skills development scotland parliamentary account · 2015-10-08 · 93.5% of our customers state...

Company Registration Number: SC202659

THE SKILLS DEVELOPMENT SCOTLAND CO. LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2009 The financial statements were authorised for issue on 23 November 2009.

THE SKILLS DEVELOPMENT SCOTLAND CO. LIMITED

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Contents Page

Directors' Report and Management Commentary 2-9

Remuneration Report 10-12

Statement of Accountable Officer’s Responsibilities 13 Statement on Internal Control 14-16

Independent Auditors’ Report 17-18

Group Income and Expenditure Account 19

Group Statement of Total Recognised Gains and Losses 20

Group and Company Reconciliation of movements in Shareholders’ Funds 20

Group and Company Balance Sheet

21

Group Cash Flow Statement 22

Notes to the Financial Statements 23-45

Accounts Direction – Appendix 1 46 Registered Office: Alhambra House, 45 Waterloo Street, Glasgow, G2 6HS Bankers: Bank of Scotland, 167-201 Argyle Street, Glasgow, G2 8BU Auditors: KPMG LLP, 191 West George Street, Glasgow, G2 2LJ Lawyers: Shepherd & Wedderburn W.S. 155 St. Vincent Street, Glasgow G2 5NR


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 The directors present their report and the audited financial statements for the year ended 31 March 2009. Comparative figures have been provided for year ended 31 March 2008 because of the existence of the companies, as a part of a legacy organisation, prior to the commencement of Skills Development Scotland’s activities. Thus, the comparator numbers relate to part of the predecessor structure and are not direct comparisons with the activities of Skills Development Scotland. These financial statements have been prepared in accordance with a form directed by the Scottish Ministers (appendix 1). It is also important to understand the context of the financial results, and this is discussed in more detail below. The accounts report a deficit on Ordinary Activities after Tax of £1.2million. The accounts are prepared in compliance with Scottish Government policy and the UK Government’s Financial Reporting Manual. The directors believe that, while this reporting is technically correct, the result is affected by unintended consequences of some accounting conventions. Protocols require that Skills Development Scotland should not draw down Grant-in-Aid, as income, in advance of the need to pay it out. This means that income is reported, substantively, on a cash basis. Conversely, however, expenditure incurred in the financial period, but not actually paid for until the next year, must be included as a charge, on an accruals basis. For Skills Development Scotland, this gives rise to a deficit, in technical terms, but without the organisation over-spending on a cash basis. Similarly, at 31 March 2009, the group’s balance sheet has net liabilities of £15.5 million (2008: net assets of £3.3 million). This is directly as a result of the obligation to comply with the reporting of costs for pension liabilities. These liabilities must be reported but do not relate to the ability of Skills Development Scotland to carry out its functions in the short term. Background Skills Development Scotland has been created by the Scottish Government to work, in partnership with others, as a catalyst for real and positive change in the way in which the people of Scotland learn, develop and utilise their skills, and to help the businesses and organisations of Scotland to build their own capabilities and put these skills to the most productive use. Skills Development Scotland is an Executive Non-Departmental Public Body, operated through a limited company structure. The Skills Development Scotland Co. Limited is a company limited by guarantee and registered in Scotland. The sole members are the Scottish Ministers. The company was incorporated as Scottish UfI Limited on 24 December 1999, as a structure for the Scottish University for Industry initiative (SUfI). Following guidance and consultation with Scottish Government, SUfI became a Non-Departmental Public Body on 1 April 2004. Scottish Ministers wrote to the Enterprise and Culture Committee of the Scottish Parliament on 13 April 2004 informing them of this. On 25 July 2000 the name of the company was changed to Scottish UfI Trust with a further name change on 20 December 2007 to The Skills Development Scotland Co. Limited as a precursor to the aggregation of Careers Scotland, some elements of the Skills and Learning functions of Highlands and Islands Enterprise and Scottish Enterprise, and SUfI from 1 April 2008. The new body, although based on these legacy elements, was tasked to develop new and flexible approaches, in keeping with the Scottish Government’s stated aim of encouraging sustainable economic growth. Following a public appointments process, Scottish Ministers appointed the substantive board of directors with effect from 19 May 2008. The chair was appointed on 1 April 2008 and the chief executive on 30 June 2008. The substantive senior management team was appointed on 5 November 2008, following open recruitment. The management structure and wider organisational structure is currently in consultation and should be completed by the end of 2009. Skills Development Scotland received 1564 staff, via TUPE transfer, and a budget of £195.4m. Our overall purpose is to maximise our contribution to sustainable economic growth by unlocking the potential in Scotland’s greatest asset – its people. We will:

• promote the availability of access to, and create demand for, relevant, high quality and innovative learning and skills development for the Scottish population;

• advance education and skills development, and the promotion of life long learning and skills development, amongst individuals and employers;

• provide information, advice and guidance, including guidance relating to career and learning choices, to people of all ages; • provide support and funding to individuals for learning and skills development; • advance and provide training programmes to build employability skills and to provide information and support to employers

to develop the skills of employees; • promote and facilitate local lifelong learning opportunities and the local development of skills; • foster collaborative partnerships in lifelong learning and skills development; and • promote and deliver equality of access and opportunity in service delivery and the wider lifelong learning landscape.


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D)

Principal Activities and Review of Business The vision is to be a catalyst for real and positive change in Scotland’s skills performance. To achieve our purpose and vision, we have devised three goals, each with key strategies which articulate our contribution to the achievement of the Scottish Government’s Economic Strategy. These goals are:

• to enable people to fulfil their potential; • to make skills work for employers; and • to be a catalyst for positive change.

These will form the basis of the Skills Development Scotland Corporate and Operating Plan 2009-2012. Skills Development Scotland has developed a core set of principles which will enable us to fulfil our role and meet our objectives. Through our services and day to day operations we will:

• always keep a clear focus on our customers and be responsive to their needs; • be innovative and flexible in the design and delivery of our services to meet customer needs; • contribute fully to public service reform, demonstrating a commitment to delivering excellent public services; • work to achieve benefits of national scale whilst improving local and regional delivery - recognising that local, regional and

national approaches can all contribute to successful outcomes; • be ambitious and adaptable, willing to seek new solutions which will provide real benefits for individuals and employers; • consistently strive to maximise the public value to be gained from all of our assets, local, regional and national; and • develop partnership working that helps establish a more cohesive system for skills development and skills utilisation for the

people of Scotland. Skills Development Scotland utilised a number of performance measures, mainly developed by the legacy organisations, in order to allow the company to monitor its adherence to the core principles. The following table shows a summary of outputs and outcomes, grouped by delivery channels, targeted delivery groups and impact findings from customer follow-up survey.

Website:

There were 2.04 million visits to our website in 2008/2009 which includes those from 254,060 users who have registered on the site.

Centres:

We delivered 521,357 interventions to support 232,751 people who chose to visit our public access centres and through outreach delivery.

Events:

We enabled 94,953 people to progress their career ideas through a series of events e.g. Job Fairs, School College Collaboration events, Higher Education Conventions, Exam Results Helpline.

Schools:

We delivered 313,375 interventions to support 175,382 school pupils in their career planning.

School Leaver

Destination Return:

We carried out 120,330 follow ups whilst undertaking the SLDR.


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D)

Customer Contact

Centres:

We responded to 263,768 phone and email enquiries from customers via our Customer Contact Centres.

Branded Learning

Centres

We engaged with 729,705 learners who accessed learning opportunities through our Branded Learning Centres, undertook a Learning Byte or used their Individual Learning Account (ILAs) to fund a course

National Learning

Opportunities Database (NLOD)

We increased the number of learning providers on NLOD by 322

SMEs

We engaged with 33,117 Small and Medium Size Enterprises to encourage and support them to develop and train their staff.

School Leavers

86.5% of all young people achieved a positive destination of education, employment or training on leaving school.

Intensive support to

those at risk of entering the MCMC Group

We supported 14,505 pupils at risk of entering the MCMC group. Of these 10,874 were supported by a “key worker” and 72% of those progressed into a positive destination during the transition from school

Unemployed

16 - 19 Year Olds:

Of 31,218 unemployed 16/19 year olds engaging with Skills Development Scotland 76.8% progressed into a positive outcome supported by Skills Development Scotland and 71.1% of them have sustained this positive outcome for at least 3 months.

Young People on Skills Programmes

We supported 15,688 young people on Skills programmes to achieve a positive outcome

Individuals on National Training programmes

We supported 19,629 people on National Training programmes to achieve a positive outcome

Training for Work

We supported 2,681 to enter employment from Training for Work

Level 1 Satisfaction:

96.4% of our customers are satisfied or very satisfied with service provision.

Level 2 Learning:

93.5% of our customers state they have learned from their interaction with Skills Development Scotland.

Level 3 Acting on

Learning:

91.2% of our customers state they have either acted or plan to act on that learning.

Attribution:

73.2% say that Skills Development Scotland had a direct impact on the career decisions they made


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D) During the year, Skills Development Scotland received grant-in-aid funding from the Scottish Government to support its core activities. These were defined services, related to pre-determined guidance priorities. Additionally, Skills Development Scotland was able to further its aims in specific areas by undertaking a number of discrete projects which were also funded by the Scottish Government. The company had no commercial imperative, but generated invoiced sales, mainly to public sector bodies, on a cost recovery basis. Freedom of Information As a Scottish public body, Skills Development Scotland complies with the Freedom of Information (Scotland) Act which came fully into force in January 2005. We received Freedom of Information requests in 2008/2009, all of which were dealt within in the timeline specified within the Act. Environmental Matters Skills Development Scotland is aware of the environmental impact of business activities, and we plan to reduce carbon emissions in our operations by encouraging and supporting energy and resource efficiency. We will be focusing on the energy efficiency of our premises and seek to share premises and services with our partner organisations. Social and Community Relations Skills development Scotland will contribute to the Scottish Government’s strategic objectives for social and regional equality through the five National Outcomes detailed with the Future Developments section of the Directors report. Relevant directors’ interests Details of directors’ interests are given in Note 19 Related Parties. No board members held any significant interests that conflicted with their management responsibilities. Amounts payable to auditors for non audit work Fees payable for non audit services provided by the appointed auditors for the year ended 31 March 2009 were £7,000 (2008: £2,000). The non audit services provided were in relation to tax. Risk and Uncertainty During the year Skills Development Scotland has developed its risk register, moving away from the legacy risk registers and approaches, culminating, this year, in a risk workshop for the Board in February 2009. This risk register will be reviewed regularly, and managed throughout the year, formally, on an annual basis. The Board has also instructed that the executive team take cognisance of the identified risks when undertaking operational duties. Following the review in February 2009, the perceived areas of greatest significance were deemed to be:

• failure to fully utilise technology; • the ability to retain key staff members and attract new talent; • governance; • ability to fully utilise and manage cash and resource budgets; • managing politics of change; and • developing and maintaining good strategic relationships with the learning partnerships.

