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7.8 pm
Mr. Mike Hall (Warrington, South): I congratulate my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Uxbridge (Sir M. Shersby) on their excellent contributions to this annual debate on the Public Accounts Committee. It is the fourth or fifth time that I have participated in the debate, and this is probably the worst-attended debate that we have had in the four and a half years that I have been in Parliament. I echo the sentiments of the hon. Member for Uxbridge; this very important debate deserves a wider audience.
The PAC has a very important history. It was set up under Standing Order No. 122 in 1862, following the Northcote-Trevelyan report, which condemned nepotism, incompetence and other defects in the civil service. Today, the PAC has three primary functions that stem from that report--to combat fraud and corruption, to ensure that public money is spent on the purposes voted by Parliament and to ensure that we get value for taxpayers' money. Those are all very important aims and the PAC is charged with upholding them on behalf of both the Government and the taxpayer. I have been delighted to be involved in the PAC over the past four and a half years and in the work that its Chairman, my right hon. Friend the Member for Ashton-under-Lyne described.
The benchmark for the work currently done by the PAC stems from the important eighth report of the 1993 Session. We did not take evidence for that report--it was an accumulation of the reports considered by the PAC
during recent years--"The Proper Conduct of Public Business". It is an important report that underlines all the work of the PAC.
I want to concentrate on four reports which deal with combating fraud and corruption. However, it is worth recalling what we said in that eighth report:
There are 48 outstanding reports before the House--seven from the 1994-95 Session and 41 from the current Session. That demonstrates the work load of the PAC. I actually enjoy the work. I am not suggesting that we take on any more; the balance is about right. We get a proper response from the Government to the reports that we publish. The work of the Committee receives good coverage in the press. All that contributes to the ability of the Committee to ensure that our civil service is impartial, trustworthy and competent.
The first report on which I shall concentrate is the 13th report on the operation of the Student Loans Company. It is the PAC's second report on the role and work of the SLC. The company is wholly owned by Government, with the Secretary of State for Education and Employment and the Secretary of State for Scotland each owning 50 per cent. of the shares. That second report shows that the chief executive of the SLC had been summarily dismissed. When preparing the first report, the Committee took evidence on the setting up of the SLC. At that time, we were concerned because members of the Committee had received an anonymous letter making certain allegations about Mr. Harrison, the chief executive of the SLC. A separate letter was sent to the then Department for Education making further allegations about that individual's conduct. I will not list all the allegations as a number of them were proved to be unfounded, but it is safe to say that there was a question about that individual's relationship with the company that supplied the SLC with information technology--Electronic Data Systems. There was concern about the appointment to the SLC of Mr. Harrison's son, about expense claims, foreign travel and company cars and about membership of the Royal Scottish Automobile Club, to name just a few.
The SLC investigated the allegations, as did the internal auditors of the Department for Education and senior civil servants. The PAC was told by Sir Geoffrey Holland, the then permanent secretary at the DFE:
In December 1993, a decision was taken to extend the termination date of Mr. Harrison's contract from 1995 to 1998. The value of that three-year extension was £250,000. However, when we took evidence on the operation of the SLC on 13 December 1995, we discovered that Mr. Harrison had been dismissed in March that year. It was a summary dismissal without compensation. The report discloses that a forensic investigation by Coopers and Lybrand confirmed some of the earlier allegations against Mr. Harrison and discovered some new wrongdoings as well. It is that aspect of the report that is very worrying and begs the question why it took an independent investigation by Coopers and Lybrand to provide the necessary evidence on which to sack Mr. Harrison.
In the meantime, students were not getting a good deal from the SLC. Our report records that 1.1 million students telephoned the SLC seeking advice, but only 41,000 calls were answered. The Committee concluded that that represented almost a complete breakdown of the management of the telephone system. That failure to deal with student telephone calls was deplorable. In addition, some 35,000 students suffered delays in the receipt of loan payments averaging six weeks--in consequence, some of them could have been in very great financial difficulties. The PAC was right to draw attention to that aspect of the SLC. However, more importantly, we need to ask why the initial allegations into impropriety at the SLC did not result in a more judicious outcome to the inquiry into why the chief executive had his contract extended.
