“Individual Learning Accounts in Scotland”
We come to agenda item 4. I invite the Auditor General to give the committee a briefing on the report "Individual Learning Accounts in Scotland".
In March, I provided the previous Audit Committee with a briefing on the report, but I thought that it would be useful to revisit that briefing and summarise some of the key messages in the report.
The individual learning accounts scheme covered the whole of the United Kingdom. Its objective was to increase adult participation in education and training by offering people the opportunity to get discounts on the cost of a wide range of training provision. One of the key conclusions of the report is that the ILA scheme was an innovative programme that proved very popular with genuine learners and learning providers. However, it suffered from a number of administrative errors and failings.
The scheme was successful throughout the United Kingdom in attracting people to open individual learning accounts. The target to have 100,000 accounts opened in Scotland was met significantly ahead of schedule. However, during the summer of 2001, the bodies involved in administering the scheme began to receive complaints from throughout the UK concerning the activities of some of the learning providers, including allegations that expenditure was non-compliant and potentially fraudulent. Those complaints led to the closure of the scheme throughout the United Kingdom by December 2001.
The UK National Audit Office has reported to the Westminster Parliament on the operation of the scheme in England, and the Public Accounts Committee at Westminster took evidence on the matter and has produced its own report. The report that I have prepared investigates only the Scottish situation. It examines the reasons for non-compliant and potentially fraudulent activity and attempts to estimate the amount of expenditure involved. I also comment briefly on what has happened since the scheme closed in December 2001 and outline some of the lessons that might be learned for future schemes.
I will start with the reasons for non-compliant and potentially fraudulent activity. The scheme was administratively complex, as it involved five separate organisations in Scotland. Although overall responsibility rested with the accountable officer in the Scottish Executive Enterprise and Lifelong Learning Department, accountability for the scheme's expenditure rested with Scottish Enterprise and Highlands and Islands Enterprise. It might be argued that the large number of bodies involved in administering the scheme contributed to some of the problems, errors and failings.
My report indicates a number of measures that could reduce the risk of improper activity and highlights several areas of concern. The first is an important one. Since devolution, it has become increasingly important that where Scotland participates in UK-wide programmes, the Executive should ensure that it is represented adequately on the programme boards that are responsible for implementing policy throughout the United Kingdom.
Secondly, the Department for Education and Skills at Westminster was responsible for developing the scheme's national framework and for procuring a service provider. If the ELLD had been more involved in the scheme's design and implementation, it could have been made aware earlier of some of the interim measures that allowed English-based learning providers to self-certify that their learning was eligible for funding.
A third concern is that there was no formal accreditation of learning providers. Formal accreditation could have helped to prevent unscrupulous providers from gaining access to the ILA programme.
A fourth point that I make in the report is that the ELLD did not fully appreciate the risk of fraudulent activity. Risk assessments were undertaken, but better risk management procedures could have helped the department to be more aware of the risks, which might have allowed it to put in place better strategies to counter fraud.
Fifthly, there were weaknesses in the overall control environment. A formal evaluation of systems controls could have helped to identify those weaknesses before the scheme was introduced.
My sixth point is that the guidance on the operation and administration of the scheme was inadequate when the scheme was introduced. Let me put it simply: the guidance could have assisted learning providers to identify the dos and don'ts of the scheme and might have helped to prevent accidental non-compliance with the scheme's regulations.
Finally, it appears that responsibilities for monitoring the scheme were unclear or were not fully agreed. Partly because of that, there was a delay in the introduction of effective monitoring and audit arrangements. The prompt introduction of such arrangements could have provided a deterrent for, and a means of detecting, improper activity by learning providers.
Scottish Enterprise and HIE estimate that, of a total of £18.8 million of received claims under the ILA scheme in Scotland, up to £4.5 million-worth of claims might be irregular. Scottish Enterprise received the majority—98 per cent—of the possibly irregular claims.
Acting on the instructions of the Crown Office and Procurator Fiscal Service, the police executed search warrants against 10 learning providers where it was believed that there was a high risk of fraudulent activity having taken place. It has taken considerable time to analyse the recovered data and the COPFS has not announced yet whether it will start prosecutions against any learning providers. The recovery of any moneys lost because of fraudulent activity will be a matter for the courts to decide.
I want to mention briefly the development of a new scheme to succeed the ILA scheme. The ELLD's evaluation work confirmed that many people acknowledged the strengths of the ILA concept and the benefits that the scheme delivered. In the light of that, the Executive announced its commitment to relaunch the scheme in 2003-04 as part of its lifelong learning strategy, which it published last February.
I understand from our discussions with the ELLD that it is taking into account the lessons that were learned from the scheme and is endeavouring to complete a full risk analysis before the new scheme is introduced. I intend to ask the appointed auditors to monitor the new scheme and to report on it after its first year of operation.
As always, my colleagues and I are happy to answer members' questions.
Thank you. I inform members that, given that agenda item 6 is consideration of our response to the Auditor General's report, the purpose of their questions should be to clarify matters in the report.
I am interested in what the COPFS is doing, because I was one of those who passed on information from constituents who thought that fraud was taking place. Given that a decision is awaited from the COPFS, can the convener clarify whether that will make it difficult for us to inquire into the situation?
