Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. Let us move then to the Agency itself. The accounting office for the Office, that accounting office should have recognised the inadequacy of the systems. You were talking about the mechanistic faults that you described in your opening answer to me, those should have been readily identifiable and should have been acted upon, should they not?
  (Sir Hayden Phillips) I do not know whether Nick Smedley wants to say a word about that. As far as this particular aspect is concerned, I think it was recognised that there were a number of entries that were being made as a result of the system which actually did not give you a correct trail, an easy trail, back to the individual account. But, in fact, all the information to enable you to get back to the account was there and these clerical errors, as I understand it, produced additional entries which were not very helpful in themselves.
  (Mr Smedley) All I would like to add is that certainly—I am not sure how far back one would want to go—from the previous, the most recent PAC report, the one thing that we have done immediately is to introduce for this financial year the Key Performance Indicators which specifically target the criticisms which most exercised the Committee on accounts—getting them in, reviewing them—and on visits and investments. We have introduced KPIs in those areas or revised the old KPIs to take account of your criticism.

  21. We heard from you, Sir Hayden, that the system threw up bonuses which certainly, at first sight—and the NAO has gone into the problems in great detail—caused wonder that bonuses were an entitlement to be honest. It is a sloppy system which has been operating, there is no other way to describe it. The bonus, would that have come from being included in the costs of fees for clients to this unfortunate organisation?
  (Sir Hayden Phillips) Yes, I think all of the payments the PTO was meant to run on the basis of a balance between fees and income.

  22. People who were least able to do anything to look after themselves were providing the funding for bonuses which should never have been paid to people who were running an organisation that was letting them down and was not fulfilling its financial obligations?
  (Sir Hayden Phillips) I would say in relation to that, the bonuses which were paid should have been paid.

  23. According to the mechanistic formula.
  (Sir Hayden Phillips) Yes, according to the mechanistic formula. That was contractually set, it has been a pattern of target setting and payment of bonuses as you know—

  24. Yes, but we are not talking about that. The point I am making is here you had a group of people who were providing through the fees they charged against themselves, people who were clients of this organisation because they were incapable of doing things for themselves and looking after themselves, who found that they were then being charged for the incompetencies of the organisation that was supposed to be protecting them.
  (Sir Hayden Phillips) In relation to where there may have been incompetencies, that is true by definition. What I am saying, however, is that we were very careful to ensure that the bonuses were paid for valid contributions that actually were of benefit to the clients who used the organisation. I am not denying there were lots of other things that were wrong that were not of benefit to the clients in that way.

  25. Okay. So the bonuses were a charge against the client, what about the write-offs? Who was responsible for financing write-offs? Does the administration turn around and say "Well, the write-off should not have happened, therefore it is the Government's fault" or do they say "It should not have happened but it is going to be a charge again on our clients"? Who pays there?
  (Sir Hayden Phillips) I assume it is the same basis.
  (Mr Smedley) The Public Trust Office has been required by statute to cover its full costs.

  26. So, in other words, it is the clients?
  (Mr Smedley) Yes.

  27. For example, when you find that £72,000 of debt was irrecoverable in relation to commencement fees and fees earned during power of attorney and so on, that situation arose, at least to some extent, as a result of the paying to the Department and the Department then promptly claws that back from the people it is supposed to be protecting. Let us look at some other examples. There is a list of figures, if I can find them, bear with me a second. I cannot lay my paws on the right ones at the moment, we will come back to it in a second. The Department also—now this comes back to the Department—had responsibility for levying VAT or for claiming VAT, £124,000 for 1998-99 was recorded as recoverable VAT which the Lord Chancellor's Department did not claim from Customs & Excise. The unrecovered VAT had been written off in the Agency's 1998-99 accounts reducing the Agency's surplus. I assume, also, that has come, by definition, from the fees paid by the public, by the client, is that so?
  (Mr Smedley) May I say, I am not entirely sure that is the case.

  28. Who did pay for it then?
  (Mr Smedley) No. Well, if it does come from the clients' fees that would come from the Lord Chancellor's Department Vote Account[3].

