Report

by the Comptroller
and Auditor General

Department for Work & Pensions

Investigation into misuse
of the Flexible Support
Fund in Plaistow

HC 509 Session 2016-17 8 July 2016

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The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 6 July 2016

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

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

5 July 2016

HC 509 | £10.00

This report examines how the Department for Work & Pensions responded to allegations of misuse of the Flexible Support Fund in Plaistow jobcentre in East London in 2013.

Investigations

We conduct investigations to establish the underlying facts in circumstances where concerns have been raised with us, or in response to intelligence that we have gathered through our wider work.

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11175 07/16 NAO

The National Audit Office study team consisted of:
Colin Ross, Sarah Taylor and Andrew Tuffin, under the Direction of Max Tse.

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What this investigation is about

1 The Department for Work & Pensions (the Department) helps people to search and prepare for work through its network of Jobcentre Plus offices. Staff in jobcentres help people to find work by giving advice, and referring them to training or employment programmes. Staff can also provide discretionary funding for items such as clothing or travel through the Flexible Support Fund (the Fund).

2 In November 2015, the Rt Hon. Stephen Timms MP contacted us with concerns about misuse of the Fund in Plaistow jobcentre in East London and pressures on staff to falsely inflate performance measures. These concerns were prompted by two former Jobcentre Plus staff members who had been dismissed for misusing the Fund. They also raised concerns with us about the Department’s investigations of these issues since they were first identified in 2013.

3 In this report we examine how the Department:

responded to allegations of misuse of the Fund in Plaistow jobcentre;

has managed the risk of more widespread abuse of the Fund; and

has monitored incentives and pressures within jobcentres.

4 This report sets out how the Department has responded to concerns about misuse of the Fund and incentives in jobcentres. We have reviewed investigation reports and source evidence; interviewed members of the Department’s internal investigations, internal audit, finance, operational, strategy and human resources teams; and interviewed staff who worked in Plaistow jobcentre in 2013.

5 We also reviewed documents about the dismissal proceedings for the two former Jobcentre Plus staff members who first raised their concerns with us. These documents and our discussions with the former Jobcentre Plus staff have been valuable in alerting us to the issues and highlighting some of the challenges involved in managing the Fund. We have not, however, reconsidered individual employment decisions and have not evaluated the original dismissal decisions or subsequent employment tribunal findings.

6 Some of the concerns raised during this investigation cover alleged misuse of other departmental processes, including benefit sanctions. In a separate value-for-money report (forthcoming) we will review the administration of benefit sanctions.

Summary

Key findings

1 The Flexible Support Fund allows jobcentre staff to make payments to benefit claimants to help reduce barriers to work. The Department for Work & Pensions awarded £27.9 million of Fund payments to jobseekers in 2013-14. Most payments are for less than £100. They aim to help jobseekers with the costs of equipment, training and travel. Because use of the Fund is discretionary the Department faces inevitable challenges in balancing flexibility with effective control over payments (Part One).

Misuse of the Fund in Plaistow in 2013

2 Following a customer complaint in August 2013, the Department dismissed two members of staff for misuse of the Fund in Plaistow jobcentre. After investigating the Department concluded two members of staff were involved in falsely awarding Fund payments to inflate off-flow, a measure of jobcentre performance. Five claimants were affected across the two cases. The Department dismissed both members of staff for gross misconduct in May 2014 (paragraphs 2.2 to 2.5).

3 The Department based its decisions on investigations into the actions of both dismissed members of staff. The members of staff raised concerns about the Department’s approach. In particular they questioned whether investigators: followed correct procedures; fully considered evidence; and recognised mitigating circumstances. The Department’s internal investigations team recorded that it had spent an average of 94 hours on each of the two cases, compared with an average of 83 hours for all investigations that led to a dismissal in 2014-15 (paragraphs 2.6 to 2.10).

4 An employment tribunal upheld the Department’s decision when challenged by one of the dismissed members of staff. One of the two dismissed staff members took the Department to an employment tribunal alleging unfair dismissal. The judge in the case concluded in March 2015 that the dismissal was procedurally and substantively fair (paragraph 2.14).

5 The dismissed members of staff raised concerns that misuse of the Fund was widespread and the Department had not investigated fully. They claimed that managers encouraged aggressive approaches to improve off-flow, including falsely signing claimants off benefits and using the Fund to cover gaps in benefit payments. They alleged the Department covered up wider problems with jobcentre practices by blaming individual staff members and presenting problems as isolated incidents (paragraph 2.15).

6 The Department investigated several other staff members for misuse of the Fund. It investigated eight further members of staff in Plaistow and found that
four contributed to misuse of the Fund. Failings included: staff not undertaking required checks when countersigning applications for the Fund; making awards that did not follow the Fund’s rules; and awarding amounts higher than their approval limits. Two of the four staff members received written warnings. None were dismissed. Although a decision maker raised concerns about consistency in the harshness of penalties in different cases, the employment tribunal concluded that no unfairness arose (in the one case it considered) because the two managers who countersigned the Fund application form were not dismissed (paragraphs 2.16 to 2.19).

