 Gweinwch. I welcome everyone to this, the fifth meeting of the Public Audit Committee in 2024. The first item on our agenda is to agree to take agenda items 4, 5, 6 and 7 in private. Are we all agreed? We are agreed. The second item on the agenda is to agree to consider any future draft report on adult mental health in private. Are we all agreed on that as well? We are agreed. Thank you. A agenda item 3 is consideration of the Auditor General for Scotland's section 22 report on the 2022-23 audit of the Water Industry Commission for Scotland. Can I welcome our three witnesses this morning? We are joined by Stephen Boyle, the Auditor General for Scotland. This morning, the Auditor General is joined by Carol Grant, Audit Director at Audit Scotland and Richard Smith, Senior Audit Manager at Audit Scotland. We have quite a number of questions to put to you on the section 22 report, Auditor General, but before we get to those, can I invite you to make a short opening statement? Many thanks, convener. Good morning, committee. I have prepared this report this morning on the 2022-23 audit of the Water Industry Commission for Scotland under section 22 of the Public Finance and Accountability Act 2000. My report brings to Parliament's attention significant weaknesses in financial management and governance at the Water Industry Commission for Scotland. I am concerned that the current culture within the commission does not have sufficient focus on ensuring the achievement for value for money in the use of public funds. The commission incurred two items of expenditure during 2022-23 that require retrospective approval from the Scottish Government's sponsor team following an intervention by the external auditor. This included spending over £77,000 for the chief operating officer to attend a training course at Harvard Business School and buying gift vouchers as Christmas presents for members of staff. The auditor also found widespread issues with the expenses reimbursement process. This included expense claims being approved without itemised receipts, claims exceeding the approved subsistence rates and the reimbursement for the purchase of alcohol. The auditor identified a lack of adequate arrangements to attribute taxable benefits such as gift vouchers to individual members of staff. That resulted in public funds being used to settle personal tax liabilities. The issues identified by the auditor in my view demonstrate an unacceptable use of public money. The commission has committed to addressing those issues now as a matter of urgency, but the committee will be aware that following the publication of my report, the chief executive of the commission resigned, and the commission, together with the Scottish Government's sponsor team, remain in the process of securing an interim chief executive and accountable officer. That needs to conclude quickly so that the commission and the board can make progress that they have committed to. The auditor will monitor their responses during 2024, and the convener will report further in public as necessary. I'm joined this morning by the appointed external auditor, Richard Smith and Carol Grant, who leads our audit of the Scottish Government. Between us, we look forward to answering your questions. Okay, thank you very much indeed. We want to go through the report in some detail. First of all, you mentioned towards the end there that the recommendations have been accepted and there are specific actions which are going to be implemented. Can you give us an overview of what those actions are? Yes, Richard, in a moment, because both my section 22 and the recommendations are drawn from the external auditor's annual audit report, which forms the basis of my reporting. I was pleased just to note that, upon publication of the report, there was a very clear statement from the Scottish Government that their intention for the actions to be addressed quickly and their commitment to do that. As I mentioned in opening remarks, we will absolutely be following those up quickly, but I do note with a degree of caution that there is still a gap in the leadership of the Water Industry Commission at present since the resignation of the chief executive. I will pass to Richard just to set out a bit of detail for the committee in the nature of the recommendations together with the responses that we have received. Thank you, other general. I am happy to take you through the recommendations that have been included in the annual audit report. There are some quite specifically picking up the issues that are in the section 22. In terms of the Scottish Government approval of expenditure, we include a recommendation in there about two parts to that. First of all, ensuring that any expenditure complies with the commission's own financial policies and guidelines, and also the conditions of the Scottish Public Finance Manual. By kind of linked to that, there is a point around that, with as a debiety as to whether a Scottish Government approval or a Board approval is required, we have said that you should seek that proactively rather than as a report in section 22 report. In this case, they have got retrospective approval for that expenditure, and I think that is a key element to make sure that they think about that in advance and making sure that if there is any novel or contentious they are looking to get that. We also include a recommendation specifically around the expense claim issues, and that is, as you would expect, saying that it should be reimbursing staff at the approved subsistence rates and also that all those claims should be supported by expense receipts in all instances. That complies already with the policy within the financial policies and guidelines. We also picked up an order at a generous point about the identification of taxable benefits to staff. Again, we have included a recommendation there that managers ensure that adequate arrangements are in place to attribute taxable benefits to relevant staff so that they incur the related income tax and national insurance contributions. That does not fall in our organisation and therefore the taxpayer. I hope that it is useful to update the committee on the actions that have been taken by the commission in response. We have actually received an update on the action taken by the commission to date. I should say that this is not audited yet. This is just a verbal update that we have received. On the 30th of January, we have delivered a training course for all staff that covered what appropriate expenditure is, the processes that are in place to get this approved and how they should take that forward if there is anything that requires board or Scottish Government approval. It also reiterated the need for supporting receipts and other documentation for all expenditure incurred and the fact that they will not be reimbursed for this if that is not provided. It also provided guidance on what constitutes a taxable benefit for staff. That is also more for the finance staff to identify that and make sure that they are identifying that at the time. I have also introduced an approvals panel for all expenditure over £10,000. That is chaired by the head of finance and comprises the four directors and the new CEO when they are appointed. That would make sure that anything over £10,000 has that consideration before it is approved. Alongside that, the head of finance has commissioned a review of all financial transactions during the 2023-24 financial year to make sure that there are no issues of accord. I should explain that. Our audit was covering the 2022-23 financial year to make sure that there are no issues of accord since then. They have not yet been identified. They have also asked our auditor's grant, Fhornton, to review the adequacy of the management actions taken in response to our action plan to make sure that they are addressing the issues reported and achieving what they are intended to. I wonder whether, Auditor General, you would comment on the fact that the senior finance person, the head of finance, does not sit at director level. There are four directors but there is not a director of finance. Is that unusual in an organisation like this? It varies, convener. I think that, Ian, in some very large complex public bodies, there is not always a director of finance as part of the senior leadership structure. What we have seen in more recent times is that there is an amalgamation of corporate functions, so finance, HR, IT and legal services are more typically now combined under a director of corporate services or a director of resources. What matters though is that the head of finance has unrestricted access to all of the activities of the organisation and the very senior leaders, both executive and non-executive, should they have concerns. I would not say that it is an unusual structure for an organisation of this size, but I think that the more fundamental point is that that should not inhibit them discharging their responsibilities as required. The other question that immediately comes to my mind is that this is a section 22 audit on a wider scope audit of the year 2022-2023. In paragraph 10 you capture some of the concerns that you have identified as widespread issues with expenses, claims, lack of itemised receipts, the purchase of alcohol, exceeding the approved rates. Those are cultural behavioural matters. Do they not predate this year or do they all happen in 2022 that what would seem to be sensible governance arrangements, sensible expenses regimes suddenly were abandoned at the beginning of April 2022? I think that most fundamentally of all, when I prepare a section 22 report, I do it on the evidence before me that is presented through the annual audit, so Richard and his team identified these issues during the course of the audit and the resultant section 22 report before us today. This is also the first year of the rotation of the current round of external audit appointments for public bodies in Scotland. It is not untypical that that will result in the auditor, the finance team, building a new relationship, exploring practices and transactions. I will bring Richard in because I think that there is a fundamental step change in the commission's