§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Douglas Hogg.]
§ 10 pm
§ Mr. Tim Smith (Beaconsfield)I am grateful for this opportunity to raise the subject of the Wardale inquiry into recent cases of fraud and corruption in the Property Services Agency.
The PSA was set up in 1972. It is responsible to the Secretary of State for the Environment and for the provision to other Government Departments of property management services, building construction and management and appropriate supplies. My hon. Friend the Under-Secretary of State for the Environment was kind enough to send me a copy of the PSA's annual report for 1982–83 recently. It shows the substantial scale of the PSA's operations.
In 1982–83, expenditure on major works totalled £455 million, on smaller new works it totalled £144 million and on maintenance it totalled £684 million. That represents a grand total of £1.277 billion. That total is estimated to rise to £1.493 billion this year and £1.625 billion next year. At 31 March this year the PSA employed 28,631 people. That represents a 26 per cent. drop as compared with 31 March 1979.
In the foreword to the annual report, my right hon. Friend the Secretary of State for the Environment comments:
Of course in a major organisation of this size there are problems, not least when the Government asks that the rising volume of work should be handled by reduced numbers of staff.It is worth quoting the PSA advisory board's review of the year. That advisory board is an independent review body.It says:
The Advisory board believes that the PSA generally fulfils its many tasks in a satisfactory manner and that it is staffed by competent people who take pride in their work. The Board has seen much to be encouraged about in the Agency. However, there is scope for improvement in some areas such as financial control, management methods and career planning.That is the context into which we must put the Wardale inquiry report. On 29 April 1982, my right hon. Friend the Secretary of State for Defence, who was then the Secretary of State for the Environment, announced that he had commissioned Sir Geoffrey Wardale and Mr. Anthony Herron, a senior partner of Touche Ross, chartered accountants, to carry out a review with the following terms of reference:
To investigate the circumstances of recent cases of fraud and corruption in PSA and to recommend what changes in procedures or organisation are desirable in the light of your findings.The Secretary of State emphasised that, in his opinion, the vast majority of PSA staff carried out their duties honestly and conscientiously and that there were no questions about their integrity. I am sure that is correct.As well as being a former second permanent secretary at the Department of the Environment, Sir Geoffrey is a member of the PSA advisory board. Therefore, I do not think that it can be said that he could have it in for the Civil Service in general or for the PSA in particular. That is why I think that his report makes alarming reading.
Tha alarming aspect is not so much the fraud as the attitude of management towards it. The report, in paragraph 4.2.1 says:
PSA has as its object the construction, maintenance and furnishing of buildings required by Government departments who are its clients. It is understandable that satisfying the 739 demands of those clients is treated as a high priority and we are informed that political pressures may reinforce this. On the extent of the success of PSA in satisfying its clients we were not, in our enquiries, directly concerned. It appeared, however, that other management problems, such as effective staffing and financial control as we understand it, took a lower priority, and did not seem to command the attention they deserved. We were concerned to discover that there was sometimes a reluctance to acknowledge that problems existed in these areas and a lack of vigour in pursuing them when they were identified. Further, and as a facet of this, management's approach towards dishonesty and fraud does not always seem satisfactory. These are attitudes which collectively we can only call complacent. We have also noted a lack of understanding of both individual responsibility and the delegation of authority.The House will understand why I felt that I should raise the matter. Not only have problems not always been recognised, but paragraph 4.2.2 of the report says:Where problems have been recognised and remedial action taken, there often seems to be a lack of vigour in following it through. A good illustration of this is the introduction of the 5 per cent. check of all works orders by the District Works Officer which is represented by senior management to be a major measure against irregularities. The implementation of this check has been slow and moreover it has a number of fundamental conceptual defects.The 5 per cent. check has also been concerning the Comptroller and Auditor General for some time. In a memorandum to the Public Accounts Committee in May 1982, he reported that the PSA internal audit department had noted in October 1980 that it had been commenting for three years prior to that on the degree of failure by district works organisations to carry out their 5 per cent. checks.More generally in that memorandum, the Comptroller and Auditor General said that he was becoming concerned about the time that it was taking to determine revised systems of controls and to secure general compliance with them. Following that memorandum, the Public Accounts Committee, in its 25th report, during the parliamentary Session 1981–82, expressed concern that the PSA had been taking so long both to act on audit evidence that prescribed checks were not operating properly and to implement revised controls.
