THE
WIDER
IMPLICATIONS
OF
THE
FOCUS
CASE
Sharing of data by public bodies
31. Following the reporting of possible impropriety
by Focus, the Corporation immediately suspended new funding to
all housing associations in the Birmingham area while it investigated
whether other housing associations had been affected by similar
corruption. The Corporation asked the Valuation Office Agency,
which receives details of all freehold property transactions,
for information on whether other associations had been involved
in similar transactions, or had purchased property from Ram or
his associates. The Valuation Office refused to disclose this
information, however, because it was protected by taxpayer confidentiality
requirements.[24]
32. The Treasury told us that these rules helped
to ensure the collection of tax and the privacy of the individual.
However, the Government recognised that there is a potential conflict
between providing for the privacy of an individual and combatting
fraud. The Cabinet Office's Performance and Innovation Unit had
therefore begun a study of privacy and data sharing, which was
expected to report in 2001. The Treasury had invited the Unit
to use the Focus situation as a case study.[25]
33. Due to the unavailability of Valuation Office
data, the Corporation asked other housing associations in the
West Midlands in receipt of Corporation grants to direct their
solicitors to provide details of similar property purchases from
dealers. Most landlords reported no such transactions, and in
the remaining cases the Corporation's examination of landlords'
records did not reveal possible impropriety. The Corporation decided,
therefore, not to make similar enquiries elsewhere. No similar
cases of corruption have come to light in the West Midlands since
the Focus case.[26]
34. Although the potential for collusion by solicitors
existed, the Corporation said it had no reason to believe that
solicitors had been corrupt, and hence they had chosen this route
to establish whether other associations were using dealers rather
than accessing directly associations' own records. This approach
had also been agreed with the Police.[27]
Access by the National Audit Office to housing
associations
35. Before 1989 the National Audit Office had guaranteed
access to housing associations to examine the use of grants through
conditions attached to those grants. In responding to a report
by our predecessors in 1985-86, and in the context of the possible
transfer from the Department to the Housing Corporation of responsibility
for making grants to housing associations, the then Department
of the Environment fully accepted "the need for any revised
arrangements to take into account the need for direct accountability
to Parliament for the large annual payments of Housing Association
Grant". However, new grant conditions introduced following
the passage of the Housing Act 1988 did not provide the National
Audit Office with automatic access to associations for this purpose.
Since then access has been subject to negotiation on a case by
case basis between the National Audit Office and the Corporation.[28]
36. In the case of Focus, these negotiations took
six months. The Corporation told us that the delay consisted of
four months in granting access and two months' discussion to set
up the meeting and the visit. The Corporation had been surprised
by the National Audit Office's request because it had believed
that the National Audit Office's investigation would not require
such access, and because the National Audit Office had been given
access to the papers and documents held by the Corporation. The
Corporation had also felt it necessary to consult the Department.[29]
37. The Corporation acknowledged that it would not
want to defend the length of time taken to arrange access in this
case, and that if the circumstances arose again it hoped access
would be provided more quickly. The presumption was that when
the National Audit Office asked for access it would be granted,
but in this particular instance there had been a large number
of investigations under way, including a Police investigation,
and the Corporation believed it could have provided any information
that the National Audit Office required.[30]
38. The C&AG noted that the National Audit Office
had investigated similar fraud cases in the Inland Revenue, the
Ministry of Defence, the Armed Services, the Treasury and the
Health Service, and reported to Parliament on them. And yet in
this case, despite the history of such work, reasons were given
which were suggestive of keeping the National Audit Office out.
The Focus corruption was a matter which merited investigation
for Parliament and yet the investigation was delayed unnecessarily
for six months.[31]
39. By 1999 housing associations had received some
£22 billion in government grants disbursed by the Housing
Corporation and through local authorities. We asked the Corporation
whether, in the light of the Focus case, it now agreed that associations
handling public monies should be accountable to the Committee.
The Corporation replied that housing associations were not technically
public bodies as in addition to £22 billion of public
money, £17 billion of private finance had been raised
since the 1988 Housing Act. It had been tasked by Parliament to
regulate the social housing sector and the 1996 Housing Act provided
the Corporation with greater powers to seek out information and
provide it to the National Audit Office. Whether individual associations
should be directly accountable to Parliament was a matter on which
the Corporation, as a non-departmental public body, had to take
instructions from the Department as its sponsoring department.
