Minutes of the 154th Board meeting of the Water Industry Commission for Scotland on 7 December 2023

Present:

Donald MacRae (Chair) 
Alan Sutherland (Chief Executive) - Items 1, 2, 3.1 and 4
Jo Armstrong (Member)   
Ann Allen (Member) – Items 1,2, 3.1 and 4
Robin McGill (Member) 
                  
In attendance:

David Satti, Director of Strategy and Governance
Donna Very, Director of Corporate and International Affairs
Colin McNaughton, Director of Analysis
Shona Coan, Head of Finance 

Chair’s opening remarks

The Chair opened the 154th meeting of the WICS Board and welcomed Board Members.

1.    Apologies for absence

There were no apologies.

2.    Minutes of the last meeting and regular updates     

2.1    Declaration of conflicts of interest in relation to the agenda

No members declared any conflict of interest in relation to the agenda.

2.2    Minutes of the 153rd meeting

The Board approved the minutes of the 153rd meeting. 

The Chair requested an update on the developer dispute. The Chief Executive explained that discussions are ongoing with Scottish Water and that we have sought legal advice which confirms that WICS does not appear to have jurisdiction. 

Scottish Water has agreed to write to us outlining its legal argument on why it believes WICS does have jurisdiction.  We will continue to update the Board as this develops. 

2.3    Summary of action points

The Board noted the summary of actions. The following points were arising:

• Action 1: This action is ongoing. 
• Actions 2, 3 and 5: Will be covered in the action plan in response to the external audit. These actions will remain until they are complete.     
• Action 4:  This action will be covered at the February 2024 board meeting. 
• Action 6:  This action will be covered at the February 2024 board meeting in discussions associated with developing the SRC27 methodology.

2.4    Non-Executive Members Update

There were no updates from the Non-Executive Members. 

3.    Annual Report and Accounts 2022-23  

3.1    Annual Report and Accounts

The Chair of the Audit and Risk Committee (ARC) summarised the ARC report to the Board to accompany the Annual Report and Accounts.

Members discussed the Auditor General’s intention to issue a Section 22 report with this year’s accounts and requested that a reference to this is included within the documentation supporting the annual report and accounts, for example, in the ARC’s report to the Board.  The Chair of the Audit and Risk Committee agreed to make this change.

Members also suggested a slight wording amendment to the annual report and asked that wording should change to reflect WICS’s aspiration is to be “internationally recognised as a leader in the field of economic regulation”.

The Board approved the Annual Report and Accounts for the financial year 31 March 2023.  The Board recommended that the Chief Executive as Accountable Officer sign the accounts and asked that we proceed to lay the completed annual report and accounts before the Scottish Parliament.

The Chair thanked staff, particularly the Head of Finance and her team, as well as the Audit and Risk Committee (ARC) for their work on the 2022-23 Annual Report and Accounts.

3.2    Management response to external audit report

The Chair highlighted the Auditor General’s intention to issue a Section 22 report and asked the senior leadership team to provide an overview of their response to the recommendations raised as part of this year’s external audit.

The senior leadership team apologised for the shortcomings identified in the external audit report and assured the Board that work is already underway and will continue into 2024 to address the issues identified.

The Chair explained that the audit report recommendations have created an opportunity for us to strengthen our operations and address wider issues and challenges. 

The Head of Finance assured the Board that the relevant financial policies, procedures, and controls are in place to support senior leaders and employees. She reiterated the importance of having the full support of senior leadership team to ensure that policies are followed. She reflected that the reintroduction of a regular approvals panel will further support future financial planning and decision making.

The senior leadership team set out a detailed programme of work including actions that will support wider organisational improvements. The Board discussed and agreed broadly with the proposed action plan. Members made the following interventions:

• A renewed commitment to inclusive and clear communication with individual employees and across teams will enable success.  Senior leaders should consider how they can create safe spaces for staff to voice their views and concerns.  More face-to-face working could help to strengthen working relationships.
• The office would likely benefit from further work to embed a set of cultural values as well as individual and team coaching.
• Further amendments are required to the expenses policy to address the value for money recommendations set out in the external audit report.  The office could consider the format of the Audit and Risk Committee compliance report to evidence more fully our commitment to delivering value for money.
• There is a recognition by all that further clarity is required around roles, responsibilities, and accountabilities. In developing a revised organisational structure and job descriptions, the senior leaders should seek to involve employees and create opportunities for staff to develop in line with business needs.  
• Strengthening leadership in line with WICS’s overall objectives will help to align staff and ensure decisions are understood and embraced by employees.  Senior leaders should look to strengthen the appraisal process allowing all employees to learn and develop based on constructive, evidence-based feedback.

The Board noted the senior leadership team's full commitment to make improvements across a range of areas and recognised that this is likely the first phase of work on a longer-term journey. 

Members asked the senior leadership team to consider carefully whether the actions set out are truly measurable and deadlines achievable. It was agreed that the priority over the coming weeks will be responding to the Auditor General’s Section 22 report.

The senior leadership team thanked the Board for their guidance and continued support as the office progress through this intensive programme of work.  Members reiterated that the office has the Board’s full support.

The office will report to the Board on progress in delivering these actions prior to Christmas break and throughout the course of 2024. 

4.    Business update

4.1    CEO update

The Board noted the Chief Executive’s update paper and requested an update on two key areas: Scottish Water’s annual return and governance arrangements for Business Stream.

The Director of Analysis explained that we are expecting Scottish Water’s final annual return tables and commentary this week. Scottish Water will not be able to provide the full suite of investment information we have requested this year.  There is a commitment from Scottish Water to improve this gap and this will be a key focus for us in developing our methodology for SRC27.   We are seeking to re-establish a more detailed information request for SRC27 and plan to issue a tender for the technical support required this week.

The Chief Executive advised that work is ongoing reviewing the governance arrangements of Business Stream.  The CEO and Director will meet with prospective Kings Council next week.  We and Scottish Water have requested a report from KC’s by the end of February.

The Director of Strategy and Governance advised that we may need to increase the budget for internal audit provision to reflect the substantial increase in professional services costs.  This piece of work will be competitively tendered.  He also advised that we intend to change the focus of internal audit to review the actions taken to implement recommendations identified in this year’s external audit report.

The Board thanked the Chief Executive and the senior leadership team for their updates.

Meeting close 

The Chair closed the meeting and thanked Board Members and the office for their contributions.