MONDAY 4 NOVEMBER 2002
Mr Edward Leigh, in the Chair
SIR JOHN BOURN KCB, Comptroller and Auditor General, further examined.
MR BRIAN GLICKSMAN, Treasury Officer of Accounts, HM Treasury, further examined.
REPORT BY THE COMPTROLLER AND AUDITOR GENERAL
INDIVIDUAL LEARNING ACCOUNTS: HC 1235
Examination of Witnesses
MR DAVID NORMINGTON CB, Permanent Secretary, and MR PETER LAUENER, Director, Learning Delivery and Standards Group, Department for Education and Skills; MR ROD ALDRIDGE OBE, Executive Chairman, and MR JOHN TIZARD, Director, Policy and Public Affairs, Capita Group plc, examined.
(Mr Normington) The purpose of the scheme was to encourage people of all sorts to learn. There were, as the report points out, groups within that who were target groups and actually the marketing was targeted on those. Those included young people without qualifications who are 19-30; people returning to the labour market; people in small firms and so on, but it was not just the aim to reach those groups. The aim was to encourage more people to come back into learning.
(Mr Normington) There was no monitoring early on --
(Mr Normington) There were some follow-up surveys done as the scheme progressed but there was no monitoring of people coming into the scheme.
(Mr Normington) Yes. I think that is a very fair criticism. It was the case that what had been piloted was not implemented. What we learned from the pilots was that it was very difficult to get people to take up the scheme in many circumstances, and also that there were serious problems in what I might call the savings account model involving the banks, and ultimately the financial institutions would not participate, and at that point at the end of 1999 there was a significant change of direction. It is a critical moment; there should have been a pause; it should have been replanned and was not.
(Mr Normington) We were up against a manifesto commitment.
(Mr Normington) There was a manifesto commitment to deliver a million accounts by 2002.
(Mr Normington) I am afraid we thought that we had a success story on our hands. That was patently not true, but that is what we thought. We thought we had found the way of stimulating a lot of interest in learning, so we were not concerned at that point that there were a lot of people coming into the scheme. My first briefing when I took up this job was, "We have a success story on our hands. For the first time we have managed to reach a lot of learners". I think there is a serious problem about management information which is reflected in the report, but I think if you had looked at the management information available in April, you would not have concluded from that that the scheme was running away. You would have concluded we had a success story.
(Mr Normington) I think it should have done. You will hear me say a lot today that this was a bad story - it is a story of inadequate monitoring and not picking up the signals. I think there ought to have been much better monitoring of those sorts of blips. People were very focused on getting to the million and believed we would have a lot of trouble getting to the million, and that coloured the whole risk assessment. A lot of the risks that were being managed were the risks that it would not happen, not the risks that it needed to be turned off. That was entirely wrong as it turned out.
(Mr Normington) Just to correct that, we now have 151 learning providers in the serious case; 99 are in front of the police; there have been 60 arrests; 11 charged; ten court appearances are awaiting; ten other people have been cautioned - why is it taking so long? It is taking so long because these are fraud cases and collecting the evidence and collecting the information, finding the evidence that there was fraud, is proving quite complicated and time-consuming. I am afraid it is going to go on for quite some time. Getting the evidence that convinces the police and the Crown Prosecution Service that there should be prosecutions is also taking time as well. I would like it to go faster.
(Mr Normington) I do not know. I really do not. I think that we could be dealing with some tens of million pounds of fraud here. I do not know how it breaks down into individual cases. I do not suppose it is beyond the bounds of possibility that £2 million could be there but I simply do not know. The way that this could happen, of course, is you have to have a very high volume of trainers multiplied by quite small amounts of money, so it takes a long time to get to £2 million.
(Mr Normington) In the last week they were running computer programmes for 24 hours trying to get into a lot of individual learning accounts so they could draw the money out of it.
(Mr Normington) A lot of that money was not spent. It is not the case that when you signed on to the scheme you immediately had to cash in the learning. There was always going to be a time lag. You took your account out and then you could decide over the next six months when to cash the learning, so the fact that there was a gap between signing on and actually cashing in the learning does not mean to say that that learning was not there and was not provided. There were 1.4 million people who did learning under the scheme.
(Mr Normington) We have learned all those lessons. Our project management was not good enough, our contract and supplier management was not good enough, our management information and getting that focused on the exceptions was not good enough, and we have learnt a lot about our relations with Capita. I say again to you, this is a very bad story, I am quite ashamed of it and I am quite ashamed of it on behalf of the Department. I am very sorry for it too, and we have to put it right.
(Mr Normington) Mr Aldridge will speak for himself. I think they probably should have shouted louder at us at various points. I think that the relationship was one of us being the contractor and they being the supplier. It was not a partnership: we did not sit together on a partnership project board and therefore we were not sharing a discussion about what was happening with the scheme. We were asking Capita to do things - they did things. They sent us management information. There was not enough sharing of that so in that sense I think we have learnt quite a lot of things about how you run these sorts of partnerships.
(Mr Aldridge) When you go into bids like this you do not know that you are the only bidder, and in fact the process that starts is generally with a long list and comes down to a few that were bidding. We chose to bid for this, and that is the other point to make. You select what you want to bid for. You do not necessarily go into it without making that choice. The reasons that we went into it were that we had the infrastructure that could meet a lot of the requirements of the scheme; we had good working relationships with the Department; we have a very good track record of implementing contracts and projects in a very speedy way. For example, we implemented throughout the country the theory driving test which we set up in six months, 150 outlets around the country, 1000 people recruited, an IT system designed, and it all went well. We set up for the Department of Works and Pensions the winter fuel payments which involved 2.7 million people --
(Mr Aldridge) The contract, the discussions that then evolved - we were not aware, if I may say, that we were the only bidder. What we were aware of was the risk --
(Mr Aldridge) The way the contract was negotiated, and it is not uncommon with any contract, you look at what the risk and rewards are, you take risks where you can reasonably expect to control the things around you that are going to trigger those risks; where you cannot, then you say we are not prepared to take that risk, and that was the sense of the conversations that went on in the contract. We did not set out believing that everything was going to be a risk with the Department. That is not the way we -
(Mr Aldridge) The NAO report concludes quite a number of things about the whole scheme. What I would say is that I wanted to be involved with this because quite passionately I believe in education. I believe in everything that was trying to be achieved - developing a training, provide an environment, and also encouraging life-long learning - so I am enormously disappointed and saddened by the outcome of this. I feel that, as we will gather from the conversations we will have, there were things that could have been done and things that have to be learned from this.
(Mr Aldridge) Of course, a lot of that information was there - it was how it was interpreted and used, and a lot of that is around the relationship that we have with the Department, particularly with the project board.
Chairman: We will leave it now and ask Mr Howarth to question further. Thank you very much.
(Mr Normington) Yes. There were two cases in December 2000 and one of them was a case of very aggressive marketing of the scheme and the other was about IT courses and whether they qualified for the 80 per cent discount or not. Both those providers were investigated and that they were suspended from the scheme for a time. I have been back over this: I am not sure they told us enough about what was going to happen and what subsequently happened. They showed that there were two providers who were trying to make money out of the scheme. We looked at that and we did not think that was replicated across the rest of the scheme at that point.
(Mr Normington) I do not know about a pattern but clearly one of the providers was doing very aggressive marketing of the scheme which was something that became a feature of the scheme later on, the following year. I think we should have spotted that earlier. I think the other one, as I recall, was a specific issue about the nature of the IT courses that qualified for the discount, and that was sorted.
(Mr Normington) Not necessarily. I think aggressive marketing - and there are some examples of this in the report - is pursuing people at hospital fetes, and I think that is one of the examples given there, and saying things like, "If you give us your name and address and sign up here we will make a contribution to the hospital". I think that is not for me marketing learning; that is aggressive marketing of a scheme which is going to make somebody money, so I think you can draw distinctions. It is basically, later on, the people who were standing in Victoria Street trying to persuade people to sign up, and what that was about was trying to collect learners' individual addresses rather than trying to get them interested in training.
