Select Committee on Public Accounts Minutes of Evidence


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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