Examination of Witnesses (Questions 20
WEDNESDAY 10 MAY 2000
20. You have batted solidly over the first 15
minutes. One quick note in your direction, Mr Young, before I
finish. Why is it that having issued directions, the Department
has not done more to ensure that these directions are observed?
(Mr Young) As the Committee has said on previous Lottery
appearances I have had with the Committee, we do not second-guess
the opinions of the Lottery bodies. What we do do is, first of
all, approve the systems and procedures they have before they
start, and on that we get the prior advice of the NAO. Then each
year we double-check, via our own internal auditors, that, as
far as we can see, their systems and procedures comply with our
directions. So we do do an annual assurance check with internal
audit and backed up by other outside audits and checks on the
21. So you have been satisfied with this over-five-year
time lag in the establishment of proper systems?
(Mr Young) We have been satisfied that the monitoring
of the projects that the Charities Board has done is in line with
the directions. Yes, we have indeed. But we now agree with the
Committee's annual report that it is time for them to have the
asset register, which they have, and to set up better arrangements
for visiting buildings after the end of the grant in period. However,
as Mr Hornsby has just said, it is only now that the initial projects,
involving the buildings and positions of buildings, have come
to an end. So it is now that we should be setting up the post-grant
period of checks.
22. Would it be fair to say that your original
systems seemed very slipshod when you first started?
(Mr Hornsby) I think our original systems, in terms
of the application handling and for the requirements on assessment,
were relatively comprehensive and effective. I would freely admit,
and this report makes clear, that on some individual cases the
implementation of those systems was less than satisfactory, at
a time when we had 43 permanent staff and when we had 37,000 applications
to deal with. But what defects this report has indicated have
been defects in casework implementation and in chasing, not systems
defects in terms of the sense that we had got the architecture
Mr Williams: I think Mr Steinberg feels that
he is sabotaged in every hearing we have. He has been sabotaged
again by the division bell. We will adjourn for ten minutes.
The Committee suspended from 5.02 to 5.08
pm for a division in the House.
Mr Williams: We will begin again at 5.08. Mr
23. The reason why I asked you that question
regarding being slipshod, if it is not slipshod I was surprised
at the naivety of the Board that before capital schemes got grants,
you did not insist that there would be planning permission. Looking
at your CV I see that you were in the Department of the Environment,
so presumably you have come across local government before, and
you are probably well aware of local authorities' reputations
in granting planning permission. So why did it take you so long
to realise that it was important that planning permission was
granted before you actually gave out grants?
(Mr Hornsby) There is a balance to be struck here.
It was the case in the early grant rounds that a number of bodies
came to us, (I think perfectly legitimately), with a service they
wanted to deliver, which would need a building or a refurbishment.
In some cases they had not identified a building.
24. That is even worse. They had not even identified
the building and here you were handing them out thousands of pounds
(Mr Hornsby) We were not handing them out any money.
The problem that resulted was that we gave approval in principle
and said, "When you settle the buildingyou might have
had your eye on that building, you might have been gazumped or
it might have changedwhen you have asked for outline planning,
when it has been firmed up, you can then draw down." What
the NAO has drawn attention to, (absolutely rightly), is the danger
of that process in that it may take much longer or they may find
a building that costs more. We decided with the experience we
have had to tighten up all the prior planning permissions. As
I explained to the Chairman, we now have a two-stage process,
under which we will get firm planning done beforehand. But we
were not paying grant out in certain cases where they had not
got a building or had not got planning permission. We were approving,
in principle, an application.
25. So you were approving in principle? No money
was paid out at all?
(Mr Hornsby) No, indeed not.
26. In one of the case studies, I cannot remember
where I read, but I am sure that grant was paid out before planning
permission had been given. Perhaps I read that wrongly. The NAO
did a very small sample of cases, so are you sure that in all
the projects that, in fact, money has not been paid out and grants
given where planning permission has not been agreed by the local
(Mr Hornsby) The NAO report indicates that in 91 per
cent of the cases, the terms and conditions of the grants had
been complied with. You may have in mind a very fair criticism
that the NAO identified eight cases where we had actually paid
out grant without being given the full quotes from the architects
or the contractors. Eight cases out of the 150 that were examined.
I am glad to say that in six of those cases, in the event they
fully provided the service and we got the documentation later.
27. What about the global amount? We have heard
about a small number of cases that the National Audit Office looked
at, but we are talking about how many grants they have given out.
Was it 28,000?
(Mr Hornsby) Indeed, 28,000.
28. How can you be sure that out of those 28,000
projects, money has not been handed out and schemes have not gone
ahead as planned?
(Mr Hornsby) The NAO rightly assessed a sample. Our
procedures are absolutely clear and they have been tightened since
the first three grant rounds which this report looks at: that
we do not pay money out unless we have certificated bills. Unless
we have full details from the applicant. That will include the
fact that they have got building regs. approval and they have
29. So you are very confident that no money
has been paid out in any project that has not gone ahead?
(Mr Hornsby) I am as confident, as one can reliably
be, that we have not paid out money to a project that has not
gone ahead because, as I say, the locks in the system are such
that without a receipt of estimates and bills we would not release
30. Keeping to the same theme, basically what
we are discussing here is page 23, paragraph 2.13. It is the second
bullet point. It appears that according to the report, that the
Board paid out grant when some of the schemes (certainly in two
of the schemes) for capital projects did not even have the necessary
buildings for the project to take place. How do you answer that?
Again, it seems very, very sort of slipshod, does it not?
(Mr Hornsby) What particular paragraph
are you drawing my attention to?