The Comptroller and Auditor General returned to the subject in his report on the Appropriation Accounts for 1982–83. He concluded that while the PSA was making good progress in increasing the extent of DWO spot checks and improving its control over stores, serious deficiencies in control remained. I understand that the Public Accounts Committee is likely to take oral evidence on that subject early in the new year. I am glad that it is continuing to pursue the matter.
As well as calling for changes in management attitudes, Wardale made six principal recommendations. First, a budgetary control system should be introduced for all expenditure. Secondly, new management information systems should provide the information necessary for proper financial and budgetary control. Thirdly, regional management inspection teams should be formed to give regional management an annual assurance of the proper operation of its area and district. Fourthly, in the management of contracts the respective responsibilities of all staff should be recognised. Fifthly, management should take a more commercial approach to its activities where existing controls may not be cost effective. Sixthly, a more dynamic approach to saving, training and disciplinary matters is required.
According to the Comptroller and Auditor General, the PSA was finalising actions planned to deal with those 740 recommendations. The Minister will recall that I asked him about that in a parliamentary question. On 31 October, he told me that decisions resulting from the programme of action would be implemented as quickly as possible. He also told me:
To ensure that the lessons learnt from the report are fully understood throughout the agency, a series of meetings for staff at all levels of management, attended by senior officers of the agency has been arranged."—[Official Report, 31 October 1983; Vol. 47, c. 265.]In addition, both the PSA's annual report and the section on the PSA which appears in the White Paper on the financial management initiative, contain several positive proposals for structural changes in the PSA. I hope that they will be changes for the better. The British Civil Service is mercifully free from corruption. However, in response to observations made by the PSA, the Public Accounts Committee said:
Having regard to the nature of some of the offences, we believe PSA are on weak ground in playing down the significance of the detected cases in their regional organisations. We do not consider that comparison of these cases with the broad statistics for convictions in the country as a whole can be meaningful; nor do we think it realistic to compare frauds involving long-term collusion or conspiracy among civil servants, where the losses are uncertain, with measurable 'shrinkage' in department stores.That was the comparison that the PSA tried to draw.People expect the highest standards from civil servants. Generally speaking, the Civil Service is free from corruption, but the Wardale report highlighted an exception to that general rule. Therefore, it is essential that its conclusions and recommendations are taken seriously and implemented as soon as possible. I should be grateful if, in his reply, the Minister will give me as much detailed information as he can about the response of the PSA to the principal recommendations of the Wardale inquiry.
§ The Under-Secretary of State for the Environment (Sir George Young)I am grateful to my hon. Friend the Member for Beaconsfield (Mr. Smith) for providing this opportunity to debate the Wardale report. My hon. Friend made a cogent and persuasive case, as one would expect of him.
We are rightly proud of our Civil Service and its traditions, and it must be a matter of great concern to any Government when performance falls below the standard expected, especially in regard to honesty of conduct. We were therefore determined that, however uncomfortable the report's findings might be, they should be brought to public notice, and my right hon. Friend the Secretary of State for the Environment took an early opportunity to publish the report, to expose it to press comment, and to outline his proposals for change.
The Property Services Agency has been in existence in its present form since 1972. It brought together the works and other activities of the three defence services and the former Ministry of Public Buildings and Works as a self-contained agency within the Department of the Environment. Since 1976 the supplies area of the PSA has operated as a Government trading fund. The agency has at present about 28,500 staff worldwide, of whom about 13,000 are industrial grades. It handled in 1982–83 about £1.6 billion of expenditure on new construction, maintenance, rents and supplies.
