The Department for Work and Pensions (the Department) spends around £900 million annually on programmes to help unemployed people find and sustain work through its contracts with a range of companies and some charities. The design of effective controls to prevent and detect contractors committing fraud is key to ensuring these programmes deliver value to participants and employers while protecting the public purse.
Following our hearing on the Work Programme in February 2012, allegations of potential fraud and poor service from employment programme clients and whistleblowers were received by the Committee and passed to the Department for investigation. Against a background of public concern the Department has initiated an investigation of the adequacy of controls at A4e, one of its major contractors, and is investigating individual allegations. In the light of these events, the National Audit Office examined the controls the Department has in place to detect and deal with fraud and improper practices in employment programmes.
The Department's arrangements for overseeing and managing its contractors did not pick up vital evidence about potential frauds. For example, the Department failed to obtain internal audit reports produced by A4e in 2009 referring to a considerable number of cases of alleged fraud and malpractice across the country which are only now being investigated. The investigations of alleged fraud that the Department has carried out have not been sufficiently thorough. For example, the Department appears not to have pursued cases where employers have gone into administration and was not proactive in asking for additional information on the allegations of fraud supplied by the Committee before concluding that there was insufficient evidence to investigate further.
The Department has not defined what standards a company must meet to be a 'fit and proper' organisation with which the Department is willing to contract. The Department's recent assessment of A4e did not cover a number of the areas relevant to 'fit and proper' including: the company's ownership and governance arrangements; corporate controls such as the working of the company's audit committee and internal audit; and the culture of the company and the clear and transparent objectives for those employed on welfare to work programmes by the company. This issue is not confined to companies contracting with the Department for Work and Pensions but is an issue faced by all government departments, particularly where a company's main source of income is government contracts. We will consider this issue more generally in due course.
The Department's controls against financial fraud for the Work Programme, which include checks on each contractor's claims for payment, are a significant improvement on previous schemes, although we are already beginning to hear allegations that some providers give a poor service. Furthermore, risks also remain in the Department's other programmes, such as Mandatory Work Activity, which do not have in place the same level of controls, and concerns also exist about other programmes for the unemployed such as training programmes funded by the Skills Funding Agency. While the Work Programme has stronger controls, its greater focus on payment for outcomes potentially creates other risks to value for money. The Department's 'black box' approach to contracting for the Work Programme allows providers to innovate but without sufficient auditing to demonstrate value for money and neither is there a mechanism in the contract for improving service standards over time. We have already received a number of allegations of poor practice and inadequate services provided to unemployed people looking for work. The department must put in place mechanisms to enable further investigations brought to light by whistleblowers.
The Department lacks sufficient information on the nature and number of complaints made directly to contractors about their performance to identify trends and learn lessons. Without better information on complaints the Department will be unable to assess fully the quality of service offered by its contractors. Where there are problems the Department has no obvious mechanism through which participants, contractors' employees or MPs can raise issues of concern relating to fraud and poor service with it.
The Department has still to publish full data on the programme. However, Ministers, the Press and the Trade Association for employment providers are putting partial data which cannot be verified into the public domain. Confidence in the programme depends on the publication of full data by the Department which can be verified.
While the department might find it tempting to define an acceptable level of fraud it is our view that this is the wrong approach. Rather than define what is an acceptable level of fraud in any public programme the department should take all reasonable and affordable steps to drive out fraud. We believe that our recommendations for improved oversight, new inspections, more transparency and more effective due diligence on companies who seek public contracts will all contribute to this. It is not enough to have the power to terminate a contract after the fact. Government has a responsibility to prevent fraud as well as to remedy it.
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Work and Pensions on its approach to preventing fraud in contracted employment programmes.