House of Commons - Public Accounts

Select Committee on Public Accounts Fifty-Sixth Report

APPROPRIATION ACCOUNTS 1996-97 CLASS IX: DEPARTMENT FOR EDUCATION AND EMPLOYMENT (OVERPAYMENTS TO TRAINING AND ENTERPRISE COUNCILS)

INVESTIGATIONS INTO ALLEGATIONS OF SERIOUS IRREGULARITIES AT TRAINING PROVIDERS

22. In his report, the Comptroller and Auditor General noted that since 1995 the Department had completed investigations into 65 cases of alleged irregularities, and that they were investigating a further 20 cases, eight of which involved the Police. Possible overpayments in these cases in 1996-97 and previous years were estimated to be of the order of £10.3 million.[19]

23. The Committee asked the Department what actions they had taken in the cases under continuing investigation and how many new cases had arisen since the Comptroller and Auditor General's report.[20] They told us that 106 cases had now been noted in their record of alleged and suspected irregularities. They had dealt with 67 of these involving overpayments of over £1.1 million. In 36 cases the allegations had been unsubstantiated, in 20 cases there had been poor administration, and in 11 cases they had found malpractice (Figure 3).[21]

24. They added that the Police had been involved in 20 of these cases, two of which involved successful prosecutions. In the case of Durham Direct Ltd, the Chief Executive/Director had been sentenced to 2 years detention and the office administrator had been given a 12 months suspended sentence. At Lancashire Enterprise Training, an employee and another individual had been sentenced to 80 hours community service each.[22]

25. There were also 39 current cases involving some £7.6 million, of which 16 cases (£6.7 million) indicated malpractice (Figure 4). The Department had involved the Police in 12 of these 16 cases.[23]

26. We asked the Department about deficiencies in NVQ assessments, the largest category of cases. In particular, we asked them to comment on the results of a survey carried out by Sussex University that found that some 48 per cent of internal assessors of National Vocational Qualifications (NVQs) and 38 per cent of external assessors had admitted to passing non-competent candidates. The Department told us that the NVQ system was growing at a rate of 28 per cent a year. They had taken action to strengthen external verification.

27. In a subsequent note, the Department added that about two years ago the National Council for Vocational Qualifications, now part of the Qualifications and Curriculum Authority, had started a register of alleged bad practice in the assessment of NVQs. One hundred and fifteen cases had been recorded in the register and new cases were being reported at an average rate of more than one a week. Of these, 31 investigations had been concluded, 39 were under investigation and the remaining 45 awaited investigation. In almost all the cases which had been investigated evidence had been found to support the original complaint, and the nature of the information in more recent allegations suggested that bad practice would be found in most of these cases too.[24]

28. The C&AG's report referred to two cases where training providers had made irregular claim, involving overpayments of over £7 million.[25] We asked about recovery. The Department confirmed that they had recovered all of the £3.5 million overpaid in one case involving 22 TECs. And in the second case involving 11 TECs, they had recovered £860,000 so far and had reached agreement with five TECs to recover more than £1.6 million. In both these cases the training providers were awaiting possible prosecution.[26]

29. In September 1996 the Department established a financial scrutiny unit headed by an accountant, to investigate allegations of fraud and irregularity.[27] We asked the Department whether this unit had adequate financial support. The Department told us that they had recently increased the number of people in the unit from 7 to 12 in order to cope with the workload, increasing the spending on the unit from £200,000 to nearly £400,000 each year. And if required, they would increase this support further because this was a priority area.[28]

30. As regards the type of irregularities, the Department confirmed that the examples of serious fraud had arisen at training providers, rather than the TECs.[29] Of the 106 cases recorded in the Department's record, four had involved local authorities and the remainder were private providers including some registered charities.[30]

31. We asked the Department whether there had been any pattern of irregularities where TEC board members had declared interests in training providers. The Department said that they were aware of no more than a handful of allegations about potential conflicts of interest, none of which had been substantiated. The Department assured us that, under the terms of the TEC licence, directors and employees were required to declare any direct or material interest in respect of any contract or other matter in which they were involved, and to record these in a register of declared interest. Government Offices monitored compliance and inspected the registers regularly. They also checked the minutes of board meetings to ensure that interests were being declared and that, where appropriate, directors were not taking part in decisions to let contracts with providers.[31]

