On Board: A Guide for Members of Management Advisory Boards

This guidance is for all those appointed by the Chief Executive to be a member of management advisory boards.

Effective Financial Management : Guidance Note 4


The Chief Executive and senior management team must demonstrate effective financial stewardship of public funds. They must meet the requirements of the Public Finance and Accountability (Scotland) Act 2000 and the Scottish Public Finance Manual, including the need to account for the use of public money and the safekeeping of public assets.

This section explains key aspects of the Scottish Public Finance Manual which aim to ensure proper stewardship of public funds. It covers the allocation of funds to public bodies by Scottish Ministers, the requirement for robust financial monitoring and reporting systems, the importance of effective risk management and internal controls, and the processes by which internal and external audit provide assurance on the proper management of public funds and resources.

Key Messages

  • The Chief Executive is responsible for assurance that systems are in place to provide accurate and timely information to the Scottish Government or Scottish Parliament as part of the management of the Scottish Budget.
  • The Board's roles and responsibilities as set out in Guidance Note 3 cover the key elements of effective financial management – scrutinising financial reports and corporate plans as well as ensuring systems are in place for risk management and effective internal controls.
  • Where an organisation is responsible for expenditure, an Audit Committee must be established to advise the Chief Executive on internal control (including corporate governance) and audit matters.
  • The Accountable Officer of the public body is responsible for signing the accounts and ultimately responsible to the Scottish Parliament for their actions.
  • On completion of the external audit of the annual accounts, the appointed auditor sends a copy of the accounts and the audit opinion to the Auditor General, who may add a report of their own, before the body sends the accounts and reports to the Scottish Ministers or to the Scottish Parliament for formal laying before the Parliament.
  • The Public Audit Committee of the Scottish Parliament uses reports of the Auditor General as the basis for conducting enquiries.

Key References and Contacts

Scottish Public Finance Manual

Scottish Public Finance Manual (Best Value)

Audit Scotland

Audit Scotland (Improving Public Service Efficiency)

Public Finance Accountability (Scotland) Act 2000

Scottish Parliament (Public Audit Committee)

The Scottish Public Finance Manual

The primary document that governs all matters relating to public finance and reporting in Scottish public bodies is the Scottish Public Finance Manual (SPFM).

The SPFM provides guidance to your public body and its sponsor Directorate on the proper handling of public funds. It is mainly designed to ensure compliance with statutory and parliamentary requirements (in particular, the Public Finance and Accountability (Scotland) Act 2000) to promote Value for Money and high standards of propriety, and to secure effective accountability and good systems of internal control.

The Accountable Officer must ensure that the public body has processes and systems in place to ensure compliance with the SPFM.

The Accountable Officer has a personal responsibility for the propriety and regularity of the finances under their stewardship and for the economic, efficient and effective use of all related resources. Accountable Officers are personally answerable to the Parliament for the exercise of their functions.

It is important to recognise that the Accountable Officer's role in relation to Value for Money is not a narrow one, restricted to considerations affecting that body, but, as defined by the SPFM, Value for Money is to be judged for the public sector as a whole. This wider consideration of Value for Money would be relevant to considerations of property and accommodation, for example, in relation to shared services.

Budgeting in a Public Body

The resources allocated to bodies by Scottish Ministers are determined through a combination of the Medium Term Financial Strategy (MTFS), Spending Reviews and the Scottish budget. The MTFS provides a medium-term perspective on the public finances, supporting a broad approach to budget evaluation and formation. Spending Reviews outline how the Scottish Government will focus public finances on a multi-year basis, with the most recent Resource Spending Review looking to 31 March 2026. The Scottish Budget is an annual process, setting out proposed spending and tax plans for the year ahead.

