Examination of Witnesses (Questions 40-57)
8 SEPTEMBER 2004
MR JOHN
HUNTER, MR
DAVID THOMSON,
MR ALAN
SHANNON, MR
DEREK BAKER
AND MR
JOHN DEERY
Q40 Mr Bailey: When the scale of the
problem became evident, what steps did you take? From your own
admission, whatever you did do was not totally successful. What
steps did you take and why were they not successful?
Mr Shannon: Would you like me
to go through each of the business areas on that front? I am happy
to do that and tackle it on each of the business areas.
Q41 Mr Bailey: Yes, just briefly.
Mr Shannon: Social security; we
have now in each benefit branch a programme called Programme Protection
Plan and each branch is required to implement such a plan consistently
with all other branches. During the year 2003-04, this exemplified
itself. I will give you three areas where they have actually borne
fruit. First of all, we took out 9,000 Income Support and Jobseekers
Allowance cases and checked them before payment was made. That
was not previously the normal procedure. We found 1,300 of these
cases needed correction. These were new cases going in to the
system. During the same period, to correct errors already in the
system, we looked at 67,000 Income Support, Job Seekers Allowance,
Disability Living Allowance and Incapacity Benefit Cases, and
in this case 6,000 of these were corrected as a result of the
change in the amount of benefit paid, totalling £5.2 million.
Thirdly, we carried out 7,700 fraud investigations and, as a result
of these investigations over 3,900 cases had their benefits adjusted,
345 cases were referred for prosecution and 191 cases were successfully
prosecuted. That is a small insight into the kind of measures
which we are currently pursuing.
Mr Shannon: Shall I move on to
the other areas?
Q42 Chairman: Yes, please do.
Mr Shannon: On housing, previously
the housing associations have been required to simply certify
to us that they had taken certain steps and then payments would
flow from that. The auditors said no, we should have evidence
based certifications; we introduced that in February 2003. Secondly,
in the course of audit, the auditors have identified a number
of best practises in different housing associations. We then picked
those up and sought to apply those to all the other associations
as well. We have produced a housing association technical guide,
which will provide each housing association with the correct processes
and procedures which we require. Finally, we adjusted and expanded
the role of our departmental inspection teams and carried out
many more inspections than we did previously. Finally, on the
urban development side, I have a list of about 15 or 20 things
that happened, I will just focus on a small number of them. The
directorate concerned has set up a group management board and
introduced a corporate governance framework for its activities.
A unit has been established to provide advice and guidance on
compliance. A risk management system has been put in. Business
support units have been established in each directorate. A quality
assurance and improvement unit has been set up. Pre-approval checking
by an independent review panel before any payments are made has
been introduced, with a new computerised database for voluntary
bodies and public funding of them so as to reduce the risk of
double funding or more than double funding from other funders.
We have brought in a senior member of the Audit Office to work
with us, to try and help us implement the recommendations and
we have appointed a group financial comptroller, who has just
taken up appointment last month. Those are the sorts of things
we have been doing.
Q43 Mr Bailey: Thank you. Even allowing
for those actions when the 2002-03 accounts went wrong you are
not that confident, I think it is fair to say, that next year's
accounts will be significantly better. Do you expect the 2003-04
accounts to be qualified again?
Mr Shannon: I expect the situation
in housing to be dramatically improved. We were hoping that this
year the qualification would be completely removed on housing.
However, we have not yet received a formal report from the Audit
Office. I understand there may have been some difficulties in
some of the smaller housing associations which have not yet caught
up with the new dispensation, so we may not get out of the woods
this year on housing but I am pretty confident that we will next
year. On social security, I do not know what the auditors would
expect from us before they would remove the qualification there
but I can say we have got some very encouraging trends on social
security. I can give you some figures if you like? The trends
are all the right way and I think the auditors will be acknowledging
that when we come to see the report. The one area that I am still
worried about is the urban regeneration one. We have been monitoring
it very closely. We had quite a lengthy and detailed report from
our internal auditor at the mid-year Audit Committee which I chair.