Following the conclusion of the consulting process a further workshop was held in June 2009 to refine the register and seek the agreement of the Board in identifying and planning to mitigate risks. Financial Overview The results for the year to 31 March 2009 are contained in the attached financial statements, prepared in accordance with the 2008-09 Government Financial Reporting Manual (FReM) and in the form directed by the Scottish Ministers, paying cognisance to the Scottish Public Finance Manual. The FReM requires that the Company should comply with the Companies Act, but, as non-departmental public body, also follow the principles in the FReM (for example, in recognising notional costs and preparing a remuneration report) where these go beyond the Companies Act. The accounting policies explain the basis on which the financial statements are prepared and transactions are recognised.


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D) The final Resource Budget for 2008/09, after in year adjustments, amounted to £183.7 million. This comprised a grant in aid provision of £174.9 million, £3.6 million of transitional costs, sales of £5 million on a cost recovery basis and £0.2 million of European funding. Skills Development Scotland successfully achieved its main financial objective for the year. The final net cash outturn was £4.2 million (2.29%) below the related Cash Budget allocation. The ‘non-cash’ outturn was £1.2 million (0.65%) over the available allocation. The Resource Budget for 2009/10 amounts to £188.2 million, including £188 million of grant in aid and a ‘noncash’ budget provision of £0.2 million. This budget reflects the impact of the recent Scottish Government Spending Review and the transfer of responsibilities to Skills Development Scotland following the Review of the Enterprise Networks. As noted previously in this report, the Resource Budget is supplemented by income generated and applied against expenditure incurred during the year. For 2009/10 this income is forecast to amount to £5 million. In total the Skills Development Scotland Business Plan for 2009/10, including these resources, amounts to £193.2 million. Future Developments Skills Development Scotland has a commitment to achieving the Scottish Government’s Purpose Targets and Strategic Objectives. We have worked with the Scottish Government and our key partners to prioritise seven Outcomes, tailored to the activities of Skills Development Scotland, where we can make the most contribution and impact:

• more people progress, achieve and sustain positive destinations; • employers are more competitive as a result of investment in the skills and development of their employees; • more effective labour supply; • equalities in learning and employment are improved across Scotland; • Skills Development Scotland is valued and has a strong reputation with customers and key stakeholders; • Skills Development Scotland influences and stimulates a high-performing skills system; and • Skills Development Scotland achieves its goals and delivers its services in ways that minimise environmental impacts.

A new Performance Management Framework is being developed to enable us to assess our activities, impacts and outcomes in a structure which reflects and contributes to the Scottish Government’s National Outcome Framework, and overarching aim for sustainable economic growth. The Skills Development Scotland Corporate and Operating for 2009-12 can be found on our website at http://www.skillsdevelopmentscotland.co.uk Results and Dividends The accounts report a deficit on Ordinary Activities after Tax. The directors believe that, while this reporting is technically correct, it is materially affected by conventions imposed on the organisation through compliance with Scottish Government policy and the UK Government’s Financial Reporting Manual. Protocols therein would prevent Skills Development Scotland from drawing down Grant-in-Aid, as income, in advance of the need to pay it out. This means that income is reported, substantively, on a cash basis. Conversely, however, expenditure incurred in the financial period, but not actually paid for until the next year, must be included as a charge. This gives rise to a deficit. The deficit for the year after adjusting for actuarial advised pension adjustments amounted to £1.2 million (2008: £0.4 million), which is transferred to reserves. The directors are satisfied with the results for the year. Going concern As at 31 March 2009, the groups’ balance sheet has net liabilities of £15.5 million (2008: net assets of £3.3 million). The directors are confident that the relationship with the Scottish Government is such that the company will have sufficient funding for the foreseeable future. In particular, the directors have taken cognisance of the sole membership of Skills Development Scotland which Scottish Ministers assumed in September 2004. Accordingly, it is appropriate to prepare the financial statements on a going concern basis.

http://www.skillsdevelopmentscotland.co.uk/


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D) Directors and Their Interests The directors of the company who held office during the period and to the date of signing of these financial statements were as follows:

Name

W Allan* (resigned 09/04/08) B Duffner* (resigned 18/05/08) A Douglas* (appointed 19/05/08) A Haseeb* (resigned 09/07/08) J Lowe* E McCann* (appointed 19/05/08) A McGregor* (appointed 19/05/08) P McNeill* (resigned 09/07/08) J Ramsay* (resigned 09/07/08) W Roe* ^ (chairman) W Stevely* (resigned 30/04/08, appointed 19/05/08) D Yeates+ (chief executive) C Stratton* (appointed 19/05/08) + executive * non-executive ^ chairman from 1 April 2008 None of the directors held any interest in the company or the holding company at any time during the period. William Roe was appointed chair of Skills Development Scotland on 1 April 2008 Damien Yeates was appointed Skills Development Scotland accountable officer on the 30 June 2008 The board of Skills Development Scotland was chaired by William Roe and met eight times during the year. Skills Development Scotland owns 100% of the issued share capital of Scottish UFI Limited. Scottish Ministers appoint the chair, chief executive and non executive directors of Skills Development Scotland, and the same directors have been appointed to the board of Scottish UFI Limited. The latter company is not used for operational activities. The board is responsible for the overall direction and strategy of the company and for securing the optimum performance from company assets. There is a formal policy of delegated authority, which includes matters specifically reserved to the board for decision. All non-executive directors are independent of the company. Conflicts of Interest Procedures Skills Development Scotland commenced development and implementation of strict and comprehensive procedures to deal with potential conflicts of interest. These include holding, and updating at least annually, registers of interests covering not only board members but also members of staff. These registers are available to any member of the public who wishes to examine them. Interests which must be registered, in terms of the name and nature of the organisation in which the interest is held, include: remuneration, related undertakings, contracts, houses, land and buildings, shares and securities, non-financial interests, gifts and hospitality. Whenever a board member or member of staff has an interest in an application for assistance, they are required to declare the interest and thereafter to take no part in the investigation, processing or approval of the case. Such declarations by board members are recorded in the minutes of the appropriate board meetings. Audit Committee The audit committee is chaired by an independent non-executive director and is comprised up to four, and at least two, non-executive directors of Skills Development Scotland and Scottish UFI Limited in this period. The committee meets at least twice a year and has written terms of reference setting out its authority. The audit committee oversees the strategic process for risk management, internal control, corporate governance and finance. Internal and external auditors are given the opportunity to meet with the audit committee. Employees The company provides all employees with opportunities for advancement regardless of their age, sex, martial status, race, ethnic origin, sexual orientation, religion or belief and encourages, where possible, training and career development of disabled people and any employees who may become disabled. We recruit staff entirely on their ability to do the job. It is also policy to disseminate information regarding company progress, achievement of objectives and developments affecting employees.


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D) Employee Involvement and Communication Skills Development Scotland places great emphasis on learning and provides staff with excellent opportunities for professional and personal development and further education. Enhancing employee involvement and communication has been a key theme underpinning the organisation’s first year in existence. Health and wellbeing were recognised with many initiatives such as flexible working, acupressure and fruit at work in operation. It is our intention to consider how these and other initiatives might be extended. Given the dispersed structure of the organisation, good communication is a key issue for staff. Good communication is achieved through:

• the staff intranet; • the chief executive’s fortnightly update; and • the regular management meetings with staff.

Diversity and Equality The concept of equality, which aims to provide the opportunities and incentives for all to contribute to, and share in, Scotland’s success, is a key part of the Government Economic Strategy. Skills Development Scotland firmly supports this principle. We believe that a strategic focus on equality and diversity in service development and delivery and in employment practices helps us to achieve our objective of building sustainable economic growth in all parts of Scotland. In a changing legislative and demographic environment, the case for removing barriers and for promoting equality and diversity has never been clearer. Our focus is across a broad range of equality strands – race, disability, gender, sexual orientation, religion or belief, and age. Skills Development Scotland is committed to ensuring continuous improvement in order to drive our equality agenda forward. This will ensure that equality and diversity are at the heart of the development, implementation and delivery of our services. This includes procurement, complementing our public duties in relation to race, disability and gender and the associated equality schemes action plan. The Skills Development Scotland equality action plan focuses on mainstreaming equality and diversity activity linked to our operating plan. It will assist us in recruiting, supporting and motivating our employees, as well as ensuring public access to information and services. Skills Development Scotland equality schemes and action plan are available on our website at http://www.skillsdevelopmentscotland.co.uk/about-us.aspx. In 2008/09 there were 44 employees working for Skills Development Scotland who declared a disability. Supplier Payment Policy It is our policy to agree terms of payment when orders for goods and services are placed and to adhere to these arrangements. In addition, due to the current economic conditions it is our policy to comply with the Scottish Government’s Prompt Payment Commitment (issued December 2008) of making payment of authorised invoices within 10 days. Average trade credit days as at 31 March 2009 was 18 days (2008: 31 days). Political and Charitable Donations The company made no charitable or political donations in the period. Accounting for Pension Scheme Liabilities Pension assets and liabilities are recognised in the financial statements in line with the accounting policy at note 1. FRS17 ‘retirement benefits’ requires that the liabilities of the pension scheme are incorporated into the balance sheet. As more fully explained in note 14 the balance sheet reports a net liability of £17,723,000 for the five pension schemes at 31 March 2009 (2008: asset - £6,000). This is a result of acquiring four additional pension schemes with different financial positions combined with changes in actuarial assumptions. Auditors As a non-profit making public sector company, which appears to the Scottish Ministers in terms of section 483(2) of that Act to carry out functions of a public nature, under The Companies Act 2006 (Scottish public sector companies to be audited by the Auditor General for Scotland) Order 2008, the Scottish Ministers have determined that the financial statements of the company shall be audited by the Auditor General for Scotland. The Auditor General for Scotland has appointed KPMG LLP to undertake the audit for the year ended 31 March 2009.

http://www.hie.co.uk/equality.html


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DIRECTORS REPORT AND MANAGEMENT COMMENTARY FOR THE YEAR TO 31 MARCH 2009 (CONT’D) The directors who held office at the date of approval of this directors’ report and management commentary confirm that, so far as they are each aware, there is no relevant audit information of which the company’s auditors are unaware; and each director has taken all steps that he/she aught to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. By order of the Board Damien Yeates Director and Accountable Officer Registered Office: Alhambra House, 45 Waterloo Street, Glasgow G2 6HS 23 November 2009


