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). (0) The accuracy and quality of pre-tender estimating has been poor and remains an area for considerable improvement. The estimate is the key benchmark for determining the reasonableness of tenders and thus assists in the defence against irregular practices. Out of 110 contracts examined by the National Audit Office, 64 were priced at least 15 per cent outside pre-tender estimates. Poor estimating is partly due to a high turnover of technical staff and lack of training: in mid-1988 over 600 staff still awaited training courses. The Property Services Agency have said that they now aim to place more reliance on regional training courses and introduce computerised estimating facilities at Districts (paragraphs 4.20 to 4.24). 3 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

(p) The Property Services Agency have taken steps to make their staff alert to signs of fraud and irregularity. Following an exchange of correspondence in November 1988 with the National Audit Office, they have acknowledged the desirability, despite the moves to a more competitive environment, of their continuing to disseminate to other departments information about unsatisfactory contractors and to make widely available details of contractual irregularity discovered and lessons learnt (paragraphs 4.30 to 4.34). On controls over District Works Offices’ own resources (q) The Directly Employed Labour force has been reduced from 17,000 industrial staff in 1979 to 7,400 in 1988. The property Services Agency are further reviewing the size of the workforce in the light of forecast future market requirements (paragraphs 5.1 and 5.2). (r) The property Services Agency’s system for planning and monitoring the utilisation of the Directly Employed Labour force has not been fully effective. Standard job times have become outdated (paragraphs 5.3 and 5.4). (s) The Property Services Agency have accepted in principle proposals made in 1986 by consultants for updating the Directly Employed Labour planning and monitoring system. The consultants estimated that these improvements, linked with changes in information systems, could achieve savings of over E7 million a year. Implementation of these improvements began in 1988 and the Agency expect them to be completed by the end of 1990. The consultants have estimated that in 1987-88 the Directly Employed Labour force was only around 60 per cent effective compared with 64 per cent which they considered was attainable under non- incentive conditions. The National Audit Office have estimated that some E4.5 million could be saved annually through increased effectiveness (paragraphs 5.5 to 5.9). (t) The Property Services Agency’s Regional Industrial Management Advisors have not monitored the effective deployment of the labour force nor undertaken periodic audits of standard times but now aim to do so (paragraph 5.10). (u) Staffinspection of non-industrialstaff in District Works Offices (to review staffing numbers, grades, organisation and needs) had been restricted for the four years to March 1988, but was re- established in 1988-89 (paragraphs 5.11 and 5.12). (v) The high level of stock checks in Main Stores exceeds the level prescribed by the 1985 Cabinet Office guidelines. The Property Services Agency consider this is necessary to reflect their experience in dealing with cases of theft or misuse of stores, and to act as a deterrent (paragraph 5.15 to 5.23). (w) The Property Services Agency, in conjunction with their Internal Audit, are considering proposals for improving the accounting arrangements for Sub Stores (paragraph 5.18).

Conclusions 6. The Property Services Agency have secured a number of important improvements in their procedures since 1985. First, they have tightened 4 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES internal checks by introducing new preventive and detective controls and by enhancing existing ones. Second, they have introduced closer supervision and guidance, particularly from Group Managers, to ensure that these controls are properly understood and implemented. Third, they have established a higher level of central management scrutiny through increased reviews and reports on District Works Office activities. Finally, they have disseminated the lessons learnt to help make staff alert to warning signs. But there is scope in some areas for further improvement.

7. Good pre-tender estimating would provide a strong defence against abuse and is a valuable aid for judging the fairness of contractors’ prices. But the Property Services Agency’s District Management Reviews have highlighted poor performance in the quality of pre-tender estimating and progress in securing improvement is slow. The National Audit Office welcome the action taken to improve performance on estimating and recommend that the Agency give greater priority to training in this area.

8. The absence of a comprehensive budgetary control system, and the slow development of a works monitoring system h&e also been areas for concern. The Property Services Agency consider that the establishment of the Building Management business should facilitate improvements in these areas. They also accept the need to improve their targeting of management checks so as to achieve the same, or improved, control at reduced cost.

9. The Property Services Agency have been successful in reducing the size of their Directly Employed Labour force over recent years. There remains, however, considerable scope for improving its effectiveness. As a preliminary, the Agency need to introduce a more careful assessment of standard job times, which should be subject to regular audit.

10. The Property Services Agency have made determined efforts to improve and strengthen controls since the allegations of 1984, and the number of cases of fraud and irregularity has fallen since then, particularly in relation to contractual fraud. The Agency have told the National Audit Office that they recognise the importance of maintaining controls to prevent or deter fraud and irregularity. They will continue to monitor carefully the adequacy and effectiveness of controls.

5 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Part 1: Introduction

Background 1.1 The Property Services Agency’s 138 District very critical of deficiencies in management, and Works Offices in the United Kingdom undertake identified management attitudes as facilitating the maintenance and minor new works services on the incidence of fraud and corruption within the Civil and Defence Estates. They employ some 3,900 Agency. non-industrial and 7,400 industrial staff and in 1988-89 were responsible for spending E850 million. 1.6 In February 1984 the Committee of Public Of this, f760 million was spent through contractors Accounts took evidence on this Report and on a under the direction of District technical staff and follow-up Memorandum by my predecessor on the remainder, E9o million, was incurred by the Systems Controls in District Works Offices. In a District Works Offices’ Directly Employed Labour note sent to the Committee soon after, the Property force. Services Agency’s acting Accounting Officer stated that the Secretary of State entirely accepted the 1.2 The operations of District Works Offices are statement by the Chairman, at the opening of the managed by eight Regional Offices in England, the Committee’s hearing, on the need to root out Directorate of Scottish Services and the Central corruption in the public sector and if necessary Office for Wales. Together these Regional and expand more rescmrces on this task than might be District Works Offices comprise the Property considered appropriate in the private sector. In their Services Agency’s United Kingdom Territorial Twenty-Sixth Report, Session 1983-84 (HC 2951, the Organisation, whose activities are co-ordinated by Committee welcomed these assurances. However, the Headquarters Directorate of Home Regional they expressed great concern at the Wardale Report Services. diagnosis, which accorded closely with my predecessor’s audit findings. Furthermore, they 1.3 The Property Services Agency have, over a deplored the time the Agency bad taken to number of years, paid close attention to the appreciate the nature and scale of the problems and incidence of fraud and irregularity in District Works to take effective remedial measures. Offices and to the level of control operating in those Districts. Their action has been closely monitored 1.7 Following a National Audit Office Report in by the Committee of Public Accounts, who have April 1984 on the Property Services Agency’s examined the Agency on several occasions. Building Maintenance Expenditure in the UK, the Committee of Public Accounts further examined 1.4 Following the discovery of a number of frauds the Property Services Agency. In their Thirtieth and irregularities in District Works Offices between Report, Session 1983-84 (HC 4491, they welcomed 1979 and 1981, the Committee of Public Accounts, the Agency’s constructive response, their in their Twenty-Fifth Report, Session 1981-82 (HC recognition of the need for changes in management 382), expressed concern that prescribed checks style, and their general assurances about remedial were not operating properly and that there were action. The Committee recommended a number of delays in implementing revised controls. In their changes, particularly concerning the Agency’s conclusion they agreed with the Property Services organisational structure, information systems and Agency that it was right for the public sector to be management review techniques. prepared to spend more than the private sector to limit fraud and corruption. 1.8 In November 1984 an article in the News of the World made allegations of further fraud and 1.5 The serious extent of fraud and irregularity in corruption in the Property Services Agency. In the Property Services Agency led the Secretary of March 1985 the Committee of Public Accounts State for the Environment to commission, in April examined the Agency’s response to these allegations 1982, a Report from Sir Geoffrey Wardale (a former and their actions to implement the Wardale Report, second Permanent Secretary in the Department of the National Audit Office Report and a third Report, the Environment) and Mr Anthony Herron (a senior resulting from a Rayner Study on District Works partner in Touche Ross), to investigate the Offices. In their evidence to the Committee the circumstances of these cases and to recommend Agency attributed an increase in the number of appropriate changes in procedure or organisation. suspected frauds and irregularities reported in 1984, The final Report, published in October 1983, was which included those revealed by the News of the

6 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

World, to improved and more comprehensive District Works Office operations reporting rather than to a higher incidence of cases. Nevertheless, they accepted that there was still a 1.13 District Works Offices undertake most of their serious situation in the Agency and said their aim maintenance and minor new works through was to tackle it vigorously and bring cases into the contractors. The form of contract employed depends open as fully as possible. The Agency reported on on the nature and size of the work. Appendix 1 progress in implementing action plans arising from describes the six main types of contract which the three reviews and on a number of other matters District Works Offices may use. Districts are touching District Works Office control. responsible for letting jobbing work limited to 0,000 per order and also lump sum contracts up to f25,OOO in value, whilst Regional Offices let all 1.9 Following this examination, the Committee of term contracts and those lump sum contracts in Public Accounts, in their Nineteenth Report, excess of 2225,000.District Works Offices may place Session 1984-85, (HC 256), published in June 1985, orders under their own authority against measured noted the considerable progress made. They insisted term contracts up to an individual value of f20,000 that the momentum of reform had to be maintained. provided it forms part of an approved project; With the objectives of further strengthening higher value orders may only be placed with prior Headquarters management’s oversight of the Regional Office approval. In all cases the District District Works Offices and of achieving better value Works Offices are responsible for monitoring for money, they urged the Property Services Agency completion of the contract or order and authorising to pay particular attention to improving payments to the contractor. management information at the centre, shortening the chain of command and developing the newly 1.14 In 1988-89 these contracts and orders introduced District Management Review technique. accounted for 85 per cent (E726 million) of the total In a Treasury Minute published in October 1985, expenditure of E650 million. Most Districts retain a the Treasury and the Agency confirmed the high Directly Employed Labour force to undertake priority being given to these particular areas. certain maintenance work (see Part 5). Their costs in 1988-89, including overheads and stock purchases, accounted for some 11 per cent [Ego Scope of the National Audit Office review million] of the total expenditure. The remaining 4 per cent (E34 million) was incurred on special stores 1.10 The National Audit Office have now purchased for incorporation into work being carried completed a further investigation of controls in out by contractors. District Works Offices. The aim was to examine the extent to which the Property Services Agency have improved the operation and level of management 1.15 Appendix 2 summarises the results of an controls in District Works Offices so as to improve analysis by the National Audit Office of the main value for money and minimise the risk of fraud and underlying risks to value for money and fraud and irregularity. abuse which would attach to these expenditure areas if the Property Services Agency had not introduced checks and controls. Figure 1 classifies 1.11 The National Audit Office’s investigation 1966-89 expenditure on the basis of this risk included visits to thirteen District Works Offices assessment, and the value of the transactions and six associated Regional Offices but did not involved. It shows that 79 per cent of expenditure is cover District Works Offices in overseas Regions. in areas of high underlying risk. These are subject to similar checks and controls as those established in the United Kingdom Territorial 1.16 The Property Services Agency consider that Organisation. an assessment of the underlying risks attaching to these expenditure areas involves many factors which the broad analysis at Figure 1 may not fully 1.12 The examination covered management reflect. The Agency accept, however, that the controls of the Property Services Agency’s Directly analysis conveys the relativities of risk for the Employed Labour force, and their associated stores purpose of assessing the adequacy of controls. Parts support, only at the broader level of overall 2 to 5 of this Report summarise the action taken by management control, and did not include an the Agency to address these risks, which are assessment of the economy, efficiency and controlled by different levels of management (see effectiveness of individual local labour forces. Appendix 1).

