Serious Fraud Office redundancy and severance arrangements

Transcription

1 House of Commons Committee of Public Accounts Serious Fraud Office redundancy and severance arrangements Tenth Report of Session HC 360

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3 House of Commons Committee of Public Accounts Serious Fraud Office redundancy and severance arrangements Tenth Report of Session Report, together with formal minutes, oral and written evidence Ordered by the House of Commons to be printed 12 June 2013 HC 360 [Incorporating HC 1026, Session ] Published on 17 July 2013 by authority of the House of Commons London: The Stationery Office Limited 11.00

4 Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit (Standing Order No 148). Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Sajid Javid (Conservative, Bromsgrove) Fiona Mactaggart (Labour, Slough) Austin Mitchell (Labour, Great Grimsby) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Justin Tomlinson (Conservative, North Swindon) Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Rhiannon Hollis (Clerk), Sonia Draper (Senior Committee Assistant), Ian Blair and James McQuade (Committee Assistants) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is ; the Committee s address is pubaccom@parliament.uk

5 1 Contents Report Page Summary 2 Conclusions and recommendations 3 1 Severance payments to senior staff 4 2 Sir Alex Allan s report 9 Formal Minutes 10 Witnesses 11 List of printed written evidence 11 List of Reports from the Committee during the current Parliament 12

6 2 Summary In October 2012, the Comptroller and Auditor General (C&AG) qualified his audit opinion on the accounts of the Serious Fraud Office (SFO) because of an irregular redundancy payment to the former Chief Executive Officer. 1 There was no evidence that its then Director had followed due process in instigating this voluntary redundancy, or that he had secured the necessary approval for payment from the Cabinet Office. He had not complied with the safeguards set out in Managing Public Money. 2 We took evidence from the current and former Directors of the SFO to determine the background to the irregular payment and examine how the former Director had discharged his responsibilities as an Accounting Officer. In December 2012, the Attorney General reported that the former Director had agreed further severance payments to other senior SFO staff without following due process. In March 2013, an investigation commissioned by the new Director from the Treasury Solicitor s Department reported that decisions to make both the Chief Executive Officer and the Chief Operating Officer redundant were taken by the former Director alone. The former Director had failed to gain Cabinet Office approval for the Chief Executive Officer s severance agreement. However, the Cabinet Office did not prevent a payment of 407,000 going ahead to MyCSP to enhance her pension. The former Director also failed to gain approval for additional special severance payments to both the Chief Executive Officer and Chief Operating Officer, disregarding the legal advice available to him. A further report, commissioned by the Cabinet Secretary from Sir Alex Allan, found that the SFO lacked transparency in its arrangements for paying contractors. The new Director told us the SFO had used confidentiality clauses in its severance agreements and not maintained records about a promotion for the former Chief Executive Officer. This catalogue of errors amounts to a case study in how not to run a public body. These failings have undermined the reputation of the SFO, and the morale of its staff, which the new Director has to rebuild. We welcome the positive start by the new Director, who appears to have a comprehensive understanding of Accounting Officer responsibilities and is addressing the problems identified. Following our hearing the former Director Richard Alderman, to his credit, reflected on his evidence and wrote to the Committee to apologise, acknowledging that his actions fell short of what is expected from an Accounting Officer, and for his failures to ensure relevant approvals were obtained and documented. 1 Report of the Comptroller and Auditor General to the House of Commons into the Serious Fraud Office accounts Managing Public Money is the Treasury publication which sets out the principles, standards and guidance to be followed in the use of funds by public sector organisations in the UK.It is available at

7 3 Conclusions and recommendations 1. The former Director s decisions on redundancy and severance packages showed a disregard for the proper use of taxpayers money. Mr Alderman failed to follow due process by deciding the amounts in special severance packages, and by not seeking alternative placements for staff. He ignored legal advice available to him, and did not gain the necessary Cabinet Office and Treasury approval for payments. He failed to comply with the principles that should underpin the use of public money. We welcome the new Director s action to strengthen SFO governance and Board level decision making, aimed at preventing a Director from taking such actions independently. We want to see the rules in Managing Public Money strictly enforced to ensure compliance by the SFO and other public bodies. In particular, the requirement for Cabinet Office and Treasury approval for redundancy payments must be enforced by Boards. We look to the Cabinet Office and the Treasury for safeguards to ensure there is no repeat of this debacle. 2. The reputation of the SFO has been undermined by a catalogue of errors and poor judgement and the morale of its staff has suffered. Mr Alderman used taxpayers money to cover the Chief Executive Officer s travel and hotel costs to London so she could continue to live in the Lake District. We are concerned that the SFO arranged its dealings with consultants to avoid the Cabinet Office requirement for approvals. We are also concerned about poor quality record keeping, and that senior civil servants received money in compromise agreements, in addition to exit payments. We also noted that records were not kept of the circumstances in which the former Chief Executive Officer was promoted and given a pay rise. The new Director should ensure the recommendations from Sir Alex Allan s report are implemented, and that the Board and Audit Committee are kept fully informed and engaged in decision making. 3. A payment of over 400,000 was made to enhance the former Chief Executive Officer s pension, despite not having the necessary approval. There is no evidence the former Director obtained the necessary Cabinet Office approval for the former Chief Executive Officer s redundancy package. Nevertheless, this did not stop a payment of 407,000 going to MyCSP to enhance her pension. The Cabinet Office and MyCSP should explain how this payment could proceed without approval being granted. 4. The former Director agreed special severance payments of 15,000 to the former Chief Executive Officer and the former Chief Operating Officer. The former Director agreed additional special severance payments with the aim of avoiding grievance action, despite legal advice that there was no suggestion of any such claims. Such payments require approval by the Treasury, but this was not sought. As the Treasury did not approve the payments, the new Director should explore all possibilities to minimise the cost to the taxpayer. This should include writing to recipients to request they repay the money.

