Scotland ignored by WICS financial watchdog in US training scandal

Retrospective approval was given by the Scottish Government to the Water Industry Commission for Scotland (WICS) for a run of "unacceptable" spending including Christmas gift perks given to staff.

It further emerged that a senior official at the Scottish Government in signing off on the spending said he was "content with the appropriateness of the nature of the spend" and that he was "content to agree retrospectively the procurement approach".

Audit Scotland sources have said that the potential providers that were identified were Harvard, Stanford and Yale universities in the US.

READ MORE: WICS: Scots financial watchdog paid £10k on two US flights for exec

And the public spending auditors have said they would have expected that there would have been a much wider range of alternatives at a much lower cost than the option that was ultimately arrived at.

The auditors have taken the view that there were "multitude of options available in Scotland, and elsewhere in the UK, that could have provided the type of management development and training that was being sought.

WICS also got 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. The costs included two£5000 return flights to the US.

WICS went to the Scottish Government for support for the spending on November 2, after it was highlighted by Audit Scotland and was described as an "oversight".

It was confirmed just before Christmas that chief executive Alan Sutherland had left his role with immediate effect after Audit Scotland found "unacceptable use" of public funds by senior officials at the water industry watchdog.

The Scots water industry financial watchdog is expected to use public funds to settle the personal tax issues as a result of the spending.

The auditors identified "widespread issues" with expense claims being submitted and approved by the WICS without supporting itemised receipts.

The expenses claims exceeding set rates were found to have been submitted and approved without itemised receipts, including by Mr Sutherland.

Audit Scotland has 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".

The approval of the WICS spend came after it sought approval for Christmas gift vouchers during the previous festive period worth £2,500 and the chief operating operating officer's American training course.

In approving the expense, Jon Rathjen, the Scottish Government's deputy director of water policy said: "On the Christmas gifts, I accept this was an oversight and do not think it is proportionate to try and recover the balance but would highlight that any such gift going forward must be contained within [an] agreed threshold."

The email to the then chief executive Alan Sutherland seen by the Herald went on: "On the training costs, I rather agreed that this is a unique training offering and can see why a single tender approach and as such despite board being aware it would have been appropriate to inform the Scottish Government.

"As I imply, had I been informed, I would have agreed with the approach as I think this is not something where open tender would have returned better value given the very specific nature of courses in this field.

"Due diligence had been carried out and the most suitable product selected and as such, given the board was content with the appropriateness of the nature of the spend, I am content to agree retrospectively to the procurement approach."

WICS has come under scrutiny for expenditure including the chief operating officer's training course and a series of perks given to staff including leaving lunches and birthday and Christmas gifts. Some £2,600 was claimed to provide every staff member with a £100 gift card for Christmas.

One of the latest concerns surrounded Mr Sutherland entertaining a representative of the New Zealand water industry at the award-winning Champany Inn in Linlithgow in October, 2022. Auditors say there was no submitted receipt for the spending so there was no way of knowing what the split was between food and drink.

Donald MacRae, the WICS chairman has told the Scottish Parliament public audit committee that the resignation of the chief executive had allowed it to achieve a "change of culture and a rapid refocus on value for money".

But he also has told MSPs that sending people abroad to conferences was acceptable as the agency generated 22% of its income from international consultancy.

He said that attendance builds up a reputation and added: "We are continually asked to host visiting delegations in other countries to see how we do it."

He said he would be seeking clarification from Scottish Government on what what was an appropriate for a public body to do when it is tasked with developing external income.

"WICS is a small public body operating in a very complex and specialized area and we do find it difficult to compete on salaries with the private sector and actually to retain staff. And our staff are frequently subjected to approaches, to being poached actually," he said.

"Now we recognize that our staff are our most important asset and we take the view that we have to invest in them and we have to invest in them by offering advanced management training.

"Now, in this case that you've referred to the Harvard business training, we accept completely that the value for money was not fully demonstrated and the business case was inadequate.

"So how do we proceed going forward? We will still adhere to the policy of investing in our staff.

"But we would ask for any such proposal in future to be given a much more robust business case and almost certainly be asked to produce the training internally from either within Scotland or the UK at much lower cost and frankly better value for money."

Robin McGill, chairman of WICS's audit and risk committee added: "The chief executive at the time had this view and we kind of shared that view that it was very hard to recruit talented staff. So there was a feeling that we needed to have a package of measures to retain the staff that we have. And that kind of sits within that general view that well, that sounds like a good thing as opposed to the cost of recruiting and turning over staff and everything else."

The chief executive had 47 expense claims totalling nearly £4,500 from April 2022, to October 2023 that were not supported by itemised receipts.

And according to Audit Scotland one in eight expenses claims submitted by the senior management team did not have itemised receipts - totalling £9,660 - and it largely surrounded the entertaining of foreign visitors.

Robin McGill.

Audit Scotland has said there was "very significant concern" over the lack of receipts saying that they "do not see this type of activity in our audits".

The majority of the expenditure related to what was termed "business entertaining costs" and was connected to food and drinks with international delegations.

They say that there were multiple foreign trips, particularly to New Zealand as part of the Hydro Nation strategy and the provision of services to the water industry there as it was going through its evolution.

That work started with a project for two of the country’s water and sewerage companies - Wellington Water and Watercare, the largest water and sewerage provider in the country.

Hydro Nation is a Scottish Government initiative aimed at building international partnerships, sharing knowledge and undertaking joint research.

And WICS has previously said that they found that water sectors the world over were facing many of the challenges face in Scotland, such as planning for climate change and ensuring that the industry’s infrastructure will be fit for the future.

The Scots water industry financial watchdog is expected to use public funds to settle the personal tax issues as a result of the spending.

Auditor General Stephen Boyle has previously stated that there were "cultural issues" at WICS that needed addressed.

The regulator is funded through a levy on Scottish Water and on retailers that participate in the competitive non-household water market. The size of these levies is set by Scottish Ministers.

Scottish Water operates under an annual borrowing limit set by the Scottish Government. The annual borrowing limit controls the amount by which Scottish Water can increase externally sourced finance.

As at March 31, 2023, government loans totalled £4.5 billion.

Net new borrowing by Scottish Water from the Scottish Government was planned to be to the tune of £196m in 2023/24 to carry out its activities.

The commission, which employs 26 staff, received income of £5.288 million during the year, including levy income of £2.279 million from Scottish Water, £1.718 million from licensed providers, and £1.185 million from international work related to the Scottish Government’s Hydro Nation strategy.

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 Mr 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.