7 Missing documents meant the Department could not fully investigate all allegations. The jobcentre’s finance officer who performed checks on Fund applications during part of 2013 told us about missing documents. Although missing documents did not affect their cases the two dismissed members of staff raised similar concerns. The Department’s investigators also noted that some documents were missing in one of its investigations. The investigation led to the Department taking disciplinary action. It is unknown what impact the missing documents would have had on the severity of that disciplinary action (paragraphs 2.20 to 2.24).

Risks of wider misuse of the Fund

8 The Department carried out an intelligence exercise looking at Fund payments in other jobcentres. The Department took a sample of 1,845 payments (45%) made by Plaistow and two other East London jobcentres in 2013-14. The Department selected the two other jobcentres based on them having a similar customer base to Plaistow, not on any analysis of patterns in Fund spending. The exercise identified two further cases of misuse in Plaistow. No misuse was identified at the other jobcentres. The exercise also led to the later identification of other non-compliant Fund payments in one of the two investigations that followed in Plaistow. There was no documented methodology for the exercise (paragraphs 3.2 to 3.12).

9 The Department’s internal audit team has highlighted limitations in the Department’s control of Fund payments. Internal audit has reported four times on the Fund since 2011. One internal audit report in March 2013 found that processes and controls were in place to ensure that staff did not make inappropriate payments and could not gain any advantage from misuse of the Fund. Subsequently the Department found that financial controls were not consistently applied (paragraphs 3.13 and 3.14).

10 The Department has introduced several changes aimed at strengthening control over payments. Since 2014, it has appointed a single responsible owner for the Fund, and changed the guidance on roles and responsibilities. Districts carry out monthly checks on payments under the Fund, and the central department collects management information on spending by districts (paragraph 3.17).

11 The Department continues to face challenges in ensuring the Fund is used appropriately. It has to balance the cost of checking compliance with Fund processes with the amount of money at risk. In 2016, an internal audit report identified significant work had been done to improve assurance over Fund expenditure. However, testing of 125 cases for the report identified compliance issues, such as paperwork errors (46% of cases) and staff not following up outstanding receipts (54% of cases). The Department told us it did not identify any misuse of the Fund during its testing (paragraph 3.19).

Incentives and pressures in jobcentres

12 Plaistow jobcentre staff have raised several concerns about pressures in jobcentres during and since 2013. They raised concerns about staff capacity and pressures to improve off-flow. Some alleged that managers implicitly or explicitly encouraged advisers to misuse the Fund to increase off-flow. The dismissed members of staff reported other practices including: deliberately booking jobcentre appointments at inconvenient times of day to increase missed appointments and trigger sanctions; being unpleasant or aggressive to encourage people to sign off; and encouraging Jobseeker’s Allowance claimants to apply for Employment and Support Allowance. We have not investigated these allegations (paragraphs 4.3 to 4.8 and Figure 11).

13 Following whistleblower concerns, the Department investigated allegations about Plaistow jobcentre managers putting pressure on staff to misuse the Fund. In June and July 2014 it opened internal and human resources investigations into a number of allegations, including bullying and harassment. In 2015, the Department concluded the investigations. None resulted in disciplinary action. The Department’s appeals manager identified limitations in the coordination of work between human resources and internal investigations (paragraphs 4.10 to 4.13).

14 The Department’s investigations did not directly review wider cultural issues or pressures on staff in Plaistow. Pressure to achieve targets inherently increases the risk of unapproved practices. Investigations focus on specific allegations. They do not consider the effect of wider cultural issues and pressures on staff. The Department has considered pressure on staff as part of its internal audit work. It told us it has not seen any cultural problems such as bullying and harassment in the jobcentres it has visited. It has, however, identified that pressure to achieve targets can lead to some inappropriate customer service behaviours, including giving lower priority to work on claims after target dates (paragraphs 4.14 to 4.16).

15 The Department believes its use of targets for off-flow is appropriate and that they create no significant perverse incentives. The Department’s investigations concluded that the misuse of the Fund identified in Plaistow jobcentre was not widespread. It considers further investigation would not be proportionate. The Department investigated whether staff in Plaistow jobcentre were directed to increase off-flow inappropriately. It found the evidence did not support the allegations. In 2013-14, the Department raised its off-flow targets for jobcentres. Initially, Plaistow and some other jobcentres in East London struggled to meet these new targets (paragraphs 4.2 and 4.3).

Part One

Background

1.1 The Department for Work & Pensions (the Department) introduced the Flexible Support Fund (the Fund) in 2011-12. The Fund replaced several discretionary funds and schemes aimed at helping benefit claimants move into and remain in work. In this part we set out the Fund’s aims and how it is used.