8 4 1 Severance payments to senior staff 1. The Serious Fraud Office s (SFO) Director is also its Accounting Officer, directly accountable to Parliament for the money the SFO spends. Richard Alderman held the Director post from 2008 until 20 April David Green has held the Director post since 21 April In October 2012, the Comptroller and Auditor General (C&AG) qualified his audit opinion on the accounts of the SFO, because of the voluntary redundancy costs for the former Chief Executive Officer, Phillippa Williamson. Ms Williamson left the organisation on 16 April 2012, under a severance agreement which Mr Alderman entered into during The C&AG reported that there was no evidence that Mr Alderman had followed due process in instigating this voluntary redundancy. This would have involved, for example, determining whether alternative positions within the Civil Service were available, prior to the redundancy and severance payment The Chief Executive Officer s severance agreement provided for payment of 407,000 to MyCSP, which administers the Principal Civil Service Pension Scheme for the Government. The purpose of the payment was to cover all additional pension costs arising from her early departure. Mr Alderman was required to gain approval from the Cabinet Office for this payment, but the C&AG found no evidence that Cabinet Office approval was obtained. In addition, Mr Alderman agreed a 15,000 payment for Ms Williamson which, as a special severance payment in excess of contractual amounts, would always require Treasury approval in advance. The C&AG had found no evidence that Mr Alderman had sought approval from either the Cabinet Office or the Treasury. The lack of Cabinet Office approval did not prevent the payment to MyCSP going ahead. In the absence of evidence, the payments associated with the Chief Executive Officer s departure are deemed to be irregular In December 2012 the Attorney General made a written Ministerial Statement on redundancy payments at the SFO. The Attorney General stated it had come to light that Mr Alderman had agreed further redundancy payment arrangements. In December 2012, the Chief Operating Officer (Christian Bailes) was made redundant under an agreement Mr Alderman had made in February In addition, the Attorney General stated that Mr Alderman had agreed a redundancy payment to the Head of Technology and Specialist Services (Ian McCall). The Attorney General also stated Mr Alderman had not disclosed details of the redundancy payments to superintending Ministers at the time he made the agreements Report of the Comptroller and Auditor General to the House of Commons into the Serious Fraud Office s accounts Report of the Comptroller and Auditor General to the House of Commons into the Serious Fraud Office s accounts Attorney General, Written Ministerial Statement Serious Fraud Office, 4 December

9 5 5. Shortly after taking up the position of Director of the SFO in Spring 2012, Mr Green became aware of these exit arrangements and invited Tim Hurdle, a senior civil servant at the Treasury Solicitor's Department, to review the exit terms agreed for Ms Williamson, Mr Bailes and Mr McCall. Mr Hurdle reviewed the process used, considerations given and authorisations obtained, and the SFO published his report on 4 March Mr Hurdle s report found that the decisions to make the Chief Executive Officer and Chief Operating Officer redundant appeared to have been taken by Mr Alderman alone. There was no evidence found that he explored redeployment with the Cabinet Office or with the Attorney General s Office. Both post holders were performing well and had received performance bonuses in The report concluded that Mr Alderman had agreed the special severance payments with the aim of avoiding grievance actions from the Chief Executive Officer and Chief Operating Officer in relation to whistleblowing investigations. However, they had submitted no such claims. Mr Hurdle found that Beachcroft, the solicitor acting for the SFO, had advised Mr McCall there was no suggestion of a grievance or claim and challenged the need for any special severance payment. Mr McCall s own severance package included 34,545 to which he was not contractually entitled. The total severance packages were 464,905 for Ms Williamson, Chief Executive Officer, 473,167 for Mr Bailes, Chief Operating Officer and 49,885 for Mr McCall, Head of Technology and Specialist Services Mr Hurdle s report concluded that Mr Alderman decided on the 15,000 special severance payment each, to Ms Williamson and to Mr Bailes, based on his personal view of the likelihood of litigation and any outcome, despite, or in ignorance of legal advice. The report also concluded that Mr Alderman s actions and decisions were based on a culture where external advice and scrutiny was to be avoided wherever possible, and with an apparent need for secrecy We asked Mr Alderman about the findings and conclusions in the report from Mr Hurdle, and why he had not followed due process in instigating the voluntary redundancies, by obtaining approval from the Cabinet Office for the exit schemes, and from the Treasury for the enhancements to these packages. 10 Mr Alderman told us he did not agree with the comments in the report from Mr Hurdle. Mr Alderman told us that he understood he had obtained Cabinet Office consent for the severance agreement for the Chief Executive Officer. He said he was perplexed that MyCSP would have gone ahead with processing the payment to cover the additional pension costs arising from Ms Williamson s early departure, if the Cabinet Office had not given approval. He was of the view that there would be evidence at the SFO to confirm his understanding, such as text messages and s Serious Fraud Office Review of senior staff exits, Tim Hurdle, Treasury Solicitors Department, March Serious Fraud Office Review of senior staff exits, Tim Hurdle, Treasury Solicitors Department, March Serious Fraud Office Review of senior staff exits, Tim Hurdle, Treasury Solicitors Department, March Qq Qq 4-14

