House of Commons - Public Accounts

Select Committee on Public Accounts Second Report

PUBLIC TRUST OFFICE: UNCLAIMED BALANCES HELD IN FUNDS IN COURT AND THE OFFICE'S 1998-99 ACCOUNTS

THE AGENCY'S STEWARDSHIP OF FUNDS

Recovering Charges from Mental Health Sector patients

8. Under the Mental Health Act 1983 the Court of Protection has the power to appoint an individual or organisation (private receivers) to administer the financial affairs of mentally incapacitated persons. Where no one is willing, able or suitable to act as receiver the Court may appoint the Public Trustee as "receiver of last resort".[10] The Agency charges clients an annual administration fee for the services it provides, which is due on the anniversary of the First General Order appointing the receiver. This fee is linked to the level of a client's total disposable income less certain allowable deductions. The Agency charges an estimated fee to each client on the anniversary of their case, and this fee is recalculated following submission of a receiver's account. Where there is a difference between the estimated and actual fee due the Agency issues a further demand or pays a refund.[11]

9. Receivers are required to submit annual accounts to the Agency within one month of the anniversary of their appointment.[12] In his earlier report, the Comptroller and Auditor General had drawn attention to delays in the review of receivers' accounts and thus in actioning fee adjustments, and the failure to take appropriate corrective action. Additionally there were errors in recording fees in the Agency's accounting systems including adjustments recorded in the wrong year of account, fees due but not raised or raised in duplicate, and mispostings.[13]

10. In May 1998 the Agency set up a taskforce for calculating fees for private receivership cases and for reviewing past fees where appropriate. However, by the end of November 1999 some 3,100 or more than ten per cent of 1998-99 receivers' accounts had not been received, at least seven months after the due date for submission.[14] The Department stated that this number had since been reduced to about 1,000. The Agency had appointed a new Director of Mental Health in December 1999 who had developed a more robust procedure with the Court of Protection for chasing outstanding receivers' accounts. About 500 accounts a week were being received and the Agency was reviewing 1,800 accounts a month compared to 800 per month prior to December 1999. It estimated that there were now less than 4,000 accounts which had not been received within the two months at which an account was regarded as overdue.[15]

11. The Comptroller and Auditor General's report noted that the taskforce review of fees had resulted in an increase in fees of £1.25 million for 1998-99 and £800,000 for earlier years. The Agency explained that a key difficulty had been its fee structure which comprised eight different fee bands. This made fee calculation complex as a client could move fee bands between the time an estimated fee was raised and the final adjustment on receipt of an account. The Agency has now reviewed and simplified the basis for annual administration fees. As an intermediate step, from 1 October 1999 the Agency reduced the number of fee bands from eight to six. It also introduced a maximum fee of £1,750 for private receivership cases and £4,600 for Public Trustee cases.[16] The Agency stated that it was now about to move to a simple flat fee structure which would be easier to administer, although this had yet to receive the Treasury's approval.[17]

12. The Agency's financial objective is to recover the full costs of its operations through client fees. The Comptroller and Auditor General's report drew attention to costs incurred by the Agency through poor financial management. For example, the Agency had written off irrecoverable debts of £72,000 relating to commencement and Enduring Power of Attorney fees, and the Lord Chancellor's Department had failed to reclaim £124,000 of VAT on the Agency's behalf from HM Customs and Excise. The Department and the Agency confirmed that these losses would be borne by clients.[18]

Managing Unclaimed Balances in Funds in Court

13. In general, once an account has been dormant for five years, and if the Court Funds Office (the Office) is satisfied that all reasonable steps have been taken to trace the person entitled to the balance, the sums on that account are transferred to the Unclaimed Balances Account (the Account).[19]

14. A key function of the Court Funds Office is the custody of money or assets held on behalf of others. Hence the Office must be able to attribute money or assets to the persons on whose behalf they are held. To ensure completeness of funds, and to enable any errors or misappropriations to be readily identified and rectified, the total funds held should be agreed regularly to the total of the sums owed to individuals.[20]

