Examination of Witnesses (Questions 1
WEDNESDAY 10 MAY 2000
1. This afternoon we are due to hear evidence
on the NAO report on grants made by the National Lottery Charities
Board. We have with us our two principal witnesses, Mr Robin Young
and Mr Timothy Hornsby. Welcome, both of you. To give you a chance
of settling in, I wonder if I could ask a quick question to the
C&AG. This report covers the relatively early stages of the
operation of the Board. Will we be having a report in relation
to the Millennium projects, the Dome and associated projects?
And, if so, in what sort of timescale?
(Sir John Bourn) The Dome is dealt with
by a different body from the body on whom I have been reporting
on this occasion. It falls within our remit, so we shall be reporting
to the House on the Millennium project. Certainly, at the conclusion
of the year, when we are able to analyse the performance and the
extent to which targets have been achieved, a report will come
to you either on the accounts or more generally.
2. Thank you very much. We will start with you,
Mr Hornsby, for the minute, if we may. On page 21 in paragraph
2.9 of the report, the point is made that almost a fifth of the
projects examined28 of them amounted to over £4 millionhave
not progressed entirely as planned. Extrapolating this, as is
done later in the report, the conclusion is drawn that over the
first three grant programmesthat could mean anywhere within
the range of £67 million to £145 millionthat
money is not, at that stage, being used entirely as planned. Does
that reflect your current experience? How could it have come about?
What are you trying to do to stop it happening on the same scale
(Mr Hornsby) I think that was three questions. Following
the NAO report, where we did, of course, update the material at
the end of last year, the Board has chased those cases which were
under-performers. Of the 28 cases cited by the NAO, in three cases
we had not paid out any grant at all, so no public money was at
risk. Of the remaining 25 cases, in nine cases there has been
a definite improvement in the performance and delivery. To give
you a specific example, case study 13, the Pakistani Centre at
Nottingham, the NAO initial assessment on the visit, (entirely
correctly), was that the building was not complete and they, therefore,
classified the scheme as not provided. The update before this
Committee in the report of November 1999, showed that the building
had been completed physically but the service had not been provided.
The NAO, therefore, agreed a revised description: "partly
provided". However, the day care service has now opened.
It has been fully operational since January 2000. We have all
the outstanding documentation on end grant and accounts, and the
project is fully provided. So each time you take a snapshot, even
within some of the late performers, it does tend to improve. The
NAO report itself clearly indicates that you should not use the
analysis to draw absolutely firm conclusions about the overall
success, though they quite rightly suggest that there is within
this extrapolation, a swing of between £67 million and £145
million worth of projects which have been less than fully successful.
My second point is that even those projects which did not fully
provide, did in fact provide a level of service. If one looks
at the LEAP project, case study 5, over 60 per cent of the benefits
were in fact delivered there. So it is not quite as stark as it
seems. Thirdly, you asked me what we are doing about this. There
are some very clear lessons to be learnt from this report in tightening
up. We introduced a comprehensive grant management manual in February
1999. We have extended and deepened and improved the training
to all our grants staff. On the property grants, a particular
area of concern, we have now introduced a new two stage approach,
which will ensure that we get firm estimates from qualified professionals
before the grant is to be put into place. At the time that these
grants were being delivered, we had 43 permanent staff and about
130 part-time assessors. We have now staffed up fully to 250 trained
grants officers, and I think that will give us more time on grant
management. We have specifically tightened up the rules for monitoring
in terms of chasing the end grant report. I am happy to say that
all five recommendations in this report have been carried forward.
So I think that the cumulative effect of all that tightening should
be to improve the performance.
3. That is encouraging. If we move then to paragraph
3.32 on page 41, this is case study 14, the Adventure Playground
project. Now here we had the unusual situation where about £16,000
of money was used to pay off debts to the Inland Revenue. Key
staff had not been recruited when the NAO carried out its inquiry.
Indeed, the Board did not have adequate information on how the
bulk of the grant was being spent. What is the latest position
on this project?
(Mr Hornsby) The original application was to extend
the service of an existing playground, which had been fully supported
by the local authority. We received from the local authority itself
some concerns about the delivery and, therefore, we jointly visited
with the NAO. Following that we have done two things. We have
withdrawn the outstanding amount of the grant, £30,000, to
which the NAO report refers, and we have sent a demand for repayment
to the body for £22,000: that is, the £16,000 of Inland
Revenue debt which was wrongly paid to them; plus £6,000
of further expenditure, where we were not satisfied, when we looked
at the accounts, that they had been spent on the purposes of the
grant. They did, in the event, succeed in recruiting some part-time
staff to deliver the service, so the project was not a complete
non-starter. But, as I say, we are in discussion to secure and
claw back the further £22,000. We are not paying the outstanding
amount, which was the £30,000.
4. That is £52,000. Was this entirely a
lack of proper preparation and calculation on the part of the
people submitting the project; or was it also, in part, invalid
or inadequate evaluation by the Board, whoever undertook the project
(Mr Hornsby) The original assessment looked at what
should have been a relatively standard and deliverable scheme.
