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I have already referred to the morale of the civil service. Many of us speak to groups of them and we know that their morale has declined and needs to be improved. At a time of what many people would call root and branch reform, civil servants may become anxious about their future. We need people with ability and integrity producing evidence- driven policies. It is important to ensure that the policies are evidence driven, and, for that to be done well, we need the civil service. Its morale is of enormous importance.

The work of the Public Accounts Committee is valuable partly because every one of the 450 or so reports that I have had the privilege of bringing before the House has been unanimous. That unanimity has not been fudged; it has been genuine, even on issues such as privatisation. That is because we look to the taxpayer. It is the taxpayer who makes our reports unanimous. So many things can divide us, but that, above all else, is what unites us-- and that is how we proceed.

I shall deal with the eighth report first, because it brings in a number of aspects to which I want to draw attention. It deals with some matters that were examined in the previous Session of this Parliament. Paragraph 1 says:

"In recent years we have seen and reported on a number of serious failures in administrative and financial systems and controls within departments and other public bodies, which have led to money being wasted or otherwise improperly spent. These . . . represent a departure from the standards of public conduct which have mainly been established during the past 140 years. This was the period following the publication of the Northcote and Trevelyan Report which condemned the nepotism, the incompetence and other defects of the Civil Service and brought about fundamental change. It is from that period that we acquired the principles and the standards which have come to be copied by some countries and admired by many more. It is our task to retain those standards."

Paragraph 5 says that

"we consider that any failure to respect and care for public money would be a most important cause of a decline in the efficiency of public business."

That is not simply a question of probity. Probity leads to efficiency, and we can never do without either. The report continues:

"But there is no reason why a proper concern for the sensible conduct of public business and care for the honest handling of public money should not be combined with effective programmes for promoting economy and efficiency."

Our task is to achieve both of those together.

The Committee emphasised that

"we are not calling for any more detailed rules. Almost every case we have examined involved breaches of existing rules or guidance." Everything was laid down. We have inherited a splendid set of rules governing such matters. Of course, there is the question of selection, but that is a separate matter. The rules are there.

The Committee said that the framework for those rules

"must include effective systems of control and accountability and above all responsible attitudes on the part of those handling public money."

Mr. Barry Sheerman (Huddersfield): I am sorry to interrupt my right hon. Friend, but before he moves off that subject, does he agree that the problem with accountability today is that the Government increasingly put such bodies more and more at arm's length, further and further away?

Even the Secretary of State and the Government lose control and lose their responsibility to the House for public money that is being spent in large amounts. I am


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talking especially of the new universities which, as my right hon. Friend knows, have a degree of independence and autonomy that makes accountability difficult. Even the Secretary of State will agree that she has no powers to intervene, even when public moneys are obviously being misspent.

Mr. Sheldon: Of course my hon. Friend understands that we achieved something with regard to the university of Huddersfield; I shall refer to that briefly later. My hon. Friend is right; with many such bodies, the problem is to control them. It will be up to the Departments concerned to exercise what control they can. As I have said before, I should like there to be more of a relationship between the auditing function and the procedures carried out by the National Audit Office. That could be one method.

Those put in such a privileged position must fully accept the proper way in which such responsibilities are handled and must accept the standards of the public service in the work that they do.

Mr. Michael Stern (Bristol, North-West): The right hon. Gentleman, to admirable effect, is going through much of the work done by the Committee during the year. Before he goes too far down the road of assuming that the areas at which we have looked are failings with non-departmental public bodies, in the context of the report to which he is referring, "The Proper Conduct of Public Business", will he agree that we have found some horrifying examples of mismanagement and misuse of public funds among the traditional civil service of Government Departments? It would give a wholly false picture of the work of the Committee and of the National Audit Office if we assumed that the failures at which we have looked were solely among non-departmental public bodies.

Mr. Sheldon: The hon. Gentleman's point is undoubtedly correct; I shall refer to the British Council, among other bodies that we examined. As I have said, most of our work has traditionally been of that kind and I hope that it will continue to be of that kind. It just happens that, this year, we came across a number of issues of a kind that we have not so commonly met. I hope that we shall be able to deal with them effectively and then get back to our normal task of looking at value for money; we shall deal with the issues as they come.