This process dovetails with the United Kingdom Spending Review which largely sets the overall Scottish budget for each Spending Review period. After deduction has been made for the costs of the Scotland Office plus the Scottish Parliamentary Corporate Body and Audit Scotland, the Scottish Government, subject to the consent of the Scottish Parliament, has discretion to decide how the Scottish budget should be divided between its various portfolios, Non-Ministerial Offices and programmes. The grant-in-aid necessary to support the agreed budgets of sponsored bodies is authorised by the Scottish Parliament in the annual Budget Act.

The Chief Executive is responsible for the approval of the corporate plan (and possibly operational plans) before submission to the Scottish Government. The Management Advisory Board should receive regular financial reports (at least quarterly) showing expenditure/use of resources against planned budgets and progress towards financial targets including projected efficiency savings. Board members should provide the "challenge function", carefully scrutinising plans, performance against plans and underlying assumptions.

The Chief Executive will approve high value, novel or contentious expenditure proposals for submission to the Scottish Government and Ministers for approval when it is necessary/appropriate to seek approval from the Scottish Government. In this area too, the Board provides an important challenge function.

Guidance on Due Diligence: Human Rights

The Scottish Government is committed to the UN Guiding Principles on Business and Human Rights. These principles recognise the obligation on state institutions and businesses to respect, protect and fulfil human rights.

The Scottish Government's Guidance on Due Diligence: Human Rights set out recommendations for how Scottish Government, Executive Agencies and non-departmental public bodies should undertake appropriate due diligence on companies, including their human rights record, before entering into an investment relationship with them. Human rights due diligence should be carried out on any activity which could lead to an investment relationship or agreement with a third party. More information is provided in the Guidance.

UK Government Sanctions Regime

Another aspect of financial due diligence that public bodies should consider is compliance with the UK Government's legally binding regime of international sanctions. This list provides details of individuals and business subject to sanctions measures.

The UK Sanctions List: Guidance

Best Value, Efficient Government and Relocation

Best Value

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 principles of Best Value complement good governance standards and offer a sound approach to running a public service organisation.

The duty of Best Value, as set out in the SPFM, is to make arrangements to secure continuous improvement in performance whilst maintaining an appropriate balance between quality and cost and in making those arrangements and securing that balance, to have regard to economy, efficiency, effectiveness, the equal opportunities requirements and to contribute to the achievement of sustainable development. Best Value ultimately is about creating an effective organisational context from which public bodies can deliver their key outcomes.

Accountable Officers appointed by the Principal Accountable Officer for the Scottish Administration have a specific responsibility to ensure that arrangements have been made to secure Best Value. The Scottish Ministers expect all Accountable Officers to comply with the duty of Best Value and for any associated matters relating to Value for Money, judged for the public sector as a whole placed upon them. In addition the Boards (or equivalents) of relevant public service organisations have corporate responsibility for promoting the efficient and effective use of staff and other resources by the organisations in accordance with the principles of Best Value. Under the terms of the Public Finance and Accountability (Scotland) Act 2000 the implementation of the duty of Best Value by relevant public service organisations is subject to scrutiny by the Auditor General for Scotland.

As a board member, you should always bear in mind the need for your public body to continually secure Best Value in the performance of its functions. In a tight financial climate, service improvements may need to be funded from internal efficiencies.

Audit Scotland has adopted a generic framework for Best Value for all public bodies. This enables a consistent approach to auditing against Best Value principles across the public sector. Sustainable development and equalities are themes that run through the framework. It is a risk-based approach, recognising the increasing focus on partnership working, with the specific aims of:

  • reporting on overall governance and management arrangements;
  • reporting on the delivery of outcomes;
  • protecting taxpayers' interests by examining the use of resources, and;
  • increasing the emphasis on self-assessment by public bodies with audit support and validation.