7 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Figure 1 The National Audit Office’s assessment of District Works Office expenditure before consideration of checks and controls

1968-89 Em 298 HIGH UNDERLYING RISK LOW/MEDIUM UNDERLYING RISK TO VALUE FOR MONEY TO VALUE FOR MONEY

Measured Lump Sum Lump Sum Directly Other stores Term Contracts Jobbing Contracts Employed Term Specially Contracts over under Labour Contracts Purchased F25,ooo .w+5,000

Parts 2 to 5 of this Report summarise the action taken by the Property Services Agency to address the underlying risks.

A more competitive environment priorities and initiating work remained with the Property Services Agency. The Committee’s 1.17 Since the early 1980s there have been recommendations led to increased levels of important changes in the Property Services delegation to departments for minor new works and Agency’s relationship with their clients which have maintenance, within a range of options. There was had a significant impact on the work of District a “traditional” option, for smaller departments who Works Offices. In April 1983, after a study by an wished to retain the existing levels of delegation, Inter-Departmental Group, Ministers established the and a “radical” option, providing considerable Property Repayment Services scheme to cover most freedom of choice, trialled by two departments from accommodation previously provided by the Agency October 1986. But most departments adopted the as an allied service. Under the new scheme “standard” option, from April 1987, which departments were required to pay the Agency for increased to E5,OOOthe delegation to make their accommodation and services provided, mainly by own arrangements for minor new works and way of an “Accommodation Charge”. They were maintenance (subject to certain conditions) and also given some devolved responsibility to order gave them responsibility for all internal decorations direct from suppliers, and to meet the costs, up to without financial limit. These departments were specified limits, from their own Votes of certain also given responsibility for determining their own supplies and services including minor new works requirements for minor new works uver f5,000, and and maintenance. commissioning them from the Agency on a repayment basis. In addition, if departments were 1.18 In 1986 the Inter-Departmental Committee dissatisfied with the timetable and cost estimates highlighted a problem in the share of offered by the Agency they were able, after responsibilities: departments paid the charges but to agreement to commission work up to f25,OOO direct a large extent responsibility for determining from contractors.

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1.19 Although District Works Offices were not comprise four elements: PSA Projects, PSA directly affected, comparable developments were Specialist Services, PSA International and PSA taking place in respect of major new works. For Building Management. The latter will include the these, all civil departments were ‘untied’ from the management of the operations of District Works Property Services Agency from April 1988, subject Offices. A Bill to facilitate the privatisation of the to their meeting certain conditions prescribed by PSA Services (Property Services Agency and Crown the Treasury. Suppliers Bill) has now been introduced to Parliament. The Agency’s responsibilities for 1.20 In May 1988 the Secretary of State for the management of the Common User Estate and Environment announced that the Property Services certain central functions will be retained under Agency should become a commercial organisation direct government control and will transfer in April and move towards a Trading Fund by 1993 [this 1990 to a new Property Holdings command within the target was subsequently brought forward to 1992). Department of the Environment. The main changes, designed to expose the Agency to outside competition as rapidly as possible, 1.22 For District Works Offices, these various involved the creation by April 1990 of three changes and planned developments have created a separate businesses (Project Services, Estate more commercial, competitive environment for Services and Management of the Common User maintenance and minor new works services and Estate] together with the untying of all government have provided an added impetus to improve departments (Civil and Defence] from the Agency. economy, efficiency and effectiveness with the aim of retaining the current client base. The changes 1.21 In September 1989 the Secretary of State for have also created a need to review the cost the Environment decided to accelerate progress effectiveness of resource-intensive checks and towards commercialisation and competitiveness and controls. The Property Services Agency recognise, announced that from April 1990 the Agency would however, that in their drive to become more be split into Property Holdings and PSA Services, competitive they must continue to demonstrate the latter to be privatised in 1992. PSA Services will their proper stewardship over public funds.

9 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Part 2: Control environment

2.1 To ensure that each part of a large organisation different underlying risks (Appendix 2). They also operates efficiently and effectively, that organisation recognise that most District Works Offices will need needs to establish a framework of good management to use the full range of contract types if work is to control-the control environment. The aim should be undertaken in the most cost effective manner. be to ensure that all activities are properly directed, To aid this process, the Agency instructed all monitored and controlled and that they are co- District Works Offices in February 1987 as to how ordinated to achieve the required common to develop individual local contract strategies. objectives. As a preliminary to examining the more detailed, specific controls, the National Audit Office 2.5 Strategies have now been produced for every examined progress made by the Property Services District Works Office. They set out the nature and Agency in strengthening those aspects of the control volume of likely workload; review the adequacy, environment which have a particular bearing on economy and effectiveness of existing contract the activities of the District Works Offices. types used; and identify the most affective means available to carry out the work. They have been Organisation developed by the District Works Offices in conjunction with Group Managers and, in some 2.2 Between 1986 and 1988 the Property Services cases, with the Group Quantity Surveyors. The Agency reorganised the United Kingdom Territorial strategies are also intended to be used as a Organisation. This has principally involved benchmark against which each District Works removing the separate Works and Estates Area Office’s actual contract usage may be monitored. Office management tiers and replacing them with 28 integrated Regional Group Management Offices, 2.6 Although the strategies are generally drawn up amalgamated into the Regional Office tier. With so as to reflect local circumstances, they take these Offices dedicated to the management of the account of national and regional targets. For District Works Offices, and the resulting shorter example, nationally the Property Services Agency’s chain of command, the Agency expect the new aim has been to shift expenditure away from term arrangement to produce more effective management contracts (which have high underlying risks-see and oversight of District Works Office activities. paragraph 1.15 and Appendix 2) towards lump sum Notably, the Group Managers have a direct line contracts (where the risks are more easily covered). management responsibility for the District Works The Agency have thus, over the five years to Offices. This includes ensuring that they are 1988-89, succeeded in changing by 11 per cent the operating efficiently and effectively and are balance from term to lump sum contracts. provided with the necessary support. 2.7 For 1987-88 the Property Services Agency set a The Property Services Agency have informed 2.3 national objective that expenditure on jobbing the National Audit Office that Group Management orders should not exceed 4 per cent of total contract Teams have now developed a programme of annual expenditure on minor works and maintenance. This visits to District Works Offices; these are in addition was intended to achieve a reduction in the use of to District Management Reviews (paragraphs 3.2 to these small ad hoc contracts where control is 3.11). Although at the time of the National Audit difficult to enforce (see Appendix 2 items 5 and 9). Office review Group Managers had not had time to In practice, after making adjustments to exclude develop the full potential of their role, the National miscellaneous costs, jobbing work expenditure Audit Office noted that they had already played a amounted to 5.5 per cent of total contract significant part in improving control in two expenditure. Performance between Regions varied important respects: the development of contract substantially, from less than 3 per cent in the strategies (paragraphs 2.4 to 2.8) and the monitoring Southern Region to 11 per cent in the London .of contract patterns to identify patronage Region. The Agency consider that in many locations (paragraphs 4.15 and 4.16). it is the most suitable and economic means Contract strategies available to get low value work done. 2.4 The Property Services Agency recognise that 2.8 In general, the Property Services Agency have, the different types of contracts they employ carry however, moved away from setting prescriptive

10 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES national targets as a basis for formulating local group of buildings and to enable clients’ funds to be strategies. The Agency have therefore now adopted related to maintenance expenditure in respect of a more flexible approach, relying on Group their property. These shortcomings impair the Managers and Group Quantity Surveyors to ensure Property Services Agency’s ability to exercise a that each District Works Office’s contract strategy close discipline over maintenance expenditure of represents the most effective means of meeting particular customers. This is of especial significance local conditions. in view of the Secretary of State’s decision to “untie” all departments from the Agency by April Management information systems and 1990. financial control 2.12 Each Office’s Works Intermediate System is 2.9 In January 1985 the Property Services Agency independent and there are no network presented to the Committee of Public Accounts communication links with Regional or Headquarters their action plans arising from the Rayner Study of Offices. Thus the system is unable to draw on District Works Offices, the Wardale Report and the information from outside the particular District National Audit Office Report on Building Works Office, for example, to relate maintenance Maintenance. Since then, the Agency have expenditure with “estates” information such as the implemented most of the recommendations. For type, age and running costs of properties or District Works Offices these further changes have buildings. Equally, although Regional and included a review of the level to which financial Headquarter Offices may examine the output from authorisation should be delegated, the introduction the individual District Works Office systems, they of a three year forward maintenance programme are unable to obtain direct electronic access to the [which has now mostly been extended to five data, either by individual offices or in aggregate. years), and the installation of a computerised financial information system (the Works 2.13 In oral evidence to the Committee of Public Intermediate System). Two important areas in Accounts in March 1985, the Property Services which the Agency have not yet achieved promised Agency recognised that the system left a gap in developments or implemented accepted information for central management but indicated recommendations are the further development of that, having made advances in developing their the Works Intermediate System and the information technology, improvements would be establishment of a budgetary control system. brought about well within the five-year period then estimated for implementation of the strategy. The 2.10 The Works Intermediate System was Agency have informed the National Audit Office introduced progressively between early 1984 and that they are discussing with client departments the April 1985 to meet the immediate needs of the best means of recording expenditure and providing District Works Offices until such time as a more management information for all properties. They comprehensive system could be made available. are working on a replacement for the Works The system operates in each District Works Office Intermediate System which they expect to have to provide a means of recording information on introduced throughout the organisation by April maintenance expenditure and commitments, and to 1991. produce works orders and monitor maintenance contracts. 2.14 The three external Reports referred to in paragraph 2.9 were unanimous in recommending 2.11 As noted in the National Audit Office Report that the Property Services Agency should introduce on Building Maintenance Expenditure in the UK, a budgetary control system for the maintenance published in 1984, and the Reports on the Defence expenditure of District Works Offices. Such a and Civil Estate Management, published in January system is an essential complement to the Works 1987 and May 1988, the Works Intermediate System Intermediate System: it should provide a firm basis only provides details of expenditure and for planning maintenance expenditure and commitments by job or property (the latter may establishing benchmarks against which the Agency cover many buildings), although this is may monitor the reasonableness of the actual supplemented by five-year expenditure reports recorded expenditure. produced from accounting records. It does not routinely provide information in respect of 2.15 The Property Services Agency’s attempts to individual buildings or clients. Thus the system is establish an acceptable, workable system have not limited in the amount of information it can produce been successful. An initial budgetary control system to enable management to assess effectively the was introduced in a number of Districts in 1985-86 maintenance costs of an individual building or but was abandoned as being too complex and

11 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES labour intensive. A simpler system was introduced higher risk. This mainly relates to District Works at seven District Works Offices for a 12 month trial Offices, and accordingly Internal Audit spent time period from June 1987. Five of the seven Districts equivalent to 13 staff years in 1988-89. The 1989-90 had abandoned the scheme within the first six plan included provision for an equivalent of 14 staff months of the trial, and a sixth wished to revert to years to be spent on cyclical audits. Internal Audit a manual system. These Districts reported that they considered that their ability to carry out the had experienced problems with the system, had planned programme would largely depend on their insufficient staff to operate it and that they success in recruiting, training and retaining staff, preferred alternative means of maintaining financial and recent signs in this respect have been control. encouraging.

