Water Industry Commission for Scotland - independent review: financial transactions

Appendix A - testing Approach

We have set out the approach and work executed at each stage of the review together with key findings and observations.

Approach

Initial Interviews and Document Review

• We completed a walkthrough meeting with key WICS stakeholders involved in the review to understand background to the review, the findings of the review, and any steps taken post-review to address the findings. This included understanding reporting lines in place, how the review was scoped, and whether this had been signed off by the Board.
• We reviewed expense policies from 2022 – 2024. This included delegation for approval, expense allowances for flights, hotels and subsistence, and items flagged as in/out of policy (e.g. travel for spouses, alcohol with dinner).
• We reviewed transactional testing completed in the WICS internal review. We obtained the workbook in which the analysis was completed and reviewed the testing completed against the scope of the WICS review.

Analysis and Sample Testing Approach

All expenses are initially processed through a Portal called 'Dext', with these flowing through to 'Approval Max' for approval from appropriate individual. Once approved, they be picked up by the accounting system 'Xero. From Xero, we downloaded a transaction listing, which detailed all expenses from 1 October 2018 – 31 March 2024. From the transaction listing we broke down the following within our workbook:

• By account; flights; hotels; subsistence taxis; working from home expenditure
• Transactions from the former CEO
• Dinner expenditure
• High value expenses

We completed the following tests on the above areas

1. Thematic analysis by account:

• For each account we analysed the following: the value of total expenses that were being process in the years from 2018 – 2024; individuals making the highest value of claims; the former CEO's value of claims by year. Due to the nature of the data that was provided to us, some manual adjustments had to be made so that values were being allocated correctly to individuals. We were not able to ascertain certain trends or whether expenses were in policy or not, e.g. value per night of hotel stays. (See finding 3.5.)
• For all account types (except working from home expenditure – see below), we included items by value within the sample testing we conducted to ascertain whether specific expenses were within or outside policy. We chose samples of 25 of the former CEO's transactions, as well as a sample of 25 for non-CEO transactions, reviewing the receipts for each expense to confirm whether the item was in policy and appropriately evidenced.
• For transactions identified as working from home expenditure, we highlighted the range of expenditure on specific types of items, e.g. chair, desk. However, policy at the time did not specifically state what it was allowable to claim.

2. Transactions from the former CEO:

• A number of the expenses uploaded by the former CEO were uploaded in bulk uploads (2-51 line items posted). For the period tested of 1 October 2018 – 31 March 2024, we identified all uploads of that nature.
• For each bulk upload identified, we tested:
  • If there was approval by the Audit Committee Chair
  • If there was a missing receipt declaration in any of them
  • If the value of the upload matched the value that had been processed in Dext.
• We reviewed each line item within the bulk uploads and identified further transactions that appeared to have no business purpose or where we could not see evidence that value for money had been considered, based on the audit trail on file.
• We took a sample of 25-line items from the bulk uploads, selected based on highest value, and reviewed claims against the expense policy.

3. Subsistence expenditure:

• Alcohol being expensed within dinner was highlighted in previous reports, as such we were asked to provide further analysis to confirm if the practice was in place prior to periods covered by other reviews / reports.
• We sampled 25 transactions relating to dinner expenses, selected by value, and reviewed the receipts that had been uploaded against the transaction. Where alcohol was identified these were flagged (see 3.5).

4. High Value Expenses:

• Following review of bulk uploads from the former CEO and other expenditure through thematic analysis (appendix B), there were a number of transactions identified which appeared to be of high value, and potentially did not represent value for money. We selected a sample of 25 transactions, selecting the sample on a risk / random basis.
• We reviewed all 25 receipts uploaded against the expenses and tested whether they were in line with the expense policy.