THE public spending watchdog has refused to sign off the accounts of the quango in charge of Scotland’s inland waterways because of a £51million “flaw” in its finances.

Audit Scotland said it had taken the “very unusual step” of issuing an accuracy disclaimer because of multiple concerns about the finances of Scottish Canals.

The watchdog said the way Scottish Canals recorded and valued its assets meant they could not be sure if the 2020/21 accounts contained “material misstatements”.  

The £20-m-a-year quango falls under SNP transport secretary Michael Matheson. 

It is is responsible for the maintenance, management and development of Scotland's five canals - the Forth & Clyde, Union, Monklands, Crinan and Caledonian - plus their associated land and property assets. 

Scottish Canals last year changed from being a public corporation to a quango, and so had to follow new HM Treasury rules on valuing its waterways and infrastructure.

Although it conducted the required valuations for investment properties, land and buildings, it failed to get valuations for around £51 million of specialist assets including the Helix park and landscape at the Kelpies, dredging equipment, lock gates and canal basin widening works.

These assets had not been valued before. 

A subsequent valuation, aimed at estimating the cost of replacing these assets in their current condition and existing use, then raised further concerns about the accuracy of Scottish Canal's fixed asset register.

Concerns were raised about the qualification of the valuer chosen by Scottish Canals, items being recorded as assets which were not assets, and assets being recorded without proof of ownership.

This forced auditors to “issue a disclaimer of opinion on the accuracy of Scottish Canal's financial statements”. 

Auditors also questioned some "management judgments" at Scottish Canals, inlcuding recording maintenance work as capitalising expenditure, such as repairing existing towpaths where it was "difficult to identify" the creation of any new asset.

The auditor concluded some revenue expenditure had therefore been misrecorded, and while "unable to quantify the value of affected exepnditure... concluded it was likely to be material."

Audit Scotland said turnover in Scottish Canals' finance team during 2020/21 increased the challenge of fully adopting the HM Treasury ules that newly applied to it. 

A new valuation of the canal infrastructure estate “in its entirety” is due in 2022. 

Th watchdog said it would be “a substantial piece of work” but was necessary to support Scottish Canals' medium-term financial strategy and asset management strategy.  

Auditor General for Scotland Stephen Boyle 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." 

A spokesperson for Scottish Canals said: “From 1 April 2020, Scottish Canals had to change the way it prepares its Annual Report & Accounts in line with the Government Financial Reporting Manual (FReM) and this led to our 2020/21 accounts being restated.

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

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

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

"Once this is in place it will inform the way we prepare our Annual Report & Accounts going forward.”