(Mr Normington) So they could make claims, yes. I do not want to get hooked on the word "aggressive". People were being stopped in the street, being offered mobile phones or CD ROMs, and some of it was very persistent.
(Mr Normington) Where we can we are doing major follow-ups of learners. This is why it has taken such time. We are doing major mailshots to find out whether they had the learning or not and what kind of learning. We are also visiting all the providers who are under suspicion and although it is 151 serious ones, there are another some 400, or just over 400, who are also being followed up. All those people are being followed up in one way or another and their records are being looked at and checked against the individuals' names on Capita's system, so there is a huge follow-up going on and we will not rest until we have completed that.
(Mr Normington) I think before we know the full scale of the fraud, ie the end of the process, it will be two years. We are though ourselves clearing some of these cases - on 1 October we have just written to 150 providers where we think there are questions to be answered and where we are seeking recovery of the money. We think that it is short of serious fraud but where money has been paid to them improperly or inappropriately and we are seeking recovery of that, so there are different levels of action going on.
(Mr Normington) Too late, is the answer. It should have happened much earlier --
(Mr Normington) Well, everything you can say about this scheme was too late, I am afraid. There is a chart in the report which shows that we should have spotted much earlier that there were these 20 or so big providers and we did not do that until well into the summer, and we should have spotted that at least six months earlier. Now that information was available: it was being provided: but a lot of information was being provided and that was not picked up. It is an obvious thing to do - to look at the big providers and to check them. That should have been done and was not.
(Mr Normington) It just was not done because the way in which the project was being run meant that it was not in the risk assessment that that was likely to be a risk to the scheme.
(Mr Normington) Well, it was not that somebody forgot to do it. It was a failure of the whole processing system, yes.
(Mr Normington) I think that there should have been much greater attention to the kind of management information you needed to test whether this scheme was meeting its objectives or not, and also what risks were arising in the scheme. It is clear to me that, if there are a number of providers who are very big claimers of money, you ought to be focusing in on those. One of the problems is that the risk assessment for too long assumed that the risk of fraud was not high, and therefore it followed from that decision that not enough action was put in place to test whether fraud was happening. It was very late - well, relatively late - the scheme only ran for just over a year but relatively late in the process before the risk of fraud was moved up the agenda. That was a mistake and it was made right at the beginning.
(Mr Normington) Obviously there is a lot of training and learning being done around the system and it is important that those companies are not popping up in other places in the system. What we have been doing is cross-checking with the Learning & Skills Council, who has been doing some checking with the providers that have signed up with it, and there is also some cross-checking backwards to the kind of people who did business with the Further Education Funding Council and so on, so we are trying to check in all the places in our programmes where these providers might be providing training.
(Mr Normington) That is a good question. I hope it is both but I do not know precisely. It should be both because obviously these people - and this is one of the issues - trade under different names; they change their names and change the names of the companies.
(Mr Lauener) Coming in on that point, we are starting with the organisations and the company names that we on have on our records and cross-checking, as Mr Normington says, with the Learning Skills Council database, with the UFI learning direct datebase, and with other providers within the group of organisations connected with their own department. I have also convened a meeting with other government departments back in August as a prelude to doing the same with other government departments. We are just getting our data in a form where I can sensibly take that out. The next stage is the one Mr Normington has just referred to which is going below the level of the company to the directors that are involved. We have not been able to do that yet but we plan to.
(Mr Normington) I think that is the right analysis, in fact. I have gone over this in my mind and talked to the people who were involved in developing the policy. I did that again this morning because there were some decisions which, with hindsight, seem inexplicable and I take responsibility for it but I was not there dealing with this at the time decisions were taken --
(Mr Normington) I do know that but I am just explaining that I was not there, therefore I cannot tell you precisely what happened. I am reporting to you what I think happened. What I think happened was there was a belief that individuals would not come into the scheme and that there needed to be a very light-touch, non bureaucratic system to get them into the scheme. There was also a specific policy aim of bringing a lot more trainers or learning providers into the scheme, and there was a very early assumption that that would mean that there would be a very limited set of checks and rules and procedures, so right at the beginning a series of decisions was taken not to have checks. The decision not to have checks on learning providers --
(Mr Normington) I do not think all of those providers were fraudulent, nor all of those individual claims. We have no evidence of that. But, yes, the original decision was the wrong decision. It meant that a lot of incentives were in the system to encourage learning providers to go out there and to find the trainers and to register them on the system. That was a deliberate decision of policy designed to get a lot more people into the scheme than we had ever done on previous schemes, and it does flow from a belief that this was going to be a market driven -
(Mr Normington) Well, some. It was driven by a belief that this was going to be a market driven scheme and that the individual learners would judge whether that training was up to satisfactory standards or not, and that they would not take up the training unless they wanted it and needed it, and that was going to be the check on the scheme.
(Mr Normington) That was the assumption made at the time; I think it was the wrong one. I cannot defend that as an assumption. A set of assumptions were made at the beginning that there should not be any checks on providers or on the individual beyond absolutely rudimentary checks, and there should be very few checks on the learning that was undertaken. Those three decisions meant it was made as a very unregulated scheme and, with hindsight, it led to these problems.
(Mr Normington) There was a decision taken that this was going to be a scheme which, for the first time, did reach people who would not otherwise have learnt, and to do that you needed a much wider range of trainers and providers in the system than we had had up to now, and that was what led to there being no checks on providers beyond some very basic ones, nor on individuals. Yes, with hindsight, that was the wrong decision.
(Mr Normington) I am afraid I do not know that.
(Mr Normington) No, because we have had to do it by survey. I do not recognise the 58 per cent figure, but there are two issues here --
(Mr Normington) There are two issues. One is the number of people who signed up and how many then converted and did their learning, and the figures are 2.6 million signed up and 1.4 million did the learning. That does not mean to say that the other 1.2 million were not prepared and ready to do their learning because there was a time lag and that was the design of the scheme between signing up and doing your training or learning.
(Mr Normington) No, we do not. May I ask my colleague to fill in?
(Mr Lauener) That is precisely the area we are now exploring by contacting large numbers of learners as a basis for then pursuing any cases where providers have defrauded the public purse through the programme. We have contacted some 50,000 learners, 50,000 people registered on a database, to ask whether they received learning.
(Mr Lauener) Well, it is 50,000 out of those for whom learning has been drawn down.
(Mr Lauener) No, we cannot.
(Mr Lauener) We think we will have from the sample of 50,000 an adequate basis on a statistical sample for not just making a global estimate but for making an estimate for the individual providers we have concerns about. The number of learners we have got has been chosen on that basis and we are in the process now of writing to 158 providers on 1 October saying, "On the basis of the information we have, we think that a proportion of the claims you have made" - a proportion in these cases because these are not the most serious cases - "are not valid", and we are making a proposition about how we can settle the business between the departments and that individual provider.
(Mr Normington) On the whole we are withholding money, not paying it.
(Mr Lauener) We are withholding in most of these cases until we have reached a settlement. In the more serious cases we referred them to the police, and in those cases we are not contacting the providers directly because we do not want to contaminate the evidence trail with the police but we will in due course and we will pursue, if we cannot reach a settlement, outstanding cases in the courts.
(Mr Normington) Possibly, but that is not where we start. What we are trying to do is follow up actively everyone who has abused the system and we will not give up on that, but the scale of it means that it would be surprising if we caught everybody.
(Mr Normington) At the last count I had 70 staff working in this area and I have about 4,200 staff in the Department as a whole.
(Mr Normington) I think I am, yes, and somebody is also helping the West Midlands police from the Department to pursue the worse causes more rapidly than they would otherwise.
(Mr Normington) I think in the summer of 2001 when we began to realise there were serious problems, first it was a combination of the budget, the number of complaints which, as you can see from the report, started rising, and those complaints being about the nature of the marketing and so on - it was a combination of those things really. The thing that brought it to my attention was the budget overspend because I was really alarmed about that, but when we then looked at it alongside the other evidence we had we saw there were problems growing in the scheme.
