Examination of Witnesses (Questions 40
MONDAY 17 APRIL 2000
PHILLIPS KCB AND
40. Good afternoon. When I read this report
I was a little confused, to be quite honest, not so much on the
performance but just on the actual situation that has arisen.
What I could not understand, to begin with, was how money was
paid into courts and it was not known who that money belonged
to and why it was there. That seems incredible to me. Could you
answer that to begin with?
(Mr Smedley) It starts off by being paid into the
Court Funds Office. Usually this money is in respect of litigation
that is in process and somebody may have made an offer of settlement
and the money is paid to the court. It is only after five years
if that money has not been touched that it is paid over into the
unclaimed balances account.
41. I can understand that. What I cannot understand
is how the courts do not know whose money it is?
(Mr Smedley) The way it gets into court is varied.
Some people literally come into court and say, "Here is £25
in respect of my case", it is put into an envelope and the
court accepts it. There are some problems with the accounting
system that, in a sense, we inherit the problem from.
(Sir Hayden Phillips) If your question is that we
should not accept money into the account without knowing who it
belongs to the answer is we should not and we will not.
(Mr Smedley) We do not any more.
42. This money goes into courtit is funny
how people always collect money in little brown envelopesand
the courts themselves do not write down who it is. Why do these
people not come back for it?
(Mr Smedley) It is extraordinary the amount of money
we have that is not claimed. Our research suggests that there
is one major explanation for this, which is that most of these
clients are represented by solicitors. From a solicitor's point
of view once the case is closed they lose interest in it. They
do not pursue the fact that they have during the course of the
case paid money into court.
43. I find it absolutely amazing. In the Report
it goes on to say that the balance of this account has increased
considerably over the last fifteen years. I read that some of
it was there since 17 something or other, it would be difficult
to find out whose that is. I think it was probably mine or at
least I can make a claim to it, particularly that which was put
in 1726. Surely it must be a lot easier to trace people in the
last fifteen years? Why has that not happened?
(Mr Smedley) We have not assumed it as our responsibility
to actively trace and track the money, on the basis that it is
private money and if people wish to pursue it they will take an
initiative to pursue that. We are now pursuing it before we pay
it into the account more actively.
44. Are you telling me that every penny that
comes from the unclaimed amounts it is not known who it belongs
to? There must be a record somewhere that says it belongs to Mr
so and so from somewhere or other.
(Sir Hayden Phillips) There are a whole series of
records, apart from the listing of balances, which is the work
we have done, which enables us to track down who it is. We are
agreed that we should not have to do that.
45. What you are saying is that in the future
you will not accept money from county courts unless the record
clearly shows who it belongs to. County courts must return that
money. I wanted to move on to paragraph 3.9, because, again, this
intrigued me, it was on page 18 of the Report. Here it says that
there was £20,000, £30,000 that had been paid into the
County Court at Bow, Central London and yet most of that money
is unknown. There was one payment of £7,000 that was paid
in. Surely when you are accepting this unclaimed balance£7,000
on one individual amount and £20,000 and £30,000 -it
is a lot of money, surely somebody must have said, "Who does
this belong to?"
(Mr Smedley) There is no doubt that that is we should
do, what we should have done and that is what we do now. The fact
is that when this occurred we were running an accounting system
which said, "If you get this money you pay it in there."
It is quite apparent it would be more helpful to challenge the
attribution of that money in the first place and that is what
we are doing now.
46. I do not mean to seem facetious but the
last chief executive was paid a bonus, as we just found out from
the questioning from the Chair and Mr Williams, for reaching the
targets. The targets must have been set very low if what you just
explained to me is accurate. Obviously it is. Those targets must
be very low to achieve success?
(Mr Smedley) The targets would not have specifically
related to this particular one.
47. Not to this specific one, however in the
inefficiency surrounding it that must have been pretty low. Have
the targets now been increased? You will not be getting, for example,
(Mr Smedley) I will not be getting any bonus, no matter
how I perform.