Efficient Government

The Public Services Reform (Scotland) Act 2010, section 32(1)(b) provides that as soon as is reasonably practicable after the end of each financial year each listed public body must publish a statement of the steps it has taken during that financial year to improve efficiency, effectiveness and economy in the exercise of its functions. Efficiency is not about making cuts, it is about enhancing Value for Money, improving public service and raising productivity and as such efficient Government is focused on the sound management of resources and ensuring that public bodies continually review their operations to identify opportunities for efficiency improvements. Efficiency improvements are about improving the ratio of resource inputs to outputs and can be made in any area, including the administration and delivery of services and in the procurement of goods and services. By making efficiency savings, more resources are available for re-investing in the delivery of public services.

Opportunities for efficiency improvements within your body should be identified as part of the corporate and business planning processes. As a board member you should ensure that such opportunities are being identified and that arrangements are in place for measuring, monitoring, and reporting on the delivery of efficiency savings to the Chief Executive.

This should include having efficiency performance indicators (such as a range of input/output ratios) that will allow you to routinely monitor the efficiency of your public body's operations.

Audit Scotland's report on Improving Public Service Efficiency identified that public bodies will need to improve productivity and efficiency in the delivery of public services to meet continued demands on public spending. Audit Scotland concluded that public bodies will need to take a more fundamental approach to identifying priorities, improving the productivity of public services, and improving collaboration and joint working. A Good Practice Checklist was produced to help leaders in public bodies check and challenge their approach and ultimately support better productivity and efficiency.


Relocation policy is related to Best Value and Efficient Government. Location reviews are triggered by the creation or reorganisation of bodies, as well as by property events (such as lease breaks). Relocation remains an option as part of streamlining the public bodies landscape, but should only be pursued following a rigorous and transparent process that shows any move provides best possible Value for Money for the public finances and optimum service delivery. Ministers will expect board members to have regard to this policy in decisions they make on the most efficient and effective way of delivering services.

Annual Report and Accounts

The accounting guidance issued to those bodies that are subject to reporting requirements set by the Scottish Ministers will set out the applicable accounting policies and principles and disclosure requirements.

Where the Scottish Government makes funds available to a sponsored body the Scottish Government will account to the Parliament for the provision of those funds in the Scottish Government's annual accounts.

A body which is a separate accounting entity, such as a Non-Ministerial body, will account for the use of those funds (and of other funds in its stewardship) in its own annual accounts.

The Chief Executive of a Non-Ministerial body is responsible for approving the body's annual accounts and ensuring that the annual report and accounts are laid before the Scottish Parliament.

The Accountable Officer of the public body is responsible for signing the accounts and ultimately responsible to the Scottish Parliament for their actions.

The accounting requirements for a public body will normally be set out in its founding legislation and/or its Framework Document.

Performance Measurement and Reporting

Key targets for efficiency and effectiveness of operations and quality of service provided will be agreed as part of the planning process. The Board should assist the Chief Executive to ensure that robust systems are in place to monitor performance against these targets. A report on the extent to which performance targets have been achieved should be incorporated in the Annual Report, where appropriate giving a summary of trends over a five-year period.

Risk Management and Internal Controls

Risk concerns uncertainty of outcome. The delivery of an organisation's objectives is surrounded by uncertainty which both poses threats to success and offers opportunities for increasing success. Risk is defined as this uncertainty of outcome, whether positive opportunity or negative threat, of actions and events. Each public sector organisation's internal control systems should include arrangements for identifying, assessing and managing risks. Risk management should be closely linked to the business planning process and performance monitoring arrangements.

Public bodies are required to provide a Governance Statement in order to comply with best practice as recommended by the Turnbull Committee Report. As part of that process, the Chief Executive is required to review, at least annually, the effectiveness of all controls, including financial, operational and compliance controls. Organisations need to show that they have established and maintained effective and ongoing procedures for identifying, evaluating and managing business risks.

The Board should help ensure that there is a system in place for continuous risk management which extends from the front-line services through to the Board and ultimately through to the Chief Executive. This involves having a framework of prudent and effective controls in place to enable risks to be identified, assessed and managed. The Board should regularly assist the Chief Executive to review key business risks affecting the organisation.

