LEVEL
OF FRAUD
AND ABUSE,
INCLUDING ACTION
AGAINST PROVIDERS
24. In line with police advice, the Secretary of
State closed the scheme with immediate effect on 23 November 2001,
following the allegations that a large number of accounts had
been extracted from the system and offered for sale. Registered
learners had used their access to the scheme database to obtain
detail of accounts for which they were not authorised. At the
time, the Department estimated that if the scheme was not closed
immediately, the value of fraudulent claims could run into tens
of millions. Latest figures suggest fraud could be as high as
£67 million.[27]
But the Department does not know the scale of abuse whereby people
received poor, low value courses.[28]
25. In addition, although the scheme was successful
in generating 2.6 million accounts, only 1.5 million had learning
registered by the time the scheme was closed. While a time lag
between registering and undertaking learning was to be expected,
some of the accounts had been "emptied" by unscrupulous
providers. Fraud investigations and compliance visits to providers
in 2001 and subsequently showed that 13 providers each registered
over 10,000 account holders. This represented a very large number
of learners recruited over a short time - more than the number
of part-time students studying at all but the largest further
education colleges. Two providers had over 30,000 learners. Moreover,
there is evidence that a significant number of accounts were opened
and incentives claimed without the knowledge or agreement of the
account holder, and that a quarter of learners registered as having
started learning had not done any.[29]
26. The Department currently has 70 staff working
on follow-up investigations, and has someone working with West
Midlands Police. Investigations include checking claims from about
700 providers. Some 153 are serious cases, of which 100 are already
with the police and 60 people have been arrested, 14 charged,
10 are awaiting court appearances, 10 have been cautioned, and
one has been sentenced to 9 months in prison. This is, however,
a complicated and time-consuming process since it involves getting
evidence that will convince the police and the Crown Prosecution
Service.[30]
27. In addition, the Department is pursuing another
400 providers. It is contacting 50,000 registered learners, to
ask whether they received learning. This should enable the Department
to make estimates of the scale of fraud and abuse overall, and
also for those providers which it has concerns about. It has written
to 158 providers where there are questions to be answered, where
money has been paid improperly or inappropriately, but stopping
short of fraud, and where it is seeking recovery of the money
paid. In most of these cases, the Department is withholding money
until a settlement has been reached. However, it is not yet possible
to estimate the amount likely to be recovered.[31]
28. The Department is cross-checking the companies
and individuals involved with the Learning and Skills Council,
and backwards to the Further Education Funding Council, to identify
where else these providers might be providing training. It is
also working with other Government Departments with a view to
cross-checking with them as well.[32]
29. Of those under investigation, some have been
linked to animal rights activity. Charges have been made against
3 providers, but the police do not have evidence to suggest that
funds obtained from the scheme have been used to support animal
rights activities.[33]
30. At the time of our hearing, about 95% of the
money outstanding had been paid. On cancellation of the scheme,
the Department froze payments due to providers, amounting to some
£15 million, while it carried out checks on legitimacy of
claims. The Department did not have total information on the number
of providers who had gone out of business as a result of the cancellation,
but knew of 13, mainly small, one person businesses. The Department
recognises that providers will be more cautious in participating
in any similar schemes in future.[34]
LESSONS
LEARNED
31. We asked the Department how it was that despite
substantial piloting, and advice from various expects and sectors,
it came to design a system that was so open to fraud. The Accounting
Officer told us that he had not been involved in the decision,
but was ashamed of the failures that had taken place. He had looked
in detail at what had happened and talked to those involved. There
had been a number of key reasons. First, the design, and the decision
not to have checks, had been driven by the view that a light touch,
non-bureaucratic system was needed to persuade individuals and
providers to come into the scheme. Second, there had been a belief
that a market driven system would allow individual learners to
judge whether the training was of a satisfactory standard and
not take up the training unless it was. Third, the Department
designed the scheme to provide incentives to encourage providers
to find the learners and register them. In addition, the Department's
project management, contract and supplier management, and management
information was not good enough. With hindsight, he found the
decisions inexplicable and accepted that the failure was one of
the worst he had come across.[35]
32. The Accounting Officer assured the Committee
that the lessons had been learned. For example, he had set in
place arrangements to ensure that everybody engaged with supplier
and contractor management was properly trained; had set up a unit
to support project management; and was undertaking a risk assessment
from the bottom to the top of the Department.[36]
In addition, the Department has strengthened its existing counter
fraud measures, by developing a Fraud Risk Assessment Strategy.