48. That makes a change.
(Sir Hayden Phillips) No, he will not. That is because
we are paid in the round in relation to performance. As I said
earlier, I am not particularly attracted by this mechanistic approach
to targets. In relation to this particular target, which I believe
remains in relation to the Court Funds Office, it is bringing
99 per cent of receipts and payments to account within turnaround
targets for timing. That target, which is a legitimate one and
a right one to hit, has been regularly hit. What it does not tell
you, on the face of it, is a lot of the other things that you
want to see improved about the way the Court Funds Office operates.
That is why just to select a few targets does not describe either
to us, as the managers, or indeed to the Committee, what the real
nature of the tasks are that lie below the surface. We would agree
49. I am reading again, it says that only 0.1
million out of £5.2 million was only claimed from the county
court balance and had been paid since 1992. It took me a while
to work out what 0.1 of £1 million is, I was not sure whether
it as £100,000 or £10,000. My sums are not very good.
Chairman: What did you teach?
50. It was history, that is why I can claim
the 1726. Only £100,000 at £5.2 million which is unclaimed
has been repaid since 1983, so is this money ever going to be
(Mr Smedley) No.
(Sir Hayden Phillips) Very large sums of this money
are never going to be repaid. I think there is an issue here about
what should be done. First of all, if I may say so quickly, for
the information of the Committee, by decreasing what is called
a dormancy period from 15 to five years, what was done was to
create an enormous amount of activity in the fund of transactions
in there and I think we want to try to increase that period so
it does not create so much activity. Secondly, I think there is
an issue here which would require legislation to resolve.
51. That is the point I was coming to.
(Sir Hayden Phillips) About what you do as this money
piles up. The question is would it be better for it to be used
for, as it were, purposes related to the activities which the
Department carries out or would it be proper for it to go to the
consolidated fund. I think that set of issues is one we should
put to our ministers to see what they think and pursue it actively,
otherwise this would just grow and grow and grow, givenand
I think we agree with you herethe slightly surprising thing
that people seem to forget that they have put money in and they
do not seem to remember that they want to get it out.
52. What I was going to ask there and I was
going to say if it is not going to be claimed then it has obviously
got to go somewhere because it is daft just being there. It seems
to me perhaps rather than going to the consolidated fund, which
is a huge fund, and this would be a drop in the ocean, it would
probably be far better to go into the Public Trust Office to pay
for the administration of the cases you have of the mentally ill
people you look after. I am not sure if we are allowed to recommend
that. Finally, basically on the county courts issue, it seems
to me that the county court should be here this afternoon as well
because obviously they are as much to blame as the Public Trust
Office in terms of handing that money over. What is happening
in that respect? Are they having now to check their systems and
ensure they do the job properly?
(Mr Smedley) Yes. We have worked much more closely
recently with the county courts to check that both parties' systems
are, if you like, talking to each other. The other thing the Lord
Chancellor announced last week was the restructuring of the Public
Trust Office and we are going to put the Court Funds Office into
the Court Service. One of the advantages of that is the two are
so closely related that we hope to get some greater efficiencies,
particularly in the use of IT.
(Sir Hayden Phillips) Those who manage the county
courts would also be responsible for these funds and then you
have one person to whom you can ask the same set of questions.
53. I am going to leave the county court behind
and come on to the Public Trust Office. Having criticised the
county courts system, then you can be accused under the same arguments,
can you not? In paragraphs 3.13 and 3.14 we seem to have exactly
the same problems here, do we not, regarding not knowing who has
what and where it has come from. Again, I really cannot understand
why the owners of the amounts on 3.13 and 3.14 are not known.
For example, it says some of the monies held previously by the
Public Trust Office were "... in two National Savings Bank
Investment accounts and one deposit account". Presumably
those accounts have names, so why can they not be traced or am
I reading it wrongly? How can you put that in the unclaimed fund,
presumably the accountsit sayswere in Post Office
accounts, National Savings Accounts, deposit accounts, they must
have names and addresses on them, so why have they gone into the
(Mr Smedley) I am just struggling to find exactly
54. 3.13 and 3.14, it is actually 3.14.