10 6 9. Mr Alderman told us that the Treasury Solicitor s Office and the Attorney General s Office informed Ms Williamson, Mr Bailes and Mr McCall they would be required to move from the SFO, within one to two months of the new Director taking office. 12 Mr Alderman did not produce any records of communications with the Treasury Solicitor to verify his statement. 13 Mr Green told us he had found no evidence in the SFO of any external instructions to make the senior staff redundant and denied Mr Alderman s claim. 14 Mr Green subsequently wrote to the Committee to report he had contacted the Treasury Solicitor s Office and the Attorney General s Office again, and that neither had any recollection of meetings or discussions with Mr Alderman on this subject. Mr Green had also consulted the non-executive directors of the SFO who confirmed Mr Alderman had not had engaged in any discussions with them on this subject. He had also not found any management board minutes which covered discussions on senior staff redundancies. 15 Mr Green reported that, since taking up the Director post, he had taken steps to strengthen governance and Board level knowledge and decision making, aimed at preventing a Director from taking such actions independently Mr Green referred to documentation from Mr Alderman from September 2011, conveying his intention then to make these people redundant, and Mr Green emphasised this occurred well before he was being considered as a potential new Director. Mr Green also reported that when he took on the Director role he had an open mind on whether to keep the senior managers to provide continuity. He stated he had agreed with the Treasury Solicitor to do so, and kept Mr Bailes in post until December We asked Mr Alderman about the findings and conclusions in the report from Mr Hurdle that there was very little legal advice or evidence to support the need to make any ex-gratia payments. 18 Given this finding, Mr Alderman s decision to agree special severance payments of 15,000 appeared to ignore the advice from the SFO s solicitors, Beachcroft. Mr Alderman told us he had received information that Ms Williamson and Mr Bailes had received advice from their lawyers, Farrers, that they could receive damages from an employment tribunal. Mr Alderman acknowledged he did not have written confirmation on this point. 19 However, he reported he had made a note of his assessment of the potential damages likely to be paid. The National Audit Office had seen the note and considered it to be a narrative of Mr Alderman s reasons for the special severance payments The Treasury has not approved the 15,000 special severance payments and declined permission for the SFO to make a payment to Mr Bailes on his departure in December 2012, as this would be irregular. However, Mr Green has received legal advice that the 12 Qq 15-20, Q Q37 15 Ev Ev 25, Ev Q 25, Qq Qq Qq 55-56

11 7 payment is part of an enforceable contract. He was not clear how to proceed. 21 Following our hearing, Mr Green wrote to us stating he may be obliged to make the payment without Treasury approval and that he is not able to recover the sum from Mr Alderman Mr Alderman told us he did not know how many senior civil servants left the SFO during his time as Director, and whether any of the people had confidentiality clauses in their termination agreements. He said he did not seek to have any such clauses included. 23 At our request, Mr Green subsequently provided the National Audit Office with information that 11 senior civil service staff had left the SFO during Mr Alderman s period as Director. Eight people left under compulsory early retirement terms, one person left under approved early retirement terms, one person transferred to another Government department (receiving no benefits) and one person s employment was terminated. Six of the eleven people entered into compromise agreements, in which they received money (averaging six month s pay) for agreeing to make no further claim against the SFO as a result of any breach of a statutory obligation. Mr Green emphasised he was unable to provide full records and data due to deficiencies in management record keeping that had occurred in the SFO Mr Alderman also used taxpayers money to cover the travel and accommodation costs for the former Chief Executive Officer. Ms Williamson s contract specified that her place of work was her home address, and that attendance at the SFO s offices was required as necessary. She lived in the Lake District and worked at home two days a week. She travelled to London to work at the SFO three days a week and had her travel and hotel expenses paid. Mr Alderman argued that the National Audit Office had approved the arrangements, but the C&AG clarified that the National Audit Office only made sure benefits in kind were recorded accurately in the SFO accounts, the decision to approve and pay such benefits was for Mr Alderman as Accounting Officer. 25 Mr Green told us that on taking on the role of Director, his decision was that the Chief Executive Officer post would be filled five days a week in London. 26 Mr Green subsequently provided additional information to the Committee that the cost to the SFO of covering Ms Williamson s travel and hotel bills was 98,946, from the time of her appointment in 2008 through to her redundancy in April Mr Alderman s actions and decisions while Director have harmed the reputation of the SFO and damaged the morale of its staff. A staff survey indicated they were suffering from both generally low morale and relatively poor satisfaction with the SFO as employer, compared to staff working for other Civil Service employers Qq Ev Qq Ev Qq 32-34; Ev Qq Ev Q 121

