Welfare to work group chief resigns in the wake of investigation into allegations of fraud at her company

This article is more than 8 years old

This article is more than 8 years old

Emma Harrison, the head of the A4e welfare-to-work group, has stepped down from her role as David Cameron's personal adviser on problem families in the wake of her firm being investigated over allegations of multiple fraud.

Harrison has been struggling to combat the claims of fraud, as well as questions about the size of the dividends she has been handing herself, largely funded by government contracts to help the unemployed find work.

Harrison said: "I have asked to step aside from my voluntary role as family champion as I do not want the current media environment to distract from the very important work with troubled families.

"I remain passionate about helping troubled families and I am grateful for the opportunity to contribute in an area where I have been active for many years."

There had been signals emerging from No 10 that David Cameron was deeply uneasy about Harrison's role as an adviser as the allegations of fraud started to emerge. He had previously described her approach as "inspirational".

The chairman of the public accounts committee, Margaret Hodge, called for all A4e contracts – worth £140m – to be suspended pending the outcome of police inquiries, with unemployed people transferred to other contractors.

"There needs to be a clean bill of health before a company such as this is allowed to continue with major government contracts. The committee found that the company and its practices are worrying to say the least," she said.

The government is unlikely to accede to her request, partly because it would mean an enormously disruptive transfer of the unemployed from one contractor to another. A4e is probably the single largest provider to the Work Programme.

Cameron appointed Harrison as troubled families tsar in November 2010, even though in June 2009 the Observer disclosed that there had been a fraud inquiry into A4e's Hull office.

Downing Street said little about her resignation saying: "We respect her decision and thank her for her work."

Her influence had been on the wane, as Cameron subsequently appointed Louise Casey, a senior civil servant, to take overall charge of helping 120,000 troubled families.

A4e has been insisting the scale of the fraud is likely to be limited, and confined to schemes set up by the previous government. But the controversy comes at an unwelcome time for the government as it tries to fend off criticisms of its separate work experience programmes.

It also emerged on Wednesday that an A4e subsidiary has been contracted by the cabinet office to advise the government on how to design and implement payment by results agreements for problem families. The shadow welfare secretary, Liam Byrne, wrote to cabinet office minister Francis Maude to ask how much the contract was worth and whether it was being reviewed.

Since the general election A4e has won more than £200m worth of contracts to run welfare-to-work schemes.

A4e, an abbreviation of the company's previous name Action for Employment, has five shareholders who were paid £11m in dividends last year, of which Harrison received £8.6m.

This was despite the firm's failure to meet government targets on finding jobs for the unemployed.

Pressure began to build on Harrison this week after it emerged that Thames Valley police visited the firm's offices in Slough over claims of fraud last Friday. The force has confirmed it arrested four people in connection with the investigation.

A police spokesman said that the case was referred to the force by the Department for Work and Pensions.

As part of the investigation two women, aged 28 and 49, and two men, aged 35 and 41, were arrested on suspicion of fraud on 18 January from addresses across the Thames valley, and are on police bail until mid-March.

The Guardian disclosed on Thursday that A4e had to repay public funds on five separate occasions after government investigations into fraud allegations found evidence of "irregularities"; and that the company had compelled jobseekers to work unpaid in its own offices for at least a month at a time.