Its Special Investigations Unit is to become more proactive in
undertaking a programme of inspection work to detect irregularity
in those areas most exposed to the risk of fraud, and the results
of this work will support the level of assurance given by Internal
Audit to the Accounting Officer. The Department has also formed
a 'High Level Senior Management Risk Group', to alert the board
to key areas of risk, including the risk of fraud.[37]
The Department has developed and introduced an improved range
of training and development events including specific training
programmes, contract awareness sessions, contract surgeries and
master classes. Detailed guidance on the financial aspects of
contract management including risk assessment and financial monitoring
will also be available to staff on the Department's intranet.[38]
1 C&AG's Report, Individual Learning Accounts
(HC 1235, Session 2001-02), paras 7-8 Back
2
ibid, paras 1-2, 16; Ev 29 Back
3
Ev 34 Back
4
C&AG's Report, paras 8, 22, 2.2-2.7 (and Report Card 1, p7);
Qq 4, 93-94 Back
5
Qq 4-6, 92-93, 125-126, 160-162 Back
6
C&AG's Report, 22-24, 2.14-2.15, 2.2-2.9 (and Report Cards
1-2, pp 7-8); Qq 95, 109-113, 218-219, 222-223 Back
7
C&AG's Report, paras 14, 2.8; Qq 64-65, 157-159 Back
8
C&AG's Report, para 1.12; Qq 129-135, 180-183, 194-199 Back
9
C&AG's Report, paras 2.13, 2.52; Qq 270-279 Back
10
C&AG's Report, paras 18-20; Qq 1-3, 152-155 Back
11
C&AG's Report, para 24 (and Report Card 2, p8), and paras
2.16-2.17; Q 96 Back
12
C&AG's Report, para 2.42 Back
13
C&AG's Report, paras 24 (and Report Card 3, p9), 2.40, 2.50-2.51;
Qq 26-30, 69-71 Back
14
C&AG's Report, para 3.20; Qq 20-23 Back
15
C&AG's Report, paras 2.43, 3.4; Qq 7-8, 49, 68-70, 156, 204-208 Back
16
C&AG's Report, paras 9, 2.18-2.20; Qq 15, 72, 77, 127-128,
224-228; Ev 29 Back
17
C&AG's Report, para 9 Back
18
C&AG's Report, para 2.25; Qq 78-83; Ev 28 Back
19
C&AG's Report, paras 5, 2.23-2.25; Qq 14, 18-19, 84, 114-118,
240, 268-269 Back
20
C&AG's Report, para 2.31 Back
21
ibid, paras 2.32-2.34 Back
22
ibid, paras 2.30, 2.36-239, 2.53 Back
23
ibid, paras 2.36, 3.6-3.8; Qq 11, 262-267 Back
24
C&AG's Report, para 3.21; Qq 98-102, 186; Ev 1-2, 33-34 Back
25
Ev 33-34 Back
26
Qq 186, 188, 231-232, 239-243, 254, 257; Ev 33-34 Back
27
Ev 34 Back
28
C&AG's Report, paras 3, 25, 3.6-3.9; Qq 57-60, 171-175 Back
29
C&AG's Report, paras 19, 1.5; Qq 12, 254-256 Back
30
C&AG's Report, paras 6, 25-26, 3.15-3.20; Qq 9, 47-48, 142-145,
150-151; Ev 28 Back
31
Qq 24-25, 38-45, 123, 212 Back
32
Qq 30-31 Back
33
Qq 191-193, 258-260; Ev 28 Back
34
C&AG's Report, para 3.10; Qq 108, 141, 209-211 Back
35
Qq 13, 33-37 Back
36
Qq 113, 163-164 Back
37
HC Debate, 5 February 2002, cols 881W-882W Back
38
Ev 38 Back