Payments to remove barriers to work

1.2 The Fund aims to remove barriers that prevent a claimant from searching for work, or from accepting a job offer. In 2013-14, the Department spent £75.8 million on the Fund (Figure 1). Jobcentres can use the Fund in different ways:

Grant funding and ad hoc procurement payments allow jobcentres to pay for training or support that is not covered by existing contracts or local provision. This report does not cover these two types of payments.

Barriers to work payments allow jobcentres to pay individual claimants directly to overcome barriers to work, covering costs such as travel expenses, training and clothing for interviews (Figure 1). In 2012, the Department estimated that 93% of barriers to work payments were for £100 or less.

Local discretion over spending

1.3 The Department introduced the Fund as part of a wider set of local flexibilities for jobcentres under an initiative known as the Jobcentre Plus Offer in 2011. It sets the total national budget for the Fund, and budgets for jobcentre districts based on past spending and the number of active claimants. District managers decide local spending priorities, including the balance between grants and barriers to work payments.

1.4 Discretionary payments allow front-line jobcentre staff to tailor support to individual needs and target small but significant barriers to work.1 Greater local flexibility also creates challenges for the Department:

Managing overall spending. The Department has underspent against its budget each year since it introduced the Fund. It is difficult to forecast levels of discretionary spending and spending may depend on staff judgements and familiarity with the process. In November 2013, the Department identified: a perceived lack of flexibility about what the funds could be spent on; advisers lacking confidence in making decisions about spending money; and a perception that the process was slow and complex.2

Reliance on overall performance measures. Our February 2013 report, Responding to change in jobcentres, found that the Department increasingly relied on tracking off-flow from benefits to measure performance, and that it needed to improve how it tracked and evaluated performance in light of increased flexibilities.3,4

Consistency of support for individuals. Discretion inevitably brings the risk that jobcentres will not support claimants consistently.

Control over spending. Greater discretion and flexibility makes it more difficult to control spending and prevent misuse, particularly where information on spending is not closely monitored. In our 2013 report, we noted the risks of perverse incentives to use flexibilities to meet off-flow targets. However, our analysis of overall off-flow performance did not identify any signs of widespread misuse.

1.5 Later in this report we describe specific allegations of misuse of the Fund. The Department’s response to these allegations illustrates how it is managing the challenges created by flexibility and discretion in jobcentres.

Reliance on local controls

1.6 The Department relies firstly on local oversight and control over Fund payments. Processing claimants’ applications to the Fund involves three roles. No individual should perform more than one role in the process.

Approver: a work coach (formerly jobcentre adviser) proposes making the award to the applicant.

Authorising officer: a more senior work coach or team leader decides whether
it is reasonable to make the award.

Paying officer: usually a local jobcentre administrative officer who releases the funds via the Department’s Central Payments System (CPS).

1.7 The Department expects work coaches to take into account national and local guidance, individual circumstances, other sources of funding and value for money when proposing awards. They are responsible for ensuring correct procedures are followed and that funds are not used inappropriately. Once authorised, payments are usually made into claimants’ bank accounts.5

1.8 The Department expects claimants to provide receipts to show that the money was used for the approved purpose. Jobcentres issue up to two reminder letters when claimants do not provide receipts. If receipts are still not provided the jobcentre records the amount as a loss and reports it in a quarterly losses return to the Department. Current guidance states that if a claimant does not provide receipts further awards should not be made to them.

1.9 Accountability for the Fund currently sits at group level (for example, London and the Home Counties) and is delegated to district managers (see Appendix Two). Nationally, the Fund has had a senior responsible owner since February 2014.

1.10 Districts analyse spending and performance information on a monthly basis. The Department currently collects returns from districts about their checks on Fund spending and looks at electronic records of payments. The Department’s finance team sends a monthly update on spending to the work services director. Given the low level of spending, information on budgets and spending at national and district levels is not a business plan indicator nor is it reported to the Department’s executive team in performance reporting data.

1 In some cases claimants are entitled to payments, for example to pay travel costs when they are required to sign on daily at jobcentres.

2 Department for Work & Pensions, The Jobcentre Plus Offer: Final evaluation report, Research Report No 852, November 2013.

3 An off-flow is defined as the end of a claim for a particular benefit.

4 Comptroller and Auditor General, Responding to change in jobcentres, Session 2012-13, HC 955, National Audit Office, February 2013.

5 Awards can also be made in cash or through a framework of suppliers who provide retail goods to claimants. When the framework is used funds are not given directly to claimants.

Part Two

Misuse of the Fund in Plaistow in 2013

2.1 Plaistow jobcentre is one of 16 jobcentres in the East London district. In August 2013, a customer complaint led to the Department for Work & Pensions (the Department) identifying misuse of the Flexible Support Fund (the Fund). The Department dismissed two members of staff. It also investigated several other staff. In this part we examine how the Department investigated concerns of misuse in Plaistow. In later parts we consider its response to wider allegations of misuse (Part Three) and management pressures (Part Four).

