Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. I will come on to that, that is the next question. If you read the report, basically since 1991 there is a theme through the report that there has been a fiddle going on all the time from 1991, a very careful scam going on. Do you get the same impression?
  (Mr Clark) There was certainly a collusive arrangement occurring in the early years in the 1990s—it is difficult to be exact about the time—between these two employees and several other parties, there was a collusive fraud, and it certainly went on over a number of years, which is why the figure is so large as to the total value of it. It was not a single year occurrence. I think the years 1992-93 were the peak years when the large value purchases occurred.

  61. On page eight, paragraph 1.5, continuing the theme, I find it not amusing, I find it interesting. What was the Housing Association called, Hestia?
  (Mr Clark) Hestia.

  62. They had no records to hand over.
  (Mr Clark) Can I make it clear—

  63. Had they been destroyed?
  (Mr Clark) I joined the Association in 1994 and the Company Secretary and previous Chief Executive at Hestia had retired before I arrived. When these investigations began we sought out a vast range of documents. We did find some of the Hestia documents but we also could not locate some important ones, especially the Hestia seal register, we were not able to locate that after extensive searches. I have no knowledge as to where that is.

  64. Surprise, surprise. As a matter of interest, again, which employees of Hestia transferred to Focus?
  (Mr Clark) You mean all of them?

  65. Not all of them. I am interested to find out if there was a certain couple.
  (Mr Clark) John Hartshorn was an ex-employee of Hestia and Keith Hinson was an ex-employee of Copek, one of the other founding associations.

  66. So my assumption that there was jiggery-pokery going on since 1991 was not far off, it was probably before that but nobody picked it up.
  (Mr Clark) Certainly there was a fraud which lasted several years beginning some time after 1991. These two people were not working together before 1991 and I have no evidence before that time. We have no knowledge where those records are.

  67. Focus bought 80 per cent of its housing from dealers when, according to the report, there was a housing slump and properties were cheap and plentiful. Did this not ring some bells in anybody's head, dong, dong, dong?
  (Mr Clark) If you look at the report, I asked for an investigation into a particular property in August 1994. The report which came back to me indicated that there was no problem with this purchase. However, for the very reason you have stated, I issued a memo saying despite the findings of the report I wished purchases from dealers to cease immediately. That was in November 1994. That was for exactly the reason that I could not understand why we needed an intermediary when the market was very cool indeed.

  68. Why were dealers used? Did you find that out?
  (Mr Clark) I believe that using dealers to buy properties was a long-standing part of the property market, especially within Birmingham. I think it dated back quite a long time, so there was a custom and practice aspect to it. That was partly, I think, because of the nature of the market in the inner cities.

  69. In the report it tells us that an investigation was made but you could not establish why property dealers were actually used. Did anybody think of asking the people who had been working at the time?
  (Mr Clark) Most of the people working at the time left.

  70. Why were they not asked?
  (Mr Clark) The reason they said was that dealers were able to move in the market faster than they were, but that did not hold water because of the ready availability of other properties.

  71. I want to move on quickly to paragraph 1.7 on page nine. Mr Griffiths covered this but I was not satisfied with the answers you gave him. It tells us that one of the valuers in this scam went bankrupt and, therefore, was not pursued for compensation. It is very handy to go bankrupt. Mr Griffiths asked you why you had not taken criminal action against him and you said you had considered it but you did not do it, why did you not do it?
  (Mr Clark) Because we believed that we would not recover monies. It was a civil action.

  72. I am talking about criminal action.
  (Mr Clark) We passed all of the papers relating to the fraud to West Midlands Fraud Squad and they assessed every single person that was involved in this inquiry for potential criminal action.

  73. So this dealer was investigated by the police?
  (Mr Clark) The valuer. The police considered it. We passed all the papers to the police.