Audit Committee

Accountable Officers and Audit Committees are responsible for ensuring that they have access to sufficient and proportionate internal audit services. For most organisations this will be provided through an in-house internal audit function, or externally sourced using private or public sector internal audit providers.

Where a body is responsible for a budget, an Audit Committee must be established to advise the Board and Accountable Officer on internal control (including corporate governance) and audit matters.

For organisations which are too small to warrant a dedicated service, or a separate Audit Committee, Accountable Officers are responsible for ensuring that appropriate alternative audit arrangements are established. Where corporate services (such as finance and Human Resources) are provided to the organisation through a shared services facility, Accountable Officers should seek information from the shared services provider of the assurance provided by their internal audit services over the services they deliver, and the Audit Committee or Board should determine whether it is sufficient to place reliance upon.

In the absence of an Audit Committee, Board Chairs and Accountable Officers should ensure that there is at least one individual – either a Non-Executive Director or an individual appointed to attend the Board as an independent external member – with specific responsibility for providing advice and challenge over the governance, risk management and internal control environment.

All accounting entities to which the SPFM is directly applicable should establish an Audit Committee. The Board (or Accountable Officer) should establish an Audit Committee of at least three members, all of whom should be either board members or independent external members.

All Audit Committees in organisations to which the SPFM is directly applicable are subject to the guidance in the Audit and Assurance Committee Handbook published by the Scottish Government. A degree of flexibility will be appropriate in applying the guidance in the Handbook, particularly with regard to smaller accounting entities.

The exact role of the Audit Committee will depend on the particular circumstances of the organisation. Examples of issues affecting the role of the Audit Committee include the strategic risk management arrangements that the Board and/or Accountable Officer have established, whether or not there is a separate Risk Committee and the whistleblowing arrangements which have been put in place as part of the anti-fraud and corruption arrangements.

An Audit Committee should not have any executive responsibilities or be charged with making or endorsing any decisions, although it may draw attention to strengths and weaknesses in control and make suggestions for how weaknesses might be dealt with. The overarching purpose of the Audit Committee is to advise the Board and/or Accountable Officer; it is then the Board and/or Accountable Officer who makes the relevant decisions.

To fulfil its role, an Audit Committee should generally meet around three or four times per year. Additional meetings should be convened as deemed necessary, reflecting the needs of the organisation.

All Audit Committee members, whatever their status or background, will have training and development needs. Those who have recently joined the Audit Committee will need induction training, either to help them understand their role; or if they have audit committee experience elsewhere, to help

Audit Committee

The Audit Committee should:

  • have written terms of reference from the Chief Executive, which encompass all the assurance needs of the Accountable Officer – within this, the Audit Committee should have particular engagement with the work of Internal Audit, the work of the External Auditor, and with financial reporting issues;
  • support the Accountable Officer by reviewing the scope, reliability and integrity of the assurances provided to them;
  • highlight those aspects of risk management, governance and internal control that are functioning effectively and, just as importantly, those that need to be improved;
  • have at least three non-executive members, under the chairmanship of a non-executive member who should be someone other than the meeting Chair of the public body or Chair of any other sub-committee;

The Audit Committee should:

  • own corporately an appropriate skills mix to allow it to carry out its overall function – at least one of the Committee members should have recent and relevant financial experience;
  • have a Chair whose role goes beyond chairing meetings – this is key to achieving Committee effectiveness. The additional workload should be taken into account in the appointment of the Chair;
  • have a Chair who is involved in the appointment of new Committee members, including providing advice on the skills and experience being sought by the Committee, and is responsible for ensuring that the work of the Audit Committee is appropriately resourced;
  • be independent and objective – in addition each member should have a good understanding of the objectives and priorities of the organisation and of their role as an Audit Committee member;
  • encourage the Accountable Officer, Head of Internal Audit and Director of Finance to attend meetings (though not as members of the Audit Committee);
  • have regular and ongoing liaison with External Auditors;
  • ensure it has effective communication with the Accountable Officer, the Head of Internal Audit, the External Auditor, and other stakeholders. In addition, the role of the Chair and provision of appropriate secretariat support are important elements in achieving Audit Committee effectiveness.

