Select Committee on Public Accounts Eleventh Report


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]


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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