It is most essential to maintain honesty in the spending of public money and to ensure that traditional public sector values are not neglected in the effort to maximise economy and efficiency, which we want to see working together. We shall pay particular attention in our future examination of accounts and the implementation of programmes to the successful combination of the proper conduct of public business and the energetic pursuit of value for money. Those must go together.

We think that to assist us in that task, it would be helpful if the National Audit Office were able to examine and inspect all non-departmental public bodies and other organisations that receive the greater part of their income from central Government funds and to report the results to us.

Following on from that, I had a meeting last week with the Chancellor of the Exchequer, together with the Chairman of the Public Accounts Commission --the right


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hon. Member for Horsham (Sir P. Hordern)-- and the Comptroller and Auditor General. The meeting, which was of long standing, was intended to pursue the matter raised ever since the National Audit Act 1983--the right to pursue public money wherever it goes. At this stage, of course, we do not expect as much as that, although it may remain a long-term end. After all, that power exists in the United States.

What we want is to pursue the issue of a contractor in a competitive bid. If there are no competitive bids--for example, for building a submarine or a tank--because there is only one supplier, the National Audit Office has the power to investigate the costs when the contract has been completed, to assure itself that the costings have been properly worked out. In competitive bidding, the NAO does not have that right. The view is held that if there is competition, there is no need for such an investigation.

In practice, there are problems of collusion between a limited number of competing bidders and that matter concerns us. As I mentioned, greater powers exist in the United States. The European Court of Auditors has the power to come into a company at which we cannot look and it can insist on finding out where the money has been spent. The Audit Commission can follow that public money. The same powers exist in the United States, but we do not have those powers ourselves. We are not asking to see all the books; it would clearly be wrong for us to investigate all the accounts. We want the power to pursue the areas, which could be very limited, in which public money has been involved. We say that, in such matters, we should be on a par with the European Court of Auditors, the Audit Commission and the United States authorities.

The Chancellor of the Exchequer looked at the matter

sympathetically and I am pleased that we had a response from him. He intends to consider the matter and we hope to get some movement here. At present, when there is a competitive tender for a road, for example, we have no means of knowing whether there has been collusion. That is a power which I think that we ought to have. A more immediate matter, because we have dealt with it frequently in the House, has been the way in which Vickers Shipbuilding and Engineering Ltd. and Swan Hunter competed for the contract to supply landing platforms for helicopters. The Committee dealt with that in its 30th report and it concluded that the best bid was accepted. That was probably true, but the difficulty was that we were never able to prove it conclusively and there was great bitterness about that. We did not have the same access as the European Court of Auditors would have gained if it had been a European sum of money. We did not want to see the whole profitability of everything that those companies did, but we wanted to ensure that the bidding had been fair and that loss-leaders were not involved.

The Chancellor of the Exchequer, as I said, understood those arguments and the Committee hopes to hear something from him shortly. He will be consulting his colleagues to see how far he can go in that matter. Of course, we see a considerable response from the Treasury and elsewhere in the individual reports, and that may continue in other directions.


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The Committee drew attention to certain matters relating to the Welsh Development Agency. One important abuse-- there were a number of them--triggered the need to produce the eighth report on the proper conduct of public business in 1993-94.

Although some aspects of the matter were dealt with in our debate last year, I shall outline again some of the abuses. For example, paragraph (ix) shows how that public sector body decided on redundancy payments and then justified the payment of those redundancy schemes by considering schemes to which it did not belong. It justified the payments by saying that in one scheme people were allowed some benefit and in another people were allowed something else. It picked and chose the standards to apply. Of course, if one picks and chooses the standards to apply, one may end up with any solution that one wants. We strongly disapproved of that. Paragraph (xv) shows that the WDA provided cars without drawing any distinction between cars used for official duties and cars used for private motoring, so the private motoring of senior employees was paid for by the taxpayer. Paragraph (xix) outlined the case of a Mr. Price, who had served only nine weeks as the international director before the Welsh Development Agency sent him home on eight weeks' gardening leave, as it called it. Tension arose between the chairman and that international director which ended up with a retirement package of £228,000, all because of a disagreement. That is not what the public sector should be about. The WDA went further and produced a legal agreement stating that the international director would lose money if he discussed that agreement.