arrangements this year as it relates to the volume of expenditure that was taken place, connected to, as we refer to in the report, part of the commission's wider strategy, its role as part of the hydro nation strategy of the Scottish Government. The volume of expenditure through expenses increased significantly and part of that would have been as a result of predating for Covid, which was an interrupting factor in the organisation's expenses. On the point that you alluded to, there are cultural issues within the Water Industry Commission that there needs to be more rigor as part of their internal control arrangements. They have appropriate controls, checks and balances that, as they are spending public money and reimbursing expenditure, they have just got some of the basics right, that there are receipts in place, that they are authorised properly and that they are spending it on appropriate factors. I think that it will be useful for the committee to hear from the auditor directly. Yes, so just to look into what Stephen said there, as part of the hydro nation work, they are doing a lot of work in New Zealand and also in other jurisdictions that couldn't remain here, so in 2122 the travel and assistance expenditure was only £16,572, that's increased in 2223 to £372,488. So in terms of our audit approach, it's risk based, it tends to focus on the areas of highest expenditure. I think it's fair to say our focus on travel and subsistence was a lot greater this year than it would have been under the previous auditor. So that's part of the reason why we started looking at expenses and as part of that testing we identified as one of our samples that we picked, a claim by the chief executive that included two claims that didn't have receipts in support of them. At that point, that's why we then expanded our testing to look to see what other claims had gone through that weren't supported by receipts and that explains how we got to identify these issues this year. So can I just understand then, is this an issue of a lack of itemised receipts, the purchase of alcohol, exceeding the approval rates which fall into claims made by the former chief executive or was this more widespread through the organisation? Let me let Richard set that out but I think the first point you make is absolutely the case and I think there are examples referred to in the section 22 report about the former chief executive's use of the expensive system claiming back, as Richard mentioned, for expensive meals together with the reclaiming of purchase of alcohol and other instances too where there have been claims not supported by receipts. But it goes wider and Richard can set that out that these were a range of deficiencies in internal control whereby there wasn't that rigor of culture convener that expenses, if you're claiming back, you have to have a receipt. So these were being processed without those in place, Richard. So in total we identified 84 items but that actually fell over the 19 month period from the 1st of April 2022 to the 18th of October 2023 which is when we're doing the audit so that extends beyond the financial year so it's a 19 month period. 84 items at total £9,660 in reference to the chief executive so 47 of them related to the chief executive claims and they totaled £4,351 so the majority did relate to the chief executive but picking up your point there was others as well, other claims that weren't from the chief executive. The only thing that might be a good point for clarity is that they were all encouraged using corporate credit cards so in terms of reimbursement that money had already been spent although we would have expected if there weren't valid claims that they would have looked to recover those money from the individuals. Because the wider scope report suggests that these lack of itemised receipts related to business entertaining costs, what constitutes business entertaining costs? I think maybe Richard might want to give a broader definition as our understanding convener but I think I've referred to one instance already where the chief executive together with a representative from the New Zealand water industry which was one of the main sources of additional income for the water industry commission for Scotland as part of the hydro nation strategy spent £200 per head for a two person meal so that would fall under that bracket. I should stress before Richard might want to come in and say it further that this is unusual activity and expenditure for a Scottish public body. Business entertaining is not something that we routinely see as part of our external audit activity but for that reason is why it jumped out and reasonably I would argue that it caught the attention of the auditors as part of their review of wider expenses issues within the organisation. But again Richard can say what more falls under that category. So before I explain what falls under that category I should say that the commission's term was business entertaining costs and we've highlighted in our annual audit report that the commission doesn't have a separate budget for this type of expenditure and also the finance policy and guidelines don't cover business entertaining costs and there's certainly no special dispensation for staff to exceed the approved subsistence rates when engaging in this type of activity. So what it mainly related to was meetings with foreign delegations that were visiting Scotland or meetings with some of the partners working in the hydro nation initiative and as Auditor General said that generally involved food and drink and meals that exceeded the subsistence rates. Okay but when I look at the framework document which was last reviewed in April 2022 so the start of this period there's a section in there on gifts and hospitality which actually relates to I think the Board of Directors I don't think it relates to staff which talks about the circumstances under which you need to record accepting or receiving gifts and so on and so forth. Not about giving gifts and hospitality, I mean is there a, what's the policy on giving gifts and hospitality versus receiving it and were some of these expenses incurred by members of the board or was it the chief executive almost half of them or more than half of them and the rest by other members of staff. So in terms of the analysis again Richard can say more if we have that detail convener but in terms of giving hospitality there are clear not just the framework document but also in the Scottish Public Finance Manual also covers this in a fair degree of detail. The expectation assumption is this will be very rare and unusual set of activity for a public body to be offering hospitality. There are clear boundaries and concerns probably also about receiving hospitality as a public official for the concern that that might influence judgment or other activities of a public official. But in terms of who was partaking in that I think it's, if we've got that detail we can share that with you but our focus has been on the connection with this with a high donation strategy and that that's primarily been driven by the former chief executive and the board of directors but again Richard can say more. It's just specifically on the gifts and hospitality. It's covered by the Scottish Public Finance Manual that's a limit of £75 that anything above that would require Scottish Government approval and as the Auditor General says it's incredibly rare. We'd see public sector bodies giving gifts but usually looking more at the other side of it than receiving gifts and making sure that's been declared appropriately. In terms of who was in attendance at these we had some slight difficulties because they weren't receded that was very difficult to ascertain exactly who was in attendance. So looking what we tried to do was work with finance staff, looking at calendars of individuals who were putting in the claims to China's table who had they met with before that who was likely to be there. So it did relate to the chief executive but also other members of the senior management team. As we say they were then external attendees at some of these including people involved in the hydrogenation work. I should say there's probably a limitation on how much we can guarantee one that they definitely attended because the fact they were at a meeting that preceded it doesn't necessarily then mean they stayed for food and drinks and the other point I'd make is it's probably hard to know whether they expected that amount would be reclaimed because it's been paid on a credit card, the individual hasn't asked for a receipt and it might be fair to assume if you're out if someone doesn't ask for a receipt. There's no expectation they're going to go back and claim that money back from the organisation. So we'd add those caveats to what we can say about the attendees and whether they knew that this amount was being reclaimed from the commission. Thanks, that's helpful. I think Graeme Simpson wants to come in on this point. Yes, yes I do. And I'm concerned about what I'm hearing already. So there was a corporate credit card or were there more than one? Yeah, I believe that all members of the senior management team have corporate credit cards. So how many is that? Five, including the chief executive and four directors. Five, and is there a limit on what you can put on that credit card? I'm actually not aware of what the limit is. It might be something that the detail of that would require but further exploration and we would anticipate that as the Government and the commission are reviewing the wider arrangements and the use of corporate credit cards as part of the action plan, Mr Simpson, is that they can have that clarity about what the expectations are. Just for one point, it's maybe important for the committee's awareness that we've mentioned the purchase of alcohol a couple of times this morning already is that the commission's policy did not preclude that and that's quite unusual for a public body. Normally we see arrangements in place that it's quite clearly stated that alcohol won't be provided or received as part of gifts and hospitality but that wasn't the case in the Water Industry Commission for Scotland. So we've got five of