2.16 Following a further review, in June 1988, and 2.20 Over the years Internal Audit’s recognising that recent transfers of responsibility to recommendations have led to advances and clients had reduced the Property Services Agency’s improvements in controls at District Works Offices. maintenance workload, particularly for the smaller These included a new system for supervisory maintenance jobs (under ?ZZ,SOO),the Agency checks on works and stock orders prior to their decided not to extend the trial system. The Agency issue; setting up a working party to consider have now informed the National Audit Office that standardisation of works and stock order forms; and they intend to develop a new client budget control establishing a trial arrangement for segregating the system as part of their introduction of commercial stock handling and recording functions (paragraph accounting. 5.19).

Internal Audit 2.21 The work of Internal Audit’s Central Inquiry Unit, set up in 1987 to investigate and take action 2.17 The National Audit Office’s 1987 Report on on suspected frauds and irregularities, is covered in Internal Audit in Central Government concluded paragraphs 4.17 to 4.19. that, since last reviewed in 1981, substantial improvements had been made in all aspects of the work of the Property Services Agency’s Internal Checks on quality Audit unit. The Report welcomed the establishment in 1986 of an Audit Committee, including two non- 2.22 Recent and planned changes in their executive Agency Board members, to review and relationship with clients (paragraphs 1.16 to 1.21) direct their work and liaise with senior have w-affirmed the need for the Property Services management; but noted that difficulties in Agency to ensure client satisfaction and provide a recruiting and retaining suitable staff could hinder quality service. There are a number of ways in the unit’s development. which the Agency currently attempt to gauge and monitor their success in achieving these aims. For 2.18 In the latter part of 1985-86 Internal Audit District Works Offices, this is mainly through started a programme of major systems reviews to frequent contact with client departments to help identify the key controls and risks. The programme ensure that the quality of service provided meets was completed in 1988-89. These reviews were to the user’s needs. They hold monthly meetings with befollowed up by cyclicalaudits to testcompliance clients to discussthe progress of worksand with key controls and to sample transactions. In routinely monitor response times to client demands. 1985-86 Internal Audit managed to achieve The Agency have informed the National Audit substantial coverage of District Works Offices, Office that they have reviewed this latter system to mainly on the traditional basis of comprehensive try to reduce its resource costs and propose to coverage of all activities, with an equivalent of include a progress and monitoring facility in their some 13 staff years dedicated to this work. Because new Information Technology system by April 1991. of the emphasis given to systems review work in In addition, Regional Offices monitor all customer 1986-87 only four staff years were spent on the new complaints to identify patterns of failings with a cyclical audits in that year. In 1987-88 coverage view to initiating any necessary remedial action. rose to the equivalent of seven staff years despite staff shortages and the need to complete systems 2.23 These measures are supported by information reviews. on quality of service derived from the regular reviews, checks and controls. Thus the 5 per cent 2.19 In April 1987 Internal Audit had decided, and 2 per cent management checks (paragraphs with the encouragement of the Audit Committee, to 3.12 to 3.15) provide a means of assessing work target their audit more selectively towards areas of quality. The Works Intermediate System

12 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

(paragraphs 2.10 to 2.13) allows District Works Management Reviews (paragraphs 3.2 to 3.11) also Office staff to monitor progress and expenditure on contribute to improved quality, particularly with maintenance work (though there are shortcomings their examination of maintenance inspections and in the extent to which information can be related to strategies, their review of management controls and clients’ needs-see paragraph 2.11). The District through discussion with major client departments.

13 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Part 3: The application of specific checks

3.1 The National Audit Office reviewed a number Services Agency’s Management Division will be of specific key checks undertaken by management examining implementation of recommendations on the operations of District Works Offices. These from the earlier rounds. have important roles in helping District Works Offices to prevent and detect irregularity, promote 3.4 As the District Management Reviews progress, value for money and establish consistent standards. the Management Division constantly analyses the findings to identify significant and common areas of District Management Reviews weakness. Lessons learnt are disseminated to staff by issuing new or revised instructions or advisory 3.2 Following criticisms in the Wardale Report and information notes offering practical guidance. the National Audit Office Report on Building Thirteen of the latter had been issued by April Maintenance, the Property Services Agency 1989, covering such topics as district contract introduced in April 1965 a system of District strategies; the prevention of fraud, theft and Management Reviews to provide a comprehensive corruption; the preparation for and management of examination of all District Works Offices once every measured term and lump sum contracts; and the two years. A Management Division within the assessment of value for money in daywork term Directorate of Home Regional Services was contracts. The changes now underway within the established to direct, co-ordinate and monitor the Agency have prevented the issue of further programme. The reviews are intended to inform guidance notes until the new organisation and management on the effectiveness of management working practices are clear. controls and the adequacy of inspection and maintenance standards, and to indicate the extent 3.5 The Management Division are also responsible to which District Works Offices have complied with for ensuring that the District Management Reviews these controls and standards and achieved value for are themselves carried out to a high standard. Their money. They are also seen by the Agency as assessment of the first round of reviews indicated exercising a strong training influence over the that almost one third (49 out of 149) had been District Works Office staff by helping them to carried out to a less than satisfactory standard. understand and properly implement the procedures. They considered that some of the reports lacked Most reviews have been undertaken by a penetration, others lacked judgement, and some regionally-based multi-disciplined team of were incomplete. However, the Property Services experienced technical officers led by a Group Agency told the National Audit Office that most of Manager or other senior manager. To provide these poorer reviews had been undertaken during quality assurance and help maintain consistency of the first six months or so of the cycle and that the the review standards, the Management Division standard of later reviews had improved noticeably. itselfcarries out onereview in eachRegion TheAgency now consider that reviewstandards are annually. generally consistent and they consequently no longer formally record assessments of the quality of 3.3 Recommendations arising from each District reviews. Management Review are followed up and effective implementation monitored by Regional 3.6 The first round of District Management Maintenance Support Managers on the basis of an Reviews was completed in March 1987 and a action plan produced by the Review team. All summary of the findings, as assessed by the recommendations are expected to be implemented Property Services Agency, is at Appendix 3. This within one year of the date of the District shows the review teams’ assessments, on a four Management Review report. In the 13 District point scale ranging from satisfactory to Works Offices visited by the National Audit Office unsatisfactory, of District Works Office performance suitable action plans had been prepared and, with against nine summary headings covering the full some relatively minor exceptions, all the range of their activities. It indicates that most recommendations had been implemented within the District Works Offices had performed satisfactorily, required timescale. As part of their review of each or close to that standard, in most of the activities round of District Management Reviews the Property assessed. However, the analysis shows that in each

14 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

of the activities assessed, around one fifth of the 3.10 For these reasons the Property Services Districts were judged unsatisfactory or with Agency are considering ways in which they might considerable room for improvement. retain the benefits of the review system while reducing its cost. They decided in September 1988, 3.7 The weakest area was the operation of the largely on grounds of resource costs and shortages inspection systems and maintenance strategy, where of experienced staff, that for the third cycle of 52 Districts (nearly 35 per cent) were judged as reviews, beginning in April 1989, the cycle of performing below standard. The Property Services coverage should be extended from two to three Agency’s further analysis of this area revealed two years. Regarding London Region Districts, this main shortcomings. First, maintenance inspection decision was made against the advice of an enquiry systems needed to be better co-ordinated and team who had recommended in 1987 that reviews lacked positive control by senior District and Group should continue to be undertaken not less than Management staff. The Agency recognise that such once every two years in these Districts for the a deficiency can lead to poor value for money foreseeable future (paragraph 4.12). However, at through inefficient use of staff resources and are their discretion Regions will be able to retain the planning to issue further guidance. Secondly, the existing cycle OI supplement the three years cycle planned maintenance system had not been with interim reviews of selected functions. The operating affectively. In addition, although the Agency decided against undertaking all reviews on reviews concluded that 76 per cent of Districts were a selective, rather than comprehensive, basis; the overall satisfactory in the area of Execution of Work results of an experimental selective review and Analysis of Contracting Methods, within this indicated that the loss in assurance on overall area the reviews found that nearly half of the performance at a number of the least efficient Districts were poor in the important element of Districts was unacceptable. However, the Agency estimating the costs of works orders and contracts. are exploring other ways of making the review The implications of this weakness are dealt with in reports shorter and sharper, in order to reduce the paragraphs 4.20 to 4.24. substantial staff input in report preparation and 3.6 By the end of March 1989 the Property analysis. Services Agency had completed the second two- year round of Reviews. A number of Reports are 3.11 As a further possible means of reducing still being processed but the assessment of 110 resource costs, the Property Services Agency received and evaluated by December 1989 showed a considered using external consultants to undertake general improvement in performance (Appendix 3). District Management Reviews. Initial enquiries However, the effectiveness of inspection systems indicated that this might result in an increase in and maintenance strategy remained a particular cost of some 50 per cent, without any improvement weakness, with 31 of the 110 Districts (28 per cent] in quality-very few consultants were thought to assessed as below standard. This was largely have sufficient knowledge of the Agency’s practices attributed to a backlog of inspection work and to and procedures. The possibility has not been the delayed implementation, because of severe staff pursued further. shortages, of a new planned maintenance system. Performance in the quality and accuracy of Management check estimating also remained poor. 3.12 Each District Works Officer is required to 3.9 While the Property Services Agency have carry out a thorough check of at least 5 per cent of found the system of District Management Reviews all works and stores orders passed for payment by to be a valuable aid to improving controls and value his staff. The Group Manager is required to for money in District Works Offices, they are accompany the District Works Officer on his checks concerned that the review process is expensive in for one day each quarter and to reperform checks resources. Each review requires a dedicated team of on 2 per cent of the orders checked by him. To three or four senior technical officers for some six enable the officers to take account of relative risk weeks: with 149 District Works Offices reviewed the 5 per cent sample is selected judgementally over two years this represented an annual from an initial random 10 per cent sample. The manpower requirement of some 30 to 40 staff years. Property Services Agency estimate that these Including some eight staff years in the Management checks cost more than El million a year. The Division, the Agency estimate that the total annual checks are intended to help assess work quality and cost of the reviews in 1987-88 was around El.4 documentation accuracy, provide a means of million. Furthermore, the Agency have frequently management oversight, help staff training and had difficulty in finding the right quality of staff to monitor client satisfaction. They are also seen by undertake the reviews. the Agency as a means of obtaining assurance that

