Conclusions and recommendations
Prevention of Fraud
1 Levels of detected fraud in contracted employment
programmes are low. We were also told that there is little evidence
that there is a problem with undetected fraud. However the frauds
uncovered to date have highlighted the extent of the risk that
weaknesses in the system could be exploited. The Department must
ensure that processes for the detection of fraud are rigorous
and robust. (Paragraph 15)
2 The Department was not able to tell us how
many fraud cases to date had come to light as a result of the
provider notifying the Department. Until now it seems that the
majority have been identified either by whistleblowers or through
the Department's own processes. The Department needs to issue
clear guidance to providers about what problems can be dealt with
internally and when it must be informed. The Department must also
keep records of when providers notify it of suspected fraud.
(Paragraph 17)
3 It is a matter of concern to us that the Department
is moving towards a system based on providers detecting fraud
themselves and notifying the Department. On past performance this
would seem highly optimistic. If the Department is to continue
down this route it must work with providers to develop a system
which is rigorous and transparent. (Paragraph 18)
4 We welcome the Department's four key principles
for employment programmes. They provide a good minimum standard
for providers to work from. However we are concerned that there
is not an outright ban on individual bonuses linked to job outcomes.
These have played a role in at least some of the past frauds,
and could do so again in future. (Paragraph 23)
5 We have heard that the current paper based
system for verifying job outcomes is bureaucratic and unpopular.
We are worried by reports that some employers are charging providers
for the paperwork they have to complete. The Department must ensure
that the burden of paperwork does not discourage employers from
hiring people on employment programmes. (Paragraph 32)
6 There is not yet any clear evidence as to
how effective off-benefit checks are for verifying that FND customers
are in work. Were they to prove reasonably accurate we could see
the potential benefits to the Department, providers and employers,
of relying more on off-benefit checks combined with random checks,
as the Department proposes. However, we believe any move to a
less bureaucratic system, with savings for both providers and
the Department, should be balanced by severe penalties for any
provider which has fraud taking place in its organization, systematic
or otherwise. A system of deterrent could be as effective, and
cheaper, than the current system of paper-based verification.
(Paragraph 33)
7 The Department needs to be clear about the
purpose of the service fee. FND has several mandatory parts, which
include an initial assessment, a work focused action plan, and
four weeks full-time work related activity. If the service fee
is a fee for services rendered, then the Department needs to check
that these activities take place, and demand a refund of the service
fee if they do not. If the service fee is actually an up-front
payment for set-up costs it should be renamed to avoid confusion.
Whichever is the case, the Department needs to ensure that there
is monitoring of the mandatory parts of FND, and that providers
are clear that the Department expects them to be delivered. (Paragraph
40)
8 Anyone involved in fraud risks criminal sanction.
However at the moment companies where fraud is found which is
not systematic face no penalty beyond repayment. This is not
acceptable. Where the Department has identified "inadequate
management oversight and controls on the part of providers"
allowing fraud to take place, providers should be penalised. The
Department can terminate contracts in the most serious cases,
but in all cases there must be financial penalties beyond the
repayment of fraudulently claimed outcome fees. (Paragraph 45)
9 The Department is moving to a system where
providers are taking more responsibility for detecting fraud through
their own internal procedures, while the Department carries out
less auditing ifself. The Department should combine this model
with stringent financial penalties as one way to ensure providers
are focused on preventing fraud. (Paragraph 46)
10 We welcome the Department's commitment to
publish the lessons learned from Risk Assurance Division (RAD)
reports but we believe this does not go far enough. We also welcome
the fact that A4e were in favour of RAD reports on the company
being published. We agree with the Minister that in cases where
there is no case to answer RAD reports should not be published.
However where wrong doing is found they should be published, with
redactions where necessary. If this would prejudice an on-going
investigation the report should be published after such investigations
are finished. We believe that seeing the detail of the report
will provide valuable lessons for other providers, and that publication
will also provide another form of deterrent. (Paragraph 53)
11 We were surprised that the Department does
not routinely share the results of investigations with other Government
departments, non-departmental public bodies or local authorities.
It should do so, and also ensure it is notified of investigations
by other bodies. While the Department has not identified any "systematic
fraud" it has identified cases of "inadequate management
oversight and controls", something which must be shared with
other bodies who have contracts with those companies. (Paragraph
54)
Customer Service
12 We received strong evidence that customers
need more information about what help and support they can expect
from providers. We recognise that there could be a tension between
this and the "black box" approach. However, in Glasgow
we met clients who were receiving very little help, and who had
no idea that personalised help and training were options. Jobcentre
Plus staff should have a role in monitoring provision, and talking
to customers about what help and training they have been offered.
The customer could then challenge the provider if they felt they
were missing out. (Paragraph 65)
13 The ERSA Charter is currently voluntary and
unenforceable. Customer rights need a much higher status than
this. It is also important that customer rights are enshrined
right from the start of contracts. We regret the fact that the
Department seems to be adding in customer rights as an afterthought.
