£1.2m in “irregular” payments made to Legal Ombudsman staff, says MoJ

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30 January 2015

Brennan: no retrospective approval of payments

Brennan: no retrospective approval of payments

The Ministry of Justice has declared more than £1.2m of payments made to staff at the Legal Ombudsman in the years since it was established to be “irregular”.

The findings came after it initially investigated concerns over the expenses of then chief legal ombudsman Adam Sampson, which were sparked by an anonymous tip-off, according to LeO’s much delayed annual report, published yesterday.

As first revealed on Legal Futures last November, Mr Sampson resigned over the expenses issue but said he did so with his integrity intact.

While £22,332 is at stake in relation to Mr Sampson’s expenses, the annual report revealed that £874,940 had been paid to all LeO staff between 1 April 2010 and 31 March 2014 through a ‘flexible benefits scheme’ (FBS).

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This allowed them to access a range of benefits, funded by LeO up to a maximum of 3% of base salary; the FBS was not available for administrative reasons for the first 18 months, so staff were compensated by one-off payments worth 3% of salary instead.

The OLC’s interim accounting officer, Ministry of Justice permanent secretary Dame Ursuala Brennan, said the Office for Legal Complaints (OLC) – the non-executive board that governs LeO – decided that the organisation’s remuneration package should provide an element of employee choice and flexibility in order to attract and retain the right people, hence the FBS.

When initially discussed by the OLC, “it appears that they were considering a scheme that operated as a salary sacrifice scheme”.

Dame Ursula wrote: “I believe the FBS is novel and contentious as there is clear evidence that this was not a salary sacrifice scheme but rather a scheme for paying additional benefits, up to 3% of salary, on top of base salaries. Furthermore, it was never formally agreed with the MoJ…

“I have decided not to retrospectively approve the total payments made under the scheme. As such [they] are considered to be irregular expenditure.”

She took the same approach to a further £348,109 paid to Mr Sampson and other senior members of staff under a ‘total remuneration supplement’ (TRS) scheme.

“The review identified that the scheme was intended to act as a benefit in additional to salary and was believed by the OLC at the time it was introduced to be necessary to attract and retain the best candidates nationally to senior posts within the organisation,” Dame Ursula said.

The TRS was not a contractual pay element for those who received it and government rules required it to be approved by the MoJ, she continued. This was not sought.

In relation to Mr Sampson’s expenses, the report said the key issue centred on him being deemed to be living in Birmingham – where LeO is based – despite only spending up to two nights a week in the city away from his London home. “This arrangement allowed Mr Sampson to claim travel expenses between London and Birmingham provided there was a specific business purpose for the journey,” Dame Ursula said.

This too was of a “novel and contentious” nature, she said, because among other things “payments were made to Mr Sampson without him providing sufficient third-party evidence that supported the business purpose of the journeys”.

Unlike in relation to the FBS and TRS, the sums at stake were not subject to the correct tax treatment, she said, and the matter is under review in conjunction with HM Revenue & Customs. “Action will be taken to ensure the appropriate tax along with any penalties, are paid.” She also said that the OLC intends to recover this expenditure from Mr Sampson.

Mr Sampson said in a statement: “The debate between the permanent secretary and myself about the legitimacy of the approach to expenditure authorised by the previous board [of the OLC] remains a live one, and it is this difference of view which is reflected in the accounts. It is not yet clear when and how that debate will be resolved.”

Dame Ursula concluded that all these issues “demonstrated that processes and controls in relation to [chief executive] expenditure and some elements of remuneration within the OLC are not sufficient.

“As a result, the OLC chairman and non-executive directors, in co-operation with the MoJ, are in the process of undertaking a comprehensive review of all key financial processes and controls throughout the organisation, not just those relating to [chief executive] expenditure and remuneration, with the aim of gaining assurance that no other such issues exist.

“This work will incorporate a risk based review of internal governance and oversight structures, along with the operation of the key committees, and, where necessary, will seek to implement enhanced processes and controls…

“I am advised that the OLC are now reviewing the TRS scheme and the FBS and in due course will bring forward to the MoJ, as sponsoring department, a business case with proposals for further consideration of these schemes, or appropriate variants of them, in accordance with all relevant policies and approvals processes.”

In his report, the Comptroller and Auditor General Sir Amyas Morse said the refusal to retrospectively authorise the various payments meant he had qualified his opinion on the “regularity” of the accounts.

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