these corporate credit cards, no apparent limit on what can be spent on them and you've mentioned that there's one particular meal which costs £200 a person. So was that the former chief executive and a guest? That's correct, the former chief executive together with a representative from the New Zealand Water Industry where the two attendees at that meal. Given the cost, I'm imagining that's a Michelin-starred restaurant. Do we know where that meal took place? Yes, we do. The meal took place on Sunday night of October 2022 and it was at the Champagny Inn in Lalifgo and the total cost of the meal was £402.41. So we don't have any receipt for that because that's one of the issues we identified so we don't know the split between food and drinks but that was the total cost for the two individuals. So what was the total cost? £402.41. £402? Wow, that's quite extraordinary. I like to treat Mrs Simpson occasionally but to arrive at that kind of bill would be quite staggering, frankly. It's also staggering that there is no upper limit so the former chief executive obviously felt that they could just get away with this and presumably not repay it. I think fundamentally this is the essence of our section 22 report, Mr Simpson, that this is one example of a number that challenge the extent to which public money was being well used within the organisation. Although in the greater scheme of things it's not a significant amount of public money but perhaps illustrates the aspects of the culture and the lack of focus of what was actually being spent within the organisation. Can I ask about this? Just because it's come up convener already, the amount of money that has been spent on foreign travel, I think you said it was £300,000 in a year, is that continuing to the best of your knowledge? So that's travel and subsistence expenditure so it probably does a majority of reliefs to travel. There will still be some foreign travel because they're still doing work in New Zealand and that requires employees of the commission to go over and work in New Zealand. I should say that that work breaks even so they get reimbursed from the New Zealand Department for Internal Affairs for that work so although the expenditures increase significantly over an annual report we've also highlighted that the relative income has also increased significantly but there still will be a lot spent on travel for the foreseeable future while they're doing that work in New Zealand. I read the Government report into this hydro-nation project which I think is best explained by saying it is Scottish Water. Is it just the commission or is it Scottish Water working with other countries presuming to help them to improve the way they run the water industry? I think that's a fair summation of it that the strategy goes back to February 2012 to apply the expertise and skills within the Scottish Water industry on an international basis to help regulators in other jurisdictions. As Richard mentioned there is an income stream associated with this so looking at some of the more recent activity it more than breaks even so this is generating income for Scottish public services. I think that that aside is while that's consistent with Government's strategy and ambition and exploring revenue generating activities is querying from our perspective to some of the appropriateness of expenditure that supports that. I think that if I was doing this job in New Zealand I might be querying why we're having to take advice from the other side of the world on how we run our water industry. Just for absolute clarity, we haven't audited the Scottish Government's hydro-nation strategy. That hasn't been part of the scope of our work. It's focusing specifically on the audit of the finances of the Water Industry Commission for Scotland. I'm going to bring in Willie Coffey who's got some questions. Thanks very much. Auditor General, my questions are about the impact of all of this and the commission's ability to carry out its functions properly and so on and a little bit on the reserves and surplices that you just mentioned a wee minute ago. On the impact, what's our assessment of the impact of all of this and the commission's ability to carry out its duties and functions since this was revealed or on-going? What's your assessment of that? So there's no doubt it's a disruption, Mr Coffey. The Water Industry Commission for Scotland's purpose is to effectively regulate Scottish water to that it's delivering its services on a successful, cost-effective basis. The chief executive of the Water Industry Commission, as I mentioned in my introductory remarks, resigned on the day of the publication of the section 22 report towards the end of December. I'm going to bring in Caroline, as part of our engagement with the Scottish Government, just to set out for the committee what the intention is to backfill, whether on a permanent or an interim basis, to have clear leadership within the commission. This is undoubtedly going to be a challenging period for the organisation. What we haven't seen yet, and it's absolutely part of Richard's audit during 23-24, is to take stock of has this had a direct bearing on the functions and performance of the Water Industry Commission for Scotland. We don't yet know the answer to that, and it's probably six or seven weeks after the publication of the report. For any organisation to be successful, Mr Coffey, they've got to have clear leadership in place. Operating in this environment where that's not the case tangentially, that must be causing an impact to the organisation. We don't have the evidence for that yet, but we want to see that that's resolved as quickly as possible. Caroline, can you set out where the Government is in the process? They are still in the middle of the process. They are working hard to find individuals with the suitable expertise that can go on an interim basis and enable a full recruitment process to take place. One of the things that I wanted to mention in the earlier conversation was that the Scottish Government is reflecting on, as the Auditor General said, part of the public service reform focus. One of the early sprints that they did was about revenue raising, and it was about seeing the value of that, bringing that income into the Scottish public sector. What they are reflecting on now is whether they need to be clearer in terms of governance, policies and expectations that there isn't that drifting culture to more the private sector mentality about the revenue raising and the focus on being successful in winning business. I think that there is some reflection that they are taking place. The other thing to mention is that the Scottish Government has just started quarterly assurance boards, and we are attending each of the assurance boards with the lessons from section 22 to ensure that all of them are considering the sponsor arrangements for all of the public bodies to ensure that this isn't happening elsewhere. All the governance issues that are subject to the committee's concerns and focus this morning, but what about its overall performance? What is expected of it as a commission? You have said that it is quite profitable in some of the engagements that it carries out, but how is it judged in terms of its performance and what it does? Where is that? Who is looking after that performance and outcomes and targets and all that kind of language? Where are we with that? That is all set out in the activity of the commission, and I think that it is reasonable for me to assure the committee that that has not been the focus of our concern. It is not drawing attention to an organisation that has not been discharging its economic regulation responsibilities in respect of Scottish water, but it is doing that. It is also drifting into spending public money in ways that feel contrary to the requirements of the Scottish Public Finance Manual and some of the wider foundations of financial control. Colleagues will come in more on that, but it is reporting surpluses of over £1 million and reserves of £3.5 million, £3.4 million. Is that unusual for the public body of this size and what ultimately will happen to that reserve? It is relatively unusual, but consistent probably with the revenue that the Water Industry Commission has generated through the hydro-nation strategy. For the committee, some of the recent directly attributable income and expenditure, so in the 22-23 financial year that they generated nearly £1.2 million of hydro-nation income with direct expenditure of £352,000. Considerable surpluses, ultimately given the importance of the hydro-nation strategy and its work, will be a key factor to the extent of which it can continue to generate surpluses. The extent of which New Zealand has been a key component of that revenue generation will be time limited. Therefore, if that will be part of the continuing strategy, and as Carol mentioned, the Government is giving that consideration, that will have a bearing on its ability to continue to generate surpluses thereafter. In terms of the accounting for surpluses and its ability to keep generating surpluses, what happens next? Just in terms of how they build up reserves and what would happen if they continued to build up reserves, the main way that they are funded is through levy on Scottish Water and other licensed providers. That is set for what is called a regulatory period, so the current one runs 2021-2027. We did have some discussion with the Commission about the fact that at the moment they are making large surpluses, they are building up cash reserves. As part of that discussion, it explained to us that to give some certainty over that regulatory period, there will always be peaks and troughs over that period, they try and smooth the levy income. The expectation would be, taking the hydro-nation income out of that, is that over the regulatory period, those levies would effectively fund the core activity of the Commission. However, if they get to the end of that regulatory period and there are significant amounts sitting in reserves, then they would be returned to Scottish Water and other licensed providers and would then be considered for setting the rates to the next regulatory period, so that