Our legal advice is that nothing is sub judice, because legal proceedings are not active. However, that position might change.
The report makes it clear that there was an utter failure of governance and of control of spending. Were the same mistakes replicated south of the border as were made in Scotland, or were there different aspects?
The scheme got going south of the border before it did so in Scotland, but it had similar difficulties with getting accountability right and with the failure to undertake proper risk management. The National Audit Office report addresses those issues in detail, as does the Public Accounts Committee's report.
My point follows on from that of Margaret Jamieson. Does the Auditor General's office intend to hold a review following any decision by the COPFS? If it were decided that offences had taken place, a subsequent prosecution might elucidate how a fraud was carried out. Does the Auditor General intend to monitor and review matters? The Audit Committee could decide on that basis whether to deal with the ILA issue sooner or later.
It is, of course, not known whether court action will be taken. However, if court action resulted in a prosecution from which new information became available, such information should be considered primarily by the department responsible and taken into account when it designs the new scheme.
When we audit the new scheme after its first year of operation, we will look closely at how rigorous the scheme's risk assessment procedures have been. I confidently expect the new scheme to take into account any lessons that arise from court proceedings, if they were available in time.
It might be more appropriate to consider one of my points later, but I will raise it now and the convener can slap me down for doing so if he wants. The new members of the Audit Committee in particular need a benchmark for assessing the seriousness of the conclusions in the Auditor General's report. Can the Auditor General comment on the extent to which the report's observations and recommendations were made with the benefit of hindsight—which is the essence of the audit process—and the extent to which the ELLD ought to have anticipated better the governance issues? Perhaps that is a more substantive question that should be dealt with elsewhere. In addition, I have two simple points for clarification.
What you said seemed like clarification to me.
Did it? That is fine. In that case, I will leave that question standing.
I have two further, brief points on which I want the Auditor General to comment. First, I was struck by the fact that the impact of the scheme's failure on training providers seems to get relatively little consideration in the report. There is simply a bald statement that the ELLD has
"no plans to compensate providers."
However, the impact of the scheme's failure was substantial for some smaller providers.
My second point is definitely for clarification. At which stage of development is the new scheme? We need to know so that we can judge how best to input into and influence it.
It is difficult to give a succinct answer to your first question because we are talking about a complex story. There were failures at various points in the system, but there were also points where people took action—for example, instituting a risk-management procedure. However, such action did not produce the results that we might have expected.
On the impact on providers, my duty to the Parliament is to report on public expenditure, state whether it has been used legally and appropriately and indicate where there has been any loss or poor value for money. I do not have a significant duty to comment on impacts on third parties. It might seem a bit hardnosed, but that is essentially the limit of my powers. However, if the Audit Committee were minded to take evidence, I would have thought that it would be entirely reasonable to have a line of questioning for accountable officers and any other witnesses from whom the committee wanted information on the impact of the scheme's failure on third parties.
My colleague Graeme Greenhill might be able to give us an update on the stage that the new scheme has reached, because he has been directly involved with the ELLD on it.
Graeme Greenhill (Audit Scotland):
We understand that the ELLD is working hard to develop the new scheme although our indications are that the department is unlikely to introduce the new scheme much before the turn of the year.
I am interested in the report's finding that there was no formal accreditation of learning providers. Does formal accreditation mean that a provider is deemed able to deliver a particular form of education or training? If not, does such accreditation refer to business accreditation, which confirms that a provider has a properly constituted training business?
I suggest that we are talking about both those aspects. A provider must be a properly constituted organisation that is in the business of training and that must be coupled with a proper professional assessment of the organisation's capacity to deliver. Within that, I expect to see some understanding of how well the organisation is managed, how well it controls expenditure and how good its recording systems are, so that the information that it supplies to the funders—the paymasters—is credible and sound.
I will ask about the percentages of irregular claims facing Scottish Enterprise and Highlands and Islands Enterprise. The report shows that Scottish Enterprise faced approximately 98 per cent of the estimated £4.5 million-worth of claims that may have been irregular. Exhibit 11 in the report indicates that suspected irregular claims made up 25 per cent of the total claims received by Scottish Enterprise, but only 6 per cent of the total claims received by HIE. Was that due to procedural management issues or to higher activity and more irregular claims being made in the areas governed by Scottish Enterprise? Was it, to a degree, due to both?
Let me highlight a couple of features, as that might help to explain the pattern of expenditure. First, Scottish Enterprise was operating on a much larger scale than HIE was. Scottish Enterprise's remit covers the central belt of Scotland, where there is the largest concentration of population and economic activity. The scale issue is significant.
The second issue has been relayed to us informally, but it is probably appropriate to mention it. People who were seeking to use the money inappropriately—in extreme cases, fraudulent providers—seem to have begun their activities in England, where the scheme started. There seems to be some evidence that they then moved into the central belt of Scotland and latterly moved into the Highlands and Islands area. The view expressed by HIE was that the dubious providers hardly got going before the scheme was closed down. That explains the pattern.
Thank you. That is helpful.