Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)



Mr Williams

  1. This afternoon we are due to hear evidence on the NAO report on grants made by the National Lottery Charities Board. We have with us our two principal witnesses, Mr Robin Young and Mr Timothy Hornsby. Welcome, both of you. To give you a chance of settling in, I wonder if I could ask a quick question to the C&AG. This report covers the relatively early stages of the operation of the Board. Will we be having a report in relation to the Millennium projects, the Dome and associated projects? And, if so, in what sort of timescale?

  (Sir John Bourn) The Dome is dealt with by a different body from the body on whom I have been reporting on this occasion. It falls within our remit, so we shall be reporting to the House on the Millennium project. Certainly, at the conclusion of the year, when we are able to analyse the performance and the extent to which targets have been achieved, a report will come to you either on the accounts or more generally.

  2. Thank you very much. We will start with you, Mr Hornsby, for the minute, if we may. On page 21 in paragraph 2.9 of the report, the point is made that almost a fifth of the projects examined—28 of them amounted to over £4 million—have not progressed entirely as planned. Extrapolating this, as is done later in the report, the conclusion is drawn that over the first three grant programmes—that could mean anywhere within the range of £67 million to £145 million—that money is not, at that stage, being used entirely as planned. Does that reflect your current experience? How could it have come about? What are you trying to do to stop it happening on the same scale in future?
  (Mr Hornsby) I think that was three questions. Following the NAO report, where we did, of course, update the material at the end of last year, the Board has chased those cases which were under-performers. Of the 28 cases cited by the NAO, in three cases we had not paid out any grant at all, so no public money was at risk. Of the remaining 25 cases, in nine cases there has been a definite improvement in the performance and delivery. To give you a specific example, case study 13, the Pakistani Centre at Nottingham, the NAO initial assessment on the visit, (entirely correctly), was that the building was not complete and they, therefore, classified the scheme as not provided. The update before this Committee in the report of November 1999, showed that the building had been completed physically but the service had not been provided. The NAO, therefore, agreed a revised description: "partly provided". However, the day care service has now opened. It has been fully operational since January 2000. We have all the outstanding documentation on end grant and accounts, and the project is fully provided. So each time you take a snapshot, even within some of the late performers, it does tend to improve. The NAO report itself clearly indicates that you should not use the analysis to draw absolutely firm conclusions about the overall success, though they quite rightly suggest that there is within this extrapolation, a swing of between £67 million and £145 million worth of projects which have been less than fully successful. My second point is that even those projects which did not fully provide, did in fact provide a level of service. If one looks at the LEAP project, case study 5, over 60 per cent of the benefits were in fact delivered there. So it is not quite as stark as it seems. Thirdly, you asked me what we are doing about this. There are some very clear lessons to be learnt from this report in tightening up. We introduced a comprehensive grant management manual in February 1999. We have extended and deepened and improved the training to all our grants staff. On the property grants, a particular area of concern, we have now introduced a new two stage approach, which will ensure that we get firm estimates from qualified professionals before the grant is to be put into place. At the time that these grants were being delivered, we had 43 permanent staff and about 130 part-time assessors. We have now staffed up fully to 250 trained grants officers, and I think that will give us more time on grant management. We have specifically tightened up the rules for monitoring in terms of chasing the end grant report. I am happy to say that all five recommendations in this report have been carried forward. So I think that the cumulative effect of all that tightening should be to improve the performance.

  3. That is encouraging. If we move then to paragraph 3.32 on page 41, this is case study 14, the Adventure Playground project. Now here we had the unusual situation where about £16,000 of money was used to pay off debts to the Inland Revenue. Key staff had not been recruited when the NAO carried out its inquiry. Indeed, the Board did not have adequate information on how the bulk of the grant was being spent. What is the latest position on this project?
  (Mr Hornsby) The original application was to extend the service of an existing playground, which had been fully supported by the local authority. We received from the local authority itself some concerns about the delivery and, therefore, we jointly visited with the NAO. Following that we have done two things. We have withdrawn the outstanding amount of the grant, £30,000, to which the NAO report refers, and we have sent a demand for repayment to the body for £22,000: that is, the £16,000 of Inland Revenue debt which was wrongly paid to them; plus £6,000 of further expenditure, where we were not satisfied, when we looked at the accounts, that they had been spent on the purposes of the grant. They did, in the event, succeed in recruiting some part-time staff to deliver the service, so the project was not a complete non-starter. But, as I say, we are in discussion to secure and claw back the further £22,000. We are not paying the outstanding amount, which was the £30,000.