(Mr Normington) No one has resigned. The senior management who were dealing with it are not working on this any more and two of them are working outside the Department.
(Mr Normington) The two senior --
(Mr Normington) He is working on - sorry - I --
(Mr Normington) Sorry - let me just say something. I am not prepared in front of this Committee to pillory my own staff. They did their best; it was obviously not good enough, and I will answer your question. The individual has been taken off all the line responsibilities he had, and a job is being - he is moving to a job outside the Department.
(Mr Normington) It is a real job, and I am not paying for it.
(Mr Normington) There is punishment short of dismissal. Sometimes people get dismissed for incompetence - that does happen. It has not happened in this case.
(Mr Normington) It is a pretty bad case. It is about as bad as I have come across, yes.
(Mr Normington) Yes, that is a much larger problem. The reason we stopped the scheme at the end of September when we temporarily suspended new providers and so on is we were much more concerned about that at that point. A lot of the story here is of the selling of training which amounted to almost nothing, either a CD ROM or access to a website or --
(Mr Normington) For which the provider drew down the money. A lot of what we call abuse here is that.
(Mr Normington) Is there any way of estimating how much money was wasted rather than defrauded?
(Mr Normington) I cannot - because I do not know --
(Mr Normington) I hold on to one fact which is a positive one which is that in our surveys, 91 per cent of the individuals said they had value out of the learning and actually had done learning that had benefited --
(Mr Normington) Well, that is true. People started complaining about that. I do not think that was satisfactory, really. There are a lot of complaints about that. There is a spectrum here from serious fraud through abuse and irregularities to minor problems, and that is going to amount to improper payments of tens of millions of pounds. About half it we think, a bit more, is at this end, the fraud end. The other half is various types of poor value.
(Mr Normington) I am not going to defend that list. Of course the way that --
(Mr Normington) This is the weakness of the scheme here. Let me just explain that one of the problems here is that learning was properly funded if it was vocational and for a vocational purpose. Some of the things in this list were for a vocational purpose. I am certainly not going to defend Summer Glastonbury. I thought I might defend Chronic Cats which is a very small one. That was for people who worked with vets in a veterinary practice and was about ailments of cats.
(Mr Normington) I am afraid I do not know that. I have got a list of what they were; I am not going to defend them. Some of this was inappropriate learning.
(Mr Normington) There were some warnings - I would not say they were as strong as you imply - but nevertheless there were people who raised this question and the answer is because it was a specific policy objective of this programme to bring lots of new people into the scheme from the private sector it was thought a lot of them would be very small; they would be niche providers of particular types of training; and it was thought that that group would be put off by a highly bureaucratic and intrusive system of provider checks. When the scheme opened up, there transferred from the TECs and from the Further Education Funding Council over 2,000 trainers who were properly registered and properly checked --
(Mr Normington) And they came into the scheme and were checked and so on, but it was a deliberate policy to go beyond that to try to stimulate this market in training. It was a wrong decision.
Mr Osborne: With the March 1999 budget which introduced the 80 per cent discount, it says in this report that no research at all was carried out on how it might work in practice. Does the Treasury normally sign a blank cheque when you come up with that idea?
Chairman: Who is that question to?
(Mr Glicksman) The decision in the budget was a decision in principle for the Department. The details would have been for the Department. This would have been a decision that was taken over a year before the scheme went live.
(Mr Glicksman) Well, the decision was in the budget but it was done in consultation with the Department.
(Mr Normington) Somewhere around the end of June/early July because at that point the complaints were going up and the budget overspend being projected looked as though it was going up - the whole demand for the scheme was going up - and at that point I was worried and people began to say to me "There is a problem with this scheme".
(Mr Normington) In retrospect that is so but we did take a lot of action from that point to try to stem the growth of the scheme. We suspended --
(Mr Normington) Well, the ending of the £150 incentive which happened at this time caused people to look for other ways for other parts of the scheme to start attacking, and that became apparent during August and September. They went for the 80 per cent discount bit of the scheme at that point particularly. We did suspend providers at that point and we did later on stop issuing blank forms, because one of the things that happened here was providers had blank forms and they could register lots of individuals --
(Mr Normington) Which we gave them. We stopped that; we made it a requirement that individuals should register directly - we did all those things and this line continued upwards so we stopped the scheme. Could we have done it earlier? I guess, yes, we could. We did it pretty fast but the way the scheme at that point was running out of control made it essential to close it.
(Mr Normington) We did have quite a debate at the time about whether we should do some things to encourage more bidders to stay in the programme and of course we also set up, and this was what best practice said we should at the time, a public sector comparator so we could test the cost effectiveness of the Capita bid. So we did consider that, but the decision was then taken that Capita were a competent company and we should go with it. They convinced us that they could run this system and they had a lot of experience with this type of system.
(Mr Normington) We were looking at whether Capita could deliver against the specification and at that point, or just before, we took on KPMG to be our professional advisers so we could test whether Capita could meet the specifications, so it was not just about price but also about the specification being set out.
(Mr Normington) Capita made some mistakes and it is certainly a fact that it was possible, once you were in this system, to get access to individuals' names and addresses, so no, not wholly satisfied.
(Mr Normington) Yes.
(Mr Normington) Yes, and I would always prefer to have more than one bidder because it leaves you with only one option. Either you go with the bidder or you stop the scheme.
(Mr Normington) Yes, we were, and that was the choice really because if we had decided not to go with Capita, I do not think we would have delivered the scheme on time. However, the reason for taking on professional advisers and making sure that we had very good professional advice and setting up the public sector comparator was to try to make sure that, if we signed a contract with Capita, we could be sure that they would deliver, and that is what we believed.
(Mr Normington) I am not sure whether that is true but I accept the original intention was not carried through. This was a straightforward contract and we take responsibility for this. It did not share the risk with Capita. That is true.
(Mr Normington) I am not precisely sure that is what then happened. What then happened was a much more straightforward contract for the supply of this system and service, and that is what we paid for. I am not sure that the original intention was ever seriously carried through into the way in which the contract was developed. I do not know. I do not think it was.
(Mr Normington) I do not know. You would have to ask.
(Mr Normington) I would have to go back and find out precisely what happened at the contracting point on this point.
(Mr Normington) I can.
(Mr Normington) It was normal practice at that time that you did not do that. It was a bit of theology about how you had to separate the purchaser from the supplier I think, but in this kind of partnership where effectively you are running this kind of scheme, that is the wrong decision. You would not do that now but that was quite normal in those days. In fact, it was not normal to have the contractor on the project board.
(Mr Normington) It did not exclude it; it did not explicitly carry it forward into the contract, I think. It did not set out to exclude it. We use the standard contract but we adapted it to this purpose to some extent, obviously.
(Mr Normington) There is always some fraud in this system but I do not think there was large scale fraud in the system at this point. If there had been, we would have been more alert --
(Mr Normington) Yes, there were some examples and examples of further education colleges at the time which are sort of referred to in the report. Nevertheless I do not think that this is a system where large scale fraud is normal and therefore, when we were setting up this programme, people did not expect large scale fraud to happen in this programme. It is obvious they did not because they did not set it up in this way.
(Mr Normington) We would normally have been very aware of fraud in TECs. I am not aware of that case.
(Mr Normington) Yes.
(Mr Normington) 2002.
(Mr Normington) Manifesto commitments, when the government is elected, become government department commitments.
(Mr Normington) Yes.
(Mr Normington) Yes. We had not ever run anything like this. This is a very different kind of programme because of the way it uses what became the Capita system to link the individual and the provider. We had not ever run anything like that and there was no way that the Department could provide that system itself once it had been decided to have this kind of very innovative scheme. We then spent, as the report says, a substantial amount of time trying to get an arrangement with the banks which would involve individuals setting up savings accounts
(Mr Normington) I know, but a lot of time was spent developing that model, then quite late on that model was dropped because the banks did not want to be involved, and we moved on to something else. That is when the point of timing and speed came into it. But, with all this advice, everybody involved in this was doing something for the first time so although we had lots of expertise we were dealing with something that had not been tried before.
