Corporate governance report

DIRECTOR’S REPORT

The Board

The Board is responsible for our overall direction and performance, including its efficiency and effectiveness as a public body. Members come from various business backgrounds and bring a wealth of knowledge and expertise.

During the year the Board was chaired by Donald MacRae. During the financial year, there were three other members - Robin McGill (also chair of the ARC), Ann Allen and Jo Armstrong. Jo Armstrong resigned from the board due to a conflict of interest with her new role as chair of the Accounts Commission for Scotland, which she started on 1 February 2024. Two interim Board members, Ronnie Hinds and Morag Sheppard, were appointed on 15 July for a term of 12 months. Ronnie Hinds was appointed as the interim Chair following Donald MacRae’s resignation on 21 October 2024.

Scottish Ministers appoint members of the Board. The length of appointments may vary to ensure continuity of membership, but they are usually three or four years. A further term is possible, subject to evidence of effective performance and satisfying the skills, knowledge, and personal qualities required on the Board at the time of re-appointment.

A summary of the membership during 2023-24 is detailed below.

Name	Position	Initial appointment date	Re-appointment date	End date
Donald MacRae	Chair	01/07/2016	01/05/2022	30/04/2026
Jo Armstrong	Member	01/07/2016	01/07/2020	14/02/2024
Ann Allen	Member	01/07/2020	01/07/2024	30/06/2028
Robin McGill	Member	01/01/2020	01/01/2024	31/12/2027

The CEO of WICS is also a Member of the Board. Alan Sutherland was the CEO of WICS until his resignation, effective 31 December 2023. The Board appointed David Satti as Interim Chief Executive, effective 20 March 2024. Prior to this appointment, David Satti was the Director of Governance and Strategy at WICS. This position was not backfilled following this appointment. 

Directors

With David Satti's appointment as Interim Chief Executive, one vacant director position remains. The other three directors of the organisation are Donna Very, Director of International and Corporate Affairs; Colin McNaughton, Director of Analysis; and Andrea Mancini, Director of Price Reviews.

Interests held by the Board

Our Board Members and Directors are asked to complete a declaration of interest, and we publish a register of interests on our website. During the year, neither the Board Members nor Directors held interests in other bodies with which WICS has dealings.

Auditors

Under the Public Finance and Accountability (Scotland) Act 2000, our independent auditors are appointed by the Auditor General for Scotland. Audit Scotland has been appointed as our external auditors for a five-year period from 2022-23 to 2026-27. The appointment is undertaken in accordance with the Code of Audit Practice approved by the Auditor General.

The fees paid to Audit Scotland for the independent statutory audit for the financial year 2022-23 are £22,460 (2022-23: £18,200).

All relevant audit information has been made available to our auditors, and the Accountable Officer has taken steps to ensure that the auditors are aware of any relevant audit information.

Other information

In the year to 31 March 2024, we did not have any notifications of data breaches to the
Information Commissioner’s Office.

Significant events since the end of the financial year

Ronnie Hinds was appointed as the interim Chair of WICS following Donald MacRae’s resignation.
The resignation and new appointment were effective from 21 October 2024.

STATEMENT OF ACCOUNTABLE OFFICER’S RESPONSIBILITIES

Under the Water Industry (Scotland) Act 2002, as amended by the Water Services etc. (Scotland) Act 2005, Scottish Ministers have directed WICS to prepare for each financial year a statement of accounts in the form and on the basis set out in the Accounts Direction. The financial statements are prepared on an accruals basis and must give a true and fair view of our state of affairs and our income and expenditure, statement of financial position and cash flows for the financial year.

In preparing the financial statements, the Accountable Officer is required to comply with the requirements of the Government Financial Reporting Manual (FReM), and to:

• Observe the Accounts Direction issued by Scottish Ministers, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis.
• Make judgements and estimates on a reasonable basis.
• State whether applicable accounting standards have been followed, as set out in FReM, and disclose and explain any material departures in the financial statements.
• Prepare the financial statements on a going-concern basis.

The Permanent Secretary has appointed the CEO as the Accountable Officer of WICS. The responsibilities of an Accountable Officer, including responsibility for the propriety and regularity of the public finances for which the Accountable Officer is answerable, for keeping proper records and for safeguarding our assets, are set out in the SPFM published by Scottish Ministers.

So far as the Accountable Officer knows, there is no relevant audit information of which WICS’ auditors are unaware. The Accountable Officer has taken all the steps he should have taken to make himself aware of any relevant audit information and establish that WICS’ auditors are aware of that information.

