House of Commons - Public Accounts

Select Committee on Public Accounts Fifty-First Report

3 Proper stewardship of public funds

15. The Director expressed his regret that there had not been proper stewardship of public funds when the Chief Operating Officer's wife was engaged to prepare the Department's human resources policies.[27] In September 2005, the Director tasked the newly appointed Chief Operating Officer with putting in place appropriate human resources policies. His solution was to select a consultant to develop these policies.[28] The Chief Operating Officer completed all the steps of the recruitment process himself and recommended his wife for appointment as the successful candidate.[29]

16. The Director acknowledged that he should have taken external advice on the appointment.[30] At the time, he considered that the potential conflict of interests were outweighed by the time-limited nature of the initial six months contract, the candidate's proven track record with other departments, and her availability to start work immediately. His understanding was that the process was fully documented, that some 20 CVs had been considered from potential three agencies and that there was a complete audit trail.[31]

17. The Chief Operating Officer's wife continued to work for the Department after her contract expired in April/May 2006, while the Department quantified the work necessary to complete this task and established what further work needed to be done. After discussions with the Department's non-executive directors, the Director put in place a new selection procedure. The then temporary Head of Human Resources considered CVs from four candidates and reported directly to the Director. On her recommendation, the contract with the Chief Operating Officer's wife was extended in July 2006 for three months.[32]

18. Overall, the Department paid the consultant some £98,000 (Figure 3). The Director considered her work to be very good quality and her daily fee rate of £550 excluding VAT to be good value for money.[33] During 2006-07, the consultant ceased trading as a sole trader and formed a limited company. In October 2006, the Department's Chief Operating Officer was appointed company secretary retrospectively, with effect from February 2006.[34] The Chief Operating Officer failed to disclose this appointment to the Director, which led to his suspension in February 2007. An independent disciplinary review found the Chief Operating Officer had acted without due regard to propriety and the proper conduct of public business, but there was no suggestion of dishonesty. He was subsequently dismissed for gross misconduct.[35]

Figure 3. Payments to the former Chief Operating Officer's wife for consultancy work undertaken in 2005-06 and 2006-07

PERIOD	£¹
2004-05	32,636
2005-06	65,271
Total paid	97,907²

Notes
1. Inclusive of Value Added Tax
2. In 2005-06, payment for human resources consultancy work was made to the Chief Operating Officer's wife as a sole trader. During 2006-07, payments were made to an external consultancy company (UK People Business Ltd), incorporated in February 2006 and wholly owned by the Chief Operating Officer's wife. Her husband was the company secretary.

Source: Revenue and Customs Prosecutions Office Resource Accounts 2006-07

19. The Director was unclear as to whether the Department had carried out basic due diligence checks when the consultant's supplier status changed from sole trader to incorporated company in July 2006.[36] At the time of the consultant's appointment, the Department had a procurement policy in operation but it did not provide sufficient practical details about how to apply these principles in particular circumstances.[37] The Department revised its procurement practices and procedures during 2006-07 and issued its detailed procurement policy in April 2007.[38]

20. HM Treasury told us it expected Accounting Officers to organise their Departments so as to have in place the procedures necessary to meet the principles set down in HM Treasury's guidance.[39] HM Treasury does not seek to micro-manage public organisations, but concentrates instead on strategic issues, notably Public Service Agreements and more recently on Departmental Strategic Objectives. HM Treasury considered it important that departments should be free to develop systems and policies appropriate to the delivery of their own policies and outcomes.[40]

21. The process by which the Chief Operating Officer's wife was appointed was not in accordance with HM Treasury Officer of Accounts' guidance to Accounting Officers on regularity, propriety and value for money, or with the guidance on selflessness outlined in the Nolan Committee's first report.[41] As part of its review and update of its human resources policies, the Department introduced a Code of Conduct in June 2007, some fifteen months after the Department was created, to which all staff must adhere. This was based on the standards of expected behaviour set out in HM Treasury guidance.[42]

22. The awarding of employment or procurement contracts to family members of staff or Board members gives rise to risks of regularity and propriety and potential conflicts of interests. By their nature, these can cause embarrassment to the organisation and the individuals involved. However, it was the NAO who identified that the engagement of the Chief Operating Officer's wife was novel and contentious.[43] Under HM Treasury guidance, departments have no delegated authority to incur such expenditure without HM Treasury approval in advance. Acknowledging that the process by which she was appointed was irregular, HM Treasury gave retrospective approval for the payments to be made to the Chief Operating Officer's wife. This was because the Department was able to demonstrate to HM Treasury's satisfaction that it had sufficient information that the payment was value for money, conflicts of interest were notified and the payment was within the bounds of regularity.[44]

27 Q 1 Back

28 Q 2 Back

29 Qq 2, 17 Back

30 Q 130 Back

31 Q 4 Back

32 Qq 18-21 Back

33 Qq 22, 38 Back

34 Qq 36-38 Back

35 Q 80 Back

36 Qq 35-36 Back

37 C&AG's Report, p 25 Back

38 C&AG's Report, para 19 Back