Dismissals for misuse of the Fund

2.2 In August 2013, a claimant at Plaistow jobcentre complained about an interruption in her Housing Benefit payments. The interruption in Housing Benefit was caused by closure of her Jobseeker’s Allowance claim. The claimant had not found work or chosen to close her claim. She stated that a member of staff at the jobcentre said her claim had been closed due to IT problems.

2.3 The claimant reclaimed Jobseeker’s Allowance immediately, which led to a
one-week gap in benefits. The claimant also received a payment from the Fund that was similar to the sum she would have received in Jobseeker’s Allowance had her claim remained open. The claimant did not recall applying for the payment but stated she was told the jobcentre would cover losses in benefits due to her claim being closed.

2.4 After an investigation the Department concluded that an adviser in Plaistow jobcentre had closed the claimant’s Jobseeker’s Allowance claim to meet performance targets for off-flow. It also concluded the adviser misused the Fund payment to compensate the claimant for the gap in her Jobseeker’s Allowance claim and had falsified the Fund application form. The Department later identified wrongful payments totalling around £300 from the Fund in July 2013 to the claimant that complained and four other claimants involving the same adviser. Plaistow made payments from the Fund totalling £13,400 that month.

2.5 The Department dismissed two members of staff in Plaistow jobcentre for being involved in falsely awarding Fund payments. As well as the adviser at the centre of the original complaint, the Department also dismissed the adviser’s manager for falsely completing a document and failing to check the complainant’s claim thoroughly (Figure 2). The Department dismissed both staff on the basis of findings made on the balance of probabilities, the standard of proof required in such cases.

Approach to the original investigations

2.6 The two dismissed members of staff raised concerns about the Department’s handling of their cases. They questioned whether investigators had: followed procedures in the early stages of the investigation; fully considered evidence; and recognised mitigating circumstances or previous performance in decisions and appeals. They alleged that the staff involved in handling their cases were not independent of each other. The Department told us that movement of staff creates the risk that they will have worked together previously. However, it noted that processes are in place for concerns about conflicts of interest to be raised.

2.7 The dismissed members of staff raised concerns that they were not initially made aware of the referral to internal investigations. In cases of potential fraud this is in line with guidance and departmental processes.

2.8 The dismissed members of staff also raised concerns about how investigators took a statement from the complainant. The Department told us that after it received the complaint the investigator spoke to the claimant by telephone. They checked whether she had anything more to add. There is no record of this call. The investigator then asked a Plaistow manager to interview the claimant and take her statement.

2.9 The Department told us they did this to reduce the risk of office staff becoming aware of the investigations. The Department’s guidance states that investigators should carry out such interviews. Internal investigations undertook all other interviews with claimants affected by misuse.

2.10 The extent of evidence that investigators gather in each case will differ. In Plaistow, the investigation team considered various sources of evidence (Figure 3). There is no minimum length of an investigation, but these cases took 94 hours on average to complete compared with an average of 83 hours for all investigations that led to a dismissal in 2014-15.

2.11 After internal investigators establish the facts of a case they pass their findings on to a decision maker. Decision makers must be at least one grade higher than the subject of an investigation and at least of senior executive officer grade in gross misconduct cases. The decision maker in the cases of the two dismissed staff members was a manager responsible for another East London jobcentre.

2.12 The Department dismissed the members of staff for gross misconduct on the recommendation of the decision maker. The decision maker made their recommendation on the basis of findings made on the balance of probabilities, the standard of proof required in such cases. There are four possible outcomes following a finding of gross misconduct: no action, line management action, a written warning, or dismissal. The decision maker considered the investigator’s reports, interviewed the members of staff, and completed the necessary decision checklists.

2.13 The dismissed members of staff raised concerns that the decision maker had not considered mitigating circumstances. Both members of staff exercised their right to appeal the dismissal decisions citing pressure from managers and a lack of training as mitigation.6 Both were unsuccessful in their appeals, on the basis they were aware of the appropriate action to take in such circumstances but failed to do so. The dismissed members of staff told us they had raised their concerns informally within the jobcentre.

2.14 In September 2014, one of the two dismissed staff members took the Department to an employment tribunal alleging unfair dismissal. The member of staff represented themselves. The judge in the case decided in March 2015 that the dismissal was procedurally and substantively fair.

Investigations of wider misuse at Plaistow jobcentre

2.15 In interviews we carried out for this investigation the dismissed members of staff raised concerns that misuse of the Fund was widespread at Plaistow jobcentre. They claimed that managers encouraged aggressive approaches to improve off-flow. They alleged that the Department did not fully investigate wider problems with jobcentre practices and instead blamed individual staff members and presented problems as isolated incidents. The dismissed members of staff made similar allegations prior to their dismissals but after the Department had completed its initial investigations.