Internal Audit

In any government-related organisation there will be two significant sources of assurance that the Audit Committee can be certain will be present: Internal Audit and External Audit. Internal Audit provides an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations.

Internal Audit is an internal appraisal service, established by the management of an organisation, to review the internal control system. It objectively examines, evaluates and reports on the adequacy of internal control as a contribution to the proper, economic, efficient and effective use of resources. The scope of the Internal Audit service should be unrestricted across the organisation's operations. The Internal Auditors should have sufficient authority to access assets, records and personnel as necessary for the discharge of their responsibilities.

The work of Internal Audit is likely to be the single most significant resource used by the Audit Committee in discharging its responsibilities. This is because the Head of Internal Audit, in accordance with the Public Sector Internal Audit Standards, has a responsibility to offer an annual opinion on the overall adequacy and effectiveness of the organisation's risk management, control and governance processes. There is consequently a major synergy between the purpose of the Head of Internal Audit and the role of the Audit Committee.

The role of the Audit Committee in relation to Internal Audit should include advising (to ensure consistency) the Accountable Officer on:

  • the Audit Strategy and periodic Audit Plans, forming a view on how well they support the Head of Internal Audit's responsibility to provide an annual opinion on the overall adequacy and effectiveness of the organisation's risk management, control and governance processes;
  • the results of Internal Audit work, and and the management response to Internal Audit findings, and;
  • Internal Audit coverage.

External Audit

External Audit provides independent scrutiny of an organisation's finances, performing an audit of the financial statement of an organisation. External Audit can also give assurance that organisations have used their resources in discharging their functions properly, efficiently and effectively e.g. through a performance audit. The Audit Committee should engage with the activity of the External Auditor, ensuring that examinations are carried out effectively. As well as considering the results of External Audit work, they should enquire about and consider the External Auditor's planned approach and the way in which the External Auditor is co-operating with Internal Audit to maximise overall audit efficiency, capture opportunities to derive a greater level of assurance and minimise unnecessary duplication of work.

The Auditor General for Scotland is the External Auditor of a number of public bodies.

The Auditor General may appoint a member of the staff of Audit Scotland or an appropriately qualified professional firm as the auditor of your body. Where a public body is incorporated under the Companies Act, the auditor is appointed by the members of the company (i.e. the board members).

External Audit of the Annual Accounts

An External Audit of the annual accounts undertaken by the Auditor General is conducted in accordance with the Public Finance and Accountability (Scotland) Act 2000 and the Code of Audit Practice issued by Audit Scotland on behalf of the Auditor General.

On completion of the External Audit, the appointed auditor sends a copy of the accounts and the audit opinion to the Auditor General. The Auditor General may then add a report (for example, on a qualification of the auditor's opinion or other matter drawn to their attention by the auditor) before Executive Agencies and sponsored bodies send their accounts and reports to the Scottish Ministers for laying before the Parliament. Non-Ministerial bodies lay their accounts directly before the Parliament.

External Audit of the Annual Accounts

The appointed auditor will:

  • issue an opinion as to whether the accounts give a true and fair view of the state of affairs of the public body at the year end and of its income and expenditure for the year and whether the accounts have been prepared in accordance with any applicable legislation and accounts direction;
  • issue an opinion (known as the "regularity" opinion) as to whether the income and expenditure has been properly received or incurred in accordance with legislation, the Budget Act for the relevant year and any other guidance issued by the Scottish Ministers;
  • review the Governance Statement prepared by the body and report if it is not in accordance with the auditor's understanding of the body;
  • review the body's arrangements in relation to financial sustainability, financial management, governance and transparency and Value for Money;
  • consider the body's governance arrangements and arrangements for prevention and detection of fraud, and;
  • provide reports to the Chief Executive and Audit Committee on matters arising during the course of the audit.