12 8 16. Following our hearing, Mr Alderman wrote to the Committee to acknowledge he had failed to ensure all the relevant consents had been given and were documented, and that his actions fell well short of the standards expected of an Accounting Officer. He apologised for the way he had handled the exits of the senior staff Ev 23

13 9 2 Sir Alex Allan s report 17. The Cabinet Secretary asked Sir Alex Allan to investigate other allegations affecting the SFO. The most serious allegation was that senior members of staff had received gifts and payments from consultants employed by the SFO. Sir Alex found no evidence this had happened. There was also an allegation over the processes by which the SFO awarded consultancy contracts. Sir Alex did not find evidence of improper conduct, but had concerns about the lack of documentation for decisions. A further allegation had been made that the SFO arranged its dealings with consultants to avoid Cabinet Office requirement for approvals. Sir Alex recommended the SFO aggregate payments to consultancy contractors. It should treat these as part of a single continuing contract for the purpose of applying the Cabinet Office rule requiring its approval when the duration of the contracts extended beyond nine months. Approval and re-approval of the contract should also be sought from the Law Officers every three months Sir Alex also investigated concerns that relatives of SFO staff had been employed without proper recruitment processes and that former consultants were offered fixed-term contracts. He did not find improper conduct, but recommended the SFO canvass expressions of interest rather than making appointments without competition. Sir Alex also recommended the SFO comply with Treasury guidance to have a professionally qualified Finance Director We asked Mr Alderman about the allegations examined by Sir Alex. Mr Alderman told us that he, Ms Williamson, Mr Bailes, and Mr McCall had not received any benefit in kind from consultants, and Mr Alderman had no relatives working for the SFO. The C&AG asked Mr Alderman if he could confirm whether Ms Williamson had been appointed through a competitive process to the SFO. Mr Alderman reported she joined as part of a move within the Civil Service in the year in which he had become Director of the SFO. 32 Mr Alderman confirmed he had previously worked with Ms Williamson, in HM Revenue & Customs. 33 Mr Green told us that Ms Williamson was promoted within the senior Civil Service grades, but he had not been able to find any evidence of the circumstances of that promotion and her consequent pay rise Serious Fraud Office Inquiry report, Sir Alex Allan, March Serious Fraud Office Inquiry report, Sir Alex Allan, March Qq 87 95, Q 116

14 10 Formal Minutes Wednesday 12 June 2013 Members present: Mrs Margaret Hodge, in the Chair Mr Richard Bacon Stephen Barclay Jackie Doyle-Price Chris Heaton-Harris Meg Hillier Mr Stewart Jackson Fiona Mactaggart Nick Smith Ian Swales Justin Tomlinson Draft Report (Serious Fraud Office redundancy and severance arrangements), proposed by the Chair, brought up and read. Ordered, That the draft Report be read a second time, paragraph by paragraph. Paragraphs 1 to 19 read and agreed to. Summary agreed to. Resolved, That the Report be the Tenth Report of the Committee to the House. Ordered, That the Chair make the Report to the House. Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No Written evidence was ordered to be reported to the House for printing with the Report (in addition to that ordered to be reported for publishing on 7 March. [Adjourned till Monday 17 June at 3.00 pm

15 11 Witnesses Thursday 7 March 2013 Page Richard Alderman, former Director, Serious Fraud Office and David Green CB, QC, Director, Serious Fraud Office Ev 1 List of printed written evidence 1 Richard Alderman Ev 12;Ev23 2 The Public and Commercial Services Union (PCS) Ev 17 3 Cabinet Office Ev 18 4 HM Treasury Ev 24 5 Serious Fraud Office Ev 19; Ev 24;Ev 25; Ev 26

16 12 List of Reports from the Committee during the current Parliament The reference number of the Government s response to each Report is printed in brackets after the HC printing number. Session First Report Ministry of Defence: Equipment Plan and Major Projects Report 2012 HC 53