  74. Back to the Housing Corporation. You knew the situation that was going on at Focus yet you continued to fund it. There were so many warning lights between 1992 and 1995, why did you continue to fund them? Again, there is this dong, dong, dong.
  (Dr Perry) I think I said in my reply to the very first question which the Chairman asked that there had been a failure to step back and see the big picture. From the point of view of the development function, Focus was a high performing organisation, they were developing properties, they were housing people, their finances were in good shape and they were regarded as a very well performing organisation.

  75. The employees were helping themselves.
  (Dr Perry) Two of their employees were helping themselves, that is absolutely right. There was a regulatory visit in 1992 which picked up some procedural flaws which were reported to Focus at the time. Had they been acted upon then the scope for narrowing the box of opportunity would have been greater. Again, it is clear from the report that had the Corporation followed those through when it made a follow-up visit in September 1993 then, again, the scope would have been reduced. I am not seeking to evade the fact that there were some regulatory failings.

  76. I have not got a lot of time but I want to move on to Appendix 3, and the Chairman touched on it. This Committee investigated the Housing Corporation in 1994, if I remember right. When I read Appendix 3 and I read what the Public Accounts Committee recommended and then the Treasury Minute response to it, it seemed to me that the Housing Corporation had not taken a blind bit of notice, not one blind bit of notice. They had not actually taken into account any of the recommendations that this Committee made. If you look through every single one, every single recommendation, they have ignored every single recommendation.
  (Dr Perry) I think you will find that since 1994, since this Treasury Minute was published, there have been huge advances in the financial regulation of RSLs which culminated in 1998 in the concept of lead regulation. Clearly at the time when the Corporation's response via the Treasury Minute was being formulated there was something going on in Focus, there is no evading that, that really was happening, but the regulatory system did react with vigour to the PAC's recommendation and clearly the lessons that emerged from the investigations that were carried out after the Focus issue was brought to our attention have accelerated that process.

  Mr Steinberg: I am being told that my time is up. I will finish by saying that it took you two years to take any action when you were originally informed and it took you a year to take any action against one of the employees who you were told was corrupt and I think that is very incompetent.

  Chairman: I think we will move on. You referred to the Sharman Committee, the Sharman Committee is an advisory committee and it has no authority, indeed three Members of this Committee are members of it, it does not have any locus here. David Rendel.

Mr Rendel

  77. Can I follow up one or two of the answers you gave to Mr Griffiths a moment ago in particular. I think in relation to the question why did it take six months to give the NAO access to Focus, you gave three reasons: it was a surprise that they wanted it; that you needed to discuss it with the department; and that you were offering all the papers you had as well. Did those three amount to six months in all or did one of those have the effect of a full six months' delay? How did it work? Was it one after another, these reasons as to why you could not do it?
  (Dr Perry) Mr Rendel, there is a chronology of events and you will see that letters were sent by one party and then in a couple of weeks a reply came back disagreeing and another letter was sent and meetings were held and, I am afraid, Christmas and New Year intervened as well. I am not seeking to say it should not have happened more quickly. I am saying, on the Corporation's behalf, that it was almost a bolt out of the blue when the request came. A huge amount of information had already been made available to the NAO and I believe it was genuinely felt in the Corporation at the time that they would be able to assist the NAO with any other information they needed in the same way they had done previously by providing the papers.

  78. The question I asked was are these three things separate? Did you first of all argue the case "we have offered you all the papers" and then the NAO said "that is not enough"? Did you come back and say "it was a bit of a surprise" and that took another two months and finally when they said "it should not have been a surprise" you came back and said "we need to ask the department anyway" and that took another two months?
  (Dr Perry) I think the surprise and the offer to give papers were almost simultaneous but that was then succeeded by the view that the department needed to be consulted.

  79. How long did it take you to talk to the department?
  (Dr Perry) That took about a month from the time a letter was sent by my predecessor to the Accounting Officer at the department until the department recommended to us that access ought to be granted and then our conveying that to the NAO.

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