Financial controls at top-spending quango 'lax': Housing Corporation under-performing

BRITAIN'S highest-spending quango, the pounds 2.4bn-a-year Housing Corporation, has lax financial controls and is not doing enough to check on how taxpayers' money is being used.

An inquiry by the National Audit Office, referred to the Commons Public Accounts Committee, has uncovered a catalogue of poor supervision, lack of accountability and under-performance. The corporation oversees 2,300 housing associations and is financing building projects at 600 of them.

At one association, Circle 33 Housing Trust in north London, up to pounds 600,000 was paid out in a fraud that went undetected for seven years. The association's maintenance manager in its eastern section teamed up with a contractor working for Circle 33. Together they formed a bogus company which submitted invoices for work that was not done; the manager signed them and Circle 33 paid out.

For the first four years, the scheme operated at a low level - replacing windows, taps, doors - but then grew in scope. Eventually, before the association became aware of what was going on, the manager fled to Thailand where he still lives. Police inquiries are continuing.

Richard Wilson, permanent secretary at the Department of the Environment, admitted to being worried about the fraud but implied there was little that could be done to prevent a repeat: 'If one is talking about incompetence or a weakness in systems then one can see what to do about it. If it is about fraud then, although one can focus on internal controls and improving them, it goes deeper than that.'

Given that half the associations failed to meet statutory deadlines for submitting accounts, opportunities for fraud and waste are huge. A recruitment drive at the corporation since 1988 has failed to make headway, with inspections of associations falling behind schedule.

MPs were worried that some small and medium associations will escape visits: 'We recommend the corporation look again at the frequency of their coverage, paying particular attention to the risk of fraud and irregularity, and the need to ensure the proper conduct of public business.'

Two associations visited by the audit office had been advised in 1988-89 to set up a system of internal audits but had failed to do so. Such behaviour was 'unacceptable', the committee said. 'We recommend that the corporation issues firm guidelines on the need for, and operation of, internal audit, and closely monitor the extent to which that guidance is implemented.'

A major cause for concern is rent arrears. As at March last year, the total owed in rent to housing associations stood at pounds 68m. In more than one-third of the cases, tenants were unable to pay their rent because of delays in receiving local authority housing benefit.

In another episode, the Metropolitan Housing Trust, which has 6,000 houses spread over 25 local authorities, was owed pounds 400,000 - mainly from Labour-controlled London boroughs. MPs wanted to know how the association could afford to stand such a deficit and queried whether it was subtly subsidising the local authorities.

In a written submission, the association said that it had an income of pounds 11.3m and could cover the delay.