Examination of Witnesses (Questions 40
- 59)
MONDAY 27 APRIL 1998
Mr Michael Bichard and Mr Frank Martin
40. In the two cases you just quoted, the
two largest-and I must be careful because I am running out of
time-the £3.5 million and £2.75 million fraud, are they
now awaiting possible prosecution?
(Mr Bichard) Yes.
41. Could we then confidentially be told
in writing --
(Mr Bichard) Indeed.
42. Who precisely they are[5]?
(Mr Bichard) Indeed.
43. One final point: how does your hotline
work? Tell us a little bit about it? There is no background explanation.
(Mr Bichard) It is currently a line
operated by the Employment Service. What we have done since January
of this year is to combine it with a hotline for New Deal and
anyone who has any allegations to make about provider fraud or
irregularity or is dissatisfied with the training or the service
they have received they ring this hotline. We have had just over
450 calls altogether, 250 of those since January when it moved
to the Employment Service and took on New Deal. As I say the vast
majority of those have not caused us concern in terms of highlighting
fraudulent activity. Where we have any doubts that may be the
case, those calls are referred to the financial scrutiny unit
and they become an issue on our log.
44. Have any of them revealed --
(Mr Bichard) To the best of my knowledge,
none of the calls which have come to the hotline have revealed
fraud[6].
Mr Williams: Thank you, Chairman.
Mr Page
45. If I could crave the indulgence of the
Committee and ask it to imagine that it was back in this room
on Monday 13th January 1992 when I was probably sitting in this
very chair, and we were by chance dealing with the financial control
of the Employment Training and Youth Training programmes. The
then accounting officer in response to questions from the Chairman
said, "I regard the situation [of over-payments] described
in paragraphs 18 and following as quite unacceptable and one which
we must put right. I am grateful to the Comptroller and Auditor
General for recognising that it has been one of my personal top
priorities, and will remain so, and indeed one of the Department's,
and we have been rigorously tackling it ...". Then, when
it moved to the question of proper attendance records, the accounting
officer said that they introduced, "... for the first time
.... a payment for trainees and training which took place and
not for unauthorised absence. Therefore we were moving to a requirement
on the providers to keep an attendance record and to keep an attendance
record of whether the trainees were actually there and in training
on every day of the year." Then, on talk of financial appraisal
and monitoring of providers, something which Mr Williams has been
touching on, "... that is [an] area that clearly we must
push forward on. We are half way through the first audits of the
Training and Enterprise Councils. I have required my internal
auditors to visit every Training and Enterprise Council in the
course of the first year of its operation and provide a full report
and a full programme of remedial action to be taken." On
the question of incorrect payments, "In addition some of
the other mistakes that were made that caused these incorrect
payments, in one area something like 20 per cent of them, I am
pleased to report to the Committee will not occur again because
of a procedural change that has been made in the nature of the
way payments are made to trainees." I do not mind if the
Chairman is misled but I object when my questions come forward
and they do not seem to have got answers. When I asked a question
on resources to put things right I was told by the chief executive,
not the accounting officer, "... we have strengthened and
strengthened not just numerically-they have three times the number
of staff that they had at the time of 1991, which is described
in this report we are talking about, but also in terms of their
training experience and expertise that they themselves are ensuring
that each Training and Enterprise Council has in place an adequate
system." Mr Bichard, I can go on. Do you not get the feeling
that there is dÉjÀ vu in this case?
(Mr Bichard) If I was in your position,
I might do that, but let me try and reassure you. Sir Geoffrey,
for it was he who was here, said the error rate was some £29.9
million, and I can understand why he gave you the assurances he
did, but in the last three years when I have been responsible
for this vote the error rate has been, taking the three years
together, just slightly above £29 million. So I think it
is fair to say even that with this set-back this year, we have
made some considerable progress. We did continue to look at the
way in which we expect evidence to be maintained, and it was clear
to us that expecting records to be kept on a weekly basis was
actually leading to an excess of bureaucracy in some of the areas,
so we made some further changes to that and have moved towards
a system of some payments for starting, some for being on the
programme and some for output. So I hope we will continue looking
for ways in which we can reduce the bureaucracy. Finally, and
I hope this is not too long an answer, let me give you a sample
of what we have done since I last sat here, no more than a year
ago: we have increased the money available for external --
46. Please, Mr Bichard, if you do not mind,
I on this Committee have seen many accounting officers sit there
and say, "Yes, in the past it has been terrible but, mañana,
we are doing this, this and this". We are actually looking
at the accounts, as I understand it, from 1996-97, we are not
looking at the accounts or what is happening exactly at this moment,
we are not in a position to be able to check those. Am I correct?