The next report that I want to deal with is the 46th report of the 1995-96 Session--"Ministry of Defence: Fraud in Defence Procurement". That report identifies 191 cases of alleged fraud between 1985 and 1994. The most significant recent case is that of Gordon Foxley. He was able to secure at least £1.3 million, and probably more, in corrupt payments from overseas contractors aiming to influence the allocation of contracts for fuses and ammunition. He also received substantial bribes. The exact amount is not clear, but the National Audit Office report shows that his English bank account received credits to the tune of £3.5 million between 1982 and 1990. The report rightly concludes that it is one of the worst cases of corruption that has come before the PAC. Some 12 contracts worth £33 million were cited in the criminal charges against Foxley, involving companies in Germany, Italy and Norway. It is interesting to note that there have been no charges, trials or convictions relating to that corruption in any of those countries.
At the time of the hearing in April 1995, I was trying to ascertain how much money had been recovered from the bribes or secret commissions that had been paid to Foxley. I wanted to know how much money had been recovered from the properties that he had purchased with the money that he gained from his illegal activities. At that time, the Government were still trying to gain access to Foxley's Swiss bank account. I hope that that has now been achieved and that some of that taxpayers' money is being returned to the Treasury so that it can be put to better use.
Another worrying aspect of the case is that Foxley's son, Major Andrew Foxley--a serving Army officer--was found in possession of documents that he was passing on to his father. They contained information on commercial matters that would have been beneficial to Gordon Foxley's corrupt activities. Major Andrew Foxley
was not dismissed from the service. Again, important questions need to be asked about the investigation into that case.
The third report is entitled "A Review of the Financial Controls over Indirectly Funded Operations of the Metropolitan Police Service", which was the sixth report in the 1995-96 Session, and it is an extraordinary but sad tale. Anthony Williams--a civilian worker in the Metropolitan police--managed to steal £5 million. On 19 May 1995, he was found guilty of 19 charges of theft and sent down for seven and a half years.
When we took evidence during the hearing, I asked Sir Paul Condon, Commissioner of Police of the Metropolis, how many other offences had been taken into consideration when this case was prosecuted. The record shows that I was told that the number was between 40 and 100, which is not a very precise figure. In a written note to the Committee, we had the correct figure of 535 cases taken into consideration. We also learnt that, in a previous instance, £10,000 had been stolen from the police benefit fund.
The thefts were made possible and kept secret because there had been a fundamental breach of Government accounting procedures. Had Government accounting procedures been kept in place at the Metropolitan police, that £5 million fraud would not have happened. Williams was allowed to design the financial regime for funding the on-going indirectly funded operations. He became responsible for accounting for the fund, and he had unsupervised control of the use of that fund. Quite clearly, the temptation was too great.
We know full well that, in accounting procedures, we must separate the people who spend from the people who audit and account for money if we are to ensure that frauds such as that in the Williams case do not occur again. In that case, there was a single bank account, in Williams's name, and he was the only person who received a statement of the account. It was far too easy for him to defraud the Metropolitan police. Because of that massive fraud, committed over a substantial period, Williams was able to develop a double life.
The Williams case provides the Government with a lesson for the nursery voucher scheme. The company that has been charged with determining who is entitled to receive nursery vouchers is the same company that will distribute the vouchers. The operation of the nursery voucher scheme is a clear case in which there must be clear separation of responsibilities to ensure that a similar fraud does not occur. We do not want anyone to be able to do again what Williams did.
Williams bought a hotel, a public house and a restaurant in Scotland. He bought a villa in Spain, and he rented luxury apartments in London. He even bought baronial titles so that he had a suitable status to go with his illegally acquired wealth.
The surprising aspect of the Williams case is that he had a salary of £42,790. It was obvious from his life style that he was living well beyond his means. I should have thought that alarm bells would have rung at the Metropolitan police a little earlier. If they did not ring then--when he arrived at work driving his XJS or his Land Rover Discovery--they should have sounded when someone rang police headquarters in London and asked
for Lord Williams. They told the caller that there was no Lord Williams on the payroll, but someone should have started to ask questions.
