Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20-39)



  20. This is nonsense. You are saying because the proven risk is low but the fact of the matter is that any reading of this report shows that you did not have in place, when you inherited the situation, when you got in there, adequate protection to enable you to prove that there had been loss or had not been loss. This shows up time and time and time again.
  (Mr Tebbit) I entirely accept your point. That is why we have put in place such an extensive programme of certification.

  21. I am glad you accept my view, that it is the tip of the iceberg.
  (Mr Tebbit) I did not say that. I think it revealed the icebergs pretty fully here.

  22. We have only exposed five years of the iceberg, it was worse before. Let us come to the last three years, because this is where the two of you came in, both together, as it happens in 1998. In 1998 13 of the top level budget holders appointed a fraud focal committee.
  (Mr Tebbit) In each of the top level budget areas, yes.

  23. That was in 1998. Such is the priority given to fraud that it has been so busy in the last three years it has met on three occasions and as yet, as at the time of the report, formal terms of reference have not been agreed. It seems to us, I think you will understand, rather naive to suggest that there is not much of a degree of urgency on the part of either of you, nor on the part of your colleagues in your Department. Would that be unfair to you?
  (Mr Tebbit) I think that would be unfair. Perhaps I might just comment on that. The fact that the group has met three times is misleading, in fact it meets much more regularly than that in different contexts.

  24. At golf or something!
  (Mr Tebbit) These people are at the centre of the fraud prevention strategy and they also meet in the context of the Fraud Prevention Steering Group, which Mr Andrews chairs. They meet quite regularly in that context. The idea that there has only been three meetings of them as themselves is, I think, not really indicative of the work. The fact that we do not have terms of reference for them is simply that it is up to each individual budget area to decide the precise terms of reference they need. I am absolutely satisfied that they meet regularly with the Defence Fraud Analysis Unit and with the Defence Estates and are key players in the budget level areas. I do not know if Mr Andrews wants to add to that. It is misleading to imply they are not fully active.
  (Mr Andrews) If I may, Mr Williams, I can add to that, they certainly play a very active role as a channel of communication, as a way of disseminating information from ourselves, and particularly from the Defence Fraud Analysis Unit. They have been very effective in raising awareness within individual budget areas. They have not, as Mr Tebbit said, formally come together as a group in their own right as opposed to meeting up in other forums. I would also say that as part of the development of our strategy, looking into the future, we are developing terms of reference for them and those terms of reference will reflect their role in carrying forward the strategy which Mr Tebbit mentioned, and we hope to publish that in the autumn of this year.

  25. That is very good, but since the NAO's report you are now getting around three years to prepare terms of reference. With respect, what is the good of setting up organisations which do not have a clear remit and a clear set of objectives? There is no coordination there, is there?
  (Mr Tebbit) There is much coordination, there is plenty of coordination. The terms of reference are a red herring. They know exactly what they are there to do, they are there to spread best practice and to spread awareness.

  26. Why could they not tell the NAO that?
  (Mr Tebbit) The NAO commented that they had not got terms of reference. which was true at the time. When the NAO did the report, of course, it was 18 months ago.

  27. What you are saying is that they had terms of reference which they each individually knew, which they were sure instinctively all the others knew but no-one had ever bothered to write them down?
  (Mr Tebbit) The terms of reference, as I say, were essentially for each of the TLBs, the budget level areas, to give to their own staff. They derive from the delegations which come from me to the budget holder.

  28. They are all working to the same terms of reference?
  (Mr Tebbit) Not necessarily identical, it depends on what the Top Level Budget holder would want to add in relation to his own business. My point was that they meet regularly in the critical forum that matters in terms of the Fraud Prevention Steering Group that the Chief Executive here chairs, together with the Fraud Analysis Unit and the Ministry of Defence Police Fraud Squad, and it is in that forum, which is a much more regular activity, that these things really are developed. I also mentioned that we have trained now 1,450 members of staff in fraud awareness during this period. They have been, of course, fully part of that training programme so they are in touch regularly.

  29. That sounds very good.
  (Mr Tebbit) But being in touch with each other is less important than driving these issues forward in their own budget areas.

