Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. You have just completed the national register?
  (Mr Hornsby) We shall complete the national asset register in the autumn of this year.

  101. Right.
  (Mr Hornsby) But when that support system is on stream it will be entered simultaneously in the regional case file and in the national register.

  102. You have not yet completed it but you will soon complete it?
  (Mr Hornsby) Yes.

  103. It can be five or six years they have held this asset before they will appear in any completed national register?
  (Mr Hornsby) Not entirely. As I explained earlier, during the time that the grant was live we would have had a series of visits to check on the capital asset anyhow. The period which we will need to visit to check that the asset is still producing community benefit will be the period post grant completion.

Mr Rendel

  104. Mr Young, first of all, a number of system changes have now been agreed as a result of the NAO Report, including things like approving grants in principle in the first instance where the purpose itself is not fully known, including things like the asset register which has just been mentioned. What system changes were made as a result of recommendations from your Department before the NAO came in?
  (Mr Young) To give a true picture can I stand back a bit? We have had, of course, two NAO Reports on Lottery distribution. There was one first on the Sports Council, which was on their initial capital projects and focused rather a lot on the assessment of bids. The second was on the Arts Council where the NAO looked at the 15 biggest capital projects under the Lottery. Now this one where we have looked at these mostly revenue grants. In each case the NAO Reports have thrown up important and interesting different suggestions and simultaneously, as I have said, we ourselves have been in the business of continuously improving the performance of the Lottery distributors. So over the last two or three years we have issued revised financial directions. We have laid down new requirements on grant variations, on monitoring, on need to get sufficient resources and skills. We are now entering into the evaluation phase, as Mr Hornsby has said. So it is right, as a result of our best practice discussions and the NAO Reports and other suggestions for improving the performance of the Lottery distributors, we bring them together regularly and either by guidance or by changes to directions or by discussion we try and cause improved action. That is the core position. I hope that helps answer the question.

  105. It does in a sense. I am interested, you talk about the other NAO Reports as well and the other grant giving bodies.
  (Mr Young) Yes.

  106. Are the changes which you have made to systems within this grant giving body purely due to changes that the NAO has suggested in these other reports or are they changes which you yourselves as a Department have come up with, quite separate from anything which may have been suggested by the NAO?
  (Mr Young) I think it is a bit of both. I do not want to give credit to anybody in particular for the changes we have made. I am trying to give the true picture, which is one of continuous improvement. As a matter of fact on the timing, this Report looks at grants made between October 1995 and January 1997. I appeared here to talk about the Sports Council in June 1998 and then a year later to talk about the Arts Council, so you cannot see a causational change from one report to the particular change. It is not like that. We do not wait for the NAO Report or wait for the Committee hearing, we try and improve things all the time. As each distributor makes a change, discusses it with colleagues and with us, then we try and make the change. We issue guidance notes. We have best practice seminars. That is the sort of thing which goes on.

  107. It seems to me and it seems to some of my colleagues, I think, that some of the changes which are being made as a result of this NAO Report are, with the benefit of hindsight possibly, fairly obvious changes to make. I wonder if you could give us any explanation as to why you have not spotted these potential changes yourselves in the Department without having to wait for the NAO Report?
  (Mr Young) Mr Hornsby will have to be specific on this particular point. I hope I am not giving the impression anybody was waiting for the NAO Report or, indeed, that these changes which have been made have been caused solely by the NAO Report. As I understand it, the Charities Board and all the other distributors have changed their practices as well and we have issued different guidance and policy directions ourselves. But, for example, we have heard about the increased number of grant officers, we have heard about the complete new grant management manual, we have heard about the estate procedures. The Report talks about the Charities Board reviewing these procedures for supplementary grants and grant conditions. None of this was awaiting the NAO Report, it was all as a result of the discussions that the Department has with the distributing bodies about how to improve performance.

  108. Mr Hornsby, can I turn to you. I do not quite understand the process here about capital assets. Can you tell me when a body is given a grant to buy a capital asset, it is presumably owned then by the organisation to which the grant is given?
  (Mr Hornsby) Indeed.

  109. Does the Charities Board have any rights over that at all?
  (Mr Hornsby) We did consider at an earlier stage whether we would be justified in taking a charge on that asset and we discussed this with our lawyers and with my finance colleagues. The view taken, given the scale and nature of our grants, was that the bureaucracy and, indeed, the cost of taking out separate free standing charges would outweigh the benefits. It is an option that we did consider.