  29. No, it says the unrecovered VAT had been written off in the Agency's 1998-99 accounts reducing the Agency's surplus.
  (Mr Smedley) That is absolutely correct but what I am saying is—

  30. So that money came from the clients' fees?
  (Mr Smedley) I am not sure that is the case. It may not have come from clients' fees, it may have come from LCD Vote Expenditure which would be voted to the PTO.

  31. Why "may", you two are here because you are supposed to know. Sir Hayden, did it come from clients' fees or did it come from somewhere else and, if somewhere else, where?
  (Sir Hayden Phillips) I do not know the immediate answer to that, we will have to find out, if we may, and let you have a note[4].

  32. Would you not have thought that £124,000 administrative oversight is something that you would have anticipated would be raised at this Committee, Sir Hayden?
  (Sir Hayden Phillips) One always hopes to make good and accurate estimates, that is not always the case.

  33. This was a fault. This was a fault of your Department, was it not? Which year was this, it was for 1998-99, now who was responsible for that year, you or your predecessor?
  (Sir Hayden Phillips) I think I was responsible for that year.

  34. You did not reclaim the VAT money that you should have and, therefore, it was written off from the clients in money that was surpluses in the clients' fund?
  (Sir Hayden Phillips) Yes. Probably, yes.

  35. Do you feel pleased with that, that you have incurred such an unnecessary burden for people who your Department and this organisation are supposed to be protecting?
  (Sir Hayden Phillips) No, I cannot say I am pleased about that. You would not expect me to be pleased.

  36. You see, they are losing the money. What is happening to the people who are responsible for the fact the money is being lost? Is anybody being disciplined? Is anyone being censured in any way for what has happened? Do you put your hand up and say "Yes, it was me, I was wrong, but I will dip my hand in my pocket and put the money back" or something like that?
  (Sir Hayden Phillips) Those who made the mistakes will have been criticised and they know they will have been criticised.

  37. "Those" being lower down in the scale?
  (Sir Hayden Phillips) Those who are responsible in the finance division in the Department and, if necessary, in PTO for handling these changes. I think one of the problems here, the underlying problem, is that the PTO calculated correctly the VAT on an accruals basis, the Department has been doing it in cash. Once we are both together on an accruals basis the problem should no longer arise in the same way.

  38. Right then. Even within that clients can be unfairly treated one as opposed to another. They can be cross-subsidising because of the incompetence of the system that operates. We are told here "The Public Trust Office was unable to satisfy my staff that the apportionment bases for securities costs of £135,000, legal costs of £400,000 and investment costs of £700,000..." that is making a total of one and a quarter million pounds "... were fully supportable and justified." That is pretty damning, is it not?

  Who has been in trouble for that?
  (Mr Smedley) Can I just check that I understand the question. Paragraph 53, the apportionment of costs is now based upon a rather old-fashioned formula. We are working with the Lord Chancellor's Department to have a more modern formula that will enable us to apportion costs more accurately and we should have done that by the end of the month. That is the factual position. I do not know if I have answered your question.

  39. What comes over is—I hope this is wrong—you have here a clientele of people who are least able to protest and stand up for themselves and make a case, but they have been badly treated. Are they not, by definition, the people who are dependent on this service? The situation has been carrying on for years. I can go through a whole series of other examples—but my time is already up—in which they have been ignored. The PAC is a problem to you, your customers are not. There is nothing they can do about it. It is only when you come here that anybody is able to call you to account and even then it is always somebody responsible other than the witnesses who are present. Frankly, I find that an entirely unsatisfactory situation.
  (Sir Hayden Phillips) There is no question of our seeking to shuffle-off responsibility for the general situation the PAC has criticised. Equally, we have taken a whole range of steps to put them right. If I can add one final comment, we have in the last year—this is absolutely right, and it will go to your concerns generally—engaged groups of receivers and groups of others involved in helping to look after the mentally incapacitated for the first time in a whole series of direct talks and forums so that we can get direct customer feed back. That has not happened in the past, and you would criticise that, as indeed would I, but we are trying to get this on track in the way you want.

3   Note: The reply was intended to run as follows "Well, if it does not come from the clients' fees that would come from the Lord Chancellor's Vote Account". Back

4   Note: See Evidence, Appendix 1, page 15. Back

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