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Ofwat says it has learnt lessons after skills shortages, financial culture and control and accountability led to it increasing its budget mid-way through the last financial year.
The regulator announced in July that it would charge water companies £27.1 million, an increase of £5.6 million in licence fees. It has also agreed to hike the cap on additional fees it can levy on water firms for 2014-15.
According to Ofwat, which yesterday published an Audit Committee report, much of its underestimation related to the delivery of its 2014 price review.
Ofwat said: “The timing of this process did not align with the budgetary cycle, meaning that the total costs of delivering the new methodology were not fully understood at the time the 2013-14 budget had to be set.”
While normal budgeting processes for 2013-14 had been followed, Ofwat said they “clearly failed to work effectively”.
The regulator said a number of issues were to blame, centring on programme management, information, skills shortages, and financial culture, control and accountability.
According to Ofwat, a detailed action plan has been developed to address these root causes.
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