Committee of Public Accounts - Preventing fraud in contracted employment programmesWritten evidence from the National Audit Office

THE DEPARTMENT’S INVESTIGATIONS INTO A4E

Background

1. The Department announced on 9 March 2012 that it had been made aware of an allegation of attempted fraud in relation to a Mandatory Work Activity contract with A4e. It then began a formal investigation of this allegation. Against the background of public commentary on A4e the Department also initiated audits of all its commercial relationships with A4e. A4e worked on four separate programmes each of which was reviewed separately:

Mandatory Work Activity;

the Work Programme;

the New Enterprise Allowance; and

the Jobcentre Plus Support Contract.

2. The Department’s audits were designed to assess the A4e control processes to prevent and detect fraud and irregularities relating to their current prime contracts. The aim of this work was to assess the adequacy and effectiveness of the systems of internal control operated within A4e to ensure that:

claims for payment are only made where these are entitled to be made (under the terms of the contract); and

complete and accurate evidence is available to substantiate the basis of all claims.

3. The work included:

the mapping of key control processes and compliance testing;

substantive testing of a sample of claims made for payments under each contracted programme to determine the validity of each claim;

interviewing relevant employees at all levels throughout the company; and

reviewing of any remedial actions planned or recently introduced to improve control.

4. The audits focussed exclusively on controls specifically relating to the contracts with the Department. It did not set out to assess wider corporate issues or controls such as ownership and governance, the operational effectiveness of corporate controls such as A4e’s audit committee and internal audit, the culture of the company, or the level of general training such as ethics training.

Summary of Results

5. The results of the investigation and four audits are set out below. In summary, the Department concluded that it had found no evidence of fraud in the specific fraud investigation or in its audits of A4e’s controls relating to the four programmes. It did, however, identify significant weaknesses in A4e’s internal controls for the Mandatory Work Activity contract and this contract was terminated.

Fraud Investigation—Mandatory Work Activity

6. Mandatory Work Activity aims to provide Job Seekers Allowance claimants aged 18 and over with opportunities to develop skills and behaviours that are widely valued by employers and that can help them in seeking employment. A4e won the contract to manage this programme South East area. Under this contract it would provide placements for up to 30 hours a week for 4 weeks.

7. The allegation suggested that A4e employees may have claimed payments for Mandatory Work Activity participants that had not been placed in work. The Department investigated every claim from the A4e office related to the specific allegation and a 20% sample all other A4e claims under the contract.

8. From the total sample of 203 cases examined the Department found six cases were incorrect (3%) and should not have been claimed. In these cases the individuals had not started the claimed placement according to the placement host and there was no evidence to support the claim. However, it concluded that these cases had arisen as a consequence of procedural inaccuracies, rather than dishonest false representation—“whilst the evidence suggests a potential high level of exposure to the risk of fraud, we have concluded that on the balance of probability, an evidentially based conclusion is that there is “no case to answer” regarding this allegation”.

Controls—Mandatory Work Activity

9. In addition to examining the fraud allegation the Department assessed A4e’s controls relating to the Mandatory Work Activity contract. It found that prior to recent retrospective checks in March 2012, the system of internal control operated by A4e did not ensure that claims were only being made for payments to which they were entitled. Prior to December 2011, A4e did not ensure a segregation of duties between those staff directly involved in delivering the services and those making claims for payment under the contract. It also found that A4e did not establish an audit system of periodic checks to ensure effective and accurate recording and reporting of the services.

10. The Department concluded that “weaknesses in A4e’s internal controls, and the lack of available supporting documentary evidence, expose unacceptable risks of fraud and payment irregularities.”

11. As a result of the report’s findings the Department terminated its Mandatory Work Activity Contract with A4e.

Controls—Work Programme

12. The Work Programme provides support for claimants who need more help to undertake active and effective job seeking. It is delivered by providers who have been given autonomy by the Department to decide how best to support participants while meeting their minimum service delivery standards.