15 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES value for money has been achieved, and as a strong 3.17 Past experience of fraud and irregularity has deterrent against fraud and impropriety. led the Property Services Agency to take steps to tighten control over these contracts. Since 1985 3.13 Following criticisms in the Wardale Report District Works Offices have been required to obtain (1983) and in a National Audit Office Memorandum Regional authorisation before placing any order in to the Committee of Public Accounts on Systems excess of ~20,000 against a measured term contract. Controls in District Works Offices (1984), the In addition, since 1985, the Agency have used their Property Services Agency strengthened the own quantity surveyors to undertake a full arrangements for carrying out and recording these technical check on a random statistical sample of all checks. In particular, they issued instructions on final accounts for measured term orders. how the sample items were to be selected: set criteria under which the District Works Officer 3.16 Until February 1987 the level of the sample might, if necessary, delegate some part of the was 5 per cent of all accounts, regardless of size and checking; provided for the sample size to be risk. But from February 1987 the Property Services increased in the event of problems being found; and Agency revised this requirement to concentrate recommended a standard format for recording the resources on those areas which past experience results of checks and for summarising the Regional showed were most at risk. They reduced the main results. random statistical sample size from 5 per cent to 1 per cent, but required checks to be carried out on an additional random 2 per cent of all those final 3.14 In April 1988 the Property Services Agency accounts where the contractor had measured the produced their first overall annual review of the results of these management checks. This revealed work himself (this covered orders, at that time, up to El,000 in value). that 90 per cent of checks recorded satisfactory results. The remainder uncovered no serious 3.19 The results of the random statistical sample irregularities, but highlighted a number of checks are reported centrally to senior management shortcomings in estimating, workmanship, site control, specifications and compliance with via the Headquarters branch responsible for Quantity Surveying. These showed that, overall, the procedures. From this review the Agency concluded that the checks, which have been estimated to take checks identified a net overspend of around 1 per cent of the value checked, which if extrapolated up to 20 per cent of a District Works Officer’s time, across all measured term work, would represent in remained a valuable management aid and that they should continue at the existing level for the time 1987-88, for example, a net overpayment of some E3 million. The results also showed that the higher being. risk self-measured work, with net overpayments of around 3 per cent of the value checked, was 3.15 In 1987-88 some 93 per cent of District Works substantially more prone to error than the work Offices achieved the 5 per cent checking level. measured by the Property Services Agency or District Management Reviews have reported that consultant Quantity Surveyors. This justifies the the system has worked effectively and that most Agency’s decision to adopt a higher level of checks Districts have carried out the checks to a for self-measured work. satisfactory standard. In the 13 District Works Offices visited by the National Audit Office the 3.20 In addition,the Property Services Agency use checks were generally being carried out in line with quantity surveyors to check a number of orders instructions. selected by Regional Offices, including in particular any contracts regarded by the Regional Office as Additional checks on measured term high risk-continuous checking of orders is further contracts required where significant errors have been identified, or in the case of a persistent offender. 3.16 The National Audit Office consider that The results of the checks on high risk orders measured term contracts carry high underlying selected by Regional Offices are not required to be risks and Figure 1 (para 1.15) shows that they reported centrally. The National Audit Office noted account for the largest single share of District from an analysis in one Regional Group that in a 12 Works Office expenditure (E298 million in 1988-89). month period to the end of January 1988, 31 out of Standing instructions require Property Services 141 orders checked had been in error, and that the Agency or nominated consultant quantity surveyors size of the error averaged 20 per cent of the value to measure completed work before final payment is of the orders checked. The Agency told the authorised, though small orders may be measured National Audit Office that they saw no value in by the contractors themselves. having these results reported centrally, because the

16 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

intended bias towards high risk areas precluded the 3.23 The Property Services Agency estimate that possibility of extrapolating the results and drawing these changes will leave the overall cost of broader conclusions. They regarded the high size of measurement and checking unchanged, though they errors found as a good indicator that the checks envisage scope for some reduction in the levels of were, as intended, covering the high risk areas. checks Once the new procedures have settled down. However, they are hopeful that the changes will 3.21 The Property Services Agency have continued further focus efforts towards tighter control Over the to examine ways in which the quantity surveyor measurement of term contracts. measurement and checks could be made more efficient and from April 1988 introduced further Contract procedures changes. They raised the limit for self-measured orders from an optional 0,000 to a mandatory 3.24 In the six Regions visited, the National Audit E2,500 - the new level covering about 90 per cant Office found that Regional Contracts Branches and by number and 50 per cent by value of all Group Management staff both contributed to the measured term contract orders-but with the inspection and oversight of contract procedures requirement that the contractor should secure a operated by the District Works Offices. However, quantity surveyor OI other competent person to while some Regions had formal arrangements for undertake the measuring. (The Agency propose, in co-ordinating these inspections, others did not, with due course, to monitor compliance with this the result that the nature and frequency of visits stipulation.) were variable. The Property Services Agency have told the National Audit Office that, following a 3.22 To counter the consequent increase in risk, review of District contract procedures completed in the level of checks on self-measured work was June 1988 (see paragraph 4.131, new instructions increased to a minimum 10 per cent overall of final have been issued to Regional Contracts Branches accounts (5 per cent random statistical selection and requiring them to undertake annual examinations 5 per cent minimum selected at local discretion). at all District Works Offices. This is intended to The Property Services Agency have decided that, to improve the effectiveness and consistency of the free scarce in-house quantity surveyor resources, inspections. these checks should be undertaken by nominated consultant quantity surveyors. As a check on the 3.25 The Property Services Agency have also told quality of this work the Agency require their own the National Audit Office that they propose that all quantity surveyors to recheck 10 per cent of the District Works Office staff engaged in contract items. To ensure that due weight is given to the procedure work will, after six months in post, higher value orders the Agency further require that attend a training course. This is intended to ensure a minimum 4 per cent of all orders in excess of that these staff are thoroughly familiar with the laid f&500 should be rechecked by in-house quantity down procedures and that they are aware of the surveyors. risks to value for money and propriety.

17 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Part 4: Fraud and irregularity

Incidence of fraud and irregularity They gave the Committee details of 21 of the 69 cases they considered serious (Committee of 4.1 In January 1965 the Property Services Agency Public Accounts, Nineteenth Report, Session reported to the Committee of Public Accounts that 1984-85 (HC 256), pages 43-46). Fifteen of these during 1984 they had identified and investigated 69 related directly to United Kingdom District Works cases of suspected fraud or irregularity (45 of which Office activities. The outcome of 13 serious cases related to United Kingdom District Works Offices). uncleared at that time-including one which still

Table 1 Suspected fraud or irregularity in United Kingdom District Works Offices

PSA investigations Total cases reported 45 31 9 40 30 110

Cases where no fraud or 13 11 0 1.5 6 32 irregularity established Cases where fraud or 32 20 9 25 24 78 irregularity established Established fraud and 1 - - 5 6 11 irregularity cases undergoing further investigation as at January 1990

Cases referred to the police Cases referred to police, 5 8 4 10 9 31 but no prosecutions made Cases referred to police 10 3 0 2 2 7 and prosecutions made Casesnot referred 16 9 5 8 7 29 to police

COIl”iCtlOnS No. of staff convicted 16 3 0 1 0 4 No. of contractors 13 1 0 3 5 9 convicted

Value of losses Estimated value of E1,680,000 E65,OOO E30,OOO E45,OOO f28,OOO E168,OOO gross losses (1) (2)

1. Includes the News of the World case (El.35 million). 2. In 28 cases there was no loss or the loss was not quantifiable. Details of 17 cases, involving total estimated gross losses of at last E127,000, identified as serious by the National Audit Office in consultation with the Property Services Agency, are summarised at Appendix 5.

18 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Table 2 Analysis by type of those irregularities relating to United Kingdom District Works Offices

Contractors cases withholding of discounts 0 overcharging 8 contractual irregularity 2

Total 10 5 5 6 6 22

Cases involving staff and contractors overcharging 3 0 0 2 0 2 contractual irregularity 3 3 1 3 4 11

Total 6 3 1 5 4 13

Staff cases theft of cash. 0 4 0 0 0 4 fraudulent cash claims 2 1 2 5 3 11 theft or misuse of goods 11 5 1 9 11 26 other, including failure 3 2 0 0 0 2 to follow procedures

Total 16 12 3 14 14 43 remained outstanding at the end of 1989 -is had not yet been determined. At this stage it is too summarised at Appendix 4. The News of the World early to give a similar conspectus of the 1989 cases. case is dealt with separately at paragraphs 4.7 to 4.14. 4.3 The Agency’s regulations require that whenever cases give rise to suspected criminal 4.2 Between the start of 1985 and the end of 1988 activity, the Principal Establishments Officer should a further 110 cases of suspected fraud or decide, in consultation with the Principal Finance irregularity relating to United Kingdom District Officer whether the police should be informed. Works Offices were reported to and investigated by Where contractors are involved the Contracts either the Property Services Agency’s Contracts Directorate will also give advice. The Agency’s Branch or, since 1987, by the Central Inquiry Unit criteria for determining the circumstances in which (paragraphs 4.17 to 4.19). In 78 of these 110 cases they would refer a case to the police are set out in the Agency had determined that fraud or Appendix 6. The decision as to whether to irregularity had taken place. Of those, 35 cases prosecute in any particular case falls to the Crown referred to contractual frauds and irregularities and Prosecution Service or the Procurator Fiscal. Table 43 to individual staff cases primarily involving 1 summarises action taken in the cases reported minor value thefts of goods or cash. The Agency between 1984 and 1988. referred a total of 38 cases to the police of which 12 related to contractual fraud and irregularity whilst a 4.4 In addition to the convictions shown above, further 11 cases were still being investigated. The the cases in Table 1, in respect of the four years Agency have estimated that gross losses from all from 1985 to 1988, have also resulted in the cases in the four year period from 1985 to 1988 dismissal of 18 staff, and other disciplinary action amounted to at least 068,000. But the extent of loss such as demotion or loss of pay against 19 others. in eight cases, including three identified as serious Ten members of staff also implicated in these cases

19 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES resigned. Additional action taken by the Property contractors varied from 9 months suspended to 12 Services Agency against at least 18 of the months imprisonment. In addition, substantial fines contractors involved in the cases included were imposed in some individual cases in both cancellation of contracts, imposition of a ban on categories. The estimated gross loss arising from tendering and the withholding of monies due. these irregularities amounted to f 1.35 million.

4.5 The Property Services Agency’s Contracts 4.9 A key element in the investigations was the Directorate have prepared annual reports to the setting up by the Property Services Agency, starting Chief Executive on the incidence of fraud and in December 1984 within a few weeks of the irregularity. Their reviews for 1987-88 and 1988-89 allegations, of a system of analysing tender records concluded that staff-related cases mainly involved for some 11,000 contracts let by the Agency’s theft or the submission of false claims such as those London Districts between 1982 and 1984. This for overtime, travel and subsistence. More than half database enabled the tender records of individual of all cases involving contractors have related to contractors and groups of contractors to be term contracts, including overcharging on daywork extracted and for patterns of tendering within term contracts, overmeasurement on self-measured individual Districts or London as a whole to be orders and withholding of discounts due. Most of identified. This, in turn, led to the identification of the other contractor related cases relate to lump individual contracts for more detailed examination. sum contracts. The Agency told the National Audit Office that they did not regard as significant the 4.10 Police investigations concentrated changes in the level of cases arising between 1985 progressively on the four London Districts referred and 1988. Although fewer cases of fraud or to in paragraph 4.7. Using data from the Property irregularity were reported in 1966 they considered Services Agency’s tender records the police that a longer period was needed to determine a identified some 250 lump sum contracts, mainly better sense of the general trend. They pointed out within those Districts, for detailed investigation. that in 1984 there were 16 cases of contractual Work done under each of these contracts was re- fraud or irregularity whereas in the four years from measured by a special team of quantity surveyors 1985 to 1988 the number of cases ranged from set up within the Agency. As a direct result of these 6 to 11. re-measurements the Agency suspended more than 50 firms from tendering for new work. The re- 4.6 Table 2 is an analysis by the National Audit measurements also became a key element in the Office of the cases arising between 1984 and 1988 subsequent prosecution cases. where frauds or irregularities have been established. 4.11 The Property Services Agency carried out a number of other special reviews to assist the prosecution of cases and identify the origins, nature Press allegations in 1984: Investigations and full extent of the irregularities. In 1985 they and trials examined lump sum contracts up to f25,ooo let between 1982 and 1984 in all Agency Districts, both 4.7 The allegations made in the News of the World in London and elsewhere. In 1986 a special enquiry in November 1984 were found to relate mainly to team carried out audits of contract and jobbing the awardof lumpsum contracts in fourLondon proceduresin mostLondon Districts and in a District Works Offices: Hampton Court, Victoria, sample of others and issued an Interim Report in Chelsea and Westminster. The Property Services August 1966. These reviews and audits revealed Agency worked closely with the police throughout procedural deficiencies which, in London, the the period of the investigation. With the Agency’s Agency believe had contributed to their failure to Contracts Directorate leading and co-ordinating detect the irregularities. Outside London they found action, at times more than 20 staff were employed no evidence of the sort of organised and widespread full time in support of the police enquiries or fraud which had been revealed in some London internal enquiries flowing from such work. Districts.