money would be returned to the providers at that point. Ultimately, that would be to the benefit of consumers of Scottish Water. That profit was back. I get ultimately by extension. I know colleagues are waiting to come in on some of the other key issues in the report, so thank you very much for those answers. Before we leave the question of governance, what role do you see here and what part has been played here by the board? When I look at the Audit and Risk Committee's list of responsibilities, it talks about the strategic processes for risk control and governance, the adequacy of management response to issues identified by audit activity, including external audits, and the effectiveness of the internal control environment. Have they measured up to their responsibilities? Richard always attends the Audit and Risk Committee as his role as the external auditor, so he can give a perspective on the work of the Audit and Risk Committee convener. I think that there is an extent to which the ability of any audit committee to do their job often depends on the material that is in front of them. For example, as has been mentioned this morning, on some of the specifics on the use of expenses, if that is going through corporate credit cards, rather than having a visibility or have been subject to internal audit activity or management reporting, it would be hard for an audit committee to have full sight of the work. I think that that leads us to a couple of examples that we are a bit unclear on the extent to which the Audit and Risk Committee was cited on some activity that we mentioned in the report. I am getting Richard Loch and also for more detail on this, but the committee will have seen that we make reference in the report to expenditure on a member of staff attending Harvard Business School, and that that requiring retrospective approval from the Scottish Government. The Water Industry Commission had not gone through due process in terms of approvals of the Scottish Government. There seems to be some debate within the Audit and Risk Committee about the extent to which they were aware of this, rather than the Government taking assurance from the Audit and Risk Committee being aware. I think that there is more to explore and something will continue to do so, but I think that that level of ambiguity is unhelpful. I am sure that the Water Industry Commission and its Audit and Risk Committee can account for itself as to whether or not they have done their job properly. They will do an assessment of their work, as all Audit committees are required to do in the public sector each year. We will similarly do that as part of the 23-24 Audit, but there are some underlying concerns about their ability to do their work with the material that was presented to them and the extent to which it was reported to Government that they were aware of certain transactions, and we are not quite clear that that is the case. If they charge with responsibility for the effectiveness of the internal control environment, does that not suggest that they should be on top of that? They should be asking questions, they should be seeking further information? That responsibility works hand in hand with the responsibility of senior executives. Ultimately, the chief executive was the accountable officer. The committee knows well the responsibilities of the accountable officer. That is a personal responsibility for the effective use of public money under their control. I think that both those responsibilities coexist, but I think that trumping the responsibility of the Audit Committee would be whether the senior officials and principally the accountable officer, whether they have discharged their role properly. I am going to invite the deputy convener to put some questions to you. We note that part of the management response to the annual audit report refers to spending of over 77,000, which has been mentioned earlier, and one person to attend a training course abroad as an oversight. The Government's framework between the commission and the Scottish Government appears to make it quite clear that the commission was required to obtain approval for this spend as set out in its delegated financial authorities. Do you know why that situation occurred? I will bring Richard in a second deputy convener to perhaps set out some of the timeline of our engagement with the commission on this expenditure. Before doing that, I would set out my position on this, that proper process was not effectively followed for this level of expenditure. I should say, convener, that we are not suggesting that learning development training opportunities shouldn't be explored. I am even resisting passing a direct view at the moment on the quantum of that expenditure. For this level of management development, only universities in the United States were considered as potential providers, and the threshold with which to expend the money did not go through Government approval processes. Those are opportunities for the wider part of public services. The sponsor team to take an informed view in advance as to whether the expenditure was appropriate or should have been incurred, as it was. As I mentioned to the convener, there is also some dubiety to the extent to which the Audit and Risk Committee was cited before the retrospective approval was requested from the Scottish Government deputy convener. A fairly mixed timeline of events that has unfolded for this level of expenditure. I am going to pause. I think it would be appropriate for Richard to set out a bit more for the committee. The Auditor General has already covered quite a lot of what I was going to say. The reason why that occurred was that the commission was under the impression that it did not require a Scottish Government approval unless it was over 100,000. However, it is quickly set out in the financial guidelines that if it is above £20,000 and does not go through a competitive tendering process, then it would require a Scottish Government approval if it does go through a competitive tendering process and that threshold is 100,000. As I said, it did not require a Scottish Government approval, but because it did not go through a competitive tendering process, it did require it. As the Auditor General said, we also found severe limitations in the business case and the options appraiser that it did in support of those costs as well. I take on your point about learning opportunities, but is it common practice for people in public bodies in Scotland to pay that amount of money to go abroad for a training course? I am just wondering, because they have classed it as an oversight. I am going to get an authorization anyway. I just forgot to go and get it. Is it common practice for people to go abroad? Not to my knowledge. The oversight is a tribute to the process that they followed rather than taking a wider view about the appropriateness of this expenditure. I do not think that anyone could reasonably say that it was an oversight that they spent £77,000 for the chief operating officer to attend a management development course at Harvard Business School. That was very clearly part of the discussion between the chief executive and the chief operating officer, but just to reiterate, deputy convener, no, this is not something that we see regularly. At the time that that was highlighted, did they do any internal investigation into their processes and procedures? Did they do any investigation as to why that happened in the first place and why we had spent £77,000 on a course for one person? No, I do not think so, and I think that Richard might want to say more as well. That is certainly not the impression that we have had from the Water Industry Commission. I am not aware of any reflection from the organisation about the appropriateness of this expenditure or that provider. It seems to be clear, I think, as Richard might want to say a bit more about the origins of this expenditure, but just looking at the potential providers that were identified were Harvard, Stanford and Yale universities. There was a clear expectation that this was appropriate, that this was necessary for the senior leader of the chief operating officer in the organisation to undertake this type of management development. What was not clear, as you can see, as I have set out from the list of potential providers, was whether there were any other sources that could provide leadership management development training. To be frank, deputy convener, we know that there is a multitude of options available within Scotland or anywhere else in the UK that could provide such training. But again, I will pause and Richard can say a bit more about some of those circumstances. In terms of the process for getting that expenditure approved, there was some reflection on that and looking at the financial policies within the commission and making sure that there has been quite a short timeline between our audit, section 22 and as appearing here at the committee today, when there has been a lot of action going on, looking at that, tightening up, making sure that they understand the approval processes and pulling down that threshold to the £10,000 level that ending above that requires to go through the approval meeting. I am not sure in terms of what is appropriate training. I do not know what reflection has done that. That would probably be a question for commission officials. Was any explanation given by the chief operating officer as to why he thought that it was acceptable to spend that amount of money without getting any authorisation from anybody? We have not had any discussions directly with the chief operating officer and I suppose we would draw a distinction that it was the chief executive that approved this and we have not looked at the merits of this course or the requirements of this course. I suppose the issue that we are highlighting is the process by which that was put forward and approved rather than the particular individual that went on or the particular course that went on. It was more the process that was approved by the chief executive and it was not supported in our view by a robust business case and it did not go through the expected process to be approved by the