Scottish Canals forced to revalue all assets after financial reporting failures

The public body responsible for maintaining Scotland’s five canals failed to provide valuations for an estimated £51 million of specialist equipment.

Scottish canals have been made to revalue all their assets after Audit Scotland identified numerous flaws in their financial reporting (Andrew Milligan/PA) (PA Wire)

Scottish Canals failed to properly record and value its assets, including an estimated £51 million of specialist equipment, the Auditor General has warned.

The public body in charge of Scotland’s waterways has now been told to revalue the entire canal infrastructure because it was unable to provide accurate financial reports.

Stephen Boyle, Auditor General for Scotland, said it was “very unusual” for an auditor to be in this position in a report to the Scottish Parliament warning it of the situation.

Equipment used for dredging, lock gates and canal basin widening works were missed from the valuations provided to Audit Scotland

Scottish Canals now needs to revalue its entire canal infrastructure estate – a big piece of work - but necessary to support financial planning

Stephen Boyle, Auditor General for Scotland

A subsequent valuation – aimed at estimating the cost of replacing these assets in their current condition and existing use – then raised concerns about the accuracy of Scottish Canals’ fixed asset register, as well as other valuation flaws.

The Audit Scotland report also found that the required cost and investment needed to meet Scottish Canals’ target of maintaining and restoring the waterway network exceeded the funding and income available, with a maintenance backlog of £70 million.

Scottish Canals’ financial statements show that it generated income of £18.8 million in 2020-21 and incurred revenue expenditure of £22.7 million.

Capital grants of £12.6 million were the biggest source of income (67%), followed by water and utility sales of £1.4 million, while £9.7 million of staff costs across 216 full-time equivalent employees was the highest source of operating expenditure (43%).

Mr Boyle said: “It’s very unusual for an auditor to disclaim their opinion on a public body’s annual report and accounts.

“But that’s what’s happened this year with Scottish Canals’ accounts – the public body responsible for managing Scotland’s inland waterways.

“The auditor couldn’t obtain enough evidence to give an opinion on the accounts.

“This relates to flaws in the way Scottish Canals valued and recorded £51 million of assets, such as dredging equipment and lock gates.

“There were also issues with their fixed assets register.

“Scottish Canals now needs to revalue its entire canal infrastructure estate – a big piece of work, but necessary to support financial planning and to ensure it is robustly managing its assets.”

Mr Boyle added that the organisation’s board “must also be able to satisfy itself that the body has sufficient skills and capacity to deliver the valuation project, and provide the appropriate support to ensure it is delivered to plan”.

Scottish Canals blamed the problems on its change in status from a public corporation to a non-departmental public body that required a different methodology to value the canal infrastructure.

A spokesman for the organisation said: “From April 1 2020, Scottish Canals had to change the way it prepares its annual report and accounts in line with the Government Financial Reporting Manual (FReM) and this led to our 2020-21 accounts being restated.

“However, our external auditors, Grant Thornton raised new queries over the nature of the capital and revenue expenditure on the unique, operational, assets in our care and in the way they have been valued since we became a stand-alone public body in 2012.

“Subsequently they determined that a Disclaimer of opinion on financial statements should be placed on our 2020/21 accounts while additional work is carried out.

“We are now working, with the support of Transport Scotland, Scottish Government and Grant Thornton, to resolve this highly complex matter and agree a new way of valuing our entire asset estate.

“Once this is in place it will inform the way we prepare our annual report and accounts going forward.”