  110. What controls are there for the length of time that the asset has to be maintained by their organisation and used for these purposes? Is that part of the standard terms and conditions?
  (Mr Hornsby) The requirement of the standard terms and conditions governs the period for which the grant is live and, in line with the statement of financial requirements, looks at an obligation on the organisation to inform us if, at any subsequent stage, they wish to dispose of the asset, in which case, we would look at the possibility of reclaiming the appropriate proportion.

  111. Is that forever and a day, or is there some time limit on how soon they can—
  (Mr Hornsby) That statement of financial requirements runs for 80 years. In my own view I think this is an excessive period. The idea that my grant officers are chasing up and down the country checking whether bits and bobs we funded 80 years ago are still true, seems to me excessive. We have raised the matter with the Department, who in turn have written to the Treasury, suggesting that 80 years may be a slightly over-long time period, and we are awaiting the result of further negotiations, which, as I understand it, Mr Young's department is having with the Treasury on this point.

  112. If disposal did take place and they reported to you that disposal was going to take place, how would the value that was clawed back be calculated?
  (Mr Hornsby) If I can give a concrete instance; if we had funded a village hall which was worth £1 million and we had given them a quarter of a million pounds for refurbishing and three years later it is taken over by a multiplex cinema who pay £5 million for it, we would argue that the proportion of our grant which represented the value of the building should be clawed back in proportion to the enhanced price that they were able to obtain commercially. In other words, if it goes to a multiplex cinema, whatever other jollity it brings to the populace, it does not bring the community benefits for which we had funded the village hall, so we would expect a contribution that was in line—

  113. You say "we would", that presumably means that such a case has not come about yet?
  (Mr Hornsby) No, we have not had cases. On the whole, the type of voluntary bodies that we fund and the type of capital assets we buy for them are not ones that they are likely to surrender. The only cases we have had are where voluntary bodies we have funded merge or change or go under, and in these cases we say, "We funded you for a minibus to help respite care for the elderly. You now tell us that your council of management is imploding. We ask that that minibus be transferred to the most closely natural analogous charity in the area which is providing a similar service." That way we preserve the benefit and we transfer the asset to another charity.

  114. You said, "We would expect to get back the proportion of the asset." What rights do you have over that?
  (Mr Hornsby) The standard terms and condition we issue indicate that the grant that goes towards capital assets should continue to be used for the benefit and the purposes for which the grant was made, and that in the event of a sale or transfer we should be notified so that we have the possibility of looking at appropriate recovery. As I say, we have not had a case yet, so we have not been able to test it.

  115. Having the right to be notified of something does not necessarily give you the right to recover the money.
  (Mr Hornsby) I absolutely take the point. The notification is a necessary trigger. We link with that the point you have made about recovery.

  116. What is there in your standard terms that gives you the right to recovery?
  (Mr Hornsby) What we say in the standard terms is that if the grant we have made is no longer used for the purposes for which we made it, then we would want it back, and the prior requirement, the trigger for that, is that they must notify us if it is sold.

  117. You use imprecise terms, you say the terms say, "we would want it back". In the indication you give now you say you would expect the proportion to come back to you as the proportion of the original grant. What right in law could you insist on that you would get back that money?
  (Mr Hornsby) My understanding, though I would want to check the legal detail of the terms and conditions, is as I have said; they could not sell without written permission, and in addition we would expect to recover the amount of the grant. We have not had a case that has been tested in the courts yet.

  118. You say, "They could not sell without written permission", so you have a sort of charge over it, then?
  (Mr Hornsby) To that extent that is true, yes. It is not a charge in the sense that it is entered on the land register, but it is an inhibition, and that is absolutely clear in the terms and conditions, they cannot sell without our written permission.

  Mr Williams: There is another division. I make this point before we leave: Mr Rendel is absolutely right, we have had numerous occasions, particularly in relation to PFI, where legalities have proved to be quite crucial in the level of compensation that the public sector has been able to obtain from private partners. It would be helpful if you could let us have a note on the legal basis for your presumption. We will adjourn again for the division[6].

(The Committee was suspended from 6.26pm to 6.32 pm for a Division in the House)

Mr Rendel

  119. What is there in the standard terms and conditions, which I assume are legally enforceable, about the provision of the self assessment reports?
  (Mr Hornsby) The terms and conditions specify that at the end of each year, if it is a two-year or three-year grant, we need an end-of-year report, and at the end of the completion of the grant, we need an end-of-grant report. That is part of the terms and conditions.

6   Note: See Evidence, Appendix 1, page 121 (PAC 1999-2000/185). Back

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