(Mr Normington) Yes - you can see that in some cases it was not used properly and we did not take the advice, but in other cases it was used. We certainly did use the professional advice we had for setting up this project, but insofar as there were warnings about the risks, those warnings were not heeded.
(Mr Normington) First of all, the estimate that the scheme would exceed its million, which is what was said here, was not taken sufficient note of. It was not believed that that would be the case. Secondly, there was quite a lot of testing - indeed, there was a development of a model of the scheme involving the financial institutions which was then dropped, and then there was only partial testing of the system that followed.
(Mr Normington) I share that view, I did not either. However, the one thing I do not want you to take away from this is the belief that there were not a lot of people who did learning which they would not otherwise have done and which brought them value. There was a substantial number of people who did that. Everything else you say about the bad news in this report I agree with you about.
(Mr Normington) Now?
(Mr Normington) Yes, in a number of ways. We decided just over a week ago that we would not move immediately to a second scheme and we would terminate the present contract with Capita, so we are having a discussion about that with them but they have been helping us since the first scheme closed with the recovery of money, and with the pursuant fraud they have been putting resources of their own into that, so we have been working very closely with them on that. We have to, because they have a lot of the details.
(Mr Normington) Probably not --
(Mr Aldridge) I think to be fair, a lot of the work that we would have done is complete. I think from now on, in terms of the two year period, we are very happy to help but it would be something which would be done within the Department.
(Mr Normington) Because we have all the records and all the information.
(Mr Normington) We are terminating the contract with Capita.
(Mr Normington) It is going to cost us more than £55 million. I am sorry - I cannot work out the arithmetic for that. We are having a discussion about the termination of the contract, and we have not paid anything to Capita since last April and very little since a year ago, only limited amounts, so that will all have to be taken into account. My colleague here tells me it is likely to be quite a bit less than £55 million. I did not want to say that to you unless I was sure, but we have to have this discussion with Capita and we are having this discussion, and this is obviously a settlement that we will have to reach.
(Mr Normington) Well, I hope we will not pay the full cost of the contract. Whether that is a saving I think is an interesting question really but, yes, we will not pay the full amount of the contract.
(Mr Normington) No, the question which was asked and which I referred to was "Did your learning under this scheme meet or exceed your expectations?" and 91 per cent said it did. I am sorry, I misled you, it was not specifically a question about value for money, it was about did it meet your expectations.
(Mr Normington) They might have paid more than that. It was a whole range of costs.
(Mr Normington) Yes, £25 is not very much.
(Mr Normington) As the scheme developed the individual knew that they had the account with more money than that in, £150 or more, and they had to put £25 in in addition so they knew they had an account and they could draw down the money from that account.
(Mr Normington) There were 8,910 providers signed up with this scheme and we are pursuing somewhere around 600/700 providers which is quite a small proportion but they were often the ones who took a big amount of money out of the scheme. We know of 13 businesses which have gone out of business but we would not necessarily have total information about that because we did not contract them with ourselves. We know there were 13 firms which went out of business since we closed the scheme. They were often very, very small providers, one person businesses and so on.
(Mr Normington) There are only a certain number of ways, Mr Steinberg, I can say I am sorry.
(Mr Normington) We did not ignore the Public Accounts Committee, we did not ignore that report. We did not believe that the lessons from that report were relevant to this. I am sorry if that was wrong, it may well have been wrong because it was a quite different sort of scheme from the case where Halton was franchising learning. I am quite prepared to say that was wrong but we believed these were two different cases. We did look at the providers which had been in question in the Halton case and only one became a provider in the Individual Learning Accounts case.
(Mr Normington) We did take on some of the lessons. We did not take on enough of them. We did not take the advice of the Further Education Funding Council and others about the risk to the scheme. I am sorry, we did not do it.
(Mr Normington) I do not know why that specific thing was ignored.
(Mr Normington) All I can say to you is I am committed to making sure these lessons are learnt in the future. I have accepted that there were serious mistakes made in this scheme. I will make sure that we learn these lessons across the Department. I have set in place the arrangements to make sure that everybody who is engaged with supplier and contractor management is properly trained in that. I have set up a proper unit to support project management. I am doing risk assessment from the bottom to the top of the Department. I have learnt the lessons, that is all I can say.
(Mr Aldridge) It has been quite interesting listening to the conversation that has been going on because in a sense it is part of the issue. What we are talking about is not PFI but public/private partnerships and this whole area of how the public and private sector interacts is a very, very big point. It is not a point about the Department for Education and Skills, it is a bigger point.
(Mr Aldridge) I am not waffling.
(Mr Aldridge) We were managed at the contract level. We were not on the project board and we asked to be on the project board, and we asked on numerous occasions. The experience and power of what we have got is actually being controlled by somebody who, frankly, is not up where the policy is going to be decided. Systematically over a period, and we made a comment about that, and Mr Normington has accepted that, when different decisions were made, we were not a party to those decisions. We actually looked in on 16 different occasions.
(Mr Aldridge) Because you look at something, you asked that question, you have to think about what is happening over time. Over time you make those comments. What I have accepted I should have done is I should have escalated that to the Permanent Secretary or to a senior person within the Department. I should have escalated it to the minister also. I have to say to you it is not easy to get to the minister, you must really understand that in these public/private partnerships.
(Mr Aldridge) You can say you want to escalate something, and I feel mortified that I did not because I think this is a very good scheme and I hear what Mr Normington has said about it so I should have done that, I accept that. It is not an easy process and it is about having skills, also, and the experience of the people you are dealing with on the other side of this divide which has got to be increased and improved, and Mr Normington made the point about that. That is a big point and again it cannot be ignored in any of these debates that you are having because it comes back to the same thing every time.
(Mr Aldridge) I listened to the debate about risk. You take risk where you have an ability to be able to influence the decisions around it. Where you cannot influence those decisions commercially nobody is going to take a risk, you cannot possibly do that. You assess what your risk is. The greatest risk we have in this, and it is not something that has been touched on, is the reputation side of us. That is something you cannot always price in. You do not take risks where you do not feel that you have control. We had no control over the decisions that were going to be made. What we have said going forward is that we are not going to bid in those circumstances again.
(Mr Aldridge) We have in all about 300 contracts.
(Mr Aldridge) We have about ten contracts with government.
(Mr Aldridge) They are worth just short of a billion over the life of the contracts.
(Mr Normington) I do not know, I am afraid. I just cannot say that yet. We are pursuing it and we will seek to recover tens of millions of pounds. I do not know whether we will do that, partly because the big money is probably with the 150 providers who are in the serious category and 99 of those are with the police and we have to pursue the criminal case first.
Mr Steinberg: Thank you.
(Mr Normington) Because at the time the whole model of this was we were buying a service, the project board takes the decisions and it conveys them to Capita. That was the way in which it was normal to run these relationships two or three years ago. I think that is wrong, we have learnt that, but that was why we did it as far as I understand.
Chairman: Thank you.
(Mr Normington) I do not know. Possibly. It is a hypothetical question. There was a wish to get this programme up and running. I guess if there had not been that specific target date of 2002 it might have been possible to do it slower. There was a feeling that we had been spending three years at it and we had not made any progress.
(Mr Normington) With hindsight we should have spent more time testing the processes and the systems to destruction before it was introduced, so we should have introduced it on a slower timescale.
(Mr Normington) I am never happy to go ahead with one bidder because it reduces your choice, but when we decided to go ahead with Capita we believed that they could operate this contract and provide us with the service needed and accounting officers have to be confident about that whether there is one bidder or ten.
(Mr Normington) I think we probably would, yes, because we were satisfied that Capita could deliver it.