The Accountable Officer confirms that the annual report and accounts are fair, balanced, and understandable and that he takes personal responsibility for them and the judgments required to determine whether they are fair, balanced, and understandable.

GOVERNANCE STATEMENT

The Governance Framework

WICS is a non-departmental public body. The broad framework in which WICS operates is set out in a Framework Document, which defines key roles and responsibilities which underpin the relationship between WICS and the Scottish Government. While this document does not confer legal powers or responsibilities, it forms a key part of WICS’ accountability and governance framework.

Non-departmental public bodies are directed by Scottish Ministers to comply with the SPFM. The SPFM provides guidance on the proper handling of public funds to ensure:

• Compliance with statutory and parliamentary requirements.
• Value for money.
• High standards of propriety.
• Effective accountability and robust systems of internal control.

The SPFM is issued by Scottish Ministers to provide guidance to the Scottish Government and other relevant bodies on the proper handling and reporting of public funds. It sets out the relevant statutory, parliamentary and administrative requirements, emphasises the need for economy, efficiency and effectiveness, and promotes good practice and high standards of propriety.

The Accountable Officer is responsible for maintaining a sound governance framework that supports the achievement of the organisation’s policies, aims and objectives set by Scottish Ministers while safeguarding the public funds and assets for which he is personally responsible, in accordance with his responsibilities.

The purpose of the governance framework

The governance framework comprises the systems, processes, culture, and values that govern our activities and behaviours. It enables us to monitor the achievement of our strategic objectives and consider whether those objectives have led to the delivery of appropriate, cost-effective services.

The internal control system is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risks of failure to achieve policies, aims and objectives and can, therefore, only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of our policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them efficiently, effectively and economically.

The governance framework has been in place for the full year ended 31 March 2024 and up to the approval date of the annual report and accounts.

The Board

The board's role is to provide strategic leadership, direction, support, and guidance to ensure that we deliver and are committed to delivering our functions effectively, efficiently, and in accordance with Scottish Ministers' aims, policies, and priorities.

Board Members are responsible for ensuring that we fulfil our statutory duties and any targets agreed with Scottish Ministers and for promoting efficient and effective use of staff and other resources per Best Value principles.

The Board’s Scheme of Delegation details its role and responsibilities in full. Board Members are required to comply with the Code of Conduct for Board Members. They discharge their duties per the guidance set out in appointment letters and On Board: A Guide for Members of Statutory Boards.

The Board meets regularly and held eight formal meetings during 2023-24. At each formal meeting, the Board was mandated to focus on strategic issues relating to monitoring Scottish
Water’s performance, the Strategic Review of Charges, and developments in the retail market. The Board held six further informal update meetings to discuss current issues and matters arising between formal meetings.

Members have participated fully in Board business by attending and contributing to Board and ARC meetings.

Name	Position	Formal Board meetings	Board update meetings	ARC meetings
Donald MacRae	Chair	8/8	6/6	-
Jo Armstrong	Member	7/8	6/6	3/4
Ann Allen	Member	6/8	5/6	-
Robin McGill	Member	7/8	5/6	4/4

The ARC had an external, independent member who attended all four meetings during the year. This member resigned in April 2024.

In addition to attending Board meetings and strategy meetings, Board Members engage with stakeholders non-executively. Reports of engagement activity are provided at each subsequent

Board meeting to ensure that the activity is noted and to allow members and management to discuss issues arising from this activity.

The gender representation of WICS’ Board during the period 1 April 2023 to 31 March 2024 was:

Total	Female	Male
4	2	50%

Corporate Plan

Our Corporate Plan reflects our strategic aims and objectives as agreed by the Scottish Ministers. The plan should include the key objectives and associated key performance targets for the period covered by the plan, and the strategy for achieving those objectives. It should set out how these will contribute towards achieving the Scottish Government’s primary purpose and how they align with the National Performance Framework. We have developed a comprehensive plan for the current regulatory period (2021-27) which outlines the specific measures against which we will measure and report on our success against our objectives.

Risk management

All bodies to which the SPFM is directly applicable must operate a risk management strategy in accordance with relevant guidance issued by Scottish Ministers. The general principles for a successful risk management strategy are set out in the SPFM, and we have used this to derive our own strategy.

Our risk management strategy clearly outlines the roles and responsibilities for achieving an effective control framework. The strategy's focus is a risk register that identifies potential or actual risks to achieving the objectives set out in our Corporate Plan.

Risks are assessed based on their likelihood, the impact they would have if they did occur, and their proximity (how soon they are likely to occur).