Scottish Government. Richard Wright, we have not formed a value for money assessment directly on the expenditure at Harvard Business School. I think that it is a much earlier response that we would expect that there would have been much wider range of alternatives at a much lower cost than the decision that was ultimately arrived at between the chief executive and the chief operating officer. As well as any consideration if we do any audit work, I think that it would be something that both the commission and the Scottish Government would want to take a view on. I think that that is where we are somewhat struggling, convener, with the fact that through Richard and colleagues' work brought this to the attention of the commission that this was out with the bounds of approval limits and therefore require retrospective approval from the Scottish Government. That approval was sought and given by the Scottish Government that this was appropriate expenditure. We are unclear as to how the Scottish Government arrived at such a position within the sponsor team that this was appropriate expenditure based on the material that we have seen looks fairly standard email back and forward that does not go into the kind of detail that you would expect for that level of public expenditure. I am taking it that you would have expected the Scottish Government sponsorship team to be aware that the chief operating officer of a relatively small organisation was attending a training course abroad. Does the Scottish Government sponsorship team monitor the activities and engagements of key personnel in organisations that they sponsor? Carol can come in and say a bit more about the sponsorship arrangement that applies to the commission. To answer your question directly, it varies depending on the nature of the organisation, its activities, the risk profile of the public body and, as the committee has heard many times over recent years, the quality of sponsorship varies within the Scottish Government and its public bodies. I know that the committee knows well that the Government itself has reviewed the arrangements in Eleanor Rine's report that was set out. I have also raised concerns in my own section 22 reporting on the Scottish Government that there is still a wide variation in the quality of sponsorship of public bodies. Carol can say more, but I am initially assured how seriously the Scottish Government is taking this matter from the remarks of the director general for net zero, under which the sponsorship responsibilities reside, with his responsibility as the principal accountable officer for this part of the Scottish public sector. In terms of the day-to-day sponsorship arrangements, it varies, so you would not necessarily or probably would not expect the sponsor team to have day-to-day insight into the activities of public officials in the bodies that they are sponsoring. More regularly, what you would see is that that engagement would be through periodic meetings with the chief executive or observation attendants at board meetings, but Carol can say a bit further about the water division sponsorship arrangements. From my engagement with the sponsor team, there was a lot of engagement, but it was very much in the policy space. It was very much about the regulator role and how the commission were fulfilling that role. It was not wider than that. To be honest, the sponsor team did not view the commission as a high-risk body in terms of the reporting that was being done, because the work that they were undertaking was felt to be relatively routine. There were not a lot of contentious contracts getting entered into and things like that. There has been some reflections taking place in terms of the issues that have been identified, undoubtedly, and as I said earlier, not just for that sponsor team, but very much across all of the portfolios and all of the sponsor arrangements to ensure that there is that deep dive almost periodically to get that deeper understanding of what is happening within it. To what extent was the board aware that the COO was attending the advanced management training course, the extent of the costs attached to it and that Scottish Government approval was required but had not been sought? I think that Richard can say more about this, but I think that it speaks to our uncertainty about the timeline of events here. We know that the board was very well aware of the hydro-nation strategy, that there was therefore international travel happening within the organisation. No doubt about that, that is very clear. The training course was not part of the hydro-nation strategy. It was an executive training management development activity. Perhaps we are most straightforward for Richard to take the committee through that timeline of events, but there is uncertainty for me, first of all, that I have to convener about the extent to which certainly the board of the Audit and Risk Committee were aware in advance that this was being undertaken. I think that it may be if the committee chooses to take evidence of something to explore directly with the commission, but we can set out for the committee the extent to which is our understanding. The answer is we do not know how much the board was cited on this, so it is probably a better question for the commission to answer than us. What we do know is that when the email was sent to the Scottish Government seeking retrospective approval for that expenditure, the impression was given that the board was comfortable with this expenditure, but when we attended the Audit and Risk Committee in November, the impression was something that got from members of the Audit and Risk Committee was that they had no awareness of this in advance of being raised through our order. The report states that £100 Christmas gift vouchers were also given to staff in 2021-22. Can you clarify when the board became aware of those payments? I want to say a bit more about the timeline, Deputy convener. If I may offer a reflection beforehand, against is quite unusual for the organisation, for any public body to award Christmas gift vouchers or bonuses to members of staff. We do not routinely see this type of public expenditure. I suspect that much of this came to light by virtue of our audit reporting, but I will invite Richard to say more. Again, I am not entirely sure. When the board became aware of this, it appeared from the discussion on the risk committee. They did not know this detail, which in a sense might be expected given the level of expenditure, but as Stephen says, it is quite unusual expenditure. I should also say that the Scottish Public Finance Minister does cover that if they exceed £75, they require Scottish Government approval for that. In this instance, because they gave £100 voucher to 26 members of staff, we would consider that as totality, to be a gift of £2,600. We are not seeing that as I am slightly exceeding it. We are seeing that as I am exceeding it by £2,525 rather than £25. Again, I am not sure how cited the board were on that. It is unusual for public funds to be used for gifts. Do you know when it first began and whether it has ever been highlighted to management as part of the previous audit work? There is something of a tale to this on his Minot Paragraph 7 to the report that this practice also took place in 2021-22. It came to our attention because of the additional focus that Richard through his risk assessment has made about the extent of expenses that has gone through the organisation. That aspect of internal control was not adhered to in the way that you would expect through the public finance manual requirements. Also, as a consequence of those arrangements, and likely by virtue of HMRC assessments, is that the Water Industry Commission had to enter what is known as a PAYE settlement agreement. Rather than unpicking every single voucher to a member of staff for them to make back-dated PAYE payments individually, the organisation has the opportunity to do that. In totality, it covers the expenditure of that. In addition to the cost of the voucher, the organisation has also had to pick up the personal tax liabilities of the staff that has received it. That goes back to 2021-22, as we set out in the report. I still do not understand why it would not have been picked up in previous audits. Why would that have been missed? Our audit is risk-based. If we operate on a sample basis of expenditure, we do not test every single transaction in an organisation. The reason that these types of expenditure have been subject to more audit focus has been the step change in expenses arrangements that Richard mentioned at the start of this morning's session. As we have looked at expenses and payments in more detail, we have seen that there are deficiencies in some of the internal control. There is seating of expenditure and so forth. Is that the type of triggers that warrant additional audit focus and then even more testing, as we have seen through this year's audit? Is that a lack of skill or training within the organisation? Whoever was given out the gift voucher should have known that there was going to be an implication on tax? There should have been a real clear understanding of the requirements of the Scottish Public Finance Manual in terms of gift thresholds. We would have expected that to have been applied. The convener asked at the start of the meeting about the head of finance. Similarly, he would have anticipated that senior finance officials would have been engaging with a chief executive from bringing to their attention the extent of thresholds that existed. As we make an assumption, there was no intention for this to breach limits or for the organisation to look to enter a PEYC settlement agreement in advance, but all of that should have been considered before retrospective approval had to be sought from the Scottish Government by virtue of the auditor. Paragraph 13 states that there have been no governance issues identified. However, some weaknesses were identified in relation to the WICS travel and expenses policy. It then mentions following a revision of the policy in January 2023. Was the spending on the course, the gift vouchers, the meals etc. an issue that was identified in January 