Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40-59)



  40. I would expect those fairly general principles to be in place but the question I think I would want to ask is how does that actually translate into action? What concerns me about this is that all those nice words have not actually translated into action, have they?
  (Mr Tebbit) Yes, they have been translated into action. I do not know how to illustrate this for you. We have a Defence Fraud Analysis Unit of 12 people. We have Fraud Alert road shows. Even the pens we use, this one, for example, has the telephone number of the Fraud Alert people on it. Everybody is encouraged to use this. We have a confidential, as it were, whistle blower line. We send out instructions and guidance and training throughout the organisation. I gave a speech about it last October to raise awareness. We encourage a culture of zero tolerance. We are tough, if we can prosecute we will. If we have reasonable grounds short of prosecution we dismiss. We have a tough reputation as a Department, tougher than most. Even if, as it were, tribunals recommend reinstatement we rarely accept that and instead we pay the amount which is adjudicated because we do have a zero tolerance policy. But this does need to be carried forward continuously and it is.

  41. I appreciate you have only been there for a limited amount of time but if I have heard your answer to the Chairman correctly, you expect to publish a formal strategy in September of this year. Why is it that systems were not put in place earlier to combat fraud? After all, you are talking about an area in which the report says on property management there is an intrinsically high risk of fraud and corruption. Surely this is an area which ought to have been given a higher priority than a lower priority?
  (Mr Tebbit) I think I am beginning to work out what the issue is. What we have had so far has been a formal strategy, and we have had lots of papers about that. It has been a strategy based on processes. It has been a strategy which says all of the processes involved in our property management need to be checked and controlled and there has been a detailed system prescribed for that, but it has not been risk based, it has been based on making sure that all the processes are looked at in traditional audit fashion. What is new, based on the model originally used by the NAO, developed by us, is that we are now moving to a risk based strategy focusing on those items or those areas where we have reason to suspect or to be concerned greater than others, whether it is high value or very high volume of low value activity or contractors who have been in place for a long period working with property managers in place for a long period. These sorts of considerations give us a more differentiated risk based approach. We have always had a strategy but, as I say, we are moving to a better strategy than the one before.

   (In the absence of the Chairman, Mr Alan Williams was called to the Chair)

  42. Let us have a look at some of the elements of that strategy then. When was the Fraud Hotline set up?
  (Mr Tebbit) I thought about 18 months ago but I would require advice from my people, or we will let you have that information. February 1999.
  (Mr Andrews) That was when the current one was set up. We have had a hotline for five years. The current one, based on the Defence Fraud Analysis Unit, actually was set up last year.

  43. So what is the number, Mr Andrews?
  (Mr Tebbit) The telephone number is on the pen.
  (Mr Andrews) 0207 807 8043.

  44. How many times has it been contacted in the last 18 months?
  (Mr Tebbit) We can give you that figure. The number is increasing, which is good. My sense is that it is about 20 something times but I need to give you the precise figure.

  45. Twenty something times in the last 18 months?
  (Mr Tebbit) Of which eight have been works services, I am advised, yes.

  46. How many investigations have been held as a result of contact made through the Fraud Hotline?
  (Mr Tebbit) I could not tell you precisely through the Fraud Hotline. I can tell you, as I say, the number of investigations that we have under way for all reasons, whether it is through the hotline or through other forms of contact.

  47. That is not broken down into the number of people who might choose to use the Fraud Hotline?
  (Mr Tebbit) I have not got that with me. Whether we can find that out, I do not know. We focus more on—

  48. Can we find out the value of those investigations, the amount of money involved?
  (Mr Tebbit) The Fraud Hotline, of course, does not cost very much money, it is just a telephone number into our Fraud Analysis Unit.

  49. I am thinking about the value of the particular cases that have been reported on by whoever is ringing the Fraud Hotline, the value of the fraud.
  (Mr Tebbit) As I say, at the moment we have only £2.5 million of fraud formally under investigation, so it is not a huge figure in that context. We have seven cases currently being investigated in the property area. The Fraud Analysis Unit, of course, covers everything, not just the property area but the whole of departmental fraud, and that was why I mentioned they have 25 cases each year that they are investigating, not necessarily that have been reported to them on the telephone.
  (Mr Andrews) If I could just add to that. Every report that is made to this Fraud Hotline is investigated by the Defence Fraud Analysis Unit and, if appropriate, through the involvement of the Ministry of Defence Police. Not all of the allegations necessarily are found to be substantiated and lead to an investigation. What I would say is that the Permanent Secretary referred to the number of reports in the property management area and since we embarked on our programme of fraud awareness training, of which we were speaking earlier, we have reason to believe that a number of calls received in the last few months were as a result of heightened awareness following attendance on that training.

  50. Good. That is the point I want to come on to.
  (Mr Tebbit) Can I be more precise even. I did write it down and I can now refer back to it. As a result of our training programme, which has just finished, we have had six allegations of fraud from people who would not have contacted us previously. My Analysis Unit has certainly got that far in working out whether it is helping. It has certainly raised awareness.

