Ministers have been accused by MPs of failing to properly investigate allegations of fraud in Government welfare-to-work schemes.
The Commons Public Accounts Committee said the Department for Work and Pensions (DWP) had missed “vital evidence” of potential fraud in Sheffield-based A4e.
Founder Emma Harrison, one of Yorkshire’s highest-profile entrepreneurs and the Government’s former “family champion”, quit earlier this year as controversy surrounded the business.
Oversight of outside contractors by the department was said to be insufficient and cases of alleged fraud overlooked because officials had not “asked the right questions”.
In the case of A4e, the committee said that the DWP failed to obtain internal audit reports from 2009 which referred to a “considerable number” of cases of alleged fraud and malpractice.
Although the DWP launched an inquiry into controls at A4e – resulting in one contract being cancelled – the committee said it had not addressed the wider issue of whether it was a “fit and proper” company to carry out such work.
“The department’s arrangements for overseeing and managing its contractors did not pick up vital evidence about potential frauds,” it said.
“The investigations of alleged fraud that the department has carried out have not been sufficiently thorough.”
Committee chairman Margaret Hodge said that if the Government chose to use private companies to provide public services, it was essential the proper controls were in place.
“In this instance, the DWP’s arrangements for overseeing and inspecting its contractors were so weak that vital evidence on potential fraud and improper practice was not picked up,” she said. “The department is still investigating allegations brought to its attention by the committee but was not proactive in setting in place systems which root out fraud and malpractice.
“If it had not been for whistleblowers, a range of systemic issues would not have been identified. The department might have identified these issues if it had asked the right questions of providers.”
Mrs Hodge has previously led criticism of “excessive” payouts to Ms Harrison and other bosses despite what she has described as an “abysmal” performance record.
The firm’s five shareholders were paid £11m in dividends last year, of which Ms Harrison received around £8.6m, despite failing to meet Government targets for finding jobs for the unemployed.
Welcoming her resignation in February, the Labour MP said: “It is the right thing that she has stepped aside because there are huge question marks about the organisation.
“It is hugely important that all the contracts that A4e currently run with Government departments should be suspended until the police investigations are completed.”
Ms Harrison announced she was quitting the firm she founded as claims of widespread problems in the organisation came to a head in February.
Her resignation came just 24 hours after she stepped down from her voluntary role as a Downing Street adviser, which she was appointed to by David Cameron in 2010 to help get families back into work.
In March, the Government announced a review of all its contracts with the troubled company as a fresh fraud allegation emerged related to the Mandatory Work Activity scheme launched by the Coalition last year.
So far, eight people have been arrested and bailed in connection with separate allegations of fraud dating back to 2010 at the firm.
In January, two men, aged 35 and 41, and two women aged 28 and 49 were arrested followed by a 35-year-old woman in March, a 33-year-old man in April, and two women aged 19 and 24 in May.
All are understood to have been employees who were questioned over an investigation into the company’s office in Slough, Berkshire.
The company has been investigated by the DWP nine times since 2005, it emerged in February.
In one case last year, a former employee in Hull pleaded guilty to eight counts of forgery.
In five other cases the firm was ordered to repay thousands of pounds to the taxpayer after evidence of “irregularities” was uncovered.