Select Committee on Education and Skills Minutes of Evidence

Examination of Witnesses (Questions 40 - 58)



  40. When you were setting the scheme up, how far did you look to advice and good practice from departments like the Department of Social Security and the Treasury who of course deal with systematic fraud on an everyday basis and they have already got checks and balances in to try and avoid this? Did you look at their experience to see whether you could learn from that before you started this scheme?
  (Mr Grover) I cannot recall specific discussions about that issue with other departments. Of course in designing the scheme we drew on some of our own experience, and Mr Holmes' question implies there is some experience on which to draw. We looked at that and arrived at the decision we did, balancing the different objectives of the scheme, but no, I cannot recall any specific discussions with other departments.
  (Mr Lauener) We also had advice from KPMG who were advising us throughout the development phase of the national framework, so there was a lot of advice and indeed a lot of ongoing consultation at that point.


  41. They are not the people who were advising Enron, are they?
  (Mr Lauener) No, they are not.

Paul Holmes

  42. Have you got any observations yet on how far the balance in fraud allegations is down to training providers, et cetera, around the country and how far it is down to any lapse of security with Capita and their central computer?
  (Mr Lauener) Well, I think what is becoming clear is that the cause of the more recent problems is the unauthorised access by unscrupulous providers to the system, those providers already having access in respect of any of their own learners that they had that they were working with and providers then going beyond that to get access using their user ID into other parts of the system. We do not yet have a full story and, as I said earlier, we are absolutely determined to get a complete account of exactly how patterns of access happened. We are following systematically all the complaints back to providers and then looking at patterns of access and we are working with Capita and Cap Gemini Ernst & Young really to build that complete story of what happened in the couple of months, October and November in particular, but in the period before that as well.

Mr Shaw

  43. In your answer to my colleague Mr Holmes in respect of fraud, you used your own experience. I wonder, it is perhaps a shame that you did not have a look at the 1998 Audit Commission Report called Ghost in the Machine. They said at the time in relation to IT fraud and abuse, and this was undertaken by the Audit Commission, "Computer crime is on the increase. While key risk areas remain, new dangers are emerging." How true that was. I wonder perhaps there could be further reading as well. This is published by the Treasury and available to all departments and other reading is The Fraud Report, Inside Fraud, Fighting Fraud, Accounting Irregularities and Finance Fraud, and the list goes on. If you had only relied on your own experiences, I think this Committee is extremely concerned that there was all this money coming from the Treasury and yet the reports that are available right across all government departments were not looked at and clearly there were new dangers emerging and the new dangers were these ILAs.
  (Mr Grover) If I may, Chairman, when I said "our own experience", it does of course include material that we can get from reports of that sort which you have just referred to. Clearly we were alert to issues around IT security. That was very much built into the contract discussions with Capita. We took expert external advice on those issues and of course, as Peter Lauener has said, we are still investigating what the cause of unauthorised access to numbers was. We do not know whether that was an IT problem or some other sort of problem and that is precisely why we need to work to look at that, but the sorts of issues that are raised are certainly ones that we had been aware of and we would have looked at in the contracting process.

  44. The Chairman asked you why could you not just have fixed the issue with the fraud in order that the system could carry on. Is it not the case that basically the fraud was out of control and you had no choice? This was a virus which had spread really and you had no antidote for it and the system had to stop. I wonder, now that you have uncovered the fraud and the inadequate systems that were put in place, whether there has also been some soul-searching in the Department and in fact you are not hitting the targets in terms of people and particular groups of society who have not accessed learning in the past and the majority is going to people who have been to college before and have professional qualifications and the reason why is because it is an unwieldy arrangement where there are not proper checks and balances as to who is a good provider, who is not a good provider and there is no local knowledge, and that clearly if we had followed the TEC route, then perhaps we would not be in this mess in the first place?
  (Mr Lauener) On your first point, our concern was certainly, as I explained before, that just taking some providers out or suspending them where we had already had allegations might have been a short-term fix, but we did not have sufficient assurance that that would have sorted the problem there and then.