We have funded large numbers of successful play groups. With the
wisdom of hindsight, I think the management skills and the financial
strength of the body were less robust, and this came out more
clearly as the project developed. It is also fair to say to the
project organisers that they experienced unexpected staffing difficulties
in the way they manned the project.
5. But £16,000 of debt around their necks
before they started, were you aware of that? Did you know that
the Inland Revenue commitment existed?
(Mr Hornsby) We were not aware that there was an outstanding
debt to the Inland Revenue at the time we assessed the grant application.
6. What led the people who received the money
to think they could use the money for that purpose?
(Mr Hornsby) I think when one is talking about small
voluntary groups, traditionally the nature of those who run this
sort of the scene, they have no fully paid staff of their own.
They do not have a treasurer. They do not have an accountant.
These are a group with a council of management who may not have
extremely good financial expertise. Who may be less skilled at
the segregation of parts of money. We make it absolutely clear
in our terms and conditions that our grant money goes on the project.
If you do not have a tight accounting regime, and if you have
a slightly disorganised body with a volunteer base, it is possible
for themI think, in this case, inadvertentlyI do
not think there was a deliberate attempt to defraud. They said,
"We have some money lying about in the kitty and we have
got a bill from the Inland Revenue, we will marry the two together,"
which was sloppiness.
7. If we look at the same page, case study 15,
this was the community centre in Loughborough. Here there was
a £182,000 commitment. That was to cover community centre
equipment and salaries. Cost increases arose. You were aware in
November of 1998, because there was evidence, that there were
further problems with the refurbishment and financial difficulties.
Why was it seven months before you actually went to visit the
(Mr Hornsby) In this case we are dealing with one
of the most highly deprived communities in Loughborough; a council
of management itself, the majority of whom did not speak English,
although we offered an interpreter. We wrote to them. We paid
a number of visits and were unable to see anyone there. As I say
again, there was a series of part-time volunteers running a project.
Moreover, the body responsible for running the project had severe
difficulties with the construction firm who were building it.
They are, in fact, being sued by them. The view of the grants
officers at the time was that the prime need was for the council
of management to sort out the outstanding litigation with the
builder, following which we would hope to see the project successfully
completed and the benefits brought on-stream. We have chased them
repeatedly on this since the publication of this report, with
recent feedback indicating that they were partly providing the
service off-site. We have written to them again saying that unless
we receive comprehensive documentation we shall instruct our lawyers
to start proceedings.
8. Now, bearing in mind, as you said, that this
is a very deprived area, and that there were linguistic difficulties,
business know-how and so on, how far again in your evaluation
are you able to identify these matters, (which should be easy
enough to identify), but are you then able to give any sort of
support and guidance for the preparation of business plans and
so on, to ensure that they undertake and are fully aware of the
complexities of the projects they have taken on?
(Mr Hornsby) That is an extremely relevant point and
it is partly covered by my earlier answer. At the stage when we
were assessing bids of this sort, we had a single stage assessment
for a building or a refurbishment project. In some cases that
meant that the council of management had not obtained full plans,
full details, for professional advice. Quite frankly, this was
one reason why this scheme hit difficulties. Were a similar scheme
to come to us now under our strengthened procedures, we would
say in principle that this is a scheme that fits the Board's policy,
it is eligible, it looks good value for money. We are prepared
to approve it in principle and we are prepared to fund a feasibility
study. We will not, however, make a grant offer, nor will you
be able to draw any grant down until we have received plans, planning
permission, RIBA certificate, and so on. In this case, had our
present procedures bit, the council of management who had considerable
difficulties would not have been able to obtain money until they
had a fully planned scheme, so that when it went out to tender
the problems they subsequently had would not occur. Your question
was absolutely right about this. For groups of this sort, I think
there is a measure of support needed to enable the scheme to be
more robustly worked up.
9. In fact, the thought occurs that it sounds
as if this was a group of people who were highly disadvantaged
in a legal confrontation with a firm, where you said there is
possible litigation, where it is a firm of some substance which
can afford litigation, but where it sounds as if the group could
not afford it.
(Mr Hornsby) Yes.
10. Is there any guidance provided to people
who are in a situation where they do feel they have a grievance
(Mr Hornsby) We attempt to support those whom we grant.
We want the funded body to succeed, not the funds to fail. In
this particular case the details of the litigation are, I am afraid,
essentially a matter between the building firm and the council
of management. There is, frankly, very little, if anything, the
Board could do one way or the other. We shall have to see what
happens in court.
11. Incidentally, looking at the whole situation
on the projects you have dealt with, you had administered very
large sums of money. Have you encountered much, if any, evidence
of fraud, where you have come across maladministration, incorrect
(Mr Hornsby) We have had ten cases of fraud out of
the 30,000 grants of 1.5 billion. Those cases involved £357,000
worth of grant of which the fraudulent element was £83,000.
