National Savings at risk from massive fraud, warns watchdog

Officials who run National Savings, the Government agency which looks after pounds 57bn of people's savings and investments, have had their knuckles severely rapped for poor management and accounting.

In one of the most critical reports from the National Audit Office, the public finance watchdog, in recent years, the agency is accused of not knowing exactly how much cash it has on its books and being open to the possibility of massive fraud.

By the standards of the NAO the language is strong, berating officials for being slow to react and for not giving adequate reasons for the sloppiness. So bad were the problems that the accounts for 1993 and 1994 were delayed and have only just been released.

The NAO is unsatisfied with explanations from officials and warns that without them it is difficult to assess if the accounting systems are working properly.

"The absence of an adequate trail from individual customer transactions into the financial accounting systems makes it difficult for management to establish the integrity of financial accounting systems information."

Because the totals tied-up in National Savings are huge even the narrowest margin of error means millions of pounds is unaccounted for.

The NAO could not match the amount of cash taken over the counter from depositors at post offices with the figure given by National Savings. For the year ending 31 December 1994, there was a discrepancy of pounds 12m between the total reported by the Post Office and the amount shown in the National Savings accounts.

So far, says the watchdog, the agency has been unable to explain the difference. "The agency have yet to establish whether this is due to errors within their computer programmes or in accounting for monies received from Post Office Counters Limited."

In another instance, the NAO found pounds 65m was owed to the agency. One account held by the agency was pounds 28m overdrawn and another bank account showed investors owed pounds 37m. Yet this is technically impossible since "investors cannot owe money to the agency".

Computer error may lie behind the pounds 65m black hole but fraud cannot be ruled out, especially, says the watchdog, since the unexplained balances were not investigated promptly.

National Savings has implemented "a series of major projects" to combat the errors and weaknesses in its systems. Officials will almost certainly face tough questioning from MPs on the Commons Public Accounts Committee.