House of Commons - Customer First Programme: Delivery of Student Finance

Customer First Programme: Delivery of Student Finance - Public Accounts Committee Contents

2 Management and oversight of the Programme

15. The Department has set a number of targets against which it monitors the Company's performance. In 2009 the main target, covering the processing of applications for maintenance loans and grants, was shown to be flawed. Instead of covering the whole process from application to approval for payment, it measured the time taken to make an "initial decision" on an application. This was despite the recommendation of a report, published in 2006 by the then Department for Education and Skills, that the process be measured in full. In some 52% of cases in 2009, the Company's "initial decisions" were simply requests for applicants to submit further evidence.[34]

16. The Department acknowledged that the target was inadequate. It meant that throughout the summer of 2009 the Department had thought it was getting assurance that applications were being processed when in practice they were only being acknowledged and questions asked by the Company.[35] The Department explained that it had set the Company this target because it mirrored how local authorities' performance had been measured in previous years and would facilitate comparisons between the new service and the old. However, the Department agreed that it had not heeded its earlier report and so had not set the right target, and in consequence had received only a partial picture of the Company's performance.[36] The Company acknowledged that its own failure to understand its poor performance in summer 2009 was in part due to poor management information, but told us that the quality and timeliness of its management information had since greatly improved.[37] The Department was in agreement.[38]

17. In the wake of the Hopkin Review, new targets were in place in mid-February 2010.[39] In its Updating Memorandum, the Department told us that the new targets required the Company to process within six weeks the applications that included full supporting evidence.

18. The immediate cause of the major problems with the service in 2009 was the malfunction of the document scanning system.[40] In procuring the software to run the system, the Company had failed properly to specify its requirements (specifically, the volume at which the system would be used). The Company launched the system before testing it fully. In operation, the system failed to cope with the volume of work and broke down; the Company's contingency plan was introduced late and did not work in the way the Company had expected. The situation was aggravated by the fact that the documents to be scanned had been sent to the Company's office in Glasgow, while application forms were sent to its processing centre in Darlington.[41]

19. The Company agreed that it could have been relatively cheap to fully test the scanning system before launch, and could not tell us why it had failed to do so.[42] It told us that, with hindsight, it had been wrong to locate scanning and processing in different sites.[43] Following remedial work on the scanning software which the Company had requested from its supplier, the scanning system was relaunched in March 2010. The Company and Department told us it has subsequently been operating satisfactorily.[44] However, the Department stated that the cost of the scanning system had increased by £1.0 million (63%) above its original £1.6 million budget.[45]

20. Other difficulties in the IT elements of the Programme led to delays and increased cost: overall, there was a cost overrun (at December 2009) of £10.5 million (75%) above the business case estimate of £14 million for IT systems.[46] Another of the key planned IT improvements, new contact centre technologies, had still not been implemented as at October 2010. The Updating Memorandum showed this element of the Programme had been budgeted at £4.6 million, but was now forecast to cost £11.0 million, a predicted overspend of £6.4 million (139%).[47]

21. The Company had told the Comptroller and Auditor General that it had taken seven months to implement a change to enable students to reset their own passwords on the student finance website.[48] However, at the hearing the Company told us that it had not yet got this change to work.[49] The failure to resolve this issue in 2009 led to high volumes of calls to the contact centre from students who could not access their application details: in the first half of 2009 this was the single most common reason for calls to the Company.[50] The Updating Memorandum stated that it was now possible for students to reset their online passwords, and that the proportion of calls about this issue had declined since the previous year.[51]

22. The Department expected the centralisation of the service to achieve annual savings of around £20 million from the 2011-12 financial year and that the Company's operating costs would be far less than the grants which the Department had given to local authorities to run the previous service. Cost overruns had challenged the Programme's budget, but at the time of the Report by the Comptroller and Auditor General (March 2010) the Company was making other cost reductions to compensate, expecting its operating costs to be in line with the original business case from 2011-12.[52]

23. At the time of our hearing, the Department told us the timetable for generating savings had slipped by one year, so that the Programme was now not expected to break even and to achieve financial returns until the 2012-13 financial year. The Department told us that, while cost savings were an objective for the Programme, the absolute requirement was to achieve improved customer service, particularly in 2010, and that it would not put customer service at risk by an unyielding pursuit of savings.[53] In October 2010, the Updating Memorandum stated that the Department was still discussing the Company's financial requirements and that the need for additional resources for the 2011/12 academic year and beyond was likely to further delay, and possibly reduce, the expected financial savings.[54]