  45. You had not antidote to solve this particular virus?
  (Mr Lauener) We think the antidote was a larger-scale review than could have been managed with a short-term suspension, some sticking plaster and some new arrangements on top of what was already there. We needed to break through this with a fundamental analysis of what went wrong and since November 23 —that is nearly two months—although, I have to say, we have been working extremely hard to get the whole story. We do not yet have the whole story, but we have got much more of the story than we had on November 23, though we have got a bit to go still. On your second point, I can tell you that we are absolutely determined to learn the lessons. Ministers have also made it quite clear that there will be a successor programme and the reason we are determined to learn the lessons is because of some of the very encouraging things, not only the total number of learners, but, for example, the 16 per cent of those who had no previous qualifications. If you apply that to over a million learners, that is very encouraging. There are some very good things that we need to build into the new programme and make sure are not lost.

  46. In the document Delivering the Results: A Strategy for 2006, one of the milestones for 2002 is to expand Individual Learning Accounts. Have Ministers advised you that this document is going to be revised or does it remain policy for the Department?
  (Mr Lauener) Well, the Strategic Framework covers the whole range of the Department's programmes. In relation to Individual Learning Accounts, Ministers have made it quite clear that they do expect, and have a very firm intention, to introduce a new programme once we have sorted the problems and once we are clear on the way ahead, so there will be a new ILA programme

  47. Expansion?
  (Mr Lauener) Like all of these things, it depends on the base that you take.

  Mr Shaw: Individual Learning Accounts, so I take that as a case to expand.


  48. That means more than there are now.
  (Mr Lauener) You have made your point eloquently. There were clearly more Individual Learning Accounts in 2001 than there were in 2000. We do not know what the capacity of a new programme might be until the new programme is designed.

  49. When do you think that new programme will be introduced?
  (Mr Lauener) It is too early to say. Until we have got this full account of what happened and until we have got to the bottom of all the problems that there have been, I do not think we can put a date on that.

  50. For this Committee, that is the least satisfactory answer that you have given. There are a lot of people out there going out of employment and going out of business. This is not Enron, I have to say. I made a joke about Enron, but this is not Enron. This is a relatively modest scheme and surely you can sort the problems and get the show back on the road relatively quickly if we are interested in expanding individual learning. Surely the imperative is with you to get the show back on the road. Why is there absolutely no indication from what you have said, except deep pessimism of even further inquiries.
  (Mr Lauener) There is absolutely a determination to get the show back on the road, as you put it, to develop and launch a successful programme. But I think the Committee will be highly likely to criticise the Department in the future if we said that the scheme would be introduced at a particular point and were then unable to do so because we had not, when we said that, understood the full nature of the problems that we were grappling with on the first programme. So we do feel we need to get absolutely to the bottom of those problems and we are doing that absolutely as quickly as we can and then we will develop the new programme in the light of that.

Jeff Ennis

  51. Over the course of last summer we saw a massive expansion, which you have already indicated, of ILAs. In May we had one million and by July it was 1½ million and then by October it had even increased to 2½million. A learning provider wrote to the Department mid-June and someone actually indicated that a learning provider was creating fraud in mid-June and that learning provider was suspended at the end of June, and yet we did not actually suspend the provision for new learning providers until the end of September. Why? Why did it take over three months actually to suspend the registration of new providers?
  (Mr Grover) What we were trying to do was to put in place the mechanisms that I have described in answer to Mr Simmonds in an attempt, I think, to do what one or two Members of the Committee have suggested we should have done, which was to try and keep the show on the road and mend things as we went along. That was what we tried to do, to mend things as the problems began to emerge and, as Peter Lauener has explained, it became apparent that the fix needed to be more fundamental and more radical, which was why we had to suspend the programme. We believed from June onwards that we could put in place some additional measures that would help us tackle that, but it became apparent, with the sort of run of figures that you are talking about and, more importantly I think, with a worrying rise in the level of complaints, that we were not going to be able to do it while keeping the scheme going, so that is why there was that period between June and the decision in October to suspend the scheme.

  52. So the fact that it occurred over the summer recess or that we had a new team of Ministers in did not come into the equation to delay the suspension of the new providers?
  (Mr Grover) No.