(Mr Normington) I believe it was the fatal flaw that there was not more checking of providers. I believe that was the absolutely fatal flaw in the whole thing. The design was that these were adults who would be putting some money of their own in and, therefore, just as adults purchase services of all sorts we ought to be putting the onus on those adults to make the choices.
(Mr Normington) I think that is fair comment although there were intermediaries we were trying to use in the scheme. The best things that happened in the scheme were some of the small scale pilots within the scheme where we were trying to use intermediaries like community groups, trades unions, to provide the kind of advice that those people needed. Where we ran those small scale pilots it was undoubtedly the case that where there were trusted intermediaries who could offer that advice (a) the training was better and (b) the individual got better advice about it. I think that tells us how we ought to be designing the scheme for the future.
(Mr Normington) Indeed, it was designed partly so that providers would do the marketing of the scheme.
(Mr Normington) Yes, both those things are true. It was believed that if we could bring new providers into the scheme they would reach individuals who would not normally be reached by the normal mechanisms.
(Mr Normington) That, as it turned out, was the case to some extent.
(Mr Normington) We have decided there is no way we are going to use this method in the future, it would be absolutely idiotic of us to do so.
(Mr Lauener) Could I just give an example of how being more selective upfront about the providers that are involved yielded dividends. With the community group projects, which were quite small scale, we found there that 40 per cent of the participants were from ethnic minority groups compared with five per cent nationally, 22 per cent of those that took part had no qualifications before they took the learning compared with 16 per cent of the national scheme. I think that does show that if you get it right upfront then you get better results.
(Mr Normington) I think that is fair comment unless there are intermediaries who are advising them. We know that in all training programmes where we are trying to reach people who are not interested in training, or have not traditionally trained, that you should have intermediaries in those programmes because people need good advice to find their way round the training. That was not the case sufficiently here.
(Mr Normington) Yes.
(Mr Normington) Yes.
(Mr Normington) Some people have said that, although we have not yet been pursued through the courts on that. We took legal advice again on the day that we stopped the scheme dead in its tracks. We believed that the public interest was so great on that occasion that we had no option but to close the scheme down.
(Mr Normington) We did not believe that because of the overriding public interest it was an illegal thing or an unlawful thing to do on that day. We believed it was absolutely essential to protect clients.
(Mr Normington) There was a debate about the notice period we had to give. It would have been unreasonable to have closed the scheme down on 24 October, which was when we announced our notice period. There was a debate about how long was reasonable notice and our advice was that on the basis of the information we had then six weeks was a reasonable period.
(Mr Normington) We have had a lot of consultations with legitimate providers since we closed the scheme about this. I cannot say how many people have been put off. A lot of the legitimate people in the system are further education colleges, well known training providers. It is very unlikely that they will be put off. They will be much more cautious about what a successor scheme is and we have not decided what that successor scheme should be.
(Mr Lauener) A lot of legitimate providers have said to us that they want tighter checks on the providers taking part because legitimate providers feel denigrated by the activities of those that we are pursuing now.
(Mr Normington) I might ask Mr Lauener, who has been doing a lot of the work on this, to give you the detail but basically this is a question of evidence. We have to collect the evidence from the individuals that fraud has taken place.
(Mr Normington) Maybe, do you want to try and explain?
(Mr Lauener) Let me talk about the way we are gathering evidence about the problems. We have to come at this from a number of sources. Firstly, our main indicator is the complaints we have had from members of the public and we have analysed these by provider so if a provider has had a lot of complaints we say there must be something to look at there. Secondly, when we closed the scheme down we wrote to everyone on the individual learning database. We had some returned mail "gone away" and as we followed that up it became clearer that there were some cases where there were fictitious names and fictitious addresses, quite a small number but again evidence of serious fraud. We followed up then the providers that we have had concerns about by contacting quite large volumes of learners directly on the phone or by mail and we have visited providers' premises and looked at the records that they have got. That process, not least with the large number of providers we have got, does take quite a long time.
(Mr Lauener) We need to assess the evidence we have got as to whether it is the kind of problem where we ought to pursue a recovery but not sufficiently serious to involve our special investigations unit or whether it is sufficiently serious and some of the frauds that we talked about earlier certainly are sufficiently serious that we need to discuss with the police whether there is enough evidence to pursue prosecution.
(Mr Normington) Can I just clarify this point about two years. I was asked a question I think about the scale of the fraud and I said we might not be fully clear about that for two years. It does not mean to say that there is not a conveyor belt of providers here, 99 of whom are with the police, another 60 are with our serious investigations unit who are potential police cases. There are another 158 who are being pursued now for recovery of money and there are 320 more who are being investigated and may move down that conveyor belt or may be cleared. It is not a static situation. All the time we are moving people down this conveyor belt. At the end of the day, this is why I answered the question about two years, if you are proceeding to prosecution that does take time. The police and the Crown Prosecution Service need to have that evidence and to be sure of it. Only then will we pursue those people who are being prosecuted for criminal offences for recovery.
Chairman: We will have to stop it there.
Mr Davidson: I wonder if I could continue this question of fraud. Are fraud cases being pursued with the same vigour as benefit fraud cases are being pursued?
(Mr Normington) I am not sure really.
(Sir John Bourn) All Government departments accept that they have a responsibility to pursue fraud cases. I think that where the difference is between, say, the present Department being examined by the Committee and other departments like Work and Pensions is that Work and Pensions have more work of this kind and they have more of a system for doing it. I think given the nature of the Department for Education and Skills' work, they have less experience of handling the matters because they do not have so many of them. I do not think that there is any difference in recognition of the responsibility to pursue fraudulent cases but I think there may be a difference in the outcome which has a lot to do with different levels of departmental experience.
(Mr Normington) You would not expect me wholly to agree with the Comptroller and Auditor General on this. We are pursuing this with great determination and vigour. It is true that we do not deal with fraud all the time in the way that the benefits system does. I happen to know quite a lot about the benefits system and when I was responsible for part of it we did have a large amount of special investigation work, and they were full time on that. We have had to put people on to this, of course.
(Mr Normington) If you run a scheme like this, it is possible to defraud the Department for Education and Skills.
(Mr Normington) I hope we will never run a scheme again like this.
(Mr Normington) There is one conviction. Do you know the conviction?
(Mr Lauener) I think there was a prison sentence for the conviction. I cannot quite recall the details.
(Mr Normington) Yes.
(Mr Normington) It is the case always that if there are universal schemes people who are better educated and better informed gain access to it more quickly.
(Mr Normington) I need to clarify this. It was a deliberate decision that the scheme would be universal and that was partly because we do not assume that just because people have got degrees they have continued their learning, particularly since one of the priorities in the scheme was IT skills. That was a major priority in the scheme. Actually there is a need in the population as a whole to stimulate people to learn IT skills.
(Mr Normington) We did not set out to exclude graduates, they were not the target group. It started out being a universal scheme to kick start people into learning, including graduates, but it had within it some targets who were not graduates.
(Mr Normington) People who had not done learning before or not recently or very low levels of skills and qualifications, those were the sorts of people, yes.
(Mr Normington) There clearly was fraud in the system so some of what you said is true. If you are going to take a decision to have very limited checks at the gateway to the scheme you have to think what the consequences of that are downstream and you need to have much better monitoring downstream. You have to assume there is going to be greater fraud and you have to pick it up in your monitoring. It was not necessarily the wrong decision, although I think it probably was, it might not have been to say a light touch at the beginning but you then have to put in checks further down the system and that was not done.
(Mr Normington) I am not sure we were trying to get competition in the system.
(Mr Lauener) We were trying to bring new providers in.
(Mr Normington) We were certainly looking to bring in a much wider range of trainers or providers than had ever been in there before so there was more choice for the individual. In that sense I suppose there was more competition. Competition does not quite get what we were trying to do. We wanted more choice for individuals, we wanted trainers who had not traditionally gone into the normal system under the TECs and so on.