13. The payment model for the Work Programme includes an Attachment fee; a Job Outcome fee; and a Sustainment Outcome fee. The Attachment fee is paid once the provider has notified the Department that the attachment activity is completed. The value of a Job Outcome fee and the timing of the payment depends on the claimant group. For example, the Department will pay more for helping those customers in the harder-to-help groups to find and stay in work longer. Sustainment Outcome fees represent the bulk of available payments to providers, and are payable for each four week period a customer is in employment after a Job Outcome has been claimed, up to a specified maximum period.

14. The Department found that there was sufficient evidence for claiming attachment fee payments, with 100% of the payments in its sample being supported by evidence on A4e’s computer records. However, there was no corroborating customer evidence to support the information held.

15. The Department assessed A4e’s pre-payment “reasonableness” checking on Job Outcome claims as a limited preventative control, in that it looks only for a reason not to claim, rather than positive assurance that claims are only submitted for payment to which there is entitlement. Internal Audit concluded that the design of this control placed reliance and emphasis on the Department’s payment controls to reject invalid claims at the off benefit check stage, with A4e accepting the risk that, should cases fail these checks, extrapolation of overpayments and recovery action will be undertaken.

16. From its testing of 100 job outcome claims, Internal Audit was satisfied that all individuals had moved into work, but in 10% of cases not to the extent to support a job outcome payment, ie they had not been off benefit long enough or the nature of their work does not satisfy the Department’s employment test. The Department concluded that there was “no evidence of fraud and that DWP controls…would automatically identify such cases for further investigation”.

17. It also found that A4e post payment employer validation checks were not wholly effective, but they were reliable in the majority of cases where Internal Audit re-performed the check. It found two errors out of 57 cases checked, but no cases of potential fraud or irregularity.

18. The Work Programme Call-Off Terms and Conditions contain a number of clauses that providers must adhere to help prevent fraud being committed by employees working on the contract. The Internal Audit report referred to A4e being satisfied with the adequacy of its own controls and checks over making claims and receiving payments, and the robustness of its recruitment policies. A4e did, however, accept the need for some remedial action to ensure full compliance with key contract requirements and were reported as taking action to:

improve levels of awareness amongst A4e staff of their Whistleblower policy and procedures;

review their current audit programme to ensure it is correctly focussed; and

establish processes for obtaining assurances over all aspects of supply chain partner delivery and contractual compliance.

New Enterprise Allowance

19. New Enterprise Allowance is one of the Government’s Get Britain Working Measures and is aimed at helping customers start their own business, through the provision of a tailored 1–2–1 support from experienced business mentors.

20. The Department found that A4e places reliance on the Department to check the accuracy and correctness of monthly claims for payment. A4e relies on monthly checks carried out by Jobcentre Plus to spot and reject any incorrect claims submitted. Despite this, Internal Audit found no materially significant errors that affected the validity of payments or any evidence of fraud or irregularities.

21. The Department selected a sample of 100 customers for testing and found that A4e had undertaken a full review of these files prior to its visit and control checklists were held on each file. Despite this action, not all documentation identified as present was held on file. All cases tested complied with the A4e documented process.

Jobcentre Plus Support Contract

22. The Jobcentre Plus Support Contract delivers provision for Jobcentre Plus customers prior to entry to the Work Programme, including Lone Parents, Partners and Carers through voluntary work preparation support. Providers are responsible for delivering modules of job seeking advice or training in accordance with set objectives.

23. A4e was successful in bidding to become a Prime Provider to deliver the Jobcentre Plus Support Contract in six areas: London; North and Mid Wales, South East Wales; South Yorkshire, Derbyshire; Hampshire and Isle of Wight, Berks, Bucks and Oxon; Black Country; and West Yorkshire.

24. The fixed element of the funding model is a 100% annual service fee payment divided into equal monthly instalments to ensure a guaranteed income to help maintain and deliver quality provision for all customers. There are tolerances within the contract that allow for a 10% variation on each set of modules to be delivered, and the number of starts, on the different types of Vocational Training. Payment is made for service provision, with no attachment or outcome payments. As a result, the potential for false or irregular claims is considered by the Department to be more limited.

25. The Department found no evidence of any fraud or financial irregularity and concluded that the financial controls operated in A4e were adequate and effective. Additional Departmental checks prior to processing payments were found to further reduce the risk of claims and payments for unauthorised modules going undetected.

June 2012

Prepared 27th September 2012