Audit finds asset valuation flaws at Scottish Canals

The 2020/21 audit of Scottish Canals

Flaws found in the way the public body in charge of Scotland's inland waterways recorded and valued its assets meant auditors could not give an opinion on its accounts.

Scottish Canals' status changed from a public corporation to a non-departmental public body in 2020/21. That change came with a requirement to follow HM Treasury's accounting guide, including the methodology to be used to value the canal infrastructure and inland waterways.

Although the required valuations for investment properties and land and buildings were conducted, auditors found that Scottish Canals did not get valuations for around £51 million of specialist assets. These included dredging equipment, lock gates and canal basin widening works. A subsequent valuation, aimed at estimating the cost of replacing these assets in their current condition and existing use, then raised concerns about the accuracy of Scottish Canal's fixed asset register, amongst other valuation flaws. This meant auditors had to issue a disclaimer of opinion on the accuracy of Scottish Canals' financial statements, a very unusual step.

Turnover in Scottish Canals' finance team during this period increased the challenge of fully adopting HM Treasury's accounting rules associated with its changed status. A new valuation process of the canal infrastructure estate in its entirety will now be undertaken during 2022. It is a substantial piece of work but necessary to support Scottish Canals' medium-term financial strategy and asset management strategy.

Stephen Boyle, Auditor General for Scotland, said:

Scottish Canals' core role is to manage infrastructure assets. To plan effectively for the future, it is clearly important that Scottish Canals has a robust record of those assets and their values.

Scottish Canals’ Board must also be able to satisfy itself that the body has sufficient skills and capacity to deliver the valuation project, and provide the appropriate support to ensure it is delivered to plan.