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REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2009 Chair and Non-Executive Directors The chair and non-executive directors are paid an annual amount, as salary, at a level agreed by Scottish Ministers. The salary rate is normally assessed on an annual basis. Appointments are made on a two and four year basis. Chief Executive The chief executive’s pay is reviewed annually, and any pay award is dependent on performance, and must be approved in accordance with Scottish Government protocols. The chief executive’s performance is assessed formally by the chair using pre-determined criteria. Titular Directors The senior executive managers of the organisation are titled as directors. They are not registered as directors of the company under the Companies Act. Service Contracts Staff appointments are based on merit and are on the basis of fair and open competition. The chief executive and titular directors are permanent employees with up to 12 month notice periods respectively. There are no early termination payment clauses within the contracts. Remuneration & Appointments Remuneration, because of the company’s NDPB status, is revised annually through an exercise carried out with the Scottish Government Finance and Pay Policy Unit; this is in accordance with government guidelines with regards to public sector pay. No benefits in kind were paid to the chair or non-executive directors. The chief executive and titular directors’ posts are pensionable. The chair and non-executive director appointments are not pensionable. Appointments are carried out in line with employment legislation, with the exception of the chief executive and non executive directors’ positions which are carried out within the guidelines for senior public sector appointments process. Salary and Allowances Salary includes gross salary, performance pay or bonuses, if applicable. It does not include employer’s pension contributions. Allowances relate to designation as essential users within the Skills Development Scotland Car Scheme. Compensation paid to former senior managers was £438,000 (2008: £133,323). There were no payments to third parties for the services of any senior manager. Pensions Pension benefits are provided through one of five defined benefit (final salary) schemes, all of which have been approved by H. M. Revenue & Customs. Employee contributions are currently set at a rate of 1.5-6% of gross salary, excluding performance pay, bonus or ex-gratia payments. Employer contributions are currently 17.8-24.9%. Benefits accrue at the rate of 1/60th and 1/80th of pensionable salary for each year of service, depending on the relevant scheme, as explained in note 14. Cash Equivalent Transfer Values The Cash Equivalent Transfer Value (CETV) is the actuarially assessed capitalised value of pension scheme benefits accrued by a member at a particular point in time. The benefits valued are those of the member and any contingent spouse’s pension payable from the scheme. A CETV would be the payment made from a scheme or an arrangement made to secure benefits in another pension scheme when the member leaves the current scheme and chooses to transfer benefits accrued. To date the Skills Development Scotland scheme has chosen not to accept transfers into the scheme so the values shown do not include individuals’ benefits from pension arrangements in previous employments. CETV’s are calculated within the framework and guidelines prescribed by the Faculty of Actuaries. Information Subject to Audit Under paragraph 7.2.26 of the FReM the following sections of this report are subject to audit: remuneration, pension, salary and allowance, benefits in kind, cash equivalent transfer values and compensation for loss of office and pension payment.


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REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2009 (CONT’D) Chairman and non-executive directors

2008-09 2007-08 Salary

band Benefits in

Kind Salary

band Benefits in

Kind £000 £ £000 £ W Roe (chairman) 40 – 45 - 0 – 5 - A Douglas (appointed 19/05/08) 5 – 10 - - - B Duffner (resigned 18/05/08) 0 – 5 - 0 – 5 - A Haseeb (resigned 09/07/08) 0 – 5 - 0 – 5 - J Lowe 5 – 10 - 0 – 5 - E McCann (appointed 19/05/08) 5 – 10 - - - A McGregor (appointed 19/05/08) 5 – 10 - - - P McNeil (resigned 09/07/08) 0 – 5 - 0 – 5 - J Ramsay (resigned 09/07/08) 0 – 5 - 0 – 5 - W Stevely (resigned 30/04/08, appointed 19/05/08) 5 – 10 - 0 – 5 - C Stratton (appointed 19/05/08) - - - -

The total emoluments for the year to 31 March 2009 were £73,186 (2008: £25,515). C Stratton waived her salary during 2008-9. However, a salary band of £5,000 to £10,000 would have been applicable had this not been the case. Remuneration of the Chief Executive and the titular directors for the year to 31 March 2009 is as follows:-

2009

2008

Salary Band

Car allowance and other benefits

Salary Band

Car allowance and other benefits

£’000 £ £’000 £ D. Yeates 105 - 110 6,150 100 – 105 6150 S. Allbutt 50 - 55 2,000 - - M. Burns 75 - 80 - - - A. Clark 75 - 80 5,000 5 – 10 854 L. Ellison 85 - 90 2,957 - - A. Livingstone 80 - 85 5,000 75 – 80 5125 D. Logue 80 - 85 3,500 - - J. McCormick 20 - 25 1,500 - - S. Young 75 – 80 - - -

The total emoluments for the year to 31 March 2009 were £820,022 (2008: £210,340). Linda Ellison left the employment of Skills Development Scotland on 31 March 2009 and a voluntary severance payment was made to her, which comprised £30,000 for compensation for loss of office and £408,000 in pension costs which was paid to Scottish Enterprise Pension and Life Assurance Scheme.


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REMUNERATION REPORT FOR THE YEAR ENDED 31 MARCH 2009 (CONT’D) Pension benefits of the Chief Executive and the titular directors for the year to 31 March 2009 are as follows:- Pension benefits

Cash Equivalent Transfer Value

Accrued Pension at age 60 as at 31 March 09 and

related lump sum

Increase in pension net of inflation and related lump sum at

age 60

At 31 March 2009

At 31 March 2008

£’000 £’000 £’000 £’000 D. Yeates 3.8 2.3 35.8 24 S. Allbutt 1 - 7 - M. Burns 20.3 7.2 392 256 A. Clark 1 - 11 - L. Ellison 32.4 4.1 1,034 587 A. Livingstone 6.5 5.2 68 57 D. Logue 24 3.2 444 365 J. McCormick 1 - 7 - S. Young 15.3 1.4 266 227

. Damien Yeates Director and Accountable Officer 23 November 2009


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STATEMENT OF ACCOUNTABLE OFFICER’S RESPONSIBILITIES IN THE PREPARATION OF THE FINANCIAL STATEMENTS The directors are responsible for preparing the Directors’ Report, Management Commentary and the financial statements in accordance with applicable law and regulations.

The directors are required to prepare financial statements which comply with the accounting principles and disclosure requirements of the United Kingdom Government’s Financial reporting Manual which is in force for the year for which the statement of accounts are prepared.

Under company law they have elected to prepare the group and parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

The group and parent company financial statements are required by law to give a true and fair view of the state of affairs of the group and the parent company and of the income and expenditure for that period.

In preparing these financial statements, the directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgments and estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Damien Yeates Director and Accountable Officer 23 November 2009


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STATEMENT ON INTERNAL CONTROL BY THE ACCOUNTABLE OFFICER Scope of Responsibility As Accountable Officer, I have responsibility for maintaining a sound system of internal control that supports the achievement of the organisation’s policies, aims and objectives, set by Scottish Ministers, whilst safeguarding the public funds and assets for which I am personally responsible, in accordance with the responsibilities assigned to me. The Scottish Public Finance Manual (SPFM) is issued by the Scottish Ministers to provide guidance to the Scottish Government and other relevant bodies on the proper handling and reporting of public funds. It sets out the relevant statutory, parliamentary and administrative requirements, emphasises the need for economy, efficiency and effectiveness, and promotes good practice and high standards of propriety. Purpose of the System of Internal Control The system of internal control is designed to manage rather than eliminate the risk of failure to achieve the organisation’s policies, aims and objectives; it can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify the principal risks to the achievement of the organisation’s policies, aims and objectives, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. The SPFM recognises that when new bodies are established it is highly unlikely that such bodies will be able to make a Statement on Internal Control confirming that all the elements of the strategic risk management process have been in place for the whole of the first accounting period. In accordance with the SPFM, therefore, this Statement on Internal Control (SIC) summarises:

• the background to the establishment of Skills Development Scotland and some of the legacy issues inherited from the predecessor organisations;

• the key elements of Skills Development Scotland’s risk and control framework established during our first year; and • an outline timetable for the work to be done to implement the outstanding elements.

Subsequent SICs will refer to progress against that timetable. Risk and Control Framework Background Skills Development Scotland began operations on 1 April 2008. The new organisation comprises elements of four organisations: Scottish University for Industry, Careers Scotland and some skills and learning functions of Scottish Enterprise and Highlands and Islands Enterprise. The chair was appointed with effect from 1 April 2008 and was supported by an interim Board and an interim executive team. The Cabinet Secretary for Education and Lifelong Learning then appointed a further six non-executives, effective 19 May 2008. The interim executive team managed the initial transition phase but a permanent executive team was not appointed until November 2008. The task of merging four organisations was difficult and complex, and presented challenging timescales for all parties. A total of 1,564 staff transferred to Skills Development Scotland under TUPE agreements from the legacy organisations. However, Skills Development Scotland did not inherit many of the typical corporate services that would be required to operate a newly created, large organisation. The Scottish Government addressed this by putting in place a transitional operational arrangement under which SE and HIE agreed to ‘share’ a number of corporate services with Skills Development Scotland. These interim transactional and corporate services included HR and finance transaction processing, IT/IS and accommodation. Funds were retained in SE and HIE baselines for this provision. The ‘transactional services’ arrangement was transitional, and live Skills Development Scotland operations have now given a full understanding of the impact of the pre-merger transactional services arrangement. It was recognised at an early stage that, while essential to ensure continued operations, the ‘‘shared’ corporate service provision with SE and HIE had a number of limitations. The transitional arrangements have been sub-optimal, operationally, and did not provide a sufficiently robust, integrated or cost-effective basis for long-term working. Accordingly, Skills Development Scotland has taken forward developments in a number of areas, where appropriate, in liaison with SE and HIE, to move from post-merger transactional services in order to shape and deliver fully, fit for purpose, ‘shared services’ provision. Skills Development Scotland has addressed a number of unexpected but significant human resources issues during the year. These included rationalising the number of pension schemes available to staff, pre-existing equal pay claims, ultimately affecting 1172 staff, from legacy organisations, which were settled at a cost to Skills Development Scotland of over £6m, and commencing the harmonisation of up to twelve different sets of employment terms and conditions, with the agreement of trade unions.


15

STATEMENT ON INTERNAL CONTROL BY THE ACCOUNTABLE OFFICER (CONT’D)

Risk management During 2008/09, Skills Development Scotland put in place a number of key components of a robust risk management process, including:

• an approved Risk Management Policy, setting out our attitude to risk and our approach to managing the potential barriers to the achievement of our objectives. The Policy highlights that risk management and internal control are firmly aligned with the ability to achieve the key business objectives. The Policy and associated procedural guidance are available to all staff on the Skills Development Scotland intranet;

• A Corporate Risk Register has been established to consider those risks that impact the organisation as a whole, and are likely to affect the organisation’s ability to achieve its strategic goals and objectives. An updated register is provided to the executive team on a monthly basis for information. The register is reviewed and discussed by the Board on a quarterly basis, including consideration of progress on agreed actions to manage the risks;

• Each business unit is responsible for maintaining a system of risk management and internal control, consistent with corporate risk arrangements, and designed to enable it to deliver its business objectives in an efficient and effective manner in accordance with our values and policies. For 2008/09 local Risk Registers were in place, to identify and document significant risks at the business unit level and the actions in hand or planned to manage these. Business unit management teams review their Risk Registers and update them for changes on a regular basis;

• Ownership is assigned for each identified risk, both at a corporate and local level, with the risk owner responsible for monitoring the risk and ensuring that any identified mitigating actions are implemented;

• The Skills Development Scotland Board is made aware of and regularly reviews the key risks for the organisation; • The Skills Development Scotland Audit Committee is responsible for reviewing the effectiveness of the entire approach to

risk management within the organisation. It receives reports on a six monthly basis, and may also consider risk management on a more frequent basis if either the Chairman of the Audit Committee or the Board considers this necessary. The Board also receives regular updates from the Chairman of the Audit Committee concerning internal control;

• Business units are responsible for ensuring early and full reporting of critical business risks. Specialist functions (business continuity, health and safety and information security) are in place to manage specific types of risk, and these provide the Board and management with assurance over these areas;

• Risk assessment is also a key component of the organisation’s project appraisal process; and • Awareness and training sessions are held as required, and a risk management element has been incorporated into project

training.

