Examination of witnesses (Questions 80
- 101)
WEDNESDAY 24 JUNE 1998
MR R YOUNG
and MR D CASEY
80. Yes.
(Mr Casey) It is now standing at 435 of which
145 are working on lottery projects. You recall that we obviously
have the non-lottery part of the Council as well which is about
sports development, particularly in our national centres.
81. I notice that only 20 per cent of applications
have a specialist assessment, surveyors and this sort of thing.
Presumably only 20 per cent have a properly rigorous financial
analysis although there is some suggestion that none of them do.
Should the Committee be worried about that and that a bid for
£300,000 does not get a proper specialist evaluation?
(Mr Casey) We have to define specialist assessment.
There are really three elements which are of a specialist nature.
First of all there is the sports development need for the project
in the first place. We have a number of people who are specialist
in that particular field. Second is the technical assessment in
the sense of the building. We have quantity surveyors and architects
as members of staff of the Council to look at the quality of the
building. Third is the financial analysis which, as the report
says, is looked at all the way through the system from the case
officers through to specialist advice through to the finance unit
itself. There are different specialisms which are brought to play
as an application comes through the system.
82. Some members have mentioned fraud. If
a club applied to build a clubhouse for argument's sake and in
a couple of years' time they sold it and they distributed the
proceeds amongst the members, what is in place to stop them doing
that?
(Mr Casey) What would be in place would be the
condition of grant aid that if the club is not used for the proper
initial purpose then there is a clawback arrangement and that
is that we would actually implement the clawback arrangement,
as we have done, not on lottery funds yet but with exchequer funded
grant aid in the past.
83. If a fraudulent person were planning
to do this and they all got together and applied for this clubhouse
which they built for under £500,000 to avoid specialist evaluation,
how long would they have to wait before they could suddenly say
they had had the capital amount, that had not applied for the
revenue, they were selling up and giving the money to their members?
Could they do that in ten years' time?
(Mr Casey) No, they could not do it at all because
in the nature of a club like that we would not grant aid in the
first place. It would not be the sort of constitution of a club
which we would actually support. Therefore we would pick that
up through our local knowledge in our regional offices to make
sure that any form of activity like that would happen. If it did
happen for some particular reason, then the Council would implement
its clawback arrangements and ask the club for the money back,
indeed for the percentage of sale if it were more than the grant
which we had given in the first place.
84. In the past the grants have been capital
and not revenue and as we all know capital projects create their
own revenue requirements. Are we sitting on a number of time bombs
where you set the ball rolling and a few years down the line people
come to you and say sorry, we cannot afford to do basic repairs
to the building and run the facilities and all we have is this
white elephant? Are we going to see hundreds of these in a few
years?
(Mr Casey) I cannot guarantee that. What I can
guarantee is that this is one of the areas which we will look
very hard at before the capital investment is made. That is back
to discussion with clubs, with local authorities and other organisations
to make sure that these are financially viable. That is a key
part of our assessment procedure. So far the monitoring reports
we have had are that that financial viability has been well documented
in terms of the monitoring reports we have had back. I do not
expect from the work we have done at the moment to see any white
elephants from the work we have done so far.
85. None.
(Mr Casey) I cannot guarantee that.
86. Disability very briefly. Some people
put forward projects, they promised disability access, they have
not delivered it. What are you doing to enforce disability access?
Do you just sit back and say that is all right then?
(Mr Casey) No; certainly not. In the two cases
which are documented in detail, the only two cases which came
up in our monitoring and the NAO monitoring, we are taking steps
to make sure that disabled people have access to the full building.
You will see in one of the projects mentioned that there was difficulty
of access to the building itself because disabled people in wheelchairs
had to go across a cobbled area which was already there. It is
an outdoor activity centre. Support was given to tarmac that.
We are now in discussion with the club to make sure they instal
the lift shaft and the lift itself for the disabled. In the other
one we discussed they were putting in a stair chair for disabled
people to make sure they could get up to the second storey.
87. A lot of people apply for small grants
who are inexperienced in doing business plans and financial analysis,
not in particular perhaps in poorer areas where there is a community
thrust towards this. What systems do you have in place to support
such groups, to give specialist support so they can get these
bids in? My fear is that in many of these areas people feel they
cannot be successful so in a lot of these areas they have nothing.
On the other hand, people with sophisticated membership do make
applications.
(Mr Casey) Yes, indeed. It is one area of concern.
We do not necessarily want to debar those who have no experience
of putting in such bids. There are two elements to this. First
of all there is the range of guidance notes which the report refers
to, which are provided. There are about 15 or 16 guidance notes,
everything from So You're Thinking About Setting up a Project
through to specialist issues on people with disability or women
in sport or other specialist areas in which we provide guidance.
Secondly, my colleagues in the regions, which are referred to
in the report, some of the additional staff, do run surgeries
and clinics so that they are well advertised in the local area
and people can come along to those. We often exhibit at major
exhibitions around the country. We have a lottery stand and advertise
that widely so that local clubs can come along. I did speak at
one of these last year in one of the regions and we had something
like 500 or 600 coming along from the voluntary sector, the same
numbers coming along from the education sector. We are repeating
that exercise through September and October this year, again to
make sure that the local community, local clubs, can come to talk
to the case officers and those who actually take this through
the whole process.