One of the related matters that the Committee is bringing before the House is the secrecy element. We have seen a secrecy element in so many such cases, where money has been given by the chairman on the basis that if anything were subsequently disclosed, there would be a loss of money to the person receiving that payment. We have found out subsequently that 48 members of staff at the Welsh Development Agency received severance packages and had been required to give no disclosure of agreements. It is clearly wrong. This is taxpayers' money. We are here to protect the taxpayers' money and we find that such agreements would have been concealed from us if we had not had the advantage of the National Audit Office and the investigation before the Public Accounts Committee.

We then found that a Mr. Carignan, director of inward investments in North America, removed furniture amounting to more than £53,000, and the Welsh Development Agency received $15,000. The Committee's report states:

"We do not consider that agreement . . . represents good value for money".

I want now to refer to Mr. Smith, who was the director of marketing. He had a criminal conviction in the United States and there was laxity in checking his references. With regard to the appointment, I said at question 19 in the examination of witnesses in the 47th report:

"This points to very great laxity on very important matters. We are dealing with . . . considerable sums of public money." In reference to the commissioning by Mr. Smith of Shapes Model Agency, I said:

"This is an astonishing tale is it not? It refers to payments made to the Shapes Model Agency who had at one time had a licence under the Employment Agency Act but this had lapsed so they did


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not any longer have it. It seems there was a failure to find out about the status of the Model Agency. Mr. Smith, on a Sunday, had 11 girls from the Model Agency up to his hotel to interview them to see whether they would be suitable for an advertising promotion that he had in mind. What happens in private industry does not concern us, but public money can never be used in this kind of way. Did you know anything about this beforehand?"

The reply was:

"No, I did not."

That is a scandalous state of affairs. The sums of money are not the issue. What is crucially important is the way in which public money is treated. We felt very bad about what had happened. The WDA also examined possible privatisation of aspects of its own work. As a Committee, it was not for us to comment on that. If that was Government policy, that would be something we would take for granted. However, we found that the WDA had decided on that course of action itself. Under Operation WIZARD, £308,000 was spent examining the possible privatisation of WDA work. Nothing was formally minuted by the board and the existence of the operation was not publicly revealed, even after it was decided to shelve that programme. As the programme was spread over several headings, it was very difficult to discover what had happened.

We state in paragraph 41 of the 47th report:

"We note that neither approval nor progress of Operation WIZARD was formally minuted by the Agency's Board and that its existence was not publicly revealed, even after it was shelved . . . We are concerned that not only was Parliament denied information, but that this Committee would have remained unaware of the project's existence had it not been for unofficial revelations from within the Agency." That is very important. By all means, let the Government decide to privatise what they wish. That is their prerogative. However, it is not the prerogative of people to spend public money outside the control of Government and then try to conceal it.

In this catalogue of errors and wrongdoings by the WDA, we referred to an incident in September 1987 involving Dr. Gwyn Jones. He was not chairman at that time, but he received a grant for the conversion of premises to eight craft workshops. A grant of £16,895 was paid after he became chairman of the WDA. A monitoring visit by the agency showed that there had been a change in use and the premises had been adapted for residential use. However, two years were to elapse before there was a clawback of £3,379.

We state in paragraph 35:

"It is clearly important that persons in high public office should ensure that circumstances do not arise which can give cause to any allegations of abuse of position. We consider therefore that Dr. Jones should have notified both of the proposed changes in use at the earliest possible opportunity."

I shall deal with matters relating to the West Midlands regional health authority as they are dealt with in the report. They are serious matters which require urgent consideration by everybody concerned.

Mrs. Teresa Gorman (Billericay): For the benefit of those who are following the debate both inside and outside the House, may I ask how often the right hon. Gentleman's worthy deliberations actually lead to prosecutions which might stand as a warning to people who are cooking the books or otherwise misusing public money? It would be a comfort to the public to know that


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at least some of their money is being regained from some of the bungling that the right hon. Gentleman so vividly describes.

Mr. Sheldon: There have been prosecutions. The hon. Lady is quite right. Most prosecutions take a long time. Several have not yet been finalised. One or two have been finalised, and I shall mention them. The papers are always given to the police in due course and matters are followed up wherever necessary.