4.8 The cases were heard at four separate trials at 4.12 In October 1986 the special enquiry team the Central Criminal Court between October 1987 extended their investigations to consider the and December 1968. Eight Property Services Agency findings of the special audits and the need for officials and 10 contractors either pleaded guilty or further investigation. The team visited six District were found guilty: one official was acquitted. Works Offices in London and in their report, issued Sentences on the officials ranged from 12 months in June 1987, concluded that the incidence of fraud suspended to 3f years imprisonment; sentences on and irregularity had been facilitated by: inadequate

20 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

management control both within and over District would have been subjected to disciplinary Works Offices: lack of training, particularly on proceedings had resigned. Once the investigation is estimating: a failure to follow procedures; and a concluded the Agency will decide what action, if lack of staff awareness of risk. These factors had, in any, is to be taken against individual officials or some Districts, allowed contractors to gain too much contractors. influence and had led to the frauds and irregularities. The report made a number of Remedial action taken by the Property recommendations, including the strengthening of Services Agency value for money checks in District Management Reviews-which the team considered should Monitoring continue to be carried out not less than once every two years in London Region Districts for the 4.15 Arising from the initial investigation by the foreseeable future (paragraph 3.10), and increasing Property Services Agency in early 1985 a number of the level of training on job specification writing and procedural changes were made within Regions and estimating (paragraphs 4.20 to 4.24). The team also Districts to improve management controls. The proposed the setting up of a “hot line” for staff to computerised system of analysing tender records, report their suspicions (paragraph 4.17). In general, developed to aid the News of the World the team concluded that similar frauds were investigations (paragraph 4.91, continues to operate unlikely to ~‘acur providing senior management in the London Region and is providing valuable remained vigilant and made full use of monitoring information on possible patterns- “ringing”-on systems (paragraphs 4.15 and 4.16). tenders received for lump sum contracts. Trials of this system in Scotland and the South East Region, 4.13 The Property Services Agency next have highlighted limitations. The Agency have commissioned the enquiry team to provide a further therefore decided to amalgamate this function with report to compare the London Region Districts with existing monitoring systems (paragraph 4.27) and those outside. The team visited nine Districts thereby provide comprehensive management outside London. In their report, issued in June 1988, information on contract activity. They have they found that a number of the London Region concluded that to implement the new combined problems also existed in other Districts: inadequate system throughout the United Kingdom Territorial training; high level of staff vacancies; and poor Organisation would be more cost effective than standards of job specifications and estimating. They merely extending the “London” tender analysis assessed as poor the contractual activity of five of system into the remaining Regions. the Districts visited (one of these as very poor) and concluded that oversight of this work was not fully 4.16 To monitor the extent of use of individual satisfactory. They concluded that, although Districts contractors and help prevent the kind of patronage outside London were generally better staffed and evident in the News of the World case, the Property better managed, much the same problems existed Services Agency now produce quarterly returns of there as in the London Region. In their conclusion jobbing and lump sum contracts awarded. These are the team strongly underlined the need for reviewed centrally by the Directorate of Home continued vigilance by senior management, as they Regional Services and locally at Regional and had done in their report on London Districts District level and conclusions incorporated into (paragraph 4.12). local contract strategies. The intention is to identify and investigate any unusually high usage of a 4.14 Now that the criminal trials arising from the particular contractor or any contract pattern press allegations are complete, the Property significantly out of step with the locally agreed Services Agency are reviewing all the evidence to contract strategy (paragraphs 2.4 to 2.8). The Agency ensure that they have a full appreciation of what have reported that in the London Region in 1987-88 took place. A follow-up team reporting to a Deputy no single contractor was awarded more than 16 Chief Executive is undertaking an investigation in contracts, with the average number of contracts eight London Districts, including the four involved issued per contractor being only slightly more than in the News of the World allegations, to establish one. By comparison, in the years leading up to the the extent to which actions of contractors and News of the World revelations some individual officials not charged with offences may have contractors had been-warded up to 80 contracts in contributed to or hindered the discovery of criminal a year. offences. Two of the District investigations have been completed. Following the submission of the Creation of a Central Inquiry Unii reports the Agency have informed the National Audit Office that seven members of staff who 4.17 Recognising the resource implications of the

21 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES investigation and consequential work arising from contract procedures (paragraphs 4.12 and 4.13) the allegations in 1984, the Property Services showed that some estimates were little more than Agency set up in April 1987, within their Internal guess work rather than being determined by Audit Branch, a Central Inquiry Unit comprising six detailed analysis, and that District Works Offices staff. Their role was to carry out the initial often failed to seek explanations when a lowest investigation into all allegations of fraud or other tender was significantly outside their own pre- irregularity, to make surprise visits to District tender estimate. These reviews concluded that Works Offices in order to examine high risk there was a need for realistic estimating and activities, and to gather information for future continued vigilance by senior management to investigations. The Agency issued instructions to all safeguard against fraud. staff on how to report suspected irregularities, including any arising from information received 4.22 The National Audit Office’s examination of 13 from members of the public. These arrangements District Works Offices confirmed these findings. In a included a “hot line” to the Central Inquiry Unit to sample of 110 lump sum contracts between fl,OOO provide easy access by staff members to the Unit. and f25,OOO in value, 64 (58 per cent] were more than 15 per cent at variance from the Property 4.18 The Unit undertook no surprise visits in their Services Agency’s pretender estimate and 48 first year. In their second year, to March 1989, they (nearly 44 per cent) were more than 25 per cent at carried out 11 visits against a target of 14. These variance. In addition, the pre-tender estimates visits focused on four major topics: cash examined by the National Audit Office were often management, stock control, works ordering and not recorded in a clear, consistent way and works contracting. The Unit identified weaknesses frequently lacked supporting detailed analysis. in cash management in four locations, though stock control was seen to be adequate. While they have not yet completed their analysis of findings on 4.23 The Property Services Agency attribute the works ordering and contracting, initial results weaknesses in pre-tender estimating to the high indicate potential weaknesses in the use of turnover of technical staff and have noted that contracts for repair of plant. For technical and cost training packages have not secured any measurable advice the Unit continues to use the Quantity improvement. By July 1988 over 600 staff still Surveying team who assisted in investigations of awaited a training course on order writing and the News of the World case. estimating, compared with only 256 places available during 1988-89 at the Central Training School. The 4.19 The Central Inquiry Unit have now Agency have informed the National Audit Office completed the design of a computerised database that formal training has been impeded because, capable of recording details of individual cases with the high level of turnover, Districts could not reported, surprise visits undertaken and release staff from key posts to attend residential information obtained from other sources. When courses. The Agency have said that they now aim fully operational the database is intended to help to provide the majority of their training through identify trends and high risk areas. courses arranged at Regional level. A number of Regions already run their own training courses on Attention to underlying control weakness estimating, and the Agency are, centrally, planning further initiatives, including the use of a video (i] Pre-tender estimating training package.

4.20 The Property Services Agency accept that 4.24 In addition, in May 1988, the Property normally an accurate pre-tender estimate is Services Agency issued a revised Estimating fundamental to the judgement of value for money Handbook for Building Maintenance and a and propriety of tender offers. However, they point Yardstick Ready Reckoner to help staff prepare out that this control does not prevent a dishonest estimates. The National Audit Office note however official from inflating his estimate and subsequently that the Agency have not so far established “ringing” the contract at an increased price, as was standard pro formae to assist District Works Officers illustrated in the News of the World case (Appendix in documenting estimates. The Agency are 2 items 2 and 5). encouraging their quantity surveyors to assist in estimating whenever resources permit and some are 4.21 The District Management Reviews showed now located at District Offices. They are also that in nearly half the District Works Offices considering the introduction of computer based reviewed, the quality and accuracy of estimating estimating facilities in Districts as part of their was poor (paragraph 3.7). In addition, reviews of Information Technology strategy.

22 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

(ii) Approved lists of contractors substitute a contractor of his own choice. This is intended to reduce the risk of patronage by his staff 4.25 For jobbing work, District Works Offices must and tender ringing. On placing orders for works or invite quotes-at least three for work estimated at stores, the Agency now require all to be checked more than f500 in value-from contractors listed and approved by local supervisory staff within in a District panel which is approved and reviewed District Works Offices. On measured term contracts, annually by the Group Manager. The National a number of Regions have, on their own initiative, Audit Office found that these procedures were introduced additional levels of checks for accounts working well except that for orders between E500 before they are approved for payment. and fl,OOO there was not always evidence to verify that three quotes had been obtained. 4.29 In the important area of District Works Office management, the Property Services Agency’s 4.26 For lump sum contracts E f25,000, let by general policy now is that District Works Officers Regions or Headquarter Directorates, the Property should move location every three to five years. This Services Agency maintain a central, approved list of is intended to help prevent an officer from contractors from which to select contractors for developing over-close links with local contractors, tender action. But they have not done so for lump with the risk of patronage. The current average sum contracts under fZ5,OOO let at District level. time in post for District Works Officers is just under The NAO consider that this latter type of contract three years. The Agency have not reviewed since which featured in the News of the World 1988 those cases where officers have been in post revelations carries high underlying risks (see for more than four years, but they are currently paragraph 1.15 and Appendix 2). The Agency have reviewing their general posting policy. required Districts to apply the general principles of competitive tendering, but have left them largely to Dissemination of information choose their own contractors. As the News of the World case made clear, this practice exposed the 4.30 Following the Wardale Report in 1983, the Agency to considerable risks and has led some Property Services Agency’s Chief Executive and Regions to institute their own control arrangements. other members of the Board carried out a large The London Region, for example, has a single number of visits to District Works Offices (and other regional list of approved contractors for jobbing, and Agency offices) to explain the need for and nature lump sum contracts up to f25,000, while the of changes which had to be made. After the News Southern Region has two separate lists. Other of the World allegations in November 1984 Regions maintain lists of suitable contractors for the (paragraphs 4.7 to 4.14) the Chief Executive wrote a lump sum work. personal letter to all non-industrial staff reminding them of the rules governing hospitality or gifts. A 4.27 Although the Property Services Agency letter covering matters of propriety was also sent to advise Districts Works Offices of all cases in which, all industrial staff by the Director of Home Regional as a result of investigations, contractors are Services. suspended from tendering, and although all contracts are let on a competitive basis, there 4.31 Since then the Property Services Agency have remains some risk that unsuitable contractors will continued to bring to the notice of their staff receive work. A central database covering the relevant information. In particular, they have smaller firms would provide a further measure of periodically disseminated to them lessons learnt protection and would facilitate the improved from the District Management Reviews (paragraph monitoring of tendering patterns for evidence of 3.4). This information has covered a wide variety of ringing etc. The Agency have told the National topics and included a note in June 1987 on the Audit Office that they now propose to extend the prevention of fraud, theft and corruption, which centrally managed list of contractors to cover was also copied to the Principal Finance Officers of contracts below f25,OOO. all other Government Departments. The Agency’s intention has been to sharpen staff’s awareness of [iii) Other changes in checks and controls the type and nature of possible frauds and irregularities to facilitate their detection and 4.28 The Property Services Agency have initiated prevent repetition. a number of other changes in checks and controls, some nationally, and others at local instigation. On 4.32 Following the court proceedings stemming tendering procedures, they now require the District from the News of the World allegations, the Works Officer to remove one name from each Property Services Agency have considered the need tender list submitted to him by his staff, and to to give further advice to other Government

