Examination of Witnesses (Questions 140
- 158)
MONDAY 27 APRIL 1998
Mr Michael Bichard and Mr Frank Martin
140. -- which are very weak. Do you operate
your own systems?
(Mr Bichard) They may be weak but
they are not my responsibility. I think the system that we have
in place relies upon the knowledge within the TEC network and
within the Government Office network of providers and of people
involved and I think the Training Standards Council and Inspectorate
will add intelligence to that system. We know that if someone
wishes to disguise their involvement then it is again quite difficult
to flush it out. I believe that the intelligence we have is pretty
substantial.
141. Can you guarantee that Mr X who has
perpetrated for a period of time a successful fraud against your
Department by sending in false returns to particular TECs that
he cannot go round the corner, set himself up as a different training
provider and contract himself with more TECs?
(Mr Bichard) He will be in the same
position as any director of a company who has been found to have
traded fraudulently and is subject to company law provision.
142. I am not quite sure if you are saying
yes.
(Mr Bichard) I am not in a position
to apply legislation that does not exist.
143. I quite agree with you, Mr Bichard,
you are certainly not in a position to do that, but what you are
in a position to do is formulate some systems of your own as the
Department and require your TECs to implement them via your contractual
arrangements with the TECs, via codes of guidance with the TECs.
That is what I am getting at. I am not expecting you to pass laws.
(Mr Bichard) I am trying to say
I think we have in place a network which provides sufficient intelligence
on training providers and hopefully on the individuals involved,
but I cannot instruct a TEC not to do business with a company
which has a director who is capable of being a director of a company.
144. Right, but that is not much consolation
really. I think it would be quite possible perhaps for a person
who has been involved in a serious fraud and therefore knows how
to work the system to set himself up somewhere else and it would
be some time before he was found. That is not very reassuring.
(Mr Bichard) I think company law
ought to prevent that happening. In addition if it was not sufficient
to prevent it happening and we were aware of an individuals's
existence and involvement in a new company, clearly we would be
in a position to give advice to TECs about that and they would
take that into account when they came to contract.
145. Are there any instances when you have
done that?
(Mr Bichard) No, because we have
not had any cause to do it.
146. You have had two significant frauds
pointed up in this C&AG Report.
(Mr Bichard) We have no examples
of individuals involved in companies that have been involved in
fraud seeking to reassert themselves in the world of training.
147. You are confident of that?
(Mr Bichard) I am as confident as
I can be. I explained before you came I think that we expect TECs
to be cautious and sensible in contracting with new providers
and to reassure themselves both about the quality of systems and
the quality of individuals involved in those providers.
148. Can I move on to the question of reserves
which has been touched upon but not in any great detail. Are you
satisfied at the level of reserves that the TECs seem to have
kept for themselves in terms of overall resources which should,
after all, be spent on training?
(Mr Bichard) As I said, I am not
satisfied. They are higher than we would wish. We believe that
£122 million of £285 million reserves in 1996/97 is
defensible in that they are for capital assets and working capital
and given the way in which we fund TECs the £82 million for
working capital seems to me to be reasonable. They admit to £24
million of their reserves being uncommitted but £139 million
are for forward commitments.
149. What does that actually mean? Does
that mean they are putting it aside for parts of contracts they
have already contracted to? Is that what they are saying?
(Mr Bichard) It means they believe
they have initiatives which have the commitment of their board
which they need the resources to fund in the near future. We are
not satisfied with that. That is why we are looking at every Government
Offices at the moment to try and establish some consistent definition
of forward commitments. The other thing we need to remember when
we are talking about reserves is the fact we are looking to TECs
to fund individual learning accounts to the tune of £150
million and some of that money is clearly going to have to come
from forward commitments. It may be some of them have an eye on
that when they are under pressure from us to reduce their reserves.
150. Is it not a natural instinct for any
organisation to put money aside wherever it comes from in order
to meet contingencies or make them feel more secure in some way?
Are you confident this level of reserves is not more of a reflection
of that?