We were not happy with what we heard and following that we have
taken some additional measures. I have visited during the past
six months each of the offices, concerned myself and talked to
the staff about these issues. I sent out a note in July to each
member of staff, telling each person that we were not prepared
to accept this level of failure in what were fairly basic procedures.
My colleague who is in charge of that directorate has written
to each of the senior managers and has imposed a series of new
measures requiring each head of a branch to give him a monthly
personal certified guarantee that a range of checks have been
carried out. Among other things, we have transferred also a number
of members of staff and refreshed the staff in some of those offices.
I cannot promise that we are at the end of that road but we are
doing a great deal to improve the situation.
Q44 Mr Bailey: I believe Mr John Dallat
has criticised you in the Irish news and said you should have
learned from past mistakes. What would be your response to that?
Mr Shannon: He was referring,
I think, to the Irish news' report of £120 million worth
of fraud and error which we reported. I think the story there
is of course, as I said earlier, £120 million is a lot of
money which could be well spent on other things. It is £120
million against a budget of £2 billion, it is a sort of 6%
error rate, and it was about the same the previous year. We are
not happy with that. We know what the problems are and we are
working hard to improve on that performance. Perhaps this is the
right moment to quote some figures. In 2002-03, the income support
fraud and error amount was £37.5 million—this is the
composition of the £120 million figure I mentioned—£37.5
million that year, last year £25.1 million, a substantial
reduction. Job Seekers Allowance in the year in question £11.9
million, last year £7.9 million. Housing Benefit £27.9
million, last year down to £8.4 million. Those are dramatic
reductions. I need to be fair though, we are not entirely comparing
like with like because some of the figures which composed the
£120 million included suspected fraud and we have made a
change to the formula to bring us into line with the rest of Great
Britain by setting aside suspected fraud from those figures. Even
allowing for the suspected fraud the trend is still very much
in the direction we want.
Q45 Chairman: You have given answers
to one or two of our questions already so as a consequence maybe
one of two of our members may reduce their questions. Can I just
ask a general question and that is that you have told us quite
a lot about your intentions as to how you are going to improve
matters. You informed us of the new practises being put in place
to prevent repetition but in the criticism of that £120.9
million error, that is 6% of the budget, it has been suggested
that you have never said why your fraud and error levels were
running at 6%. In layman's terms, could you say why £120.9
million fraud was allowed?
Mr Shannon: Perhaps in that area
it is best to talk about the breakdown between fraud and error.
Q46 Chairman: If it helps there is a
lot of talk about Disability Allowance that it was more error
than fraud but irrespective of whether it was error and fraud
and irrespective of what we have done since to change the policies,
why was 6% of the budget wasted on fraud and error and why was
it not picked up? Who was responsible for not picking that up?
Mr Shannon: We are operating a
significant number. We run something like 35 benefits, each one
of those benefits is extremely complex. That is not a criticism
of anybody or anything, it is complex because as a matter of policy,
Parliament has preferred to run, by and large, the benefit schemes
which are tailored to the needs of the individual and therefore
the individual's personal circumstances are critical to the benefit
level and whether or not benefit is awarded, therefore, there
is a substantial collection of information task. There is then
a judgment to be made and getting that right. There is then the
internal processes about implementing the right decision and there
is then the problem of constant review because individual circumstances
change and it is incumbent on us to ensure that if those circumstances
change we have systems which bring that to our attention. Then,
on top of that, there is the issue of fraud and inevitably there
are some of our customers—thankfully not a high proportion
but they are some of our customers—who are intent on defrauding
the public purse and we have therefore to be vigilant to that
as well. All of those things make this a very difficult set of
schemes to administer.
Q47 Chairman: I think they would be common
amongst all the departments across the UK. Why was a level of
6% of your budget taken up with error and fraud and who was responsible
for not monitoring?
Mr Shannon: I do not think our
figures are sufficiently refined to be able to break it down in
that particular way. What we can break it down into is frauds
and errors and other areas, Derek, can you add anything to that?
Mr Baker: No. I do not think so.
If you are looking for an explanation as to why fraud and error
occurs, I can give you that?