2.16 The Department has carried out several other investigations related to misuse of the Fund by staff in Plaistow jobcentre. The investigations arose from three sources: a whistleblower, a customer complaint and an intelligence exercise conducted by the Department in response to the original concerns.

2.17 In total the Department investigated 10 members of staff across 14 separate investigations (Figure 4). The average time spent by the internal investigations team on its investigations was 59 hours, which was similar to its overall average in 2014-15. Including the two dismissed staff, the Department found that six staff misused the Fund at Plaistow jobcentre. Failings identified by the investigations included: staff not undertaking required checks when countersigning applications for the Fund; staff making awards that did not fit the Fund criteria; and staff awarding amounts higher than their approval limits.

2.18 The Department did not dismiss any other staff at Plaistow jobcentre. Two received written warnings. One member of staff’s line manager was sent a letter telling them to discuss the misconduct informally with their member of staff. One received no penalty. The Department has stated that it took disciplinary action in all cases where evidence indicated misuse of the Fund.

2.19 One decision maker raised concerns about consistency in the harshness of penalties in the different cases. The employment tribunal considered this concern. It concluded that no unfairness arose from the fact that the Department did not dismiss the two managers who countersigned the Fund application form.

Investigations restricted by the evidence available

2.20 The Department’s ability to fully investigate allegations depends on the information available. Investigators cannot form conclusions without clear evidence, and often allegations cannot be investigated fully.

2.21 Applications and approvals for Fund payments to claimants involve paper forms kept in jobcentres. This creates opportunities for documents to be lost or destroyed. This problem did not affect the investigations into the two dismissed members of staff. However, they raised concerns about missing documents.

2.22 The Plaistow jobcentre finance officer who checked Fund awards during part of 2013 also told us that paperwork for Fund payments had gone missing. The payments were made between July 2013 and October 2013 for travel. The officer had identified them for further checks by the jobcentre manager because the amounts awarded were unusual. The officer had concerns that advisers were signing off claimants who had genuine job offers one to two weeks before their expected start dates to help meet off-flow targets. The advisers would then cover claimants’ benefits using the Fund.

2.23 The jobcentre finance officer raised her concerns in writing in July 2014 in a statement given as evidence to an employment tribunal (see paragraph 2.14). She also told us she raised her concerns informally with a district operations manager. Her concerns were brought to the attention of investigators during the internal investigation into management involvement in alleged misuse of the Fund at Plaistow some time between July 2014 and March 2015. The Department decided not to interview her. It did not seek to find out who was responsible for this missing evidence at Plaistow jobcentre.

2.24 The Department’s investigators noted that documents were missing in one of their investigations at Plaistow. The investigation led to the Department taking disciplinary action. It is unknown what impact the missing documents would have had on the severity of that disciplinary action. Investigators also noted in a wider review of Fund payments in East London (see paragraphs 3.2 to 3.12) that paperwork was missing for some questionable awards in Plaistow. Paperwork was also found to be incomplete. Where records were available it was sometimes unclear who had completed forms.

6 To reduce the risk of disclosing the identity of individuals who have been the subject of investigations we have used the term manager in this report to describe staff at team leader grade and above.

Part Three

Risks of wider misuse of the Fund

3.1 The concerns raised about the Flexible Support Fund (the Fund) included the allegation that misuse occurred in other jobcentres. In this part of the report we examine how the Department for Work & Pensions (the Department) has managed the risk of the Fund being abused in other jobcentres.

Intelligence exercises

3.2 In December 2013, the Department carried out an intelligence exercise looking into Fund payments made by Plaistow jobcentre and two nearby jobcentres, East Ham and Canning Town. It did this to establish whether misuse of the Fund was more widespread in the East London district. The Department later carried out a second exercise in Dalston, Hackney and Hoxton. It did this because a team leader, who had worked at Dalston jobcentre, told the Department’s internal audit team that it was common practice for staff to misuse the Fund to meet operational targets (Figure 5).

3.3 The Department selected East Ham, Canning Town, Hackney and Hoxton as the extra sites because it considered they had similar customer bases to Plaistow and Dalston. It told us it was also aware that a large number of staff had moved from Dalston jobcentre to Hoxton jobcentre. It did not select the sites based on any analysis of patterns in Fund spending. The Department’s first exercise examined payments made between June 2013 and May 2014. This period included July 2013, when it found misuse of the Fund had occurred. The Department’s second exercise reviewed payments made in the year before the exercise started in November 2014.

3.4 The intelligence exercises show the Department explored whether there was wider misuse of the Fund. Its internal investigations team spent around 340 hours in total on the exercises. Through these intelligence exercises the Department identified two of the members of staff investigated for misusing the Fund. Both staff members were at Plaistow jobcentre (see Figure 4). The Department identified no misuse at other jobcentres, including Dalston where specific concerns had been raised.

