National Audit Office finds Department for Work and Pensions knew risk of fraud but did not introduce checks
The National Audit Office has said the Department for Work and Pensions did “not do enough” to stem hundreds of thousands of pounds worth of fraud among private companies administering back-to-work schemes, even though it knew the risks.
The 44-page report found that fraudulent behaviour by several companies engaged in multimillion-pound contracts had cost taxpayers £773,000, of which £365,000 had still not been returned to the government.
The NAO said more than half of all documented fraudulent activity had occurred under Labour’s new deal programmes, which ended in 2011, and the newer flagship scheme called the work programme had “largely addressed the main weaknesses” in previous programmes.
But it warned that “some risks still remain” for smaller current programmes such as mandatory work activity because it had no means for “systematic independent checks”.
The DWP has announced it has cancelled a £1m work contract with the embattled company A4e. In a statement to parliament it said that after its own investigation into practices at the company, it had found “no evidence of fraud” but felt it was “too risky” to allow the contract for organising mandatory work placements in the south-east region to continue. A4e says it still operates 16 other contracts for several back-to-work schemes and these will remain in place.
However, the NAO heavily criticised the investigation, saying the DWP’s investigatory team “did not see vital evidence” before coming to its conclusions.
“The team did not request relevant internal audit reports including the A4e internal audit paper later passed to the chair of the committee of public accounts, setting out evidence of nine possible cases of fraud and seven of improper practice by A4e’s staff.”
The NAO said A4e’s own internal audit had uncovered that during a spot check around 7.5% of cases involved potential fraud. In February Thames Valley police made a number of arrests of A4e staff at its office in Windsor and are currently investigating fraud. The company’s multimillionaire owner, Emma Harrison, has recently resigned as chair.
Margaret Hodge, chair of the House of Commons public accounts committee, said she was “truly shocked by the glaring holes in the department’s detection and prevention of fraud in its employment programmes”.
She said: “The department knew fraud was a problem, but missed looking at the obvious sources of evidence. They didn’t even look at the internal audit reports which point to the real risk of systematic fraud and bad practice in A4e.”
She added: “For too long, the department has buried its head in the sand and it now needs to complete and publish a full investigation. My committee will not rest until we are satisfied that officials are committed to exposing and stamping out fraud and bad practice in its employment programmes.”
Fraud, the report said, was also apparent in other companies as allegations against A4e represented just under 10% of cases where fraud was substantiated.
Over 40 cases occurred in other back-to-work companies, representing total losses since 2006 of a quarter of a million pounds.
Out of a total of 126 reported cases of potential fraud the DWP concluded that there was no case to answer in 75 cases. Of the remaining cases, the NAO report said, “24 were of false representation [fraud], 22 of non-compliance” and five were still under investigation. The total losses to fraud since 2006 averaged £129,000 a year, which it described as a “small” loss in comparison to a total expenditure of £829m on employment schemes in 2011-2012 alone.
In a damning paragraph the NAO said: “The department [DWP] did not do enough to quantify and address the fraud risks in the design of new deal and other legacy programmes. The department knew of the fraud risks in programmes, including new deal, but did not introduce compensating controls. In particular, there were no checks with employers to verify claims that people had been placed into work.”
The NAO also published a sample of current complaints of alleged fraud centred around the work programme, which included:
• Jobseekers being bullied into signing agreements to supply prospective employers’ details for the provider to claim a job outcome payment.
• Providers pursuing claimants for the contact details of their new employer despite the claimant gaining work without a provider’s help.
• Providers compelling claimants to work in inappropriate, unpaid placements.
* Providers sending clients covertly to non-work programme charities for free help without paying the charity for it.
• Providers attaching claimants to the work programme who have found employment since being referred to the programme by Jobcentre Plus but did not notify the provider of that prospective employment.
The employment minister, Chris Grayling, said: “It’s good to hear the National Audit Office confirm that the work programme has strong controls in place.
“Previous schemes like the new deal lacked strong enough controls and taxpayers didn’t get value for money. We have learned those lessons and won’t allow public money to be wasted.
“Our providers are required to have stringent controls to guard against fraud, and we have a thorough system of checks covering every provider in every contract. When providers fall below the standards of governance we require we will take appropriate action – that is why we have terminated our mandatory work activity contract with A4e and will consider what else we can do to address any remaining risks.
“The report shows that levels of reported fraud are low, but we will always consider what more we can do to protect taxpayers’ money.”
A spokesperson for the department added that it had “acted in an appropriate and proportionate way” with regards to its A4e investigation.