Examination of Witnesses (Questions 100-119)
MS RACHEL LOMAX, MR JOHN CODLING AND MS ALEXIS CLEVELAND
MONDAY 4 FEBRUARY 2002
100. At the beginning of this questioning you said that the £153 million was customers typically giving wrong information and £564 million was this deliberate fraud. So we have already made that distinction and I have been focusing my questioning on the £564 million.
(Ms Lomax) We count as fraud anybody who gives us the wrong information in circumstances where they should have known better. That can quite often be failure to tell us quickly enough when they have got a job or when their old man comes back.
Chairman
101. You mentioned the capacity of the courts. Of course you are not responsible for the Court Service but is this a consideration you have to take into account?
(Ms Lomax) No, we probably have not taken it into account. I was having a more wide-ranging conversation with Mr Gibb. I am very conscious of the situation in the courts.
Mr Bacon
102. Do you have a target date for the publication of a set of accounts which are not qualified because of fraud?
(Ms Lomax) When I was first appointed to this job, I thought of setting myself such a target and I opened discussions with the Comptroller and Auditor General to see whether it was realistic for me to set a target to have a clean set of accounts within the five-year time which might be a reasonable tenure of this job. I am afraid at the end of several months of discussion, I came to the reluctant conclusion that this was not likely to be a realistic target.
103. What was not likely to be a realistic target?
(Ms Lomax) To have an unqualified set of accounts.
104. Do you mean at all?
(Ms Lomax) Not during any period that is relevant to my tenure of this job.
105. How long are you expecting to be in your job?
(Ms Lomax) I shall be retired in three and a half years' time.
106. You are pretty convinced that you will not do it within three and a half years.
(Ms Lomax) No.
107. Mr Codling, how long are you going to be in your job? You are the Principal Finance Officer. Presumably you draw these up. Is that right? Does your department draw the figures up?
(Mr Codling) Yes; absolutely so.
108. How do you feel about handing in to the C&AG every year a set of accounts which is qualified?
(Mr Codling) It is very distressing to have a set of account which is qualified.
109. One of the ways of reducing your distress would be to set a target date for the time by which you were going to eliminate that.
(Mr Codling) Absolutely and we did exchange correspondence with the Comptroller and Auditor General who gave us an indication of the level of fraud and error which we might expect to have to get below before such a proposition might be possible.
110. Do you mean a percentage threshold below which you would have to get?
(Mr Codling) Yes.
111. What was that?
(Mr Codling) From recollection the figure of one per cent was indicated.
112. It just strikes me as odd. If you do not have a target within the Department ever to publish a set of accounts which is not qualified, how do you expect one day to do it?
(Mr Codling) Let me be quite clear. For every aspect of the qualification we have targets. We have the targets in terms of fraud and accuracy which have already been referred to and which are being achieved. We have targets in respect of the other qualifications as well.
113. So we would expect that as you go through each of the reasons for the qualification, and you have targets for each of those, you tick them all off, then eventually you get to a point where there are no reasons to have qualifications and therefore you will not have a qualification.
(Mr Codling) That is a reasonable hypothesis. The question is: what does it need to be? That is a question I personally cannot answer: whether there is a level below which it is not practically possible to get in terms of fraud and error. I actually cannot answer that question. Can we get below the one per cent on fraud and error in a foreseeable timescale? Even if we did, bearing in mind the size of the amounts involved, it may still be open to the auditors to qualify the accounts, simply on grounds of materiality because of the quantum of the money.
114. Perhaps it is best not to mention Enron in this context, but there are plenty of multinational corporations dealing with similar sums of money who year after year do not get their accounts qualified. Presumably their accountants have to deal with de minimis amounts which are actually quite large but in terms of their overall business quite small. It must be the same for you.
(Mr Codling) Yes, but remember here we are talking about customer fraud and error in addition to error by our own staff. It is principally customer fraud and error which is the bigger element and therefore the issue at stake goes far beyond the normal drafting of accounts or the financial management proposition in the private sector. It is not just a question of providing an opinion on a true and fair view, this is about the regularity aspect of the payments which is a peculiarly governmental reason for qualifying the accounts.
115. When you said a minute ago that you examined within the Department whether it was ever going to be possible to get below a certain threshold is the fact that it might not be possible to get below a certain threshold, should that be the case, connected with the complexity of the benefits payments system? In other words, if you had a simple system with less complexity, would it be more likely in your view as Principal Finance Officer that you could get below the threshold you have been talking about?
(Mr Codling) In essence that is a re-phrasing of the earlier question in terms of whether we can reduce fraud and error by simplifying the benefit rules and legislation. The answer was given earlier but that really is not my sphere of expertise.
116. Do you think the answer is yes?
(Mr Codling) I did not say that.
117. Would you like to give an answer yes, or no?
(Ms Lomax) The rate of error on retirement pension is very low indeed; it is 0.13 per cent or something like that. That is not because it is a terribly simple benefit, it is actually not very simple. It is because we hold the relevant information for deciding entitlement.
118. What you are saying is that for these other benefits which are more complex, it does inhibit getting downwards towards that low threshold which the C&AG would find acceptable.
(Ms Lomax) It does. They are much more demanding.
119. Could you say whether in your Department you have a target date for answering Parliamentary Questions?
(Ms Lomax) Yes, indeed we do and I apologise that you had to wait so long for the answer to yours.
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