Approach to the intelligence exercises

3.5 The Department told us the intelligence exercises followed the same steps as the investigations into the two dismissed members of staff. The original investigations followed a specific complaint by a claimant so involved checking awards involving particular members of staff. The process involved four steps:

reviewing the Department’s Labour Market System, which holds records of Fund payments to claimants, to identify any awards close in time to the claimant signing off;

reviewing whether any of the claimants identified reclaimed Jobseeker’s Allowance after receiving a Fund payment;

examining these claimants’ ES40 booklets, which record why they ended their benefit claims; and

interviewing claimants to verify the stated reason for ending their claim.

3.6 In the intelligence exercises investigators reviewed a large number of records in the Department’s Labour Market System. The Department said investigators looked for Fund payments made to claimants who:

signed off close to off-flow target dates; or

reclaimed benefit within a week or so of their claim ending.

3.7 The Department told us investigators also looked for staff who had made large numbers of Fund payments. Investigators checked paper records for 14 payments at two of the six jobcentres reviewed. No claimants were interviewed as part of the intelligence exercises. The Department spoke to two claimants during one of the two investigations that followed.

3.8 Staff who worked in Plaistow jobcentre in 2013 have alleged that claimants who had genuine job offers were being signed off one to two weeks before their expected start dates to help meet off-flow targets. The claimants’ benefits would then be covered using the Fund. This type of misuse is different to the misuse identified in the cases of the two dismissed members of staff.

3.9 In December 2013, a whistleblower also alleged misuse of this kind. They alleged that a claimant had been signed off a month prior to a job start. The Department opened an investigation in January 2014 and closed it after a brief review in March 2014, finding that the evidence did not support the allegation. The Department told us it confirmed with HM Revenue & Customs (HMRC) that the claimant had started work.

3.10 The first intelligence exercise identified two cases where a claimant with a genuine job offer was signed off benefit before their job start date. The cases involved two different members of staff (see Figure 4):

A claimant was awarded an amount for travel that investigators found was exactly the same as one week’s Jobseeker’s Allowance. Investigators concluded there was evidence to support the allegation of misuse. The decision maker imposed no penalty.

Another claimant’s job started several days after the last date of their claim. During the investigation that followed the Department identified three claimants who had lost a portion of their benefit due to early closure of their claims. Investigators concluded Fund guidance had not been followed. The decision maker imposed a first written warning.

3.11 The intelligence exercises would not have identified Fund payments to claimants with genuine job offers who signed off before their job start but did not sign off close to an off-flow target date. It is difficult to identify whether misuse has occurred in such cases without contacting HMRC, the claimant or the employer to confirm job start dates for each individual.

3.12 The Department did not document the criteria it used for the intelligence exercises. There is no documented methodology explaining how investigators selected payments for review and why sample sizes differed between jobcentres. The Department could not explain why its criteria led investigators to check 100% of Fund payments made in Dalston between November 2013 and November 2014. We have not reperformed the Department’s analysis to test how it carried out the exercises.

Recognised limitations in controls

3.13 The Department’s internal audit team has reported four times on the use of the Fund since 2011. Internal audit told us it plans work based on its assessment of departmental risks. It told us this assessment is informed by a range of information on risk management and control, including intelligence from sources such as internal investigations. Its four reports on the Fund reflect the high volume, mostly discretionary nature of payments made using the Fund.

3.14 The internal audit reviews have recognised limitations in the control of Fund payments. One internal audit report in March 2013 found that processes and controls were in place to ensure that staff did not make inappropriate payments and could not gain any advantage from misuse of the Fund. Subsequently the Department found that financial controls were not consistently applied (Figure 6).

3.15 Not including Plaistow, the Department identified 10 cases of misuse of the Fund between March 2013 and February 2016:

Seven of these cases involved staff diverting money into their own or associates’ personal bank accounts. The Department dismissed six members of staff. One member of staff transferred to another government department prior to the conclusion of the investigation. The Department referred the case to the police and gave its investigation report to the other government department for disciplinary action.

Three cases involved staff awarding or benefiting from a Fund payment to their partner or someone they knew. The Department gave two members of staff a final written warning. In the other case the Department found the evidence did not support the allegation.

3.16 In 2012-13, in our work as external auditor of the Department we identified local variation in processes and controls in jobcentres. These variations did not appear to be fully understood by the centre of the Department, which aims for a standard approach to processing. The Department’s operations, finance and internal audit teams have been seeking to improve the compliance of jobcentres with Fund processes.