We call on the Department to introduce a compulsory, monitored
and enforceable Customer Charter as soon as possible. This should
be based on the ERSA charter and contain details of how customers
can complain. (Paragraph 70)
14 We were disappointed to hear of a range of
poor service experienced by customers. The evidence we heard was
anecdotal and we have not had the opportunity to establish whether
such problems are widespread. We do not doubt the commitment of
most providers to customer service, but the Department and providers
must work harder to ensure problems are dealt with promptly. Customers
on many programmes have no right to change provider, making it
particularly important that they are given a good service. We
note that many of the customers we spoke to were reluctant to
complain. The Department and providers need to be proactive in
order to identify, even serious, problems. (Paragraph 77)
15 Providers seem to agree that "zero hours"
contracts should not have a place on employment programmes. However,
such contracts are still eligible for outcome payments. This is
unacceptable, and the Department should act quickly to ensure
that "zero hours" contracts are not eligible for outcome
payments. (Paragraph 78)
16 It is important that providers have a complaints
system in place. However they should also have mechanisms for
customer to provide feedback and comments and the Department should
check that this takes place. Such information will not be comparable
year on year, or between providers, or with Jobcentre Plus. We
recommend that the Department carry out and publish a "Customer
Survey" for customers on contracted provision, as they do
for their own customers, to provide rigorous comparable data.
(Paragraph 85)
17 Customers can also have an important role
in letting the Department know what is going on on the ground.
They may be able to identify instances of creaming and parking,
or to identify the reasons for a provider's poor outcomes. We
agree that one way to do this would be through customers' continuing
relationship with Jobcentre Plus. However, Jobcentre Plus staff
need to be advised to initiate these conversations with customers,
and to be given the time to talk to customers. There also needs
to be a mechanism for any problems to be fed back to both the
provider and the Department. (Paragraph 86)
18 Customers on programmes need to know how to
complain about the service they receive. They need to be able
to lodge formal complaints which receive a response and to escalate
that complaint to the Department if it is not resolved satisfactorily.
We are not yet convinced of the need to set up an Ombudsman,
but the Department should keep this under review. (Paragraph 91)
19 We have received evidence that Ofsted has
improved its inspection of providers over recent years. However
employment programmes tend to rely far more heavily on the relationship
between staff and customers than academic or vocational education.
Motivation and self-esteem can be more important than what the
customer has actually learnt. The Department needs to monitor
closely that what Ofsted identifies as quality actually relates
to sustained job outcomes. (Paragraph 97)
20 We heard contradictory evidence about whether
Ofsted was using specialist inspectors or moving to a more generic
use of inspectors. Employment programmes are very different from
much of the provision inspected by Ofsted and specialist inspectors
should be used. (Paragraph 98)
Vulnerable Groups
21 We were disappointed, but not surprised, to
hear of evidence of "parking" on Pathways. We also note
the evidence that this was linked to pressure from managers after
it emerged that previously agreed targets were unrealistic. As
we noted in our previous report the targets for FND are very challenging.
The Department needs to focus on ensuring that this pressure
does not result in customers being parked. (Paragraph 104)
22 The Department has told us that it will try
and prevent "parking" through the contract management
system. However we believe that incentivising contractors to work
with all customers is crucial. We again welcome the Department's
plan to pilot an accelerator model of payment and call on it to
keep the Committee updated on their progress. (Paragraph 107)
23 We were very pleased to hear that under Flexible
New Deal some prime contractors were offering higher outcome payments
for the harder to help than they themselves receive from the Department.
However the Work Capability Assessment is leading to more people
with health problems on Jobseekers Allowance, and to a higher
proportion of the severely disabled on Employment and Support
Allowance. This will lead to providers needing to work with customers
with more severe barriers than they had anticipated. The Department
must work with providers to ensure appropriate support is provided
for these customers. (Paragraph 115)
24 Providers have told us that for those with
the greatest barriers to work Flexible New Deal funding is not
appropriate. One provider told us that there are over half a million
people who are not served by current DWP programmes. We call on
the Department to investigate the issue, and to supply the Committee
with its estimate of how many people are not served by current
programmes, and details of the measures they are taking to ensure
that FND and other programmes cover all those who need help. (Paragraph
119)
25 The Department has told us that it is confident
that Flexible New Deal will meet the needs of all customers, including
all those moving from Incapacity Benefit onto Jobseekers Allowance.
We also note the range of measures it is taking to prevent parking.
However, as the Department will not be collecting management information
by impairment, it will not know whether these measures are working.
The characteristics of those claiming Jobseekers Allowance are
changing and there are increasing numbers of people with health
problems and disabilities receiving the benefit. The Department
must recognise this and ensure that the evaluation of FND examines
the impact on different impairment groups. In addition the contract
management process must pay close attention to what services providers
are offering people with disabilities. If problems emerge then
monitoring by impairment should be introduced. (Paragraph
125)
26 We were concerned to hear that there may not
be monitoring by impairment on Work Choice. This is unacceptable
in a brand new programme specifically designed for severely disabled
people. We call on the Department to introduce monitoring by impairment
groups for the first two years; progress can then be reviewed.
