Select Committee on Public Accounts Minutes of Evidence


APPENDIX 1

RESPONSE TO QUESTIONS RAISED IN THE MINUTES OF EVIDENCE TAKEN BEFORE THE COMMITTEE OF PUBLIC ACCOUNTS, WEDNESDAY 22 NOVEMBER 2000

MANAGING COSTS IN ENGLISH FURTHER EDUCATION COLLEGES (PAC 2000-01/02)

Memorandum of the Further Education Funding Council

Ref.Q15

  The Council is seeking the National Audit Office's advice on the most appropriate way to respond to this request and will also confer with the clerk to the committee, as suggested[12].

Ref. Q78 et seq and para 2 of a letter from Committee Assistant to the Committee of Public Accounts to the Chief Executive of 29 November 2000.

  Concerning the questions asked by Mr Rendell regarding the legal pursuit of the external auditors to the former Bilston Community College, Deloitte and Touche, I am able to confirm that:

    (a)  the Council is currently considering action on the grounds of professional negligence on the part of the external auditors, failure to exercise a proper duty of care towards the former college's corporation and chief executive, which gave rise to the substantial loss of public funds. The Council is exercising the right to bring this action on behalf of the former college under the terms of the Dissolution Order (1 October 1999). The Council is being assisted by leading counsel and solicitors and anticipates lodging papers with the court by the end of March 2001 in order to prepare the claim fully and within the statute of limitations.

    The Council has analysed its own papers and those of the former college, which have been secured, before reaching the conclusion that action should be taken against Deloitte and Touche, and, relatedly, against the internal auditors, Garratt and Co. of Wolverhampton. This has been a lengthy process largely because of the volume and chaotic nature of the former college's own papers, and the complexity of its financial activities. It should be noted that the Council has not had access to the working papers of Deloitte and Touche which are held by them.

    (b)  Both internal and external auditors were appointed and paid by the corporation of the former college

    (c)  out of public monies provided by the Council for such purposes.

    (d)  In preparing a case against the internal and external auditors of the former college, the Council has deliberately exercised considerable care in examining the relevant documentation and drafting appropriate reports for leading counsel and solicitors to consider. The Council had kept both the NAO and the DfEE closely informed throughout.

  This has necessarily been a lengthy process but one which, on legal advice, could not be avoided, particularly considering the high cost of moving to the next stages of the legal process. Leading counsel has stressed throughout the need to weigh the strength of the case against the likelihood of recovering public funds and the costs of the litigation. It is now his view that it would be proper to proceed against both internal and external auditors with a reasonable prospect of successfully recovering substantial amounts of public funds.

Further Education Funding Council

7 December 2000


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