23 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Departments. They acknowledged, following an externally to a number of local authorities and to exchange of correspondence with the National the British Airports Authority. The Departments of Audit Office in November 1988, the desirability of Health and Social Security have both expressed an wider and continued dissemination of information interest in receiving similar presentations. about contractual irregularities and lessons learnt. The Agency told the National Audit Office, 4.34 The Property Services Agency have informed however, that they were concerned about the legal the National Audit Office that as part of the implications of passing on to non-Crown bodies arrangement for the privatisation of “PSA Services” confidential information about particular in late 1992 it is intended that the Agency’s contractors. approved list of contractors should be a responsibility of that part of the Agency which will 4.33 The Property Services Agency have given a remain within Government. It is proposed that the number of presentations on their experiences list should be provided as a service to all arising from the News of the World case. These departments which will include a facility for the have been made to Contracts Officers and Quantity exchange of information about unsatisfactory Surveyors within the Property Services Agency, and contractors and contractual irregularities.

24 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Part 5: Controls over District Works Offices’ own resources

5.1 As at October 1988 District Works Offices in supervisory staff, using tables of standard job times, the United Kingdom Territorial Organisation to provide an assessment of how many man hours employed some 7,400 industrial staff (the Directly each planned job should take; this total workload is Employed Labour force) at an annual cost of around then compared with the man hours available, to f68 million, and some 3,900 non-industrial produce an “effectiveness” measure. The Agency technicians and administrative staff at an annual accept, however, that the tables of standard job cost of around f49 million. In addition, District times no longer fully reflect the work now carried Works Offices buy in certain materials for out by the smaller workforce. incorporation into specific building works which have cost on average some f30 million over the past 5.4 The National Audit Office noted that at one three years. District Works Offices also stock District Works Office visited the staff were assessing building materials and tools for use by the Directly job times after, rather than before completion of the Employed Labour force; over the last three years work, thus reducing the usefulness of the measure annual purchases of these items averaged around f7 as an indicator of performance or a stimulus to million. The National Audit Office reviewed the greater efficiency. The National Audit Office also Property Services Agency’s main procedures and noted that the unreliability of the timings data and controls for ensuring the economic and efficient use weaknesses in supervising the system had led some of these resources. Regions, for example Eastern, to place little significance on the information in the reports to the Directly Employed Labour extent that they did not investigate apparent under- utilisation of available time. 5.2 Most District Works Offices maintain a Directly 5.5 Subject to these weaknesses in its compilation, Employed Labour force to undertake those tasks for the measure indicated that in 1987-88 the Directly which contractors are not available or cannot Employed Labour force achieved a national average provide a satisfactory service or where, for security “effectiveness” of 67 per cent, with Regional or other special reasons, the work needs to be done variations ranging from 77 per cent (North West] to in-house. In pursuit of ministerial policy that 56 per cent (London). British Standard 3138 Directly Employed Labour should only be retained acknowledges that the average performance of time- where contractors “cannot be used”, the Property workers may be only 75 per cent effective Services Agency reduced their numbers from some compared with workers operating under incentive 17,000 in 1979 to about 7,400 in October 1988. They conditions. Furthermore, management consultants planned to reduce them further to 6,600 by 1990-91. engaged by the Property Services Agency Ministers have now decided that the Agency should considered that for maintenance work an be free to determine the appropriate size of the effectiveness target of 64 per cent would be more workforce in the move to becoming a private appropriate. They also considered, however, that commercial organisation. The Agency are therefore the reported effectiveness was overstated by an reconsidering their long-term targets in the light of average of 124 per cent because of loose standard their assessment of the market demands for the times (see paragraph 5.8). The actual effectiveness Directly Employed Labour force. The staff employed in 1987-88 was therefore probably nearer 60 per at October 1988 comprised 4,100 productive cent than 67 per cent. The National Audit Office workers mainly carrying out building maintenance, estimate that on this basis some f4.5 million a year 1,500 “static” staff servicing plant and machinery could be saved through improved effectiveness. The and 1,800 supervisory staff. consultants also recommended that the Agency’s Industrial Management Advisory Units (superseded 5.3 To help maximise the use of the productive by Regional Industrial Management Advisors) staff and to provide a measure of how well this is should undertake periodic audits of standard time achieved, the Property Services Agency use a to improve their accuracy (see paragraph 5.10). planning and control system - DELPAC -which was first introduced in 1969. The system relies on 5.6 The Property Services Agency have considered 25 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS ,N DISTRICT WORKS OFFICES introducing an incentive bonus scheme to improve be covered. For very small units the Agency are efficiency but, after taking advice from consultants, considering proposals to use a less formal concluded that it would be impracticable with the system-termed MINCON. This would involve the large numbers of separate, small work units. Under use of broad assessments of work content made by the terms of an efficiency agreement, however, the local supervisors. The Agency have informed the Agency pay the Directly Employed Labour staff a National Audit Office that they are introducing flat rate bonus (up to E13.95 per week from 1 April NEWDELPAC at 16 locations with 8 more to follow. 1988) for co-operating in achieving more efficient MINCON has been introduced at 89 locations. working practices, including, for example, more flexible working arrangements. The Agency have 5.10 To provide advice and guidance on the told the National Audit Office that they are now effective use of the Directly Employed Labour force, reviewing their conclusion that a locally based and to monitor their management and control, the incentive bonus schema is not practical. Property Services Agency have appointed Regional Industrial Management Advisors. Following 5.7 In the early 198Os, the DELPAC planning and comments in the National Audit Office Report on control system had fallen into disuse in a number of Building Maintenance Expenditure these Advisors Regions, but following comments in the National now operate in all Regions. But they have generally Audit Office Report on the Property Services confined themselves to monitoring compliance with Agency’s Building Maintenance Expenditure (1984), procedures, without assessing, or giving advice on, the Agency have ensured that the system now the effective deployment of the labour force. operates in most of their individual Directly Furthermore they have not undertaken periodic Employed Labour units. audits of standard times as recommended by the Agency’s management consultants (paragraph 5.5). 5.8 The Property Services Agency have recognised The National Audit Office estimate that the full the need to improve the planning and control staff costs of these Advisors is in excess of !Z500,000 system and in 1986 they engaged consultants to per annum. The Agency have now said that the review it. The consultants reported in May 1986 Advisors are to place greater emphasis on that the basis of the system was sound but that the improving management and control of the Labour tables of standard job times needed to be updated, force and to increase productivity. management information reports improved, and management and supervision strengthened. They considered that an enhanced system-termed Non-industrial District Works Office staff NEWDELPAC - would only be cost effective in work units with more than 16 productive staff and 5.11 Since the early 1980s the Property Services that the system should be computerised in Agency have used a staffing model to help them particularly large units. For smaller work units, review non-industrial manpower reswrces and those with between 5 and 16 productive staff, the allocate these between the District Works Offices. consultants recommended a simplified The model was further developed in 1987 to take system-termed DELCOUNT - involving the use account of workloads and specified needs at of average standard times as a benchmark against individual Districts. Since January 1988 it has been which to measure performance. The consultants used by Regions, staff inspection teams and District alsorecommended the introduction of a simple Management Review teams as a baseline guide. system of measuring utilisation for workforces of up Application of the model indicates that, overall, the to 5 to 8 operatives. The consultants estimated that District Works Office non-industrial staff resources overall savings of about E7.3 million a year could be are adequate for the workload involved. achieved if these recommendations were implemented. 5.12 To fine tune the non-industrial staffing needs 5.9 After trialling the NEWDELPAC at two District in individual Districts the Property Services Agency Works Offices and DELCOUNT at one, the Property carry out staff inspections. These are undertaken on Services Agency decided in 1988 to install a cyclical basis and cover staffing numbers, grades, NEWDELPAC in all Directly Employed Labour organisation and need. The reorganisation of the units with more than 20 productive staff-this Agency’s Regional structure has prevented them would cover up to 10 per cant of the units and half from fully achieving the six year cyclical coverage of the productive staff. They also decided, subject to recommended by the Treasury: in the four years to the outcome of further trials, to install the March 1988 only 25 of the (then] 149 District Works simplified DELCOUNT in the smaller units, though Offices, were staff inspected. However, for 1988-89 they have yet to decide the minimum size of unit to they increased their examination to 27 Offices.

26 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Specially purchased stores District Works Offices decreased, gradually reduced the number of Main Stores, which are subject to 5.13 From time to time District Works Offices full stock accounting. However, they have increased make special purchases of materials, not held as the number of Sub Stores in order to avoid part of normal stocks, which are used by either the uneconomic delays in supply from distant Main Directly Employed Labour force or contractors for Stores (see Table 3). Sub Stores generally hold small incorporation into building works or for direct value stock items and are not subject to full stock supply to clients. Purchases of such items in accounting. 1988-89 totalled E34.0 million (Figure 1, paragraph 1.15). These items are usually delivered direct to work sites, but if they are held at the District W.orks Table 3 Office for more than five working days they are Number of stores formally taken on charge by the storeman and checked periodically. The District Works Officer and Group Manager are required to ensure that when such items are delivered direct to contractors, they are included in the representative sample of s March 1983 162 194 356 per cent and 2 per cent management checks March 1985 154 196 350 (paragraphs 3.12 to 3.15). March 1987 142 220 362 March 1989 134 261 395 5.14 In December 1987 the Property Services Agency decided that the provision of such materials should be regarded as exceptional and limited to particular items, and that justification for such 5.16 The Sub Stores maintain simplified records of issues should be fully documented, approved and receipts, issues and balances in hand and their recorded by the District Works Officer. They stock holdings are reviewed at least once a year. stressed that care should be taken to ensure that Subject only to the requirement that no more than the contractor was not paid for any items supplied one month’s supply of stocks may be held in any free of charge by the Agency. one store, there is no restriction on the range and level of stock items which may be transferred from Stocks and stores the Main Stores into Sub Stores. The Agency have informed the National Audit Office that they are 5.15 The Property Services Agency hold stocks of considering, with Internal Audit, proposals for materials and tools for use by their Directly improving accounting arrangements in Sub Employed Labour force in maintenance and stores. building works. The 1988-89 expenditure of E5.0 million is included in the Directly Employed Labour total of E90.0 million at Figure 1, paragraph 5.19 At Main Stores, District Works Officers 1.15. delegate to an appointed stockholder (normally an administrative post] the responsibility for receipt, 5.16 The demand for stocks has steadily reduced custody and issue of stocks. A storeman is in recent years as the Directly Employed Labour appointed to carry out the physical handling of the force has declined in numbers. In 1987-88 the stocks and to maintain records of holdings and Property Services Agency reviewed the range and movements. The Property Services Agency decided level of their stock items and decided to limit in December 1988 to defer implementation of an holdings to those items in day-to-day use and to Internal Audit recommendation, intended to reduce reduce stock levels from three to one months’ the risk of manipulation, to separate the duties of normal usage. Although the Agency do not maintain stock handling and recording. They took this a valued stock account they estimate that these decision after a trial run at three District Works changes have achieved a reduction of B.3 million Offices which indicated that extra staff would be in the value of stock holdings by the end of needed to operate the proposed system and that 1988-89. clerical staff had insufficient technical knowledge to identify and categorise the stocks. The Agency 5.17 As at March 1989 the stocks were held in 134 consider that control would be further improved by Main Stores and 261 Sub Stores-the latter usually the introduction of a computerised stock control being provisioned from a parent Main Store. The and pricing system. Although they do not envisage Property Services Agency have periodically being able to make this generally available until reviewed these arrangements and, as the number of 1991, they are examining ways of achieving earlier

