Highlands and Islands Enterprise: financial management review of Cairngorm Mountain

4. Conclusions & recommendations

4.1 In 2018, Natural Retreats faced a confluence of circumstances that ultimately led to the directors deciding to put the company into administration. It is not possible to determine if this was avoidable. Facing the loss of an operator for the Cairngorm resort, HIE officials should be commended for ensuring business continuity in difficult circumstances. HIE officials are now working to develop a long-term sustainable business model for Cairngorm. With this in mind there are several lessons learned which should be considered to inform this process.

Recommendation

R1 - Application of procurement moderation

Comment

While we acknowledge that the qualitative moderation undertaken during procurement was allowable under the terms of the procurement and provided for in the tender documentation, given the judgement applied we believe that there should have been a clearly documented reasoning as to why the moderation was applied alongside documentation of any risks which the moderation resulted in. This should have gone beyond consideration of whether it is possible and consider why it is the right action to undertake in the circumstances.

Therefore we recommend that HIE ensure in future there is full documentation of the reasoning behind any key judgements applied during procurement.

Recommendation

R2 - Assessment of security and residual risks

Comment

We recommend that, where a security package is put in place, HIE ensures there is adequately documented consideration of the balance of risks which the package mitigates and those which remain with HIE. This is of particular importance where there is a potential for a significant impact on HIE's and the wider public finances. We would expect in future for HIE to develop a plan to address the residual risks sitting with themselves and to implement this during the contract management phase.

Recommendation

R3 - Ongoing assessment of financial standing and guarantees

Comment

We recommend that HIE put processes in place to ensure that financial standing of providers is monitored on a regular basis to allow for early intervention in the event that a provider faces financial difficulties. Alongside regular assessment of financial standing, there should be a regular consideration of the appropriateness of any security package obtained to ensure its continuing fitness for purpose. This is particularly relevant where the financial standing has been previously identified as a concern during procurement.

Recommendation

R4 - Financial scrutiny of operator costs

Comment

We recommend that HIE puts processes in place to ensure that there is an appropriate level of financial scrutiny (and acted upon by appropriately qualified officers) applied to ongoing operating costs. This will allow HIE officials and the board to gain assurance that costs are appropriate for the activities undertaken and no profit leakage is occurring.