17 Committee of Public Accounts: Evidence Ev 1 Oral evidence Taken before the Committee of Public Accounts on Thursday 7 March 2013 Members present: Margaret Hodge (Chair) Mr Richard Bacon Stephen Barclay Chris Heaton-Harris Mr Stewart Jackson Fiona Mactaggart Austin Mitchell Nick Smith Justin Tomlinson Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, National Audit Office, Mandy Measures, Director, NAO, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance. Examination of Witnesses Witnesses: Richard Alderman, former Director, Serious Fraud Office, and David Green, CB, QC, Director, Serious Fraud Office, gave evidence. Q1 Chair: Welcome to you both, and thank you very much for agreeing to give evidence this morning. I will start with Richard Alderman. We had a note from you yesterday, as well as one from the Cabinet Office. We have had lots and lots of notes on this. I refer you to one of the two reports that the Attorney-General has released to us the one from Tim Hurdle in which it says, pretty categorically, that the review found that relevant Cabinet Office approval had not be obtained for the exit schemes and that HM Treasury approval had not been obtained for enhancements to the exit packages. Why? Richard Alderman: Can I explain what happened, Mrs Hodge? First of all, thank you very much for the opportunity to come and explain what happened. The events are set out in my written statement. Basically, I do not agree with the comments made by Mr Hurdle in his report. I can give some views later about what more he should have done. My understanding is that we obtained Cabinet Office consent. My colleague, who was very experienced in this area, rang the pension providers and was told that there was a new system and that they could not take action on any exit package without Cabinet Office consent. He spoke to a number of people at the Cabinet Office and gave details of the packages. He was told that the Cabinet Office would consider them. He followed that up with an , and the next thing he heard was from the pension providers, contacting him to say, That s fine. We can now go ahead. His belief I think it is the overwhelming inference was that the Cabinet Office must have given consent. There will be telephone logs. There will be text messages and s that were flying around at the time. There is no evidence that Mr Hurdle looked for any of that in order to back up the statements that there were these discussions. In my view, my colleague was absolutely entitled to take the view that he had received Cabinet Office consent, because this could not have taken place without that consent. Q2 Chair: Okay. The NAO undertook the audit to establish whether the relevant consents were obtained, and I would just like a clear statement, rather than toing and fro-ing, on this from the NAO: were the relevant consents obtained? Mandy Measures: We were not given any evidence of consent being obtained. We were told, as Richard has just stated, that if they paid, the Cabinet Office must have approved it, but we need a document to evidence that. Q3 Chair: I am sorry, Mr Alderman, but you have to accept that these accounts have been qualified on the basis that the relevant consents were not obtained. No matter how much you want to bang your head on a brick wall about this, I think that after having a perfectly proper review of those exits by Mr Hurdle the finance director of the Treasury Solicitor s Department and the NAO, both of whom assert that consents were not obtained, you just have to accept that that is how it is. You may have thought that you had got them. Before turning to Richard Bacon, let me say that two things surprised me. The feel I get, looking through these papers, is that you ran a pretty informal system. You took the decision yourself to put all your top team through redundancy. You do not appear to have consulted anybody on that. You negotiated the terms yourself. It is just somewhat surprising that, as a lawyer, you did not have some regard to due process in what might have been perfectly appropriate decisions. I am not challenging that we will come back to that but I would think that you would do them with due process in an organisation that is funded by the public purse and that therefore has to be accountable for the money it dispenses. I just don t get why you did not follow due process. Richard Alderman: Thank you, Mrs Hodge. Can I reply on the various points you have made? First of all, I was expecting the NAO to interview me; I was expecting the NAO to interview my colleague, who had gone to the Cabinet Office. It did not happen.

18 Ev 2 Committee of Public Accounts: Evidence 7 March 2013 Serious Fraud Office Q4 Chair: Are you saying everybody lied? Richard Alderman: No, no. That is actually, it seems to me, what is being said against us. We said my colleague and I that we understood assurances had been given. We understood this package could not have gone ahead without Cabinet Office approval, and our understanding, based on that, was that there must have been Cabinet Office Q5 Chair: It was never written down? I have been around the public sector world for ever and ever. I was a Minister for 12 years. For a decision to spend this sort of money in this sort of climate, I would have got a bit of paper authorising me to do it. That s all. It is very simple. That is what amazes me. Having been married to a lawyer who was a stickler about getting bits of paper to cover him and everything he did, I would have thought you would have done the same. Richard Alderman: And maybe for the future that is something accounting officers ought to do, but could I just remind you, Mrs Hodge, of the eighth Report of this Committee, last July, in which you talked about exit agreements that were looked at by the Treasury? You commented on the fact that there was inadequate record keeping in the Treasury. The Treasury could not find details of a number of the exit agreements that they had approved. This was July, the time when Mr Hurdle was considering his report. Did he look at that possible explanation? If he did not, what he is doing, basically, is saying that both I and my colleague were actually not being frank and we were. Did he consider that alternative explanation? There is no evidence that he did. Q6 Mr Bacon: It may be, Mr Alderman, that there are files elsewhere in Government where there are not records as there should be; that is as may be. It may very well be true; I have encountered that many times on this Committee. I once asked the Department for Work and Pensions why they did not seem to be able to give me the answer to how many times their accounts had been qualified, and the reason was that they could not find the accounts, so it does happen. I accept that, but you say in your note to us: It may be, though, that the Committee needs to give guidance to accounting officers on the documentation they must see to check that proper processes had been followed. My reaction, I must say, when I read that was, No, I don t think this Committee needs to give guidance, because there is already a thing called Managing Public Money, which makes very clear what accounting officers responsibilities are. The basis of your case seems to be this, and you have used words that indicate that what I am about to say is correct. You have said this morning my belief. You have said we understood. You have said there was a clear I think you used the words overwhelming inference. But when I read that Cabinet Office permission must have been given indeed, in your note you say: It is reasonable to conclude, therefore, that Cabinet Office must have given MyCSP approval. Richard Alderman: Yes. Q7 Mr Bacon: As a layperson, not a lawyer you are a barrister the issue is that I would not treat this as a matter of belief, opinion or feeling. I would treat it as a matter of fact, and I would look for evidence. I cannot understand why, when your colleague received the call from MyCSP saying that they were now in a position to process the early exits, either you or your colleague did not say, That s great. Terrific. Can we please have a copy of the Cabinet Office letter giving that approval? That just did not appear to happen. You did not say, Where s the evidence in writing? did you? Richard Alderman: No, we did not challenge them, because MyCSP Q8 Mr Bacon: You did not ask for the evidence in writing. Richard Alderman: My CSP were telling us that they could now go ahead with this package in circumstances in which they had told us before they could not do it without Cabinet Office agreement. Q9 Mr Bacon: Tell the word is tell. That is a word to describe speech, and this is the sort of thing where you are looking for something with one of these a pen and you did not do that. That seems to me the central failing. You are familiar with the expression nil by mouth, are you? It is used in hospitals. Richard Alderman: In a medical context, yes. Q10 Mr Bacon: It is used in the medical context to describe how you treat patients, but it is also used, I think, in social security departments and jobcentres. I was seconded once to a mutual building society. In the arrears section, where they were dealing with people who were behind with their payments and had, by definition for whatever reason, good or bad become unreliable in the payments, there was a huge sign on the wall that said nil by mouth. What it meant was, Get it all in writing. You should have got this in writing and you did not, and that was the problem. Richard Alderman: We did not have a nil by mouth sign in respect of the Cabinet Office. Q11 Mr Bacon: You should not have needed one. You were paying out hundred of thousands of pounds; you should have had written evidence that it was okay to do it. That was the problem. Richard Alderman: We were told by them that they can only proceed on the basis of Cabinet Office approval. Q12 Mr Bacon: Told! Richard Alderman: Yes. Q13 Mr Bacon: That is my problem; you were told. I get told all kinds of things, Mr Alderman, some of them not printable, but you should have got written permission. Richard Alderman: We were also told that the exit agreements could only take place on the basis of a number, which is given by the Cabinet Office and is nothing to do us. How did this happen? I remain