The management of risk is the responsibility of all managers and staff throughout the organisation and they have a responsibility to be risk aware at all times. All employees have a personal responsibility to:

• Be aware of and comply with policies and procedures;

• Be aware of risks at all times and take reasonable action to identify, eliminate where possible, or control them;

• Notify line managers of risks they have identified which cannot be adequately managed; and

• Participate in risk management education and training.

Internal controls Skills Development Scotland has also established the following elements of its wider internal control system:

• Clear terms of reference and operating practices for the Board, which now meets on a six-week cycle, and its sub-committees;

• Comprehensive planning processes. In its first Corporate and Operating Plan 2009-11, Skills Development Scotland sets out its vision and priorities and how they will be delivered;

• A unified organisational model has been developed. The revised Senior Management Structure has been in place since November 2008 and full implementation is planned for early 2009/10, following consultation with staff and unions; and

• A Scheme of Delegated Authority that devolves the powers of the Board, within agreed limits, to the chief executive and the Senior Management Team.

Outstanding elements of the risk and control framework The following key areas are work in progress and require to be further strengthened: STATEMENT ON INTERNAL CONTROL BY THE ACCOUNTABLE OFFICER (CONT’D)


16

Unified Policies and Procedures. Skills Development Scotland is still mainly operating legacy systems, policies and procedures from the four predecessor organisations. The Board recognises that this represents a risk to the quality of management information available and the consistency of service delivery. In order to mitigate the risks in this area, Skills Development Scotland commissioned Scott-Moncrieff to carry out a review of the formal policies and procedures of each of the constituent

• parts of the organisation in order to identify differences and potential gaps, as well as to assess how the policies and procedures were being applied. The Skills Development Scotland management team has also established working groups

• which have been given responsibility for the development of new unified policies and procedures to reflect the new organisation model and governance framework; and

• As the Accountable Officer for Skills Development Scotland, the chief executive is responsible for accounting for activities and is required by the Management Statement and Financial Memorandum to:

o sign a Statement of Internal Control regarding Skills Development Scotland’s system of internal control, for

inclusion in the annual report and accounts; and o sign a Certificate of Assurance on the maintenance and review of Skills Development Scotland’s internal control

systems, for submission to the Scottish Government.

The Board has started establishing the supporting processes for providing these Statements and this work will be completed by November 2009. Review of effectiveness As Accountable Officer, I also have responsibility for reviewing the effectiveness on the system of internal control. My review is informed by:

• the executive managers within the organisation who have responsibility for the development and maintenance of the internal control framework;

• the work of the internal auditors, who submit to the organisation's Audit Committee regular reports which include the Head of Internal Audit's independent and objective opinion on the adequacy and effectiveness of the organisation's systems of internal control together with recommendations for improvement; and

• comments made by the external auditors in their management letters and other reports. To fulfil this responsibility, the following processes have been established for Skills Development Scotland.

Internal Audit Following the organisational changes, 2008/09 has been a transitional year with internal audit arrangements not being fully operational. During the year Skills Development Scotland put in place a professional internal audit service provided by Scott-Moncrieff which will be operational from 1 April 2009 for the whole of 2009/10. During 2008/09 the Board engaged, as an interim measure, both Scottish Enterprise’s internal audit service and Scott Moncrieff to carry out various ad-hoc internal audit reviews on key risk areas prior to the establishment of the full internal audit service. In addition to this Highlands and Islands Enterprise internal audit service carried out a number of reviews of systems utilised by Skills Development Scotland as part of their normal internal audit procedures over their operations. Overall, the areas covered by internal audit during 2008/09 were:

• Corporate governance; • Payroll; • Payroll/ HR reconciliation; • Key performance indicators; and • Policies and procedures

In summary, on the basis of the above processes, my overall review has not highlighted any significant internal control weaknesses within Skills Development Scotland other than the areas of development summarised above in relation to the establishment of the risk and control framework. Damien Yeates Director and Accountable Officer 23 November 2009

17

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF THE SKILLS DEVELOPMENT SCOTLAND CO. LIMITED, THE AUDITOR GENERAL FOR SCOTLAND AND THE SCOTTISH PARLIAMENT

We have audited the group and parent company financial statements (the ''financial statements'') of The Skills Development Scotland Co. Limited for the year ended 31 March 2009 which comprise group income and expenditure account, the group and company balance sheets, the group cash flow statement, the group statement of total recognised gains and losses and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Remuneration Report that is described in that report as having been audited.

This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985 and to the Auditor General for Scotland in accordance with sections 21 and 22 of the Public Finance and Accountability (Scotland) Act 2000. Our audit work has been undertaken so that we might state to those two parties those matters we are required to state to them in an auditor’s report and for no other purpose. In accordance with the Code of Audit Practice approved by the Auditor General for Scotland, this report is also made to the Scottish Parliament, as a body. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, the company’s members as a body and the Auditor General for Scotland, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The directors' responsibilities for preparing the annual report and the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities on page [number]. The Chief Executive is also responsible for ensuring the regularity of expenditure and receipts.

Our responsibility is to audit the financial statements and the part of the Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the directors' report and management commentary is consistent with the financial statements. We also report to you our opinion as to whether the Remuneration Report has been properly prepared in accordance with the Accounts Direction applicable to the year issued by the Scottish Ministers.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed.

We review whether the Statement on Internal Control reflects the company’s compliance with the Scottish Government’s guidance, and we report if, in our opinion, it does not. We are not required to consider whether this statement covers all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read the other information contained in the annual report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts, disclosures and regularity of expenditure and income included in the financial statements and the part of the Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Remuneration Report to be audited.

18

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF THE SKILLS DEVELOPMENT SCOTLAND CO. LIMITED, THE AUDITOR GENERAL FOR SCOTLAND AND THE SCOTTISH PARLIAMENT (CONT’D)

Opinion

In our opinion:

• the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the group's and the parent company's affairs as at 31 March 2009 and of the group's deficit for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985;

• the part of the Remuneration Report to be audited has been properly prepared in accordance with the Accounts Direction applicable to the year issued by the Scottish Ministers;

• the information given in the directors' report and management commentary is consistent with the financial statements; and

• in all material respects the expenditure and receipts shown in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers.

KPMG LLP Chartered Accountants Registered Auditor 191 West George Street Glasgow G2 2LJ 15 December 2009


19

GROUP INCOME AND EXPENDITURE ACCOUNT For the year ended 31 March 2009 Restated 2009 2009 2009 2008 Acquired Continuing Total Notes £’000 £’000 £’000 £’000 Turnover 2 169,989 13,698 183,687 13,477 Cost of Sales (3,676) (603) (4,279) (852) Gross Surplus 166,313 13,095 179,408 12,625 Operating Expenditure 3 (155,411) (3,301) (158,712) (6,063) Administrative Expenses 3 (11,515) (10,470) (21,985) (7,097) Operating Deficit (613) (676) (1,289) (535) Interest payable and similar charges 5 (570) (41) (611) - Other Interest receivable and Similar Income 6 252 559 811 248 Notional cost of capital 7 199 14 213 73 Deficit on ordinary activities before taxation including notional cost of capital

(732)

(144)

(876)

(214)

Reversal of notional cost of capital 7 (199) (14) (213) (73) Deficit on ordinary activities before tax (931) (158) (1,089) (287) Taxation on results of ordinary activities 8 (35) (124) (159) (101) Deficit on ordinary activities after tax

(966)

(282)

(1,248)

(388) All of the above results are derived from continuing and acquired operations. Acquired operations represents aspects of the skills and learning functions from Scottish Enterprise and Highlands and Islands Enterprise.


20

GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 March 2009 Restated 2009 2008 Notes £’000 £’000 Deficit after tax (1,248) (388) Actuarial loss on pension schemes assets and liabilities 14 (1,943) (237) Deferred income tax assets - 47 Total recognised losses for the year (3,191) (578) Transfer of pension assets and liabilities on 1 April 2008 (15,646) Total recognised losses since the last financial statements (18,837) GROUP AND COMPANY RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS For the year ended 31 March 2009 Restated 2009 2009 2008 2008 Group Company Group Company Notes £’000 £’000 £’000 £’000 Opening shareholders’ funds as originally reported

3,336

-

3,914

-

Transfer of reserves at 1 April 2008 - (12) - - Opening shareholders’ funds/(deficit) 3,336 (12) 3,914 - Transfer of pension assets and liabilities on 1 April 2008

(15,646)

(15,646)

-

-

Deficit after tax (1,248) (1,457) (388) - Other recognised gains and losses (1,943) (1,943) (190) - Closing shareholders’ (deficit)/funds (15,501) (19,058) 3,336 -


21

GROUP AND COMPANY BALANCE SHEETS As at 31 March 2009 Restated Group Company Group Company 2009 2009 2008 2008 Notes £’000 £’000 £’000 £’000 FIXED ASSETS Tangible fixed assets 9 237 237 335 - CURRENT ASSETS Debtors 10 4,447 4,351 797 -Cash at bank and in hand 7,869 4,399 3,648 2 12,316 8,750 4,445 2CREDITORS Amounts falling due within one year 11 (8,303) (8,294) (1,029) (2) NET CURRENT ASSETS 4,013 456 3,416 - TOTAL ASSETS LESS CURRENT LIABILITIES 4,250 693 3,751 - CREDITORS Amounts falling due after more than one year 12 (160) (160) (271) - PROVISIONS FOR LIABILITIES AND CHARGES 13 (1,868) (1,868) (150) - NET ASSETS/(LIABILITIES) EXCLUDING PENSION SCHEMES ASSETS

2,222

(1,335)

3,330

-

PENSION SCHEMES (LIABILITIES)/ASSETS 14 (17,723) (17,723) 6 - NET (LIABILITIES)/ASSETS INCLUDING PENSION SCHEMES (LIABILITIES)/ ASSETS

(15,501)

(19,058)

3,336

-

REPRESENTED BY: CAPITAL AND RESERVES Income and expenditure account 15 (15,501) (19,058) 3,336 - TOTAL SHAREHOLDERS’ (DEFICIT)/FUNDS (15,501) (19,058) 3,336 - The financial statements were approved by the board of directors on ______________ and were signed on its behalf by: Damien Yeates Director and Accountable Officer


22

GROUP CASH FLOW STATEMENT For the year ended 31 March 2009 Restated Notes 2009 2008 £’000 £’000 Net Cash Inflow/(Outflow) from Operating Activities 17 4,281 (436) Returns on Investments & Servicing of Finance Interest received 811 374Interest paid (611) (126) Net Cash Inflows from Returns on Investments & Servicing Finance 200 248 Taxation (159) (101) Capital Expenditure & Financial Investment Purchase of tangible fixed assets (101) (141) Increase/(Decrease) in Cash for the Period 4,221 (430)


23

NOTES TO FINANCIAL STATEMENTS Note 1 ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards. FRS25: Financial instruments: presentation and FRS26: Financial instruments: recognition and measurement have been implemented for the first time for the year ended 31 March 2009. The FReM does not require a prior year adjustment to reflect this change in accounting policy and the comparatives have not been restated in this respect. FRS17 (revised): Retirement benefits has been implemented for the year ended 31 March 2009 for the first time and the disclosures it requires have been presented for both the current and comparative period. The amendment to FRS17 also requires that quoted securities are valued at their bid price rather than mid-market value. No adjustment has been applied to the comparative figures for this as the effect of this change is not considered to be material to the financial statements.

