THE Scottish Government has "substantially reduced" the value of £140 million worth of loans and guarantees to private companies over the past year, the public spending watchdog has said.

In a report published by Audit Scotland, it was revealed loans totalling £45m to Ferguson Marine Engineering Limited (FMEL) – the shipyard in Port Glasgow that faced financial difficulties – were reduced to nil in value at the end of the financial year.

It also highlighted an equity stake of £37.4m in mothballed engineering firm BiFab was reduced to £2m to reflect expected losses.

A £39.9m loan to struggling Prestwick Airport was also reduced to £6.9m, while a £21.4m fee for providing financial guarantees to Lochaber Aluminium Smelter was reduced to nil to reflect new accounting standards.

The watchdog noted improvements have been made to the Scottish Government's governance arrangements in the last year but said a commitment to publishing a consolidated account covering the whole of Scotland's public sector had not been fulfilled.

It added that the Scottish Government's second medium-term financial strategy "lacks indicative spending plans and priorities".

READ MORE: Here's a brief history of the Ferguson shipyard controversy

Caroline Gardner, Auditor General for Scotland, said: "The Scottish Government's financial reporting has taken a step backwards at a time when the uncertainty surrounding EU withdrawal will pose unprecedented challenges for the management of public finances.

"Parliament needs better information to be able to better scrutinise ministers' financial decision-making and to ensure value for money is achieved from a limited budget pot."

She continued: "There is a lot more work to be done to manage Social Security Scotland's current reliance on the DWP.

"More complex and costly benefits are due to be delivered by the agency over the next few years, which increases the potential impact of error and fraud.

"The agency needs to think about what arrangements will be needed to manage that scenario."

Finance Secretary Derek Mackay said the Scottish Government is continuing to operate in a "challenging financial climate".

"For the 14th consecutive year, the Scottish Government's accounts were given a clean bill of health by Audit Scotland, who highlighted our budget management was effective in managing total spending within the limit set," he said.

"We continue to operate in a challenging financial climate as Brexit and the increasing risk of a No-Deal scenario remains the biggest threat to our economy and public finances as we take steps to try and mitigate the impact of such an outcome.

"Under the current devolution settlement, the Scottish Government is not permitted to overspend its budget.

"As a consequence, we have consistently adopted a position of controlling expenditure to ensure we live within the budget caps that apply while maximising spending on public services.

"Any money which is underspent in a financial year is carried forward in full into the next year and is invested in public services."