32. The Committee asked the Department how training providers were assessed to ensure that they were competent and trustworthy and whether it was their policy to continue to contract with training providers who had committed serious irregularities. They told us that they did not have direct control over providers. It was a matter for TECs to decide whether they should contract with a particular provider. However before entering into such a contract, the Department would expect TECs to assess the quality of a provision and financial systems, and take up references as they would in any commercial situation. And as far as they could, the Department tried to ensure that TECs and government offices were aware of any concerns that existed with particular providers. They could bring pressure to bear, but at the end of the day TECs were independent companies and there had been cases where TECs had taken longer to withdraw from their contracts with providers than the Department would have wished.[32]

33. Once the contract had been let, the Department required TECs to carry out an annual audit of each provider and also to make contact with 2 per cent of the provider's trainees to validate the training. The Department were currently working with the TEC National Council on a model contract between TECs and training providers .[33] To further strengthen these arrangements, the Department were setting up from 1 May 1998 an independent Training Standards Council with professional inspectors. Their task would be to ensure that all providers were inspected once very four years in the same way that OFSTED had been inspecting schools. This would cost some £4.8 million each year. Finally, the Department would be setting up, with the Training Standards Council, a database of all training providers.[34]

34. We asked whether the Department had any arrangements in place to ensure that directors or people connected with those providers that had committed irregularities, could not set up another training provider and start again. They told us that the provisions of company law would apply in such cases, and this ought to prevent a person who had been involved in a serious fraud from setting up another training company. But if that was not sufficient and the Department became aware of an individual's involvement in a new company, they would be in a position to advise TECs so that they could take that into account when they came to let contracts for training.[35] The Department added, though, that they were not aware of any cases of fraud in the vocational training programmes which had resulted in the disqualification of directors under the provisions of company law.[36]

Conclusions

35. We are concerned by the continuing rise in the number of cases noted in the Department's record of alleged and suspected irregularities. Thirty-nine cases are under investigation involving some £7.6 million and in 16 cases, involving £6.7 million, malpractice is indicated. We look to the Department to clear these outstanding cases as quickly as possible.

36. The main cause of these cases has been deficiencies in NVQ assessments; around one quarter of all cases, involving some £4.5 million. This supports concerns expressed elsewhere about the rigour of the assessment process. We recognise the success of the NVQ scheme, which is growing by 28 per cent a year and are concerned that bad practice, for example by NVQ assessors passing non-competent candidates, could if unchecked undermine the credibility of the system. We therefore look to the Department to take specific action to reduce the risk of this type of irregularity. And we would like a further report from the Department in a year's time on progress.

37. We note that under existing arrangements it is for TECs to decide whether they should contract with a particular provider, and that while the Department can exert pressure on TECs to withdraw from particular contracts, there have been cases where TECs have not responded quickly enough. We welcome the steps the Department have taken to strengthen oversight, through the newly established Training Standards Council which will inspect all providers once every four years. But we are not convinced that the current arrangements give the Department sufficient control over the £1 billion of public funds involved. We look to the Department to strengthen their powers of intervention where they have concerns about providers.

19 C&AG's Report (HC 251-ix of Session 1997-98), paras 10 to 14 Back

20 Qs 9, 56-61 Back

21 Evidence, Appendix 1, pp 20-23 Back

22 Evidence, Appendix 1, pp 20-23 Back

23 ibid Back

24 Qs 88-92 and Evidence, Appendix 1, pp 20-23 Back

25 C&AG's Report (HC 251-ix of Session 1997-98), paras 12 and 13 Back

26 Qs 34-40 Back

27 C&AG's Report (HC 251-ix of Session 1997-98), para 10 Back

28 Q108 Back

29 Qs 16, 96-97 Back

30 Evidence, Appendix 1, pp 20-23 Back