(Mr Bichard) You are correct, but
I did avoid earlier making ill-advised claims that the situation
was going to be resolved overnight. In the coming year it is a
difficult situation. If you have 4,500 providers out there and
72 TECs and hundreds of thousands of transactions every year,
there will be some errors. We have got it down to 1.2 per cent,
I would like to get it down to at least the £6 million which
was the case in 1993-94. I am taking rigorous action to achieve
just that. I believe the record over the last three years compared
to what was happening previously is not bad; not good enough but
not bad.
47. I agree that things have improved but,
as you rightly say, two years ago it seems to have gone wrong.
You had a nice interchange with Mr Williams and I must confess
with all these discounts and percentages flying around I did get
slightly lost, so I would be grateful if we could just clarify
things as far as I am concerned and perhaps for the record. In
the year 1996-97 we had an error rate running to some £14.6
million. You have quite rightly said that some of these are mere
clerical errors but according to this report we have a margin
of error, plus or minus, of £11.3 million, which is something
like 77 per cent either way. Would you like to, with the experience
of the various interchanges you have had with Mr Williams, try
and tie that down and say what you think what I would describe
as the real error rate is?
(Mr Bichard) Each year the NAO,
through their sampling, estimate the over-payments which have
been made. To take the last two years, in 1995-96 the NAO estimated
£8.6 million, and the Department identified actual over-payments,
which was the best estimate we could make of the real over-payments,
was £2.3 million and we have recovered all of that. This
last year, 1996-97, the annual estimate was £14.6 million,
our best estimate of actual over-payment was £5.1 million
and we have so far recovered all of that with the exception of
£175,000. It is important to understand that the major cases
of fraud which the Comptroller & Auditor General identifies
in paragraphs 12 and 13 of this report will not yet figure in
our identified over-payment figures.
48. Thank you. That leads me to a question
to the Comptroller & Auditor General. As we see, 13 of these
74 TECs were studied by the NAO and also 56 training providers,
which is a small percentage of the 4,000 or so. Would you care
to say whether these were just plucked out at random, or were
they ones you had pointers to? How representative were these of
the general situation?
(Sir John Bourn) We did think carefully
how they were selected and we did seek to have them representative
in terms of size and geographical dispersal. They were not selected
as ones which we had reason to think were especially bad or especially
good. We sought to make a representative sample in the true sense.
49. Thank you. So it is obvious in the year
1996-97, on the response just given, that the controls of the
Department of this particular programme have in fact slipped?
(Mr Bichard) The controls of the
TECs in this particular programme have slipped and we are responsible
ultimately for that, and that is why we are taking action to try
and resolve that, and that is why we have increased the number
of people we have working on this issue at this very moment.
50. Can you explain why it was not until
February 1995 that the Department began to maintain a record of
the alleged and suspected irregularities in the vocational training
system when the commitment was made by the Department as long
ago as July 1992?
(Mr Bichard) No, I cannot, in all
fairness explain that to you. I will look back into the files
to find out why. The fact is we now have it in place and we take
it very seriously.
51. My next question follows on from that,
and perhaps I will get the same answer, in which case I will be
glad if you could write to the Committee. As the Department started
to keep a record of those alleged and suspected irregularities
in February 1995, why was it not until September 1996 that the
financial scrutiny unit headed by an accountant was established?
Eighteen months later.
(Mr Bichard) We have kept under
review the need for a financial unit to follow up these cases.
The problem was not felt to be sufficiently serious until then
to justify a separate unit. There was, as I explained last time,
a very rigorous framework in place but to have a particular unit
following up the potential fraud cases was not felt to be necessary
until that time. It is now. I have increased the number of people
on that scrutiny unit from seven to twelve from December of last
year, because until then seven was sufficient to cope with the
amount of work. It has not been since then, and I would increase
it further if I need to.