In the United Kingdom the basic unit of organisation is the district works office. There are 153 district works 741 offices. The district works officer is directly responsible for most of the maintenance and much of the minor new works associated with all the Government's buildings and installations in his district and, usually, a number of buildings of clients, such as British Telecom, for which the agency does work on repayment terms. He carries a heavy responsibility for management and the execution and control, including financial control, of those works services. The district works officer reports to an area officer, of whom there are 34, and they in turn report to the eight regional directors in England, the director of the central office for Wales in Wales, or the director, Scottish services, in Scotland. This organisation as a whole we refer to as the United Kingdom territorial organisation, which is in turn answerable to Ministers.
My hon. Friend mentioned the report of the Comptroller and Auditor General, who commented on the position within the PSA before the final Wardale report was submitted. His comments do not take into account the steps that we have taken, or are planning to take, following Wardale, which I shall outline.
The 61 cases, or alleged cases of fraud or irregularity, which were the occasion of the Wardale inquiry, arose mainly at the district level in various parts of the United Kingdom territorial organisation during the period 1976 to 1982. They were mainly in maintenance, including stores, and minor new works. The aggregate value of the cases is estimated at £600,000. Several of them involved only people outside the PSA. Many of the cases did not involve fraud, but, where they did, people were dismissed. I should like to add that all Wardale-related convictions have resulted in dismissal, save where the officer has resigned or retired before the court hearing.
About 170 PSA staff have been involved directly or indirectly in cases of theft, fraud or irregularity in the past five years, and 61 have been dismissed. Although the press has linked all 61 dismissals with the serious cases of fraud and corruption, about half of those dismissed were guilty of the theft of miscellaneous items of no great financial value. To put this in a context—in the light of what my hon. Friend said, I do not wish to make too much of this—the expenditure in UKTO on maintenance and minor new works in 1982–83 alone was about £660 million and the number of staff at district level in UKTO was more than 17,000.
By any standards this is a low incidence of misdemeanour, but cases occurring in the agency are always treated rigorously. Approximately 100 staff have been involved in irregularities but have not been dismissed, because of the minor nature of the irregularities, such as the theft of property valued at £3.40 or the payment of two night's subsistence where only one is applicable. In those cases the staff concerned received formal reprimands.
In view of the public interest shown in the cases of fraud and irregularity that occurred my right hon. Friend the former Secretary of State—now Secretary of State for Defence—decided that there was need for an independent investigation into the circumstances of the cases. We were fortunate in obtaining the services for Sir Geoffrey Wardale, formerly second permanent secretary at the Department of the Environment, and Mr. Anthony Herron, a partner in Touche Ross, chartered accountants, to undertake this. They were commissioned in April 1982 742 and submitted an interim report in February 1983 based upon their investigations in four regions. The Secretary of State decided that the investigations should be pursued in the remaining six regions, and the final report was submitted on 3 August 1983. In all, Sir Geoffrey and Mr. Herron reviewed 49 of the 61 cases. Several of those involved anonymous allegations, and in eight cases they were not substantiated.
The burden of the Wardale recommendations was plain from the interim report. As my hon. Friend said, they revealed within the PSA an attitude of mind and operating systems which allowed fraud to exist and led to a wider study than one would expect fraud to require. When we knew the main thrust of the study team's proposals from the interim report, we set up a working group to develop a provisional plan for management action on the recommendations pending the receipt of the final report.
The report makes many recommendations ranging from the financial and management control procedures for works stores expenditure to the agency's policies for staffing and training for district work officer appointments, taking in on the way management information systems, audit controls, certain contractual matters and disciplinary procedures. Those are all important subjects, but underlying them was a more general criticism that management was not sufficiently alive to the existence of problems, and that this was exemplified by a concept of financial control which lacked an adequate budgetary element, the existence of management control techniques which were deficient in some respects, and insufficiently rigorous policies for disciplinary action against staff and third parties. My hon. Friend rightly drew attention to the problem of attitudes, which are often more difficult to change than are procedures. My hon. Friend rightly asks what is now happening to put things right.
When he announced the publication of the report on 5 October, my right hon. Friend stressed the seriousness with which he took it and his determination that any necessary changes in management systems and management attitudes should be carried through.
Our first job has been to impress on staff the seriousness with which Ministers take the report. We have taken urgent steps to ensure that staff at all levels of management have received and read the report and understand the action that is required on the report's recommendations. To secure the change in attitudes that is required, a series of meetings has been held for all regions, involving the regional senior staff and area officers with top management from PSA headquarters. To take the message down to district level, a further series of meetings is taking place in the regions now.
