Welfare-to-work firm A4e knew of widespread potential fraud and systemic failures by management to control it, a leaked document suggests.

BBC Newsnight has obtained the results of a confidential 2009 internal audit of work by A4e's top recruiters.

The auditors found staff claiming for putting people into jobs which did not exist, jobs which did not qualify for payment and fabricating paperwork.

A4e responded to the report by saying that it was a draft document only.

It said that as a result of the internal audit it had made "significant enhancements" to all its systems, including appointing external auditors. It added that further investigation had found only five irregular claims had been made, all relating to a single employee.

A4e said it had reported this to the Department for Work and Pensions' Risk Assurance Division and that the department had said it was satisfied the matter had been resolved and that its audit requirements had been met.

Call for suspension

The Department for Work and Pensions, which was passed a copy of the leaked document on Thursday, issued a statement saying:

"The Work and Pensions Select Committee was made aware of this audit at the time and the department later received assurances from A4e that it had not uncovered any major issues."

The DWP statement went on to say that "while the internal A4e document relates to programmes delivered by the previous government, our investigation into current contracts will ensure the issues this report raises have been fully addressed".

Margaret Hodge MP, chair of the public accounts committee, said of the document:

"This appears to be devastating evidence of systemic fraud within A4e. Either A4e failed to act or to inform DWP, or they did inform DWP and the department failed to investigate properly.

"Whichever, it is completely unacceptable. Once again, I am urging the department to suspend all its contracts with A4e immediately."

Fresh arrest

Earlier this month the DWP launched an investigation into A4e's work, saying that the department had been made aware of an allegation of attempted fraud in relation to a contract with the firm.

Image caption A4e is a contractor for the government's welfare-to-work schemes

The company has denied wrongdoing, saying at the time that it took any allegations of fraudulent or illegal activity extremely seriously.

Police were already investigating claims of irregularities at the company, which was paid £200m a year by the government for training the unemployed and getting them into long-term jobs.

Earlier on Tuesday a fifth person was arrested in connection with the police investigation into allegations of fraud at A4e's Slough offices dating back to 2010.

Four ex-members of A4e staff were arrested in January.

In February, entrepreneur Emma Harrison stepped down as the head of A4e and quit her role as the government's "family champion" amid the police investigation.

Snapshot

According to the leaked confidential document obtained by Newsnight, in July 2009 A4e's own audit and risk department examined the work of its top 20 recruiters, looking at 20% of their work, which equated to examining the files of 224 clients.

The jobs A4e was arranging were supposed to last at least 13 weeks and employers needed to sign a form confirming the job was real and that the employee would be working a minimum of 16 hours a week.

A4e's history A4e, which stands for Action for Employment, was established in Sheffield in 1991.

It was set up to provide redundant steelworkers with the training they required to get jobs in other industries.

The company then steadily expanded across the UK, before entering Poland in 2008, Germany in 2009 and Australia in 2010.

The auditors discovered that in offices across the country some of A4e's best recruiters were claiming for putting people into jobs that did not exist or did not qualify for a job outcome payment from the government, and fabricating paperwork to back up their claims.

They found that A4e staff thought there was "nothing wrong" with filling in forms that should have been completed by the employer for the claim to be valid.

The auditors concluded that 4% of the claims they examined were "potentially fraudulent" or included "irregular activity" and another 12% were classified as containing "reputational" or other risks.

They said that they could only be sure that A4e was entitled to the money the company claimed in 70% of the cases.

Specific incidents

The report highlighted some specific examples of suspicious activity:

In Edinburgh one client walked out of a job after two hours complaining of sore feet and never appeared on the potential employer's books, but A4e still claimed for a job outcome

In Bootle the auditor could find no trace of an unemployed man who was supposed to have found work at Royal Mail and no trace of the man who was supposed to have employed him

In Bridlington a cafe owner told the auditor that he had never even met a man A4e had claimed for and he wanted to know why A4e kept asking him to sign blank forms

In Woolwich A4e appear to have claimed for putting a benefits cheat back into the job they were already illegally working in. The auditor said of the incident: "This is a potentially fraudulent claim, and there is also potential benefit fraud."

Some of A4e's offices and some of its recruiters were given a clean bill of health by the internal audit.

Image caption Emma Harrison stepped down as head of A4E in February

But the report concluded that "potential fraudulent or irregular activity is not confined to one particular geographical area… and shows a potential systematic failure to mitigate the risk towards this behaviour at both an office and regional level".

It further noted: "Management information in relation to the effectiveness of existing controls is minimal."

Shadow work and pensions secretary Liam Byrne told Newsnight that there were questions he wanted answered.

"Did ministers know about this report when they handed A4e a £440m new contract to run the work programme?" he said.

"Ministers have really got to come to Parliament very quickly now and say did they know about this report and if not why not?"

This week, Employment Minister Chris Grayling told Parliament that A4e's contracts would be terminated "if there is evidence of systemic failure".

"We will not tolerate fraud against the DWP," he said.

A4e started in South Yorkshire more than 20 years ago to provide retraining to large numbers of Sheffield steelworkers who became redundant when the industry started to decline.

It now has more than 3,500 staff and operates out of 200 offices in the UK.