Another intriguing aspect of the case is that, in 1993-94--I can be no more precise about the date than that--Williams applied to Moray enterprise board for a business loan of £180,000. Moray enterprise board had the nous to ask for references and, when Williams did not provide them, his application was not proceeded with.
To mitigate the loss, the Metropolitan police have tried to sell Williams's assets. Sadly, they have been sold off at less than Williams paid for them, and the net loss to the taxpayer and to the Metropolitan police is approximately £1.2 million.
The next issue about which I am concerned is that contained in the report entitled "Ministry of Defence: Management of Works of Art", which has already been referred to by the Chairman. The use of the words "management of art" in that title is interesting, as we were told that 205 works of art have been stolen, and that 161 are still missing.
Among the works of art that are still missing is a painting entitled "Coastal Scene with Fishing Boat". It was stolen from the MOD's main building in London. When I cross-examined the permanent secretary to the Ministry of Defence about that theft, he told me that the building was one of the most secure in the country--as one would expect--that it is occupied seven days a week, 365 days a year and that he had nothing else to say. I asked whether he thought that it had been an inside job, and he said that he did not think that it had been an outside job.
Another painting that disappeared, entitled "Admiralty House", was painted in 1970 by Alan Dyson. It disappeared from the flat allocated to the Secretary of State for Defence. I shall not point my finger at any of the Defence Secretaries because the permanent secretary to the Ministry of Defence said that, between 1982 and 1991, there had been four Defence Secretaries, and that one of them had not occupied the flat in Admiralty arch. It is, however, a sorry tale.
A further problem in the report on the Ministry's management of works of art is that members of the Public Accounts Select Committee were told that the works of art were of "low value". We asked how the paintings could be valued after they had been stolen. We were told that they had been valued on the basis of the painter and the title of the work. I do not know whether we were being given a low valuation to demonstrate that the losses or thefts were not a serious matter. It is a serious matter, and I hope that there will be an attempt to ensure that the missing 161 paintings and other Government works of art are recovered.
The next report is on the Prison Service and the excess vote expenditure, which is the 17th report of the Committee. This is an extraordinary report. I am sure that the Minister's response to it, in his reply, will be one of severe condemnation of the Prison Service.
In February 1995, the Committee was told that there was a projected underspend in the Prison Service of £36 million. Even by 27 March 1995, the projected underspend was £20 million. When the book was closed, at the end of March 1995, the Prison Service had overspent by £1.6 million. I do not think that anyone would disagree that such a feat takes a great deal of effort and some ingenuity.
We have outlined in the 17th report the fact that there have been very sloppy accounting procedures in the Prison Service and a breach of Treasury guidance. The Treasury was kept in the dark over the situation; revenue was spent on capital; and there were dubious advance payments and unapproved virement. It was a shambolic state of affairs.
I am not sure what happened in the weeks when the Prison Service managed to spend that money, and I am not sure whether there was any central direction of it. Perhaps it is a coincidence that that was the same period immediately before the Prison Service attained agency status. I am convinced that it is not coincidental, and that a message was sent from somewhere to spend, spend and spend. The 17th report--it is very thin, but it contains a huge amount of detail--sets out a shambolic state of affairs that can only be condemned.
The Chairman has mentioned the Committee's report evaluating the application to run the national lottery. When the Public Accounts Committee takes evidence, I often think that senior accounting officers of Departments or next steps agencies are not there to collect the award for the best civil service department or the award for the best well-managed project.
In this case, the report from the National Audit Office on the setting up of the national lottery was very complimentary. The project had been brought in on time and on budget, sales had exceeded expectations, and the money that had been generated for good causes was better than had been anticipated. It was a model report, and the Director General of Oflot could have expected a reasonably comfortable ride from the Committee.
