Minutes of the 155th Board meeting of the Water Industry Commission for Scotland on 1 February 2024

Present:

Donald MacRae (Chair) 
Jo Armstrong (Member)   
Robin McGill (Member) 
                  
In attendance:

David Satti, Director of Strategy
Donna Very, Director of Corporate and International Affairs
Colin McNaughton, Director of Analysis
Michelle Ashford, Chief Operating Officer
Andrea Mancini, Director of Price Review
Shona Coan, Head of Finance

Chair’s opening remarks

The Chair opened the 155th meeting of the WICS Board and welcomed Board Members.

1.    Apologies for absence

There were no apologies in advance from Ann Allen. 

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 154th meeting

The Board approved the minutes of the 154th meeting.

The Board also approved the note of an additional board update meeting on 19th December.

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:  Board Members agreed to an April 2024 deadline for this action. Members also requested an additional action, related to action 2 which covers how the organisation plans to work together moving forward.

  This could include a clarification of roles and responsibilities and organisational structure. This would help to clarify ways of working during the interim period and could be refreshed following the appointment of a permanent Chief Executive. 

• Action 3:  Members agreed to a May 2024 date for this action.  The origin of this action was to capture and report the full cost of WICS analysts, including potential MBA funding.  The Board clarified that they would expect a business case to be prepared to inform our policy on future MBA programmes. 
• Action 4: The Chair requested this action be assigned to the Director of Strategy. 
• Action 5:  The Director of Analysis noted that action 5 is closely related to action 3.  
• Action 6:  Members agreed that action 6 can be covered in our methodology for SRC27. 
• Action 8:  This action is ongoing, and an update will be provided at the Board’s 14 February meeting. 
• Action 7, 9 and 10: Complete.
• Action 11:   Members reiterated the importance of ensuring there is an appropriate audit trail of decision making on secondment arrangements for staff.  A paper will be prepared for information at the Board’s 14 February meeting. 

2.4    Non-Executive Members Update

Jo Armstrong provided an update on the final report by the CMA reviewing Ofgem’s new arrangements for capital targets for retail companies.  In this case, the CMA has found in favour of Ofgem. She indicated there may be some considerations for WICS around the importance robust ex-ante evidence in any CMA review. 

The Chair requested a summary paper from the office which covers the key learnings from a WICS perspective.

3.    Discussion 

3.1    Performance report

The Director of Analysis provided an overview of Scottish Water’s performance during the period and the content of the draft report.

He noted the report has not yet been discussed with key stakeholders, and that we intend to engage with Scottish Water and others following initial input from Board Members.

Members noted that, based on the information available at this stage, Scottish Water has broadly maintained performance. However, this is based only on the information we have to date which is not as complete as we anticipated it would be during the Strategic Review of Charges 2021-27 (SRC27). There are information gaps, particularly in relation to the investment programme that Scottish Water is working to improve.

The senior leadership team assured Members that Scottish Water has since provided an initial draft of investment information we requested. This information should enable us to provide a broader view of Scottish Water’s performance in future reports.  The senior leadership team also noted the importance of using key learnings to inform the approach for SRC27.

The Board were content with the overall direction of the performance report but requested that the senior leadership team add additional text highlighting that there are some areas for improvement.

The Chair requested that following these edits, and discussion with relevant stakeholders, the report be delegated to the senior leadership team and the Chair for approval. 

3.2    Reasonable cost contribution

The Director of Strategy provided an overview of Scottish Water’s legal dispute with a developer regarding infrastructure costs. He explained there is a possibility that WICS may be deemed to have an arbitration role in the future.

Members discussed the context surrounding the dispute and reviewed the options outlined in the paper. After considering the risks and costs associated with each option, the Board agreed not to intervene in legal proceedings at this stage, but to continue our engaging with Scottish Water.

The Board noted that depending on the outcome of legal proceedings, there could be additional costs, both in the short term and on ongoing basis, for WICS to take on the role of arbitrator between Scottish Water and developers moving forward.

The Director of Strategy agreed to update Board Members as the case develops.

3.3    Financial procedures 

The Head of Finance provided an overview of work to update financial policies and procedures. The key changes are summarised as:

• Additional clarity or guidance within our financial procedures. For example, more detailed guidance on how we treat income and state aid as well as implications for staff on taxable benefits. 
• Building on our existing policies and processes. For example, creating more clarity around the terms of reference of the approvals panel and delegated authorities. 
• Changes made to our policies regarding hospitality and business development. Revisions have also been made to our policies on air travel, the way we use corporate credit cards and claim for expenses.

The Head of Finance confirmed that the first session of staff training took place this week and that she intends to deliver a programme of short training sessions on an ongoing basis. She expressed her thanks to staff who have been incredibly engaged and supportive in training sessions to date.

In addition to the work updating the financial policies and procedures, the office has been reviewing data sets of transactions throughout 2022-23 and 2023-24. We have also asked our internal audit team to conduct a review. This will allow us to be fully transparent about any issues identified ahead of our next external audit.

The Chair of the Audit and Risk Committee (ARC) thanked the Head of Finance and her team for their work. He explained that whilst the ARC will review and approve the detail of the financial procedures, that the Board could approve the general direction of travel at this stage.

 Board Members discussed the paper and made the following observations:

• Any future due diligence process for approving international projects should also consider tax implications. 
• We must be clear about our definition of ‘high risk’ and ‘novel or contentious’ expenditure when considering the approval route. 
• It may be appropriate for the Board to approve expenditure which is deemed to be ‘high risk’ and/or ‘novel or contentious’. 
• It will be important to clarify the roles and responsibilities of all of those involved including project level leads with regards to budget and approvals.

The Board were content to approve the direction of travel of the financial procedures and will await further information from the Audit and Risk Committee upon its detailed review of the procedures.

The Chair highlighted that he has attended two approvals panels to date and is assured there are robust procedures in place.  He reiterated that the approvals panel should feel able to seek views from the Board on items of expenditure that may be ‘high risk’, ‘novel’ or ‘contentious’. 

4.    Business update

4.1    Workplan response to external audit

The Chair thanked the senior leadership team for preparing work plan response and their efforts to progress actions.  A fortnightly update will continue to be shared with the Board.

The Director of Strategy advised that we are also using this plan to update our Scottish Government sponsor team on our progress.

The Chair of the ARC highlighted that a monthly compliance report may be sufficient. The Chair agreed that we should continue as planned but if in the future a different frequency is more appropriate, we can propose this change. 

Members requested a standing item on all future meetings on our progress delivering the actions set out in the workplan.

4.2    Media support services

The Director of Corporate and International Affairs provided an overview of our approach procuring media and parliamentary committee support services.

Members noted the competitive tender exercise was conducted and that the wider team was involved in scoring each tender bid. The Director of Corporate and International Affairs assured Members that the scope and expenditure was discussed in full at senior leadership team level and approved by the approvals panel.

Board Members supported the need for this external expertise but expressed that it may have been more appropriate for the Board to approve this expenditure.

The Director of Strategy explained that this work followed current approval procedures. He highlighted that value thresholds for delegated authority were not part of the original scope of work to update financial procedures, but that we could further review those.

Board Members reiterated that our culture is one of full transparency. They asked that those supporting our preparation for media and parliamentary committee do so with the overarching principle of full transparency in mind.

AOB

The Director of Analysis asked for an update on the appointment of an interim Chief Executive Officer.  The Chair confirmed the process is currently underway. 

Meeting close 

The Chair closed the meeting and thanked Board Members and the senior leadership team for their contributions.