19 Committee of Public Accounts: Evidence Ev 3 7 March 2013 Serious Fraud Office absolutely perplexed, I have to say, as to how this happened, and how the pension providers actually took action on this if there was no Cabinet Office approval. I have received no explanation for that; I do not understand it. Q14 Chair: Anyway, can we at least agree that you assumed a Cabinet approval that you never received in writing? Richard Alderman: We were told there was Cabinet Office approval from what the pension providers told us. From the course of action that took place, it is right to assume Q15 Chair: Can I just ask you another question? There are two other Members who want to come in. Did you take the decision on your own that Phillippa Williamson, Chris Bailes and Ian McCall should all be made redundant? Did you take that decision alone? Richard Alderman: They were basically given their marching orders in the summer. Q16 Chair: Did you take the decision alone? Richard Alderman: They were told, in the context Q17 Chair: Please answer the question. Richard Alderman: They were told that they would have a month or two after my successor took office. They were given a month or two to stay on and then clear their desks and go. Q18 Chair: By whom? You? Richard Alderman: No, by the Treasury Solicitor s Office and the Attorney-General s Office. Q19 Chair: Do you confirm that, Mr Green? David Green: No. Richard Alderman: Mr Green cannot speak for that. Q20 Chair: Mr Green is now the accounting officer. Richard Alderman: The Treasury Solicitor told me that the new director would move on the senior managers that I had. He would move them on within a month or two; he said he would clear them out and bring in his own people. Q21 Chair: Mr Green, can you give us the evidence, please? Is that true? Then I will go to Nick and then Stewart on this one, because I think that the two link together. David Green: I cannot say, Mrs Hodge, what Mr Alderman was told, but having understood what he said about this, I understand and accept that there were rumours about my intentions. Q22 Chair: Did you two have a conversation about it? David Green: No, I was not asked. My true mental state was that I had a completely open mind about whether or not I would keep senior managers on. I wanted some sort of continuity, starting in this job. The only firm decisions I had made were to get rid of exotic home-to-work travel arrangements, and also to ensure that the chief executive worked five days a week in London. Those were the only firm decisions I had made. Q23 Mr Bacon: Can you just tell us, for the benefit of the Committee, what the exotic arrangements were? Was it because they were travelling from an exotic location and therefore required a private jet, or were they just mildly unusual? David Green: Exotic is my word, but Mr Alderman can tell you the detail of the travel arrangements. Essentially, as I understand it, the chief executive lived in the Lake district and worked there two days a week, and came down to London for three days a week and had her travel and hotel accommodation paid. Chair: Blimey! David Green: Well, it was obviously something that received publicity unwelcome to me in the two weeks before I took up post. I had certainly decided that it would end. Q24 Chair: How much did that cost over a year? David Green: I do not know. Q25 Chair: Does the NAO know? Well, look it up and come back to us. David Green: That was the firm decision I had made. Indeed, I had agreed with the Treasury Solicitor, and spoken to him about all this, that I would actually try out these staff and see what they were like. I did not know; I had no idea. I had a genuinely open mind. In fact, the idea that I had already decided to make these people redundant is shown to be nonsense by two things: one is the fact that I kept Chris Bailes on until December, and the other is that Mr Alderman himself produced a document as early as 28 September 2011, which was sent to the Cabinet Office, asking for a quote on their pension payout. So there was obviously a decision to make them redundant. As for whether they knew, I do not know, but the decision to make them redundant had its roots way back in September 2011, before I was even on the scene. I was not actually appointed until December. Q26 Nick Smith: Mr Alderman, who told you to clear out your top team in advance of the new boss? Richard Alderman: The Treasury Solicitor told me Q27 Nick Smith: The Treasury Solicitor? Richard Alderman: The Treasury Solicitor. I had a discussion in June or July, and soon after that I briefed my senior management board on some of the points he made. He said to me that he expected a new director to move out senior management within a month or two of his arrival. Ms Williamson and Mr Bailes were told by people from the Treasury Solicitor s Office and the Attorney-General s Office in the summer that they could stay on for a month or two after a new appointment, but they would then be expected to clear their desks and leave. I am sure they would be willing to give evidence to the Committee about that. That is what they were told.

