'Catalogue of failures’ and lack of Scottish government scrutiny led to lavish spending at water regulator

Scotland’s water watchdog turned the taps on spending, resulting in tens of thousands of pounds of public money being spent on meals and alcohol while its former chief executive, Alan Sutherland, also approved business class flights to New Zealand for a director and her partner which cost more than £18,000.

The Water Industry Commission for Scotland (WICS) - which has just 26 staff - was set up to provide financial scrutiny for Scotland’s sole water company, Scottish Water. Instead it lost control of its own spending according to a damning report by Holyrood’s Public Audit Committee.

Chair of the committee Richard Leonard said the evidence MSPs heard was “some of the most extraordinary evidence we have ever considered” and there had been “unlimited and excessive spending on meals and alcohol.”

Committee member, Scottish Conservative Graham Simpson, told LBC that WICS had been “caught red-handed” by auditors.

Audit Scotland released a report in late 2023 detailing the £200-a-head meals, gift cards for staff and a £77,000 Harvard business course for a senior manager - while others completed MBA courses costing £70,000. A number of items were found to have "no clear business purpose", including the Mulberry wallet and glasses, which were claimed for by Mr Sutherland.

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Within days of the report's release he resigned - though received a payment of £86,268 - representing half a year's salary in lieu of a six-month notice period. Other costs around his departure mean in total the public purse shelled out £105,488.

And anger on how that settlement was managed led to the resgination of the then WICS board chairman, Donald MacRae.

Now the Public Audit Committee has also criticised oversight of WICS by the Scottish Government.

Committee convener Richard Leonard told LBC the report followed “some of the most extraordinary evidence we have ever considered. We found there was a real lack of governance which led to serious misuses of public money including nearly £70,000 on one training course and what appears to have been unlimited and excessive spending on hospitality, meals and alcohol.”

He added: “The fact that this body which is charged with promoting long term value from Scottish Water to its customers has itself failed to live up to the standards required of a public body left us with deep concerns.

“But what’s become clear is this was part of a catalogue of failures and the Scottish Government also failed in its responsibilities. It’s not just that the misuse of public money happened, it’s that it was allowed to happen.”

Mr Leonard said the committee report has urged the government to review its systems of oversight, but that it would also “keep a watching brief [over WICS] to ensure the unacceptable cultures that were allowed to develop have truly gone for good.”

Tory MSP on the committee Graham Simpson said the approach by WICS “towards the spending of public money was beyond disgraceful.”

“They were caught red-handed by the Auditor General who exposed lavish hospitality including expensive dinners most of us could only dream of, business class flights to the other side of the world, and staff being sent abroad for training courses at huge cost when it could have been provided here in Britain.

“The Scottish Government was meant to be overseeing this body but failed in its duty. The kind of profligacy seen at WICS at the taxpayers expense must never happen again.”

According to evidence from Audit Scotland in the committee's inquiry, engagement between the body and the Scottish Government largely revolved around policy, rather than the commission's internal processes, including expenses.

Auditor General Stephen Boyle said. "I do not think that it is an unreasonable leap to say that, because the organisation was generating significant revenue from its role as part of the hydro nation strategy, that resulted in less focus from the sponsor team on other parts of its activity."

WICS was undertaking foreign consultancy work as part of its remit, and according to the report brought in £1.2 million revenue in 2022-23.

The report was also critical of the Scottish Government giving retrospective approval for the Harvard Business School course and staff gift vouchers after WICS had already made the purchases.

The lavish spending on meals is believed to be linked to the consultancy activity, with one meal costing more than £200 per person - well above the £50 limit. A further nine meals exceeded £50 per person, costing a total of £2,669, including £996 on alcohol.

But it was revealed through evidence that the limit had been removed at a board meeting in January 2023, which the Auditor General said "we have not seen before".

WICS has made significant changes to its leadership team and policies according to the report, but the committee has pushed for "concrete evidence" of change.

The water quango’s interim chair Ronnie Hinds said: "We accept the Public Audit Committee's report in full. It reflects issues that we have acknowledged and have been actively addressing since December 2023.

"With direction from our board and through the commitment of our leadership team and staff, we have taken decisive action to strengthen governance, improve financial controls and embed a culture that is firmly focused on best value.

"We welcome the committee's recognition of the steps WICS has already taken, and we are committed to continuing this momentum.

"Everyone at WICS continues to be fully focused on regaining trust and reaffirming our role as an economic regulator that upholds the highest standards, both in our regulatory approach and in our stewardship of public resources."

A Scottish government spokesperson said it had taken steps to improve the management of the commission and a full response to the committee’s report would be provided in due course.

"Ministers have been clear that the approach to expenditure at WICS up until December 2023 was completely and utterly unacceptable," they added.

"We have taken steps to improve our sponsorship function, completing all the management actions set out in the internal review of WICS sponsorship published last November."