(Mr Normington) There was some good learning within the scheme and we did bring in some small providers who would not otherwise have come into the scheme. Of those 8,900 the vast majority actually were good providers or new providers who had the potential to provide training which had not been provided before. I do not think in that sense it was a complete disaster, it is just that there was this group of providers who did try to abuse the scheme.
(Mr Normington) No. I am a bit cautious about resting on the defence about time. After all, a lot of time was spent following the 1997 election trying to find the solution. It was the time that was spent failing to find the solution that squeezed the time for the rest of the Parliament. There was this key moment when actually all the work that had been done on designing the scheme came to nought and the nature of the scheme changed. That happened at the end of 1999 and suddenly the timescale became very tight. We should not conclude that you need good, speedy timescales otherwise you never get anything introduced.
(Mr Normington) I am not sure that I know how to answer that one in truth. In the end we were speedy and it failed.
(Mr Normington) Whether it is slow or fast you need to implement it properly and we did not implement it properly. Some of what happened here was not about speed, it was about the way in which it was implemented. I cannot guarantee that if it had been implemented slower everything would have been right about it.
(Mr Normington) I and my senior colleagues are doing everything possible to make sure these lessons are learned. I have very big programmes in place to implement all the lessons from this programme, including training people properly, making sure that no-one manages contracts who is not trained, including the lessons about risk assessment are learned, about project management are learned. I will give you my assurance that we will learn those lessons. I guess there will be mistakes down the road but I hope there will never be anything on this scale.
(Mr Normington) I am not going to go anywhere unless somebody moves me.
Mr Davidson: Make some mistakes and you are safe.
(Mr Normington) It came from the Department's underspend which was quite substantial.
(Mr Normington) No, there were a number of reasons for that underspend.
(Mr Normington) It is not attributable to one place, there was a significant underspend in the Department's budget.
(Mr Normington) Three.
(Mr Normington) It depends where they are. It can cost anything from 15 million ----
(Mr Normington) I do not know the answer to that.
(Mr Normington) In terms of money that was----
(Mr Normington) For fraud and abuse it could be up to 60 million.
(Mr Normington) But that is the total amount of money that might have been improperly spent under this programme.
(Mr Normington) It might.
(Mr Normington) One of the problems with this is some of the people whose names were used and who were signed up for training either did not want it or did not need it. In a sense that was the nature of the fraud in many cases, that they were signed up but actually they did not want it. There are probably quite a lot fewer people who are disgruntled about this because they did not know that they were on the scheme in the first place.
(Mr Normington) He was the Chief Executive of the Benefits Agency.
(Mr Normington) I said that we could not run the system to link the provider and the individual together, we had not got the competence to do that, but we thought we had the competence to purchase the contractor who could do that.
Mr Williams: You see this brings us back to an old, old conundrum for this Committee and I happen to be on the losing side on it. I actually believe that when there are cases where the performance has been absolutely abysmal, and I think that is the only way to describe the performance of the Department here, that the people who were there at the time should be sitting where you are having to sit instead of you eating humble pie and also not being able to explain how certain decisions were arrived at that were not your fault because you were not there and you were not party to the discussions. I hope my colleagues will sign up to the group on this Committee that ---
Mr Field: Shall we vote now.
(Mr Normington) I think that is the approach they are adopting in the Welsh Assembly, is it not.
(Mr Normington) Yes.
(Mr Normington) This morning before I came here I had another conversation with those who were there when these decisions were taken and I asked these questions. With hindsight they were the wrong decisions. At the time they did not believe they were taking the wrong decisions.
(Mr Normington) That is why it is inexplicable.
(Mr Normington) Clearly there was a belief at the time that those individuals would be able to make those choices, just as you do as a purchaser in life.
(Mr Normington) Apart from my colleague I have three people behind me.
(Mr Normington) I think some have come for the spectator sport.
(Mr Normington) I just need to be clear about this. We had some discussions with Capita last spring about whether we would move on to a second Individual Learning Accounts scheme and we agreed in principle that we were going to do the work on that and we would work with Capita on that because they had all the knowledge and expertise which would be lost otherwise. More than a week ago ministers decided that they were going to pause because they wanted to take a wider look at the way in which we funded individual learning and they did not want to go ahead straight away with a second scheme. In those circumstances we have to have a discussion with Capita about our costs, their costs, their liabilities, our liabilities, that is what we are doing at the moment.
(Mr Aldridge) Yes, it was profitable.
(Mr Aldridge) Yes.
(Mr Aldridge) We always operate under an open book accounting arrangement so everybody would know what our profit level was. Equally we incurred penalties - service credit as it is called - for under performance.
(Mr Normington) There is a profit share arrangement in the scheme so that some of the profits come back to Government.
(Mr Aldridge) In the reduced costs.
(Mr Normington) Yes.
(Mr Aldridge) No, it is not like that at all. We have had a team of people working together on what could have been an ILA 2 for some time. The decision which ministers have made I think is entirely the right one. They want to review the whole aspect of adult learning, it is not only individual learning. It is quite right in those circumstances that the contract which we have for delivery of Individual Learning Accounts would cease.
(Mr Normington) I would be very surprised if the successor scheme looked anything like this, indeed I would be alarmed if it looked like this.
Mr Williams: I think we would all be alarmed.
(Sir John Bourn) Yes, I will do such a note, Chairman.
(Mr Normington) I cannot tell you offhand, no.
(Mr Normington) I do not think we do. Do we have an estimate?
(Mr Lauener) We could probably get one quite quickly from colleagues at the back.
(Mr Normington) I do not know that.
(Mr Normington) That was a decision taken in the Department.
(Mr Normington) Yes.
(Mr Normington) He was right.
(Mr Normington) I have looked back at this. It was specifically about the decision to impose a cap on the 80 per cent discount. It was a specific issue about that, it was not a generalised thing although clearly he was worried.
(Mr Normington) He was making a general point that people were abusing the lack of a cap on the 80 per cent and saying that therefore they were unscrupulous providers who were willing to make money out of this scheme, yes.
(Mr Normington) There should have been a decision to quality assure the providers, yes.
(Mr Normington) Yes.
(Mr Normington) Yes.
(Mr Normington) Because there was never a dispute between officials and ministers about the design and nature of this scheme, therefore there was never the need to seek a direction. It was not the case, I regret to say, that officials in my Department were saying to ministers "you should not do this" or "you should not do it this way", it did not happen like that. It was a perfectly amicable set of discussions.
(Mr Normington) Everybody agreed.
(Mr Normington) I could if I had seen that was the case. When I arrived in May 2001 I did have a briefing about it but no-one was briefing me that this was a problem.
(Mr Normington) Yes.
(Mr Normington) By the late summer, but that was why we stopped the scheme.
(Mr Normington) On 24 October.
(Mr Normington) First of all, the clear belief was that this was a successful scheme and we were prepared, therefore, to fund it above its budget because we believed it was reaching learners who had never had learning before. Secondly, under my leadership of the Department we took a series of steps from July onwards to try to stem the growth of the scheme which failed. Every time we took a step the scheme was attacked from another quarter. You could probably say that we should have closed it a few weeks earlier but I think that is with the benefit of hindsight. We took some decisive action, and certainly the NAO Report says that, that we closed the scheme promptly when we realised that we could not stop it any other way. That was what we did.
(Mr Normington) It may be but I do not think that stops us trying to get at those who we know were culpable and that is what we are trying to do.
(Mr Normington) The genuine ones have been paid for the training that they have done. We continue to pay ----
(Mr Normington) No, I am not saying that. Almost all the money that we owe has now been paid to what we believe are legitimate training providers. I cannot say that the money we are withholding is withheld with absolute certainty from the right people, but we have paid a substantial amount of money over the last few months to the legitimate training providers. About 95 per cent of the money we owed has now been paid.
(Mr Lauener) We are talking about 60 or 70 million, most of which we expect not to be legitimate claims.
(Mr Normington) Yes.