(Mr Smedley) Yes. Some of the money in 3.13, if I
can start there, I might just need to go through this in blocks.
A large sum of the money, £192,000, was from the Public Trust
Office's trust case files and these are trust files where a trust
has been set up some years ago and the beneficiary, in some cases,
has gone to Australia and cannot be traced.
55. Who has gone to Australia?
(Mr Smedley) This is money from a Public Trust Office
trust case and the money would be on trust for a particular beneficiary.
(Mr Smedley) Then the beneficiary, for example, would
come of age and we will seek to pay the money and they will have
vanished, they will have either gone to Australia or they will
simply not be traced or traceable. So large amounts of money accumulate.
What happened at one point was that money was paid into the Unclaimed
Balances fund, so that is one block of it.
(Mr Smedley) There are other blocks, I do not know
if you want me to go through the different ones?
(Sir Hayden Phillips) Would I not be right in saying,
in answer to Mr Steinberg's question, not that there is not identifying
information, it is that the people cannot be traced who are identified
in that information? I think it is that issue rather than whether
the records are right which must be at issue.
58. Okay. I was going to pursue that but I am
being told my time is nearly up so what I really want to do is
just follow basically on the report that we produced way back
in February last year. If I remember rightly we actually picked
up a lot of these problems in February and we made certain recommendations,
recommendations regarding financial management, etc. We are told
that it has taken you from then until November and then January
before you appointed a head of finance and a credit controller.
Why did you take so longI am not going to say to ignore
the advice the Committee was giving you but it seemed reasonable
adviceto react when obviously you knew there were problems?
(Sir Hayden Phillips) I did not think it took us quite
as long as it sounds, frankly, Mr Steinberg, actually. I think
in relation to the criticisms of the review of accounts, we made
sure that new targets were set shortly after the hearing, and
they were embedded in last year's tasks. Nick answered an earlier
question by indicating how much progress we have made. When I
appeared before, the Committee was rightly criticising us for
only reviewing 30 per cent of cases as opposed to the target of
80 per cent in an eight week period. I think I am right in saying
at the turn of the year we were reviewing 85 per cent of cases
against an 80 per cent target, so we were not inactive. Secondly,
the criticism, as I acknowledged last year, was trenchant and
accurately placed and that was when the Lord Chancellor decided
to ask for a Quinquennial Review of the totality of the PTO and
not just those aspects which had been criticised by the PAC. We
made sure that was radically done and, indeed, you know the results
are very radical. We are going to have a very different creature
which we are now going to manage and create. Frankly, also, I
think I would say this, would I not, it does take time to appoint
and recruit, as it were, the right skilled staff to get a grip
on change. Particularly in the accounting area, given the way
that fees were based on estimates which then had to be checked
once accounts came in, and accounts were not always coming in
on time, they were late, the lag between the start up and getting
accurate records of what the fee should be was very great. That
was the central accounting issue. I think we were getting a 65
per cent audit certificate, if I can put it that way, from the
NAO in November. They said "No, you have to have a 90 per
cent accuracy here, we have to be 90 per cent certain it is right".
It took us a bit of time to do that, I regret that. We have now
got the clean certificate, that is a break through and we have
to deliver a further set of accounts by 30 June for this last
year and if we can do that with NAO's help we shall be in a very
good position compared with a lot of other organisations in Government.
Sorry, a long explanation but we have not been idle and we have
not just waited a year to tell you that, there has been a lot
going on in that meantime.
59. I think you said at the very begining in
relation to the sums involved you did not have a full reconciled
list. You accepted there was not a full reconciled list but you
thought that did not matter because you had an audit trail from
a card system. Is that correct?
(Sir Hayden Phillips) Yes, there are ledger entries
for each entry. There was a system of index cards and other records.
That was a description of what there was before. What I hopeand
believe is the case nowis that has all been put on to a