Examination of Witnesses (Questions 60
- 79)
MONDAY 27 APRIL 1998
Mr Michael Bichard and Mr Frank Martin
60. So you can see my dilemma with accepting
that you have 11 outside the low risk category but thinking of
the kind of break-down you --
(Mr Bichard) Some of them certainly
are.
61. There may be more that might, in my
judgment if not yours, be something to be worried about, and I
would like the figures on those. Thank you. Whilst we are on the
question of risk and analysis, of the 4,500 providers, how many
fit into low, medium or high risk assessments?
(Mr Bichard) We do not risk-band
training providers because the training providers have a commercial
relationship with the TECs not with the Department, and it is
a matter for the TECs to decide whether they should enter into
a contract with a particular provider. If we identify that there
are problems with a provider then we will let the Government Offices
who have TECs who are doing business with those providers know,
they will let the TECs know, and we would expect normally the
TECs would review the contract with the provider. That is the
route. We do not have direct control of the training providers.
We are setting up a Training Standards Council and Training Standards
Inspectorate which will be an independent council with professional
inspectors and their task will be to ensure that all providers
are inspected once every four years in the same way that OFSTED
has been inspecting schools. That will be in place from 1st May
this year. Finally, together with the Training Standards Council,
we are developing a database of all training providers so we have
more information about them.
62. As a result of that system-and I am
not sure yet whether I am satisfied this is going to be sufficient-will
it be possible for us in the future to know which of these training
providers fall into low, medium or high risk categories of being
at risk of irregularities or difficulties?
(Mr Bichard) The low, medium and
high risk arrangement is a very technical arrangement. There is
a score sheet which has been designed specifically and solely
for TECs. You could not apply it to a training provider. What
you will have as a result of the Training Inspectorate -
63. Can I interrupt you? If you have a training
inspectorate or, indeed, in your contract with TECs you insist
they were to have some kind of assessment of the training providers,
either way you could categorise training providers in that way,
so you could then ensure that the TEC or the inspectorate or your
own Department was intervening where there was felt to be a high
level of risk. A failure to do so means that there is a risk that
these people will carry on being unregulated.
(Mr Bichard) We already expect and
require TECs to pass on to training providers the same sort of
arrangements that we have with TECs. We expect them to ensure,
through an annual audit of the training providers that they do
business with, that those training providers have their own audit
systems in place, that they themselves have good appraisal and
monitoring systems in place. We expect TECs to visit their training
providers regularly, when TECs visit they have to look at the
documentation which those training providers have, and TECs also
now have to make contact with 2 per cent of the trainees face-to-face
to validate, if you like, the training. So there are quite good
systems in place and it is the minority of training providers
that we have a problem with here. There are good systems in place
but the training inspectorate will improve those and what you
will have coming through from 1st May will be reports on the individual
training providers and they will be available to the Committee
as they are to me.
64. Will we also therefore be able to collate
the data from the 72 TECs about the providers they are engaging
or contracting with, to be able to make a national picture of
training providers, their quality and their level of risk?
(Mr Bichard) That is one of the
purposes of having an inspectorate, one of the purposes of developing
a database. I want to reassure the Committee that we already have,
we think, quite a good system. When we identify a training provider
who has been involved in irregular practice or fraud, we have
a good system of warning all of those TECs who are doing business
with that training provider. At the end of the day, the TEC has
to make a decision about whether or not to continue with that
arrangement.
65. At the end of the day they are spending
our money and at the end of the day I want to be assured that
the training provider who is using taxpayers' money and the systems
of monitoring those do not rely on unaccountable, unelected bodies
at local levels but that there is accountability throughout the
system, which is why I have been pressing you on this point. May
I move to Figure 2 in the report which shows the way the values
have changed? We do not have the final column in there at the
moment, for 1996-97, which has the £14.6 million in it. I
am intrigued. This has gone back up, and you said in earlier responses
that the reason why the figure has gone back up could be because
the additional investigation and fraud unit had revealed more
problems, so you are a victim of your own success in a way. My
concern about that reply is that it implies there have been undetected
irregularities in the past. If we have detected an extra £8
million as a result of the extra work your Department has been
doing over 1995-96, is there a risk that there is an equivalent
50 per cent undetected error in previous years?
(Mr Bichard) If there was an increase
for that reason, as a result of the evidence requirements being
more complex, then it would show up in the claims for training
weeks not covered by our contract with TECs. In other words, it
should show up more in the 42 per cent administrative, clerical
and reconciliation errors I referred to earlier.
66. I was referring to Figure 1, I apologise,
but your reply is still appropriate on that one?
(Mr Bichard) Yes. Which is what
is happening. We seem to be getting more errors on administrative
and reconciliation than we have in the past, and more errors with
TECs than with training providers. As I said earlier, I am not
at all complacent about this, it is a matter for concern but it
is not evidence of a tremendous increase in fraud and financial
irregularity. Mr Williams would use the term "incompetence",
I would perhaps use a slightly softer term which is not in the
same league.