20 Ev 4 Committee of Public Accounts: Evidence 7 March 2013 Serious Fraud Office Q28 Nick Smith: How did they tell you? Was it a telephone call at the end of the day, or was it a roundtable meeting at which minutes were taken? Was it formal or informal? Richard Alderman: I do not think there is such a thing as an informal meeting with the Treasury Solicitor. I briefed my management board afterwards, without giving details of some of the issues. In my normal way I would have made a few notes of what the Treasury Solicitor told me. Q29 Nick Smith: Did you keep those notes? Are they available? Richard Alderman: This would be an SFO issue. I have not got any notes now; I did not take any papers away with me. That was what I was told by the Q30 Nick Smith: Sorry to interject, but so far as you know, those notes are at the SFO and available for us to look at? Richard Alderman: I do not know if they are available, or what. I make scribbled notes during the course of meetings; sometimes I make a more formal message to myself, summarising various things. That is what the Treasury Solicitor told me. Q31 Nick Smith: This is pretty big-ticket stuff involving your top team and a lot of money, and you say you have scribbled notes, and you do not know where they are. Richard Alderman: That is what he told me. That is what the Treasury Solicitor told me, and that was fine. Chair: I would like to bring in Amyas Morse. Amyas Morse: When we look at this, Mr Alderman, we are left asking whether there is a reasonable explanation for getting rid of these people at the end of your tenure, apart from expectations as to the incoming chief executive. It was not a question of clearing the decks so that you could get rid of all these exotic arrangements we were talking about before somebody else came in, was it? Richard Alderman: No, these exotic arrangements had been the subject of discussion, and of review by internal audit and by the NAO over many years. They had been approved and they were in line with civil service rules, and they had been looked at by the NAO and approved. There was nothing wrong with these arrangements. Q32 Chair: You said there was nothing wrong. Just for the Committee s sake, I have been told by the NAO that it cost the taxpayer 27,600 for Phillippa Williamson s benefits in kind in the year , which I assume was both her travel and accommodation. That seems unacceptable to me. It is not a proper use of taxpayers money. Richard Alderman: No, I do not agree, for two reasons. First, this package was agreed in accordance with civil service rules, and it was approved by internal audit and the NAO because of concerns about it in the press. It was looked at and approved; it was perfectly all right. Secondly, Ms Williamson and also Mr Bailes, but Ms Williamson in particular was the prime person responsible for enabling us to reduce our budget over four years from about 55 million to 32 million. Not many civil servants can do that, and she did it. Q33 Mr Bacon: If you are sitting by Lake Windermere, not having to deal with people face to face, and just sending out s and texts telling people they are sacked, I can see how you could do that quite easily. It seems to me rather an odd way for the boss to run the organisation. You would expect the boss to be more fully engaged, and to talk to people. Richard Alderman: Not particularly, not in this day and age. In this day and age Q34 Mr Bacon: You would expect them not to be? Richard Alderman: I had a job before I joined the SFO in which I was in my office perhaps one morning a week, and the rest of the time I was out travelling, because I had different offices. Ms Williamson was perfectly able to do the work within the days she was in the office, and when she needed to be in the office on those other days, she was in the office. Amyas Morse: Just as a matter of record, it is not our job in the NAO to approve or disapprove employment packages; that is a decision for the accounting officer, as I am sure you must know. We simply make sure that the benefits in kind have been accurately recorded in the accounts, which, as far as we could tell, they were. Mandy Measures: Yes. Chair: So it was not approved; it was your decision. Q35 Nick Smith: Mr Alderman, I just want to pursue this business of you being told to clear out your top team. You kept a note of it, although you do not have it to hand; as far as you know, it is at the SFO. Mr Green, Mr Alderman has been told to give the bum s rush to his top team. It is not in the public eye. It is a lot of money. Does the SFO have confirmation of what he has just told us? Do you have a written agreement that the Treasury told him to get rid of his top team in the records you keep in your office now? David Green: Certainly not. Q36 Nick Smith: Have you looked for them? David Green: Yes. Q37 Nick Smith: So you absolutely, categorically deny what Mr Alderman has just said? David Green: I am afraid I do. Richard Alderman: And I categorically affirm the truth of what I have said. Q38 Nick Smith: So where is your note of it? I would keep a note of something like that; it is pretty important. Richard Alderman: I used to keep notes in one of those spiral notebooks, that I would keep with me at all times, and I would sometimes, for some issues, record them in a formal, A4-type Word document or in an to myself. I briefed my non-executives and my executive board on my discussion with the Treasury Solicitor, in particular on the issue about not recruiting a general counsel. So there is confirmation and corroboration of the meeting that I had.

