Examination of Witnesses (Questions 40
MONDAY 13 NOVEMBER 2000
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
(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
casesInland Revenue, Ministry of Defence, Armed Services,
Treasury, National Health Serviceso 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.
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
(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
(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
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
55. We know the Chief Executive is not there
now. Are the Operations Director and the Development Director
(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
(Mr Clark) The Operations Director received a payment
before this matter came to light. The Development Director did
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.
Can I stress that it was before these events.
2 Note: See Appendix 2, page 19 (PAC 2000-2001/03). Back