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Treasury & Resources Ministerial statement - fraud

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Wednesday 26 September 2012

Text of the statement made by the Treasury & Resources Minister to the States of Deliberation on Wednesday 26 September 2012, concerning the £2.6 million fraud against the States of Guernsey.

[CHECK AGAINST DELIVERY]

Mr Deputy Bailiff,

This is, of course, the first meeting of this Assembly since my last Ministerial Statement two months ago on 25 July, in which I announced that a fraud had been perpetrated against the States. I - and my Board - feel it is essential that I should take the opportunity to bring Members up to date, so far as is possible. As in July, I will of course also endeavour to answer Members' questions following my Statement, as fully as I am able.

As I said in my last Statement in July, the fraud was simple enough; but I understand that the resultant police investigation is complex, involving as it now apparently does, three police forces. My Department and its staff have provided the police with full co-operation in their investigation. However, I am unable to provide further details of the police investigation for the simple reason that I do not have any further information to provide. Their investigation is clearly - and rightly - a matter for them.

The external investigation, requested by my Board is, as Members will be well aware, now a matter being led by the Public Accounts Committee. My Board welcomes the publication last week by the Public Accounts Committee of its terms of reference for their investigation. We will, of course, provide full access and assistance to it. I - and my Board - look forward to contributing to the PAC's investigation in whatever way and in whatever form is requested of us.

Since my last Statement, I have been made aware of many other instances of this so-called 'mandate fraud,' both on and off-island. It seems that the fraud is often aimed at public sector agencies in the UK dealing with construction companies - perhaps not least because so much information is now publicly available because of procurement policies and the UK's Freedom of Information Act, it may be much easier for fraudsters to source potential targets. All of this is interesting and is small comfort but - and I must clearly emphasise this - it is no excuse. Whilst systems of internal control cannot entirely eradicate all fraud risk, this fraud was probably preventable. And so before I go any further, I would like to take this opportunity to unreservedly apologise on behalf of the States of Guernsey to the public and taxpayers of the islands for their loss arising from having apparently failed to prevent this fraud. The question remains, therefore: why were we and our systems apparently unprepared for this sort of event? Whilst this is quite likely to be one of the topics of interest to the PAC investigation, we cannot await the outcome of that investigation before acting to ensure we are responding as effectively as possible to the fraud and ensuring that our processes and systems of control are as robust as is practicable.

Sir, I would therefore like to advise members what my Board and Department have been doing since my last Statement.

As I said earlier, all the reports to which I have referred and which have informed the Board's actions will, of course, be turned over and made available to the PAC for their investigation and the actions of the Department will become a matter of public record through that process.

Mr Deputy Bailiff, that deals with my Board's responses to the immediate and proximate consequences of the fraud.

The Public Accounts Committee's April 2012 Review of Risk Management and Insurance stated, and I quote:

"The 2006 National Audit Office's report identified that "risk management needs to be seen as part and parcel of everyday business process not as something different or separate or to be done as a special exercise. It is also important that the States risk management is regularly addressed at the highest levels within the States. Risk assessment must not be allowed to slip down the agenda or be left to be dealt with by junior staff within Departments." It went on to say: "This assertion would be equally valid in 2012."

In my Board's view, firm political leadership is now required to ensure that these reports are finally taken seriously and acted upon as soon as is reasonable. As a result, I requested that Policy Council take a leadership role in ensuring that a robust corporate risk management framework is adopted by the States as quickly as feasible. This has been agreed and a triumvirate from Policy Council comprising myself, the Chief Minister and Deputy Luxon have been tasked for an initial 3 month period with overseeing the implementation plan of the Chief Executive and his team. The triumvirate has held an initial meeting with the Chief Executive and his senior staff to review progress and will be meeting again in due course. The Chief Executive's announcement towards the end of last week of the changes in the senior management of the Treasury and Resources Department, is part of a process of management change in response to the fraud and associated risk management issues. I welcome these changes.

Sir, in my last Statement, I said that I felt I and my Board should not be judged by the fraud itself, which we were not in a position to prevent, but how we responded to the fraud. I hope that members of the Assembly and the public having now heard this Statement and how we have responded retain confidence in my Board to deal appropriately with the aftermath of the fraud. However, the response is not over yet; we are not complacent and there is much still be done to eliminate - so far as possible - the risk of this sort of event happening again. Indeed, we all - not just the T&R Board - have a role to play; all Ministers and all departmental board members must now ensure that their departments fully comply as swiftly as possible with all measures demanded of them to rapidly implement an effective corporate risk management framework; and they must consider their own Department's risk awareness and preparedness; all those in scrutiny roles have a part to play in ensuring that this is the case. I can perhaps best illustrate this by way of example. Currently across the States, Departments use Purchase Orders for approximately 40% of purchases. However, the increased use of the Purchase Orders is probably the single most important process change which can reduce fraud risk. We should be aiming for 90% compliance for this process. I have therefore asked all Ministers to bring this to their Board's attention with a view to ensuring their Departments play their part in ensuring compliance as rapidly as possible. My Department will monitor the adoption of this process.

Sir, I cannot finish this Statement without saying a few words about the resignation on 30 July of my Department's Chief Officer, Dale Holmes. I know that his resignation came as a great shock to the Department who will miss him personally and professionally when he leaves the civil service, after 34 years, on 31October. His decision to resign was a personal one - and his alone. As the Head of the Department, he took the view that he was accountable for the conduct of his Department in general and its failure to prevent the fraud in particular. No-one should underestimate the courage of such a decision. Such a decision marks the person who makes it as an individual of great integrity and honour. Aside from these qualities, in the short time that I have worked with Dale since I became Minister on 8 May, I have found him to be a hard-working, experienced, dedicated professional; one that I have been very happy to work with. I would like to take this opportunity - on behalf of myself and I know many others - to thank Dale for his personable, sound and clear advice and a career devoted to public service - and to wish him and his family the very best for the future.

Thank you Sir.

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