CONTRACTORS' FRAUDS, LIVER- POOL (DEPARTMENTAL IN- VESTIGATION) (Hansard, 14 April 1943)

Mr. Alexander

The investigation into the circumstances of the frauds perpetrated upon the Ministry of War Transport and Admiralty by a firm of contractors at Liverpool, to which I made reference in my reply on 16th December last, has ended and a joint statement which I append representing the conclusions of the two Departments has been drawn up. With regard to the second part of the Question, my hon. Friend will see from the statement that a general warning of the need for enhanced care and vigilance has been conveyed to officers of both Departments but that the circumstances of the present case do not warrant drastic 1227W disciplinary action against any individuals, with the exception of the two men who were convicted at the Liverpool Assizes and are now undergoing terms of imprisonment.

Following is the statement:

The Admiralty and the Ministry of War Transport, in conjunction, have investigated the circumstances of the frauds perpetrated upon the Crown by F. H. Porter, Limited, a ship boiler-scaling and cleaning company, as revealed by the proceedings which led to the recent conviction at the Liverpool Assizes of a director and the secretary of the company and of two officials in the employ respectively of the Admiralty and the Ministry of War Transport.

2. The company of F. H. Porter, Limited, carry out a certain amount of work for both Departments under the emergency repairs agreement and for private firms of shipowners, as main contractors, but their main work is that of sub-contractors. The chief device by which the company defrauded the Crown of the substantial sums referred to in paragraph 12 below, consisted of the entry on their payroll of non-existent employees. The method adopted was fully described at the court proceedings. Briefly it was as follows: Fictitious names were inserted in the pay roll, the insertions being carried into the roll by Porter himself personally with the cognisance of his co-director and secretary. In addition, boys and other lower grades of labour had their wages charged in the cost sheets at higher rates than their grades entitled them to. The original wages records were then destroyed, leaving only for record purposes the actual cost sheets which were produced for certification.

3. Prominence is given here to the fraud connected with the wages because it is under this head that by far the largest overcharge was made; in addition there were overcharges on the hire of lorries by the Ministry of War Transport from Porter in connection with the movement of Government stores to and from the Government store depot and vessels in the course of fitting out. There were also charges in respect of the theft of timber.

4. In order to demonstrate how it was possible for such extensive depredations in the matter of wages overcharges to be successfully accomplished by such means, the normal system of financial checks applied to ship-repairing work carried out for the Government and the relevant facts and circumstances concerning the Departments' transactions with the company of F. H. Porter, Limited, during the period in question, should be briefly explained.

5. The establishment charges of all main contractors and most of the important subcontractors are investigated annually by the accountants of the Department concerned (in the case of F. H. Porter this duty is carried out by the Ministry of War Transport in collaboration with the Admiralty). In addition, direct costs are checked by the Department for which the work is done. When this check is carried out by the Admiralty, the accountants are assisted in this duty by a staff of recorders who are divided among the various 1228W shiprepairing firms in each district, and whose function it is to see, as work proceeds, that labour and materials charged to the job are properly so chargeable. These men are trained mechanics whose employment in time of peace is confined to the Royal Dockyards. The extension of this system to private shiprepairing yards during the war is rendered possible by the number of pensioners available who form about two-thirds of the numbers employed in these yards. Even so, owing to the paramount demands upon skilled labour of new construction and repair work in both Government and private yards, and the consequent shortage of recorders, the concurrent check of the recording staff has until recently had to be confined exclusively to main contractors. Arrangements are, however, now in operation whereby a certain amount of time is given by recorders to the checking of sub-contractors' accounts.

6. The Ministry of War Transport are unable to employ a recording staff, as they have no peace-time organisation to use as a source of supply in war and are precluded from drawing on industry for the same reasons as prevent the Admiralty from obtaining sufficient staff to cover more than part of the ground. Nevertheless, co-ordination between the staffs of the two Departments enables the Ministry to derive some benefit from the activities of Admiralty recorders in firms which are carrying out work for both Departments.

7. Although the work of sub-contractors has not until recently been concurrently checked by recorders, their claims on main contractors have always been subject to investigation by accountants.