88. Things are improving on the takeup in
terms of smaller groups and perhaps poorer groups. I know you
said you would provide some information. When can the Committee
expect to have some sort of evaluation of the targeting of resources
against social deprivation indicators by sub-region?
(Mr Casey) We can provide that in the next 24
or 48 hours[8].
We have that.
Mr Page
89. Would you not agree that an English
Sports Council has had it easy up until now dishing out the money?
They have been the godfather, have they not, or the godmother?
It is going to get tougher from now on when you see how many of
the projects you have funded actually perform in practice?
(Mr Casey) I would not necessarily agree with
the first part of your question. The report identifies that this
was a major change in the scale of operation for the Council.
To go from a business of £50 million to £300 million
in the space of a couple of months was not necessarily easy and
I am encouraged by the report which says that the Council handled
that well. Coming to the second part of your question, yes, it
is going to be more difficult. We have been facing as a general
point in sport, substantial under-investment, probably since the
Second World War. Therefore we have local authorities and the
voluntary sector and others who now see the opportunity to come
forward with support. It is going to be difficult.
90. Is not the truth of the matter that
the whole basis behind it has been changed so that through your
Sports Council you can give support to the running costs because
some of these projects are going to go wrong?
(Mr Casey) No. We have the opportunity to provide
revenue support for these projects. That is in the financial directions
under which we are working at the moment. It is in very special
circumstances. It is time limited. It is to get the projects completed.
Going back to a point Mr Davies raised, so far the Council has
not provided any revenue support for any of the projects which
we funded with capital. The revenue support we have introduced
is for things like the top athletes, the young talented individuals,
revenue in that sense.
91. I appreciate that. I am looking though
to the future. As you have sown so shall you reap. May I take
you to the various case studies we have here? No need to go through
them in any detail but they are on pages 37 and 39. Do some of
them not look as though as far as running costs are concerned,
they are going pear shaped? We have one here with forecast operational
revenue deficit for the first three years of £273,000. What
is going to happen if that continues? Who is going to bail out
this organisation which is running a deficit for £270,000-odd?
(Mr Casey) It might be helpful to mention that
this is a fairly substantial cricket[9]
club which is also supported by the local authority.
92. A fairly substantial sum of money too.
(Mr Casey) We looked very carefully at the business
plan of this project and we believe it is financially viable.
93. Whilst I am quoting a particular example
which is given here, I am looking at the generality. I can see
that there will be a number of cricket clubs or a number of organisations
knocking on your door and saying they would like revenue support,
if they do not get it, they are going to have to close down. Councils
have just had a huge increase in council tax, so they have that
particular problem. Has the Sports Council got any policy of limiting
the amount of money it can give or will give to running costs?
(Mr Casey) The Council's policy at the moment
is that it will not provide running costs to these projects. We
expect the voluntary clubs and the local authorities to commit
themselves to that. We have to face a situation of what happens
if a club does not operate the club successfully or the local
authority finds itself in difficulties. The experience we have
had with the exchequer funded projects is that we have then gone
in to help that club by providing advice, by bringing more members
into the club, sometimes by changing the whole of the membership
of the board of that club to make sure they are financially aware.
That has been successful. If we find ourselves in those circumstances
with these clubs, we will make sure that that support is provided
as well.
94. The reason I am following this particular
line of questions is that at the moment one in three applications
is being successful. Now you are talking about going to one in
five. If I look at the reduction in funding, that does not seem
to indicate a move from one in three to one in five; it is more
like a move to one in three and a half, one in three and a quarter.
Why are we losing another of those chances of succeeding?
(Mr Casey) We really have two elements working
and which will be working in the future. I mentioned before to
Mr Love that we decided as a policy issue to make sure that we
funded all the small community projects at the beginning. We are
now moving to a situation where some of the larger projects are
coming forward, the larger district swimming pools, perhaps some
of the regional facilities, perhaps some of the national facilities
which are required for sport as well. It might well be that some
of these larger projects work on a complementary basis with community
projects. We are trying to balance that up under the new regulations
by going for very small grants on a fast track system to make
sure that we are still funding clubs at a community level and
indeed even further into the community than we have been doing
before. This is a balance between all of these. That is why it
is slightly difficult sometimes to say how many applications we
might expect to come in and to be supported. It very much depends
on those numbers but also the size of the grants which we will
be giving in the future to different sized projects.
95. What controls are the Department going
to put on the Sports Council to ensure that they keep to the straight
and narrow and they do not suddenly start bailing out these various
projects with all the money disappearing in running costs and
all the small community based projects which have been particularly
valuable in my constituency would suddenly all go out the window
and they would not get a further penny?