  4. That is £52,000. Was this entirely a lack of proper preparation and calculation on the part of the people submitting the project; or was it also, in part, invalid or inadequate evaluation by the Board, whoever undertook the project analysis?
  (Mr Hornsby) The original assessment looked at what should have been a relatively standard and deliverable scheme. We have funded large numbers of successful play groups. With the wisdom of hindsight, I think the management skills and the financial strength of the body were less robust, and this came out more clearly as the project developed. It is also fair to say to the project organisers that they experienced unexpected staffing difficulties in the way they manned the project.

  5. But £16,000 of debt around their necks before they started, were you aware of that? Did you know that the Inland Revenue commitment existed?
  (Mr Hornsby) We were not aware that there was an outstanding debt to the Inland Revenue at the time we assessed the grant application.

  6. What led the people who received the money to think they could use the money for that purpose?
  (Mr Hornsby) I think when one is talking about small voluntary groups, traditionally the nature of those who run this sort of the scene, they have no fully paid staff of their own. They do not have a treasurer. They do not have an accountant. These are a group with a council of management who may not have extremely good financial expertise. Who may be less skilled at the segregation of parts of money. We make it absolutely clear in our terms and conditions that our grant money goes on the project. If you do not have a tight accounting regime, and if you have a slightly disorganised body with a volunteer base, it is possible for them—I think, in this case, inadvertently—I do not think there was a deliberate attempt to defraud. They said, "We have some money lying about in the kitty and we have got a bill from the Inland Revenue, we will marry the two together," which was sloppiness.

  7. If we look at the same page, case study 15, this was the community centre in Loughborough. Here there was a £182,000 commitment. That was to cover community centre equipment and salaries. Cost increases arose. You were aware in November of 1998, because there was evidence, that there were further problems with the refurbishment and financial difficulties. Why was it seven months before you actually went to visit the project?
  (Mr Hornsby) In this case we are dealing with one of the most highly deprived communities in Loughborough; a council of management itself, the majority of whom did not speak English, although we offered an interpreter. We wrote to them. We paid a number of visits and were unable to see anyone there. As I say again, there was a series of part-time volunteers running a project. Moreover, the body responsible for running the project had severe difficulties with the construction firm who were building it. They are, in fact, being sued by them. The view of the grants officers at the time was that the prime need was for the council of management to sort out the outstanding litigation with the builder, following which we would hope to see the project successfully completed and the benefits brought on-stream. We have chased them repeatedly on this since the publication of this report, with recent feedback indicating that they were partly providing the service off-site. We have written to them again saying that unless we receive comprehensive documentation we shall instruct our lawyers to start proceedings.

  8. Now, bearing in mind, as you said, that this is a very deprived area, and that there were linguistic difficulties, business know-how and so on, how far again in your evaluation are you able to identify these matters, (which should be easy enough to identify), but are you then able to give any sort of support and guidance for the preparation of business plans and so on, to ensure that they undertake and are fully aware of the complexities of the projects they have taken on?
  (Mr Hornsby) That is an extremely relevant point and it is partly covered by my earlier answer. At the stage when we were assessing bids of this sort, we had a single stage assessment for a building or a refurbishment project. In some cases that meant that the council of management had not obtained full plans, full details, for professional advice. Quite frankly, this was one reason why this scheme hit difficulties. Were a similar scheme to come to us now under our strengthened procedures, we would say in principle that this is a scheme that fits the Board's policy, it is eligible, it looks good value for money. We are prepared to approve it in principle and we are prepared to fund a feasibility study. We will not, however, make a grant offer, nor will you be able to draw any grant down until we have received plans, planning permission, RIBA certificate, and so on. In this case, had our present procedures bit, the council of management who had considerable difficulties would not have been able to obtain money until they had a fully planned scheme, so that when it went out to tender the problems they subsequently had would not occur. Your question was absolutely right about this. For groups of this sort, I think there is a measure of support needed to enable the scheme to be more robustly worked up.

  9. In fact, the thought occurs that it sounds as if this was a group of people who were highly disadvantaged in a legal confrontation with a firm, where you said there is possible litigation, where it is a firm of some substance which can afford litigation, but where it sounds as if the group could not afford it.
  (Mr Hornsby) Yes.

  10. Is there any guidance provided to people who are in a situation where they do feel they have a grievance against contractors?
  (Mr Hornsby) We attempt to support those whom we grant. We want the funded body to succeed, not the funds to fail. In this particular case the details of the litigation are, I am afraid, essentially a matter between the building firm and the council of management. There is, frankly, very little, if anything, the Board could do one way or the other. We shall have to see what happens in court.

  11. Incidentally, looking at the whole situation on the projects you have dealt with, you had administered very large sums of money. Have you encountered much, if any, evidence of fraud, where you have come across maladministration, incorrect preparation?
  (Mr Hornsby) We have had ten cases of fraud out of the 30,000 grants of 1.5 billion. Those cases involved £357,000 worth of grant of which the fraudulent element was £83,000. That accounts for 0.023 per cent of our total spend. Fraud cases have been small. In each case we have fully co-operated with the police and in each case they have prosecuted.