Q48 Chairman: No, not why fraud and error
occurs in all departments across the UK, I am asking why the level
of fraud and error is 6% in a £2 billion budget, £120
million was so high, why was that not monitored and who is responsible
for not monitoring?
Mr Baker: Taking the second part
of your question first. It is monitored, it is monitored by a
continuous programme of benefit reviews which is carried out by
the social security agency on all of its benefits. Obviously we
generate these figures ourselves on fraud and error so we do monitor
them closely. In the light of what the benefit reviews reveal
in terms of weaknesses in the system, programmes are put in place
and action is taken. I think that is why the levels of fraud and
error are coming down between 2002-03 and 2003-04. The trends
are in the right direction as the staff in the Social Security
Agency get more sophisticated and get more adept at tackling both
fraud and error and as we put better systems in place. I do not
think it was ever the case of not monitoring this. It is not a
plea in mitigation, but I think you will find that the levels
of fraud and error in social security are fairly similar in Great
Britain in the Department for Work and Pensions as they are in
the Social Security Agency. It is not a problem unique to Northern
Ireland. It is a very complex business, we are trying to get to
grips with it and we are moving in the right direction as a consequence
of our own monitoring of the problem.
Q49 Chairman: I am sorry to keep pressing
you but I am grateful to you in terms of telling us that you have
identified what went wrong and you are going to correct it. Having
identified what went wrong you must be able in layman's terms
to be able to tell us where the faults were? Was it lack of staff
training? Was it incompetence in terms of the way the claims were
processed? Was it poor management performance in terms of not
monitoring the levels of fraud and not taking action sooner? That
is the type of explanation I am looking for when I talk about
in layman's terms a reason why fraud at 6% was so high.
Mr Shannon: Can I come back in
again. In terms of the Income Support and Job Seekers Allowance
I think there was no particular problem that went wrong in that
particular year, that is a question of bearing down on the issues
over a protracted period. There was a problem with the Housing
Allowance which shot up that year out of proportion with previous
years and subsequent performance. That is the one that is administered
by the Housing Executive on our behalf. Our assessment there is
for various reasons the Housing Executive found itself that year
with a substantial number—I am talking 300 odd—300
inexperienced, casual, temporary staff and there were clear problems
that year. That has been corrected and our latest information
is, I think, that the figures on that have come down very substantially,
down to 2.3%; the error rate down from 10.4, so good news there.
Q50 Chairman: This is the level of explanation
that we were looking for. We now know that the substantial amount
of that fraud in respect of housing benefit was due to the fact
that there were a lot of inexperienced casual staff working in
the department that were assessing the claims?
Mr Shannon: Yes
Q51 Chairman: Why?
Mr Baker: I do not have an answer
to that specific question. I am sorry, I would have to come back
to you on that and get that explanation from the Housing Executive.
Q52 Mr Pound: The situation where you
have very large numbers of temporary staff, was this at Christmas?
Was this at a time of staff shortages and was there any external
factor?
Mr Baker: I cannot answer that,
Chairman, I would be purely speculating. Earlier, you asked why
is fraud and error occurring and is it down to poor management,
is it down to poor training, is it down to inexperienced staff.
I think, in truth, all of those answers are in part correct and
I think the benefit review process highlights that. I think it
shows that staff on the frontline who were receiving the benefits
applications and who were taking the decisions on whether to allow
benefits or not, in many cases needed more training. That is part
of the response of the Social Security Agency, to improve its
training. I think the benefit reviews also show that perhaps the
level of checking needed to be increased. Mr Shannon gave some
statistics earlier about the degree of intervention, both at the
front end and actually during benefits payments to look at those
things. All of those things collectively need to be done and always
need to be done. Bear in mind, we are dealing with between 200,000
and 300,000 fresh claims for all benefits every year and it is
a constant process that we need to work at. We need to attack
it on all of these fronts continually. I do not think you can
put it down to one thing.
Q53 Chairman: I am very grateful, Mr
Baker, to you for saying that it was lack of training, staff shortages
and perhaps staff incompetence because of the casual nature of
their employment. I think that is the answer that people want.