(a) Basis of Preparation

The financial statements are prepared in a form determined by the Scottish Ministers in accordance with the Management Statement between the Company and the Scottish Ministers.

The financial statements have been prepared in accordance with the 2008-09 Government Financial Reporting Manual (FReM) issued by HM Treasury. The FReM requires that the Company should comply with the Companies Act, but, as a non-departmental public body, also follow the principles in the FReM (for example, in recognising notional costs and preparing a remuneration report) where these go beyond the Companies Act.

The FReM states that non-departmental public bodies should account for grant-in-aid as a movement in reserves rather than income. However, the Company has concluded that under the Companies Act it is appropriate to continue to account for grant-in-aid as income, on the basis that grant-in-aid received by the Company is required in order to carry out a function which its owners have asked it to perform. On that basis, the Company considers grant-in-aid to be an exchange transaction and, as such, requires to be accounted for in the income and expenditure account. Additionally, the FReM requires a notional cost of capital to be included on the face of the income and expenditure account in arriving at the surplus/deficit on ordinary activities before taxation. Such a treatment is inconsistent with the Companies Act and the Company has, therefore, not adopted this treatment, instead disclosing both the notional cost of capital and its reversal in arriving at the surplus/deficit on ordinary activities before taxation.

Where the FReM permits a choice of accounting policy, the accounting policy which has been judged to be the most appropriate to the particular circumstances of the Company for the purpose of giving a true and fair view has been selected.

The financial statements have been prepared on a going concern basis, which assumes the continued support of the Scottish Government. The financial statements have been prepared in line with Financial Reporting Standard 17 ‘Retirement Benefits (revised)’ and include an actuarial valuation of the pension schemes’ assets and liabilities. The group and company report net liabilities of £15.5 million and £19.1 million respectively at 31 March 2009 (2008: group £3.3 million net assets; company £nil). The excess of liabilities over assets is due to the net pension liability of £17.7 million. This reflects the inclusion of liabilities falling due in future years which, to the extent that they are not to be met from Skills Development Scotland’s other sources of income, may only be met by future grant-in-aid from the Scottish Government. This is because, under the normal conventions applying to Scottish Government control over income and expenditure, such grants may not be paid or accrued in advance of need. Grant-in-aid for 2009-10 is £188 million and has already been included in the Scottish Government’s estimates for that year, which have been approved by parliament, and there is no reason to believe that the Scottish Government’s full sponsorship and future parliamentary approval will not be forthcoming. Accordingly, it is considered appropriate to adopt the going concern basis for the preparation of these financial statements.


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NOTES TO FINANCIAL STATEMENTS Note 1 (CONT’D) (b) Basis of Consolidation

Under the FReM the Company is no longer permitted to use the Companies Act 1985 exemption to present group financial statements. The Company has presented group financial statements for the first time for the year ended 31 March 2009. The effect of this change in accounting policy in respect of the prior period is disclosed in note 20 to the financial statements.

The acquisition method of accounting has been adopted. Under this method the results of any subsidiary undertakings acquired or disposed of during the year are included in the group operating cost statement from the date of acquisition or to the date of disposal.

Assets transferred from other public sector organisations under the Machinery of Government regulations are accounted for using merger accounting provisions and as a consequence the balances and transactions relating to these assets have been included in these financial statements and the corresponding amounts have been restated. Further detail is provided in note 20.

(c) Turnover

Grant-in-aid from the Scottish Government is recognised on the basis of cash received during the year. This treatment is defined by the funding agreement with the Scottish Government, which does not allow unused funding to be carried forward into future financial years.

Sales of services are recognised as income in the period to which they relate.

Turnover is stated net of VAT where applicable.

Deferred capital grants

Funding from the Scottish Government used to fund the purchase of capital assets is deferred in the balance sheet, split between amounts due within one year and amounts due in more than one year, and released to the income and expenditure account by equal instalments over the expected useful economic life of the related asset on a basis consistent with the depreciation policy.

(d) Cost of Sales

Cost of sales represents the expenditure incurred in providing specific education and lifelong learning services as defined in the Company’s objectives as set by the Scottish Ministers. These are the costs of generating invoiced income. Cost of sales are reported in the period to which they relate and are stated net of recoverable VAT.

(e) Operating expenditure

Operating expenditure represents the costs of national training programmes and the related staff costs of administering these programmes. Operating expenditure is reported in the period to which it relates and is stated net of recoverable VAT.

(f) Administrative expenses

Administrative expenses are the costs of running the Company, rather than the provision of services. These costs include central support functions, governance, administration costs and the related staff costs. Administrative expenses are reported in the period to which they relate and are stated net of recoverable VAT.

(g) Notional Costs

The Company is required by the FReM to account for a notional cost of capital calculated on the arithmetic average of net assets, which is reported in the income and expenditure account. Under the Companies Act this notional cost is subsequently reversed in the income and expenditure account. The notional cost of capital is calculated using the rate set by HM Treasury.

(h) Operating Leases

Rentals paid under operating leases are charged to the income and expenditure account on a straight-line basis over the lease term.

(i) Dilapidations

Provision for the costs of dilapidations on the expiry of premises leases, which are of uncertain timing or amount at the balance sheet date, are provided on the basis of the best estimate using independent professional assessments.


25

NOTES TO FINANCIAL STATEMENTS Note 1 (CONT’D) (j) Tangible Fixed Assets

The Company does not own any land and buildings. Other fixed assets are capitalised at their cost of acquisition and installation. The threshold for capitalisation of assets is £1,000, but individual assets whose cost fall below the threshold but are of a similar nature are grouped and capitalised.

Depreciation is calculated using the straight-line method to allocate their cost (other than their residual values) over their estimated useful lives, as follows:

Additions to leasehold property - over 5 years

Computer equipment – infrastructure - over 3 years

Computer equipment - office systems - over 3 years

(k) Provisions

The Company provides for legal or constructive obligations that are of uncertain timing or amount at the balance sheet date on the basis of the best estimate of the expenditure required to settle the obligation. Where the effect of the time value of money is significant, the estimated cash flows are discounted using the discount rate prescribed by HM Treasury.

(l) Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income and expenditure account, except to the extent that it relates to items recognised directly in reserves. In this case, the tax is also recognised in reserves.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax

In accordance with FRS 19 Deferred tax, full provision is made for tax assets and liabilities arising from timing differences between recognition of gains and losses in the financial statements and their recognition in the tax computation.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non discounted basis.

Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable surplus or deficit. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income tax liability is settled. Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised only to the extent that it is probable that future taxable surpluses will be available against which the temporary differences can be utilised.

Value Added Tax

Most of the activities of the Company are outside the scope of Value Added Tax (VAT) and, in general, output tax does not apply and input tax on purchases is not recoverable. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of fixed assets. Where output tax is charged or input VAT is recoverable, the amounts are stated net of VAT.

(m) Foreign Currencies

Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Translation differences are taken to the income and expenditure account.


26

NOTES TO FINANCIAL STATEMENTS Note 1 (CONT’D) (n) Retirement benefits

Employees of the Company are members of one of five pension schemes. Employees joining since 1 April 2008 are entitled to join The Skills Development Scotland Co. Limited Retirement Benefit Scheme.

The following schemes are defined benefit pension schemes providing benefits based on final pensionable pay, which are contracted out of the State Earnings-Related Pension Fund:

• Skills Development Scotland Co. Ltd Retirement Benefits Scheme

• Highlands and Islands Enterprise Superannuation Scheme

• Strathclyde Pension Fund

• Highland Council Pension Fund

• Scottish Enterprise Pension and Life Assurance Scheme

The Schemes are accounted for on a defined benefit basis under FRS 17: Retirement benefits. Assets and liabilities of the Schemes are held separately from those of the Company. The Schemes’ assets are measured using market values and the Schemes’ liabilities are measured using a projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Contributions to these Schemes are calculated so as to spread the cost of pensions over employees’ working lives with the Company. The contributions are determined by an actuary on the basis of triennial valuations using the Age Attained Method. The actuaries also review the progress of the Schemes in each of the intervening years. Variations from regular cost are spread over the expected average remaining working lifetime of members of the Schemes after making allowances for future withdrawals. The expected cost of providing staff pensions to employees contributing to the Schemes is recognised in the income and expenditure account on a systematic basis over the expected average remaining lives of members of the funds in accordance with FRS 17 Retirement benefits and recognises retirement benefits as the benefits are earned and not when they are due to be paid. The income and expenditure account also includes the net impact of returns on the Schemes’ assets and interest on the Schemes’ liabilities, which is disclosed as other finance income. A pension scheme asset is recognised on the balance sheet only to the extent the surplus may be recovered by reduced further contributions or to the extent that the trustees have agreed a refund from the scheme at the balance sheet date. A pension scheme liability is recognised to the extent that the company has a legal or constructive obligation to settle the liability.

(o) Cash flows and liquid resources

Cash flows comprise increases or decreases in cash. Cash includes cash in hand, cash at bank and money market deposits. No other investment, however liquid, is included as cash.

(p) Financial Instruments

Financial assets

Classification

The Company classifies its financial assets in the following categories: at fair value, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

a) Financial assets at fair value through the income and expenditure account

Financial assets at fair value through the income and expenditure account comprise derivatives. Assets in this category are classified as current assets. The Company does not trade in derivatives and does not apply hedge accounting.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables comprise trade and other receivables and cash at bank and in hand in the balance sheet.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.


