“Individual Learning Accounts in Scotland”
The second item on the agenda is a briefing from the Auditor General on his report entitled "Individual Learning Accounts in Scotland", which examines the operation of the individual learning accounts scheme.
Mr Robert Black (Auditor General for Scotland):
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 obtain discounts on the cost of a wide range of training provision. The ILA scheme was supposed to contribute to a better-equipped work force and to give people a personal stake in their training.
The scheme was successful in encouraging people to open ILAs. Indeed, the target of having 100,000 accounts opened in Scotland was achieved by June 2001, about nine months ahead of schedule and within a year of the scheme's introduction. However, during the summer of 2001, the public bodies that were involved in the scheme's administration began to receive complaints about the activities of some learning providers, including allegations of non-compliant and potentially fraudulent expenditure. Those complaints led to the closure of the ILA scheme in December 2001.
The National Audit Office has reported to the UK Parliament and the Public Accounts Committee has taken evidence on the matter. My report investigates the Scottish situation and examines the reasons for non-compliant and potentially fraudulent activity and the amount of expenditure involved. I also comment on what has happened since the scheme closed in Scotland and outline any lessons that there might be for a successor scheme.
I will start with the reasons for the non-compliant and potentially fraudulent activity. First, I should point out that the ILA scheme in Scotland was administratively complex and involved five separate organisations. Although overall responsibility for policy rested with the accountable officer of the Scottish Executive enterprise and lifelong learning department, accountability for expenditure under the scheme rested with Scottish Enterprise and Highlands and Islands Enterprise. It could be argued that the large number of bodies that was involved in administering the scheme contributed to some of the problems, errors and failings.
I should also outline what I mean by improper activity. At one level, some activity by learning providers did not comply fully with the rules of the scheme. For example, the completion of a standard enrolment statement by students was a key requirement of the scheme. Any learning provider that could not produce such a statement when asked to do so was technically in breach of the scheme's rules; however, in many such cases, there was no suggestion that the learning provider did not provide the training that the student had signed up to receive. At a far more serious level, some learning providers engaged in potentially fraudulent activity such as submitting claims for reimbursement for training that was not provided or for students who did not exist.
My report indicates a number of measures that could have reduced the risk of improper activity and highlights seven areas of concern. First, since devolution, it has become increasingly important that where Scotland participates in UK-wide programmes, the Scottish Executive should ensure that it is adequately represented on programme boards that are responsible for taking forward the policy on behalf of the UK.
Secondly, the Department for Education and Skills at Westminster was responsible for developing the national framework for the ILA scheme and procuring a customer service provider. If the Scottish Executive enterprise and lifelong learning department had been more involved in the scheme's design and implementation, it could have been made aware earlier of interim measures that allowed English-based learning providers to self-certify that their learning was eligible for funding.
A third concern is that, although the Scottish university for industry performed basic checks on the eligibility of learning providers who sought to register with the scheme, it did not formally accredit them. Formal accreditation of learning providers 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 enterprise and lifelong learning department 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 risk of fraudulent activity, so that it might have been able to put in place counter-fraud strategies.
Fifthly, there were weaknesses in the overall control environment. A formal evaluation of systems controls could have helped to identify those control weaknesses before the scheme was introduced.
Sixthly, the guidance on the operation and administration of the scheme was inadequate when the scheme was introduced. Quite simply, the guidance could have assisted the learning providers to identify the do's and don'ts of the scheme and might have helped to prevent accidental non-compliance.
Finally, it appears that responsibilities for monitoring of the scheme were unclear and not fully agreed upon. 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 and a means of detecting improper activities by learning providers.
In all, Scottish Enterprise and Highlands and Islands Enterprise estimate that, in Scotland, up to £4.5 million of claims that were received under the scheme might be irregular. That is out of a total of £18.8 million of claims received. Some 98 per cent of the £4.5 million relates to claims that were received by Scottish Enterprise. That figure is based on the extrapolation of an audit sample of claims that were received from high-risk learning providers. The department and the two enterprise bodies have identified 28 learning providers for which they believe that there is a high risk of fraudulent activity having taken place. Those providers have received payments of £2.9 million under the scheme and have further claims outstanding valued at £2.8 million.
Acting on Crown Office instruction, the police have now executed search warrants against 10 of those learning providers and a large quantity of documentation and computer records has been recovered. Analysing all that data is likely to be a lengthy task, and the Crown Office and Procurator Fiscal Service is still to decide whether to start any prosecutions of learning providers.
The recovery of moneys from potentially fraudulent activity will of course be a matter for the courts to decide. However, the department and the two enterprise bodies are seeking administrative recovery of moneys that were paid in error to learning providers that did not comply strictly with the rules of the scheme.
