Select Committee on Public Accounts Minutes of Evidence

Examination of witnesses (Questions 40-59)



  40. Do you not think it would have been helpful to come to the Committee with such information about individuals who have cost the Housing Association so much public funds?
  (Dr Perry) I find it difficult to comment on that because of the fact that the police did conduct very extensive investigations and to an extent we are guided by the conclusions that they were able to draw.

  41. I think you might want to revise how you inform people and alert them to the fact that although there may not have been, for one reason or another, criminal prosecution, if they had been struck off for some sort of professional negligence or misconduct it might be worth alerting people to that fact. I have one final question and that concerns the people who we are all going to be concerned about, and that is the impact of this on the tenants of the Association. The Association has lost some £1.5 million, what effect has this had on tenants? Has it affected rents? Has it affected service?
  (Mr Clark) I think the figure which is clearly lost to the Association is the over-valuation figure and of that we recovered about a quarter of a million. The rest has been lost to the Association and clearly there is an impact on the operating surplus available to us and the impacts on the tenants are undoubtedly a loss of service to a degree that cannot be evaded. Fortunately the scale of it relative to the size of the operation of the organisation was not too great but certainly there is work that we could have done that we are now not able to do.

  42. It is being paid for by tenants now, is it?
  (Mr Clark) Whichever way round you want to look at it. Part of it is paid for by tenants, yes.


  43. C&AG, do you want to come in and comment on the middle part of the evidence because it did not strike me as consistent with what I knew?
  (Sir John Bourn) Thank you, Chairman, I would like to pick this up and say how much I support the line that you and Mr Griffiths have taken. As far as we were concerned, when we sought access it was almost as if we were the criminals in spite of everyone knowing that we had carried out work in rather similar cases—Inland Revenue, Ministry of Defence, Armed Services, Treasury, National Health Service—so it was known that we did work to investigate frauds and bring to Parliament our reports on them. It is a well known activity of the National Audit Office to advise the Public Accounts Committee. In spite of everybody knowing that this was part of our mainstream work, we could not help but feel that all these reasons that were given as to why we should not have access really smacked of trying to find reasons to keep us out. They were subtle, intelligent, bureaucratic reasons. The truth of the matter is this was something that should be investigated and brought to the attention of Parliament, so why not support the external auditor who is doing that in order to serve Parliament? That was what we could not understand. Of course, finally it was agreed that we should have access but we had to wait six months to get it. What for? For no good reason at all. Thank you, Chairman.

Mr Steinberg

  44. I now realise why the Housing Corporation do not want the National Audit Office to have automatic access to your dealings. It is quite clear to me from reading this report that if they were regularly looking at your performance, they would find a lot of incompetence. If you look at this particular report it is riddled with incompetence from the Housing Corporation and Focus. I was amused at the Corporation's assessment of its own rules because, surprise, surprise, everything was done correctly except for a couple of small weaknesses according to the report. Would you not say that is quite typical of self-regulation?
  (Dr Perry) With respect, I would not agree with that.

  45. I did not expect you would.
  (Dr Perry) The summary in the report actually is a summary of a much wider range of very self-critical studies which were carried out by the Corporation. For example, there were then a series of pilot studies of bringing together different forms of regulation which led to nine recommendations which have been implemented and have led to the lead regulation concept. One of the criticisms which is made, and rightly made, in the report is that, if you like, again, all the boxes were ticked but they were looking for the wrong thing while they were being ticked.

  46. That is not an excuse as far as I am concerned. Even when you say there were weaknesses, lo and behold it was not the Corporation to blame, was it? According to your report it was human error.
  (Dr Perry) Human error can never be—

  47. It was not the organisation to blame, was it?
  (Dr Perry) On that I would say there is no such thing as human error by itself, it is always backed up and caused by the systems within which people have to operate.

  48. Your procedures are lax and unaccountable, are they not?
  (Dr Perry) I would not agree with that, Mr Steinberg, because the Housing Corporation is very transparent to the NAO as a regulated body of the NAO. They are free to look at us whenever they want but the key issue is whether they would have access to the housing associations, about 2,000 of them.

  49. Whether they have got access to you or to the housing associations, the fact of the matter is that you kept them out for six months, your organisation kept them out for six months.
  (Dr Perry) The particular question was about access to the papers of Focus.

  50. It is irrelevant what the question was or what they wanted, the fact of the matter is they should have the right to say to you that they are coming in tomorrow.
  (Dr Perry) They can come into the Housing Corporation tomorrow.

  51. And have the right to go into the housing associations too. You should not be able to block it because you have got something to hide if you block it.
  (Dr Perry) That is genuinely a matter on which the Housing Corporation as a non-departmental public body has to take instructions. The Sharman Review at the moment is explicitly looking at that. There is a case study before the Sharman Review which actually summarises all sides of the argument and I think does so very fairly. I think Lord Sharman and his colleagues should be able to take a view on that.

  52. On page 25, 3.10, it says that the procedures would not have picked up the corruption anyway. Will your procedures now pick up any corruption? Have you changed the system?
  (Dr Perry) It is difficult for a regulator's procedures to pick up specific instances of corruption in a regulated body because that is the responsibility of the body itself. What the regulatory system seeks to do, and what we are trying to do ever more zealously at the moment, is to narrow the scope to ensure that the systems which an RSL has in place will of themselves minimise the opportunity, but the regulator himself is not the person to pick up individual instances of criminal behaviour in several thousand RSLs.

  53. It is not difficult to pick up corruption when you are told that corruption is taking place and you take no notice of it.
  (Dr Perry) As it turned out those particular allegations turned out to be incorrect. The actual collusive corruption itself was very difficult to trace and almost emerged by accident rather than by investigation.

  54. I will leave you, Dr Perry, and speak to Mr Clark for a moment. Mr Clark, if you look at figure one on page seven, the two guilty men who eventually ended up in prison were the Deputy Director and the Development Manager. If you look at the line of command there was the Development Director ahead of them, the Operations Director ahead of him or her, and then there was the Chief Executive at the head of the management team and yet nobody picked this corruption up. Why was that? Were they too busy looking for growth?
  (Mr Clark) I think it is made clear in the report that there were senior management failings when the warnings arose. One of the problems was that people senior to John Hartshorn and Keith Hinson were not anxious to follow up the lines that were developed.

  55. We know the Chief Executive is not there now. Are the Operations Director and the Development Director there?
  (Mr Clark) No.

  56. Were they sacked?
  (Mr Clark) The Operations Director resigned and the Development Director also resigned.

  57. Did they get a nice big fat cheque to go off with?
  (Mr Clark) The Operations Director received a payment before this matter came to light. The Development Director did not.

  58. How much did he get, the Operations Director?
  (Mr Clark) I cannot tell you off the top of my head.

  59. I would be very interested to find out. Will you let us know?
  (Mr Clark) Yes, certainly[2]. Can I stress that it was before these events.

2   Note: See Appendix 2, page 19 (PAC 2000-2001/03). Back

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