8. With regard to the Crown's transactions with Messrs. F. H. Porter, it should be explained that this company had applied to their main contractor for advances on account pending acceptance of their final claims. The main contractor also required advance payments and included in his application the requirements of Messrs. F. H. Porter Ltd. In June, 1940, an arrangement was made whereby Porter's claims for advances were submitted by the main contractor to the Ministry, the claim for wages being in respect of those paid in the preceding week. This claim was certified by the company after the claim had been subjected at the offices of the main contractor to an arithmetical check by the Ministry of War Transport accountant; it was signed by him and by an official of the main contractor. It was then passed to the Ministry's senior inspecting officer (Mr. Mills) to confirm that work for the Ministry's service was being done on the ships named and that in his opinion the estimate of wages as shown was reasonable. At the beginning of 1941 and at the instance of the Ministry of War Transport, discussions took place between the district accountants of the Admiralty and the Ministry and the local supervising recorder of the Admiralty in an endeavour to impose a further check upon Messrs. F. H. Porter Ltd., and arrangements were made locally for the supervising recorder to check the direct costs against the Ministry. The main responsibility for a current and detailed check of the numbers of employees chargeable in respect of the work done was, apart from the check which it must be assumed was im- 1229W posed by the main contractors before certifying the claim, thus placed upon the supervising recorder. This man was one of the two Government officials convicted and sentenced at the Liverpool Autumn Assizes last year. He did not report any irregularities. It must be stated that this man was not convicted on charges connected with the fraudulent claims for wages. He was convicted on charges relating to petrol and of corruption. The responsibility for the review of the work in respect of which the company's claim was made was, as already stated, placed upon the Ministry's senior inspecting officer. This officer was the other of the two Government officials convicted and sentenced at the same Assizes. This officer was also not convicted in connection with the main fraud relating to wages certificates but on other charges of conspiracy to defraud the Ministry of War Transport and theft of timber. The costs investigating staff of the Ministry of War Transport checked the requests for advance payments with the sums shown as disbursed in the books, reserving the right of further examination of the company's records until such time as the final accounts should be presented for investigation as part of the bills of the main contractor. Owing to arrears of work and to dislocation caused by air raids, only 2 per cent. of the total claims by Porters since the outbreak of war had been finally accepted by the Ministry at the time of Mr. Porter's death in January, 1942. Of the remainder, the bills presented by the main contractor up to 31st August, 1940, had been settled provisionally, with a right to re-open, and the balance represented only progress payments. Inquiries about the labour force shown as employed by Porters had been set on foot by the Admiralty in December, 1941, but it was the police inquiries and the death of Mr. Porter which actually disclosed the existence of the fraud.

9. The investigations which have been conducted do not lead to the conclusion that, apart from the two officials just mentioned, any of the employees of either Department was privy to the conspiracy or contributed by neglect or inefficiency warranting drastic disciplinary action to the loss which the Crown may suffer. Nevertheless, the circumstances of this case point to the need for enhanced care and vigilance, and the Admiralty and Ministry of War Transport have taken steps to bring this object lesson to the attention of all their officers engaged in these duties.

10. Remedial measures have been taken which will, it is hoped, make it much more difficult for frauds of this kind to be perpetrated in the future in the ship repairing industry. To describe these in too much detail might help to defeat their object, but it can be said that they include the imposition of unexpected checks and, as indicated earlier in this statement, the wider spreading of the activities of Admiralty recorders.

11. In the devising of remedial measures the co-operation of the Dry Dock Owners and Repairers Central Council has been of great assistance especially in obtaining particulars of the systems of cost checking practised by their member firms. These have been examined in detail and the result is generally very satisfactory.

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12. It is not yet possible to give final figures showing the extent of this fraud, but the total claims made by the company in respect of work done for the account of the Admiralty, the Ministry of War Transport, and the War Risks Clubs, up to the end of 1941 when the Company was reconstituted, include overcharges estimated to amount to about £750,000. The total amount of the claims for Admiralty work is estimated to be about £250,000 which, it is estimated, includes overcharges amounting to about £125,000. As regards the claims made for other than Admiralty work, it is not yet possible to divide these amounts accurately between the various interests involved. Negotiations are being actively pursued with the Company in order to effect the maximum recovery possible. About £310,000 has already been recovered by the police in bank notes of small denominations. These notes are alleged to represent a substantial part of the proceeds of the frauds and there are other possible sources of recovery.

13. The board of the company has now been reconstituted and strengthened and an Admiralty accountant has been stationed at the works to supervise payments. The company is continuing to do good work (there has never been criticism of the quality of their work) as sub-contractor to both Departments.

14. The Admiralty and the Ministry of War Transport wish to endorse the words of the assize judge in praise of the Liverpool police. The Departments and the industry alike have reason to be grateful to the officers whose skill and patience have revealed this scandal.