(Mr Young) This will be part of the regular discussions
we have with the Sports Council throughout the year. In particular,
if you look at the application form they have, a revised application
form on page 17, we are very keen that they should assess the
likely future running costs and future income when and before
they approve grants for capital projects. In our view, as Derek
Casey has said, it is absolutely critical they should take full
account of the running costs and future income forecasts before
they even consider giving a capital application its approval.
After that, there is absolutely no suggestion that there is any
encouragement for people to come back for a second bite and say,
sorry, our forecasts are wrong, will you now give us some revenue
grant. There is nothing in any of our guidance which supports
that, nor is there any suggestion that the Sports Council have
that in mind.
96. I agree with everything you are saying.
It would be common and sensible business practice to ensure that
every project which comes in front of you is worked out to the
nth degree, although some of the case examples here prove that
there has been a little generosity in deciding whether to accept
them or not. What is going to happen, if these organisations do
get into trouble and they do come along, like this cricket club,
and say they are terribly sorry, they need a chunk of money, otherwise
they are going to have to close it down? What will be the policy
advice which you will give as your position as permanent secretary
into the English Sport Council?
(Mr Young) The advice underlying both our general
accounting officer stance and the policy and finance directions
is that the Sports Council should respond to that by trying to
sort it without paying, giving them advice, how to enhance their
income or reduce their costs, encourage other partners to come
in, all the rest of it, not pay any more Sports Council money.
If none of those work, then a closure is the only possibility.
There is nothing in our guidance policy or finance and nothing
in my accounting officer rules which would allow open-ended subsidy
of capital projects which fail and happily so far there is no
evidence of that happening.
97. That is a very clear message to every
single sporting organisation and the management of every sporting
organisation which I think should be detailed in foot high letters.
They are not going to get regular bailouts if they cannot run
their accounts in a proper fashion. I only have one further question,
because most of my other questions have already been taken up.
Can you explain why the detection and prevention of fraud has
been operated in such a piecemeal fashion? I ask that because
it took until September 1995 to segregate duties in the finance
area and then until May 1996 before a policy statement on fraud
was issued to the staff. Why such a time?
(Mr Casey) The policy statement was a formalisation
of what was in place already. It was that we were providing awareness
seminars for staff all the way through that. In a sense it was
the codification of those which was brought out at that particular
time. In terms of the training, right from the start we built
in anti-fraud issues right throughout the system. That was one
of the key issues which the National Audit Office looked at before
they signed off the system, indeed the special advisers to DCMS
at that time looked at that very closely as well. The process
was right, the training and awareness of colleagues was going
on through this period as well.
98. I note that the structure of fraud awareness
seminar and guidance has been offered to staff. The NAO did feel
sufficiently concerned about it to make an item of it in the report
at paragraph 2.20 on page 21. Have you had any frauds perpetrated
on the Sports Council?
(Mr Casey) Under the lottery, the answer is no.
We had one allegation of fraud, as the report mentions, and immediately
froze payments to that. My internal and external auditors immediately
looked at this particular case. Unfortunately it was a case of
a disaffected member of a club who I gather had not been selected
for the team and who had put about these issues. In sport we all
hear rumours and sometimes tittle tattle and there are instructions
for case officers on how to act in such circumstances.
99. You have had no fraud.
(Mr Casey) We have had no fraud.
Chairman
100. NAO, have you thought about the question
about the tendering process which resulted in Brann getting the
contract?
(Mr Le Marechal) Yes, Chairman. We verified that
the work was competed. The Sports Council did go out to tender
for that contract. We did not examine the evaluation of those
tenders which supported the allocation of the contract.
Mr Wardle
101. Could we revisit Brann and paragraphs
2.5 and 2.6? It seems that Brann is dealing with 1,800 information
calls a month, about 90 a day let us say. The operators have access
to your Javelin database. Do they, or if they do not, should they,
be able to refer callers to a website of yours they could visit
so that they can see the whole thing laid out for them, learn
it all, save on some of the calls and then get the information
pack?
(Mr Casey) Indeed; we have two networks in the
Council, an internal intranet at the moment on which we are experimenting
a great deal with aspects such as Javelin and other policies of
the Council in preparation for putting that onto the external
website. I expect that to be done shortly. That will be publicised
through the regional conventions which we are staging in September
and October. I hope that will reduce some of the calls to Brann.
That simply provides information. Where the applicants have found
it invaluable is to speak to someone at the end of the phone and
get advice on issues about eligibility and how they go about things.
It is a combination of both outlets which we would see working
in the future.
Chairman: It remains
for me to thank you for coming to give evidence. Without prejudicing
what the Committee decides I think we appreciate that it is difficult
to take a very large step up in size. Obviously that would explain
some of the things we discussed today. We expect that in the future
these problems will not recur because now you are onto a stable
level. The same comment to you, Mr Young. We hope that when we
see arts and the other bodies before us they will have learned
the lessons already. Thank you very much indeed. Order, order.
8 Note: See Evidence, Appendix 3 page 19, (PAC
345). Back
9
Note by Witness: It is, in fact, an Athletics club, not
just a Cricket club. Back
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