Examination of Witnesses (Questions 60
- 79)
MONDAY 13 NOVEMBER 2000
SIR JOHN
BOURN, DR
NORMAN PERRY,
MR BILL
HENNESSY AND
MR RICHARD
CLARK
60. I will come on to that, that is the next
question. If you read the report, basically since 1991 there is
a theme through the report that there has been a fiddle going
on all the time from 1991, a very careful scam going on. Do you
get the same impression?
(Mr Clark) There was certainly a collusive arrangement
occurring in the early years in the 1990s—it is difficult
to be exact about the time—between these two employees and
several other parties, there was a collusive fraud, and it certainly
went on over a number of years, which is why the figure is so
large as to the total value of it. It was not a single year occurrence.
I think the years 1992-93 were the peak years when the large value
purchases occurred.
61. On page eight, paragraph 1.5, continuing
the theme, I find it not amusing, I find it interesting. What
was the Housing Association called, Hestia?
(Mr Clark) Hestia.
62. They had no records to hand over.
(Mr Clark) Can I make it clear—
63. Had they been destroyed?
(Mr Clark) I joined the Association in 1994 and the
Company Secretary and previous Chief Executive at Hestia had retired
before I arrived. When these investigations began we sought out
a vast range of documents. We did find some of the Hestia documents
but we also could not locate some important ones, especially the
Hestia seal register, we were not able to locate that after extensive
searches. I have no knowledge as to where that is.
64. Surprise, surprise. As a matter of interest,
again, which employees of Hestia transferred to Focus?
(Mr Clark) You mean all of them?
65. Not all of them. I am interested to find
out if there was a certain couple.
(Mr Clark) John Hartshorn was an ex-employee of Hestia
and Keith Hinson was an ex-employee of Copek, one of the other
founding associations.
66. So my assumption that there was jiggery-pokery
going on since 1991 was not far off, it was probably before that
but nobody picked it up.
(Mr Clark) Certainly there was a fraud which lasted
several years beginning some time after 1991. These two people
were not working together before 1991 and I have no evidence before
that time. We have no knowledge where those records are.
67. Focus bought 80 per cent of its housing
from dealers when, according to the report, there was a housing
slump and properties were cheap and plentiful. Did this not ring
some bells in anybody's head, dong, dong, dong?
(Mr Clark) If you look at the report, I asked for
an investigation into a particular property in August 1994. The
report which came back to me indicated that there was no problem
with this purchase. However, for the very reason you have stated,
I issued a memo saying despite the findings of the report I wished
purchases from dealers to cease immediately. That was in November
1994. That was for exactly the reason that I could not understand
why we needed an intermediary when the market was very cool indeed.
68. Why were dealers used? Did you find that
out?
(Mr Clark) I believe that using dealers to buy properties
was a long-standing part of the property market, especially within
Birmingham. I think it dated back quite a long time, so there
was a custom and practice aspect to it. That was partly, I think,
because of the nature of the market in the inner cities.
69. In the report it tells us that an investigation
was made but you could not establish why property dealers were
actually used. Did anybody think of asking the people who had
been working at the time?
(Mr Clark) Most of the people working at the time
left.
70. Why were they not asked?
(Mr Clark) The reason they said was that dealers were
able to move in the market faster than they were, but that did
not hold water because of the ready availability of other properties.
71. I want to move on quickly to paragraph 1.7
on page nine. Mr Griffiths covered this but I was not satisfied
with the answers you gave him. It tells us that one of the valuers
in this scam went bankrupt and, therefore, was not pursued for
compensation. It is very handy to go bankrupt. Mr Griffiths asked
you why you had not taken criminal action against him and you
said you had considered it but you did not do it, why did you
not do it?
(Mr Clark) Because we believed that we would not recover
monies. It was a civil action.
72. I am talking about criminal action.
(Mr Clark) We passed all of the papers relating to
the fraud to West Midlands Fraud Squad and they assessed every
single person that was involved in this inquiry for potential
criminal action.
73. So this dealer was investigated by the police?
(Mr Clark) The valuer. The police considered it. We
passed all the papers to the police.
