Examination of Witnesses (Questions 20
MONDAY 17 APRIL 2000
PHILLIPS KCB AND
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 certainlyI
am not sure how far back one would want to gofrom 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 accountsgetting them in, reviewing themand
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 sightand
the NAO has gone into the problems in great detailcaused
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
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
alsonow this comes back to the Departmenthad 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
29. No, it says the unrecovered VAT had been
written off in the Agency's 1998-99 accounts reducing the Agency's
(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,
(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.
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
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
(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
(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 isI hope this is
wrongyou 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
examplesbut my time is already upin 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
(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 yearthis is absolutely right, and it will go
to your concerns generallyengaged 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
Note: See Evidence, Appendix 1, page 15. Back