15. During their audit of the Funds in Court Part A Account for the year ended 28 February 1997, the National Audit Office asked for a list of the unclaimed balances making up the total liability of £31.4 million on the Unclaimed Balances Account. However, the Court Funds Office did not hold a single record of payments into and out of the Unclaimed Balances Account before 1 March 1976, the date on which the net balance on the Account was carried forward to the Office's computer system. For balances which arose before that date, the Office had to refer to listings of unclaimed balances which had been published in the London Gazette until 1938, an unpublished listing dated 1953, and various other records including index cards. For balances arising from 1976-77 onwards data on receipts and payments were analysed to identify balances outstanding. Much of the balance had in practice arisen in the last 15 years or so.[21]

16. The Department stated that the various records held were sufficient to identify an individual balance when required. However, they accepted that the Agency's accounting systems should have permitted the ready reconciliation of individual balances to the total funds held.[22]

17. At the time of the Comptroller and Auditor General's report some £9.8 million of the £32.3 million held in the Unclaimed Balances Account at 28 February 1998 could not be substantiated to individual balances. Further work by the Agency had reduced this sum to £2.1 million which represented many thousands of small items which had accumulated between 1726 and 1976.[23] The Department had been told that the estimated cost of analysing these sums was approximately £30,000. They considered that the likelihood of claims against these balances to be small, and hence in their view it would not be cost effective to take any further action. Under current legislation unclaimed funds accumulate in perpetuity and the Department agreed that new legislation might be necessary to resolve this situation, so that the funds could be put to better use or be surrendered to the Consolidated Fund.[24]

18. The Agency acknowledged that better control over monies paid into the Account was key. The Agency had enhanced its operating procedures for identifying persons entitled to Funds held in Court to reduce the extent to which such balances were unnecessarily transferred to the Unclaimed Balances Account. For larger sums in particular, the Agency now telephones either the solicitor or the Court to try to identify the person entitled to the money.[25]

19. It was unlikely that many of the sums already paid into the Unclaimed Balances Account would now be reclaimed. Some people to whom money was owed had apparently disappeared, and solicitors who had paid monies into court had not reclaimed them. The Agency acknowledged that it could probably trace more of the money to owners, but did not regard this as its task, pointing out that solicitors were remunerated to safeguard their clients' interests. There were facilities for would-be claimants to find their money and it was for them to take the initiative to track down sums due to them. The intensive clerical exercise to identify the case, and to trace and contact the solicitor would be a very expensive use of public money. The Agency had investigated hiring a tracing agent to be remunerated on a commission basis, but had found it did not have the legal authority to do so.[26]

20. Since 1983, County Courts have also been able to pay sums into the Unclaimed Balances Account. Of the £5.2 million paid in by County Courts from 1983 to February 1998, £100,000 had subsequently been paid back to the rightful owners. County Courts provided the Court Funds Office with manually produced forms based on their own records to support payments into the Account. The Office annotated these forms when balances were repaid. The National Audit Office found that many of the forms submitted by County Courts included entries which provided no details about the sums transferred. In such cases there was no evidence that the sums related to unclaimed monies and that they were appropriate for transfer to the Unclaimed Balances Account.[27]

21. The Agency agreed that these monies should not have been accepted without supporting details, and noted that it had now changed its procedures.[28] The November 1999 Quinquennial Review of the Agency suggested radical changes to its organisation and operation, including the transfer, from April 2001, of the functions of the Court Funds Office to the Court Services Agency. The Department suggested that one advantage would be a closer relationship between the Court Funds Office and the County Courts, which would enable better control and monitoring of balances. In the meantime, the Agency was taking steps to ensure that the Court Funds Office and the County Court records and systems were consistent.[29]