Changes made but continuing challenges

3.17 The Department provided information on changes it made between September 2014 and April 2016 to improve controls over Fund spending. For example, it has appointed a senior responsible owner for the Fund and issued revised guidance on roles and responsibilities. Other checks the Department told us it carries out include monthly random checks on 5% or 10% of payments on four of twelve Fund account codes by jobcentre districts, via the Department’s Business Control System. A local jobcentre team manager randomly selects the payments to be checked. They confirm that signed paper records match electronic records, and whether payments are made in line with guidance on approval limits and recorded on the correct account code.

3.18 The Department has to balance the cost of checking compliance with Fund processes with the amount of money at risk. It also has to manage the risk that those checks affect use of the Fund to support claimants into work. The Department issued revised guidance from February 2016 on the percentage of checks required. This included the option to increase checks to 100% of awards where a risk has been identified. For example, if a member of staff is new in post. Results of the checks, including the names of districts which do not perform them, are sent to the Department and other staff responsible for oversight of the Fund.

3.19 An internal audit report on the Fund in April 2016 recognised that significant work had been done to improve assurance over Fund spending. However, the discretionary nature of most payments and the large number of staff involved in making decisions create risks of inconsistency or non-compliance. Internal audit identified the Department needs to improve compliance in a number of areas. For example, 46% of the 125 cases tested had paperwork errors and in 54% of cases staff had not taken action to follow up outstanding receipts (Figure 7). The report identified geographic pockets of non-compliance that affected the test results, such as movement or changes of staff. The Department told us it did not identify any misuse of the Fund during its testing.

3.20 The Department’s finance team now looks for and queries suspicious transactions and outlier districts, and makes comparisons between districts based on average spend. Payments to claimants by Plaistow jobcentre peaked in August 2013 (Figure 8). Use of the Fund fluctuates and peaks in spending do not necessarily signal wrongdoing.

Part Four

Incentives and pressures within jobcentres

4.1 Former Plaistow jobcentre staff have told us about incentives and pressures within the jobcentre to misuse the Flexible Support Fund (the Fund) and other jobcentre practices such as sanctions, to improve performance. This part of the report examines how the Department for Work & Pensions (the Department) has monitored wider incentives and pressures in jobcentres.

Targets for off-flow

4.2 In 2013-14, the Department raised its off-flow targets for jobcentres as part of its annual review of their performance. Off-flow targets were increased for jobcentres that were meeting them consistently. Plaistow and some other jobcentres in East London initially struggled to meet these new targets. Performance improved in Plaistow and the rest of East London later in the year (Figure 9). In some months Plaistow narrowly missed or achieved its targets.

4.3 Staff who worked in Plaistow jobcentre in 2013 have raised concerns about the pressure created by off-flow targets. The Department considers that its use of targets for off-flow is appropriate and creates no significant perverse incentives. It considers that there are adequate processes in place to check for any wrongdoing.

4.4 In three of the Department’s investigations into misuse of the Fund, investigators found that staff misused the Fund to meet the jobcentre’s targets. The Department’s investigations did not establish how the individuals benefited from the misuse. They did not gain financially. Neither were they personally credited with the off-flow gained.

4.5 Off-flow is one of the primary measures the Department uses to monitor jobcentre performance. Jobcentres are set targets for the proportion of people that stop claiming benefits before specific points in time after their claim starts. While off-flow can indicate positive outcomes, such as finding work, many claimants stop claiming benefits for other reasons, which are often unknown (Figure 10). A risk of focusing on this performance measure is that it can encourage target-driven activity that does not benefit claimants.

4.6 In our February 2013 report, Responding to change in jobcentres, we examined off-flow rates over time following the start of a claim.7 Looking at overall rates at that time we did not find any evidence to suggest off-flow was being materially inflated around key target dates. However, we did identify limitations in the use of off-flow as a performance measure and the need for the Department to better understand the measures it uses to set targets and incentives. The Department is developing different performance measures under Universal Credit.

Management pressures on staff

4.7 The dismissed members of staff alleged that managers encouraged aggressive approaches to improve off-flow. These allegations were made prior to their dismissals but after the Department had completed its initial investigations. The Department did not accept this as mitigation on the grounds that the members of staff could have taken steps to raise their concerns. It referred the allegations to internal investigations. The referral named four staff. All four staff were investigated by the Department.8 The two dismissed members of staff also told us that jobcentre staff used other unapproved practices to improve off-flow (Figure 11). The Department told us its initial internal investigations raised generic issues about management so these were not explored at the time.

4.8 In July 2013, 66 staff worked at Plaistow jobcentre. Eight of these staff have described pressure to achieve off-flow targets.9 The staff reported that, from March 2013, the culture in the jobcentre changed, with a greater focus on targets. Some staff were reported to have been placed on or threatened with being placed on action plans for performance improvement, intended as a mechanism for managing poor performance by staff.

4.9 In response to our investigation the Department asked the district operations manager, whose responsibilities included Plaistow jobcentre from May 2013 to March 2014, for their views on the working environment at the time. They recalled no evidence of management pressure or unapproved working practices.