  53. According to the statistics, has there been any sort of regional variation in the level of fraud in particular regions? The only reason I am asking is that I notice that in the statistics which have been provided the West Midlands have by far and away the highest number of ILA holders.
  (Mr Lauener) I was going to make the same point, that the number of account holders in the West Midlands as a proportion of the population is certainly significantly higher and all the other regions seem about the same level and in the West Midlands it is certainly higher. We are not in a position to judge whether the incidence of fraud and problems is higher in the West Midlands or not, but there is certainly a number of cases that we are discussing with the West Midlands police and there are probably more cases in the West Midlands than in other parts of the country.

Mr Baron

  54. Can I just return to this issue of why has it taken so long now to find out what went wrong and to put new structures in place. You have said that it was a small number of providers exploiting the system and the structures were not in place, so you then had to close the whole system down which has caused a lot of suffering for a lot of people. Knowing all of this, why has it now taken the best part of two months up to this point actually to put a new system in place so that we can move this initiative forward?
  (Mr Lauener) I think the answer to that is that it is a small number in relation to the 8,900 providers registered, but there is still a sufficient number where we have concerns and a lot of complaints that we are following through. If you look at the figures that John Healey gave for the payment run for the week ending 21 November, for that week we paid 1,400 providers and the total value of their claims was £3.5 million. There were 136 providers in that week's run that we did not pay, but the total value of the claims that we did not pay while we are investigating them is £11.3 million.

  55. If you do not mind the suggestion, you are not quite answering the question in the sense that it is not the number of providers, and you have said relatively that they are small, but it is the fact that you did not have specific structures in place to allow the providers to get away with exploiting the system. Why did you not put new structures in place to make sure this does not happen again and to move this initiative forward?
  (Mr Lauener) I think the issue there for us or at least one of the issues, as we have talked about already, is what quality assurance arrangements should apply and there are different models that we could develop. The Scottish model is one that we have already looked at. I think there are other aspects of this, such as whether we would, under the new arrangement, want to have even then an open-door policy subject to some new quality assurance arrangements or whether actually we would want to select providers in some way. So I think we still need to understand exactly what has happened and understand more about, for example, those 136 providers, we would want to look at the kind of complaints we have had and the way that relates to the pattern of database use by those providers and then ask ourselves the question, "Would new quality assurance arrangements be the answer or do we need to refocus the scheme, invite providers and then run a tendering exercise for providers?" Then there are all sorts of other policy issues which need to be addressed in a new programme as well.

Mr Turner

  56. You were presented with a Manifesto commitment and you have focused on delivering that commitment. I assume that you asked for guidance and had said on occasion, "But, Minister . . .", or "But, Professor Barber, the previous Government decided not to do it this way because . . .". Did you ask those sort of questions? Did you ask what the deadline was for the implementation of that Manifesto commitment? Did you ask what the formal outcome targets were?
  (Mr Grover) Clearly we had a Manifesto commitment and it was made clear that the intention was to have one million account holders by 2002. The policy background, as I have described it in previous answers, was also clearly an intention to get new learners back into learning. It is worth saying, I think, that one of the things that has always been clear about this policy is that in a sense there are two elements to Individual Learning Accounts: there is the universal offer of an Individual Learning Account; and then there is also a targeted element to it. Getting the balance between those two of course is one of the things that we tried to get right this time and would want to address in producing a new policy, but those were of course the issues that we addressed in designing how to deliver against the Manifesto commitment.

  57. I am trying to establish, did you appraise the practicality of implementation and the value-for-money implications and look at minimising the deadweight cost or was the overriding objective to get one million people into the scheme?
  (Mr Grover) We did of course look at the practicalities of implementation and we took a lot of advice on those and we did our best to work through them in the way we set up the framework and the way in which we let the contract. The policy objective was the policy objective that I have already summarised, to get one million account holders and to target those accounts on people returning to learning as well as making a universal offer. That was the commitment and of course we tried to design a system that enabled us to meet that commitment while at the same time delivering good value for public investment. That was the intention.


  58. Thank you, Mr Glover. Obviously the Committee was very keen to ask a lot of questions. We may have to have you back at the end of our deliberations with our other witnesses, but we are running late. Thank you very much for your attendance and for your care in answering our questions.
  (Mr Lauener) Thank you. We would be very happy to come back.

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