Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. You have batted solidly over the first 15 minutes. One quick note in your direction, Mr Young, before I finish. Why is it that having issued directions, the Department has not done more to ensure that these directions are observed?
  (Mr Young) As the Committee has said on previous Lottery appearances I have had with the Committee, we do not second-guess the opinions of the Lottery bodies. What we do do is, first of all, approve the systems and procedures they have before they start, and on that we get the prior advice of the NAO. Then each year we double-check, via our own internal auditors, that, as far as we can see, their systems and procedures comply with our directions. So we do do an annual assurance check with internal audit and backed up by other outside audits and checks on the systems.

  21. So you have been satisfied with this over-five-year time lag in the establishment of proper systems?
  (Mr Young) We have been satisfied that the monitoring of the projects that the Charities Board has done is in line with the directions. Yes, we have indeed. But we now agree with the Committee's annual report that it is time for them to have the asset register, which they have, and to set up better arrangements for visiting buildings after the end of the grant in period. However, as Mr Hornsby has just said, it is only now that the initial projects, involving the buildings and positions of buildings, have come to an end. So it is now that we should be setting up the post-grant period of checks.

Mr Steinberg

  22. Would it be fair to say that your original systems seemed very slipshod when you first started?
  (Mr Hornsby) I think our original systems, in terms of the application handling and for the requirements on assessment, were relatively comprehensive and effective. I would freely admit, and this report makes clear, that on some individual cases the implementation of those systems was less than satisfactory, at a time when we had 43 permanent staff and when we had 37,000 applications to deal with. But what defects this report has indicated have been defects in casework implementation and in chasing, not systems defects in terms of the sense that we had got the architecture wrong.

  Mr Williams: I think Mr Steinberg feels that he is sabotaged in every hearing we have. He has been sabotaged again by the division bell. We will adjourn for ten minutes.

   The Committee suspended from 5.02 to 5.08 pm for a division in the House.

  Mr Williams: We will begin again at 5.08. Mr Steinberg.

Mr Steinberg

  23. The reason why I asked you that question regarding being slipshod, if it is not slipshod I was surprised at the naivety of the Board that before capital schemes got grants, you did not insist that there would be planning permission. Looking at your CV I see that you were in the Department of the Environment, so presumably you have come across local government before, and you are probably well aware of local authorities' reputations in granting planning permission. So why did it take you so long to realise that it was important that planning permission was granted before you actually gave out grants?
  (Mr Hornsby) There is a balance to be struck here. It was the case in the early grant rounds that a number of bodies came to us, (I think perfectly legitimately), with a service they wanted to deliver, which would need a building or a refurbishment. In some cases they had not identified a building.

  24. That is even worse. They had not even identified the building and here you were handing them out thousands of pounds of money.
  (Mr Hornsby) We were not handing them out any money. The problem that resulted was that we gave approval in principle and said, "When you settle the building—you might have had your eye on that building, you might have been gazumped or it might have changed—when you have asked for outline planning, when it has been firmed up, you can then draw down." What the NAO has drawn attention to, (absolutely rightly), is the danger of that process in that it may take much longer or they may find a building that costs more. We decided with the experience we have had to tighten up all the prior planning permissions. As I explained to the Chairman, we now have a two-stage process, under which we will get firm planning done beforehand. But we were not paying grant out in certain cases where they had not got a building or had not got planning permission. We were approving, in principle, an application.

  25. So you were approving in principle? No money was paid out at all?
  (Mr Hornsby) No, indeed not.

  26. In one of the case studies, I cannot remember where I read, but I am sure that grant was paid out before planning permission had been given. Perhaps I read that wrongly. The NAO did a very small sample of cases, so are you sure that in all the projects that, in fact, money has not been paid out and grants given where planning permission has not been agreed by the local authority?
  (Mr Hornsby) The NAO report indicates that in 91 per cent of the cases, the terms and conditions of the grants had been complied with. You may have in mind a very fair criticism that the NAO identified eight cases where we had actually paid out grant without being given the full quotes from the architects or the contractors. Eight cases out of the 150 that were examined. I am glad to say that in six of those cases, in the event they fully provided the service and we got the documentation later.

  27. What about the global amount? We have heard about a small number of cases that the National Audit Office looked at, but we are talking about how many grants they have given out. Was it 28,000?
  (Mr Hornsby) Indeed, 28,000.

  28. How can you be sure that out of those 28,000 projects, money has not been handed out and schemes have not gone ahead as planned?
  (Mr Hornsby) The NAO rightly assessed a sample. Our procedures are absolutely clear and they have been tightened since the first three grant rounds which this report looks at: that we do not pay money out unless we have certificated bills. Unless we have full details from the applicant. That will include the fact that they have got building regs. approval and they have planning permission.

  29. So you are very confident that no money has been paid out in any project that has not gone ahead?
  (Mr Hornsby) I am as confident, as one can reliably be, that we have not paid out money to a project that has not gone ahead because, as I say, the locks in the system are such that without a receipt of estimates and bills we would not release the money.

  30. Keeping to the same theme, basically what we are discussing here is page 23, paragraph 2.13. It is the second bullet point. It appears that according to the report, that the Board paid out grant when some of the schemes (certainly in two of the schemes) for capital projects did not even have the necessary buildings for the project to take place. How do you answer that? Again, it seems very, very sort of slipshod, does it not?

  (Mr Hornsby) What particular paragraph are you drawing my attention to?

