Select Committee on Public Accounts Minutes of Evidence


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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