18 annual audit report is finalised and will respond to your request at that point.

Yours sincerely

Ian Metcalfe
Corporate Performance Officer
Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN
T: 0131 625 1861 E: [email address]
www.audit-scotland.gov.uk

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Dear Ian Metcalfe,

Thank you for your response. Please can you clarify as I do not understand. Audit Scotland published its results of the audit of the Scottish Government's Accounts in September 2018. The link is here:

http://www.audit-scotland.gov.uk/uploads...

But you say the "Audit Scotland’s annual report on the Scottish Government’s consolidated accounts is not yet finalised and is expected to be published on or shortly after the 10 December 2018."

What am I missing?

Yours sincerely,

Mr Paterson

Ian Metcalfe, Audit Scotland

Dear Mr Paterson

 

If you have a look at  last years report on the year 2016/17 this might be
the easiest way to explain.   As you say the accounts have already been
published for this year however the information you are asking for will be
published in the annual report and this is the one that I am expecting to
be published on the 10 December.

 

[1]http://www.audit-scotland.gov.uk/report/...

 

 

[2]http://www.audit-scotland.gov.uk/report/...

 

 

 

If this does not clear it up please feel free to call me on the number
below.

 

Ian

Ian Metcalfe

Corporate Performance Officer

Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN

T: 0131 625 1861 E: [email address]

www.audit-scotland.gov.uk

 

 

 

 

 

 

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Dear Ian Metcalfe,

Thank you. Is the name of this new report the "Scottish Consolidated Fund 2017/18 annual Audit Report" ?

Yours sincerely,

Mr Paterson

Ian Metcalfe, Audit Scotland

Mr Paterson

I will enquire with colleagues on the exact title. Please note I have put it in my diary to send you a copy once it become available and I will be able to give you a full response to your FOI request at that time.

Ian

Ian Metcalfe
Corporate Performance Officer
Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN
T: 0131 625 1861 E: [email address]
www.audit-scotland.gov.uk

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Dear Ian Metcalfe,

Please provide the name of the document that contains the information in my request.

Yours sincerely,

Mr Paterson

Ian Metcalfe, Audit Scotland

Dear Mr Patterson

The report title will be Scottish Government: Scottish Consolidated Fund annual audit report 2017/18

Ian
Ian Metcalfe
Corporate Performance Officer
Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN
T: 0131 625 1861 E: [email address]
www.audit-scotland.gov.uk

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Ian Metcalfe, Audit Scotland

Dear Mr Paterson

Following on from my email dated 22 November I can now confirm that the Scottish Government's 2017/18 annual audit report is now complete and will be available on our website during January 2019. However I am now in a position to respond to your Freedom of information request in which you asked for:

"Please provide a copy of Audit Scotland’s audit assessment of the gross valuation (before taking account of default and other risks) and net valuations (after taking account of default and other risks) of the commercial loans provided to (A) Ferguson Marine Engineering Limited and (B) Burntisland Fabrications Limited."

Our audit work in relation to the loans the Scottish Government provided to Ferguson Marine Engineering Limited (FMEL) and Burntisland Fabrications Limited (BiFab) was carried out as part of our audit of the 2017/18 Scottish Government consolidated accounts. In preparing these accounts, the Scottish Government is required to comply with the 2017/18 Government Financial Reporting Manual (FReM). Our annual audit opinion on the consolidated accounts concludes that the accounts have been properly prepared in accordance with International Financial Reporting Standards as interpreted and adapted by the 2017/18 FReM. Our audit work is carried out in accordance with applicable law and International Standards on Auditing (UK).

Auditing and accounting standards require us to evaluate the appropriateness of balances and disclosures in the Scottish Government’s consolidated accounts 2017/18, with a financial year end of 31 March 2018. The consolidated accounts were authorised for issue on 24 September 2018 and the independent auditor’s report was certified on 25 September 2018. All material events between the 31 March and 24 September are required to be considered and appropriately disclosed in the consolidated accounts to ensure that they provide a true and fair view and are free from material misstatements.

The FReM requires bodies, including the Scottish Government, to account for financial instruments (such as commercial loans) in accordance with International Accounting Standards (IAS) 39 Financial instruments: recognition and measurement, IAS 32 Financial instruments: presentation and IFRS 7 Financial instruments: disclosures.

The following outlines details of our assessment of Scottish Government loans to BiFab and FMEL as part of our audit of the 2017/18 Scottish Government consolidated accounts.

Burntisland Fabrications Ltd (BiFab)

Commercial loan of £19 million made by the Scottish Government to BiFab Ltd during 2017/18.

Gross Valuation: £19 million
Net Valuation assessment by Audit Scotland at 25 September 2018: £6 million

We were aware of conditions that existed at the balance sheet date (31 March 2018) that would suggest a change (either an increase or a decrease) in the carrying value (recoverable amount) of the loan. Included in the loan agreement with BiFab is a provision for the loan to be converted to an equity stake, not exceeding a 38 per cent shareholding in BiFab. In line with International Accounting Standard 10, Events After the Reporting Period, we concluded that events after the reporting period (relating to the amount converted to equity provision) ratified conditions that existed before the financial year end. As a result, we reassessed the valuation of the loan and our audit judgement was that the valuation of the loan was impaired by £13 million, resulting in a net valuation of £6 million. Our assessment was based on the amount converted to equity and an estimation of the value of that equity stake.

For further details on our assessment, please refer to our annual audit report (which will be published in January 2019) and specifically point 2 in Exhibit 3 Key issues from the audit of the financial statements. Exhibit 2 Materiality values, in the annual audit report outlines materiality which was £360 million. The Scottish Government decided not to adjust for this misstatement and Appendix 3 of the annual audit report summarises this and other uncorrected misstatements. In total, the misstatements are below materiality levels, and therefore the independent auditor’s report in the consolidated accounts gave an unqualified opinion.

Ferguson Marine Engineering Ltd.

Commercial loan of £15 million made by the Scottish Government to FMEL during 2017/18.

Gross Valuation: £15 million
Net Valuation: £15 million.

Through our audit procedures, we were not aware of any conditions that existed at either the balance sheet date or the date the accounts were certified that would suggest a change (either an increase or a decrease) in the carrying value (recoverable amount) of the loan. Therefore, our audit judgement was that the net valuation of the loan was £15 million.

Yours sincerely

Ian Metcalfe
Corporate Performance Officer
Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN
T: 0131 625 1861 E: [email address]
www.audit-scotland.gov.uk

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Dear Ian Metcalfe,

Thank you very much for providing a good quality reply.

Yours sincerely,

Mr Paterson

Dear Ian Metcalfe,

"Following on from my email dated 22 November I can now confirm that the Scottish Government's 2017/18 annual audit report is now complete and will be available on our website during January 2019. "

Has this report now been published ?

Yours sincerely,

Mr Paterson

Ian Metcalfe, Audit Scotland

Dear Mr Paterson

 

The report is on our website and here is a [1]link

 

Yours sincerely

 

Ian

 

 

Ian Metcalfe

Corporate Performance Officer

Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN

T: 0131 625 1861 E: [email address]

www.audit-scotland.gov.uk

 

 

 

 

 

 

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