Water body boss departure cost public purse £105k

Scotland's scandal-ridden water regulator spent more than £105,000 on the departure of its former chief executive, a watchdog has reported.

Audit Scotland also raised concerns about almost £75,000 in Water Industry Commission for Scotland (Wics) expenditure that did not comply with Scottish government rules.

Its report identified a further £20,355 of spending on business class flights and meals which did comply with policies, but that "does not appear to represent value for money".

Auditor general Stephen Boyle noted that none of the "non-compliant" expenditure came since his last report in December 2023, and that the public body had implemented a 21-point improvement plan.

Alan Sutherland resigned as Wics chief executive with immediate effect on New Year's Eve 2023.

It followed revelations Wics had spent spent more than £77,000 on a course for a senior executive at Harvard Business School in the US, as well as lavish spending on flights, meals and gifts.

Mr Sutherland had racked up £130,000 in expenses since April 2019.

Audit Scotland reported that, after resigning, he received a payment of £86,268 - representing half a year's salary in lieu of a six-month notice period. This included £1,468 for 2.25 days of untaken annual leave.

The commission also paid £840 to Mr Sutherland'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 former chief executive's six-month salary payment.

The total cost to the public purse was £105,488.

The auditor general identified £74,832 of spending was not in line with government rules.

This included a £24,000 legal retainer, £23,774 of expenses on travel and food and drink and £7,454 of staff expenses with "no itemised receipts or other proof of purchase".

A further £19,484 was paid to a recruitment company, while £120 was spent on a gift for a visiting foreign delegation.

Among the expenditure that was deemed to be within the rules but that may not have represented value for money, Audit Scotland cited £17,686 for business class flights, £2,669 spent on meals which exceeded £50 per head, and a further £590 spent on two meals with external guests.

The auditor general said Wics should have given "further consideration" to the terms of Mr Sutherland's departure.

Mr Boyle said the use of a settlement agreement "removed the possibility for any disciplinary procedures against the former chief executive".

He added Wics should have "sought and received clearer guidance" from the government's sponsor team before offering the settlement agreement.

Donald MacRae, the former chief economist of Lloyds Banking Group Scotland, stepped down as Wics chairman in October.

He told told MSPs in September that Mr Sutherland's payout was made because there had been no gross misconduct.

In a letter sent to Mr MacRae in March, the Scottish government's Net Zero Secretary Mairi McAllan said the board had failed to follow due processes by opting for a settlement agreement for its former chief executive, describing that decision as "extremely concerning".

She said the government should have been given a "wider steer" on the use of a settlement agreement, adding: "While I am advised that the payment reflects contractual terms, this recurrent breach of process is unacceptable."

Mr Boyle noted the government had taken steps to strengthen the sponsorship oversight for the commission.

He said that following a "challenging year", significant work was under way to improve the "leadership, governance and culture" of Wics.

This included actions to address "financial management and governance weaknesses".

The commission plans to start the recruitment of a new permanent chief executive early next year.

Wics has a statutory duty to promote the interests of Scottish Water's customers. It is funded via a levy on Scottish Water.

Ronnie Hinds, interim chairman of the water regulator, said Audit Scotland's report recognised the progress made by Wics in the past year.

He added: "There were no instances of non-compliant expenditure in the period since last year's Section 22 report and we welcome the Auditor General's recognition of the significant work under way to improve leadership, governance and culture within the organisation.

"This reflects the action Wics has taken to address previously identified weaknesses in governance and financial control and indicates that progress is being made as we continue to undertake organisational change.

"Everyone at Wics remains fully focused on fulfilling our crucial role as the economic regulator of Scottish Water on behalf of the people of Scotland."

A Scottish government spokesperson said ministers "place the utmost importance on the proper spending of public money" and that the report evidenced "unacceptable failures" at Wics.

They said the report recognised improvements at the water body, adding it was clear the government must work with Wics to ensure it "delivers best value and regains public confidence".