2023? When was it first highlighted? Those were highlighted by the external auditor during the 2022-23 audit. Richard can say the months of the year that came to his and colleagues' attention. The disclosure that you have read out, Deputy convener, comes from the organisation's governance statement, which is their own assessment of the adequacy of governance. That highlight weaknesses, and Richard can set that out, because it is his judgment about the appropriation of the disclosure. If I was expressing a view on it, I would say that it just about covers it, but I think that what we have set out in today's report is some of the specifics of the weaknesses that I think are referred to at a high level within the governance statement. But Richard can set out the timeline as to when we identified these issues and the commission's own policy changes. The first time we identified them was in October 2023, when we brought them to the commission's attention in terms of the governance statement disclosure. In terms of the governance statement disclosures, we did ask them to add additional disclosures, which have been included in the audit accounts, particularly around the non-salary rewards relating to the gift vouchers and then also the expenses issue. In addition to the governance statement, we asked the non-salary rewards to be included within the remuniation report, which has a specific section covering that, so we did ask them to add some additional disclosures in the governance statement and they accepted that that was appropriate. So what was highlighted in January 2023 by who? And their statement, they've mentioned that there was issues highlighted. It was an issue in January 2023, so that wasn't an issue that was highlighted. That wasn't by ourselves, so I think that was something internally, and at that point they looked at the expenses policy, but I'm not aware what changes were made. We haven't seen any change in the expenses policy that would have permitted this expenditure in the old policy or permitted it within the new policy. The chief executive officer didn't resign until 31 December 2023, but I was looking at it, if they'd highlighted it as a problem in January 2023, why he was allowed to stay in position for a whole year. That may be a question for the Government and the Commission themselves. I think that as Richard set out that the assessment that he and colleagues received to audit, as part of the governance statement, didn't, in the view of the audit team, sufficiently cover the extent of the issues that are set out in today's report, or indeed the detail that's in the annual audit report. The reference to January 2023 encompasses the totality of the timeline. Some of the examples in here go back to 2022, and some were brought to the attention during the course of the audit and the subsequent retrospective approval from the Scottish Government. The former chief executive is best placed to speak for himself in terms of his view on the expenses policy. It's reasonable to say that during the course of the audit, when the recommendations were made, there was debate, and Richard might want to say a bit more about this, about the extent to which these were accepted or otherwise. I think that we are clear now that the Commission and the Scottish Government recognise the seriousness of that, but that the expenses took place at all, Deputy convener, suggests the judgment that I got to, that there were cultural issues within the organisation that needed addressed. The chair of the board is accountable to Scottish ministers when these issues were highlighted. Do you know who was informed in the Scottish Government and if any action was taken? I'm just kind of thinking that if this was in the private sector and somebody was totally ignoring all policies and procedures and spending that amount of money that was not authorised, they would probably lose their job. That was some kind of disciplinary process, so I'm just wondering who informed in the Scottish Government was told about it and what did they actually do? Are you aware of any communication between them? We're aware that the Scottish Government received communication from one of the executive team within the Water Industry Commission, requesting retrospective approval for the vouchers and for the Harvard training course. That was responded to giving approval on both counts. I think that what we're less clear on is what the role of the chair or the board was in terms of sponsorship engagement with the Scottish Government, but again, Carol might have more insight on that. If not, then it's perhaps a matter for the Government themselves to speak to. I don't have much more insight to offer other than knowing that the engagement has now been accelerated into much more formal regular meetings between the chair and the sponsor team. I think that it's certainly been something that, when the Government are looking at it, they make judgments in terms of the extent to which they're engaging. As I said earlier, it was largely in the policy space and now they're stepping more into the governance arrangements and getting a strength and an understanding and a clarity of expectation round about that for everyone involved. Is there a transparency issue here, both on that last point about what contact was made between the executive directors or non-executive directors, the chair of the board, which the deputy convener referred to, and the Scottish Government? Is that in the public domain, is it possible to understand what form that took? Secondly, in quite a number of the answers earlier to the deputy convener's questions about the role of the board and so on, you said that we don't know what they knew and when, but the board publishes minutes, doesn't it? Is there a transparency issue that the minutes of the board don't sufficiently represent what was discussed at board meetings? To take those points, convener, we've not identified a transparency issue in terms of the recording of board minutes. I think that that leads us to a view that the items therefore weren't being discussed at board meetings in terms of the specifics of this report. Timeline is important here, so our report was published in December and, in the clearance process, a short number of weeks before that, to the extent of which that was subject to board discussions as one that we'll consider as we go through our audit during 23-24. There's a wider issue here about the adequacy of sponsorship arrangements. Although the Scottish Government was having engagement about policy progress, it may be less concerned about the overall internal arrangements from the organisation. I don't think that it's an unreasonable leap to say that, because the organisation was generating significant revenue in terms of its role as part of the hydronation strategy, that resulted in less focus from the sponsor team in terms of other parts of its activity. However, I'm not clear, convener, about the extent of direct engagement that the chair of the commission was having with the sponsor team. I think that the commission and the Government would need to speak to that themselves. I'm sure that we will pick up that sponsored division of responsibility, because in the words of your report, what you're saying is that there were significant weaknesses in the Government and financial management arrangements and that they fell far short. We don't often see on this committee a report from you, which is as clear and as condemnatory as that one that we're discussing today. I'm going to move on to Colin Beattie. You may think that we've done expenses to death, but I've still got one or two questions on this. From what you say, they had proper policies in place that should have been adhered to. Is that correct? So there were policies in place, but maybe just refer one additional context that Mr Beattie is in terms of alcohol. Alcohol wasn't excluded as part of the expenses reclaiming that we typically see in other public bodies. Leaving that particular aspect aside, were the policies in place considered by the audit and found to be adequate? I would have expected that policies and adherence to policies would have been a part of the audit process. So they are. Again, Richard can say more about the specifics behind that, but there were thresholds that were applied differently within the Water Industry Commission than we see in other organisations. Has that been consistent for a number of years? Policies do change, but I don't have a timeline of when previous policies were enacted. Richard can say a bit more about that detail if we haven't, Mr Beattie. I would agree in general terms that the policies, for the most part, were adequate. Adherence to the policy less so, but I don't think that that sufficiently addresses the point that we've touched on already this morning in terms of the trading course in America expenditure. That clearly wasn't subject to either application of the policy or fuller consideration of value for money. Just to close off on policies here, compliance with the policy of this unit, that would have been part of the audit. Now you may say that this is why we've got this report. But clearly this didn't happen overnight. Clearly there's been a divergence over a period. It just didn't miraculously happen in one report. So what has been picked up in the past in terms of compliance with policies? So, as I mentioned, our report today sets out the findings from the audit during 2022-23 and the concern about the compliance with policies and wider concerns about financial management and associated governance issues. The trigger for that was by virtue of Richard's risk assessment of the significant increase in expenses during the course of the audit, hence focused testing on that part of expenditure, rather than the previous audit team would have arrived at that. But there are wider cultural issues, some of which touched on in discussion with the deputy convener, Mr Beattie, about the use of payment, pay, UI, settlement agreements, vouchers and so forth. What we haven't done and what we haven't seen through audit evidence presented to me in previous years are more widespread issues in the use of expenditure. I guess what