(Mr Bichard) I started my answer
to your last question and I answered the Chairman earlier by saying
these are higher than we would wish them to be. That is why we
are looking at them carefully to establish what they are for and
to provide some consistent definition of forward commitment. I
do not believe the vast majority of that £139 million is
unreasonable but I suspect that some of it is and some of it will
have to go in the individual learning accounts in any event.
151. Would you be in a position or have
the power on the basis of your agreements with TECs to require
the TECs to run those reserves down?
(Mr Bichard) We can adjust the resources
available to TECs to take account of the reserves if we think
those reserves are unreasonable.
152. Are you prepared to do that?
(Mr Bichard) I think the fact that
the Government has announced it is going to take £150 million
for individual learning accounts suggests it believes there is
some money there that could be better used so I think we are doing
it now.
Maria Eagle: Thank you.
Chairman
153. I have got some quick questions to
you, some we will ask for notes on. Firstly, on the question of
the two large overpayments referred to in the Report[13],
are you aware whether or not those overpayments arose from top-level
decisions by those providers or actions by employees? In other
words, were they deliberate actions? You might like to give us
a note on that. Secondly, you answered a question by Mr Williams
about the repayment of this money. It was not clear to me whether
that repayment was by the TECs to the Department or by the providers
to the TECs. Which was it?
(Mr Bichard) We are talking about
repayments by the TECs to the Department.
154. So it may well be that the public service
has lost this money even though the Department has not.
(Mr Bichard) There is a lost opportunity
cost.
155. There is a lost service in effect.
(Mr Bichard) There is a lost opportunity
cost, yes.
156. Thirdly, a couple of colleagues raised
the question of the New Deal and the £3.5 billion there.
You already have quite a large number of providers for that. The
Committee would like to know whether your rogue providers are
excluded from the provider list and indeed, whether on the basis
of your experience of this you are taking actions to prevent these
difficulties arising again with this very large programme[14].
In particular in that could you pick up Mr Davidson's point about
the difficulty of obtaining providers in rural areas and whether
that leads to lower standards. My penultimate point, a number
of Committee members have asked you for a target as to what is
going to happen within the next couple of years. You have talked
about spending £10 million in pursuit of reducing the fraud
and so on. Most organisations when they summit £10 million
have at least an internal action plan as to how they are going
to spend it and what they expect to get out of it. Could we have
a note on your internal targets, whether central or devolved[15].
If you do not have them, what the logic of that is, why not and
what the action plans are. Finally, with respect to the cases
like these large cases and the other cases where over-payments
have been detected, in particular where it is fraudulent, can
we have a summary of the outcomes in those cases, what penalties
were exerted, recoveries, fines[16].
Given Ms Eagle's questions to you, a note about the disqualification
of directors in particular under the Companies Act to see whether
or not this can be prevented again[17].
Sorry to give you such a burden, but you will appreciate that
these were quite important issues for us today.
(Mr Bichard) I can understand that.
I could pick up some of these issues now.
157. If you want to pick up some of them,
we can take them now.
(Mr Bichard) I think the last question
is difficult in that very few of these cases have come to court
because of the time it takes and therefore it is difficult to
have got to the stage where we are talking about the disqualification
of directors who behave fraudulently. As far as the target is
concerned, I think I would refer, insofar as I have mentioned
the target --
Chairman: I would like a written
note on the target. I am very clear in my mind that £10 million
expenditure ought to have a target. So I would like to know what
the internal position is on that. We will wait on a note on that.
Mr Hope
158. You mentioned about 106 cases and I
specifically asked whether I could have those broken down across
the whole of the 72 TECs. [18]
(Mr Bichard) Yes, I will do that.
Chairman: Mr Bichard, thank you very
much for your evidence today.
13 Note: See Evidence, Appendix 1, page 20 (PAC 320). Back
14
Note: See Evidence, Appendix 1, page 20 (PAC 320). Back
15
Note: See Evidence, Appendix 1, page 21 (PAC 320). Back
16
Note: See Evidence, Appendix 1, page 21-22 (PAC 320). Back
17
Note: See Evidence, Appendix 1, page 23 (PAC 320). Back
18
Note: See Evidence, Appendix 1, page 20 (PAC 320) & PAC 288
(not reported). Back
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