52. I have a number of questions I would
like to ask but I think it would be only fair to let other members
of the Committee have their chance and opportunity, but can I
close with just one question? You made reference to the fact that
£150 million will be pulled out of the TEC resources, can
you say what effect that will have on organisations such as Business
Link?
(Mr Bichard) We would not expect
that it will have any effect at all on Business Link. We have
given TECs warning for a year now that we are looking for £150
million from all of their activity to go towards the individual
learning accounts. Our task is to work with them to ensure that
that money can be found without it causing damage to either Business
Link or to the wider chain of programmes. We believe that can
be done. We are not totally convinced that the forward commitment
figure, which now stands in excess of £120 million, is tight
enough and we believe there is some money there which could go
to individual learning accounts without damaging other activities.
53. What will you do if evidence is produced
it does damage those other activities?
(Mr Bichard) We will look at it
very carefully in respect of every TEC, which is why we are at
the moment, as I said earlier, carrying out a study of all the
TEC reserves to get a consistent definition of what is a real
forward commitment.
Mr Hope
54. Can I try to understand first of all
the scale of the problem which is before us a little more? There
are 74 TECs, but paragraph 11 talks about 85 alleged irregularities
as at 31 October 1997, 65 included and 20 remaining. Does that
mean that the majority of those 74 TECs have got irregularities?
How many of those TECs are we talking about?
(Mr Bichard) There are 72 TECs --
55. I am sorry, 72.
(Mr Bichard) -- there are now 106
cases logged on the financial scrutiny log. I have not got the
division of those between TECs but I do not believe there are
particular TECs which have an abundance of these cases.
56. I am trying to establish whether we
are looking at one or two TECs which get a lot of problems or
whether it is an endemic, structural feature of the way TECs work
that there are inevitable levels of irregularity and over-payment
across the system.
(Mr Bichard) I think a better indication
is probably the risk banding arrangements which I referred to
earlier and the fact that we now have 11 TECs which are not in
the low risk category. We expect all TECs to be in the low risk
category, that is a higher number than we have had before and
it does give us cause for concern.
57. I appreciate that you feel your risk
categories are a better assessment of those, but I am trying to
assess of these now 106 cases whether we are talking about four
or five TECs with serious problems, perhaps the 11 TECs you are
talking about being outside the low risk category, or whether
we are talking of say 60 or 65 of those TECs having problems getting
it right.
(Mr Bichard) We would look at the
cases on the log and particularly those where we believe there
are some irregularities, and we would take that into account in
making a banding assessment. So if a TEC has got a number of cases
where we think there are irregularities, then it is likely to
appear out of low risk, and that is why I say the indications
we have that there are now 11 out of low risk is a better indicator
of where our concerns are.
58. I would quite like it if we can have
a note to the Committee on the number of TECs which figure in
your 106 cases[7].
Whilst I accept you are making a judgment about banding and you
have told us of the 11 outside of the low risk category, I would
like to know how many of those 72 TECs have cases of irregularities,
so that I can make my own judgment about whether I see this as
being something across all TECs or only the 11 or so you have
identified as being at risk.
(Mr Bichard) We can do that. There
is a difference between cases which have been on the log or are
on the log where there are irregularities, and cases which have
been on the log or are on the log where there are not. Of the
67 cases we have cleared, in 36 there was no substantiation of
the allegation, so effectively no problem, 20 more were poor administration
and the matter has been resolved and they were serious control
problems. Only 11 of the 67 cases which have been cleared were
cases where some malpractice was found and of the remaining 39
cases we are currently looking at we believe there are 16 where
there are irregularities. I can give you a break-down of all the
cases but I think it is the 11 and the 16 we should be most concerned
with.
59. And those 11 and 16 might or might not
be in your medium or high risk categories?
(Mr Bichard) They might or might
not be, I cannot tell you that as I sit here.
5 Note: Not Reported (PAC 288). Back
6
Note by Witness: None of the calls which have been referred to
the Financial Scrutiny Unit by the Employment Service since they
took over the hotline have revealed fraud. Back
7
Note: See Evidence, Appendix 1, page 20 (PAC 320) and (PAC 288)
Not reported. Back
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