Things went wrong for the director general when he was asked by my right hon. Friend the Member for Swansea, West (Mr. Williams) about his trip to America. My right hon. Friend asked Mr. Davis:
My right hon. Friend asked:
Mr. Davis then refused to answer any more questions along similar lines unless we went into private session. We did so--the proceedings of the private session are published in the minutes for all to see in the Public Accounts Committee's report--and were concerned about the relationship between GTECH and organised gambling in the United States. There were a number of prominent court cases involving members associated with GTECH.
Mr. Davis said:
The first of my two final points relates to my constituency and RAF Burtonwood. RAF Burtonwood is a Ministry of Defence property which is now surplus to requirements and being used as a private storage and distribution depot. It is the largest above-ground single-storey depot in Europe, providing 1.6 million sq ft of warehousing. When the PAC took evidence about fire risk, I was interested to note that the things that characterised the problems that we have had at Donington and elsewhere raised questions about automatic fire detection, fire suppression systems, weak buildings and the high value of stores. RAF Burtonwood has all those problems.
RAF Burtonwood is now surrounded by high-quality residential developments. Every time I mention this, I make the point that I live in one of the houses around it. I am not sure whether that counts as a pecuniary interest, but I want it put on record.
I was concerned about the fire precautions at RAF Burtonwood and remain concerned to this day. I fear that a fire there would be a huge environmental disaster and could have serious consequences for my constituents in that area. I still look to the Government to bring to an end the storage and distribution activities at RAF Burtonwood, which have made the lives of some of my constituents a nightmare, and to change the use of the facility to something more acceptable in an area that now has a residential development.
"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 failings represent a departure from the standards of public conduct which have mainly been established during the past 140 years."
Over the past 140 years, we have built up a civil service that, by and large, is impartial, trustworthy and competent. It is the primary concern of the PAC to ensure that those standards are maintained.
"No evidence whatsoever has been uncovered to suggest a corrupt relationship between the Chief Executive or any other company staff and ED-SCION."
The chairman of the SLC reached the conclusion that we were
"dealing with a grudge letter which has no foundation in the truth."
He said that
"Mr. Harrison . . . continues to earn the full confidence and support of the board."
It is a bit like the football manager who had the same support at Main road from Manchester City.
"Did you go to Florida to talk to one of their rivals?"
Mr. Davis said that he had. He was asked whether he had found it rewarding, and Mr. Davis said that he had found it interesting.
"How did you travel there?"
Mr. Davis replied:
"By aeroplane."
My right hon. Friend said:
"Yes, of course by aeroplane. I did not think you swam. Did you travel at your expense, at anyone else's expense?"
Mr. Davis replied:
"I travelled across the Atlantic."
My right hon. Friend said:
"That is the usual way to go."
Mr. Davis went on to say that he had
"travelled across the Atlantic on scheduled airline and that came out of the budget of my department. Some of the internal journeys that I made within the United States were made in the private aircraft of G Tech."
GTECH owns 22.5 per cent. of Camelot and is therefore the organisation that the Director General of Oflot is charged with regulating. It is a matter of great concern that the director general chose to accept that kind of hospitality from one of the owners of Camelot, the company that runs the national lottery.
"You may be interested to know that the day after I announced the award to Camelot I asked the chairman of Camelot to come to see me. I said to Sir Ron Dearing, who was then the chairman, that I wanted him to be aware that I knew of some serious concerns which had been expressed to me from the United States and that I required him to be aware that I knew and to make absolutely sure that he ran a regime within Camelot which monitored the situation and ensured that nothing untoward happened."
I am astonished that, having awarded the contract to run the national lottery to Camelot, the Director General of Oflot had to take the chairman of Camelot to one side to make that point to him. It was no surprise, however, that the PAC stated:
"In our view the Director General's decisions to use GTech's corporate aircraft represented serious errors of judgment on his part".
Had a member of a local authority done that, I suspect that he would have been surcharged and disqualified from office. I am also sure that had the Director General of Oflot been a time-served civil servant, he would have known that that type of such hospitality should not have been accepted and he would not have made that mistake. My view is that the position of the Director General of Oflot is untenable in light of the PAC's report.
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