  30. That sounds encouraging. I read paragraph 3.20 which says "Through our risk modelling ..." the NAO "... identified the key controls which the Department currently have in place to prevent and detect these frauds...", one of which is "Professional advice should be sought when setting limits of expenditure". Then across the page, if we look at the figure 10, we have the percentage of occasions on which the establishment works consultant provides a cost estimate. Frankly the figures are derisory, are they not? They say "For 88 per cent of those transactions where the Establishment Works Consultants provided an estimate, there was no evidence that they had based their estimate on a site inspection." They did not even bother to go and see what it was all about, did they?
  (Mr Tebbit) Yes, that was not good enough.

  31. If you look at paragraph 3.24, this is the most astonishing thing, looking at the low figures in that table, figure 10, "We found..." that is the NAO "... that some 40 per cent of the estimates provided were more than 50 per cent different from the price actually paid". I will finish on this, Chairman. If we transpose those to that figure up above, figure 10, what that in effect means is that only in five per cent of low value transactions did the works consultant provide an estimate that was less than 50 per cent different from the price; in only 12 per cent, the mid value transactions, did the works consultant provide an estimate that was less than 50 per cent different from the price and in only 21 per cent of high value transactions did the works consultant provide an estimate which was less than 59 per cent different from the price. It is not very good, is it?
  (Mr Tebbit) I agree with that and because I agree with it we have changed procedures in this area. I mentioned blue skies inspections but we are also instituting things called New Works Reviews and in both of those we will include remeasurement in those inspections and make it clear before hand that this will happen to minimise the continuation of this practice that you have drawn attention to. I accept that.

  Mr Williams: Thank you.

Mr Campbell

  32. Mr Tebbit, I want to stay with the line Mr Williams began with really because you have been to quite a few PAC hearings.
  (Mr Tebbit) Yes.

  33. You have seen quite a few NAO reports and I have been to quite a few hearings myself and some of those reports have got bigger amounts of money at risk than here. We are always caught between looking back at the history of problems and looking forward to see how they might be solved. Two things struck me here. The first is the huge amount of money as a percentage of the budget for this particular area which the Department thinks is possibly at risk and the huge amount that the NAO believes could be at risk as well. If you take the last five year period the figure, on the NAO estimates, is around about £675 million and the Department's estimate is £900 million. That is a huge amount of money, is it not?
  (Mr Tebbit) Indeed it is.

  34. What I was also struck by was not just the amount of money but the feeling that there has been complacency within the Department about this for far too long. Are you able to tell us what you believe the actual losses are as opposed to the risk?
  (Mr Tebbit) Actual losses are extremely hard, obviously, to establish. For example, this year, I can only point to an investigation of known losses of £2.5 million. The figures of actual loss are very small.

  35. The difference between them—
  (Mr Tebbit) That is not a statement of complacency I should add, that is simply what we have established.

  36. The difference between proven loss and actual loss is very important, is it not? It is not a matter of semantics?
  (Mr Tebbit) No, it is not. I know what you mean.

  37. Is the Department anywhere closer to an estimate of actual as opposed to proven losses? I appreciate it is difficult.
  (Mr Tebbit) I expect the only other way of looking at it is how many cases are we investigating at any one stage. As I say, we are investigating at the moment seven cases with a total value of about £2.5 million. We encourage people to report any concerns they have. Of course, there is a whole chunk in the Report about how we are improving those arrangements. I cannot point you, however, to a closer figure than what we are investigating. What I would say is clearly the amount of money in principle at risk is far too high and that is why we have put in a major risk reduction strategy to manage that down.

  38. Okay. Let us try and concentrate then on the attitude towards this within the Department. Paragraph 2.3 talks about the fraud policy statement in which it says, the Department says, very upfront about it, fraud will not be tolerated, all suspected cases will be investigated. There will be prosecutions. There will be contact points established if they wish to inform.
  (Mr Tebbit) That is right.

  39. That really I would expect to find in any organisation, would you not?
  (Mr Tebbit) Indeed I would.

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