27

NOTES TO FINANCIAL STATEMENTS Note 1 (CONT’D)

Recognition and measurement

Financial assets are recognised when the Company becomes party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the asset have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

a) Financial assets at fair value through surplus or deficit

Financial assets carried at fair value are initially recognised at fair value, and transaction costs are expensed in the income and expenditure account. Financial assets carried at fair value are subsequently measured at fair value. Gains or losses arising from changes in the fair value are presented in the income and expenditure account.

b) Loans and receivables

Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans and receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the loan and receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income and expenditure account. When a loan or receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited in the income and expenditure account.

c) Available-for-sale financial assets

Available-for-sale financial assets are initially recognised and subsequently carried at fair value. Changes in the fair value of financial assets classified as available for sale are recognised in reserves. When financial assets classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in reserves are included in the income and expenditure account.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less impairment. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in the income and expenditure account – is removed from reserves and recognised in the income and expenditure account. Impairment losses recognised in the income and expenditure account on equity instruments are not reversed through the income and expenditure account.

Financial Liabilities

Classification

The Company classifies its financial liabilities in the following categories: at fair value through surplus or deficit, and other financial liabilities. The classification depends on the purpose for which the financial liabilities were issued. Management determines the classification of its financial liabilities at initial recognition.

a) Financial liabilities at fair value

Financial liabilities at fair value comprise derivatives. Liabilities in this category are classified as current liabilities. The Company does not trade in derivatives and does not apply hedge accounting.

b) Other financial liabilities

Other financial liabilities are included in current liabilities, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current liabilities. The Company’s other financial liabilities comprise trade and other payables in the balance sheet.


28

NOTES TO FINANCIAL STATEMENTS Note 1 (CONT’D) Recognition and measurement

Financial liabilities are recognised when the Company becomes party to the contractual provisions of the financial instrument. A financial liability is removed from the balance sheet when it is extinguished, that is when the obligation is discharged, cancelled or expired.

a) Financial liabilities at fair value

Financial liabilities carried at fair value are initially recognised at fair value, and transaction costs are expensed in the income and expenditure account. Financial liabilities carried at fair value are subsequently measured at fair value. Gains or losses arising from changes in the fair value are presented in the income and expenditure account.

b) Other financial liabilities

Other financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(q) Corresponding amounts

Corresponding amounts are shown for the primary statements and notes to the financial statements. Where the corresponding amounts are not directly comparable with the amount to be shown in respect of the current financial year, FRS 28: Corresponding amounts requires that they should be adjusted and the basis for adjustment disclosed in a note to the financial statements.

Note 2 TURNOVER Restated 2009 2008 £’000 £’000 Cash Grant-in-Aid 176,887 12,534Accrued Grant-in-Aid 1,600 -Careers Scotland 3,676 -The Big Plus 723 906Miscellaneous 801 37 183,687 13,477


29

NOTES TO FINANCIAL STATEMENTS Note 3 EXPENDITURE Restated 2009 2008(a) Operating Expenditure £’000 £’000 National training programmes

• Skillseekers 13,499 -• Modern apprenticeships 55,860 -• Get ready for work 25,285 -• Training for work 9,140 -

103,784 -Business enhancement projects 6,283 3,040Business marketing 1,241 909Staff costs supporting operations 47,404 2,114 158,712 6,063 (b) Administrative Expenditure Contact centre & fulfilment 1,886 1,987Infrastructure, management & administration 11,694 3,249Information, communication & technology/information systems 3,964 620Staff costs supporting administration 4,441 1,241 21,985 7,097 (c) Included in the above are: Auditors’ remuneration: Audit of these financial statements (i) 155 13Audit of financial statements of subsidiaries pursuant to legislation 2 2Other services relating to taxation 7 2Depreciation 244 263Leasehold property rentals 1,663 290Director’s remuneration (Note (4)) 204 128 (i) The auditors of Skills Development Scotland, appointed by the Auditor General for Scotland, are KPMG LLP. The fees for audit services are payable to Audit Scotland who are responsible for meeting the appointed auditor’s fee.


30

NOTES TO FINANCIAL STATEMENTS Note 4 STAFF NUMBERS AND COSTS Restated 2009 2008 £’000 £’000 Salaries 37,998 2,797Equal pay costs 5,066 -Social security costs 3,404 249Other pension costs 8,900 211 55,368 3,257Car allowances 142 98 55,510 3,355 Number of full time equivalent employees 2009 2008 Non-executive directors 7 8Senior management team directors 7 4Operational 1,310 50Administrative 114 29 1,438 91 The emoluments of the highest paid director amounted to £105,202 (2008: £100,171). The pension contributions in respect of the highest paid director, amounted to £19,353 (2008: £11,475). Pension accrued up to 31 March 2009 for the highest paid director is £3,750 per annum. (2008: £2,250). There is no fixed cash benefit in this scheme. The non-executive directors emoluments’ amounted to £73,186 (2008: £25,515). Directors’ Remuneration 2009 2008Emoluments were as follows: £’000 £’000 Salary 694 187Pension 126 23 820 210 Note 5 INTEREST PAYABLE AND SIMILAR CHARGES 2009 2008 £’000 £’000 Expected return on pension scheme assets 6,847 126,000Interest on pension scheme liabilities (7,458) (126,000) (611) - Note 6 OTHER INTEREST RECEIVABLE AND SIMILAR CHARGES 2009 2008 £’000 £’000 Interest on bank deposits 811 248


31

NOTES TO FINANCIAL STATEMENTS Note 7 NOTIONAL COST OF CAPITAL In accordance with the Government Financial Reporting Manual, the company is required to disclose the notional cost of capital. In the year ended 31 March 2009, the cost of such capital, calculated at 3.5% for both the current and prior years, the rates determined by the Government Financial Reporting Manual guidance, was a credit of £212,885 (2008: £72,629). Note 8 TAXATION Restated 2009 2008 £’000 £’000Analysis of tax charge in the period: UK Corporation Tax: Current tax on income for the period 159 56Adjustment in respect of prior periods - 9 Total Current Tax 159 65 Deferred Tax: (see note ) - 36 Total Deferred Tax - 36 Tax on Surplus on Ordinary Activities 159 101 The tax assessed for the period is lower than the standard rate applying in the UK (30%). Factors affecting tax charge for the period: Current Tax Reconciliation Surplus on ordinary activities before tax 693 357Current tax @ 28% (2008: 20%) 194 71 Effects of: Tax deducted at source (35) Tax adjustment in respect of pension scheme - (40)Non-taxable income and disallowed expenditure - -Capital allowances for period in excess of depreciation - 25Tax under provided in previous year - 9 Current tax charge 159 65 Balance Sheet Notes Corporation tax payable/(recoverable) 159 56 Deferred tax asset/(liability) The amount of recognised deferred tax can be analysed as follows: Deferred tax on pension scheme surplus - 2 The amount of unprovided/(unrecognised) deferred tax can be analysed as follows: Losses - - - - The directors do not consider that it is more likely than not that there will be suitable taxable surplus from which the future reversal of the underlying timing differences can be deducted.


32

NOTES TO FINANCIAL STATEMENTS Note 9 TANGIBLE FIXED ASSETS - GROUP Leasehold Computer Office Furniture Property Infrastructure & IT Equipment Total £’000 £’000 £’000 £’000Cost: At 1 April 2008 352 1,302 250 1,904Additions 10 107 29 146 At 31 March 2009 362 1,409 279 2,050 Depreciation At 1 April 2008 280 1,073 216 1,569Provided during the year 67 146 31 244 At 31 March 2009 347 1,219 247 1,813 Net Book Value At 31 March 2009 15 190 32 237 At 31 March 2008 72 229 34 335 TANGIBLE FIXED ASSETS - COMPANY Leasehold Computer Office Furniture Property Infrastructure & IT Equipment Total £’000 £’000 £’000 £’000Cost: At 1 April 2008 0 0 0 0Transfer from subsidiary 352 1,302 250 1,904Additions 10 107 29 146 At 31 March 2009 362 1,409 279 2,050 Depreciation At 1 April 2008 0 0 0 0Transfer from subsidiary 280 1,073 216 1,569Provided during the year 67 146 31 244 At 31 March 2009 347 1,219 247 1,813 Net Book Value At 31 March 2009 15 190 32 237 At 31 March 2008 0 0 0 0


33

NOTES TO FINANCIAL STATEMENTS Note 10 DEBTORS Group Company Group Company 2009 2009 2008 2008 £’000 £’000 £’000 £’000Amounts falling due within one year Trade debtors 1,439 1,439 400 -Other debtors 937 937 195 -Accrued income 1,600 1,600 - -Prepayments 471 375 202 - 4,447 4,351 797 - Total debtors in 2008 included recoverable rent of £167,802 due after more than one year. Debtors that are less than three months past their due date are not considered impaired. As at 31 March 2009 the group and company had debtors with a carrying value of £646,000 were past their due date but not impaired. The ageing of debtors which are past their due date but not impaired is as follows: GROUP At 31 March

2009 £’000 Up to 3 months past due 5193 to 6 months past due 127Over six months past due - 646COMPANY At 31 March

2009 £’000 Up to 3 months past due 5193 to 6 months past due 127Over six months past due - 646 The debtors assessed as past due but not impaired primarily relate to balances due from public sector organisations and there is no history of default from these customers recently. All debtors are denominated in GB pounds. The carrying amount of short term receivables approximates their fair value. The effective interest rate on non-current debtors is nil. Note 11 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Restated Restated Group Company Group Company 2009 2009 2008 2008 £’000 £’000 £’000 £’000 Trade creditors 1,316 1,310 473 -Taxation and social security 166 166 56 -Other creditors 21 21 7 2Accruals and deferred income 6,800 6,797 493 - 8,303 8,294 1,029 2


34

NOTES TO FINANCIAL STATEMENTS Note 12 CREDITORS: AMOUNTS FALLING DUE OUTWITH ONE YEAR Group Company Group Company 2009 2009 2008 2008 £’000 £’000 £’000 £’000 Deferred income 160 160 271 - All creditors are denominated in GB pounds. The carrying amount of short term payables approximates their fair value. The effective interest rate on non-current creditors is nil. Note 13 PROVISIONS FOR LIABILITIES AND CHARGES

At

1 Apr 2008

Increase in year

Released to Income &

Expenditure during the year

At 31 Mar 2009

£’000 £’000 £’000 £’000 HIE Superannuation Scheme exit costs - 1,600 - 1,600Equal pay - 238 - 238Dilapidations 150 - (120) 30 150 1,838 (120) 1,868 A pension provision has been recognised for the cost of exiting the Highlands and Islands Superannuation Scheme. The provision is based on an actuarial valuation and will crystallise during the next financial year. A provision is recognised for the cost of severance payments and not yet settled, including payments of £238,000 to augment pension benefits for those taking early retirement. The terms of severance have been agreed with the employees concerned and will be incurred during the next financial year. The dilapidation provision relates to the costs, over a five year period, to return the Alhambra House office to its original condition, per the lease agreement. Note 14 PENSIONS The company operates the Skills Development Scotland Retirement Benefit Scheme and participates in the following multi-employer schemes: - Strathclyde Pension Fund - Scottish Enterprise Pension and Life Assurance Scheme - Highland Council Pension Fund - Highlands and Islands Superannuation Scheme All schemes are defined benefit schemes. Total contributions paid by the group and company during the year were £7.8 million. At the end of the period no contributions were outstanding. In 2009-10 total contributions are expected to be £7.8 million. All five pension schemes are defined benefits schemes and provide benefits based on final pensionable salaries. The assets of the five schemes are held separately from those of Skills Development Scotland.


