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Property Services Agency: Management Controls in District Works Offices

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Property Services Agency: Management Controls in District Works Offices Report by the Comptroller and Auditor General NATIONAL AUDIT EICE Property Services Agency: Management Controls in District Works Offices Ordered by the House of Commons to be printed 14 February 1990 London: HMSO ~E6.00 net 220 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES This report has been prepared under Section 6 of the National Audit Act, 1983 for presentation to the House of Commons in accordance with Section 9 of the Act. John Bourn Comptroller and Auditor General National Audit Office 13 February 1990 The Comptroller and Auditor General is the head of the National Audit Office employing some 900 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies use their resources. PROPERTY SERVlCES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES Contents Pages Summary and conclusions 1 Part 1: Introduction 6 Part 2: Control environment 10 Part 3: The application of specific checks 14 Part 4: Fraud and irregularity 18 Part 5: Controls over District Works Offices’ own resources 25 Appendices 1. Main types of contract used at District Works Offices 29 2. Risk analysis by the National Audit Office of District Works Office expenditure areas 31 3. District management reviews: Assessment of performance 33 4. Summary of the further progress on serious cases of alleged fraud or irregularity which arose up to the end of 1984 34 5. Details of serious cases of alleged fraud or irregularity arising between January 1985 and December 1988 36 6. Criteria for determining disciplinary action and circumstances in which the Property Services Agency would press for criminal proceedings 39 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES Summary and conclusions 1. The Property Services Agency’s 138 District Works Offices in the United Kingdom undertake maintenance and minor new works on the Civil and Defence Estates; they employ some 11,000 staff and were responsible for spending some &50 million in 1988-89. Their operations are controlled through eight Regional Offices and central offices in Scotland and Wales and are monitored by the Property Services Agency’s Directorate of Home Regional Services. They are under the overall command of a Deputy Chief Executive. 2. Since the mid-1980s, the Property Services Agency have been moving towards becoming a more commercial organisation. In 1989 the Secretary of State decided to accelerate progress towards commercialisation and announced that from April 1990 the Agency would be divided into two organisations. One part, to be known as Property Holdings, would be responsible for the management of the common user estate and other activities that it was essential to retain in government. The second part, to be known as PSA Services, would comprise all the project management, design, estate surveying and maintenance services and would be privatised in 1992. PSA Services would consist of four businesses, one of which, PSA Building Management, will include in its responsibilities the operations of District Works Offices. 3. The Property Services Agency have recognised that in the run-up to privatisation they must continue to demonstrate their proper stewardship over public funds. Following the discovery in recent years of a number of serious cases of fraud and irregularity in some United Kingdom District Works Offices, the Agency have paid close attention to strengthening management controls. 4. Against this background the National Audit Office have examined whether management controls in District Works Offices have been improved so as to secure better value for money and to minimise the risk of fraud and irregularity. The examination covered the control environment; the application of specific checks; action on fraud and irregularity; and controls over District Works Offices’ own resources. It has concentrated on developments since March 1985, when the Agency was last examined by the Committee of Public Accounts on these matters. 5. The National Audit Office’s main findings and conclusions on specific matters are: On the control environment (a) The chain of command has been shortened and simplified to provide more effective oversight of District Works Offices (paragraphs 2.2 and 2.3). 1 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES (b) A strategy has been developed for each District Works Office to identify the most effective contract method. But despite an objective to reduce the level of jobbing work (see Appendix 1) because of the high underlying risks it carries (Appendix 2, items 5 and 9) this contract type is still frequently used in some regions (paragraphs 1.15 and 2.4 to 2.8). (c) There are continuing deficiencies in management information and budgetary control systems which the Property Services Agency expect to redress progressively by April 1991 (paragraphs 2.9, 2.11 to 2.13, 2.15 and 2.23). (d) Internal audit completed a programme of major systems reviews in 1988-89 which led to improved controls in District Works Offices. These reviews have been complemented by the introduction of a programme of cyclical audits which is targeted selectively towards areas of high risk (paragaphs 2.17 to 2.21). (e) In addition to the Property Services Agency’s monitoring of the quality of work at District Works Offices a measure of the level of client satisfaction is obtained through regular meetings and District Management Reviews (paragraphs 2.22 and 2.23). On the application of specific checks (f) District Management Reviews are carried out cyclically to examine in depth all aspects of operations in each District Works Office. The results of the first round of reviews, covering two years to March 1987, indicated that on average, in each of the activities assessed, about one-fifth of the Districts were judged less than satisfactory. The analysis of 110 Districts so far available on the second round of reviews indicated a general improvement. The cost of reviews and shortage of experienced staff has led the Property Services Agency to extend the cycle of coverage in the third round from two to three years (paragraphs 3.2 to 3.11 and Appendix 3). (g) Sample checks by management were strengthened following criticism in reports in 1983 and 1984. A review of results in 1987 showed that the checks had not identified any serious irregularities (paragraphs 3.12 to 3.15). (h) Becauseof the high underlyingrisks involved(see Appendix 2 items 7 and 8) the Property Services Agency have tightened controls over measured term contracts (see Appendix l), which accounted for some E300 million expenditure in 1988-89. They have introduced a system of random checks by quantity surveyors which have identified a net overstatement of around 1 per cent of value (extrapolation across all measured term work would result in net overpayments totalling some E3 million). Regional Offices are, however, required to carry out additional checks on orders where a high incidence and level of error have been revealed (paragraphs 3.16 to 3.23). (i) Contracts procedures are regularly examined by Regional Offices (paragraphs 3.24 and 3.25). On fraud and irregularity (j) Following allegations made in the press in November 1984 2 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES about major contractual irregularities in some London Districts, the Property Services Agency took prompt and thorough action to assist the police in their investigations, leading to the conviction of eight officials and ten contractors. The Agency’s enquiries are continuing. Following two interim Reports seven further officials who would have been subjected to disciplinary action have resigned. The estimated gross loss arising from these irregularities was some El.35 million (paragraphs 4.7 to 4.14 and Table 1). (k) In 1984 there were 16 cases of contractual fraud and irregularity, including one case which was still under investigation in January 1990. A further 16 cases related to minor thefts by staff. The gross loss from all cases amounted to El.68 million. In the four years from 1985 to 1988 gross losses from 35 cases of contractual fraud and irregularity were estimated to be at least El30,OOO. The extent of loss in eight of these cases, including three identified as serious, has yet to be determined. Thirteen of the 35 cases involved bribery and corruption of, or collusion with, staff. In addition, there were 43 cases of minor thefts of goods or cash by staff, which led to estimated losses of at least f38,OOO (paragraphs 4.2 to 4.6 and Table 1). (1) Fifteen cases of fraud and irregularity arising in 1984 were referred by the Property Services Agency to the police. Prosecutions were made in ten of these cases and 16 officials and 13 contractors were convicted. Of the 78 cases arising in the four years from 1985 to 1988, 38 were referred to the police. Prosecutions were made in seven of these cases and four officials and nine contractors were convicted. In the sme period disciplinary action and penalties were imposed against 37 members of staff and at least 18 contractors (paragraphs 4.2 and 4.4 and Table 1). (m) A system of analysing patterns of tenders to detect ‘ringing’ in lump sum contracts (see Appendix 1) operates in the London Region and has beenltrialled in two other Regions. The Property Services Agency are now considering enhancing this into a comprehensive contract information system (paragraphs 4.15 and 4.16). (n) In April 1987 the Agency set up a Central Inquiry Unit to investigate frauds and irregularities and to monitor trends. The Unit also makes surprise visits to District Works Offices (paragraphs 4.17 to 4.19).
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