24. In 2006, reviews commissioned by the Department had identified weaknesses in the Company's management culture and capacity. The Company introduced an organisational development programme, but the programme was incomplete by the time the service went live in 2009, and the Company's own review acknowledged its culture as a contributory factor to its failings in 2009.[55] The Department considered that the Company had been over-optimistic about its ability to resolve any technical problems and as a consequence had failed to alert the Department to escalating risks during 2009.[56] Overall the Department concluded failures in leadership and management in the Company lay behind the poor performance.[57]

25. As late as April 2010 PricewaterhouseCoopers told the Department it was surprised by the lack of focus and urgency within the Company in setting right the problems identified in 2009.[58] In December 2009 the Department had accepted the Chairman of the Company's advice that two directors resign. After receiving the PricewaterhouseCoopers report, ministers decided to invite the resignations of the Company's Chairman and Chief Executive, which were received in May 2010.[59] The Department conceded that with hindsight it might have taken more far-reaching action earlier.[60] Nobody in the Department lost their job as a result, although the performance of the programme was reflected in the appraisal of the officials concerned.[61]

26. At the time of our hearing, the Company's Chairman, Chief Executive, Chief Operating Officer, and Director of Human Resources were all interim appointments. The Company expected a permanent Chief Executive to be in place by the end of 2010.[62] A new permanent Chairman was subsequently appointed, taking up his post on 1 November 2010; however, the Company has still to recruit a permanent Chief Executive and four permanent executive directors.[63]

27. Centralising the processing of student finance applications was inherently high risk, and the risks attached to the Programme were highlighted at an early stage. The first Office of Government Commerce Gateway Review in March gave it an overall Red rating, while the third Gateway Review (July 2009), gave the Programme an Amber/Green rating, concluding it was well managed, that the programme management was strong, and that it was monitored appropriately by the Department.[64] The Department considered that the OGC's third evaluation had not been fit for purpose in that it did not highlight that risks were not being properly managed.[65] Overall, the Department (together with the Company's Board) had underestimated the challenging nature of the Programme.[66]

28. There were significant problems in 2009 with the effectiveness of the governance structures the Department set up to oversee the Programme. The Programme Board had no expertise in IT, finance or human resources, nor any experience of undertaking a major centralisation project. While greater specific expertise was located in three sub-programme boards, these did not successfully identify emerging risks and escalate awareness of them, either to the Programme Board, the Company's Board, or directly to the Department, in time for effective intervention.[67] The Department considered that the Company was responsible for the failure to inform it of the developing problems in 2009. However, it also accepted responsibility for not supervising the Company more effectively. At the time of our hearing, it informed us that a new Programme Board had been established, with new systems that would improve the Department's capacity to monitor the Company's performance.[68] In the Updating Memorandum, however, the Department informed us that the Programme Board was being closed down, and had been replaced with a revised governance structure.[69]

29. The problems experienced by the Department in managing the performance of the Company are in keeping with problems it has had with a number of its arm's length bodies.[70] In the past two years, for example, we have criticised the Department for similar failings in its oversight of the then Learning and Skills Council, in respect of its delivery of the Train to Gain programme and the capital funding of further education colleges.[71] The Department has implemented a range of reforms to its processes for managing arm's length bodies, and it told us that the Cabinet Office had concluded it was making good progress in improving its relationship with delivery partners.[72] In March 2010 the Comptroller and Auditor General had concluded it was too early to say what impacts such measures would have.[73]

34 C&AG's Report, paras 2.9-10 Back

35 Q 121 Back

36 Q 64-69 Back

37 Qq 107-108 Back

38 Q 120; Ev 18 Back

39 Qq 122-125 Back

40 Q 2 Back

41 C&AG's Report, paras 9, 2.5-2.6; Qq 74-76 Back

42 Qq 82-85 Back

43 Q 74 Back

44 Qq 76, 79; C&AG's Report, para 9; Ev 18; Independent Health Check Review, PricewaterhouseCoopers, p 4 Back

45 C&AG's Report, para 2.4; Ev 18 Back