That accounts for 0.023 per cent of our total spend. Fraud cases
have been small. In each case we have fully co-operated with the
police and in each case they have prosecuted.
12. These cases have been concluded?
(Mr Hornsby) Yes. The ten cases I have referred to
have been settled.
13. With what result?
(Mr Hornsby) With the result in two cases, for those
who obtained a grant, being sent to prison. In other cases, with
the money being clawed back. In two cases there was an attempt
to deceive during the assessment process. We considered that the
bid was pretty dodgy. We discussed this with others and the police
and in one case, Mr Salakov, the applicant was convicted with
attempt to defraud, but his application was rejected by us in
that it looked highly suspicious. The substantive answer to your
question is that the difficulties we have encountered with the
wide variety of voluntary groups have not been deliberate fraud.
As I say, the number of those cases has been small. There have
been management difficulties over competence, over delivery, over
changes in the external climate but, as I explained on the basis
of those figures, 0.023 per cent of the grants being involved
in fraud cases is a small amount.
14. It is surprisingly low. Nevertheless, any
case obviously is something that concerns this Committee.
(Mr Hornsby) Indeed.
15. Perhaps what would be helpful, unless my
colleagues want to pursue this aspect themselves in subsequent
questioning, would be if you would let us have a note on each
of these cases, so that we can see what in future will be involved.
(Mr Hornsby) I would be happy to do that.
16. Good. That is very helpful. If we turn to
paragraph 3.36 on page 43. This refers to the fact that you have
had Financial Directions from the Department which require you
to ensure that assets which are purchased with Lottery funding
are used for the purpose intended. Now, clearly that is a very
sound cautionary piece of advice to give. Why is it that despite
that, you do not have a consolidated register of capital assets
funded by you; nor do you have formal procedures to verify the
existence and use of assets?
(Mr Hornsby) We have, of course, individual case details
on individual case files.
17. You indicated that there are 30,000 awards
you have dealt with. That is an awful lot of paper.
(Mr Hornsby) We are producing a consolidated asset
register, which will be available under the support systems in
the autumn of this year. We are in current discussion with the
NAO about the periodic visits, the sample size, and the cut-offs.
What we have done, however, since the report was published, is
that if the procedures for checking on assets where we are currently
in discussion with the NAO are agreed, then there would be nine
projects that would fall to be visited. We are now doing that
in advance of the final agreement on the procedural coverage,
and in advance of the physical creation of the comprehensive asset
register. So we are visiting those nine cases.
18. You were set up in 1993. You started funding
in 1995. It is going to be the autumn of 2000 before you have
a well defined system. Do you think you should have given greater
priority to that? There are already 30,000 grants without a facility
for proper monitoring.
(Mr Hornsby) I do take your point. The 30,000 grants
we have made is the cumulative total. This report looked at 5,000
grants. When we began making grants in 1995, the length of those
grants, in most cases, was two or three years. Of course, during
the period the grant was live, there were monitoring visits and
checks to make sure that the asset was there; that it was properly
used; it was benefiting. What this report points to is the issue
of post-completion monitoring. So, in fact, it was not until 1998/1999
that we were in a position where some of the schemes we had previously
granted would then need a post-completion visit. As I have said,
technically, because of the sheer scale of the information required,
it was not possible to produce the comprehensive asset register
until the autumn of this year. But we are already arranging visits
on the basis of the monitoring scheme on a purely manual basis.
It is not that we have had 30,000 grants that finished three years
ago and we have done nothing about them. We are talking about,
as I say, the earlier grants, most of which would have completed
their passage a year or so ago.
19. I will finish on this. I imagine you are
deluged with applications. Yet proper evaluation is a very important
safeguard to future problems and to improving your method of dealing
with applications. Why, therefore, is it that you have not paid
close attention to the Financial Directions, again from the Department,
requiring you to have a policy for evaluating projects?
(Mr Hornsby) Deluge is an apt word, Chairman. During
the period looked at by this report we received 37,000 grant applications.
For evaluation to be effective this really needs to take place
when the project is tangible, completed, and the benefits have
come on-stream and you can start tracking them. We have commissioned
and received a full report from an independent consultant, Community
Matters, on the north east community buildings since this report
was published. We have commissioned research from Runnymede on
a mix of evaluation on black and ethnic minority projects in Birmingham.
Sheffield Hallam are providing the detail of the report for us
about some spatial targeting we have done in Barnsley. London
have mounted a research project on refugee grantsalways
a sensitive issue. Northern Ireland are looking at some of the
advice services we have provided. Scotland has commissioned the
University of Strathclyde to look at the first grants on poverty.
So we have six or seven evaluation schemes: two are completed
and three are being done. My research committee, on Monday of
next week, is looking at a comprehensive set of proposals for
further evaluation either by cluster groups or types of activity.
1 Note: See Evidence, Appendix 1, page 120 (PAC
Note: The year was 1999/2000, not 1998/99. Back