The Board is responsible for defining the organisation’s risk appetite. The risk register is populated by contributions from all employees, and each risk is scored and set a realistic target to reduce the level of the risk. The action plans in place to reduce risk ratings are subject to continual review.
They are monitored by staff internally and reviewed by our ARC on a quarterly basis. The Accountable Officer reviews the register before its submission to the ARC. The Board is informed of significant changes to the register or new risks.

As part of the Corporate Plan for 2021-27, we have identified the risks associated with delivering the objectives set out in the Plan. During the year, the Board monitored the strategic risk register and the action plans set out by management to address the risks. A review of the risk strategy and appetite was carried out by the Board in November 2023.

Audit and Risk Committee (ARC)

The Board has appointed the ARC to assist in fulfilling the Board’s statutory and fiduciary responsibilities by reviewing the comprehensiveness and reliability of assurances on governance, risk management, the control environment, and the integrity of financial statements and annual reports. The Board appoints members to the ARC, which is governed by its Terms of reference and remit.

The ARC meets to receive reports from internal and external auditors and our employees. The internal and external auditors may attend all ARC meetings and contact the Chair of the ARC at any time to express specific concerns identified during audit work.

The ARC meets at least four times a year. During the year, Robin McGill chaired the ARC. Members are appointed by the Board based on the breadth of skill, knowledge, and experience they can bring to the ARC.

The ARC operates independently and reports to the Board. The ARC presented the annual report of the ARC to the November 2024 Board meeting, which outlined the work undertaken by the ARC to review our control systems and financial reporting processes to measure and manage the risk inherent in the delivery of the organisation’s objectives.

The ARC report acknowledged that the 2023-24 financial year presented significant challenges for WICS, particularly in light of issues identified by Audit Scotland and the subsequent Section 22 report. Recognising its role in overseeing WICS, the ARC reinforced its commitment to learning from these experiences and to strengthen its role and prevent similar issues in the future.

Looking forward, the ARC is fully committed to an active and rigorous role in WICS’ recovery, with a clear focus on rebuilding trust and ensuring sustained improvements. The ARC acknowledged that it, too, must change to better serve WICS, recognising that effective oversight is critical to the organisation's integrity and performance. The ARC noted in its report that it is committed to providing robust support and constructive challenge to ensure that the reforms are embedded throughout the organisation.

Internal audit

Grant Thornton has provided internal audit services to WICS since April 2018. At the start of each financial year, the internal audit team agrees on a programme of work to assure that key risks are being managed effectively and value for money is being achieved. This plan is risk-based, considering our risk management framework, our strategic objectives and priorities, and the views of senior managers and members of the ARC.

The ARC discussed the Internal Audit Plan for 2023-24 in August 2023. An initial plan was developed through meetings with the CEO, Director of Strategy and Governance, senior managers and ARC Committee members.

The initial 2023-24 Annual Internal Audit Plan was for three reviews, which were determined based on the size of the organisation to provide sufficient internal audit coverage in the year. Scoping work was underway for these reviews; however, in December 2023, Audit Scotland issued a Section 22 report on the 2022-23 audit of WICS. Audit Scotland issued an unqualified opinion on the financial statements. Nevertheless, the Section 22 report highlighted governance and financial management weaknesses. This led to a full review of internal transactions by the organisation to highlight and quantify the full extent of the weaknesses.

As a result, internal audit activity was re-prioritised, and a detailed review of governance and financial management arrangements was undertaken, specifically the review of transactions conducted by management. This review was split across two reports and covered several areas, including observing the controls in place around financial transactions and testing a sample of transactions across the 2023-24 financial year to ensure these controls were operating effectively and appropriate approvals had been sought in advance of expenditure being occurred.

From this review, we received numerous recommendations to help address weaknesses in the design and operation of controls and to highlight opportunities to improve the performance of our processes. Subsequently, we developed an action plan to ensure all actions are monitored, and progress against each is tracked to completion.

In considering the overall opinion for the year, the internal audit team considered the work we have undertaken during 2023-24 to address the findings from Audit Scotland, including the amendments to policies and procedures.

The report we received from the Head of Internal Audit noted improvements in the operation of the controls in place specific to expenses in the last quarter of the year and positive amendments to relevant financial procedures to address previous omissions or clarify ambiguity. The report noted that the policies were designed appropriately but did not operate as intended during the year.

