Their findings add fuel to the argument over Harriet Harman's decision to reappoint Trevor Phillips, the high-profile chairman of the Equality and Human Rights Commission (EHRC), for a second term in office.
Though it was not Mr Phillips's personal responsibility to hire staff, a former commissioner, who has worked with Mr Phillips for a number of years, said yesterday that the seven staff taken on improperly were people he knew well.
"If he didn't know what was going on then he is a hopeless chair, in my view," Kay Hampton, who resigned from the new Commission in April, said.
Yesterday's report from the National Audit Office, which watches over public spending, focused on the summer and autumn of 2007, when three government bodies – for racial equality, sex discrimination and disability rights – were wound up and absorbed into the new super commission, with over 400 staff and a £70m budget, chaired by Mr Phillips.
More than £11m was paid out in redundancy to staff who did not want to move from the old quangos to the new. But in the run up to October 2007, when the new commission was due to start operations, it was short of 140 staff and 15 out of 25 directors.
Seven staff from the old Commission for Racial Equality, which Trevor Phillips headed in 2003-06, were hired as consultants, despite having just accepted large redundancy cheques. Yesterday's report said there was no evidence there was even a gap between when they left one job and moved into another, but they were not asked to pay back their severance money.
One had received £104,125, and was taken back on for 11 months and paid fees totalling £105,216. In all, it cost £629,276 to make the seven staff redundant, and £323,708 to re-employ them. That decision should have been cleared with the Treasury, who did not find out until later and refused to approve it.
Kay Hampton was Mr Phillips's deputy at the former Commission for Racial Equality, and headed it for 10 months until it went out of existence. She was a commissioner on the EHRC until she resigned in April. Five out of 14 commissioners have resigned in two months, and two more are expected to quit this week. Several have complained about Mr Phillips's management style.
"Although Trevor Phillips and I have been friends at one point – and were colleagues for many years – and I don't care about his leadership style, I have to say that these were people who were handpicked by Trevor in the CRE," she said yesterday.
"I'm not surprised by the issues raised in the National Audit Office report. I picked up on some of these issues while I was still there. It reached the point where, for my own personal integrity, I was not going to be associated with the accounts. I'm very pleased that the accounts were qualified. The public deserves to know the truth."
Mr Phillips and his senior staff will face a grilling by the Commons' Public Accounts committee when MPs return from their summer break.
"Poor management and oversight following its creation resulted in EHRC being understaffed and unprepared," the committee chairman, Edward Leigh, said yesterday. "The total cost to the taxpayer of paying off these executives only to bring them back as consultants was almost £1m. The Treasury, when it found out that public money had been used in this way, refused to approve the payments."
Mr Phillips's defenders say that as a non-executive chairman, he did not personally hire staff, and the officials who did have since left.
"Of course it's terrible to get your first set of accounts qualified by the National Audit Office," one said. "But this was a time when they were trying to get a £70m operation up and running, and there was a feeling that they had done well just to get the place open on time."
Harriet Harman's decision to reappoint Mr Phillips last week came as a surprise and provoked three commissioners to resign over the weekend. It was rumoured that Mr Phillips might carry on for a short time before being given a peerage and made a minister, but he has accepted his reappointment and indicated that he means to serve another full, three-year term.
What is the EHRC?
The Commission for Equality and Human Rights was set up by an Act of Parliament in 2006, to replace three bodies – the Commission on Racial Equality, the Disability Rights Commission, and the Equal Opportunities Commission. It has 410 full-time staff, and employs about 120 agency staff at any time – slightly fewer than the 620 people working for the three commissions it replaced.
*It is run by a board which, until April, was made up of the chairman, Trevor Phillips, his deputy, Margaret Prosser, and 14 commissioners. Mr Phillips and Mrs Prosser had their terms of office renewed last week, but Harriet Harman told the commissioners they must reapply for their jobs, and that there will be fewer of them. Five have resigned since April and two more are likely to go.
*As well as upsetting some people by management style, Mr Phillips has caused controversy through his strategy for combatting discrimination, dealing with human rights as a whole rather than on racism, sexism etc. as discrete issues. He created waves by criticising multiculturalism, a cause which many anti-racist campaigners hold dear.
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