  12. These cases have been concluded?
  (Mr Hornsby) Yes. The ten cases I have referred to have been settled.

  13. With what result?
  (Mr Hornsby) With the result in two cases, for those who obtained a grant, being sent to prison. In other cases, with the money being clawed back. In two cases there was an attempt to deceive during the assessment process. We considered that the bid was pretty dodgy. We discussed this with others and the police and in one case, Mr Salakov, the applicant was convicted with attempt to defraud, but his application was rejected by us in that it looked highly suspicious. The substantive answer to your question is that the difficulties we have encountered with the wide variety of voluntary groups have not been deliberate fraud. As I say, the number of those cases has been small. There have been management difficulties over competence, over delivery, over changes in the external climate but, as I explained on the basis of those figures, 0.023 per cent of the grants being involved in fraud cases is a small amount.

  14. It is surprisingly low. Nevertheless, any case obviously is something that concerns this Committee.
  (Mr Hornsby) Indeed.

  15. Perhaps what would be helpful, unless my colleagues want to pursue this aspect themselves in subsequent questioning, would be if you would let us have a note on each of these cases, so that we can see what in future will be involved.
  (Mr Hornsby) I would be happy to do that[1].

  16. Good. That is very helpful. If we turn to paragraph 3.36 on page 43. This refers to the fact that you have had Financial Directions from the Department which require you to ensure that assets which are purchased with Lottery funding are used for the purpose intended. Now, clearly that is a very sound cautionary piece of advice to give. Why is it that despite that, you do not have a consolidated register of capital assets funded by you; nor do you have formal procedures to verify the existence and use of assets?
  (Mr Hornsby) We have, of course, individual case details on individual case files.

  17. You indicated that there are 30,000 awards you have dealt with. That is an awful lot of paper.
  (Mr Hornsby) We are producing a consolidated asset register, which will be available under the support systems in the autumn of this year. We are in current discussion with the NAO about the periodic visits, the sample size, and the cut-offs. What we have done, however, since the report was published, is that if the procedures for checking on assets where we are currently in discussion with the NAO are agreed, then there would be nine projects that would fall to be visited. We are now doing that in advance of the final agreement on the procedural coverage, and in advance of the physical creation of the comprehensive asset register. So we are visiting those nine cases.

  18. You were set up in 1993. You started funding in 1995. It is going to be the autumn of 2000 before you have a well defined system. Do you think you should have given greater priority to that? There are already 30,000 grants without a facility for proper monitoring.
  (Mr Hornsby) I do take your point. The 30,000 grants we have made is the cumulative total. This report looked at 5,000 grants. When we began making grants in 1995, the length of those grants, in most cases, was two or three years. Of course, during the period the grant was live, there were monitoring visits and checks to make sure that the asset was there; that it was properly used; it was benefiting. What this report points to is the issue of post-completion monitoring. So, in fact, it was not until 1998/1999[2] that we were in a position where some of the schemes we had previously granted would then need a post-completion visit. As I have said, technically, because of the sheer scale of the information required, it was not possible to produce the comprehensive asset register until the autumn of this year. But we are already arranging visits on the basis of the monitoring scheme on a purely manual basis. It is not that we have had 30,000 grants that finished three years ago and we have done nothing about them. We are talking about, as I say, the earlier grants, most of which would have completed their passage a year or so ago.

  19. I will finish on this. I imagine you are deluged with applications. Yet proper evaluation is a very important safeguard to future problems and to improving your method of dealing with applications. Why, therefore, is it that you have not paid close attention to the Financial Directions, again from the Department, requiring you to have a policy for evaluating projects?
  (Mr Hornsby) Deluge is an apt word, Chairman. During the period looked at by this report we received 37,000 grant applications. For evaluation to be effective this really needs to take place when the project is tangible, completed, and the benefits have come on-stream and you can start tracking them. We have commissioned and received a full report from an independent consultant, Community Matters, on the north east community buildings since this report was published. We have commissioned research from Runnymede on a mix of evaluation on black and ethnic minority projects in Birmingham. Sheffield Hallam are providing the detail of the report for us about some spatial targeting we have done in Barnsley. London have mounted a research project on refugee grants—always a sensitive issue. Northern Ireland are looking at some of the advice services we have provided. Scotland has commissioned the University of Strathclyde to look at the first grants on poverty. So we have six or seven evaluation schemes: two are completed and three are being done. My research committee, on Monday of next week, is looking at a comprehensive set of proposals for further evaluation either by cluster groups or types of activity.

1   Note: See Evidence, Appendix 1, page 120 (PAC 1999-2000/185). Back

2   Note: The year was 1999/2000, not 1998/99. Back

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