1 Oversight and investigation
1.The Department for Work and Pensions (the Department)
spends around £900 million annually on programmes to support
and assist unemployed people find and sustain work through its
contracts with a range of companies and some charities.[2]
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.
2. Following our hearing on the Work Programme in
February 2012, allegations of potential fraud and poor service
from employment programme participants and whistleblowers were
received by the Committee and passed to the Department for investigation.
The material sent to the Committee included a number of emails
and a report written by the internal auditors of A4e, one of the
Department's major contractors, which set out a significant number
of potential cases of fraud and malpractice. Against a background
of public concern, and following a further allegation of attempted
fraud concerning A4e's staff, the Department initiated an investigation
of the adequacy of controls at A4e.[3]
3. There have been 126 reported cases of potential
fraud investigated by the Department over the six years from April
2006 to March 2012 where there was evidence of potentially serious,
or criminal, matter in the allegation made.[4]
As the Work Programme is new, it is inevitable that the New Deal
welfare to work programmes, which ran from 1998-2012, accounted
for 82 % of reported fraud cases.[5]
However, many of the employment providers who worked on previous
welfare to work programmes, and against whom some allegations
have been made, are now contractors in the new Work Programme.
4. Many of the further allegations of fraud and poor
practice that were sent to the Committee following the Committee's
evidence session on the Work Programme, including those set out
in a document prepared by A4e's internal audit, relate to the
period of the New Deal when controls were weaker.[6]
Under the New Deal the definition of an event that triggered payment
to a provider was that an individual was placed in a job that
might last 13 weeks. This was open to abuse because it was difficult
to verify whether a reasonable judgement had been made that a
job might last that long.[7]
In addition, the Department told us that the risk of fraud had
been increased because there had been a lack of segregation of
duties at providers between the person who helped someone into
work and the person initiating the claim for payment.[8]
5. The Committee was concerned that, although the
weaknesses in controls were well known to it, the Department had
not known about many of the allegations of fraud and improper
practice that have since come to light including those sent to
the Committee. We questioned the rigour of the Department's response
to the allegations it had received, since the Department had decided
that most of the allegations we had forwarded did not contain
sufficient information for the Department to undertake an investigation.
The Department appeared to reach this conclusion before checking
whether the Committee had any further information that would help.[9]
In addition, the Department could not confirm whether it pursues
allegations relating to employers of clients that have gone into
liquidation, even though relevant information may be held by the
administrator or receiver.[10]
The Department told us that it was now investigating all the allegations
it had received.[11]
6. A large number
of allegations of fraud and improper practice were referred to
in a report prepared by A4e's internal audit. The report was discussed
by the Work and Pensions Select Committee in 2009. But the Department
did not have a copy of this report because it did not, as a matter
of course, ask providers such as A4e to provide copies of internal
audit reports to its 'provider assurance team'[12]
The provider assurance team is specifically tasked with providing
assurance on contractors' systems and processes.
7. The members of the Department's provider assurance
team are not professionally qualified in audit or accountancy
and there is a need to improve the team's capability to provide
an adequate and effective monitoring of contractors.[13]
The team does not undertake any unannounced or short notice visits
to providers to limit providers' scope to prepare for inspections.[14]
The Department accepted that there was scope for reconsidering
their various control mechanisms.[15]
The Department told us that it is planning to check providers'
internal audit plans.[16]
The Department maintained that announced visits to its contractors
were more appropriate to fraud investigations than inspections,
but agreed to carry out unannounced visits to contractors in future.[17]
8. In response to an allegation of fraud received
in February 2012 relating to its Mandatory Work Activity programme
contract with A4e, the Department launched an investigation of
the controls at A4e designed to prevent and detect fraud. The
investigation examined controls over each of the four programmes
run by the Department that A4e was working on, including Mandatory
Work Activity. The investigation concluded that it had not uncovered
any further cases of fraud but it found that the controls operated
by A4e on the Mandatory Work Activity contract were insufficient.
The Department subsequently terminated that contract in May 2012.[18]
9. The scope of the Department's investigation of
A4e was limited to assessing the controls relating specifically
to four programmes and was not intended to assess wider corporate
controls. For example, it did not assess the impact on controls
of ownership and governance arrangements, the operation of an
audit committee and internal audit, or factors that might impact
on the way A4e employees worked and their ethical behaviour. The
review did not attempt to assess, other than looking at the four
contracts and the fraud allegation, whether the company was 'fit
and proper' to do business with and did not attempt to define
the criteria that would determine whether it was fit and proper.[19]
The Department had previously said that it would remove A4e's
contracts if it found there to be 'systemic fraud' but it had
not defined what 'systemic fraud' means in practice.[20]
2 C&AG's Report para 2 Back
3
C&AG's Report para 3.18-3.20 Back
4
C&AG's Report para 7 Back
5
Q 87 Back
6
C&AG's Report para 3.25 Back
7
Q 55; C&AG's Report para 1.8, Back
8
Q 155 Back
9
Qq 1-11 Back
10
Qq 20-26 Back
11
Q 17 Back
12
Q 106 Back
13
Q 136 Back
14
Q 93 Back
15
Q 134 Back
16
Q 107 Back
17
Q 94 Back
18
Ev 25 Back
19
Ev 25 Back
20
Q 40 Back
| 