concerns me is that there's something to learn here about the progression as to why this organisation reached the point it did and where there are trip points that could have been picked up in previous audits that might have indicated. Now, I realise you're talking about a big increase in expenses in one particular year and that's pretty much what we're focused on. But that, again, didn't happen overnight. There must have been some indication of that cultural change in previous years. Is there anything to learn there about how to pick up on this compliance issue? I think that it's a very fair challenge in terms of whether there's any triggers in previous years. I will take that opportunity, but I would also perhaps say about the expectations upon the auditor relative to the responsibilities of the board and the accountable officer who are personally tasked with the effective discharge in the use of public money. What the board would have been sited on, firstly, is the progress of the hydrologian strategy. That ramped up significantly post Covid in terms of the associated income, so as I mentioned £1.2 million in 2022-23, jumping from under half a million pounds the previous year. The board might have been interested in the scale of progress in revenue generation, but were they exploring the associated costs that went alongside that? Was the accountable officer accounting to the board for the expenditure that supported the delivery of the strategy? I would contend that those are more direct factors to consider, Mr Ruti. I mean, I would agree that the board should have been more challenging in terms of what they were doing. The internal audit process, which obviously the external audit would have spot checked as part of the audit, I presume. My concern is that there was clearly non-compliance. Would that non-compliance possibly have been picked up earlier or could it have been picked up earlier, not just by internal audit but by external audit as well, which is why, coming back in a circle, I'm asking is there something we could be learning from this in terms of going forward? That's something for me to take away in terms of clarification around the external audit arrangements in previous years. What I do know is that the auditor's responsibilities for the external audit is to express an opinion on the annual report and accounts, whether they are true and fair or whether they are complied with the regularity of expenditure under the appropriate budget act. There is no qualification or any matters drawn to readers' attention in previous years. I think that there is an opportunity there, but I think that the balance of that responsibility for the effective administration of public funds rests with the board in the accountable office. Oh, I don't disagree that there's a huge responsibility there and that responsibility wasn't exercised. Just moving on a bit, who normally approves the chief executive's expenses? In terms of the arrangements within the commission, Richard can update. Typically what we'd expect to see that would be subject to either board approval or a remuneration committee would consider the expenses of a chief executive, but again Richard can clarify. So as you were in the commission, it's the chair of the board that approves the chief executive's expenses. So the chair of the board personally approves them? That's our understanding, yeah. It was the chair that approved the chief executive's expense coins. And is that part of the policies that were in place? Yeah, so they are going back to earlier a question about the finance policies and guidelines set out, the arrangements for approval and also the thresholds and yeah, we felt those were adequate putting aside the business entertaining costs element that they had discussed and it was adherence to the policy that we identified issues with. So the chair approves these expenses on the basis that they adhere to policy? That's our understanding. That's the theory. But I would add, Mr Beattie, that it's clearly a deficiency in the application alongside that, as we've mentioned and touched on in the report, that there were multiple instances where expenses were approved without receipts. That's just a fundamental for the approval of any public expenditure receipts go alongside expenses. So presumably we're talking about expenses in general and specific expenses for the chief executive being approved by the chair. Correct, both of those were factors. Okay. I suppose I mean have to ask why they were never challenged at any point because although the chair had approved it, nevertheless when the documentation went down to the finance people wouldn't they have said, well hey, there's documents missing here, it doesn't comply? Wouldn't there be some sort of a route by which they could raise that? In an organisation that's functioning effectively with appropriate checks and balances, yes. But I think there are signals in the annual audit report and the draw on the section 22 report that evidence wasn't applied. So you know you would just have expected a finance team, a chair to query either the volume of expenditure or missing receipts and for those not to be subject to approval. I mean that's why this makes this report so unusual. It's not the sort of activity that we see and that requires very thorough and careful reflection from the Water Industry Commission supported by the sponsor team that is absolutely clear of what are the standards and expectations in the use of public money. That somebody must have told the finance people now it's okay. You don't have to worry about that if they've been signed off by the chair or whatever, that's okay. Somebody must have said that. So we don't know about those conversations but I don't think it's too much of a leap that you're making that there were, I think as I refer to it, as cultural issues that meant that the usual policies, the checks and balances didn't operate properly. Now your report's obviously highlighted one or two fairly extreme issues, such as the cost of the dinner and all the rest of it, but your report also says there's widespread issues with explainance claims being submitted and approved without supporting itemised receipts and so on. Can you maybe tell us a bit about some of the ones that are not high level, you know, to try and understand the scope and extent at which this has been operating? Yeah, we can do. Richard has that detail. Deputy convener, I'll bring him in in a second, but maybe just to lead us into this part. So the chief executive had 47 expense claims from April 22 to October 23 totaling £4,500 that weren't supported by itemised receipts. What were they for? Given us a flavour initially, and Richard can set out some of the detail behind that but also, if you have it, Richard, perhaps, just some of the wider application of expenses. So you're just picking up on that at a generous point. So in terms of it being widespread, so we did enter, I've given these figures before, we identified 84 items over the 19 month period, 1st of April to 2022 to 18th of October 2023. To put that in a bit of context, that was 13% of the claims submitted during that period, so effectively one in eight of the claims wasn't supported by itemised receipts. So just to interrupt you there, sorry. So a large proportion of them were properly supported by receipts. It was only a certain proportion of the receipts from a particular source that weren't supported? So it was one in eight across all the claims being submitted by the senior management team and the chief executive weren't supported by receipts? So it was all the senior management team and the chief executive that these unsupported claims came from? Yeah, that's the last one that we have details for. So the broad sweep of stuff from staff and so on was okay? As far as we're aware from our testing, we didn't identify any. No realisation of checking every transaction. I think that still speaks to one in eight, so you can say that the vast majority are okay, but it still speaks to very significant concern. We don't see this type of activity in other audits, Mr Beattie. Depending on the size of the organisation, hundreds upon hundreds of transactions when we're doing an audit of a set of accounts, whether it's expenses or large invoices, large item expenditure, they're almost always supported by the appropriate paperwork. And so whilst you maybe say, well, seven out of eight were okay, is still a significant proportion of expenditure for this type of expenditure that wasn't supported? No, I agree. But again, coming back to my original question, leaving aside the headline stuff that we've been discussing, what are the sort of run-of-the-mill ordinary expenses that were being claimed without supporting documentation? So the majority of the expenditure does relate to what they've termed business entertaining costs. So this was really food and drink with international delegations. So if they got a group of staff visiting from New Zealand, they would go out for a meal afterwards, and they weren't to the extent of that claim we highlighted, which was £200 per head. There were expenditure that was sometimes within the threshold, sometimes I would have the thresholds, but not to that extent. And there was around £1,500 which related to international work and subsistence costs. So when they're over in New Zealand, costs for meals when they're there. I don't know if there's any, that's the detail I've got with me today. Would you have some more detail, kind of break down of what the individual claims were? So broadly it's the senior management team entertainment. Yeah, and it's pretty much all international delegations that have isn't Scotland to learn about the water industry and around that. I'm sure that it would have been easy to get documentation for that. You'd have bills from the restaurants, the hotels or whatever, whether they comply with policies or anything, but they would be able to produce a piece of paper. How difficult was that? So it ought not to have been difficult, but the supporting information wasn't there. I think that's what's arrived to a significant component of today's report, that even parking the appropriateness of it, that the supporting