The overall opinion provided by the Head of Internal Audit is set out below: 

"Our opinion for the period 1 April 2023 to 31 December 2023 is that based on the scope of reviews undertaken and the sample tests completed during the period, that no assurance can be given on the overall adequacy and effectiveness of the organisation’s framework of governance, risk management and control. Our view on part two of internal audit work is that we can give reasonable assurance over the adequacy of the design of controls as they relate to the framework of governance, risk management, and control, alongside limited assurance on the operation of control, in part due to the need for controls to be further embedded. As required by IA standards we are required to give an overall opinion for the year. Therefore, whilst noting the positive developments and improvements in the last quarter, the opinion for the year is no assurance. Overall, we have therefore concluded that, in the areas examined, the risk management activities and controls are not suitably designed to achieve the risk management objectives required by management. Those activities and controls that we examined were not operating with sufficient effectiveness to provide reasonable assurance that the related risk management objectives were achieved during the period under review.”

Our key focus is now the forward look into 2024-25. A detailed action plan has been established, and it is important that we have the opportunity to work through that plan in the priority allocated to improvements. Management is aware of the need to ensure the day-to-day running of the organisation is not impacted and that business-as-usual activities continue. This will continue to, therefore, involve a step back to ensure the revisions to the control environment remain fit for purpose relative to the risk the organisation is seeking to mitigate.

In October 2024, WICS appointed a new internal auditor – Azets Technology Solutions. The ARC will work with the internal audit team to ensure the recommendations from the previous audit reports are followed through and future internal audit work focuses on the key risks of the organisation.

Significant governance issues

The Section 22 report issued by the Auditor General on WICS’ 2022-23 financial statements was released nine months into the 2023-24 financial year. As such, the report highlighted several issues that affected both the 2022-23 period and continued into 2023-24. In response, we conducted a thorough review of our internal transactions. The main findings of this review are outlined below.

Inadequate proof of purchases

During the first nine months of the financial year, 12% of transactions (equating to 0.88% of total expenditure) did not have adequate proof of purchase, with receipts either missing or non-itemised receipts provided.

Inappropriate expenditure

A review of subsistence claims was carried out for the period, focusing on meals exceeding £50 per head. The review identified 7 items of expenditure where the per head cost was over £50, totalling
£2,269 on meals, including alcohol.

Insufficient approval

A single tender purchase over £20,000 was approved internally but Scottish Government approval was not sought. Ultimately, the expenditure did not exceed the threshold requiring Scottish Government approval. However, this breach was highlighted in our internal report to ensure future compliance with this limit. In addition, a gift of £120 was purchased without receiving the required approval from the Scottish Government.

Based on these findings, we have implemented significant changes to our governance and financial controls, including mandatory production of detailed receipts and prohibiting alcohol claims. These changes have been supported by staff training on changes to the policy and expectations of employees when incurring expenditures in the course of their duties at WICS. These enhancements are designed to strengthen our processes, ensure greater oversight and alignment with best practices, and prevent similar issues from arising in the future.

Another internal review was carried out in the last quarter of the financial year of financial transactions for the period and a significant improvement in employees adhering to the financial policies was noted. This review did identify areas where further training would benefit employees. The action plan8 that we have committed to during 2024-25 will further strengthen our employee's confidence and skills in ensuring the best value is attained when incurring costs on behalf of WICS.

External audit findings and planned actions

The 2023-24 external audit identified several areas of non-compliance with the SPFM and other internal controls, leading to a regularity qualification on the accounts. Key issues included expenditures that did not meet SPFM guidelines on authorisation, documentation, and oversight.

Specifically, these findings highlighted weaknesses in the management of travel, subsistence, and staff expenses, where controls did not fully prevent unauthorised or unsupported expenditures.

To address these issues and ensure compliance moving forward, management has implemented significant enhancements to financial controls and procedures, including:

• Strengthened internal audit functions to monitor expenditure and compliance rigorously.
• Revised expense policies and re-established approval protocols.
• Ongoing training and guidance to staff on the SPFM requirements.

These measures are intended to restore compliance with SPFM guidelines and mitigate the risk of future control lapses, supporting WICS’ commitment to uphold the highest standards in governance.

Review of effectiveness

As the Accountable Officer of WICS, I have the responsibility for reviewing the effectiveness of the systems of internal control. My review of the effectiveness of these systems is informed by the work of the internal auditors and the executive managers within the organisation. The executive managers are responsible for developing and maintaining the internal control framework. I also rely on the comments made by the external auditors in their management letter and other reports. I have also been advised on the effectiveness of the systems by the ARC.

It is clear that the systems of internal control did not operate effectively during the first nine months of 2023-24. Significant action was taken to address the issues identified in the Section 22 report to ensure those issues did not continue in the final 3 months of the year. WICS continues to build on those changes made to ensure that the organisation operates effectively and delivers value for money in the years ahead.

