Regulars will know that we have challenged Creative Scotland (CS) over its funding of unviable private company Sandstone Press.
Sandstone is CS’s most-funded publisher. CS, and its predecessor SAC, have subsidised it annually since 2006. Together they have added £0.41m to Sandstone’s balance sheet, only for Sandstone to lose £0.34m of that.
CS gave Sandstone £30k on 3 April 2019 despite assessing that 40% of the components of its application could not be funded.
False claim re non-exec
In May 2020, Sandstone’s former non-exec, Jenny Todd, claimed to be its current non-exec. That mirrored the company’s claim, which remained on its website from 31 Jan 2019 (date Jenny Todd resigned) until June 2020. During that time, Sandstone was awarded £30k by CS and a £0.175m loan facility by HIE.
Jenny Todd resigned 2+ months before CS approved Sandstone’s application. Not that that stopped CS citing her as mitigation for Sandstone’s huge losses. She would, CS claimed, ensure accountability and governance. She could not; she was not a director and not entitled to see its management accounts. HIE part-funded Jenny Todd’s non-exec role until 5 weeks before agreeing its facility.
Jenny Todd is a member of the Creative Industries Advisory Group, which is co-chaired by Scotland’s Culture Secretary Fiona Hyslop. Ms Hyslop has Cabinet responsibility for both CS and HIE. Her department has detailed evidence of the false claims but has refused to act. Jenny Todd remains the literature representation of the CIAG.
Sandstone’s FD had already resigned (30 Oct 2018) and sold his shares. Yet Sandstone told Companies House that no updates were required for its 2019 Confirmation Statement. Updates were required: there had been significant changes to its ownership.
CS also knew that Sandstone was in another cash flow crisis. Publishing Scotland warned CS that a failure to fund Sandstone’s Autumn-2018 application would result in board changes at the company.
(For the avoidance of doubt, we are criticising only the quality of Sandstone’s application and Creative Scotland’s assessment thereof, not the authors or their works.)
Sandstone committed to notifying CS of changes to the facts or context of its application. Instead, it covered up the resignation of its only non-executive director.
CS considered 40% of application unfundable
Of the application’s 10 components:
- CS excluded 4 as unfundable. One sought cash to promote the profile of Sandstone owner-director Moira Forsyth
- 2 more were ineligible. One sought £3k to promote author Daniel Shand. He had no new title being published and no marketing plan was submitted, so CS could not assess this element. It funded this element regardless
- 2 were of questionable eligibility
CS rated the application Strong (3/4) for Quality. It merited 1/4 (Limited).
Public benefit
- CS did not believe the maths that underpinned Sandstone’s ‘Readership’ numbers
- The application makes no mention of author appearances
CS rated it 3/4 for Public Engagement. It merited 1/4 (Limited).
Management
- Sandstone’s two directors had overseen the loss of £0.34m+ of public money.
- Its FD had resigned. In its written assessment, CS told its Funding Panel: ‘A replacement Financial Director will be appointed in Spring 2019.’ No replacement was appointed. CS’s FD then falsely claimed, in response to our complaint, that its assessment did not mention of a successor.
- On its website, Sandstone was covering up the resignation of its non-exec director.
- Its Companies House filings regarding its ownership were inaccurate and misleading.
- CS had written evidence that the company was in the midst of yet another cash crisis, on top of a previous crisis in 2018.
CS rated the application 2/2 for Management on a scale of 0-2. Begging the question: what do 0 and 1 look like?
Financial risk
- Sandstone’s net assets had reduced by £0.92m (pre-CS funding) in its last accounts
- It made substantial losses in the previous two years even with CS funding
- The only mitigation provided was Sandstone’s non-exec, whose resignation the company covered up until June 2020. Companies House filings evidenced her resignation
- This was a High Risk project that CS’s Staff Handbook required rating as 0/2
- That would have made it extremely difficult to fund, so CS ignored reality.
CS ignored the evidence and their knowledge of the company and miscategorised the application Medium Risk (1/2 on a 0-2 scale).
1 year later, Sandstone required another £70k bailout. The company was unviable and in severe financial difficulty even before the pandemic, both of which made it ineligible for a Pivotal Enterprise Resilience Fund (PERF) award. However, HIE had almost no security for its loan and was at severe risk of having to write it off less than a year after extending it, so HIE made the award anyway. Since it has a floating charge over the company’s assets, it effectively awarded itself the £70k and so had a conflict of interest.
Overall
Sandstone’s application to CS merited 2/12 as submitted. That did not work for CS, whose Director of Creative Industries, Clive Gillman, was, emails show, being pressured by HIE to provide the company with desperately-needed cash. CS needed the application to be scored a minimum of 7 to be recommended for funding. To be absolutely certain, it awarded 9/12 and told its Funding Panel a story that attempted to justify that score and presenting the company’s false claims as fact.
CS funded Sandstone despite its application and what it knew of the company, not because of it. Of course, it had contributed to the company’s strategy day (along with with HIE) before the same member of staff assessed the resulting application.