I will mention briefly the development of a new scheme to succeed ILAs. Evaluation work on behalf of the department has confirmed that many learners, providers and stakeholder organisations recognise the strengths of the ILA concept and the benefits of the original scheme. As the committee will be aware, last month the Scottish Executive published its lifelong learning strategy, in which it announced its commitment to relaunch the ILA scheme in 2003-04. In developing its proposals for the new scheme, I understand that the department is taking into account the lessons from the original scheme.
It is too soon to comment on the proposed arrangements, but I understand that the department will have completed a full risk analysis before the scheme is introduced. I intend to ask the appointed auditors to monitor and report on the new scheme after the first year of its operation.
As always, I am happy to answer any questions. My colleagues are here to help me do that.
I remind members that we will consider the report in greater detail in the future. Members may make general comments today, if they so wish.
I thank the Auditor General for his clear report, which has got to the heart of the problem. The report shows in detail what measures should have been taken. On the proposed relaunch of the scheme, what assurances do we have that there will be safeguards to ensure that the new scheme will not be open to abuse? What is the import of the statement that recommends that the Executive
"takes time to consider fully the implications of its proposals"?
My understanding is that the minister has stated in Parliament his commitment to a new scheme. I also understand that the department was awaiting the publication of my report so that it could take the lessons into account in redesigning the scheme. I have a clear impression that the necessary time is being taken to evaluate the content of my report in preparing the final design of the new scheme. However, as might be imagined, I am not party to the detail of that planning process.
The Auditor General's report on the ILA scheme is significant and important. Having followed through some constituency casework on the issue, I know that the experience of people who signed up to the scheme was one of huge disappointment.
It took individuals ages to work out that something was going wrong. Before any new scheme is put in place, it is vital that all the lessons are learned. The thing that leaps out at me is the fact that no one thought there would be widespread fraudulent activity on the back of the scheme. That is striking, and the issue of fraud must be addressed in the new scheme by putting in place checks and balances. The detailed control systems that have been discussed are vital for any new scheme. I would rather take a little longer to implement a new scheme that has all the controls demonstrably in place than have another launch that allowed individuals and companies to abuse public money and to discredit a scheme.
The concept of the scheme is excellent and people want it. However, the scheme must be implemented properly. Will the work that the police are currently doing get in the way of a new scheme and have to be completed before a scheme is introduced? The Auditor General suggested that that work would take some time. He may not be able to answer that question, but in the course of their inquiries the police may identify other issues that he may want to know about when putting in place a system of checks and balances.
Unfortunately—as members might imagine—we do not know what is happening with the Crown Office and the police. Hindsight is a wonderful thing, but I am surprised that in the risk assessments that were done at United Kingdom level, in particular, the issue of fraudulent providers entering the market was not addressed. That was an unfortunate omission at a very early stage. Not until comparatively late in the exercise that was carried out in summer 2001 was the risk identified and seen to have materialised.
I appreciate that we will deal with this issue in detail later. I am a former chairman of a public sector company that had problems with fraudulent activity with which the board had to deal. That risk was well known to the public sector. We were not alone in identifying such difficulties. As Sarah Boyack said, it is regrettable that there has been disappointment so early in a scheme because of a lack of foresight.
The legal issue is separate, but it poses an additional question to the one that Sarah Boyack asked about rushing in rather than allowing things to settle down so that there is absolute clarity. Presumably, the Executive will have to conduct yet another screening programme to establish who can be accredited. We must have accreditation not just for audit, but for delivery and outcomes. I caution the Executive, through the committee, that it would be perilous to rush in a replacement system just for that sake of it. We must introduce the new system correctly. I hope that the Executive will wait—not just so that it can examine the Auditor General's report, but so that it can take on board the legal process that may follow on this occasion.
I apologise to the Auditor General for not being here at the beginning of his briefing.
Two points occur to me. First, the policy was not thought through carefully. As happens in Government too often, a good concept was not planned and was introduced without adequate preparation. Does the Auditor General agree? Secondly, we must deal with the issue of fraudulent providers. When will the Government learn that, if it makes money available in education, home improvements or any other area, there must be tight regulation? The home improvement grants that were available in the early 1980s encouraged the setting up of a large number of cowboy building firms and money was misused. Unfortunately, when money is suddenly made available, undesirable people—in this case, fraudulent providers—are attracted to it.
Clearly, a scheme that was designed to help a wide range of people went awry. We must get it right the second time round. I thank the Auditor General for giving a clear report that highlights points that require action and which will allow everyone involved to learn from past mistakes. I remind members that the Official Report of this meeting will be brought to the attention of our successor committee, which I am sure will want to pursue the Auditor General's excellent report.