Remuneration and staff report

REMUNERATION POLICY

The Board and CEO’s remuneration packages are agreed upon within the parameters set by the Scottish Government’s pay policy. The Scottish Government approves the daily fee to be paid to the Chair and members and the CEO’s remuneration package.

Board Members contribute at least one day per week to supporting WICS’ activities, and the Chair at least two days per week.

There is no separate remuneration committee, and remuneration-related issues are brought to the attention of the Board as they arise. No performance payments were made in 2023-24 in accordance with the Scottish Government pay policy.

DIRECTORS’ SALARY AND PENSION ENTITLEMENTS

The total overall remuneration of the CEO and interim CEO in the year was £218,784 (2022-23:
£178,283). This is split by individual as follows:

	£
Alan Sutherland, for the period 1 April 2023 to 31 December 2023	128,410
Alan Sutherland, payment of notice period (6 months)	84,800
Alan Sutherland - unused holiday pay (2.25 days)	1,468
Total for Alan Sutherland	214,678
David Satti for the period 20 March 2024 - 31 March 2024	4,106
Total payments relating to the CEO position for the full year	218,784

The former CEO was an ordinary member of the Falkirk Council Pension Scheme. He withdrew from the Scheme on 31 March 2017. Therefore, no payments were made to the scheme by or on behalf of the former CEO during the year.

The interim CEO and other Directors are active members in the Falkirk Council Pension Scheme. The table below outlines the total remuneration of all the Directors, including accrued pension benefits:

Audited information	Gross salary  £(000)	2023-24 Pension benefits  £(000)	Total £(000)	Gross salary  £(000)	2022-23 Pension benefits  £(000)	Total £(000)
Alan Sutherland, CEO	210 - 215	15 -20	230 - 235	165 - 170	5 - 10	175 - 180
David Satti, Interim CEO / Director of Strategy and Governance	125 - 130	25 - 30	155 - 160	115 - 120	30 - 35	145 - 150
Colin McNaughton, Director of Analysis	125 - 130	30 - 35	155 - 160	115 - 120	30 - 35	150 - 155
Andrea Mancini, Director of Price Review	125 - 130	25 - 30	155 - 160	110 - 115	-	110 - 115
Donna Very, Director of International and Corporate Affairs	125 - 130	10 - 15	140 - 145	115 - 120	60 - 65	180 - 185
Ian Tait, Deputy CEO	-	-	-	10 - 15	-	10 - 15

The retirement benefits of the Directors are as follows: 

	Accrued pension as at 31 March 2024 and related lump sum £(000)	Accrued pension as at 31 March 2023 and related lump sum £(000)	Change in pension net of inflation and related lump sum £(000)	At 31 March 2024 £(000)	At 31 March 2023 £(000)	Increase net of members' contributions £(000)
Alan Sutherland	40 - 45 plus lump sum of 30 - 35	35 - 40  plus lump sum of 30 - 35	0 - 2.5 plus lump sum of -5 - 2.5	706	676	4
Andrea Mancini	20 - 25	15 - 20	0 - 5	229	156	55
Colin McNaughton	10 - 15	10 - 15	0 - 5	164	107	40
David Satti	15 - 20	10 - 15	0 - 5	181	121	54
Donna Very	30 - 35 plus lump sum of 0 - 5	25 - 30 plus lump sum of 0 - 5	0 - 5 plus lump sum of 0 - 5	517	386	104

The Directors’ normal retirement age is 67 for members born before April 1977 and 68 otherwise. This is the earliest date at which the member can take full benefits without consent and without reduction. The Directors would not become entitled to any other benefits on early retirement.

BOARD REMUNERATION

The remuneration of the Board Members, other than the CEO, was as follows:

Audited information	2023-24 total £(000)	2022-23 total £(000)
Donald MacRae	35 - 40	35 - 40
Jo Armstrong	10 - 15	15 - 20
Robin McGill	15 - 20	15 - 20
Ann Allen	15 - 20	15 - 20

Board Members are not members of the pension scheme. No benefits in kind were paid in the year.

NON-SALARY REWARDS (AUDITED INFORMATION)

The following taxable benefits were made to employees (2022-23): gifts—£207 (£3,293); entertaining—£519 (£33); homeworking—£704 (£863); and eyecare—£690 (£388). WICS paid the tax and national insurance payments due on these benefits, £1,718 (2022-23: £3,384), on behalf of the employees.