I shall refer to the West Midlands regional health authority and our 57th report of 1992-93, and the shortcomings that we saw. I begin with paragraph 32. A consultancy service was arranged to advise the supplies branch of the West Midlands regional health authority. The authority had a supplies branch and it wanted a consultancy--there is nothing wrong in that. Many organisations have sections in which there is insufficient expertise and they therefore employ outside consultants. There has been a large increase in the use of consultants. The Comptroller and Auditor General is considering as a general issue how such appointments should be made; that is a sensible way to proceed.

There was no tender for the consultancy that was obtained. The Government have been strongly of the view that there should be competitive tendering wherever possible--a matter on which we fully agree. We said:

"First, it is unsatisfactory that there was no tender for this consultancy, which cost £2.5 million, and that the selection and appointment of the consultants was done outside the procedures laid down by the Regional Health Authority."

We went on:

"Second, it is unacceptable that the Director of Regionally Managed Services, Mr. Watney, was able to avoid submitting the agreement to the Regional Health Authority for approval." It was not submitted for approval. We said:

"The omission was contrary to the Regional Health Authority's standing orders and is evidence of grave weaknesses in management and accountability.

Third, it is unacceptable that there was no formal contract for the consultancy service since this left it in the hands of the consultants to decide what they would provide. Again, this omission was outside the Authority's standing orders."

Mr. Watney put great effort into preparing the supplies branch for privatisation. We said:

"Fifth, we are astonished that the Director of Regionally Managed Services, Mr. Watney, was left to pursue his objective of privatising the Supplies Branch without the knowledge of the Regional Health Authority, which had no policy for such a privatisation, and without the knowledge of the Management Executive."

That is a terrible thing to do--somebody going off on his own in such a matter. It is for the Government to make such decisions; it is not for somebody who incurs the expenditure of public money to undertake those examinations. We said that it was

"unsatisfactory that Mr. Davies, Director of Finance of the Regional Health Authority should have been able to make a loan of £300,000 to a company in financial difficulties without reference to the Regional Health Authority for approval and in the face of advice from legal staff."

That is a very serious matter. Later in the report, we note that the

"Director of Regionally Managed Services, Mr. Watney, was allowed to leave on redundancy terms after five years service with the Authority, with an immediate pension of £6,462 a year and lump sums totalling £81,387. We consider these terms quite unjustifiable."


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The Carver review, which examined these matters, was set up to inquire into serious allegations of mismanagement. We said: "We note that the Regional Health Authority and the Management Executive agree that Mr. Watney should have been dismissed not made redundant. We think it unsatisfactory that consideration was not given to dismissal at the proper time, and regard the Regional Health Authority's explanation that they did not have the full facts until later as further evidence of their failure to know about and control what their senior staff were doing in their name".

That is a terrible indictment.

Finally, we say--and this is repeated in a number of our reports: "It is unacceptable and disturbing that the Regional Health Authority agreed to a silence clause in connection with Mr. Davies' departure."

Silence clauses are not for the public service to decide; they are for the House to decide. The Committee does not deny that a silence clause is justified in certain instances, but it is a feature of many of the things that are wrong. The silence of people is demanded in return for a sum of money; if people break the silence vow, some of the money is lost to them.

We said:

"We note the Regional Health Authority's view that this was not an issue that they had wished to air in public".

I am not surprised by that.

"However we consider that such protection is unjustified for individuals in responsible public positions in relation to questions as to whether they have neglected those responsibilities." All that is deeply disturbing. I wish that we did not have this sort of thing. It diminishes the standing of the public service generally and the way in which we carry out our responsibilities. We want to return to the standards that we always expected, and I hope that that will come in due course.

Mr. Richard Burden (Birmingham, Northfield): Does my right hon. Friend agree that one of the real tragedies of the West Midlands story is not only that some officers have had silence clauses and others have simply been overpaid, when perhaps they should have been dismissed, but that there are real human casualties in this whole affair?

