By Tony Collins
The Department for Work and Pensions is investigating with consultants PwC whether poor financial controls on payments to IT suppliers have “materialised into cash that should not have been spent”.
If there is evidence the DWP’s permanent secretary Robert Devereux says the DWP will raise the matter with suppliers.
It’s rare for details of central government’s relationship with specific suppliers to come into the public domain but this has happened to some extent on the Universal Credit IT project, thanks mainly to the National Audit Office.
Last week the NAO published a summary of a PwC report into the financial management of UC’s IT suppliers. PwC’s report was circulated to MPs on the Public Accounts Committee who read out some of its contents at a hearing this week.
The Committee’s MPs questioned Devereux, his Finance Director Mike Driver, and Dr Norma Wood, Interim Director General at the Cabinet Office’s Major Projects Authority.
Wood said the Major Projects Authority noticed that suppliers, in doing user acceptance testing, were increasing their average daily rates from £500 to about £800.
“We came back down to about £500, in round figures. That could mean that you have much greater quality, so one has to be careful. We didn’t have an evidence base really to be able to probe this, which is why we recommended to the accounting officer that he undertake this [PwC] investigation.”
Wood agreed with Margaret Hodge, chair of the Public Accounts Committee, that financial control of the IT companies was a “shambles”.
Hodge said: “The PwC report reads more shockingly than the NAO report in terms of the lack of financial control.” She said that the DWP had sat on the PwC report for six months [before releasing it internally], a point the department has not denied.
Hodge said the PwC report referred to:
– incomplete contracts
– incomplete evidence to support contracts
– inappropriate authorisations
– insufficient information supporting contract management
– delegated authority given to a personal assistant to authorise purchase orders on the behalf of the chair of the strategic design authority
“This is a shambles,” said Hodge. “The fear that one has is that money was clearly paid out to the four big ones—Accenture, IBM, HP and BT—which they claimed on a time basis. It was not a tight contract; it was on a time-and-materials basis, which could well have paid out for no work being done.”
Wood: “I agree with you…it is quite clear that suppliers were out of control and that financial controls were not in place. As we did the reset, we ensured that everything was properly negotiated and contracted for, so that is very tight in terms of the reset going forward, but there are definitely questions about how it was handled… As with any payments you should have a proper audit trail and they should be properly governed. They should have been properly contracted for…”
Wood said that she would use the same suppliers again. “Under proper control why not?”
Hodge said the DWP appeared to have given suppliers a blank cheque. “Last night Mr Driver [DWP Finance Director] kindly sent me a copy of the PwC report, which is even more damning in my view [than the NAO report Universal Credit: early progress], particularly on the blank cheque that you appear to have given to suppliers and the failure to keep Ministers properly informed.”
Conservative MP Richard Bacon said the findings in the PwC report were “extraordinary”. Reading from the report he said there was:
– Limited cost control
– Ineffective end-to-end accounts payable processing
– Limited control over receipting against purchase orders
– Accenture and IBM accounted for almost 65% of total IT supplier spend, as at February 2013.
– Purchase orders for Accenture and IBM do not allow for granular verification of expenditure as they are raised and approved by value only. Thus, they cannot
be linked to individual delivery and grades of staff use. Receipting is completed by reference to time sheets. However, this confirmation is not complete and/or accurate as the majority of those individuals receipting do not have the capability and capacity to verify all time recording. This constraint has resulted in expenditure being approved with a nil return in many cases. As a result, payments may be made with no verification.
“After all the history that we have had of IT projects going wrong, how can this
extraordinarily loose control—it is probably wrong to use the word “control”—how can this extraordinarily loose arrangement exist?”
Devereux, who was criticised by Hodge on several occasions for not answering questions directly, replied: “I will try at least to explain what was going on. Let me take you back to the process that we were operating. The process we were operating was seeking to work through, in the space of a four-week period -”
Hodge: “You are doing it again, Mr Devereux.”
Devereux: “I am afraid that I cannot answer the question without giving some facts.”
Hodge: “So is PwC wrong?”
Devereux: No, no. PwC is correct, but I am about to explain what else was going on. I have just had a long set of sessions with PwC, who as we speak, are doing further work for me to establish one particular, critical thing that you will want to know, which is that other things were being checked in the background here that enabled PwC to go back and do some ex post calculations about exactly how much was being paid for each of the outputs we had. It is absolutely right to say-”
Bacon “… Is it not utterly elementary that when you are paying a supplier for having given you something, you know what it is you are paying and what you are getting for it? This is basic!”
Devereux said his department had a resource plan agreed with Accenture (the main UC IT supplier) which was based on a computer model on what a piece of work would involve.
“The contract …in any one month was being based on that calculation of how much work we were likely to put into it in advance. Then the signing off of invoices was indeed based on looking at monthly time sheets. I agree with you that that is not a satisfactory position.”
Bacon: “What is amazing is that you said you did not know any of this until the supplier-led review brought it to you in the summer of 2012. This had been going on for quite a while. There was apparently nothing going on in the Department that was flagging this up. Internal assurance, internal audit—where was it?”
Devereux: “… I conclude this, and it is my responsibility—that more than one line of defence has gone wrong. We have talked so far about whether the programme was properly managing itself.”
Bacon: “This is extraordinary, and it is horribly familiar…it is absolutely central to your job as accounting officer to be sure that you have got lines of defence that are operating effectively. That is part of your job, isn’t it?”
Devereux: “It is part of my job.”
Bacon: “So to be surprised by this is an extraordinary admission, is it not?”
Devereux: “I can only be surprised by this if I am not getting signals from my second line of defence—my financial controllers—that they are worried about what is going on.”
Bacon: “You do sound as though you are blaming everybody underneath you, I am afraid.”
Devereux: “I do not intend to do that, but you are asking me what I knew and what I didn’t know. I am trying to take you through the process by which I am aware of things, and the action I have taken on them.”
Bacon: “But my point is that it was your job to know. It is your job to manage this. You are effectively the chief executive of the DWP.”
Devereux: “I am the chief executive of the DWP, I am the accounting officer, and I am accountable for it. Correct.”
Bacon: “But you didn’t know, did you?
Devereux: “I didn’t know on this, no.”
Hodge revealed that one of the conclusions of the PwC report was that there was a lack of evidence of ministerial sign-off of some contracts. PwC tested 25 contracts over £25,000, and only 11 could be traced with approval; and evidence of value for money provided to the Minister was limited in some cases.
Hodge said: “Basically it [PwC] found that you failed to consult properly with Ministers in signing off the IT contracts.”
Driver: “I think we had a weakness in the process that was operating…It has not always been possible to find all of the paper evidence to confirm a decision. We hold our hands up; we need to improve that. We have now significantly improved the control arrangements that operate within the Department ahead of ministerial sign-off.
“We have also significantly improved the arrangements that apply to any sign-off with the Cabinet Office. I personally chair what is called a star chamber group, which looks at all contracts before we seek authority from the Cabinet Office to go forward…”
Devereux: The work that I was trying to describe to the Chair earlier, which PwC is doing now, is to establish whether the risks we have been running, given this lack of control, have actually materialised into cash that should not have been spent…
“In the event that there is evidence of that, we will go back to the suppliers, obviously. I do not want to run this argument too hard, but there is a set of control weaknesses here which gives rise to a risk of loss of value for money. I accept that.”