detail beyond a single line in a credit card statement isn't there. In the course of the audit, was any request made to the senior management team to see if they could backfill? I think that probably is an after the fact component of it. No, it still doesn't make it clean. No, it ultimately is the responsibility of the public body for their arrangements and compliance with it, that they are satisfied that the expenditure has appropriately confirmed the expenditure has gone. So from a public, from an audit perspective, we would say that it was incurred. The appropriateness of it is a judgment that we are not able to be definitive on. So I would contend that a building is an audit role to say, well, can you go and now and find the receipts for it? I think that ought to have been for the body themselves or for the chair as part of his response. Do you know what they tried to find? I think that's a question for the commission themselves, Mr Breedon. I suppose a question leading on from that would be that has any work been done to review these same expense claims from previous years? I think that's an appropriate question for the board to consider. So in the Government's response to the report, they expressed their concern and that they are working on an action plan. Richard mentioned some of that but scope for further consideration of this would be appropriate as part of the Government and the commission's review of arrangements and to satisfy themselves that there aren't any other unidentified areas of concern. An external audit doesn't cover every transaction. I think that's an important point to make. I know that this is classic territory for the auditor about an expectations gap between what an external audit looks at relative to the work that we actually need to do to give a sound opinion on a set of financial statements. Materiality is a significant component of that. We'll do work that says that there are no material misstatements within a set of accounts and that's the work that's been undertaken on audits. Individual transactions will be responsibility of accountable officers. The board is supported by the work of internal audit as well. There's a range of reflections that are available for previous years. Just finally, the senior management of the commission without mentioning names. Which positions does it comprise? I'm trying to find out how many people are involved. Let me just set this out for me. We're a chief executive, director of strategy and governance, director of corporate and internal affairs, director of analysis and finally a director of price review. Five directors in the organisation. You'll note that that didn't mention the chief operating officer. The chief operating officer sits below that tier of senior management. OK, thank you. We're now in the final stretch of our session this morning and I'm going to invite Graham Simpson to put some questions to you. Graham. Thanks again, convener. I suppose I'm just going to mop up on things that have occurred to me as we've gone along. Following on from Colin Beattie's excellent line of questioning where you Mr Smith said that one in eight of expenses claims had no receipts and you said that this was largely for entertaining foreign visitors. Were there any favourite haunts that they took them to? Did that crop up? I don't have that level of detail. There were locations that were visited more than once but I don't actually have that level of detail on file but I don't have it with me today. OK. The other thing that occurred to me is when we spoke earlier about the amount spent on foreign travel and staying abroad. We didn't get into the detail of that. Were they booking first class flights or were they travelling economy? Were they staying in five star hotels? Do we know that? Apologies, I don't have that level of detail. I know the expenditure that they encourage on that but I don't have that with me today in terms of what that is specifically into. I think that it's probably if you're looking for that level of specificity that the commission themselves would be able to provide that, Mr Simpson. I just think that if we're looking at value for money then that's a legitimate question. I agree, I think it is. The foreign travel that you referred to was part of the delivery of the hydro nation strategy. There were multiple trips taken by senior officials to particularly New Zealand as part of the provision of service to the water industry in New Zealand as it was going through its evolution and reasonably using the skills that the Water Industry Commission for Scotland had on offer. I think that if it's that level of detail the commission themselves would be able to share that with you. You also mentioned earlier, I think that the convener picked up on this, that there was this dubiety over who knew what about the Harvard trip. I'm struggling to understand, is this a case of you not getting straight answers to straight questions? Just to recap on that point, this refers to the retrospective approval that the commission sought from the Scottish Government in respect to two things. One is for the approval for the vouchers and secondly for the Harvard business school course. On the second point, on the Harvard expenditure, it's presented to the Scottish Government from the correspondence that we've seen that the Board was aware of this expenditure. Richard might want to add more, given that he was in the room, but our impression from attending the audit committee was that that wasn't the case, that board members weren't aware of the totality of the expenditure on the Harvard business school or that it hadn't followed proper procurement processes. Richard. I'll just add to what the Auditor General said. The email sent to the Scottish Government suggested that the Board was aware of that expenditure, but certainly from the discussions that we went into the Audit and Risk Committee, it didn't appear that the members of that committee had any awareness of this in advance. Who sent the email to the Scottish Government? The email was sent by the director of corporate and international affairs, but on behalf of the chief executive, so the chief executive had input to the wording of that email. The director of corporate and international affairs sent the email on behalf of the chief executive saying, don't worry, our Audit and Risk Committee knows all about this. The email, as I mentioned, sought retrospective approval for this, that in the view of the Water Industry Commission, this was a necessary and appropriate course for the chief operating officer to attend, and the assurance was given that there was governance oversight of this expenditure in advance. The specific text was shared, but that is the detail that is relevant, Mr Simpson. I think that's a concerning factor. The Board of the Water Industry Commission has the ability to speak for themselves whether they were or were rather than being necessarily represented by the views of one of the directors. Are you able to share that email with the committee? Yes, we can do that. I think that will be useful for us to see. I've also got a question, I've just got two further questions. One's about the gift vouchers, these £100 gift vouchers. What were they for? Where were the gift vouchers for? So they were Amazon gift vouchers. My final question is around this bill, this tax bill, which the commission is going to pick up. So we've got this tab for payments that staff have been asked to pay. Do we know what the total bill is? So there's two elements to it. So there is a payment of £3,384 as set out paragraph 15 in October 2023, and then a further voluntary disclosure for prior years of £5,400, so approaching £9,000 in total. That's it. There will be nothing else. I don't think that I can say that there will be nothing else, because any organisation could be subject to further inspection and review. Given some of the discussion that we've had this morning, I think that the commission would want to be absolutely clear themselves that they have made all of their tax responsibilities. I think that Willie Coffey's got a final question to put. It's just on the issue about the retrospective approval email. If you're in that space of seeking retrospective approval, some alarm must have been raised in order to cause that to happen. But nobody seemed to be aware of any other risk. I didn't know about it. Who raised the alarm that led to a retrospective request being made? So that was this. Richard and his audit identified it. It was nobody within the organisation, so it was your intervention that led to that activity. The organisation itself didn't think to request that on its own relation. Absolutely. I arrive at the judgment that there are cultural issues within the organisation. So that a range of the items of expenditure set out in the report ought to have been subject to further consideration and or challenge, but they weren't. Had you not done that, no-one would have thought retrospective approval and we would never have heard anything about it. No-one told us that she was raised through the audit. The commission was impressed and didn't require approval for either of these items, either the gift vouchers or the costs of the training course attended by the chief operating officer. That is quite a shocking note to finish on. As a reminder, the statutory duties of the organisation that we are talking about this morning include ensuring customer charges reflect the lowest reasonable overall cost for Scottish water. Their job is to challenge Scottish water to become more efficient and sustainable. An organisation with those responsibilities ought to lead by example, and I'm not sure this morning that we've heard that they do. I'm going to draw this morning's session to a close. Can I thank Auditor General Yu for the evidence that you've provided? To Richard Smith and Carol Grant, thank you also for your input, which has been very valuable. Thanks for being resourceful in the answers that you've given us. It's been very helpful and there are some further things that we would like to follow up. I want to now draw this morning's public part of the committee's work to a close and move into private session. Thank you.