(Paragraph 126)
Sub-contractors
27 The New York City experience has shown that
it is possible to run a commercially successful prime contractor
making little or no use of sub-contractors. It has also seen the
numbers of subcontractors decrease over time. The Department
cannot rely on market pressure alone to ensure that sub-contractors
remain involved. However the New York City experience has not
demonstrated whether "prime only" contractors were able
to provide a quality customer experience, or whether they have
the same long-term outcomes as those who used subcontractors.
(Paragraph 140)
28 New York City does not require prime contractors
to use sub-contractors, and it does not see itself as having
a "market stewardship" role. Despite this, when subcontractors
are used it has been necessary for them to intervene in the relationships
between prime contractors and subcontractors to ensure service
delivery is not jeopardised. (Paragraph 141)
29 Practices have been reported to us, and reported
in the press, whereby potential prime contractors are submitting
tenders which subcontract to each other on a reciprocal basis,
squeezing others out of the market. We were very disappointed
that the Minister was not able to tell us that we had been mis-informed.
The practices described to us should have been easily visible
to the Department at the tendering stage. The Department must
look not just at what percentage of work prime contractors are
devolving to sub-contractors, but at who those subcontractors
are. If a cartel is operating it should be broken up. (Paragraph
162)
30 The Department's Code of Conduct says that
"Funding should be on a basis that is fair to the different
organisations involved and reflects relative ability to bear particular
risks." In order to enforce this the Department must have
a clear idea of what constitutes "fair", we are not
convinced that it does. The Department needs a clear idea of
what constitutes a fair contract, and to make this known to providers.
(Paragraph 163)
31 We were very concerned by the reports of subcontractors
who have not been paid. We welcome the reassurances of the Department
that it is willing to get involved in such cases. However, this
does not seem to have happened in practice. The Department needs
to ensure that its staff are aware that they should intervene
in such cases, and that subcontractors know who to contact. The
Code of Conduct says that the Department will "ensure that
delivery providers can have a 'voice' direct to DWP". This
is clearly not happening, the Department must ensure that it does.
(Paragraph 164)
32 We welcome the Department's stated policy
of "active market stewardship". However we are not
seeing it happen in practice. The Department needs to clarify
what constitutes fair treatment of subcontractors and ensure that
prime contractors meet these standards. So far it is clear to
us that the Department does not even have a clear idea of what
constitutes fair treatment, and, despite the rhetoric, has shown
no willingness to get involved with even the most serious cases.
(Paragraph 165)
33 We do not know how widespread unfair treatment
of subcontractors is, but neither does the Department. If such
behaviour by prime contractors were to be widespread it would
have the potential to put otherwise viable subcontractors out
of business, leading to a loss of specialist knowledge in the
market. However it could also jeopardise the delivery of contracts
or lead to market failure, the Department must be alert to this
risk. (Paragraph 169)
34 There are barriers to small providers tendering
for contracts, particularly the need to submit tenders to multiple
potential prime contractors. However in Glasgow we were very impressed
with the measures small organizations had taken to work together
and share expertise and resources. Every help needs to be offered
to ensure that small providers can participate in the market;
however the Department must ensure that the biggest barrier to
potential subcontractors is not the attitude of prime contractors.
(Paragraph 172)
35 We heard that providers who had run a service
successfully for many years could lose work if they were too small
to tender to be a prime contractor, and the prime contractor that
won the contract then took the work in-house. This loss of local
expertise and a proven service cannot be in the interest of customers.
Tenders should be judged on their impact on existing services
which are working well. (Paragraph 173)
36 The Invitation to Tender for Flexible New
Deal Phase 2 says that Merlin "will link to a mediation and
arbitration service where there is evidence that suppliers are
acting in breach of the contractual obligations of the Code of
Conduct". However the Draft Merlin Specifications contain
no details of a "mediation and arbitration service".
If a prime contractor is in breach of its contract with the Department
we fail to see why the Department would not get involved itself.
There may be a role for a formal arbitration service to look
in detail at contracts; however, sub-contractors should be able
to approach the Department first, and the Department should be
able to resolve clear cut cases. (Paragraph 182)
37 Decisions made by Merlin will have implications
for the viability of individual subcontractors and for service
delivery. Its decisions on what constitutes fair risk sharing
will affect the ability of the market to cope with changes in
on-flows. Potentially Merlin could make decisions which would
result in a crucial subcontractor, or large numbers of subcontractors,
leaving the market or going out of business. It makes sense for
the Department to make these decisions itself, allowing it to
ensure the market develops in a way which is stable, robust and
meets the needs of customers. (Paragraph 183)
38 The Draft Merlin Specifications provide for
prime contractors to be graded as "Excellent", "Compliant"
or "Unsatisfactory". We call on the Department to spell
out what would be the consequences for a provider of receiving
an "Unsatisfactory" grade. (Paragraph 184)
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