The Skills Funding Agency has promised a crackdown on fraud and misuse of public money in the FE and skills sector, which it admits is likely to get worse under the government’s new subcontracting arrangements. The extent of the concern is revealed in communications leaked to FE Week between Geoff Russell, chief executive of the agency and John Hayes, the FE and Skills Minister.

£11m was lost to fraud or misuse in 2010-11 of which only £3m is so far accounted for. Police are involved in nine investigations, says Mr Russell in a letter to the minister which reveals that the agency was pursuing 88 new allegations – “a record high” – with a further 17 being investigated by other agencies including the police.

The Government’s increased emphasis on subcontracting is certain to make things worse, he suggests. “Subcontracting is the area most prone to mismanagement and abuse, and is responsible for about 70 per cent of our current investigations.”

But there are question marks over the agency’s capacity to investigate. In his letter, Mr Russell says a dedicated Investigations Unit is “fully engaged”. However, there are only six people in that unit and, while he says he is “increasing the unit’s size within the current restructuring exercise”, only 18 of the 55 cases currently on the unit’s books were being fully investigated.

The letter makes clear the crackdown will involve “tighter procedures” including exclusion of providers where there are “reasonable grounds” for deciding they cannot be entrusted with public money. The agency will also interview learners to make sure outcomes are achieved, rather than “relying solely on paperwork and certificates.”

“Subcontracting is the area most prone to mismanagement and abuse, and is responsible for about 70 per cent of our current investigations.”

While the government promised providers greater flexibility and less red tape, Mr Russell insists this will not reduce the need for accountability. With less prescriptive use of public funds “we need to be even more vigilant about propriety”, he says, adding that “the risk is likely to increase in the context of the economy, funding challenges and greater levels of subcontracting”.

Lead contractors must ensure subcontractors have sufficient “capacity, capability, quality and business standing”. Nevertheless, he is concerned that “subcontracting increases risks because work will be done by organisations with which the Agency has no direct contractual relationship. Therefore, subcontracting directors and senior managers must provide guarantees so that in the event of fraud or gross negligence, we can pursue their personal assets in recovering money,” the letter says.

While neither the agency nor government would comment directly on the leaked letter, a spokesperson for the SFA said: “The Agency takes allegations of financial irregularity very seriously.   We rigorously investigate any allegations of wrong doing to the fullest extent to ensure public funds are protected.” Six staff were fully engaged in the agency and “contributing to a number of cross-Government counter fraud initiatives”.

A BIS spokesperson said: “Ensuring value for taxpayers’ money is upmost in the Government’s priorities. We treat allegations about the misuse of public money very seriously and we work with the Skills Funding Agency to ensure they are investigated thoroughly.”

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  1. Andy Moran

    Will this change next year? As we have been told by one large national provider that any SFA provision to be sub-contracted out must go through a procurement process to “comply with EU & Procurement Regulations”. Presumably this will be a tendering exercise with the providers who hold the SFA contract. Surely if providers need to demonstrate financial robustness this will detect potential fraud quicker.

  2. I think the problem stems from giving providers free reign. As the SFA, and the LSC before them, were intent on cutting jobs, the day to day contact with training providers diminished and brand new providers were often not given any initial steer. I am not saying all providers are like this, but some do know how the system works and if they are left to their own devises with only the ILR used as a record of what’s happening within their company, things like this are bound to happen.