31. It is the second bullet point on page 24.
It says: "The availability of suitable premises. We have
identified eight projects where it was clear that, at the time
of the grant application, the grant recipient had not identified
suitable premises." Here you were agreeing to the projects.
(Mr Hornsby) Indeed. I made the same distinction earlier.
If you take two of the projects, for example, at the time people
applied to us for grants they were in discussion with the health
authority or the local authority about particular premises. In
the event those discussions fell through and something else was
provided. The criticism here is that the grant recipient had not,
at the time of the application, absolutely firmed up on the premises.
That does not mean we paid out any grant. We would have been given,
as I said, approval in principle. When they had completed their
discussions; when they had identified suitable premises; we would
then be in a position to release the grant.
32. I got the impression from the report, if
that is the case, you actually said yourself in case 14, I wrote
it down. Now, I do not know exactly what you said, but basically
what you were saying was that case 14 would not have come to light
if it had not been for the NAO. How can you be sure that there
are not a number of case 14s around?
(Mr Hornsby) Case 14 came to our attention as a result
of concerns of the local authority, and we made a joint visit
with the NAO. That was the issue, as you will recall, where they
had been using part of the grant
33. I am not really bothered about case 14 specifically.
All I am saying here is that case 14 came to light on the basis
of the local authority and the NAO asking you to go in and visit.
How can you be sure that there are not case 14s all over the country,
which have not come to light because the NAO have not investigated
(Mr Hornsby) As I have said, we insist on proper documentation
before the grant is drawn down. So I would consider it extraordinarily
unlikely that we would have a case where somebody did not have
a building or premises and we were paying grant out. The control
system is absolutely clear on that point. In the case of the Dingley
Adventure Playground, there was no doubt that they were a playground
and were providing a service, although the staff recruitment had
been less than ideal. It was only when we looked at the accounts,
following a concern that the local authority had, that we realised
the money had not been put to the best purpose.
34. Just challenging you on the point about
the principle, you see, if you continue to read page 24, at the
second bullet point it says: "From April 2000 the Charities
Board will be changing their procedures so that lottery awards
will be made `in principle' and on the basis of suitable premises
being obtained, and will require grants officers to confirm this
before finalising the grant." That seems to indicate to me
that if you have changed your procedures to offer in principle
now, you must have been offering the money in the first place.
(Mr Hornsby) I absolutely take your point. The distinction
is this: in the early days we made formal offers of grants to
people. Before they could take it up, we obviously then required
firmer evidence. That system had precisely the difficulties that
you very fairly have drawn attention to. The new two-stage system
is that we do not formally offer a grant as we had. That is, we
offer approval in principle. The formal grant offer is only made
when they have done a feasibility study or they have identified
the premises. But in both cases our control systems were such
that grant drawn down, actual grant payment, could not take place
unless we had had the necessary details. The balance is shifted
under our new procedures to make certain that there is much more
35. Let us just go on to the final bullet point.
Again, this is why I accused your body, at the very beginning,
of being slipshod. It says here that the National Audit Office:
"identified six projects where the grant recipient had under-estimated
the cost of the work to be carried out..." It seems to me
that you were awarding grants and money to projects that they
had not effectively costed themselves. So you had a situation
where you were awarding grants and, frankly, the project had not
even been costed properly. So how could you award a grant if they
did not even know how much the thing was going to cost in the
(Mr Hornsby) In one of the case studies what clearly
happened is that we awarded grants for ten houses and the application
had been properly costed. In the intervening period the building
regulations governing the requirements of houses and multiple
occupancy changed significantly. It was then the case that the
amount of grants we had awarded was insufficient. In that case
we agreed with the applicant that they would scale it down and
they only provided six. So you can under-estimate the cost, not
because the thing has not been properly planned, but because some
other change takes place. As I said in the particular case study
the NAO looked at, it was a change in the building regulations.
36. Can you see my worry? Here we have the NAO
looking at only 150 projects and there are 28,000 projects. The
scale must be quite enormous on the number of mistakes that have
(Mr Hornsby) The piece of comfort I can offer you
37. Particularly as it is taxpayers' money.
(Mr Hornsby) Oh, yes.
38. I suppose it is not taxpayers' money, not
(Mr Hornsby) It is treated with as much rigouras,
indeed, this occasion amply demonstratesas if it were.
The comfort I can give the Committee, which I hope may be helpful,
is that in none of these cases did we increase the grant. In terms
of the use of taxpayers' money, in circumstances where there was
cost escalation in building, what we said there was that it is
unfortunate. You will either have to draw your horns in, you will
have to go for a slightly smaller project, or you will have to
raise money from outside to bridge the gap. So it is not (because
this was a particular concern that I know this Committee had with
the Arts Council) that people come back to you and say, "The
building is going to cost more, will you give us some more money."
In each of these cases we said the grant offer is capped. You
will either have to scale down the scheme or find the money from
39. You have given very comprehensive answers,
I will give you that. Just to continue. There are these problems.
They are clear problems in terms of capital projects, yet it took
you a long time before you commissioned somebody to come in and
look at these projects. In 1998 you commissioned Bovis to come
in. Why did it take so long to get some sort of consultancy in
(Mr Hornsby) We had made some changes already on the
planning permission point to which you referred. It became obvious
by January 1998, which was only two years or so in and our experience
of live projects had been limited, that this was a real area of
difficulty; so I do not think there were undue delays in bringing
in Bovis. We have made tightening-up changes which seemed to us
relevant. It became obvious that this was more complex.