Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



Mr Steinberg

  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 court—it is funny how people always collect money in little brown envelopes—and 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, huge bonuses?
  (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 about that.

  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?

Mr Steinberg

  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 repaid?
  (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, given—and I think we agree with you here—the 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 accounts—it says—were in Post Office accounts, National Savings Accounts, deposit accounts, they must have names and addresses on them, so why have they gone into the Unclaimed Balances?
  (Mr Smedley) I am just struggling to find exactly which particular—

  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.

  56. Right.
  (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.

  57. Right.
  (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 long—I am not going to say to ignore the advice the Committee was giving you but it seemed reasonable advice—to 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 hope—and believe is the case now—is that has all been put on to a computer database.

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