27 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES installation of a suitable system in the larger Main cases of theft or misuse of stores and also acted as a stores. deterrent to such abuse.

5.20 Stocktaking in Main Stores is undertaken 5.22 In addition to the cyclical stocktaking checks, either by the appointed stockholder or nominated the Property Services Agency require other periodic technical staff, who are required to make a physical checks to be made of stock items and records. For check of each line item of stock rxxe every two example, orders are sampled by three separate years regardless of its value or turnover. The officers at weekly, monthly and quarterly intervals, National Audit Office found that in the District and holdings are also checked by three separate Works Offices visited this programme was being officers, though less frequently (quarterly and closely adhered to. In the United Kingdom annually). In addition, Internal Audit carry out Territorial Organisation as a whole most of the various checks of stocks and stock records at a Main Stores reported that they had, as required, sample of Main Stores each year. achieved a 100 per cent stocktake Over the two years to March 1987. 5.23 These several checks, including stocktaking, 5.21 The level of stocktaking prescribed by the have not uncovered significant discrepancies: only Property Services Agency is not consistent with that about 20 cases of relatively minor suspected recommended by Cabinet Office guidelines, issued irregularities have been SOdiscovered since 1985. A in 1985. These call for annual checks of stock substantial discrepancy which came to light in designated as attractive, security classified or 1987-88 on a change of staff had remained specifically nominated for close monitoring, and for undetected for a number of years despite the high the most active 10 per cent of other line items. For level of checks undertaken. The Property Services the remainder, the guidelines recommend a four Agency have told the National Audit Office that year cyclical coverage. The Agency told the this discrepancy was difficult to detect, but they National Audit Office that their high level of stock have recognised that the system of checking needs checks reflected their experience in dealing with revision and are taking advice from Internal Audit.

28 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Appendix 1 Main types of contract used at District Works Offices

Lump sum contracts

(a) Jobbing Orders for small Small works are ordered from approved contractors on the Jobbing Panel works up to B,OOO. (This list kept by each District. For jobs valued between E250 and f500 a type of works carries quotation (oral or written) is required from the selected contractor. For jobs specific underlying risks over f500 three written quotations should be obtained and the lowest one to VFM - sea Appendix usually accepted. z items 1, 5 and 9.)

(b) Lump sum contracts for For both building and engineering work where services are clearly defined small works up to and fully pre-planned, tenderers are invited to quote a lump sum for E25,OOO.(This type of carrying out work in accordance with specifications and within a defined work carries specific contract period. This type of contract enables the District to place small underlying risks to items of work quickly, normally without reference to the Regional VFM - see Appendix 2 Contracts Officer. items 1, 2 and 5.)

(c) Lump sum contracts over These contracts are let by Region, but then monitored and controlled by s25,OOOup to E150,OOO. the District Works Office. They are for pre-planned services and include (This type of work detailed specifications, drawings and schedule of rates for pricing carries specific variations. They also make provision for liquidated damages and underlying risks to maintenance (defects liability) periods and normally involve measurement VFM - see Appendix 2 by the quantity surveyor. items 1, 2 and 5.)

Term Contracts

(d) Measured Term All contracts are let by Regional Office. District Works Offices may place Contracts. (This type of orders against the contracts, based on a Schedule of Rates usually running work carries specific for three years, for work to be carried out between specified maximum and underlying risks to minimum values within an Estimated Annual Value. Work is measured VFM - see Appendix 2 and paid for in accordance with the Schedule of Rates, as updated by a items 1, 7 and 8.) percentage adjustment to take account of fluctuations in prices. This type of contract allows a speedier response to clients’ requirements by avoiding the need for tender action when work is ordered. It also has the benefit of the contractor becoming familiar with District procedures and client requirements.

(e) Daywork Term All contracts are let by Regional Office. District Works Offices may place Contracts orders against the contracts up to a pre-determined limit not exceeding fl,OOO, depending on the minimum order limit of any related Measured Term Contract. Work is charged at a specified hourly rate for labour plus payments for material used. This type of contract is intended to allow for routine maintenance and repair work to be carried out when Directly Employed Labour is not available.

29 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

(f) Specialist Term All contracts are let by Regional Office. District Works Offices may place Contracts orders against the contracts, based on a Schedule of Prices covering the maintenance, regular inspection and servicing of specified items of plant and equipment, at pre-determined frequencies. This type of contract is intended to ensure that regular inspections and servicing of specialist mechanical and electrical plant is in accordance with statutory regulations or manufacturers’ recommendations. It may also be used for recurring tasks such as ground maintenance.

30 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Appendix 2

Risk analysis by the National Audit Office of District Works Office expenditure areas (See also paragraph 1.15 and Figure 1)

This is an analysis by the National Audit Office of the main underlying risks to Value for Money and fraud and abuse which would attach to District Works Office expenditure areas in the absence of suitable checks and controls.

Jobbing work, lump sum contracts and term contracts

1. Ineligible or inappropriate contractors might be hired unless approved lists of contractors are properly maintained.

2. Contractors might form ‘rings’ for lump sum contracts to defeat true competition unless tendering patterns are closely monitored.

3. Internal frauds and irregularities might be perpetrated unless there is adequate separation of duties and close management supervision.

4. Staff might show patronage or undue favour unless a close watch is maintained on the pattern of contracts issued.

6. Lump sum contracts or jobbing work might be let on too generous terms unless bids are compared with fair and accurate pretender estimates.

6. Work might not be completed to a suitable standard or quality unless checks are made during and on completion of the work.

7. For orders of f&500 or above on measured term contracts, quantity surveyors might mis-measure work done unless there are arrangements for checking measurements.

6. For orders of below E2,500 on measured term contracts, the contractor might overstate the amount of work done unless there are arrangements for independent checking of contractors’ claims.

9. For jobbing work, the lack of formal contract conditions might make enforcement difficult unless strong control is kept over the jobbing panel of approved contractors.

10. Frauds might be replicated in other District Works Offices or Regions, or in other Government Departments, unless information is widely disseminated.

11. Buildings and their equipment might be maintained beyond their economic lives unless maintenance expenditure is adequately monitored.

Directly Employed Labour

12. The labour force might be too large unless overall staff numbers are determined and controlled in accordance with a clear policy.

31 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

13. The labour force could be under-utilised unless measures are taken to ensure that they have an adequate supply of work, and their management and control is properly monitored by the Regional Industrial Management Advisors.

14. Work might be undertaken inefficiently unless standard job times are established and periodically updated, and actual times taken are monitored and controlled.

Stocks

16. Stocks might be misappropriated or misused unless: they are kept securely; suitable records are maintained; adequate periodic checks are made: there is proper separation of duties: and issues to Sub Stores (where controls are less stringent) are kept to an operational minimum.

16. Excessive stocks might be maintained unless the stock holding policy and ordering techniques are periodically reviewed. Specially purchased stores

17. These might be misappropriated, either by staff or contractors, unless they are kept securely, suitable records are maintained and adequate periodic checks are made.

16. Although the Property Services Agency supply these items free of charge to the contractor, that contractor might attempt to include a charge for it in his final invoice, unless the Property Services Agency maintain proper records and control.

32 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Appendix 3 District Management Reviews: Assessment of performance

First round of reviews: April 1985 to March 1987 covering 149 District Works Offices

District management 91 33 Financial planning 91 27 and control Administration 101 20 Inspection systems and 85 48 maintenance strategy Execution of work and 110 20 analysis of contracting methods DEL management 13 93 28 11 149 Stores administration 27 81 30 8 149 DWO property managerr lent 20 75 8 45 149 Job examination 3 78 21 46 149

Average assessments in each category

Second round of reviews: April 1987 to March 1989 covering 110 District Works Offices

District management Financial planning and control Administration Inspection systems and maintenance strategy Execution of work and analysis of contracting methods DEL management 35 50 13 - 3 110 Stores administration 22 53 28 4 3 110 DWO property management and - - - - Job examination (Note 1)

Average assessments in 1 f0 each category [lOO%)

Marking Scale Category 1: Satisfactory Met all objectives with no managerial, technical, procedural or economic shortcomings of any significance. Category 2: Tendency to satisfactory Met most objectives but with some shortcomings. Category 3: Tendency to unsatisfactory Just got by but with considerable room for improvement. Category 4: Unsatisfactory Numerous technical or procedural shortcomings. Note 1: Not reported on individually in this round. but performance reflected in the assessments of other activities.

33 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

Appendix 4

A summary of the further progress made to December 1969 on cases of suspected or alleged fraud or irregularity of a serious nature that arose up to the end of 1964 but had not been resolved by March 1965 (paragraph 4.1 refers).

pre 1984 case: PAC 19th Report, 1984-85 (HC256), page 42 PAC Report reference Case 6 Overcharging by a contractor Police investigations into allegations of the withholding of discounts started in August 1983. In 1988 the contractor was convicted of double invoicing and fined E50,OOO.Ha subsequently repaid E75,OOOto cover the overcharge and the Property Services Agency’s staff costs. The contractor has been removed from the approved list.