22. The Court Funds Office is required by law to maintain a list of the accounts where funds have been carried over to the Unclaimed Balances Account, and this list (referred to as the 'Index') must be available for public inspection. In May 1999 the National Audit Office found that the Index was eighteen months out of date. The Index comprised over 10,000 sheets of paper and many of the entries on the Index were not meaningful and would not facilitate a search by an interested party.[30]

23. The Department agreed that the Unclaimed Balances Index was not user friendly and that the weaknesses should have been identified and corrected at a much earlier stage. They described it as risible, and acknowledged that its shortcomings were unacceptable. They attributed the weaknesses to a substantial underinvestment in the past in information technology and information systems support in the Agency. To improve public access to the Index, the Court Funds Office had now set up a database search facility, at a cost of £3,400, which became operational in March 2000.[31]

Conclusions

24. In its 35^th report of 1998-99 (HC 278) the Committee drew attention to the Agency's failure to collect and review receivers' accounts on a timely basis. Prompt receipt of receivers' accounts was critical to the Agency recovering the correct fee from its clients. Whilst we acknowledge the actions taken by the Agency's current management to improve performance, for example the more robust procedures established with the Court of Protection for chasing outstanding receivers' accounts, there is still scope to reduce further the number of accounts more than two months overdue.

25. The Agency had to establish a separate taskforce to calculate fees and review past fees, which secured an increase in fee income of £1.25 million for 1998-99 and £800,000 for earlier years. The accurate calculation and prompt recording and collection of fees should have been an integral part of the Agency's business processes.

26. As custodians of monies paid into Court, the Court Funds Office should have established systems which permitted the ready identification of balances owed on individual unclaimed cases, and the regular agreement of these balances in aggregate to the total of unclaimed funds held by the Office. The latter is an important financial control over the completeness of funds and a deterrent to misappropriation.

27. Current legislation effectively requires the perpetual accumulation of unclaimed balances. We support the Department's proposal to recommend to Ministers a review of this legislation which might allow payment into the Exchequer or to suitable causes of sums never likely to be reclaimed.

28. Most of the sums held on the Unclaimed Balances Account have been transferred to the Account in the last 15 years or so. The Agency acknowledged that its procedures to identify potential claimants before transferring sums to the Account should have been better, and it is now pursuing owners or solicitors more actively. A list of unclaimed balances is required by statute to be available for public inspection, but the Department and the Agency acknowledged that it was far from user friendly. The Agency is now addressing these issues. The Court Funds Office will need to give higher priority to improving customer service in these respects.

29. The Agency indicated that it did not consider tracing owners of sums held on the Unclaimed Balances Account to be a proper use of its resources. The Agency had tried to make it easy for claimants to find their money, and believed that it was the responsibility of solicitors to look after their clients' funds. The Agency acknowledged, however, that more could have been done to trace the owners before transferring sums to the Account and to provide a more acceptable search facility for potential claimants to use. In our view it should consider reopening at least the larger cases where owners might still be found.

30. County Court balances paid into the Account often had no details at all about the source of the funds. Although the Agency no longer accepts sums from County Courts without supporting details, the Department should consider whether County Courts' procedures for accepting monies into Court, and their record keeping, are adequate.

10 C&AG's Report, HC 416 of 99-00, para 1 Back

11 ibid, paras 13-14 Back

12 ibid, para 19 Back

13 ibid, para 15 Back

14 ibid, paras 16, 19 Back

15 Evidence, Q6 Back

16 C&AG's Report, HC 416 of 99-00, paras 13, 32 Back

17 ibid, paras 16-25, Evidence Q5 Back

18 C&AG's Report, HC 416 of 99-00, paras 39, 47 Back

19 C&AG's Report, HC 833 of 98-99, para 2.2; Evidence Q40 Back

20 ibid, paras 4, 12 Back

21 ibid, paras 10-11, 2.8, 3.4, 3.20; Evidence Q43 Back