In particular, one of the areas investigated by the Committee was the case of Qa Business Services, which went bust after 18 months. The Committee's deliberations show that that probably should have been foreseen. As a result of the company's going bust, a number of employees who were not responsible for that ended up losing not only their jobs but up to two thirds of their pension entitlement. They are still suffering today, and will do so into their old age. In addressing these issues, it is important that we remember those human casualties, because, so far, no one--neither a Minister nor anyone else--has done anything for the pensioners of Qa Business Services and employees in other cases. They still stand to lose, and will lose in the future.

Mr. Sheldon: Unquestionably, there are repercussions in all these matters. When a health authority misuses its money, we must also think of those people covered by the arrangements of the hospital authority, and the way in which services have diminished as a result of money being wasted elsewhere.


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I now turn to a deep unhappiness in this catalogue of cases, the Wessex case. I shall deal with only some of the criticisms made by the Public Accounts Committee; unfortunately, they are numerous. I quote paragraph 1 of the 63rd report of the current Session: "In May 1984 the Wessex Regional Health Authority launched their regional information systems plan. This was intended to provide computer systems which would optimise the use of information to improve clinical and other health services. In April 1990, when the plan was abandoned, at least £43 million had been spent by the Regional Health Authority. District Health Authorities will also have spent money on the scheme, but it is not possible to identify how much."

When we examined this case, one of the problems that we faced was that we were unable to find out the total expenditure involved; but, obviously, we knew that it was greater than the sums that were in front of us and which are mentioned in the report.

I shall deal with only the conclusions, because it would take too long to go through all the matters. We said:

"We consider it a matter of grave concern that, by the Management Executive's own admission, at least £20 million was wasted between the start of the regional information systems plan in 1984 and its abandonment in 1990."

We continued:

"The evidence presented to us depicted Mr. Hoare"--

the former regional general manager--

"as a man with a strong vision, and such a determination not to be deflected off course, that he presided over a series of actions incompatible with the proper handling of public money and without regard to clear evidence that the project was going badly wrong . . .

We note with dismay that not only did the Regional Health Authority's management strenuously contest the auditors' criticisms, they were also able to conceal vital information from the Members of the Authority and from the Management Executive."

The regional health authority involved Andersen Consulting--this is another issue--in appraising available computer software to run on the preferred bidder's systems. It had a preferred bidder, but it involved Andersen Consulting in appraising it. The report says: "We note that subsequently, following a retendering exercise, the contract to supply core computer systems and software was awarded to Andersen Consulting at an inquorate meeting of the Authority." It overturned the previous decision, gave the contract to Andersen Consulting, which had been brought in to appraise the software, and did so at an inquorate meeting of the authority. The contract contained no quality conditions and no maximum price. We point out that

"it is clearly wrong for somebody who is tendering for National Health Service business also to be advising the National Health Service as their consultant."

On another issue, the report says:

"We are concerned that the Regional Health Authority allowed Mr. Tuffill, while on secondment from IBM, at the request of the Chairman of the Regional Health Authority to advise them on the purchase of an IBM computer for £3.3 million, at which time it could have been purchased for £0.5 million to £1 million less than the price paid. . . . We are also disturbed that the contract for the computer was signed by Mr. L. Wright, then Regional Treasurer, on the instructions of Mr. J. Hoare, then Regional General Manager, without reference to the Chairman or to the Authority and without competitive tendering, contrary to the Authority's standing orders."

We feel that that is most serious.

Lastly, we say:

"It is also important in our view to ensure that all health service staff respect the fundamental principles of public business in this country, and are judged . . . by the standards of honesty, openness


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and fair dealing that are expected in public life. Concern for these standards should play a large part in the selection, training and assessment of staff at all levels."

Mr. John Denham (Southampton, Itchen): In the case of Wessex, does my right hon. Friend agree that it is a matter for great concern that, in addition to the information that has been revealed, the auditors sent a series of reports to the Secretary of State? The earliest was sent in February 1987. Successive Secretaries of State and the NHS management executive failed to act properly on those reports. Is it not a matter of great concern not only that things went wrong in Wessex but that, despite the efforts of the audit service to bring those matters to the attention of Ministers and the NHS management executive, no effective action was taken until £20 million or more had been wasted?