67. The question was, if it has gone up
by this substantial sum, having gone down over the years, as a
result of putting new procedures in place, do you have any feeling
for whether if in previous years these procedures had been in
place we would have detected more than was detected previously?
(Mr Bichard) I would like to help
the Committee but it is extremely difficult. One would have to
make a number of assumptions and hypothecations before one was
able to answer. I think it would be too dangerous to justify taking
broad conclusions from. I think we have in place now a very rigorous
system, as I have said, and it is showing up errors and we have
to deal with that.
68. Let me move on to the actual levels.
You mentioned spending £10 million on control and we have
detected £14.6 million where there are difficulties. You
said the level which would be acceptable to you would be if you
got down to 1995-96 levels, around the £6 million figure,
but not down to the 1993-94 levels. Is this just a rough number
you have decided upon?
(Mr Bichard) I am sorry, I meant
the 1993-94 figures, the £6 million. I misread the year.
69. What was that as a percentage of the
total spend?
(Mr Bichard) It must have been below
1 per cent, somewhere in the region of three-quarters of a per
cent I would think.
70. So the acceptable level of error, irregularity,
is around three- quarters of a per cent?
(Mr Bichard) No level is acceptable
and we would not assume it was, but there is a level beyond which
it is extremely difficult to make further improvements. KPMG [8]
have recently done a survey across Europe on invoices and have
shown that the typical error rate in companies presenting invoices
is 1.7 per cent. I am not saying that I am happy with 1.7, I am
not saying I would give up if we got to 0.75, but beyond that
it becomes increasingly difficult and we may well get to a point
where we have to invest so much to save another million that it
becomes disproportionate expenditure and you would be criticising
me for that.
71. I understand the point. But targets
for the future will be heading towards three-quarters of a per
cent, 0.75, given your reply there?
(Mr Bichard) I certainly want to
see us get down to those sorts of figures but, I say again, I
am not saying we will do that next year.
72. When might we?
(Mr Bichard) I have answered that
question already. I think what we are putting in place now will
not solve the problem in the next 12 months, but I would hope
we would see improvements coming through thereafter.
73. Given the rigorous improvements in place,
given the changes which have taken place, two years? Three years?
(Mr Bichard) I would hope to see
some improvements coming into place in two years but, as I have
said, one of the problems that I do see is, if one can make suppositions
about evidence requirements and the impact that has, the fact
there have been several policy changes over the last couple of
years does make life quite difficult for TECs. They respond well,
they implement new policies but it does require them to change
the systems and it requires us to change the contract with TECs.
That inevitably will have some impact upon their accuracy.
Mr Hope: The reason I am pushing
you for a date and a target is because £3.5 billion is being
spent on the New Deal, which is rolling out as we sit here, and
1 per cent of 3.5 billion is a lot of money and therefore --
Chairman: Try 35 million!
Mr Hope
74. Thank you very much. That is a helpful
contribution from the chair! Those figures are getting bigger
and bigger the more we spend and therefore the importance of rigour
in the years ahead by TECs, by training providers, by the Employment
Service indeed, is going to increase as you are asked to spend
more on it.
(Mr Bichard) There are certain attractions
coming along to this Committee and saying, "In two years'
time this problem will be cracked and we will have a 100 per cent
success rate", especially if you think you may not be here,
but I am not prepared to do that today. What I am trying to convince
you of is that we have put in place just about every possible
system I can think of to try and bring this figure down. I believe
it will have an impact and I hope we can get down to the sort
of figures we had two or three years ago.
75. On the question of reserves, £284
million on a spend of £1.2 billion. Am I right?
(Mr Bichard) The annual spend is
£1.4 billion, yes.
76. That is nearly 25 per cent of the annual
spend in reserves.
(Mr Bichard) Yes. One has to give
credit to TECs for the fact that £122 million of that is
working capital or capital assets. I think any company managing
the system they have to manage would require that kind of capital
asset and working capital provision. So I think this £120
million-or-so for forward commitments ought to be the focus of
our concern and is.
77. My background was in local government
and to have had 25 per cent working capital would have been absolute
bliss, to be quite honest with you. We were down to something
in the region of 2, 3 or even 4 per cent maximum as the amount
of working reserves we were able to rely on, but that is beyond
my remit and I will stop.
(Mr Bichard) I will happily engage
in a discussion about that, Chairman, because my background too
was local government.
Chairman: If only to stop that, I
will call Mr Geoffrey Clifton-Brown.
Mr Clifton-Brown
78. Mr Bichard, are you aware of the educational
pressure group, Article 26?
(Mr Bichard) I certainly am.
79. Have you seen an article which was supplied
to this Committee? In particular they seem to have two main concerns,
that to do with financial probity and that to do with the verification
of the actual vocational qualifications themselves. Can I start
with the financial side and go back to your own financial inspectorate
which, as I understand it, is an internal inspectorate based on
reports from the hotline. Is that correct?
(Mr Bichard) It is made up of staff
from within the Department although it works closely with the
police, and the police do involve themselves in training the staff
who are in the units.
8 Note by Witness: The survey was, in fact, carried
out by Coopers and Lybrand. Back
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