The Scots water industry financial watchdog sent a senior executive on two £5000 return flights to the US as part of a run of spending described as "unacceptable" by auditors, it can be revealed.

The Water Industry Commission for Scotland (WICS) has come under scrutiny over its expenditure including sending the executive on a training course at the Harvard Business School in the US.

The flights bill exceeds the £8,819 run up in unpaid UK tax and national insurance contributions dating back to 2018/19 over perks given to staff including leaving lunches and birthday and Christmas gifts.

They included some £5,500 spent on £100 Christmas gift vouchers for each member of staff over two years - 2021/22 and 2022/23 - without any tax being paid.

READ MORE: Scots water regulator chief quits after row over public funds finding

Auditors have said this exceeded the regulator's delegated limit of £75 for gifts and should have been approved by the Scottish Government but was not.

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.

Auditors said the WICS needed 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.

It has now emerged that, according to the Audit Scotland, part of that spend included two £5,000 return flights to the US.

An expenditure appraisal form provided to Audit Scotland notes the cost of return flights from Scotland to Boston as £10,000 (£5,000 x 2).

According to Skyscanner, a typical price of a return first class flight from Edinburgh or Glasgow to Boston in February this year through British Airways comes in at between £3,054 and £3,151.

The Harvard course comprised what was described as a "blended modular approach" from January 4, 2023 to May 12, 2023, with a combination of virtual and in-person training. Modules one in three were virtual and two and four were in person at the Harvard Business School campus in Boston.

Module two in the US ran from February 12 to March 3, 2023 and module four ran from April 23 to May 12.

The Herald: WICS logo with (inset) chief executive Alan Sutherland and chief operating officer  MichelleWater industry watchdog logo with  (inset  left)  (inset) chief executive Alan Sutherland and chief operating officer Michelle Ashford.

WICS has told Audit Scotland there was an "oversight" over spending that needed Scottish Government approval which it said it accepted and regretted.

WICS management advised that it recognised that some of the processes that worked well when they were based in Moray House lapsed when the commission started to work remotely and accepted there was insufficient discussion on expenditure.

Previously, an approvals panel met regularly to discuss all significant expenditures and management told auditors that this involved active debate.

Management has told auditors that it now committed restarting the approvals panel meeting in person at least fortnightly and ensuring that there is "appropriate detailed scrutiny of all proposed expenditures".

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.

This included one instance where the cost per head for a retirement dinner claimed exceeded £200 per person - despite the approved non-city limit being set at £25.

Audit Scotland 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".

It said that it was only once the issues were identified and reported by the auditor that retrospective approval was sought and received from the Scottish Government.

The public spending regulator said immediate action was required to address the issues and "promote a culture of best value across the organisation".

The WICS has told auditors that management will "take further advice to establish appropriate rules and procedures" over the identification of taxable benefits to staff.

Auditors say management "will ensure that this advice is implemented in full and ensure adequate arrangements are in place to attribute taxable benefits to relevant staff so that they incur the related income tax and national insurance contributions".

The Herald:

The chief executive was to oversee the move with a view to implement in March, 2024. At the time of the investigation, it was still Mr Sutherland who was to take this on.

The WICS has said management will revise the expense policy to ensure that there is a separate policy relating to hospitality and events.

They said there will be a sufficient distinction made between this type of expenditure and regular subsistence expenses - the money paid to employees cover the cost of meals and accommodation incurred in the course of carrying out their work.

They told auditors that this will help ensure that a retirement dinner, is treated differently to a subsistence allowance.

The WICS management said it is committed to ensuring that all staff are appropriately trained over how to tag and describe expenses to ensure that there is clarity between subsistence expenses and spending related to business development or hospitality and events.

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.

Since the Water Services (Scotland) Act (2005) power to shape the future of water provision was with the WICS.

The Herald previously revealed that after the intervention of Audit Scotland, and a review by the commission, a tax liability of £8,818 dating back five years was uncovered over the perks given to staff.

A Pay As You Earn (PAYE) settlement agreement with HMRC allows an organisation to make one annual payment to cover all tax and national insurance owed in relation to perks like gifts, leaving lunches and other incentive-based awards.

It is understood that in October, the water watchdog paid £3,384 to settle a 2022/23 tax obligation including £1,333 relating to the Christmas gift vouchers.

The commission, which has put in a voluntary disclosure of unpaid tax between 2018/19 and 2021/22 and has estimated a further £5,435 needs to be paid.

Earlier this year it emerged that Mr Sutherland was given a £14,000 payment for some of the annual leave he did not use.

The WICS accounts showed that Mr Sutherland's gross salary was £183,240 in 2021/22. This included a £14,060 payment in relation to accumulated leave.

WICS said it approved a one-off payment to staff for annual leave which could not be used during the Covid pandemic.

The public body said this was an "extraordinary measure" for leave which could not be used up during the year, and that no further payments have been made.

WICS has never contested the amount that auditors stated was spent on the Harvard training course.

In response to the air fare revelations, the Water Industry Commission for Scotland said they accept the findings of the Audit Scotland analysis.  And a spokesman added:  "These relate to past issues. We are now focussed on delivering the action plan.”