The review of Audit and Accountability for Central Government
led by Lord Sharman of Redlynch was also looking at the question
of the National Audit Office's access rights.[32]
Protection for Whistleblowers
40. Since 1997 the Corporation has required housing
associations to have procedures for staff to raise confidentially
with the governing body or a person delegated by the governing
body any concerns about propriety. Staff who report their concerns
to the Corporation are not, however, protected by the Public Interest
Disclosure Act 1998, because the Corporation has not been designated
as a body to whom disclosures are protected under the Act.[33]
41. The Corporation admitted this was an oversight,
and that there was no record of the Corporation requesting to
be so designated. The Department had now asked the Department
of Trade and Industry to place the Corporation on the list of
appropriate bodies, which would be done by Order. Housing associations
do not need to be designated under the Act because Section 43c
of the Employment Rights Act 1996 protects housing associations'
employees when making a disclosure to their employer.[34]
Learning the lessons of Focus
42. The Corporation intends to disseminate to all
housing associations the lessons learned from the Focus case,
and to update its guidance to staff. The Corporation told us that
whilst it had powers to disqualify people from membership of boards
of management of associations, it did not have the same powers
with regard to employees or consultants. Hence it considered that
it would be inappropriate to provide other associations with information
on former staff and professional advisors whose actions may have
contributed to the losses suffered by Focus, particularly as they
had not been prosecuted as a result of the Police investigations.[35]
Conclusions
43. Following the discovery of the corruption at
Focus, the Corporation sought to establish whether similar improprieties
had occurred at other housing associations in the West Midlands.
The Inland Revenue's Valuation Office Agency refused the Corporation's
request for access to information about similar property transactions
on grounds of taxpayer confidentiality. Maintaining such confidentiality
is important, but so is the need to protect public funds. The
Cabinet Office's Performance and Innovation Unit's current study
of privacy and data sharing should consider whether there are
cases like Focus where carefully controlled disclosure would be
in the overall public interest.
44. As a result, the Corporation relied largely on
information provided by housing associations' solicitors, in spite
of the possibility that solicitors might themselves have been
involved in improprieties. In investigating such cases, the Corporation
should seek to draw on as a wide range of information as possible,
including inspecting records directly at housing associations.
45. The current position whereby the National Audit
Office must negotiate access to housing associations in receipt
of public monies on a case by case basis with the Corporation
is unsatisfactory. It places an unwarranted restriction on the
ability of the National Audit Office to report to Parliament on
the proper use of the substantial public funds that have been
received by housing associations.
46. We do not accept the Corporation's view that
National Audit Office access to housing associations would overlap
with the regulatory role of the Corporation. The Corporation has
executive authority to direct the behaviour and actions of associations.
The National Audit Office has no regulatory authority: its role
is to report to Parliament on the proper use of public funds.
A statutory right of access to associations is essential to enable
the National Audit Office to report to Parliament independently
of the Corporation's executive responsibilities.
47. Through an apparent oversight, the Corporation
is not designated currently under the Public Interest Disclosure
Act 1998 which protects people making disclosures in the public
interest to bodies designated under the Act. We note that the
Department has now asked the Department of Trade and Industry
to designate the Corporation so that employees and board members
concerned about possible improprieties at housing associations
can report them to the Corporation within the protection of the
Act.
48. Although the Corporation intends to provide details
of the lessons learned from the Focus case to other housing associations,
and the names of people who have been the subject of legal or
disciplinary action, it has no plans to pass on the names of former
employees or professional advisors of Focus suspected of negligence
or impropriety but against whom no action was taken. We understand
the Corporation's concerns to be fair to those who have not been
found guilty of any wrongdoing. Poor or negligent service by employees
or professional advisors can and should be pursued, however, through
reporting such matters to advisors' professional bodies.
24 C&AG's Report, paras 3.2 and 3.4 Back
25 Evidence,
Q25 Back
26 C&AG's
Report, paras 3.4 and 3.5 Back
27 Evidence,
Qs 124-125 Back
28 16th
Report from the Committee of Public Accounts, 1985-86, (HC 108
(85-86)), Cm 9808, para 28, Cm 2602, paras 77-81 Back
29 Evidence,
Qs 21-22 Back
30 Evidence,
Q24 Back
31 Evidence,
Q43 Back
32 C&AG's
Report, para 1.14, Evidence, Qs 1, 6-8 Back
33 ibid,
para 3.13 Back
34 Evidence,
Qs 129-131, 183-186 Back
35 C&AG's
Report, paras 3.14 and 3.15, Evidence, Qs 30, 32, 36, 126 Back
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