Welsh Fourth Channel (Hansard, 16 May 1995)

§ Mr. Dorrell

I announced on 27 FebruaryOfficial Report, column 680, that my Department had commissioned a report from a senior Treasury official, Mr. John Beastall, to review the circumstances of the applications for matching funding under the business sponsorship incentive scheme made by Pengwyn Pine and certain other Welsh arts bodies. I have now received and considered Mr. Beastall's report. Copies have been placed in the Library.

The report takes account of reports received by the Department of National Heritage from the Association for Business Sponsorship of the Arts, which runs the BSIS on the Department's behalf, and from the Welsh Fourth Channel Authority—S4C. It draws on an examination of the relevant records and a series of interviews with staff of S4C and the companies and organizations involved in the applications conducted, at S4C's request, by Grant Thornton, S4C's auditors. Mr. Beastall has interviewed certain S4C and ABSA staff himself.

The report's main conclusions are: In 1993 and 1994 S4C made sponsorship payments via intermediary companies to Welsh arts organizations totaling £53,500 in respect of which BSIS matching funding was claimed. These claims were an abuse of the BSIS because of S4C's position as publicly-funded body. All the intermediary companies were genuinely trading and wholly independent of S4C. Confirmation has been obtained that the relevant arts organizations received the S4C money in full. There is no evidence that any of the intermediary companies, their directors or S4C staff received any financial gain from the transactions. A thorough investigation has revealed no other instances of abuse of the BSIS through sponsorship funds originating from S4C. 149W The recipient arts bodies, to the extent that they were aware of the ultimate source of the sponsorship funds, must share responsibility for the improper claims because they completed the BSIS application forms without disclosing the true source of the sponsorship funds and because their applications were not consistent with the BSIS objective of encouraging extra sponsorship from businesses. The intermediary companies must similarly share some responsibility. In two cases, where S4C staff were the prime movers in the setting up of artificial arrangements designed to secure additional public funding for recipient bodies which would not otherwise have been obtainable and which was clearly contrary to the rules and objectives of the BSIS, the main responsibility lies with S4C. S4C staff should in any event have consulted ABSA in all the cases about whether the proposed arrangements were acceptable. In the Pengwyn Pine case, ABSA should have checked with S4C whether the claims made by the company about likely future contracts from S4C were valid. In order to ensure that there is no loss to public funds, S4C have agreed to pay to ABSA from their non-public sector funds a sum equivalent to the BSIS grants which were wrongly made, to the extent that these are not recoverable by ABSA. S4C should consider whether they can appropriately recover the relevant sum from the arts organizations concerned. Disciplinary action has been taken against one member of S4C's staff. S4C is considering whether there is a case for disciplinary action against any other staff involved. ABSA should have notified S4C in writing that S4C's sponsorship payments were no longer eligible for BSIS matching after S4C's change in status to a statutory corporation from 1 January 1993. The new BSIS rule requiring full disclosure if a sponsor is acting as an indirect source of sponsorship from a third party should be amended so that applicants must state that they are not deriving their sponsorship funds from a third party. In future ABSA should make rigorous checks in any case where there is doubt whether the sponsoring company is making the payment from its own funds. ABSA should also make it clear that in future any arts body or sponsoring company knowingly involved in arrangements designed to secure BSIS funds contrary to the rules or objectives of the BSIS will be disqualified from benefitting from the BSIS either permanently or for a substantial period. The arrangement between ABSA and the trade association Teledwyr Annibynnol Cymru Cyf—TAC—whereby TAC receives applications from arts organizations and proposes to member companies that they should sponsor particular arts events, should have been referred to ABSA headquarters before it was agreed. It is accepted by ABSA that this arrangement with TAC should now cease. Any future arrangement for BSIS matching of sponsorship by TAC members should require that sponsorship payments made by a company derive solely from that company's own funds and should take appropriate account of previous sponsorships. In future ABSA should obtain an account or auditor's certificate that the BSIS grant has been spent as intended in all major cases and should establish a procedure for checking a sample of smaller cases. ABSA already have such arrangements in hand. All future sponsorship payments made by S4C will be clearly identified as such. All sponsorship proposals will be approved by the authority on the recommendation of the chief executive.

S4C has agreed that when it makes sponsorship payments in future:

(a) the payments should be made direct to the final recipient, not via any third party;
(b) the recipient should be explicitly told in writing that the sponsorship payment is not eligible for BSIS matching;
(c) S4C should inform ABSA in confidence of any arts sponsorship payments it makes.

S4C should require a subsequent account or auditor's certificate that sponsorship funding has been spent appropriately. This procedure is now in effect. 150W S4C's relationship with TAC should be clearly at arm's length. This does not preclude the continuation of the arrangement whereby S4C, on TAC's behalf, deducts a percentage of programme fees due to TAC members and transmits it to TAC for the purpose of funding such activities as training and sponsorship. S4C has agreed that any future contributions by S4C towards TAC's administrative costs should be covered by a contract specifying the services to S4C for which the payment is made. It has been S4C's policy that fees paid to TAC members should not be higher than the market rate. There needs to be a continuing effective check that this remains the case. The role of S4C staff who are members of the ABSA Wales Committee should be defined and agreed between S4C and ABSA. S4C has introduced arrangements to prevent possible conflicts of interest arising in cases where members of the Authority or S4C staff are involved in the work of other companies or organisations. The chief executive as accounting officer is responsible for ensuring that appropriate standards of financial propriety are maintained within S4C and has already taken action to this end. However to assist him in this a senior member of management below chief executive level should have the clear responsibility of promoting appropriate standards of financial propriety throughout the organization and of acting as the acknowledged source of advice when any issues of propriety arise. DNH should check whether there is any risk of the improper use of public funds in any other cases where the department provides funds on a matching basis.

I am grateful to Mr. Beastall for carrying out this thorough review and for making practical recommendations to ensure the proper use of public money. In a number of instances, the bodies concerned have already taken the necessary steps to implement these conclusions. My officials will monitor carefully the action taken by the bodies concerned in response to the report's recommendations.