Mr. Sheldon: I have expressed myself, and the Committee has expressed itself, as very worried about the relationship between the NHS management executive and the various health authorities. We come across that time and again. Only a few years ago, as a result of our complaint about a certain matter, the NHS management executive sent a circular to all 192 health authorities asking them how they behaved in a certain situation. The management executive received replies from only two thirds of the health authorities. One third did not even bother to answer. That was clearly very wrong. Things have improved a little since then, but not sufficiently. We have never been in a position to say that the NHS management executive had control over, or even knew, what was happening, as it ought to have done.

Our 16th report, on the British Council account 1992-93, deals with a serious matter that we have not come across before. It highlights not necessarily fraud but something wrong in the way in which matters were handled. As the report says:

"In December 1992 the British Council's banking section, having received seven fraudulent payment vouchers, paid a total of £520,072 into the overseas bank accounts of bogus suppliers. Other irregularities, including a fraud and an alleged fraud involving travel and subsistence claims, were also identified during the year, bringing total irregularities identified in 1992-93 to over £589, 000."

Such fraudulent payments are a serious matter. We found out that in June 1988 the British Council introduced an electronic transfer system within its banking section. It was used to pay invoices to overseas suppliers in foreign currencies and, in some cases, to pay United Kingdom suppliers in sterling.

In December 1992, the banking section received seven fraudulent payment vouchers and paid a total of £520,000 in foreign currency by electronic transfer into the overseas bank accounts of bogus suppliers. The supporting documents were fraudulent. They had been photocopied and in several cases the vouchers bore signatures that were not on the approved lists.

When the council came before us, it acknowledged that the fraud could have been assisted by a member of staff who was part of the conspiracy. It could also have been assisted by a temporary employee or possibly a contractor employed overnight. It told us that police inquiries were continuing, but had not established any connection whatever with a member of the council's staff--present or past, full time or part time. That is the answer to the hon. Member for Billericay (Mrs. Gorman). I understand


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from the Treasury minute that some arrests have been made and I hope that others might be made as the investigation proceeds. The report says:

"We are concerned that the Council failed to provide for an adequate separation of duties and so allowed a member of staff to defraud them of nearly £52,000."

That is another issue entirely. The council did not have a proper separation of duties. It relied too much on one individual. Everyone in private business or public service knows that one can never do that. There must be proper control systems. We said:

"It is a serious matter that the perpetrator was allowed to check his own work as well as having the responsibility for controlling payments and accounting for them. We find it disturbing that an alleged fraud by another member of staff was discovered only after a change of staff and not through the operation of the Council's control arrangements . . . We note that the Council have taken disciplinary action against a number of their employees relating to the frauds which have taken place; and we note, in particular, that they have taken action against two members of their board of management. We regard such action as essential".

The responsibility of those concerned for the areas of business in which the irregularities took place must be made clear.

I now come to the report on the Pergau hydro-electric project. It was a new type of report for us. We had never made such a report before. We saw in operation the safeguard of the accounting officer's right to appear before the Public Accounts Committee. Accounting officers always have the right to claim that they received a direction; that is a safeguard for them. Clearly, the Minister is in charge and can insist on a payment being made. Accounting officers know full well that they can come before the Public Accounts Committee and say that they did not agree with that expenditure but that it was imposed on them.

In my experience as a Minister and elsewhere, I have known of at least two other cases in which such a letter was sent to the relevant Minister. I suspect that there are many other occasions on which a permanent secretary decides that he must get a direction, but then realises that it will make his relationship with the Secretary of State or the Minister concerned very difficult, so such a disclaimer letter is never sent. There have been one or two cases, but never one at that level or one that came before the Public Accounts Committee in such a way.

We found out that in July 1991 the Secretary of State for Foreign and Commonwealth Affairs overruled the advice of the accounting officer of the Overseas Development Administration and instructed him to incur expenditure of up to £234 million from the aid programme on the Pergau hydro- electric project in Malaysia.

Our report continues:

"In view of the prospective size of the Pergau project,"-- a very large sum of money was involved--

"we consider that it is essential that it should have been subject to a full economic appraisal. Although a number of desk studies had been previously undertaken, the appraisal visit lasted for only two days and an interim report on the project was made after only one day."

Clearly, such an examination is not serious. One does not decide to spent £234 million during a two-day visit to Malaysia. Obviously, reaching the site would take much of the time.


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