74. Back to the Housing Corporation. You knew
the situation that was going on at Focus yet you continued to
fund it. There were so many warning lights between 1992 and 1995,
why did you continue to fund them? Again, there is this dong,
dong, dong.
(Dr Perry) I think I said in my reply to the very
first question which the Chairman asked that there had been a
failure to step back and see the big picture. From the point of
view of the development function, Focus was a high performing
organisation, they were developing properties, they were housing
people, their finances were in good shape and they were regarded
as a very well performing organisation.
75. The employees were helping themselves.
(Dr Perry) Two of their employees were helping themselves,
that is absolutely right. There was a regulatory visit in 1992
which picked up some procedural flaws which were reported to Focus
at the time. Had they been acted upon then the scope for narrowing
the box of opportunity would have been greater. Again, it is clear
from the report that had the Corporation followed those through
when it made a follow-up visit in September 1993 then, again,
the scope would have been reduced. I am not seeking to evade the
fact that there were some regulatory failings.
76. I have not got a lot of time but I want
to move on to Appendix 3, and the Chairman touched on it. This
Committee investigated the Housing Corporation in 1994, if I remember
right. When I read Appendix 3 and I read what the Public Accounts
Committee recommended and then the Treasury Minute response to
it, it seemed to me that the Housing Corporation had not taken
a blind bit of notice, not one blind bit of notice. They had not
actually taken into account any of the recommendations that this
Committee made. If you look through every single one, every single
recommendation, they have ignored every single recommendation.
(Dr Perry) I think you will find that since 1994,
since this Treasury Minute was published, there have been huge
advances in the financial regulation of RSLs which culminated
in 1998 in the concept of lead regulation. Clearly at the time
when the Corporation's response via the Treasury Minute was being
formulated there was something going on in Focus, there is no
evading that, that really was happening, but the regulatory system
did react with vigour to the PAC's recommendation and clearly
the lessons that emerged from the investigations that were carried
out after the Focus issue was brought to our attention have accelerated
that process.
Mr Steinberg: I am being told that my time is
up. I will finish by saying that it took you two years to take
any action when you were originally informed and it took you a
year to take any action against one of the employees who you were
told was corrupt and I think that is very incompetent.
Chairman: I think we will move on. You referred
to the Sharman Committee, the Sharman Committee is an advisory
committee and it has no authority, indeed three Members of this
Committee are members of it, it does not have any locus here.
David Rendel.
Mr Rendel
77. Can I follow up one or two of the answers
you gave to Mr Griffiths a moment ago in particular. I think in
relation to the question why did it take six months to give the
NAO access to Focus, you gave three reasons: it was a surprise
that they wanted it; that you needed to discuss it with the department;
and that you were offering all the papers you had as well. Did
those three amount to six months in all or did one of those have
the effect of a full six months' delay? How did it work? Was it
one after another, these reasons as to why you could not do it?
(Dr Perry) Mr Rendel, there is a chronology of events
and you will see that letters were sent by one party and then
in a couple of weeks a reply came back disagreeing and another
letter was sent and meetings were held and, I am afraid, Christmas
and New Year intervened as well. I am not seeking to say it should
not have happened more quickly. I am saying, on the Corporation's
behalf, that it was almost a bolt out of the blue when the request
came. A huge amount of information had already been made available
to the NAO and I believe it was genuinely felt in the Corporation
at the time that they would be able to assist the NAO with any
other information they needed in the same way they had done previously
by providing the papers.
78. The question I asked was are these three
things separate? Did you first of all argue the case "we
have offered you all the papers" and then the NAO said "that
is not enough"? Did you come back and say "it was a
bit of a surprise" and that took another two months and finally
when they said "it should not have been a surprise"
you came back and said "we need to ask the department anyway"
and that took another two months?
(Dr Perry) I think the surprise and the offer to give
papers were almost simultaneous but that was then succeeded by
the view that the department needed to be consulted.
79. How long did it take you to talk to the
department?
(Dr Perry) That took about a month from the time a
letter was sent by my predecessor to the Accounting Officer at
the department until the department recommended to us that access
ought to be granted and then our conveying that to the NAO.
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