  31. It is the second bullet point on page 24. It says: "The availability of suitable premises. We have identified eight projects where it was clear that, at the time of the grant application, the grant recipient had not identified suitable premises." Here you were agreeing to the projects.
  (Mr Hornsby) Indeed. I made the same distinction earlier. If you take two of the projects, for example, at the time people applied to us for grants they were in discussion with the health authority or the local authority about particular premises. In the event those discussions fell through and something else was provided. The criticism here is that the grant recipient had not, at the time of the application, absolutely firmed up on the premises. That does not mean we paid out any grant. We would have been given, as I said, approval in principle. When they had completed their discussions; when they had identified suitable premises; we would then be in a position to release the grant.

  32. I got the impression from the report, if that is the case, you actually said yourself in case 14, I wrote it down. Now, I do not know exactly what you said, but basically what you were saying was that case 14 would not have come to light if it had not been for the NAO. How can you be sure that there are not a number of case 14s around?
  (Mr Hornsby) Case 14 came to our attention as a result of concerns of the local authority, and we made a joint visit with the NAO. That was the issue, as you will recall, where they had been using part of the grant—

  33. I am not really bothered about case 14 specifically. All I am saying here is that case 14 came to light on the basis of the local authority and the NAO asking you to go in and visit. How can you be sure that there are not case 14s all over the country, which have not come to light because the NAO have not investigated them?
  (Mr Hornsby) As I have said, we insist on proper documentation before the grant is drawn down. So I would consider it extraordinarily unlikely that we would have a case where somebody did not have a building or premises and we were paying grant out. The control system is absolutely clear on that point. In the case of the Dingley Adventure Playground, there was no doubt that they were a playground and were providing a service, although the staff recruitment had been less than ideal. It was only when we looked at the accounts, following a concern that the local authority had, that we realised the money had not been put to the best purpose.

  34. Just challenging you on the point about the principle, you see, if you continue to read page 24, at the second bullet point it says: "From April 2000 the Charities Board will be changing their procedures so that lottery awards will be made `in principle' and on the basis of suitable premises being obtained, and will require grants officers to confirm this before finalising the grant." That seems to indicate to me that if you have changed your procedures to offer in principle now, you must have been offering the money in the first place.
  (Mr Hornsby) I absolutely take your point. The distinction is this: in the early days we made formal offers of grants to people. Before they could take it up, we obviously then required firmer evidence. That system had precisely the difficulties that you very fairly have drawn attention to. The new two-stage system is that we do not formally offer a grant as we had. That is, we offer approval in principle. The formal grant offer is only made when they have done a feasibility study or they have identified the premises. But in both cases our control systems were such that grant drawn down, actual grant payment, could not take place unless we had had the necessary details. The balance is shifted under our new procedures to make certain that there is much more adequate preplanning.

  35. Let us just go on to the final bullet point. Again, this is why I accused your body, at the very beginning, of being slipshod. It says here that the National Audit Office: "identified six projects where the grant recipient had under-estimated the cost of the work to be carried out..." It seems to me that you were awarding grants and money to projects that they had not effectively costed themselves. So you had a situation where you were awarding grants and, frankly, the project had not even been costed properly. So how could you award a grant if they did not even know how much the thing was going to cost in the first place?
  (Mr Hornsby) In one of the case studies what clearly happened is that we awarded grants for ten houses and the application had been properly costed. In the intervening period the building regulations governing the requirements of houses and multiple occupancy changed significantly. It was then the case that the amount of grants we had awarded was insufficient. In that case we agreed with the applicant that they would scale it down and they only provided six. So you can under-estimate the cost, not because the thing has not been properly planned, but because some other change takes place. As I said in the particular case study the NAO looked at, it was a change in the building regulations.

  36. Can you see my worry? Here we have the NAO looking at only 150 projects and there are 28,000 projects. The scale must be quite enormous on the number of mistakes that have been made.
  (Mr Hornsby) The piece of comfort I can offer you—

  37. Particularly as it is taxpayers' money.
  (Mr Hornsby) Oh, yes.

  38. I suppose it is not taxpayers' money, not really.
  (Mr Hornsby) It is treated with as much rigour—as, indeed, this occasion amply demonstrates—as if it were. The comfort I can give the Committee, which I hope may be helpful, is that in none of these cases did we increase the grant. In terms of the use of taxpayers' money, in circumstances where there was cost escalation in building, what we said there was that it is unfortunate. You will either have to draw your horns in, you will have to go for a slightly smaller project, or you will have to raise money from outside to bridge the gap. So it is not (because this was a particular concern that I know this Committee had with the Arts Council) that people come back to you and say, "The building is going to cost more, will you give us some more money." In each of these cases we said the grant offer is capped. You will either have to scale down the scheme or find the money from elsewhere.

  39. You have given very comprehensive answers, I will give you that. Just to continue. There are these problems. They are clear problems in terms of capital projects, yet it took you a long time before you commissioned somebody to come in and look at these projects. In 1998 you commissioned Bovis to come in. Why did it take so long to get some sort of consultancy in on this?
  (Mr Hornsby) We had made some changes already on the planning permission point to which you referred. It became obvious by January 1998, which was only two years or so in and our experience of live projects had been limited, that this was a real area of difficulty; so I do not think there were undue delays in bringing in Bovis. We have made tightening-up changes which seemed to us relevant. It became obvious that this was more complex.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 16 February 2001