A senior Scottish Government official signed off on what a public spending auditor has found was "unacceptable use" of public funds by senior officials at the water industry financial watchdog, it has emerged.

Retrospective approval was given to the Water Industry Commission for Scotland (WICS) which ran up bills dating back to 2018/19 over perks given to staff including leaving lunches and birthday and Christmas gifts.

It can be revealed that a senior official at the Scottish Government in signing off on the spending said he was "content with the appropriateness of the nature of the spend" and that he was "content to agree retrospectively the procurement approach".

WICS also got 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. The costs included two£5000 return flights to the US.

WICS went to the Scottish Government for retrospective approval for spending on November 2, after it was highlighted by Audit Scotland and was described as an "oversight".

READ MORE: WICS: Scots financial watchdog paid £10k on two US flights for exec

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.

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.

Audit Scotland has 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".

The approval of the WICS spend came after it sought approval for Christmas gift vouchers during the previous festive period worth £2,500 and the chief operating operating officer's American training course.

In approving the expense, Jon Rathjen, the Scottish Government's deputy director of water policy said: "On the Christmas gifts, I accept this was an oversight and do not think it is proportionate to try and recover the balance but would highlight that any such gift going forward must be contained within [an] agreed threshold."

The email to the then chief executive Alan Sutherland seen by the Herald went on: "On the training costs, I rather agreed that this is a unique training offering and can see why a single tender approach and as such despite board being aware it would have been appropriate to inform the Scottish Government.

"As I imply, had I been informed, I would have agreed with the approach as I think this is not something where open tender would have returned better value given the very specific nature of courses in this field.

"Due diligence had been carried out and the most suitable product selected and as such, given the board was content with the appropriateness of the nature of the spend, I am content to agree retrospectively to the procurement approach."

Richard Leonard, convener of the Public Audit Committee has told Mr Rathjen that his response to the WICS spending showed that he was "complicit" and that it does not tell him that the decision was challenged, while he had it in his gift to turn the expenditure down.

The Herald:

Mr Rathjen has told MSPs: "So what I was saying was that I felt that the commissioners should clearly have come with a business case to us ahead of the expenditure being made. And that what I was concerned about was that they had not done that.

"They've not brought that back to us at the point where we can make a material difference to it. I was given an assurance by the CEO that all the due diligence had been done, it was the right thing to do, and what I'm saying is I made an error of judgment, and the the error of judgement [was to have] relied on that assurance at that point that he gave me. Again, I could make no material difference to the outcome at this point."

He added: "It's highly unusual to be asked to approve expenditure retrospectively, I've never seen that before. My mindset at the time was very clearly on this expenditure has been made. It was in the accounts.

"So the mistake that was made, I think, was that it was assumed to be within the WICS delegated powers to make the decision on value for money and so on and so forth and approve the business case.

"I think I was assured by the CEO that the course best met the needs of the individual. And he also assured me that the costs were comparable with other providers. I think, in retrospect, it's an error of judgment not to not press for more information on those points."

WICS has come under scrutiny for expenditure including the chief operating officer's training course and a series of perks given to staff including leaving lunches and birthday and Christmas gifts. Some £2,600 was claimed to provide every staff member with a £100 gift card for Christmas.

One of the latest concerns surrounded Mr Sutherland entertaining a representative of the New Zealand water industry at the award-winning Champany Inn in Linlithgow in October, 2022. Auditors say there was no submitted receipt for the spending so there was no way of knowing what the split was between food and drink.

Donald MacRae, the WICS chairman said that the resignation of the chief executive had allowed it to achieve a "change of culture and a rapid refocus on value for money".

The Herald: Champany and (inset) former chief executive Alan Sutherland

But he also told MSPs that sending people abroad to conferences was acceptable as the agency generated 22% of its income from international consultancy.

He said that attendance builds up a reputation and added: "We are continually asked to host visiting delegations in other countries to see how we do it."

He said he would be seeking clarification from Scottish Government on what what was an appropriate for a public body to do when it is tasked with developing external income.

It has further emerged that the chief executive had 47 expense claims totalling nearly £4,500 from April 2022, to October 2023 that were not supported by itemised receipts.

And according to Audit Scotland one in eight expenses claims submitted by the senior management team did not have itemised receipts - totalling £9,660 - and it largely surrounded the entertaining of foreign visitors.

Audit Scotland has said there was "very significant concern" over the lack of receipts saying that they "do not see this type of activity in our audits".

The majority of the expenditure related to what was termed "business entertaining costs" and was connected to food and drinks with international delegations.

They say that there were multiple foreign trips, particularly to New Zealand as part of the Hydro Nation strategy and the provision of services to the water industry there as it was going through its evolution.

That work started with a project for two of the country’s water and sewerage companies - Wellington Water and Watercare, the largest water and sewerage provider in the country.

Hydro Nation is a Scottish Government initiative aimed at building international partnerships, sharing knowledge and undertaking joint research.

And WICS has previously said that they found that water sectors the world over were facing many of the challenges face in Scotland, such as planning for climate change and ensuring that the industry’s infrastructure will be fit for the future.

The Scots water industry financial watchdog is expected to use public funds to settle the personal tax issues as a result of the spending.

Auditor General Stephen Boyle has previously stated that there were "cultural issues" at WICS that needed addressed.

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.

The 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.