1984 cases: PAC 19th Report, 1984-85 (HC256), pages 43-46 PAC Report reference 01 Apparent overcharging by a contractor Checks revealed several instances of overcharging and errors on measured term contract orders. The Property Services Agency identified a balancing number of war and under charges and are proposing to set-off these amounts. No prosecutions were made in this case as there was no evidence of criminal intent. (ii] Overcharging by a contractor In July 1984 a check of soma final accounts on two measured term contracts held by this contractor revealed an overpayment of some ES,000 caused by errors in measurement and misinterpretation of rates and description of work. Further investigations revealed evidence of inflated hours worked and duplicated day work entries on measured term contracts. The Police declined to prosecute on the grounds of insufficient evidence. The contractor has repaid zElOO,OOOto the Property Services Agency and E60,OOOwas repaid by the consultant quantity surveyor. Both the consultant and the contractor have been removed from the approved list. Further recoveries of fees from the consultant are expected. [iii) Apparent fraud by a contractor Checks undertaken in June 1984 showed that invoices for materials and specialist work had been altered to show a higher figure than was actually paid by the contractor to the sub-contractor. A director of the firm has since been convicted of fraud and falsifying accounts. The holding company acting on behalf of the contractor repaid E145,OOO. The contractor has been removed from the approved list. (iv) Alleged bribery of Property Services Agency staff and contractual irregularities overseas [non-UK District Works Office) In April 1984 a former employee made a series of allegations against a

34 PROPERTY SERVICES AGENCY: MANAGEMENT CONTROLS IN DISTRICT WORKS OFFICES

contractor including poor workmanship and corrupt payments to Property Services Agency staff. Following police enquiries no prosecution was made. (4 Apparent fraud by a contractor Checks in December 1984 showed that an invoice from a sub- contractor had been altered to show a considerably higher figure than was actually paid by the contractor to the sub-contractor. A sum of E2,ZOOhas since been recovered from the contractor who has been removed from the approved list. There was no prosecution. (viii) Apparent corruption between a Property Services Agency officer and a contractor Folowing allegations that a Property Services Agency officer had attempted to obtain favours from contractors, the officer was prosecuted and convicted and a settlement obtained. (4 Corruption by Property Services Agency staff A former employee of a contractor alleged that a Property Services Agency officer had received payment in return for information about tender prices. The officer (now retired) was prosecuted and convicted. The contractor has been removed from the approved list. (xii) Alleged misuse of Property Services Agency materials An informant reported that materials supplied by a contractor against a works order were being diverted for private use by Property Services Agency staff. The informant refused to co-operate further and hence the case has been closed. Allegation of fraud and corruption An allegation was made that central heating had been installed in the private house of a Property Services Agency officer and the cost of the work charged to the Property Services Agency. In July 1988 the officer and a contractor were prosecuted and convicted. The contractor has been removed from the approved list. No restitution has been obtained. (xvi) Alleged fraud by a contractor A check on daywork carried out under a measured term contract revealed irregularities concerning duplication of hours worked. The Police investigated the allegations and concluded that there was insufficient evidence to support a prosecution. The contractor repaid ?29,700to the Property Services Agency. During the course of the investigation the contractor was suspended from the approved list. (xvii) Alleged collusion between a Property Services Agency officer and a contractor In March 1984 an anonymous letter was received alleging that a Property Services Agency officer was using his position to benefit a contractor. No evidence was found to support the allegation and the case was closed. [xviii) Alleged fraud and corruption between Property Services Agency (The Crown Suppliers) and contractor (non-District Works Office case) A contractor alleged that goods and services had been supplied by another contractor to former and serving officers and the cost charged to public funds. The Director of Public Prosecutions stated that there was insufficient evidence to proceed further and the case was closed.

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Appendix 5

From January 1985 to December 1988, a total of 110 cases of suspected or alleged fraud or irregularity relating to UK District Works Offices were reported to the Property Services Agency. Details as at December 1989 of the 17 cases which were, or could prove to be, serious by nature or value, are given in this Appendix. The National Audit Office intend to provide the Committee of Public Accounts with further details of one of these cases on a confidential basis.

1985

(i) Corruption between a Property Services Agency officer and a contractor (estimated gross loss E~O,OOO) A company director alleged that a Property Services Agency officer had accepted gifts from him. The director and the officer were subsequently convicted of corruption and received custodial sentences. The officer was dismissed and the contractor has been removed from the approved list. (ii] Overcharging by a contractor (estimated gross loss E5,750) A local manager employed by a contractor did not pass on discounts to the Property Services Agency. Following an investigation by the Police the Director of Public Prosecution decided not to prosecute. The contractor repaid E6,700 plus an additional sum to cover costs. After further investigation the Property Services Agency were satisfied that this was an isolated case and did not apply to other contracts they had with this contractor. (iii) Overcharging by a contractor (estimated gross loss E1,800) A contractor was found to be falsely claiming double time working on a measured term contract. His contract was terminated and he was suspended from tendering for twelve months.

1986 Overcharging by a contractor (estimated gross loss E17,499) An internal investigation revealed that a grounds maintenance contractor had been charging separately for tending hockey, football and rugby pitches even where they overlapped. A Property Services Agency officer resigned and then disappeared during the course of the investigation. All overpayments-totalling E17,499- have been recovered. (“I Attempted corruption by a contractor (no loss) A director of two associated companies attempted to obtain corruptly a jobbing order by providing two quotes, one from each of his companies. Prompt action by the Property Services Agency prevented any misdemeanour and no loss was incurred. The contractor has been suspended from the approved list.

1987 (vi) Attempted overcharging by a contractor (no loss) Checks revealed that a contractor had submitted final accounts on self-

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measured orders for work that had not been ordered by the Property Services Agency, or had been ordered but not carried out. The Procurator Fiscal declined to investigate the case. The contractor was suspended from the approved list during the investigation and was admonished. The case is now closed. [vii) Allegations of bribery by a contractor and corruption by Property Services Agency staff (loss not quantified) Ministry of Defence police are still investigating allegations that Property Services Agency officers had received gifts, eg a garage, video cassette recorders and other items in return for patronage. Three Districts are involved. One officer has resigned and another has been dismissed. Police investigations have also revealed evidence of overcharging. The contractor has been suspended from the approved list whilst the investigation continues. (viii) Alleged corruption between a Property Services Agency consultant and a contractor (no loss) Allegations of corruption could not be proved by the Central Inquiry Unit, although the consultant employee concerned resigned after being interviewed by Property Services Agency management. The contractor was suspended from tendering during the course of the investigation-a period of some 18 months. The inquiries produced no firm evidence and after advice the Property Services Agency decided to take no further action. 6x1 Overcharging by a contractor (estimated gross loss ~1,400) Police inquiries failed to find sufficient evidence to support a prosecution. For similar reasons the Property Services Agency could make no recovery and accepted that this case was due to clerical errors within the contractor’s office. During the course of the investigation the contractor was suspended from the approved list and eventually admonished and warned about his future conduct. (xl Allegations of corruption between Property Services Agency staff and a contractor (estimated gross loss ElO,OOO) Allegations that a Property Services Agency officer received a car as a gift from a contractor resulted in the officer resigning. Police enquiries failed to find sufficient evidence to support a prosecution. The contractor has been suspended from the approved list. The Property Services Agency is contesting the contractor’s civil action and his claim for monies in the County Court. b4 Allegation of corruption between Property Services Agency staff, a contractor and a nominated Quantity Surveyor [full extent of loss not yet known) In October 1987 a routine examination of a contractor’s accounts on a measured term contract appeared to reveal examples of gross over- ordering and over-measurement of work ordered. By early March 1988 reports by the Property Services Agency’s Central Inquiry Unit and Directorate of Building and Quantity Surveying Services confirmed that a potentially serious irregularity case had been discovered. Subsequent inquiries have indicated apparent collusion between the consultant quantity surveyor, the Agency’s ordering officer and the contractor. Poor management supervision has also been highlighted. The matter was referred to the Police in September 1988 and their enquiries are continuing. The contractor has been suspended from the approved list and some E57,000 has been withheld from the contractor pending the outcome of the investigation.

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(xii) Bribery by a contractor of a Property Services Agency employee (estimated gross loss E5,OOO) The Central Inquiry Unit investigated allegations that a Property Services Agency storeman had been receiving bribes from a chemical company. The case was referred to the police who initiated proceedings against the storeman. He was convicted, fined ?22,500and subsequently dismissed. (xiii) Alleged fraud by a contractor (estimated gross loss f19,828) Allegations were made of fraud on three specialist term contracts let to one contractor. The case was investigated by the Police and three employees of the contractor were convicted. The contractor agreed to repay the f19,828. The contractor was suspended from the approved list during the investigation and the contracts terminated.

1988 (xiv) Theft by a contractor and alleged corruption by Property Services Agency staff (estimated gross loss E500) Following a Ministry of Defence police investigation the contractor was prosecuted and found guilty on two counts of theft and fined. The contractor has been removed from the approved list. There was no evidence that any Property Services Agency staff were involved. WI Overcharging by a contractor (estimated gross loss E15,OOO) The result of a value for money check on painting work found it to have been inadequately done or not done at all. The contractor agreed to complete all the work to the satisfaction of the Property Services Agency at his own expense. The contractor has been suspended from the approved list. (xvi] Anonymous allegation of stores theft [estimated gross loss ElO,OOO) Following the disclosure of stores thefts of some ElO,OOO,three Property Services Agency employees have been charged by the police and dismissed, and a fourth employee has been demoted. (xvii) Suspicions of tendering inrregularities floss not yet known) Examination of several tenders, aroused suspicions of possible rigged tendering and ringing. The Central Inquiry Unit, in liaison with the Directorate of Building and Quantity Surveying Services, have examined tenders in the Midland and adjacent Regions and their enquiries are continuing.

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Appendix 6

Criteria for determining disciplinary action and circumstances in which the Property Services Agency would press for criminal proceedings

1. Like all other Government Departments, the Property Services Agency follow the rules and guidance in these matters laid down in the Civil Service Pay and Condition Code and the Establishment Officers Guide. Further guidance is offered internally in the Department’s Staff Handbook. In September 1989 the Agency issued a guide for managers and staff to assist in the consistent interpretation of the national rules and guidance in handling possible disciplinary OI criminal offences.

Disciplinary action

2. Disciplinary action follows an investigation by either line management or by the Central Inquiry Unit of Internal Audit. All the evidence and circumstances of the individual cases are taken into account. Legal advice is sought where appropriate.

3. Where the investigation reveals that the rules and standards required of a civil servant working in the Property Services Agency have been breached, disciplinary action is initiated. The proof of evidence used to justify disciplinary action is the civil standard of proof based on the balance of probability and not on the criminal law requirement of proof beyond reasonable doubt. This action may be deferred on the advice of the civil or Ministry of Defence police where they consider that action by the Department might prejudice their investigations. The Agency will decide on the facts of the case whether or not to initiate disciplinary action even where the police have decided not to proceed with an investigation or where the Crown Prosecution Service or the Lord Advocate has decided not to prosecute. Where there is clear evidence of serious fraud but where the offender is not to be prosecuted, any decision not to take disciplinary action is taken by the Chief Executive who would consult Ministers if the case justified it. No such cases have occurred in the Agency.

Criminal proceedings

4. The decision whether or not to involve the police in cases is taken by the Principal Establishment Officer or Principal Finance Officer, as appropriate, except where it is essential to report a case to the police immediately. In cases where there is doubt whether a criminal offence may have been committed, further advice may be sought from the Agency’s legal advisers. Once a decision has been made that a criminal offence may have been committed and that the criminal law should be invoked, the matter is immediately referred to the appropriate prosecuting authority.

5. In deciding whether or not to involve the police the Principal Establishment Officer will have regard to whether the offence is of a trivial nature, whether there are extenuating circumstances, eg severe illness, and the presence or absence of any aggravating feature, eg serious breach of trust. Only very minor thefts or frauds would not be referred to the police.

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