Performance Audit

Performance audits look at the performance of a public body and include a Value for Money audit which is an examination of the economy, efficiency and effectiveness with which a body has used its resources to carry out its functions.

The Auditor General has powers to conduct performance audits. These audits examine the economy, efficiency and effectiveness of aspects of the public sector. They can assess:

  • performance across several public bodies in a particular theme – for example, managing changes in the workforce, or;
  • performance of an individual public body or a particular aspect of that body's performance.

Performance audits may be conducted by Audit Scotland staff, the appointed auditor, consultants or any combination of these. A draft report on the audit will be discussed with the public body (or bodies) to ensure factual accuracy. Once finalised, the report will be laid before the Scottish Parliament and published with an accompanying news release. In most cases, the Auditor General will present the report to the Scottish Parliament's Public Audit Committee. Performance audit reports may contain material such as checklists to assist non-executive board members in holding management to account.

For many public bodies, the founding legislation provides that the Auditor General will appoint the auditor. In such circumstances, the Auditor General has a statutory right to carry out a Value for Money examination.

Where the Auditor General is not the auditor of a public body and has not appointed the auditor, they should have rights under statute or by agreement to carry out an inspection of the use of resources by those bodies.

The Public Audit Committee of the Scottish Parliament

The Public Audit Committee of the Scottish Parliament (PAC) is one of the committees established under the Standing Orders of the Parliament. The PAC uses the reports of the Auditor General, which are laid before the Parliament, as the basis for conducting enquiries. It is chaired by a senior member of the Opposition and conducts its business on non-party political lines.

The Public Audit Committee

The Key Stages

  • The Auditor General's report is discussed with the body concerned and the facts are agreed;
  • The report is laid before Parliament and published together with a press release.
  • If an enquiry is to be conducted by the PAC, witnesses are called to give evidence – usually the Accountable Officer of the public body.
  • After the evidence session, the Committee drafts and approves a report which is published.
  • A formal response to the Committee's report is provided by the Scottish Government (or by the body in consultation with the Scottish Government) within two months of the Committee's report being published.

Issues on which Board Members Should Seek Assurance

Typically the range of issues on which board members should help the Chief Executive seek assurance will include:

  • compliance with the SPFM, Framework Document and legislation (e.g. founding legislation, Equality Act 2010);
  • financial monitoring and reporting arrangements and arrangements for delivering and reporting on efficiency savings;
  • arrangements for securing Best Value for the organisation and Value for Money for the public sector as a whole;
  • systems for identifying, assessing and managing risks;
  • processes for preventing and detecting fraud, and, linked to this, whistleblowing procedures;
  • arrangements for business continuity and disaster recovery;
  • information management systems, including in relation to protection of personal data and compliance with Freedom of Information legislation;
  • propriety and regularity of public finances;
  • management systems that have clear lines of delegation and accountability;
  • arrangements for meeting procurement requirements;
  • arrangements for meeting the body's moral and legal obligations to its employees, and;
  • arrangements for handling complaints; that they meet the required performance and quality standards, that learning has taken place (where appropriate), and that action is taken to address the root causes of complaints to improve services and prevent similar complaints.

Boards might advise the Chief Executive to supplement these areas of assurance having regard to the purpose of the organisation and the nature of the business conducted.

Further Information

Audit and Assurance Committee Handbook

Audit Scotland (Auditing Best Value in Central Government Bodies)

Audit Scotland (Code of Audit Practice)

Audit Scotland (Efficient Public Services Good Practice Checklist)

Public Finance Accountability (Scotland) Act 2000

Public Services Reform (Scotland) Act 2010

Scottish Public Finance Manual (Best Value)

Scottish Public Finance Manual (Risk Management)

Scottish Public Finance Manual (Spending Reviews)


Email: PublicBodiesUnitMailbox@gov.scot

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