Lavish spending at water watchdog was unacceptable, says report

The Scottish government failed to properly scrutinise lavish spending at a body charged with regulating Scottish Water, according to a new report.

Holyrood's public audit committee said a lack of expenditure oversight at the Water Industry Commission for Scotland (Wics) was "simply unacceptable".

A report by the auditor general detailed how public money was spent sending a senior manager on a course at Harvard Business School in the US, Mulberry sunglasses and business-class flights to New Zealand.

A Scottish government spokesperson said steps had been taken to improve management at the commission, but acknowledged previous expenditure "was completely and utterly unacceptable".

Committee convener Richard Leonard told BBC Radio's Good Morning Scotland programme that there had been a "flagrant misuse" of public money.

He said: "This is a body to promote value for the customers of Scottish Water, and yet by any measure it fell well below the standards of what any public body should meet in the way it conducts its own affairs."

He added there was constant excessive expenditure on hospitality, including meals and alcohol.

He said: "In 2023 a decision was taken that there should be no limit whatsoever on the organisation's expenditure on things like alcohol. It really has been an extraordinary catalogue of misuse of public money."

Wics chief executive Alan Sutherland, and its chairman Donald MacRae stood down in the wake of reports by auditor general Stephen Boyle in 2023 and consultant Ernst & Young the following year.

They found a total of £77,350 was spent on Wics chief operating officer Michelle Ashford attending the Harvard course, which included return flights to Boston.

Richard Leonard told BBC Scotland the Harvard course was not a one-off, as other staff completed MBA courses worth about £70,000.

The auditor general's report found that approval for the expenses was only sought afterwards, despite a Scottish government policy stating approval was required in advance for any expenses above £20,000.

Mr Sutherland also signed off on a business class flight from New Zealand - worth more than £18,159 - for the director of corporate and international affairs and her spouse.

Mr Sutherland was also found to have submitted expenses claims for a £170 Mulberry wallet and £290 glasses which "had no clear business purpose".

A further £2,600 went on providing every staff member with a £100 gift card for Christmas, while it was noted the commission had an "unusual" policy allowing staff to claim alcohol on expenses.

Nine meals cost a total of £2,699 - £996 of which was spent on alcohol.

Mr Sutherland was given a £14,000 payment for annual leave he did not use and in December 2024 it emerged Wics spent a total of £105,000 on his departure from the organisation a year earlier.

Mr MacRae quit in October last year, months after a letter from net zero and energy secretary Mairi McAllan criticised the way in which Mr Sutherland's resignation was handled.

But Richard Leonard said the Scottish government had been responsible for a lack of critical oversight of the commission's spending, which had allowed it to continue.

He said: "The committee is clear that there also appears to have been a serious lack of oversight from the Scottish government.

"This failure from those who are meant to be safeguarding the public purse is simply unacceptable."

He told BBC Scotland there needed to be a much more objective relationship between the Scottish government civil service and public bodies like Wics.

The commission's role is to promote the interests of water and sewerage customers and ensure Scottish Water provides cost-effective services to ministerial objectives.

The committee's report acknowledged there had been widespread changes to the board and management since the auditor general's findings were published.

However, it urged the current board to undergo refresher training on their roles and responsibilities to ensure that the failure of responsibilities does not happen again.

Leonard said: "We have heard about significant changes within Wics and the organisation's commitment to improve the governance arrangements. These are clearly welcome.

"But we want to see concrete evidence of these changes to ensure that the unacceptable culture that was in place has truly gone."

Scottish Conservative MSP Graham Simpson, who sits on the committee, said the behaviour of Wics had been "deplorable".

He said: "This organisation had a wild west approach to spending.

"The Scottish government, who were meant to be watching what was going on, was sleeping at the wheel and must also take the rap.

"This whole scandal raises the question of whether Wics should be allowed to continue at all, or in its current form."

A Scottish government spokesperson said it had taken steps to improve the management of the commission.

They said a full response 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."

Wics interim chairman Ronnie Hinds said: "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.

"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."