December 10, 2024
By Democrat reporter
Collective leadership is needed to create a culture of good governance and effective management after failings at Scotland’s water regulator.
The Chief Executive of the Water Industry Commission for Scotland resigned in December 2023 after the audit of its 2022/23 accounts found unacceptable use of public funds by senior officials. The Chair of the Commission’s Board, Alan Sutherland, pictured above, stepped down in October 2023.
Auditors have now found a range of additional spending that did not meet public sector spending rules in the first nine months of the 2023/24 financial year. This included £75k on:
- consultancy costs (£19.5k) and a King’s Counsel retainer (£24k)
- Travel and subsistence (£23.7k)
- Un-itemised expenses (£7.5k)
A further £20k, mostly on business class flights, was found to have been unlikely to represent value for money. However, no instances of inappropriate spending were identified after December 2023.
In a separate judgment, auditors also said more time could have been taken to consider other options for the departure of the former Chief Executive, which cost the public purse £105,488.
Stephen Boyle, Auditor General for Scotland, said: “This has been a challenging year for the Commission. Action has been taken to address the issues I highlighted, with significant work underway to improve leadership, governance, and culture.
“The success of that work will depend on all parties – Board members, senior management, staff, and the Scottish Government – working together to move the Commission into a stronger place in delivering its regulatory role.”
Donald MacRae said he was “surprised” by the public body’s spending on a Harvard Business School course for an employee.
It was revealed in October is year that Donald MacRae’s resignation came after the chairman of the Water Industry Commission for Scotland (Wics) was accused of financial failings, including spending more than £77,000 on a course for a senior executive at Harvard Business School in the US.
A report, external by the auditor general also revealed the public body spent £2,600 on £100 gift cards for staff at Christmas.
Ministers said MacRae’s departure would allow for a “reset” following “unacceptable” financial and governance issues.
Former Wics chief executive Alan Sutherland, who had racked up £130,000 in expenses since April 2019, resigned as Wics chief executive in December following the publication of the auditor general’s report.
Wics has a statutory duty to promote the interests of Scottish Water’s customers. It is funded via a levy on Scottish Water.
Acting Energy Secretary Gillian Martin called for a “reset” of the public body.
The body has also come under fire from MSPs for giving Mr Sutherland six months’ pay after he stood down.
Mr MacRae told Holyrood’s Public Audit Committee, external last month the payout was made because there had been no gross misconduct.
Acting Net Zero and Energy Secretary Gillian Martin told MSPs that the government was not informed about the payment until several weeks later.
The Times reported, external in June that two other senior managers also received more than £80,000 of funding each for education qualifications – including courses in Argentina and the US.
Further concerns were raised about the use of public funds on dinners, business class travel and corporate credit cards without proper receipts.
‘Unacceptable financial issues’
Mr MacRae, the former chief economist of Lloyds Banking Group Scotland, said he was “surprised” about the spending on the Harvard course because it was not reported to the board.
Martin said the government welcomed the resignation as an opportunity “to reset oversight of the Water Industry Commission Scotland in light of the unacceptable financial and governance issues that have arisen in the organisation.”
The SNP minister added: “Once a new chair is confirmed, we will be clear with them and the board that they need to continue to work hard to deliver the changes required to reset the organisation so it delivers to the high standards I expect of a public body.”
Mr MacRae was initially appointed in 2018 and had been expected to remain in post until at least April next year. His resignation was effective from 21 October.
Speaking to MSPs, Mr MacRae said that “Wics needs to accept the need for a greater focus on value for money and the need to operate to the highest standard of financial management”.
Wics board members told the Public Audit Committee that they had been working to change their culture as well as their protocol for how expenses are dealt with.
The Scottish government has commissioned an independent review of Wics and an internal review of its sponsorship arrangements with the body.
Background Notes:
- The former WICS Chief Executive and Accountable Officer resigned with effect from 31 December 2023. As part of the agreement for his departure he received a payment of £86,268 covering payment of salary in lieu of the 6 months’ notice period (£84,800) and 2.25 days of accrued but untaken annual leave (£1,468).
- The Commission also paid £840 to the former Chief Executive’s legal representatives and incurred a further £6,580 for their own legal advice and services. A payment of £11,800 was paid to HMRC for the employer national insurance contributions due on the payment in lieu of notice. The total cost to the Commission of the former Chief Executive’s departure was £105,488.
- Grant Thornton, WICS’s internal auditors, carried out reviews of Governance and Financial Management Arrangements, which were published in correspondence to the Public Audit Committee in July 2024.
- The Scottish Government published an independent review of WICS’ governance arrangements in November 2024.
- The Auditor General has prepared the report on the Water Industry Commission for Scotland under Section 22 of the Public Finance and Accountability (Scotland) Act 2000. This allows the Auditor General to bring to the Parliament and the public’s attention matters of public interest related to the financial statements of public bodies.
- Section 22 reports are submitted to Scottish Ministers for laying in the Parliament along with the accounts of the relevant body. While there are statutory deadlines for these reports, the actual timing of publication is determined by when the report is laid in the Scottish Parliament by Scottish Ministers.
- Audit Scotland has prepared this report for the Auditor General for Scotland. All Audit Scotland reports published since 2000 are available at http://www.audit-scotland.gov.uk
- The Auditor General appoints auditors to Scotland’s central government and NHS bodies; examines how public bodies spend public money; helps them to manage their finances to the highest standards; and checks whether they achieve value for money. The Auditor General is independent and is not subject to the control of the Scottish Government or the Scottish Parliament
- Audit Scotland is a statutory body set up in April 2000, under the Public Finance and Accountability (Scotland) Act 2000. It provides services to the Auditor General for Scotland and the Accounts Commission for Scotland.
Top of page picture is of Alan Sutherland, former Wics chief executive.