The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"Where the Government chooses to use private companies to deliver public services it is essential that proper arrangements are in place to prevent and detect fraud and malpractice. In this instance, the DWP’s arrangements for overseeing and inspecting its contractors were so weak that vital evidence on potential fraud and improper practice was not picked up. The Department failed, for example, to obtain from A4e damning internal audit reports produced in 2009 which pointed to instances of potential fraud and malpractice across the country.
The Department is still investigating allegations brought to its attention by the Committee but was not proactive in setting in place systems which root out fraud and malpractice.
If it had not been for whistleblowers, a range of systemic issues would not have been identified. The Department might have identified these issues if it had asked the right questions of providers. The recent investigation into A4e looked at particular allegations of fraud but not at the more fundamental question of whether the company was a ‘fit and proper’ contractor. Whether companies are fit and proper is an issue for all departments and the Government needs urgently to address this question.
The Department has said on the public record that it would terminate its commercial relationship with a provider if there was evidence of systemic fraud in either current or past contracts. However, it has not yet provided a clear definition of what it means by ‘systemic’.
The Department’s controls against fraud in the Work Programme are stronger than those in previous schemes but risks remain, especially to value for taxpayers’ money. The design of the programme still allows for the possibility of providers being paid for finding work for people who found the jobs on their own.
The Department’s ‘black box’ approach to contracting for the Work Programme allows providers to innovate but without sufficient auditing to demonstrate value for money.
The Department should act to allay suspicion about, and improve public confidence in, the main providers. It needs to publicize its whistleblowing arrangements and analyse information about complaints against providers.
Finally, it is vital that the Government urgently publishes full data on outcomes, so that we and others can assess the value for money of this programme costing £900 million a year."
Margaret Hodge was speaking as the Committee published its 15th Report of this Session which, on the basis of evidence from the Department for Work and Pensions (the Department), examined its approach to preventing fraud in contracted employment programmes.
The Department spends around £900 million annually on programmes to help unemployed people find and sustain work through its contracts with a range of companies and some charities. The design of effective controls to prevent and detect contractors committing fraud is key to ensuring these programmes deliver value to participants and employers while protecting the public purse.
Following our hearing on the Work Programme in February 2012, allegations of potential fraud and poor service from employment programme clients and whistleblowers were received by the Committee and passed to the Department for investigation. Against a background of public concern the Department has initiated an investigation of the adequacy of controls at A4e, one of its major contractors, and is investigating individual allegations. In the light of these events, the National Audit Office examined the controls the Department has in place to detect and deal with fraud and improper practices in employment programmes.
The Department’s arrangements for overseeing and managing its contractors did not pick up vital evidence about potential frauds. For example, the Department failed to obtain internal audit reports produced by A4e in 2009 referring to a considerable number of cases of alleged fraud and malpractice across the country which are only now being investigated. The investigations of alleged fraud that the Department has carried out have not been sufficiently thorough. For example, the Department appears not to have pursued cases where employers have gone into administration and was not proactive in asking for additional information on the allegations of fraud supplied by the Committee before concluding that there was insufficient evidence to investigate further.
The Department has not defined what standards a company must meet to be a ‘fit and proper’ organisation with which the Department is willing to contract. The Department’s recent assessment of A4e did not cover a number of the areas relevant to ‘fit and proper’ including: the company’s ownership and governance arrangements; corporate controls such as the working of the company’s audit committee and internal audit; and the culture of the company and the clear and transparent objectives for those employed on welfare to work programmes by the company. This issue is not confined to companies contracting with the Department for Work and Pensions but is an issue faced by all government departments, particularly where a company’s main source of income is government contracts. We will consider this issue more generally in due course.
The Department’s controls against financial fraud for the Work Programme, which include checks on each contractor’s claims for payment, are a significant improvement on previous schemes, although we are already beginning to hear allegations that some providers give a poor service. Furthermore, risks also remain in the Department’s other programmes, such as Mandatory Work Activity, which do not have in place the same level of controls, and concerns also exist about other programmes for the unemployed such as training programmes funded by the Skills Funding Agency. While the Work Programme has stronger controls, its greater focus on payment for outcomes potentially creates other risks to value for money. The Department’s ‘black box’ approach to contracting for the Work Programme allows providers to innovate but without sufficient auditing to demonstrate value for money and neither is there a mechanism in the contract for improving service standards over time. We have already received a number of allegations of poor practice and inadequate services provided to unemployed people looking for work. The department must put in place mechanisms to enable further investigations brought to light by whistleblowers.
The Department lacks sufficient information on the nature and number of complaints made directly to contractors about their performance to identify trends and learn lessons. Without better information on complaints the Department will be unable to assess fully the quality of service offered by its contractors. Where there are problems the Department has no obvious mechanism through which participants, contractors’ employees or MPs can raise issues of concern relating to fraud and poor service with it.
The Department has still to publish full data on the programme. However Ministers, the Press and the Trade Association for employment providers are putting partial data which cannot be verified into the public domain. Confidence in the programme depends on the publication of full data by the Department which can be verified.
While the department might find it tempting to define an acceptable level of fraud it is this committee’s view that this is the wrong approach. Rather than define what is an acceptable level of fraud in any public programme the department should take all reasonable and affordable steps to drive out fraud. We believe that our recommendations for improved oversight, new inspections, more transparency and more effective due diligence on companies who seek public contracts will all contribute to this. It is not enough to have the power to terminate a contract after the fact. Government has a responsibility to prevent fraud as well as to remedy it.