(Mr Normington) I do not know that that is the case. Not that I know of.
(Mr Normington) I do not believe that is so.
(Mr Normington) I think so far as there was a contract it was between the individual and the provider, I do not think it was with the Department. The offer was to the individual. The offer of the training was to the individual and the payment was to the provider for that individual's training. I am not a lawyer.
(Mr Normington) We have done our best to pay for the training that took place and we have said that we will not pay further than that. We have tried to meet all legitimate claims.
Mr Bacon: I have run out of time.
(Mr Normington) I do not recall reading it, no.
(Mr Normington) We have had some discussions about that and the Office of Government Commerce, which has been set up in recent years, has that at the forefront of its drive to improve contracting across government. I have described this story to my colleagues and we have had a general discussion about that and the action is with the Office of Government Commerce on whose board I sit.
(Mr Normington) That was not and that is one of the lessons we have learned and that is being done now.
(Mr Normington) I do not mind that at all. Often the National Audit Office does run alongside major projects and has lots of contacts with our own internal auditors. The books are open and they can come and look at anything. On the basis of this story I am happy to have anyone advising us and supporting us in trying to improve what we do.
(Mr Normington) That would be a possibility, yes. To some extent because of their resources I think they rely on our internal audit to do that. There are lots of contacts with our internal audit but I am open to those sorts of suggestions.
(Mr Normington) Yes.
(Mr Normington) That is a very fair point and that point is well taken. Of course it is after the event but that is true.
(Mr Normington) They run a number of contracts for the Department, the biggest I think is the teachers' pension scheme which they have run successfully for us for five years. It is just being re-tendered at the moment. We have evidence of working with Capita and it has been very successful.
(Mr Aldridge) I would like an opportunity to answer that.
(Mr Normington) We always take a check on the people we are about to do business with, particularly where it is a large scale contract like this. We had evidence of working with Capita which had been successful.
(Mr Normington) Yes.
Chairman: Mr Aldridge, do you want to come in?
Mr Field: Can I just bring the Comptroller in first?
Chairman: Yes. I just want to give Mr Aldridge the opportunity to answer.
(Sir John Bourn) We audit the teachers' pension scheme every year so there is a certificate provided by us on the way in which the finances are managed.
(Mr Aldridge) My comment, Mr Field, would be that we have been in business for 17 years. You do not stay in business for 17 years if you have a record that is in line with what you are suggesting. We have over 300 major contracts, 92 per cent retention rate of those contracts. We have 25,000 customers and, thankfully, those customers are very happy with the performance we have. In the contract you mentioned with Westminster you may like to know that the contract has been extended on two occasions. The performance of that contract is way ahead of what was achieved by the in-house team when it was transferred. It had problems when it transferred. You know a lot about housing benefits and you know what a difficult area housing benefits is. We have turned that contract into a very successful one. If you have a conversation with the chief executive of Westminster, as you suggest, I think Mr Rogers will support me in what I have just said about that.
(Mr Aldridge) I am enormously proud with Capita, which employs 18,500 people now, a company I started from scratch, over 10,000 of those people have transferred to us from the public sector. The whole company is enormously lucky to have the people we have got and has been a very successful company. When you made those remarks we wrote to you and asked if we could come and speak to you about what you said. It is not true that we strip people out. People who join us join us under TUPE and I can assure you that a lot of people who have joined us would not want to go back. They are developed, trained, we spend over two per cent of our budget on management development. Our record in employment is one per cent of those only in compulsory redundancy, seven per cent staff turnover, which is half that in the public sector, particularly in central government. This is a company that people like working with and, interestingly enough, that unions admire as well as customers. I am very proud of what we have achieved.
(Mr Aldridge) The loss in terms of ----
(Mr Aldridge) Under the terms of the contract and what we were billed, we have not lost money on the contract. We have loss of our reputation in terms of our track record. I am enormously proud of the work that we do with the Department. The work that was referred to on teachers' pensions is quite phenomenal, what has been achieved and the people who have transferred to us and the way the service is being offered. That is what has been affected by that. I have watched with interest some of the comments that have made about our track record. Our track record is second to none.
(Mr Aldridge) The responsibilities that we had in this project, which I have not really had much chance to talk about here, have been very clear in what we had responsibilities for, what we did, how we advised and the fact that we were not part of the overall strategy and the way the thing was developed was an error and a big one. Some of the things that happened around that scheme, therefore, had an effect on this and that is the reason why we are here today. You made a remark about the profit. We make 11 per cent profit margins. What we do for local authorities and central government probably saves them between 15, 20 and 30 per cent, so if you add the two together there is 40 per cent inefficiency. We helped save some of that money in terms of public sector spend and we invest. There is a whole combination of things that Capita does and it is not possible to make simple statements and ask simple questions in one area, you have got to look at the totality.
(Mr Normington) I will do that, yes.
(Mr Aldridge) The share price has performed in line with the market.
(Mr Aldridge) Better than the market actually.
Chairman: I think Mr Ian Davidson has a couple of questions.
(Mr Normington) I believe it was. We had lots of professional advice about it. It was a comparison with what it would cost to do this in the public sector and it was a properly constructed model. I believe it was fair. It was in the context of a set of decisions, which we have discussed at length today, which were the wrong decisions.
(Mr Normington) It depends what had been set up but I guess if it was wholly within the Department the chances are we would have had more direct feedback. I am not really proud of that because actually we could not have run it in the Department. We did not have the competence to set up that kind of system.
(Mr Aldridge) We made money because of the process and the contract that we have and that is not uncommon so there is nothing which is different here. Do I feel that we could have done more? I think we could have done more but I have to say that the critical point is that we were restricted in doing more. I think that has come out in the NAO report. I feel that is one of the lessons which has to come out of this, it has to come out of it for us and I think it has to come out of it for the whole area of public/private partnerships. If we could have done that more I think that on some of the things which have happened, some of the lessons, we could have had a contribution to it and I believe that the expertise that the company has got would have been better used. Again that came out from the NAO report.
(Mr Aldridge) No, I do not think that is a fair comment at all. As I said to you, I should have said more to the Permanent Secretary, and I should have got the minister to express our concerns. The concerns we had, we had them for some time. If you look at what was around in the whole of the process that we were a part of, the management information which was there had all the information to do a lot of the things. If you look at the comparisons between us and we ran Scotland and Ireland, and you look at some of the comparisons there, there were things which we put into the pot. I think we did not feel that some of those things were at the right level and that is a critical point. I think we should have shouted more about that. There were key things around blank forms and distance learners where we felt very uncomfortable and that would have been part of it.
(Mr Aldridge) Under the terms of the contract we have not because we would have had a five year contract and it would have been a very successful contract in terms of what we all would have wanted, which was the whole scheme to be successful. We have penalties and those penalties are under discussion. As we said, we have a profit share so any profits above a level which was agreed, and in open book, have been shared with the Department in terms of a reduced price of what has been provided.
(Mr Normington) There is a discussion going on about the termination of the contract in which there will be an issue about the contribution that Capita makes.
(Mr Aldridge) There is an issue around, of course, what is under our control and what is not under our control.
(Mr Normington) Perhaps you could leave us to try and negotiate this.
(Mr Normington) Yes.
(Mr Normington) Yes.
(Mr Lauener) The 273.4 was the whole programme spend ---
(Mr Normington) --- including 55 million.
(Mr Lauener) --- not including 55.
(Mr Lauener) No, 273.4 includes the amounts we have paid to Capita already.
(Mr Normington) 273 is the estimate. The current overspend is 74, we estimate the overspend will be more than that.
(Mr Normington) Sorry.
(Mr Normington) £273 million.
(Mr Normington) In total.
(Mr Normington) We have not completed our payments to Capita and our discussions with Capita. The overspend is about 74 million and we are estimating it will be about 93, 93.6, 94, something like that, and that makes an assumption about the payment to Capita.
(Mr Normington) That is about right, yes.
(Mr Normington) Yes, I am having to pay that from my budget.