FAIR PAY DISCLOSURE (AUDITED INFORMATION)

The range of staff remuneration is £25k-30k to £210k-£215k (2022-23: £25k-30k to £165k-£170k). The highest-paid director is the former CEO at £210k-£215k (2022-23: £165k—£170k). The overall increase of 20% from the previous year is impacted by the payment of notice pay made to the former CEO, partially offset by the absence of a CEO from January to March 2024.

The average salary for all employees, excluding the CEO, is £60k -£65k (2022-23: £70k -£75k), a decrease of 11%. Although most employee salaries have increased from the previous year, the impact of two senior employees leaving the organisation without being replaced is that the overall average has decreased.

Reporting bodies must disclose the relationship between the remuneration of the highest-paid director in their organisation and other employees. The CEO's total remuneration, the organisation's highest earner, has increased due to the inclusion of six-month notice pay and unpaid annual leave. Therefore, as demonstrated in the table below, the ratio between the highest-paid director and other employees has increased compared to last year.

Audited information	2023-24 £(000)	2022-23 £(000)
Highest paid Director's total remuneration (£)	210k - 215k	165k - 170k
Salary: 25th percentile (£)	42,879	34,682
25th percentile pay ratio	5.0	4.9
Salary: 50th percentile (£)	43,818	42,268
50th percentile pay ratio	4.9	4.0
Salary: 75th percentile (£)	101.515	96,835
75th percentile pay ratio	2.11	1.8

AVERAGE NUMBER OF PERSONS EMPLOYED

The average number of full-time equivalent persons employed during the year was 25 (2022-23: 26), including the CEO. These were employed in the following areas:

Audited information	Year ended 31 March 2024	Year ended 31 March 2023
CEO and Directors	5	6
Other employees	20	20

Staff composition

At the end of the financial year, the number of employees of each sex was as follows: 

	Male	Female	Total
Directors	3	1	4
Other employees	9	10	19

Total staff costs for the year were £2,378,966 (2022-23: £2,691,278). Staff costs are outlined in more detail in note 3.5.4 of the financial statements. All employees hold permanent (UK) employment contracts.

EQUALITY AND DIVERSITY IN OUR WORKPLACE

We are committed to valuing and promoting equal opportunities and diversity in all areas of recruitment, employment, training, managing people and providing employee benefits. We are also committed to complying with our general public-sector duty to eliminate unlawful discrimination and promote equality of opportunity. In this respect, we encourage and support a culture where all employees can develop their full potential, irrespective of any protected characteristics they may have. Our staff handbook outlines its policy regarding equal opportunities.

The Equality Mainstreaming Report 2019-21 on our website sets out our performance and activities in mainstreaming equality. This year, we have focused on raising awareness by offering all our employees equality, diversity, and inclusion training.

We adhere to the Scottish Government’s Pay Policy. This has prioritised protecting those on low
pay through a progressive approach delivered through the application of tiered pay increases.

We offer a free, confidential Employee Assistance Programme to all staff. This service provides counselling, signposting, and information to help staff with personal or work-related problems that may be affecting their health, well-being, or performance. It can be accessed either online or through a 24-hour Freephone service.

SICKNESS ABSENCE AND STAFF TURNOVER

The average length of time that each employee was absent due to sickness was 4 working days (2022-23: 1 day). This is lower than the Scottish Government’s average staff sickness levels of 8.4 days. Staff turnover in the year was 17% (2022-23: 20%). Due to the low number of employees in the organisation, turnover can vary considerably.

HEALTH, SAFETY AND WELL-BEING

Our policy is to safeguard all employees' health, safety and welfare by providing healthy and safe working conditions. We consider a positive health and safety culture an essential part of how we conduct our business. We acknowledge that, as a business, we are responsible to suppliers and other stakeholders in relation to health and safety matters. Our health and safety policy outlines the responsibilities it has toward employees and provides guidance on health and safety issues.

Our employee handbook outlines the procedures for supportive staff management. We are committed to supporting employees who are absent due to sickness and have flexible policies relating to the return to work for employees who have been absent for health and other personal reasons or following maternity or paternity leave.

We actively encourage education and training for all employees. Our performance management and development policy is used to identify training needs and opportunities for development.

EXIT PACKAGES

The former Chief Executive was paid 6 months in lieu of notice following his resignation, effective 31 December 2023. The total payment was £84,800, with a further payment of £1,468 for 2.25 days of untaken leave. 

Parliamentary Accountability Report

FUNDING

We have a corporate plan in place, which has been agreed upon with Scottish Ministers and published on our website. We agree with the Scottish Government on the issues to be addressed in the plan and the timetable for its preparation and review. The finalised plan reflects our strategic aims and objectives as agreed by Scottish Ministers, indicative budgets and any priorities set by Scottish Ministers.