4.10 In May 2014, a whistleblower also alleged that jobcentre managers at Plaistow had put pressure on staff to misuse the Fund. This allegation was one of nine that the whistleblower made about management behaviour and practices in Plaistow jobcentre, some of which related to bullying and harassment.

4.11 The Department opened investigations into management pressure in Plaistow:

In June 2014, the Department opened a human resources investigation into several allegations, including bullying and harassment and an allegation that a manager had sent inappropriate emails regarding the use of the Fund. The investigation found evidence to support three allegations of bullying and harassment. These findings were overturned on appeal because there had been more than 30 days between the last incident and the complaint. The appeal manager also identified that the investigation was not sufficiently thorough and robust.

In July 2014, the Department opened an internal investigation into allegations that a manager had put pressure on staff to misuse the Fund. On the basis of the evidence it reviewed, the Department concluded that there was no case to answer. It decided that an interview with that manager, who had already been interviewed as part of the human resources investigation, was not justified.

The Department also opened human resources investigations into a manager and an adviser. It found that the evidence did not support the allegations.

4.12 Internal investigations reviewed transcripts of interviews conducted for the human resources investigations. Internal investigations undertook no new interviews and no additional evidence was collected.

4.13 During the decision-making process the Department’s appeals manager identified problems in the coordination of the work carried out between human resources and internal investigations. In his decision letter he noted internal investigations had told him their investigation into one of the managers was separate to the human resources investigation and all they did was exchange information. The internal investigations team told us it was not made aware of the appeals manager’s concerns prior to our investigation and did not agree that the cases had not been coordinated.

Wider pressures

4.14 The Department’s investigations did not directly review wider cultural issues or pressures on staff in Plaistow. Pressure to achieve targets inherently increases the risk of unapproved practices. Investigations focus on specific allegations of wrongdoing. The work of the internal investigations team does not cover bullying, harassment or discrimination issues (see Appendix Three for an overview of the investigation process). The Department’s human resources department, specifically its mediation and investigation service, investigates these cases. These investigations focused on whether the alleged behaviour of individuals happened as described, and whether it constitutes bullying or harassment. The investigations do not consider whether wider cultural issues and pressures on staff affect the risk of malpractice.

4.15 Four internal audit reports on the Fund (see paragraphs 3.12 to 3.13) have reviewed the effectiveness of controls put in place by the Department to give it assurance over Fund spending. The internal audit team told us it did not see any cultural problems such as bullying and harassment in the 10 jobcentres it visited in June 2014. It is supporting the Department to improve, but considers that misuse of the Fund (and other unapproved practices to achieve targets) is limited. The Department considers that further investigation of allegations would not be proportionate.

4.16 In 2015-16, internal audit reviewed compliance with processes for handling claims across five benefits. The reviews focused on areas such as: processing times and performance variation; quality and accuracy; and capacity and capability. The reviews identified the the need to improve compliance with process and quality requirements, while reducing error in the benefit system. Two of the reviews identified that pressure to achieve targets was leading to some inappropriate customer service behaviours, including giving lower priority to work on claims after target dates.

7 Comptroller and Auditor General, Responding to change in jobcentres, Session 2012-13, HC 955, National Audit Office, February 2013.

8 The four staff are shown in Figure 4 as staff members number 3, 5, 7 and 8.

9 These concerns were raised through a number of routes and at various points in time, including: during the course of the Plaistow investigations, appeals and decision-making processes; in the employment tribunal; in correspondence with Stephen Timms MP; and in interviews we carried out for this investigation.

Appendix One

Our investigative approach

Scope

1 The Rt. Hon. Stephen Timms MP asked us to investigate inappropriate behaviour in jobcentres and the treatment of whistleblowers. His concerns related mainly to the way Plaistow jobcentre responded to pressure to improve performance in rates of off-flow from Jobseeker’s Allowance during 2013.

2 This report covers barriers to work payments of the Flexible Support Fund (the Fund). We do not consider ad-hoc and grant payments of the Fund.

3 We examined:

how the Department for Work & Pensions (the Department) responded to allegations of misuse of the Fund in Plaistow jobcentre;

how the Department has managed the risk of more widespread abuse of the Fund; and

how the Department has monitored wider incentives and pressures within jobcentres.

Methods

4 In examining these issues, we drew on a variety of evidence sources.

5 We interviewed staff who worked in Plaistow jobcentre in 2013 and other Department officials. The teams we interviewed included:

internal investigations;

human resources mediation and investigations service;

internal audit;

finance;

operational staff involved in decision-making and appeals; and

the policy team for the Fund.

6 We reviewed documents in the public domain and provided by the Department, HM Courts & Tribunals Service, and former employees.

7 We visited a jobcentre to see the processes for awarding Fund payments and for undertaking monthly checks on payments.

Appendix Two

Accountability for the Flexible Support Fund

Appendix Three

Staff investigation processes

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