35

NOTES TO FINANCIAL STATEMENTS Note 14 (CONT’D) Strathclyde Pension Fund On 1 April 2008, staff previously employed in Scottish Enterprise’s Skills & Learning and Careers Scotland functions transferred to Skills Development Scotland. Skills Development Scotland replaced Scottish Enterprise as an admitted employer in the Strathclyde Pension Fund; allowing staff previously employed by Scottish Enterprise and participating in this scheme to continue their membership as employees of Skills Development Scotland. Under the deed of participation, the past service liabilities and relevant assets relating to these employees during their employment by Scottish Enterprise were transferred to Skills Development Scotland on 1 April 2008. The net liability at this date was £2,872,000.

Scottish Enterprise Pension and Life Assurance Scheme Scottish Enterprise operates the Scottish Enterprise Pension & Life Assurance Scheme for all permanent staff. The Trustees of the Scottish Enterprise Pension and Life Assurance Scheme, Scottish Enterprise (as principal employer) and Skills Development Scotland (as participating employer) entered into an agreement effective from 1 April 2008, whereby employees of Skills Development Scotland, who were previously employees of Scottish Enterprise, will continue to participate in the Scottish Enterprise Pension and Life Assurance Scheme in accordance with the Deed of Agreement and Trust and other governing documentation of the Scheme.

The Deed of Participation admitting Skills Development Scotland as a participating employer to the Scheme does not address how the assets and liabilities of the Scheme relating to Skills Development Scotland’s employees former participation in the Scheme, as employees of Scottish Enterprise, should be determined and accounted for. The Trustees of the Scheme have not yet determined a basis for apportionment of assets and liabilities between Scottish Enterprise and Skills Development Scotland. As a result, for the purposes of FRS 17 Retirement Benefits, the Directors of Skills Development Scotland do not account for any assets and liabilities of the Scheme as at 31 March 2008. The Directors of Skills Development Scotland do not believe the future apportionment of the assets and liabilities of the Scheme are likely to have a material impact on the net assets of Skills Development Scotland as at 31 March 2009.

Highland Council Pension Fund On 1 April 2008, staff previously employed in Highland and Island Enterprise’s Skills & Learning and Careers Scotland functions transferred to Skills Development Scotland. Skills Development Scotland replaced Highlands and Islands Enterprise as an admitted employer in the Highland Council Pension Fund; allowing staff previously employed by Highlands and Islands Enterprise and participating in this scheme to continue their membership as employees of Skills Development Scotland. Under the deed of participation, the past service liabilities and relevant assets relating to these employees during their employment by Highlands and Islands Enterprise were transferred to Skills Development Scotland on 1 April 2008. The net liability at this date was £1,018,000.

Highlands and Islands Enterprise Superannuation Scheme Highland and Island Enterprise operates the Highland and Island Enterprise Superannuation Scheme for all permanent staff. The Trustees of the Highland and Island Enterprise Superannuation Scheme, Highland and Island Enterprise (as principal employer) and Skills Development Scotland (as participating employer) entered into an agreement effective from 1 April 2008, whereby employees of Skills Development Scotland, who were previously employees of Highland and Island Enterprise, continued to participate in the Highlands and Islands Superannuation Scheme in accordance with the Deed of Agreement and Trust and other governing documentation of the Scheme.

The Deed of Participation admitting Skills Development Scotland as a participating employer to the Scheme does not address how the assets and liabilities of the Scheme relating to Skills Development Scotland’s employees former participation in the Scheme, as employees of Highlands and Islands Enterprise, should be determined and accounted for. The Trustees of the Scheme have not yet determined a basis for apportionment of assets and liabilities between Highlands and Islands Enterprise and Skills Development Scotland. As a result, for the purposes of FRS 17 Retirement Benefits, the Directors of Skills Development Scotland do not account for any assets and liabilities of the Scheme as at 31 March 2008. The Directors of Skills Development Scotland do not believe the future apportionment of the assets and liabilities of the Scheme are likely to have a material impact on the net assets of Skills Development Scotland as at 31 March 2009.

The disclosures take account of the pre 1 April 2008 pension liability being recognised by Skills Development Scotland for both current and past employees who are members of one of the five schemes, and the assets which have been designated for this purpose. The disclosures also reflect that no liabilities are being transferred for pre 1 April 2008 service for members fo the Scottish Enterprise Pension and Life Assurance Scheme and the Highlands and Islands Enterprise Superannuation Scheme; however a liability has been included for Skills Development Scotland to increase the accrued pension benefits for this element of service in respect of future salary increases. This is in line with legal advice received. Highlands & Islands Enterprise Superannuation Scheme - the previous completed actuarial valuation was at 5 April 2006 and was carried out by an independent actuary. The FRS 17 disclosures are based on an approximate projection of the liabilities at that time allocated to Skills Development Scotland after making allowance for changes in the assumptions from those used at that time. The projection also makes allowance for events which materially impact the assets and liabilities. The results are not as accurate as a full actuarial valuation. The actuarial valuation at 5 April 2009 is currently underway.


36

NOTES TO FINANCIAL STATEMENTS Note 14 (CONT’D) Skills Development Scotland Co. Limited Retirement Benefit Scheme - the previous actuarial valuation was at 1 April 2007 and was carried out by an independent actuary. The FRS 17 disclosures use liabilities which were rolled forward on an approximate basis allowing for the change of assumptions from those used at that time. The results are not as accurate as a full actuarial valuation. Highland Council Pension Fund - the previous actuarial valuation was at 31 March 2008 and was carried out by an independent actuary. The FRS 17 disclosures are based on an approximate roll forward of the liabilities at that time allocated to Skills Development Scotland and allow for change of assumptions used at that time. The results are not as accurate as a full actuarial valuation. Scottish Enterprise Pension & Life Assurance Scheme - the previous actuarial valuation was at 31 March 2008 and was carried out by an independent actuary. The FRS 17 disclosures are based on an approximate roll forward of the liabilities at that time allocated to Skills Development Scotland and allow for change of assumptions used at that time. The results are not as accurate as a full actuarial valuation. Careers Scotland Section of the Strathclyde Pension Fund - the previous actuarial valuation was at 31 March 2008 and was carried out by an independent actuary. The FRS 17 disclosures are based on an approximate roll forward of the liabilities at that time allocated to Skills Development Scotland and allow for change of assumptions used at that time. The results are not as accurate as a full actuarial valuation. The disclosures below have been prepared on a consolidated basis for the company’s own scheme and the four schemes in which the company and group participate. Comparatives have been provided where these are available. The schemes assets are held separately from the assets of the company and are administered by trustees and managed professionally. The valuation used for FRS17 disclosures has been on the most recent actuarial valuation at 31 March 2008 and schemes assets are stated at their fair value at 31 March 2008. 2009 2008 £’000 £’000 Present value of funded defined benefit obligations (101,180) (2,659)Fair value of plan assets 83,457 2,667 (Deficit)/Surplus (17,723) 8Related deferred tax asset/(liability) - - Net (liability)/asset (17,723) 8


37

NOTES TO FINANCIAL STATEMENTS Note 14 (CONT’D) Movement in present value of defined benefit obligation 2009 2008 £’000 £’000 Opening defined benefit obligation 2,659 2,196Transfer of defined benefit obligations on 1 April 2008 107,280 -Current service cost 6,600 211Past service cost 270 -Interest cost 7,458 126Curtailment 430 -Actuarial (gains)/loss (24,088) 81Contributions by members 2,053 105Benefits paid (1,482) (60) At 31 March 101,180 2,659 Movement in fair value of plan assets 2009 2008 £’000 £’000 Opening fair value of plan assets 2,667 2,240Transfer of plan assets on 1 April 2008 91,626 -Expected return on plan assets 6,847 126Actuarial losses (26,031) (156)Contributions by employer 7,777 412Contributions by members 2,053 105Benefits paid (1,482) (60) At 31 March 83,457 2,667 Expense recognised in the income and expenditure account 2009 2008 £’000 £’000 Current service cost 6,600 211Losses on settlements and curtailments 430 -Past service cost 270 -Interest on defined benefit pension plan obligation 7,458 126Expected return on defined pension plan assets (6,847) (126) Total 7,911 211


38

NOTES TO FINANCIAL STATEMENTS Note 14 (CONT’D) The expense is recognised in the following line items in the income and expenditure account: 2009 2008 £’000 £’000 Administration expenses 584 78Operational expenses 6,716 133Finance costs 611 - 7,911 211 The total amount recognised in the statement of total recognised gains and losses in respect of actuarial gains and losses is a net loss of £1,943,000 (2008: loss £237,000) The fair value of the plan assets and the return on those assets were as follows: 2009 2008 Fair value Fair value £’000 £’000 Equities 59,508 1,067Government debt 7,009 560Corporate bonds 7,344 667Property 7,009 347Other 2,587 26 83,457 2,667 Actual return on plan assets 2,795 (30) The expected rates of return on plan assets are determined by reference to the historical returns, without adjustment, of the portfolio as a whole and not on the sum of the returns on individual asset categories. Principal actuarial assumptions (expressed as weighted averages) were applied on a consistent basis across the five schemes and at the year end were as follows: 2009 2008 % % Discount rate 6.85 5.80Expected rate of return on plan assets

• Equities 7.20 7.50• Government debt 4.20 4.50• Corporate bonds 6.70 6.90• Property 5.20 5.50• Other 0.50 5.20

Future salary increases 5.00 3.00Price inflation 3.50 3.60Future pension increases 2.50 2.50


39

NOTES TO FINANCIAL STATEMENTS Note 14 (CONT’D) In valuing the liabilities of the pension funds at 31 March 2009, mortality assumptions have been made as indicated below. If life expectancy had been changed to assume that all the members of the fund lived for one year longer, the value of the reported liabilities at 31 March 2009 would have increased by £2.1 million before deferred tax. The assumptions relating to longevity underlying the pension liabilities at the balance sheet date are based on standard actuarial mortality tables and include an allowance for future improvements in longevity. The assumptions are equivalent to expecting a 60-year old to live for a number of years as follows:

• Current pensioner aged 60: 25.5 years (male), 28.1 years (female) • Future retiree upon reaching 60: 27.5 years (male), 30 years (female)

History of plans The history the plans for the current and prior periods are as follows: 2009 2008 2007 2006 2005Balance Sheet £’000 £’000 £’000 £’000 £’000 Present value of scheme liabilities (101,180) (2,659) (2,196) (2,010) (1,370)Fair value of scheme assets 83,457 2,667 2,240 1,822 1,259 (Deficit)/surplus (17,723) 8 44 (188) (111) 2009 2008 2007 2006 2005Experience adjustments £’000/% £’000/% £’000/% £’000/% £’000/% Experience adjustments on scheme liabilities (as a percentage of scheme liabilities)