Under the 2002 Act, as amended by the 2005 Act, WICS is funded by a levy paid by Scottish Water. Following approval by Scottish Ministers of the corporate plan, the Sponsor Directorate instructs Scottish Water to pay the amount determined to WICS on a monthly basis. Fees are payable by licensed providers on a cost-recoverable basis, sufficient to meet the costs WICS incurs in exercising its functions relating to water services and sewerage services.

The corporate plan, or elements thereof, is updated between Strategic Reviews as and when necessary, and a copy is provided to the sponsoring unit before the Strategic Review period starts.

LOSSES AND SPECIAL PAYMENTS

There were no losses or special payments in the year (2022-23: £nil).

GIFTS

Gifts were purchased for members of a visiting international delegation. The total value of the gifts was £192. A gift of £100 was made to each employee during the year 2022-23. The total value of the benefit was £2,600.

CONTINGENT LIABILITIES

At the time of signing the report and financial statements, we were dealing with the Inland Revenue Department in New Zealand regarding finalising taxation obligations arising from the work being carried out on the Three Waters Reform Programme in New Zealand. Although no liabilities are expected to arise from this work, the work with the IRD was not concluded. More information on this work can be found in note 3.5.12 (iii) Contingent liabilities.

David Satti, Accountable Officer

21 November 2024

Independent Auditor’s Report

Independent auditor’s report to the members of the Water Industry Commission for Scotland, the Auditor General for Scotland and the Scottish Parliament

REPORTING ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion on financial statements

I have audited the financial statements in the annual report and accounts of the Water Industry Commission for Scotland for the year ended 31 March 2024 under the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005. The financial statements comprise the Statement of Comprehensive Net Expenditure, the Statement of Financial Position, the Statement of Cash Flows, the Statement of Changes in Equity and notes to the financial statements, including material accounting policy information. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards, as interpreted and adapted by the 2023/24 Government Financial Reporting Manual (the 2023/24 FReM).

In my opinion the accompanying financial statements:

• give a true and fair view of the state of the body’s affairs as at 31 March 2024 and of its net
  expenditure for the year then ended;
• have been properly prepared in accordance with UK adopted international accounting standards, as interpreted and adapted by the 2023/24 FReM; and
• have been prepared in accordance with the requirements of the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005 and directions made thereunder by the Scottish Ministers.

Basis for opinion

I conducted my audit in accordance with applicable law and International Standards on Auditing (UK) (ISAs (UK)), as required by the Code of Audit Practice approved by the Auditor General for Scotland. My responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of my report. I was appointed by the Auditor General on 2 December 2022. My period of appointment is five years, covering 2022/23 to 2026/27. I am independent of the body in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK including the Financial Reporting Council’s Ethical Standard, and I have fulfilled my other ethical responsibilities in accordance with these requirements. Non-audit services prohibited by the Ethical Standard were not provided to the body. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern basis of accounting

I have concluded that the use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the body’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from when the financial statements are authorised for issue.

These conclusions are not intended to, nor do they, provide assurance on the body’s current or future financial sustainability. However, I report on the body’s arrangements for financial sustainability in a separate Annual Audit Report available from the Audit Scotland website.

Risks of material misstatement

I report in my separate Annual Audit Report the most significant assessed risks of material misstatement that I identified and my judgements thereon.

Responsibilities of the Accountable Officer for the financial statements

As explained more fully in the Statement of Accountable Officer's Responsibilities, the Chief Executive, as the Accountable Officer, is responsible for the preparation of financial statements that give a true and fair view in accordance with the financial reporting framework, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Accountable Officer is responsible for assessing the body’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless there is an intention to discontinue the body’s operations.

Auditor’s responsibilities for the audit of the financial statements

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. I design procedures in line with my responsibilities outlined above to detect material misstatements in respect of irregularities, including fraud. Procedures include:

• using my understanding of the central government sector to identify that the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005, and directions made thereunder by the Scottish Ministers are significant in the context of the body;
• inquiring of the Accountable Officer as to other laws or regulations that may be expected to have a fundamental effect on the operations of the body;
• inquiring of the Accountable Officer concerning the body’s policies and procedures
  regarding compliance with the applicable legal and regulatory framework;
• discussions among my audit team on the susceptibility of the financial statements to material misstatement, including how fraud might occur; and
• considering whether the audit team collectively has the appropriate competence and capabilities to identify or recognise non-compliance with laws and regulations.

