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This report compiled by The Scottish Arts Council is the outcome of the review requested by the Scottish Executive into monitoring of its financial relationships to the national companies which are:
The detailed remit is in Appendix One.
The report takes account of information supplied by Scottish Opera and Scottish Ballet, an independent report submitted by Morgan Harris Burrows and information from SAC staff on monitoring procedures.
The Report which follows is presented in two parts. The first part gives background analysis and recommendations. The second contains three contributory reports, each completed by separate authors, covering the three points in the main remit. In addition there are a number of appendices containing detailed information.
The Scottish Arts Council was requested to produce this report following the agreement of The Scottish Executive to provide an additional non-recurring grant of £2.1 million to meet the needs of Scottish Opera.
The timescale for completion of this Report has been demanding. Input was required from Scottish Opera and Scottish Ballet and from an independent consultant. Opportunity for cross checking and referencing these contributions was limited. Each report was written to be free standing and inevitably there are repetitions in the reports, all of which are reproduced here in full in Part Two.
1.1 SAC is the main body in Scotland responsible for the distribution of funds to support the arts in Scotland. Funds derive from The Scottish Executive and from the National Lottery. In the financial year 2000/01 grant income from the Scottish Executive will be £29.9 million and it is estimated that £19.8 million will flow from the National Lottery.
1.2 SAC is responsible for three main functions in support of the arts:
1.3 The function most concerned with monitoring is that of funding. SAC funds almost 80 revenue funded organisations on an annual basis. In addition we support about 2,000 project activities each year. Each one of these projects requires a varying degree of monitoring. Each grant application, of which there are many more than the number of grants awarded, is assessed and considered in detail.
1.4 From the General Fund grant of £29.9 million, £28.044 million is allocated towards grant distribution; of this sum revenue funded and other organisations absorb £9.916 million or 35% ; the national companies absorb £12.627 million or 45%; with the balance of £5.499 million, or 20% being allocated to individuals and funding schemes of which organisations might also be the beneficiaries. This report is most concerned with the national companies.
2.1 The request for this report arises from the serious financial difficulty experienced by Scottish Opera which emerged in October 1999 which resulted in an exceptional non-recurring grant from The Scottish Executive of £2.1 million.
2.2 Since the advancement of that special grant was made considerable work has been done to ensure such a situation does not recur. Scottish Opera and Scottish Ballet have a new Chairman who has already started to put into effect a series of changes to ensure that financial management and reporting is robust.
2.3 It remains for SAC to agree with Scottish Opera, Scottish Ballet and the other national companies how the recommendations for more robust monitoring procedures can be implemented.
2.4 All parties are now aware of the causes of the problems, action has been taken, and will continue to work together.
3.1 The organisations supported by SAC are in general companies limited by guarantee with charitable status. They have their own board of directors which is responsible for managing the affairs of the company. SAC has a role in monitoring the use of the public funds which it disburses but it cannot be held liable for the legal responsibilities of the board.
3.2 One of the tasks which SAC undertakes as part of its monitoring procedures is to consider the breadth of knowledge, skill and experience available on the board to undertake the job in hand and to provide appropriate guidance.
3.3 To assist boards, SAC funds a development programme, produces a publication to assist new board members and trustees to understand their responsibilities and duties, and encourages those with an interest in the arts to become board members. Advice on the range of skills represented on a board which an arts organisation is likely to find beneficial in managing its affairs is also provided.
4.1 Financial monitoring of the National Companies is undertaken in a similar way to all organisations which are funded on a long term basis. These are known as revenue funded organisations. The intention of this revenue funding is to allow the organisation freedom to organise its activities in a way which delivers an agreed artistic programme, within an approved budget. The grant award can be used by the receiving organisation towards direct and indirect costs associated with its programme. This includes administrative costs, general overheads and building costs as well as those costs associated directly with artistic and educational work.
4.2 The offer of grant from SAC is accompanied by a funding agreement, which is arrived at after discussion between the director of the relevant SAC department and the organisation concerned. This outlines the general and any specific conditions attached to the grant for that year. It also includes agreed targets which the organisation is expected to achieve such as audience numbers and education and outreach work as appropriate. Appendix Three provides an example of a complete funding agreement for Scottish Opera for 1997/98.
4.3 The revenue companies supported by SAC represent an infrastructure for the arts in Scotland and although SAC is itself funded on an annual basis, as are the grants to most organisations, a long term view is taken. Artistic and managerial endeavour is variable, often cyclical. It would be unreasonable if support was withdrawn immediately in response to perceived variations in quality or downturns in the cycle. When difficulties are encountered SAC will work with the organisation to improve or change the aspects of the organisation which are causing concern. (See below).
5.1 Monitoring how grants are committed within the expenditure of the organisation is a continuing process. Almost all revenue funded organisations are highly dependent on the SAC grant. (See Table Two, on page 46, for the proportion of income contributed by grant). Many grant aided schemes in other sectors operate retrospectively in that funds are not released until an event has taken place or the items funded by grant are purchased.
5.2 Because of the high degree of reliance on SAC funds it is not possible to work this way. Grants must be released in anticipation of conditions being met to avoid the insolvency which would inevitably accompany any decision to withhold grant instalments. The ultimate remedy of withholding grant for breach of conditions cannot readily be exercised.
5.3 If there is a minor breach of conditions of grant an exchange of correspondence pointing out the problem and asking for it to be redressed is the usual action. However, where there is a major breach there would certainly be an exchange of letters as a minimum, but there are few sanctions other than the one outlined above which SAC can bring to bear. For example, although the lack of a Finance Director at Scottish Opera was questioned several times SAC had no way of forcing action on this appointment. Temporarily withholding grant is possible but the better and more usual option is, as noted above, to work directly with the organisation in an attempt to resolve the problem.
5.4 This involvement can be considerable and continue over a period of time. In certain instances SAC, with the best intentions, might be in danger of becoming drawn in too closely to the organisation concerned because of the desire to safeguard the public funds invested in the organisation over many years and to ensure that the arts activity is able to continue. In the case of financial and personnel problems the matters are often of a confidential nature and SAC is obliged in the interests of the organisations and individuals to respect this. Public announcement of a financial difficulty as soon as it becomes apparent could provoke insolvency by creditors rushing to protect their position before due consideration had been given to a means of trading out of the difficulty. Publicity over personnel issues could expose individuals unnecessarily or bring threats of litigation.
5.5 There are many examples of successful interventions by SAC in issues of this sort, which are solved in partnership, diligently and quietly. However, if the issue cannot be resolved within a reasonable period of time because of the scale or intractability of the problem SAC might be accused of not taking prompt action.
Interventions of the type referred to above could lead to accusations of inconsistency in dealing with organisations in receipt of grant. The Report on inquiry into the national companies by the Education, Culture and Sport Committee, (January 2000), refers to this lack of consistency of treatment between the national companies. It is acknowledged that all contact with funded bodies must be fair and as far as possible consistent, however, it must also be acknowledged that each company operates in different circumstances and has different needs at any one time. SAC must retain the right to address priorities and difficulties in different ways according to circumstances and work with organisations to resolve them.
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