The Scottish Government has admitted it was wrong to approve a run of public spending by a Scots water industry watchdog described as "unacceptable" by auditors, it can be revealed.

Roy Brannen, director-general of Net Zero and accountable officer for 26 public bodies has said that the spend by the Water Industry Commission for Scotland (WICS) which included an £80,000 training trip for its chief operating officer Michelle Ashford, should have been flagged as "irregular".

Ministers are at the centre of a new probe over its involvement in a public spending scandal after WICS said they knew about a controversial move that ignored Scotland when sending Ms Ashford to the Harvard Business School.

The Scottish Government gave retrospective approval over the run of costs which also included a £2,600 spend on £100 Christmas gift vouchers for each member of staff.

It comes as Audit Scotland is set to identify further further instances of inappropriate use of public funds sduring the first nine months of the 2023-24 financial year.

The Herald previously revealed that WICS sent Ms Ashford on two £5000 Transatlantic flights for training in the US.

Public spending auditors have said that only universities in the US were considered for training, and that the potential universities that were identified were Harvard, Stanford and Yale.

Audit Scotland has said they would have expected that there would have been a much wider range of alternatives at a much lower cost than the option that was ultimately arrived and that there were a "multitude of options available in Scotland, and elsewhere in the UK, that could have provided the type of management development and training that was being sought.

WICS chief executive Alan Sutherland, one of the highest paid public sector workers, was forced from his role with immediate effect in December after auditors discovered the "unacceptable" spending.

The Herald: WICS logo with (inset) chief executive Alan Sutherland and chief operating officer  Michelle

It has been confirmed that the disgraced £182,500-a-year executive was given six months salary in lieu of notice which the watchdog says "he was legally due".

Now Mr Brannen, the former chief executive of the Scottish Government's Transport Scotland agency has accepted it was wrong to have given retrospective approval for the spending.

He has said in a briefing seen by the Herald that it was given because the costs "could not realistically have been recouped".

"With the benefit of hindsight, it is accepted that it would have been better to simply note the payments as irregular rather than to give retrospective approval," he said.

He said he would request that the Scottish Government’s Public Bodies Support Unit (PBSU) updates the relevant guidance and that they werre seeking to "ensure closer oversight" of WICS.

The auditor general for Scotland, Stephen Boyle, has raised concerns that it was felt that the costs of the Harvard course were not worth challenging as the money had already been spent.

He said it "risks indicating that approval will always be granted when the expenditure has already been incurred".

“Such an approach would undermine the operation of the sponsorship model, could discourage bodies from seeking prospective approval for potentially contentious expenditure, and would unlikely meet the requirements of the Scottish Public Finance Manual," he said.

Ms Ashford has said that Jon Rathjen, the Scottish Government's deputy director of water policy, among others contributed to a 360-degree assessment in relation to the Harvard course.

Ms Ashford, a chartered civil engineer who joined WICS in 2017, said in an email sent to WICS executives that the sponsor team at the Scottish Government were aware that she was participating in the Harvard program.

She said she was involved in the policy development work with the Scottish Government since the middle of 2022, leading a wastewater workstream.

She said that advising them that she would be out of the country in February and April, 2023 "was essential" and that she applied for Harvard Business School Advanced Management Program four months earlier.

Mr Brannen is to be further quizzed about the development after he told MSPs that the first Mr Rathjen [and the directorate for energy and climate change operations] was made aware of the course was when it was raised as an issue by Audit Scotland.

The Scottish Parliament's public audit committee has been seeking fresh answers from Mr Brannen over when the Scottish Government became aware of Ms Ashford's attendance on the training course given there appeared to be "a discrepancy" in evidence received.

Audit Scotland identified "widespread issues" with expense claims being submitted and approved 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. One claim was for a dinner where the cost per head exceeded £200 per person. This, and other claims, included the purchase of alcohol, the audit said.

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".

In approving the expense, a Scottish Government official said approval was "essentially based on the fact that the money had been spent, so there was no material benefit, at that point in challenging it".

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

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 £400 meal-for-two spending so there was no way of knowing what the split was between food and drink.

Ms Ashford said in the email sent to WICS executives in advance of giving their account of what happened to the Scottish Parliament: "Whilst Alan may not have formally requested approval from [the Scottish Government] for the program, it was not a secret and in fact, I actively discussed it with as many people as possible."

She also said she had been signed off sick with stress exacerbated by what she said were sugggestions that she was complicit in the financial irregularities and systematic failures that she said the chief executive was "ultimately responsible for".

Ms Ashford, who is understood to have returned to work in January, added: "Those who know me well have told me that they know that I did nothing wrong, but those that do not know me or do not know me well, are sceptical as to my true role in this impropriety."

In a separate message to MSPs, Ms Ashford said that the organisation’s culture was “toxic” and staff had to create “dysfunctional coping mechanisms to survive" and that it required a "change in culture".

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

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

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.

The Herald: Scottish Water

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.

Video: The Water Industry Commission for Scotland underwent a rebranding process, and a revised recruitment film was produced.

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.

A spokesperson for WICS said: “Considerable progress has been made to address the governance issues of the past, and we are fully committed to embedding meaningful change within the organisation.”