  51. Let me briefly touch on contact points for staff to inform you. We have spoken about the hotline. Why was there a lack of clarity, or perhaps there still is, about who to contact and what their role is?
  (Mr Tebbit) Let me put it the other way round, if I may. We have promulgated the information much more thoroughly and fully than was the case before. Previously we did have a system where there was a separate investigation unit for the Procurement Executive as distinct from the rest of the Department. That has been integrated into one unit, that is the Defence Fraud Analysis Unit, which is the recommended focal point for all fraud activity. People can ring it directly or they can go through their line management, if they feel comfortable in doing so, which itself would then get in touch with the Defence Fraud Analysis Unit, or they can get in direct touch with the police who, under the arrangements we have agreed, and we have a steering committee which has all the interests involved, would also report to the Defence Fraud Analysis Unit. So they have, as it were, the database and are an essential focal point having all the information, even though the information may come to different people in the first instance.

  52. So how much does the whole mechanism to tackle fraud actually cost you to run: the hotline, the unit, the whole lot, the prosecutions that you bring? How much does it cost?
  (Mr Tebbit) It is hard to say because I would have to add the cost of the Defence Fraud Analysis Unit, which is, as I say, now 12 people, plus an element of the Ministry of Defence Police Fraud Squad, which is about 30 strong I would guess, plus elements of other people in the Defence Estates organisation. What I would say is that these people are not, as it were, just trying to deal with the end result of fraud, they are also engaged in more constructive upstream work trying to prevent it happening in the first place by increased awareness training. It is not an easy calculation to make. I am happy to try to make it for you subsequently but it would be misleading to put all of the activity by the Fraud Analysis Unit and the other agencies involved on the fraud detection end. We are using them much more creatively, I think, on the awareness raising and training end of the issue because these things should not happen in the first place[1].

  53. I am obviously keen to get at the value for the taxpayer as ever, so any closer we can get—
  (Mr Tebbit) Perhaps I ought to add that we are gathering statistics of this as we go along to try to ensure that it is cost effective and focused properly so that we do not waste money on nugatory activity and put it in the right areas. That is one of the reasons why we have got our work with the Crown Prosecution Service, because we want to establish whether we should be putting more work into trying to secure convictions or more work into recovery by other means.

  54. A final question, if I may, which is a slightly different area altogether and it is this question of annuality. How much of the Department's work was allocated very late on in the last financial year, let us say the last quarter? How much of that, therefore, because it was allocated quite late, was allocated without competition?
  (Mr Tebbit) I take your point. It is very, very hard to say. We have rules within some of our budget areas that they cannot place work after December. The Air Force, for example, has that rule to prevent the annuality issue. It has been a problem in the past and it is a decreasing problem now. It will end this year because in moving to resource accounting and budgeting there is no benefit in trying to cram work in at the end of the year. Prime contracting will certainly finish it completely because with prime contracts we will be negotiating contracts running over seven to ten years and there will be no incentive on any side to try to rush things in at the end of the year without proper evaluation and controls. It has been a problem in the past, it is very much a decreasing one, and I think I should be happy to see it go.

Mr Rendel

  55. Mr Tebbit, your memo that you kindly sent us to update the Committee, dated 2 March this year, indicates that the number of cases of fraud has fallen very significantly over the years. What do you think is the major reason for that?
  (Mr Tebbit) I do not take very much comfort from that because I do not know whether that really represents an underlying trend or not. As I say, we are focusing more on what is at risk. Are you looking at the difference between 12 cases reported the year before last and seven cases this year?

  56. Your memo that you sent us indicates in relation to paragraph 1.4 213 cases reported in 1998-99, 120 referred to the theft of assets.
  (Mr Tebbit) I am sorry, yes.

  57. Those are the figures for 1997-98, 1998-99 129 cases, 74 of which were actual theft and 1999-00 91 cases.
  (Mr Tebbit) Indeed.

  58. That is quite a significant drop.
  (Mr Tebbit) It would indicate that there is. I think that is the total, of which 12 I think of the 1999-2000 cases were procurement contract cases. It looks like a drop, I would not like to say that we are definitely going down completely. Indeed, as a result of the work that we have been doing to raise awareness I would not be at all surprised if things do not rise as people get more ready to report concerns. I would not want to take comfort or claim comfort that these figures show that our current strategy is "working". I believe it is working but I would not link these figures directly to it.

  59. Very modest of you not to claim credit for that but if there is no credit, if in fact the figures are not going down, why are they reported as going down? Either there is under reporting going on year by year or the number of cases is actually going down?
  (Mr Tebbit) There could be some under reporting. We are certainly raising awareness.

1   Note by Witness: See Evidence, Appendix 1, pages 25 to 26 (PAC 00-01/169). Back

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