Minutes of the 161st Board meeting of the Water Industry Commission for Scotland on 21 November 2024
Present:
Ronnie Hinds (Interim Chair)
Robin McGill (Member) - until item 5
Ann Allen (Member)
Morag Sheppard (Interim Member)
David Satti, Interim Chief Executive
In attendance:
Colin McNaughton, Director of Analysis – Items 5 and 6
Andrea Mancini, Director of Price Review – Item 7
Head of Finance – Item 4
Chair’s opening remarks
The Chair opened the 161st meeting of the WICS Board, marking his first as interim Chair. He acknowledged the progress achieved over the past year despite significant challenges and commended the contribution of the previous Chair and Board Members. He confirmed continuity in the overall direction of change but emphasised the need to accelerate the pace of change within the organisation.
1. Apologies for absence
There were no apologies from Members.
2. Minutes of the last meeting and regular updates
2.1 Declaration of conflicts of interest in relation to the agenda
It was noted that Morag Sheppard is a Member of the Environmental Standards Scotland Board but that no conflicts of interest are present in relation to the agenda for this meeting.
2.2 Minutes of the 160th meeting
The Board approved the minutes of the 160th meeting and the note of the September 2024 Board update meeting.
2.3 Summary of action points
The Board noted the summary of actions. The following points were arising:
A040, A039 – Hybrid working: These actions are underway. The Interim CEO explained that WICS has an agreement in place with Zero Waste Scotland (ZWS) to share office space until such time as an agreement is reached on the future of subleasing arrangements. We will present a paper to the Board seeking approval for the financial commitment of any such agreement.
Morag Sheppard and Robin McGill noted the link between future working arrangements, the ongoing organisational restructure and the planned review of staff contracts. Morag Sheppard raised the need to develop a robust project plan with appropriate project management for organisational change initiatives. The Interim CEO confirmed there is no barrier to recruiting dedicated project management resource.
The Chair suggested that these actions be linked to A106 which seeks to establish a Board working group to ensure oversight of the organisational change programme.
A163, A143 – Governance framework: This action is underway. S+W have completed an initial legal review of the framework document which will be discussed with the Board at its meeting on 28 November.
A023 – Revenue generation: This action is ongoing. Our proposed changes to the framework document would require Ministers to issue specific directions to WICS in relation to its revenue generating activity in support of the Hydro Nation initiative. We will engage with the Scottish Government on this as part of our discussion on the Framework Document.
The Board discussed the recent external audit findings related to WICS’ Hydro Nation role and its implications. Members noted the need for clarity on whether guidance will be received from the government by March 2025 as set out in our annual work plan.
Board Members noted there is a key difference between international engagement aligned to WICS’ regulatory role and revenue generating activity. It was agreed that any international engagement activity should be supported by a clear business case including costs and considered by the Board.
2.4 Members Update
The Chair provided an update on his recent engagements with Scottish Government noting that there are formal and regular meetings in place between WICS and Scottish Government at all levels.
Board Members emphasised the urgency of commencing the recruitment for non-executive Members, particularly to address the need for an additional member on the Audit and Risk Committee (ARC). Members also discussed the potential appointment of an external ARC member, noting that such appointments are not currently provided for within WICS’s governance framework. Members agreed this could be a point for discussion with the Scottish Government in the review of the governance framework.
Members noted that Audit Scotland are expanding and shifting their remit to focus on culture and behaviours. Robin McGill raised the need for better clarity on the audit standards they will use to assess best value.
3. Annual work plan progress
3.1 Annual work plan progress update
The Board noted a paper which provides a summary of progress in delivering the 2024-25 work plan. Board Members commended the successful delivery of core regulatory activities, particularly in light of the critical internal change that is ongoing within the organisation.
Morag Sheppard highlighted the proposed adjustment to the delivery timescales for work on the regulatory accounting rules (RARs) and sought reassurance about its potential impact on other activities. The Interim CEO assured Members that the change would have minimal impact on other work areas.
Robin McGill referenced the ongoing resource required to respond to the Section 22 report including audits and reviews. He raised the importance of understanding exceptional costs related to responding to the Section 22 report. The Interim CEO explained this has been a significant resource effort for staff, particularly due to the extent of current vacancies.
The Chair requested a Board paper outlining WICS' current service contracts, with the aim of providing assurance to the Board that we are obtaining best value from all contracts and that the overall contracts strategy is effective.
The Chair also requested an update on our commitment to develop a communications strategy. The Interim CEO indicated that this work will likely be delayed given the revised timescale for the role review. The aim is to create a dedicated in-house communications function within the organisation which will reduce the requirement for external support over time. The Chair emphasised the importance of making progress on this.
3.2 Audit and risk committee update
The Chair of the Audit and Risk Committee provided an overview of the key points discussed during the ARC meeting on 12 November.
It was noted that the ARC has provided feedback to the leadership team, highlighting the need for further work to review the organisation’s risk register. Members agreed that the register does not accurately reflect the organisation's current risk profile, given the significant progress that has been made since the beginning of the year. The ARC expects risk management to be embedded within each directorate as part of the organisational restructure.
The Board agreed to consider the organisation’s risk profile and appetite at a future meeting.
The Chair thanked the ARC for their work over the period and their thorough review of the annual report and accounts.
4.1 Finance update
Finance report
The Head of Finance presented an overview of the financial results for the period, highlighting that there were no significant variances to report. She noted an ongoing underspend against the budget, particularly in areas such as consultancy and training.