13,543 13%

(106) (6%)

162 7%

(61) (3%)

(87) (6%)

Experience adjustment on scheme assets (as a percentage of scheme assets)

(26,031) (31%)

(156) (4%)

(14) (1%)

98 5%

14 1%

(12,488) (262) 148 37 (73) The net pension liability of £17.7 million consists of the following: £’000 Skills Development Scotland Retirement Benefits Scheme 496Strathclyde Pension Fund 10,111Scottish Enterprise Pension and Life Assurance Scheme 5,219Highland Council Pension Fund 1,348Highlands and Islands Superannuation Scheme 549 Net pension liability 17,723


40

NOTES TO FINANCIAL STATEMENTS Note 15 INCOME AND EXPENDITURE ACCOUNT Restated Group Company Group Company 2009 2009 2008 2008 £’000 £’000 £’000 £’000 Deficit for the year (18,837) (19,058) (578) -At 1 April 2008 3,336 - 3,914 -At 31 March 2009 (15,501) (19,058) 3,336 - Note 16 LEASE OBLIGATIONS Leasehold

premises

Other Leasehold premises

Other

2009 2009 2008 2008 £’000 £’000 £’000 £’000 Lease term expires: Within one year 214 - - -Between the second and fifth year 618 - 290 -After five years 831 - - - 1,663 - 290 - The above relate to obligations in respect of leasehold property. Note 17 NOTES TO CASH FLOW STATEMENT Restated 2009 2008 £’000 £’000(a) Reconciliation of operating (deficit)/surplus to net cash flows from operating activities (Deficit)/surplus on ordinary activities before interest and tax (1,289) (535)Depreciation charges 244 263Loss on disposal of fixed assets - 1(Increase) in debtors (3,650) 517Increase in creditors 7,124 (516)Increase in provisions 1,718 -Actuarial adjustment in year 134 (166)Net cash outflow from operating activities 4,281 (436) (b) Reconciliation to net (debt)

Restated

As at 1 April 2008

£’000

Cash flow £’000

Acquisition (excluding

Cash and overdrafts)

£’000

Other

non-cash changes

£’000

As at 31 March 2009

£’000 Cash in hand and at bank 3,648 1,807 2,414 - 7,869Debt due after 1 year (271) - - 111 (160)Debt due within 1 year (1,029) 9,204 (6,030) (10,448) (8,303) 2,348 11,011 (3,616) (10,337) (594)


41

NOTES TO FINANCIAL STATEMENTS Note 17 (CONT’D) 2009 2008 £’000 £’000 (c) Reconciliation of net cash flows to movements in Net Funds’ Net Funds at start of Period as restated 3,648 4,078Movement in Net Funds in the Period 4,221 (430)Net Funds at end of period 7,869 3,648 Note 18 ULTIMATE CONTROLLING PARTY The ultimate controlling party in The Skills Development Scotland Co. Limited is the Scottish Ministers. Note 19 RELATED PARTIES Skills Development Scotland is an executive non-departmental public body, sponsored by the Scottish Government – Education and Lifelong Learning Department which is regarded as a related party. During the period, Skills Development Scotland has had various material transactions with the Scottish Government. Grant-in-aid received from the Scottish Government during the year amounted to £176.9 million (2008: £12.5 million). Note 11 to the financial statements, regarding creditors payable within one year, includes a figure of £30,000 (2008: £nil) relating to deferred income for grant funding and £nil (2008: £53,051) for deferred income for amounts invoiced related to funding from the Scottish Government. Consultancy fees of £37,780 (2008: £nil) were charged by Rocket Science UK Ltd a company in which the Skills Development Scotland chairman W Roe was a shareholder. All shares were sold by 30 June 2009. Total outstanding at 31 March 2009 is £19,505 (2008: £nil). All transactions are conducted at arms length and in accordance with normal project and programme rules. National Training Programme payments of £105,072 were charged by Ayrshire and Arran Health Board, of which W Stevely is the chairman. Total outstanding at 31 March 2009 is £nil. All transactions are conducted at arms length and in accordance with normal project and programme rules. National Training Programme payments of £642,121 were charged by Glasgow South East Regeneration Agency, of which A McGregor is a non-executive director. Total outstanding at 31 March 2009 is £38,584. All transactions are conducted at arms length and in accordance with normal project and programme rules. Note 20 2007-08 COMPARATIVES The group income and expenditure account for the year ended 31 March 2008 presented as comparatives in these financial statements includes income and expenditure received and incurred by:

• The parent company, The Skills Development Scotland Co. Ltd; • Its wholly owned subsidiary, Scottish UfI Limited; and • Careers Trust Scotland Limited, a charity transferred to The Skills Development Scotland Co. Ltd from Scottish Enterprise

under Machinery of Government regulations following transfer of control between the same two entities during 2008-09. The table below reconciles the income and expenditure account previously presented by The Skills Development Scotland Co. Ltd in its 2007-08 financial statements and the comparative income and expenditure presented in these financial statements.


42

NOTES TO FINANCIAL STATEMENTS Note 20 (CONT’D) Skills

Development Scotland

Scottish UfI

Limited

Careers Trust Scotland Limited

Consolidation

adjustments 2007-08

Comparatives Turnover 12,623 13,457 20 (12,623) 13,477 Cost of Sales - (852) - - (852) Gross Surplus 12,623 12,605 20 (12,623) 12,625 Operating Expenditure (12,624) (6,063) - 12,624 (6,063) Administrative Expenses - (6,229) (868) - (7,097) Operating Surplus/(Deficit) (1) 313 (848) 1 (535) Other interest receivable and similar income

1

44

204

(1)

248

Interest payable and similar charges - - - Notional cost of capital - 73 - - 73 (Deficit)/Surplus on ordinary activities before taxation including notional cost of capital

-

430

(644)

-

(214) Reversal of notional cost of capital - (73) - - (73) (Deficit)/Surplus on ordinary activities before tax

-

357

(644)

- (287)

Taxation on results of ordinary activities

-

(101)

-

-

(101)

(Deficit)/Surplus on ordinary activities after tax

-

256

(644)

-

(388)

Consolidation adjustments eliminate transactions between the three organisations.


43

NOTES TO FINANCIAL STATEMENTS Note 20 (CONT’D) The group balance sheet presented as comparatives in these financial statements includes the assets and liabilities of Careers Trust Scotland Limited at 31 March 2008, which were:

Careers Trust Scotland Limited

£’000 CURRENT ASSETS Cash at bank and in hand 3,350 3,350CREDITORS Amounts falling due within one year (2)

(2)

NET CURRENT ASSETS 3,348 On 1 April 2008 Scottish UfI Limited transferred assets, liabilities and trading activities to The Skills Development Scotland Co. Limited, as shown in the table below:

Scottish UfI Limited

£’000 FIXED ASSETS Tangible fixed assets 335 CURRENT ASSETS Debtors 799Cash at bank and in hand 296 1,095 CREDITORS Amounts falling due within one year (1,177)

NET CURRENT LIABILITIES (82) TOTAL ASSETS LESS CURRENT LIABILITIES 253 CREDITORS Amounts falling due after more than one year (271) NET LIABILITY EXCLUDING PENSION SCHEME ASSET (18) Pension Scheme Asset 6 NET LIABILITY INCLUDING PENSION SCHEME ASSET (12) Note 21 SUBSIDIARY UNDERTAKINGS

The principal undertakings in which the Group’s Company’s interest at the year end is more than 20% are as follows: Country of

incorporation

Principal activity Class and percentage of

shares held Subsidiary undertakings Scottish UfI Limited

Scotland

The stimulation of demand for, and simplification of access to, lifelong learning for individuals and businesses throughout Scotland.

100% of issued ordinary share capital

Careers Trust Scotland

Scotland

Provision of careers guidance and information to the people of Scotland

No share capital

The group financial statements consolidate the results of both organisations. The year end of both organisations is 31 March.


44

NOTES TO FINANCIAL STATEMENTS Note 22 FINANCIAL INSTRUMENTS Skills Development Scotland has exposure to the following risks from the use of financial instruments:- Liquidity risk Credit risk Market risk Liquidity risk Liquidity risk is the risk that Skills Development Scotland will not be able to meet its financial obligations as they fall due. The organisation’s approach to managing liquidity is to ensure that it will have sufficient liquid funds to meet its liabilities as they fall due. Skills Development Scotland’s primary source of funds is the Grant in Aid provision from the Scottish Government. Skills Development Scotland has no debt or borrowing facility with any external party. Liquidity is managed by the use of the annual operating plan process and the monitoring of actual performance against budgets and forecasts. The table below details the contractual maturities of financial liabilities. Carrying

Amount Contractual

Cashflows Within one

year After more

than one year £’000 £’000 £’000 £’000Financial liabilities Trade and other payables 10,331 10,331 8,303 2,028 10,331 10,331 8,303 2,028 Credit risk Credit risk is the risk of financial loss to Skills Development Scotland if a customer or counter party fails to meet its contractual obligations and arises from the trade receivables. Skills Development Scotland carries out appropriate credit checks on potential customers before significant sales transactions are entered into in order to mitigate the credit risk Skills Development Scotland will have from any single counterparty. The maximum exposure to credit risk is represented by the carrying value of each financial asset in the balance sheet. Skills Development Scotland operates a debt management process including monitoring, escalation procedures and recourse to court action to recover monies outstanding. Provision is made for doubtful receivables upon the age of the debt and experience of collecting overdue debts. Cash and cash equivalents are held with banks which are not expected to fail. The maximum exposure to credit risk at the reporting date was:- 2009

Carrying Amount 2008

Carrying Amount £’000 £’000

Financial assets Trade and other receivables 4,447 797Cash and cash equivalents 7,869 3,648

12,316 4,445 There was no impairment provision in respect of financial assets. Market risk Market risk is the risk that market prices such as interest rates, foreign exchange rates and equity prices will affect income or the value of holdings in financial instruments.


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NOTES TO FINANCIAL STATEMENTS Note 22 (CONT’D) Currency risk Skills Development Scotland operates predominately in Scotland and the UK and is therefore considered not to be exposed to currency risks. Fair values The fair values, together with the carrying amounts of financial assets and liabilities in the balance sheet are as follows:-

2009

Carrying Amount2009

Fair Value2008

Carrying Amount 2008

Fair Value £'000 £'000 £'000 £'000 Trade and other receivables 4,447 4,447 797 797Cash and cash equivalents 7,869 7,869 3,648 3,648Trade and other payables (10,331) (10,331) (1,450) (1,450) 1,985 1,985 2,995 2,995

Estimation of fair values The following methods and assumptions were used to estimates fair values:-

Trade and other payables Fair value deemed to be the same as book value Cash and cash equivalents Fair value deemed to be the same as book value Trade and other payables Fair value deemed to be the same as book value


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Appendix 1

skills development scotland parliamentary account · 2015-10-08 · 93.5% of our customers state...

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