The extent to which my procedures are capable of detecting irregularities, including fraud, is affected by the inherent difficulty in detecting irregularities, the effectiveness of the body’s controls, and the nature, timing and extent of the audit procedures performed.

Irregularities that result from fraud are inherently more difficult to detect than irregularities that result from error as fraud may involve collusion, intentional omissions, misrepresentations, or the override of internal control. The capability of the audit to detect fraud and other irregularities depends on factors such as the skilfulness of the perpetrator, the frequency and extent of manipulation, the degree of collusion involved, the relative size of individual amounts manipulated, and the seniority of those individuals involved.

A further description of the auditor’s responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website www.frc.org.uk/auditorsresponsibilities. This description forms part of my auditor’s report.

REPORTING ON REGULARITY OF EXPENDITURE AND INCOME

Responsibilities for regularity

The Accountable Officer is responsible for ensuring the regularity of expenditure and income. In addition to my responsibilities in respect of irregularities explained in the audit of the financial statements section of my report, I am responsible for expressing an opinion on the regularity of expenditure and income in accordance with the Public Finance and Accountability (Scotland) Act 2000.

Qualified opinion on regularity

In my opinion, except for the effects of the matters described in the basis for qualified opinion on regularity paragraph, in all material respects the expenditure and income in the financial statements were incurred or applied in accordance with any applicable enactments and guidance issued by the Scottish Ministers.

Basis for qualified opinion on regularity

My audit identified expenditure for the year ended 31 March 2024 included in the Statement of Comprehensive Net Expenditure of £74,832 which was not in accordance with guidance from the Scottish Ministers. This expenditure included:

• £43,604 which did not meet the requirements of the Scottish Public Finance Manual on delegated authority limits
• £23,774 incurred on travel and subsistence expenses which were not incurred in
  accordance with the requirements set out in Commission’s Financial Policies and Guidelines, and did not meet the requirements for authorisation of expenditure set out in the expenditure and payments section of the Scottish Public Finance Manual.
• £7,454 of staff expenses for which no itemised receipts or other proof of purchase were provided, which did not meet the requirements for proof of payment set out in the expenditure and payments section of the Scottish Public Finance Manual.

I consider this level of expenditure to be material to my opinion on regularity. I have therefore qualified my opinion on regularity because the expenditure was not incurred in accordance with the applicable guidance from the Scottish Ministers.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my qualified opinion.

REPORTING ON OTHER REQUIREMENTS

Opinion prescribed by the Auditor General for Scotland on audited parts of the Remuneration and Staff Report

I have audited the parts of the Remuneration and Staff Report described as audited. In my opinion, the audited parts of the Remuneration and Staff Report have been properly prepared in accordance with the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005, and directions made thereunder by the Scottish Ministers.

Other information

The Accountable Officer is responsible for the other information in the annual report and accounts. The other information comprises the Performance Report and the Accountability Report excluding the audited parts of the Remuneration and Staff Report.

My responsibility is to read all the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard.

My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon except on the Performance Report and Governance Statement to the extent explicitly stated in the following opinions prescribed by the Auditor General for Scotland.

Opinions prescribed by the Auditor General for Scotland on Performance Report and Governance Statement

In my opinion, based on the work undertaken in the course of the audit: 

• the information given in the Performance Report for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005, and directions made thereunder by the Scottish Ministers; and
• the information given in the Governance Statement for the financial year for which the financial statements are prepared is consistent with the financial statements and that report has been prepared in accordance with the Water Industry (Scotland) Act 2002, as amended by the Water Services (Scotland) Act 2005, and directions made thereunder by the Scottish Ministers.

Matters on which I am required to report by exception

I am required by the Auditor General for Scotland to report to you if, in my opinion:

• adequate accounting records have not been kept; or
• the financial statements and the audited parts of the Remuneration and Staff Report are not in agreement with the accounting records; or
• I have not received all the information and explanations I require for my audit. 

I have nothing to report in respect of these matters.

Conclusions on wider scope responsibilities

In addition to my responsibilities for the annual report and accounts, my conclusions on the wider scope responsibilities specified in the Code of Audit Practice are set out in my Annual Audit Report.

USE OF MY REPORT

This report is made solely to the parties to whom it is addressed in accordance with the Public Finance and Accountability (Scotland) Act 2000 and for no other purpose. In accordance with paragraph 108 of the Code of Audit Practice, I do not undertake to have responsibilities to members or officers, in their individual capacities, or to third parties.

Richard Smith CPFA, Senior Audit Manager

Audit Scotland

21 November 2024