The regional meetings have shown that the management staff of the agency are anxious to respond to the Wardale report criticism. From my two years in my present post, I can say that I am impressed by the high calibre and dedication of the PSA staff that I have met. It is in their interest to accept that the management of the agency can and should be improved. Their and my concern is that the vital work that they do in maintaining the essential services of government should be carried on to the same high standard that exists, while improving management attitudes as well. This will not be easy, given the pressures on us, but we are determined to make progress. In addition to changing attitudes, a number of special changes have been introduced and I can give my hon. Friend some examples.
743 First, on contract notation limits, staff have been reminded that the notation limits for contractors must be properly observed and monitored. In particular, no firm should be invited for a contract the value of which is more than 15 per cent. above the firm's notation without agreement. Care is being taken to ensure that contractors are not overloaded with PSA work. Checks are being carried out on existing contracts, where notations may have been seriously exceeded, and corrective action taken wherever possible.
Secondly, there is the 5 per cent. check of work and stores orders, which my hon. Friend mentioned. Revised arrangements for the 5 per cent. check were issued on 1 July 1983, stressing DWOs' overall responsibility and the need to keep under review small works orders generally, in addition to the 5 per cent. check.
Thirdly, on floor laying contracts, PSA supplies ordering officers have been reminded to issue orders with adequate details of the work required and to give guidance on the checks to be made before certifying invoices. Certification for all such orders must be by an officer superior to the ordering officer. Departmental accommodation officers have been reminded of their responsibility for certifying that the work has been carried out properly.
Some recommendations, for example, those relating to stores procedures and to issuing guidance clarifying the respective roles of professional and technical officers and quantity surveyors in relation to measured term contracts, can be implemented fairly easily. Other recommendations that make continuing resource demands—for example, separating the duties of ordering work on jobbing contractors and certifying for payment—are more difficult. But we can and will make progress.
The report recommends the introduction of improved budgetary control arrangements for maintenance expenditure, including the budgeting of such expenditure by individual buildings or by small groups of buildings. The PSA already has a job by job system of control for all work which individually exceeds £2,500—in all, 75 per cent. of PSA's total works expenditure. As I have said, the main problem lies with the bulk maintenance below that threshold. Much—although not all of this—typically comprises a mass of small orders down to a few pounds in value, and is devoted to the repair of defects which arise through the normal wear and tear in buildings and cannot 744 be identified in advance of their occurence, although we can predict the scale of expenditure that is likely to arise in adequately large aggregations of the estate. While we accept the need for all maintenance expenditure to be effectively budgeted, there is a real practical question, which we are urgently examining, about the degree of disaggregation which it is useful and cost-effective to seek in devising improvements to our existing systems.
The report also makes recommendations on audit arrangements.
We are concerned that the recommendation for the creation of a regional management inspection body might involve some confusion between the functions proper to line management and the necessarily independent role of internal audit. There is a danger of blurring the responsibility of line management to ensure that adequate control systems exist and operate effectively, and to initiate suitable inspection and checking arrangements. However, in the general spirit of the report's recommendations, the PSA will be considering how, without compromising the independence of internal audit, its work might be developed to provide line management with a stronger feedback on the effectiveness of its operations and also whether the present arrangements for management inspection checks at various levels can be strengthened and more effectively co-ordinated.
If my hon. Friend would like further details of the follow-up to the report, I shall be happy to supply them in correspondence. I have, of course, taken note of the additional points that he made. I regard the Wardale report as a constructive, helpful and salutary report. My colleagues and I and the senior officers of the agency are determined that it shall be acted upon with all the speed we can muster.
The report has been treated with the seriousness that it deserves from other levels of management in the agency, and I am convinced that all our staff will do their best to implement its recommendations in the best traditions of public service as and when decisions are taken on them by management and generally to act in a manner calculated to obviate any future criticisms of the kind Sir Geoffrey Wardale and Mr. Herron felt constrained to make.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-five minutes past Ten o'clock.