The Board reviewed the Q2 compliance report and noted that there has been no non-compliance with financial policies during the period. The Head of Finance confirmed that any recommendations arising from the report are already being addressed as part of the existing action plan.
The Head of Finance reported that internal audit has begun its review of compliance with financial procedures. It is likely that revisions will be required to align our financial policies more closely with the Scottish Public Finance Manual (SPFM), particularly in areas related to fraud detection. While we have a standalone fraud policy and regularly train the finance team in this area, there may be a need to further embed fraud prevention and detection throughout our financial procedures and policies.
Ann Allen queried whether there is a disconnect between the current underspend and the reported progress of the work plan, which is largely on track. The Interim CEO explained that a key factor contributing to the underspend is the current vacancies within the organisation, with staff working extended hours to cover workload. He confirmed that recruitment is underway and more planned to fill vacancies across the organisation. Additionally, there has not been expenditure on an independent peer review for the Strategic Review of Charges which was originally planned and there has also been savings resulting from the MoU agreement with Scottish Water and Consumer Scotland.
Members expressed concern about the underspend in staff training and development, emphasising that this is a critical area for enhancing and maintaining the skills of staff. They also highlighted the importance of training for staff morale and long-term organisational success.
The Board discussed the budgeting process for 2025-26 and the 2027-33 corporate plan and what improvements could be made. Members agreed that there should be a focus on long-term projections as well as the annual budget and developing a clear narrative to sit alongside the budget which explains and reflects the cyclical nature of the WICS’ work.
The Chair asked the Head of Finance to provide a template for revised financial reporting to the Board which focuses on the key areas of materiality that the Board should be aware of and consider. He also requested a current year outturn projection to be included in future financial reporting.
4.2 Annual report and Accounts
The Board discussed Audit Scotland’s report and the emerging recognition that measures implemented throughout the year have been effective and provide a reasonable level of confidence that lasting change is being embedded within the organisation. Members also discussed the Auditor General’s intention to issue a Section 22 report with this year’s accounts.
The Board recognised the need to revise organisational KPIs and objectives in the context of reviewing our current corporate plan next year and in preparing our corporate plan for the 2027-33 period.
Robin McGill raised the need for better clarity on the audit standards they will use to assess best value. Morag Sheppard suggested we use the Scottish Government’s best value framework to evidence how we deliver value across our key statutory duties and functions ahead of next year’s audit.
The Board approved the Annual Report and Accounts for the financial year 31 March 2024. The Board recommended that the Interim 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.
5. Strategic Review of Charges
5.1 Methodology consultation
The Director of Analysis gave an overview of the responses received from stakeholders in response to our draft methodology consultation and outlined the key changes we have made to the final methodology to take account of this feedback.
Board Members discussed the nature of the responses received and the approach for engaging with and providing feedback to respondents prior to publishing the final methodology. The Interim CEO noted that we will continue to engage with stakeholders, writing to them to thank them for their responses and providing the details of how we have addressed them in the final methodology. Members also noted the importance of engaging with SEPA throughout the Strategic Review process given its crucial role in the investment programme.
Members suggested that we clarify that our decision on the form of control is driven by the requirements outlined in the Scottish Ministers’ Principles of Charging, as well as our overarching duty to promote the interests of customers.
Board Members supported the introduction of more emphasis on the long-term within the methodology document noting our duty to both current and future customers.
Board Members agreed with the proposed changes given responses were largely supportive and required only minor changes to address specific feedback.
5.2 Methodology overview
The Director of Analysis presented the final methodology overview highlighting the key areas of change following feedback from stakeholders during the consultation process.
Morag Sheppard asked the leadership team to consider at which point in the Strategic Review process our public sector duties will be assessed. She noted specifically, the Consumer Duty, Equalities and Business Regulations duties.
Board Members supported the changes made and approved the methodology overview for publication.
6. Scottish Water's costs and performance
6.1 Key messages Scottish Water's performance report
The Director of Analysis presented Scottish Water’s performance report which incorporates and reflects the Board's feedback on the key messages paper discussed in October. He confirmed that Scottish Water has conducted a factual accuracy check and provided comments regarding our commentary on its progress delivering net zero emissions.
The Board agreed that WICS’ have a duty to comment on Scottish Water’s progress towards achieving net-zero emissions, particularly given the emphasis of these targets in the 2021-27 final determination. The Board noted that any lack of progress in this area would ultimately impact benefit to customers. It was agreed the reference to 2025 target could be reframed as an interim milestone, but the commentary on progress will remain in the report.
The Board approved the performance report for publication.
7. Retail market
7.1 Retail consultation
The Director of Price Review provided an update on the implementation of the Code of Practice and measures for a level playing field in support of the retail non-household market.
He highlighted that we have received a letter from Scottish Water which raises concern on our decision to consult publicly on level playing field arrangements within the market. He noted that given the level of engagement with Scottish Water on these matters to date, we were surprised to receive this letter. The Board noted the importance of public consultation on such matters and endorsed the content of our letter response to Scottish Water.
The Chair noted that he will soon meet with the Chair of Scottish Water’s Board which will present a further opportunity to discuss.
Meeting close
The Chair closed the meeting by thanking the leadership team for their valuable contributions. He also acknowledged that this would be the Director of Price Review’s final Board meeting before departing WICS. The Chair expressed sincere gratitude for his significant contributions to the organisation over 12 years and the high quality of work delivered.