The chief executive of Scotland’s water regulator has quit after the public spending auditor has found "unacceptable use" of public funds by senior officials at the water industry watchdog.
Audit Scotland said that the Water Industry Commission for Scotland needed retrospective approval from the Scottish Government for around £80,000 of spending including £77,350 for the chief operating officer, Michelle Ashford to attend a training course at Harvard Business School in Boston, USA.
Also under question was a spend of £2,600 on £100 Christmas gift vouchers for each member of staff.
The auditor identified "widespread issues" with expense claims being submitted and approved without supporting itemised receipts.
The expenses claims exceeding set rates were found to have been submitted and approved without itemised receipts, including by the chief executive Alan Sutherland. One claim was for a dinner where the cost per head exceeded £200 per person. This, and other claims, included the purchase of alcohol, the audit said.
READ MORE: Nearly £1m in bonuses paid out to three Scottish Water execs
Audit Scotland said that the the financial management and governance issues found at the commission, which is the economic regulator of Scottish Water, fell "far short of what is expected of a public body".
It said that it was only once the issues were identified and reported by the auditor that retrospective approval was sought and received from the Scottish Government.
Now it has been confirmed that Alan Sutherland would be standing down with “immediate effect”.
The public spending regulator said immediate action was required to address the issues and "promote a culture of best value across the organisation".
Stephen Boyle, the Auditor General said: "I am concerned that this amount of public money was spent without due process being followed or a clear assessment being undertaken to demonstrate that this expenditure represented value for money."
Audit Scotland said the Water Industry Commission for Scotland should have got approval from the Scottish Government for the cost of the training course. It said approval has to be sought for any service above £20,000 that has not been awarded through a competitive tender exercise.
It highlighted an example of expense claims being submitted and approved without supporting receipts involving the chief executive. The cost per head claimed for a dinner he attended exceeded £200 per person, despite the approved limit in the case being £25.
It said the Commission’s delegated limit for gifts is £75, which is the requirement of the Scottish Public Finance Manual. Gifts over this amount should have been approved by the Scottish Government.
It said the Christmas gift vouchers also represented a non-salary reward and should have been treated as a taxable benefit.
The associated £1,133 of tax and national insurance payments were eventually paid by the commission to His Majesty’s Revenue and Customs (HMRC).
Audit Scotland said "unusually" for a public body, the commission’s existing policies do not explicitly prohibit the purchase of alcohol as a business expense. It said the commission should introduce clear guidance on what is deemed to be acceptable in this regard.
The auditors said that on November 3, 2023, the deputy director of the Scottish Government’s Water Policy Division - the Commission’s sponsor department - provided retrospective approval for the expenditure.
Audit Scotland said: "Management should ensure that all expenditure incurred is in accordance with the requirements of the Commission’s Finance Policies and Guidelines, and the rules and guidance set out in the Scottish Public Finance Manual (SPFM). Where there is any dubiety as to whether this is the case, approval should be sought from the sponsor division prior to the expenditure being incurred.
Mr Boyle added: “Value for money should always be central to public bodies’ spending decisions.
“But these findings highlight unacceptable behaviour by senior Commission officials in the use of public funds.
"I expect appropriate action to be taken to address the issues reported by the auditor.”
The commission employs 26 staff and incurred expenditure of £4.036 million during 2022/23 - with 67% relating to staff costs.
It received income of £5.288 million during the year, including levy income of £2.279 million from Scottish Water and £1.718 million from licensed providers, and £1.185 million from international work related to the Scottish Government’s Hydro Nation strategy.
It comes a month after the Herald revealed three executives of Scottish Water received nearly £1m in bonuses in the past five years - despite public sector pay rules that suspended the payments.
Three key executives of Scottish Water, Douglas Millican, Peter Farrer and Alan Scott, between them pulled in £969,000 in performance bonuses on top of six-figure salaries.
Scottish Labour Deputy Leader Jackie Baillie said the astounding report "lays bare a shocking culture of financial mismanagement and waste in the Water Industry Commission for Scotland".
She added: “It beggars belief that this body has been frittering away public money with abandon as it hits Scots with one recommended water rate hike after another.
“I have raised the Water Industry Commissioner’s world-wide travel and accumulation of air miles before with the SNP Government but it’s clear they haven’t bothered to stop this misuse of public money.
“It is essential that this frivolous spending is reigned in and public finances are treated with respect.”
It comes despite the Scottish Government's public sector pay policy rules maintaining a suspension of performance related bonuses for over seven years.
State-owned Scottish Water, is included amongst the list of bodies, including Scottish Government's core directorates, its associated departments, agencies and corporations that the pay policy applies to. Other state-owned firms such as CalMac and Ferguson Marine are not included on the list.
The Scottish Government said ministers have approved the bonus payments and revealed Scottish Water had a longstanding exemption from the rules.
In a statement, a Scottish Government spokesman said: “The Scottish Government is clear that the failings identified in the auditor general’s report are completely unacceptable.
“Wics’ chief executive is stepping down with immediate effect and has tendered his resignation.
“Wics will now submit an action plan outlining how they will deliver on the auditor general’s recommendations and we will play our part in ensuring that all of the recommendations are implemented without exception.”
The Water Industry Commission for Scotland did not mention the chief executive's departure in its response to Audit Scotland's findings.
A spokesman said: “We acknowledge and accept the Auditor General for Scotland’s Section 22 report on our Annual Report and Accounts for 2022/23 and the issues highlighted in the report. We take the Auditor General’s findings seriously and will work with Audit Scotland and the Scottish Government to address these.
"This is a priority for the organisation. We are in the process of putting robust and thorough policies and procedures in place and will implement these in conjunction with Audit Scotland and the Scottish Government.”
WICS is responsible for determining the level of revenue Scottish Water needs to collect through customer charges in order to deliver the objectives set for it by Scottish Ministers.
It has a duty to determine the ‘lowest reasonable overall cost’ that Scottish Water will have to incur to meet ministers’ environmental, quality and service objectives for the industry.
The post of Water Industry Commissioner for Scotland was created in 1999 and Alan Sutherland was appointed to the role.
His remit was to advise the then Scottish Executive on the charges that the water authorities could and should set for their customers.
After the Water Industry (Scotland) Act (2002) the Commissioner continued in this advisory role, though this time it was the newly formed Scottish Water that he would advise.
Since the Water Services (Scotland) Act (2005) power to shape the future of water provision was transferred to the WICS.
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