(Mr Normington) Possibly.
(Mr Normington) Yes.
Mr Bacon: And also if you could list and name those providers who were getting more than a million pounds a week at any point because these are the ones where you would have had to be getting under the £200 scheme 5,000 students per week, which is the equivalent of a small university each week, and when those payments were happening, that would be quite interesting to know.
(Mr Normington) I am sure that somebody behind me will take it. The bit that I am not certain about is whether we can name the providers to you. I will do my best to provide you with the information you want.
(Mr Normington) Sorry, you can have it. I just need to indicate to you if those people are before the police, but you can have that information of course.
Chairman: It can come to us in confidence any way.
(Mr Normington) I will do my best.
(Mr Lauener) It is about £32 million.
(Mr Normington) No, we have no evidence whatsoever.
Chairman: That would have been a show stopper at the end of the meeting.
(Mr Normington) Yes, I am. Of course we have looked at it and there is no evidence whatsoever of that.
(Mr Normington) I am as confident as I can be, but in the end I do not know for sure.
Chairman: None came to me anyway.
(Mr Normington) Yes, in general terms.
Mr Bacon: It was quoted in the Education Select Committee. "Senior management still appears to lack a commitment to improving IT security and cracking down on abuse", that was February 1998 and it would still appear to be true. I concur with what everyone else said about the need for us to take even more seriously warnings to the public sector about IT fraud. It appears that the warnings which have been received have not been taken notice of.
(Mr Lauener) It was this chain of events that led to the decision on 23 November to close the scheme immediately. On 21 November, which was a Wednesday, we got evidence that account numbers were being circulated. We sent someone to interview the provider the next day on the Thursday, we got the evidence in the form of a disk which had live account numbers, we interrogated the database to establish that these account numbers were indeed live and in the course of the day we had discussions with Mr Normington, with ministers, discussions with the police and we decided that the evidence was so strong that we should close the scheme that day and I phoned Mr Aldridge at half past four and made arrangements for that to happen.
(Mr Aldridge) I think I would like to add to that if I could. It is an important point which has come out quite late here. I will ask my colleague to talk about the IT security side. There is no evidence that the system was being hacked into by any people outside of the closed community of learning providers and those who had signed up for Individual Learning Accounts, there is no evidence. There is no evidence, also, that anything occurred within the ILA centre and that is accepted within the NAO report.
(Mr Normington) What was happening was once you were in, in the last days people were loading up disks with names.
(Mr Aldridge) Mr Rendel, can I say, let us be quite clear, this was not easy to get into. It required, once you were in, to have collusion probably by three or four training providers to make it happen. There is evidence that in one of the providers it took 23 hours and it was apparent from the management information that was produced by the system this was the case. One of those providers actually was on the system for 1,332 times. He registered 8,568 courses which was an average of something like 1,223 courses a day, and his previous average was 54. It was very apparent this was not something where you could simply go in and do things in the way that has been suggested. I think that is very important.
(Mr Aldridge) Could I ask Mr Tizard to add to the point about IT security.
(Mr Tizard) If I try to anticipate what I think Mr Field was going to say. There is no evidence that any Capita employee has misused or inappropriately used data from the scheme. The events of the weekend of the 18/19 November are it would appear that Provider A ran an automated script to detect value of account holder numbers from within the system. He passed those then to Provider B, so there was collusion here between two providers at least, who tried to book courses for those account numbers to check whether or not there was still credit available on those accounts. Having established that there was, he cancelled then those particular bookings for those courses and passed that information to a third, and maybe more providers who then misused and abused the scheme. I think it is important to recognise that the IT system had integrity and was not breached by third parties but because of the business processes which had been implemented to develop and translate the policy into practice - and we have heard today some of the drivers for that, the low bureaucracy, easy access - it meant that there was a lack of integrity within the whole scheme rather than the IT system itself. I think it is important to recognise that. Indeed, we identified those problems continually throughout the whole period of executing and delivering the service and much of what we have heard today, matters on which we were in discussion, admittedly now at an inappropriate level with colleagues from the Department.
(Mr Lauener) It was all part of the same process. Once a provider was in the system the algorithm for creating Individual Learning Account numbers was being circulated and this was the particular thing that added credence to the story about the disk that we had in our hands and led us to conclude that although no-one was hacking into the system, the integrity of the system was obviously in some doubt and under attack from the providers that were authorised to use it. There was evidence of certainly one provider circulating the system and one of the providers had links with several other of the ----
(Mr Lauener) We know the names of the very small number of providers that were involved in using account numbers in this way.
(Mr Lauener) Our concern is being discussed with the police.
Chairman: I think you have got one more question from Mr Williams and then you are free to go.
(Mr Aldridge) I do not think I can answer that.
(Mr Normington) I am not sure that the Permanent Secretary was aware, no. I do not believe he was. I have not had that particular conversation with him but from looking back at the history of this I do not think that he was aware of that himself.
(Mr Normington) There are two issues here. In a properly run project you should have systems for elevating problems to senior people and that did not happen. I have forgotten what the second point was but that is the main point I was going to make.
(Mr Lauener) Our assessment of the risk of fraud was not escalated up the senior management line but we started off with an assessment that there was low probability and by October 2000 we had assessed that it was medium and it was not exactly a stroke of genius but by the summer of 2001 we thought it was a high risk. It was not that we just sat back and made no reassessment.
(Mr Normington) The other check that the Permanent Secretary would have as accounting officer was if his own internal audit alerted him to problems and they did not.
(Mr Normington) They did not.
(Mr Normington) Yes.
(Mr Normington) Yes. If they had spotted serious problems in the project I would have expected them to have reported directly to the accounting officer. I am not clear that they did not do that.
(Sir John Bourn) In the absence of being able to ask them it is difficult to go beyond the explanations given by the Permanent Secretary as to why the Department as a whole were not cognisant of the real risks that they were running in this matter. Having said that, of course, you do expect the internal audit to be able to stand slightly to one side of the Department even though they are part of the executive management. The point you make about my concern about it is well taken and I shall look into it.
(Mr Normington) I have had that conversation with them.
(Mr Normington) I have. All I can say is that everybody involved in this, and in a sense this goes right back to the beginning, everybody believed that this was an innovative scheme and they were going to take some risks and those risks were justified because of the objective of getting many more people into learning. The decision was taken therefore to have not a rule free scheme but nevertheless a scheme which had light touch rules and the internal audit function observed that decision and did not believe it was the wrong decision. With retrospect, as I have said, those were the wrong decisions but nobody in the system within believed that it was a wrong course.
(Mr Normington) No.
(Mr Normington) I think we have to hold responsible those who ran the scheme. The internal audit are there to provide independent assurance. They did not do it in this case in a way that would have said there was a problem. Generally I have a lot of confidence in my internal audit. I get quarterly reports. We discuss it. They flag things up to me normally. This one they seem to have missed.
(Mr Normington) Yes.
Mr Williams: I think you and Sir John had better have a good conversation at leisure next week. Thank you very much.
Chairman: Thank you, gentlemen, for coming before us this afternoon. My colleague, Gerry Steinberg, said by virtue of saying sorry repeatedly you have got away with murder. I do not think you have got away with murder, I think it has been a very useful session. I think you have been open with us about the shortcomings in the Department and you have given us assurances that lessons have been learnt. One of the lessons, of course, is that the accounting officer is ultimately responsible and has to be kept fully informed of what is going on and there must be a genuine partnership with a contractor. Obviously in this case it would have helped if Capita had been on the board. Mr Aldridge has told us that he is the quiet man of business but I cannot believe he has built up a business by being a quiet man but, still, leave that to one side. I am sure you have learnt some lessons from this as well. I hope that we will not see a situation again where civil servants feel that they are faced with a situation in which clearly pilot schemes are going wrong but they feel they have to deliver something, even on an inadequate scheme, and ignore advice to meet a timetable. Thank you very much for coming to see us this afternoon.