21 Committee of Public Accounts: Evidence Ev 5 7 March 2013 Serious Fraud Office David Green: May I say that Mr Alderman is most welcome to come to the SFO and to have access to any papers whatever from his time in office, if he wishes to? Richard Alderman: Can I say that, at the meeting that I had with the Treasury Solicitor, that is what he told me? He told me as well that he had been impressed by the way, when I was the director, I had moved out members of my senior team very quickly. That was what he was expecting. Q39 Stephen Barclay: I just wonder, if you cannot find your own notes, how you are going to find the notes of fraudsters, as an organisation. It does not really say much for the organisation, does it? Mr Bacon: Just in case you are in any doubt, Mr Alderman, I should make it clear for the record that waving your hands in the air in despair does not show in Hansard. David Green: May I assist here, please? Obviously, we have very different processes for hoovering up and recording evidence, and a director s personal notes, which are a rather different kettle of fish. Q40 Chair: It is a culture, if I may say so, Mr Green led from the top, Mr Alderman. It looks to me like you took the decisions yourself. You have not denied that you did; you said you had chats here and there. You decided the packages yourself. You decided yourself that you did not need written agreement; you had had a natter with somebody on the phone. It is all indicative of a culture that you led, which does not, to take Steve s point, give confidence that it was the sort of culture you require if you are trying to find fraud. Richard Alderman: What it is also indicative of, Mrs Hodge, is the fact that, in my last year, the SFO was under considerable stress, for all sorts of reasons, not least of which was that my senior management team was operating at about 50% of what it should have been. The organisation was under a lot of stress, because we were all picking up a couple of jobs. We had a long transition, and as I look back on this Q41 Mr Jackson: Can I come in there? Really, this is dilatory, this is sloppy, this is slovenly. There is not one iota of contrition or apology from you for the culture that existed. Presumably, you were under such stress because you were the chief executive, shuttling between the Waldorf Astoria and Lake Windermere, and you were really feeling it acutely. I have to ask you specifically, coming back to the legal advice, whether you have any speciality as a lawyer in employment law. Richard Alderman: I have been involved very directly in employment law litigation for about five years. Q42 Mr Jackson: So that s your speciality, is it? Richard Alderman: No. I have a range of different areas of work. Q43 Mr Jackson: So, if we refer to the addendum to the Hurdle report, The Beachcroft Employment Partner that is, the legal adviser, specifically states in an to The Head of Technology & Specialist Services that There is no suggestion of a grievance or a claim risk from their that is, the CEO and COO s respective employments and/or their terminations so I challenge the requirement for a compensation payment of Additionally, Beachcroft said that a note of a phone call states that The Head of Technology & Specialist Services...appreciates the advice that we provided to date and the confirmation that there is no legal justification for the payment of an ex gratia and that the likelihood of litigation the likely outcome and the amount would be awarded by an Employment Tribunal. That was the advice you had secured as a result of public funding. You ignored that advice; you considered you knew better. You contravened the guidelines. If you challenge what I am saying, bring the written evidence forward that you sought sanction for this, because in the absence of the evidence you cannot prove it and the case stands that you wilfully ignored that, that you were not considering value for money, and you should apologise for that. Richard Alderman: No, I don t agree with that. Looking at Mr Hurdle s report, Beachcroft were talking about damages as a result of the premature bringing to an end of the careers of Ms Williamson and Mr Bailes. That was not what the 5,000 was about at all. The 5,000 was about what I described as issue 1, where Ms Williamson and Mr Bailes were being strongly advised by Farrer & Co, who know a thing or two about this area of work. I have said there that my understanding is that Farrer had told Ms Williamson she would receive about 70,000 damages. What I was doing was thinking to myself, Well, look, if I am back in the employment tribunal and there are various offers being made outside the court in the usual way, and I am being told that they re prepared to settle for 5,000 Q44 Mr Jackson: But the report says please listen carefully that there was no suggestion of a claim and that no written claim or grievance was received. Is it written down that there was any risk of a claim in an employment tribunal? Richard Alderman: Yes, I wrote it down in a note. I did a full note Mr Jackson: No, it s tautology. Let s not have weasel words here. Richard Alderman: I am sorry. You re accusing me of not writing a note. I did a full note on all of this Q45 Mr Jackson: No, no, answer the question directly. Did you receive any written confirmation of a likely or actual claim in respect of an employment tribunal or higher court relating to the employment of these individuals? Richard Alderman: I knew that they were being advised by their lawyers Mr Jackson: No, that s not my question. Answer the question. Did you receive, in an or a letter or any other written means, confirmation that there was a claim pending in a court or an employment tribunal? Richard Alderman: I knew that there was a potential claim from what I was being told.