Scottish Government auditors are investigating the ability of Highlands and Islands Enterprise (HIE) to run the Cairngorm ski area and questioning the organisation’s valuation of the resort’s failed funicular railway.
The issues are among “key audit risks” identified for Audit Scotland’s annual independent review of the development agency’s “financial health and performance.”
Other areas being examined by the official auditors include the impact of an “ongoing HMRC VAT investigation” at HIE, the organisation’s readiness for the effects of Brexit and its cyber security arrangements.
HIE awarded Natural Retreats UK a 25-year contract to run Cairngorm in 2014. Last December the Scottish Government-funded agency stepped in to manage the resort when the leisure company placed its subsidiary that operated it, CairnGorm Mountain (CML), into administration, citing “unsustainable cash flow problems.”
CML’s collapse followed the discovery last October of structural problems on the funicular, which has kept the railway out of action since.
Staff and assets of the failed firm were transferred to a new company, Cairngorm Mountain (Scotland) Ltd (CMSL), set up by HIE in November to keep the resort operating, with support of HIE staff. The agency, which owns the Cairngorm Estate and the funicular which was opened at a cost of £26million in 2001, is still considering engineering reports on the problems in the railway’s support structures.
Audit Scotland says it identifies main audit risks at public bodies in discussions with staff, attendance at committee meetings and by reviewing supporting information.
In a document setting out key audit risks identified for its review of HIE’s activities in the 2018/19 financial year, the body said of the CMSL operation: “There is a risk that the finance team will not have the capacity or skills required to deliver the annual accounts to the agreed timetable and that the complex transactions will not be accounted for correctly.”
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It also states: “There is a risk that the funicular’s asset valuation is materially misstated in the accounts.”
Audit Scotland said it would examine HIE board papers relating to the establishment and operation of CMSL, review the accounting treatment for the new subsidiary and “test the impact” on group accounts. It added it would also review board papers on the funicular, including the structural review, and carry out “substantive testing of asset valuation included within the accounts, including impairment reviews.”
It also flagged up that: “The ongoing HMRC VAT investigation continues to put pressure on the finance team.”
In a “sources of assurances” section in the document, it states: “HIE are currently reviewing and updating the lease with Cairngorm Mountain (Scotland) Ltd. This will be informed by independent professional advice which will also consider the implication for asset valuation.”
A number of measures HIE has taken to address issues relating to its financial management capacity following last year’s Audit Scotland audit are also set out.
The audit body is due to report the findings of its latest audit to ministers early next year and declined to comment yesterday.
HIE’s annual accounts for the 2018/19 year are not yet available and the agency has not published any minutes from its regular board meetings this year.