Mr Baker: Indeed, and the propensity
of some members of the public to be intent on defrauding the system,
we need to address that too.
Mr Shannon: Sometimes when we
come to discuss audit reports, we tend to talk a great deal about
systems and processes because that is what auditors tend to talk
about. That, as I think you are coming around to saying to us,
is only part of the story. We can have perfect processes, but
unless the people who are operating those processes are operating
effectively, they will not work and that is the management challenge
we face.
Chairman: It is quite late in the day,
so I am going to ask my colleagues who have questions whether
or not they are content or if there are still parts of their questions
they want to ask?
Q54 Mr Luke: You spoke about the formula
that you were introducing to reduce the level of fraud and error.
Previously, you told the committee in correspondence that changes
would be made in the methodology used to calculate progress towards
the reduction of fraud and error and these would be introduced
in April of this year. Have these formulas that you have been
referring to—these changes, this methodology—been
introduced? Could you enlighten us as to whether these changes
have been introduced and what impact they have had?
Mr Shannon: I got a little bit
confused about this myself when I was being briefed about it.
There are two formula changes, and one is not really a formula
change. The formula change in reporting was the one which took
out suspected fraud from the estimates and that applied last year.
I think the point of your question is about a change in the way
we disaggregate our targets. Our PSA target is for a 5% reduction,
but previously, I think, that had not made its way in any meaningful
way into the day-to-day operations of a branch or of any individual,
so the change that was introduced in April of this year was to
dissagregate all of that down to district level. We are setting
targets now at district level, office level, manager level and
individual staff level. It started in April and it is too early
to say what impact it will have, but we are hopeful.
Q55 Mr Luke: That was the methodology
you talked about to aim for the 5% reduction?
Mr Shannon: Yes
Chairman: Mark Tami, Housing Benefit.
Mr Tami: I think you have probably asked
the questions that I was going to ask. I do not think you necessarily
got the answers, but at least you have asked the questions.
Q56 Chairman: Gentlemen, I have got two
very quick questions on the Child Support Agency. We could have
a whole session on the Child Support Agency, I am sure, but the
Committee was told in correspondence during 2003-04 that the agency
embarked on a number of initiatives to improve the quality and
accuracy. Are you content with the implementation and the outcome
of those initiatives?
Mr Shannon: I am pretty pleased
with the performance there, if measured in that sense. I have
got some statistics here. The measure which they use is the last
decision made for all assessments and checked to be correct to
the last penny. You must remember that they are running two schemes—the
old one and the new one. In the old scheme, the performance in
2001-02 was 81.9%, it improved the following year to 85.5% and
last year it was 91.8%, which exceeds the ministerial target and
is better than performance elsewhere in Great Britain. On the new
scheme the target—in its first year of operation—was
90% and the accuracy rate was 92%. Again this was better than
the performance in Great Britain. By those measures I think we
are doing rather well. The problem, which you probably well know
from the GB experience, is that the computer system has not been
operating to our satisfaction. The cases which have gone through
the computer system successfully have been going very well; the
problem is the ones that have not been. That is another story.
Q57 Chairman: Can I just make a plea
that in our satisfaction that the new system is working slightly
better than the old system, which is hardly an achievement given
the ineffectiveness of the old system, that we do not forget those
calculations that still need to be done in respect of the old
system and the frustration that is caused to those who still have
to have their cases accessed that way. I know that is a major
complaint with all Members, that with the new system, fine, we
are getting there, but as far as the old system is concerned it
seems everybody has left the ship and there is not the concentration
there should be?
Mr Shannon: I would have to challenge
that. We continue to devote considerable effort to the old scheme
and then there comes a point at which we migrate the old scheme
to the new scheme. We are not yet at that point, but we would
like to get to that point as soon as we can.
Chairman: Also, we would share that aspiration.
Are there any other questions that the members might want to ask?
Gentlemen, thank you for being so candid and honest. I know it
is a difficult session for you because the performance of your
departments has been weak and we do look forward to improvements
that have been suggested. We hope that when we next see you—next
year—the ride is a little bit more comfortable.
| 
