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Maladministration

MALADMINISTRATION

Contents:

Scope

Key Points

Background

Financial Redress

Public Commitments

Actual Financial Loss or Costs

Loss of Entitlement

Additional Expenses / Fruitless Expenditure

Delay in Payment

Other Grounds

Allowing for Tax

Annex 1: Scottish Public Services Ombudsman

Annex 2: Maladministration Checklist and Examples

Scope

1. This section gives guidance on financial redress in cases where an individual, company or other body has suffered injustice or hardship due to maladministration, or where the sub-standard quality of the service provided has had a similar effect. The guidance is aimed primarily at the core Scottish Government (SG), the Crown Office and Procurator Fiscal Service, SG Executive Agencies, non-ministerial departments and bodies sponsored by the SG. However, other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable should ensure compliance with any relevant provisions and follow procedures consistent with the guidance.

Key Points

2. All public sector organisations should set clear standards for their performance and have a clear accessible complaints procedure together with appropriate redress for the user of the services when something goes wrong.

3. If their services have been found deficient organisations should ensure, so far as reasonably practicable, that deficiencies are addressed to prevent recurrence.

4. Payments of financial redress qualify as ex gratia payments and are therefore subject to the guidance on Losses and Special Payments.

5. Where the complainant has suffered actual financial loss as a result of the maladministration, or faced costs which would otherwise not have been incurred (and which are reasonable in the circumstances) the general approach should be to restore the complainant to the position he or she would have enjoyed had the maladministration not occurred.

6. Payment on grounds other than actual financial loss or costs should only arise in exceptional circumstances.

Background

7. All public sector organisations should set clear standards for their performance and have a clear accessible complaints procedure together with appropriate redress for the user of the services when something goes wrong. If their services have been found deficient organisations should ensure, so far as reasonably practicable, that deficiencies are addressed to prevent recurrence and consider whether to provide redress to complainants. This is separate from administering statutory rights or other legal obligations (e.g. where there is entitlement to statutory interest or where a court has awarded damages) or where a decision has been made on legal advice to settle out of court a claim for damages. Redress may take a variety of forms and should be proportionate and appropriate - it includes an apology, a correction of the error, an undertaking to improve procedures or systems, a payment, or a combination of these actions. In the majority of cases an apology and correction of the error will be the appropriate form of redress. Voluntary redress of any sort does not preclude the later possibility of an instruction for further redress including financial compensation arising from subsequent judicial supervision of the case under consideration. An assessment of the risks involved, including the admission of liability, should therefore be associated with any voluntary decision to provide - or not to provide - redress of any sort. The guidance in this note deals only with financial redress.

8. Payments of financial redress qualify as ex gratia payments and are therefore subject to the guidance on Losses and Special Payments. It should be noted in particular that any cases which exceed delegated authority limits must be submitted to the relevant SG Finance Business Partner (or equivalent) for approval.

Financial Redress

9. The question of whether financial redress should be paid may arise in the following circumstances:

  • as a result of a recommendation by the Scottish Public Services Ombudsman following formal investigation of a complaint, or where the Ombudsman is seeking an informal resolution of such a complaint;

  • in cases where the complaint has been made directly and where the organisation concludes that injustice due to maladministration has occurred;

  • in certain cases where the standard of service provided has fallen below that to which the organisation has publicly committed itself. Failure to meet a public commitment does not automatically mean that financial redress is appropriate; and

  • in cases of maladministration discovered by the organisation itself rather than raised by a complainant.

10. Further information on the Scottish Public Services Ombudsman is at Annex 1. A checklist of the questions which should be asked when handling financial redress cases and guidance on what is meant by "maladministration" is at Annex 2. Guidance on "Handling of Scottish Public Services Ombudsman Cases" is available on the Scottish Government Intranet.

11. If an organisation, in consultation with its legal advisers, accepts that injustice due to maladministration has occurred and that financial redress is appropriate, the general principle should be to provide redress which is fair and reasonable in the light of all the facts and circumstances of the case. Where the complainant has suffered actual financial loss as a result of the maladministration, or faced costs which would otherwise not have been incurred (and which are reasonable in the circumstances) the general approach should be to restore the complainant to the position he or she would have enjoyed had the maladministration not occurred. Where there is not an actual financial loss or cost, careful judgement will be needed to decide whether financial redress is appropriate and, if so, what constitutes fair and reasonable financial redress.

12. Where, following a complaint or the discovery of a case, an organisation concludes that other individuals or bodies may have suffered in the same way, it should seek to identify (wherever reasonably practicable) all those affected and consider whether, in the interests of equitableness, they should offer redress.

13. Public sector organisations should consider, in consultation with their legal advisers, whether it is advisable to make clear in correspondence with the complainant that payment does not imply acceptance of any liability or legal obligation.

Public Commitments

14. The distinction between whether a public commitment is mandatory - establishing a right - or simply an indicator of performance - expressing an aspiration - is an important one. Public commitments to standards of service should explain the nature of the commitment to the user, and, where appropriate, whether compensation may be paid and in what general circumstances. If commitments are expressed as mandatory or a promise has been given that the user has an expectation to compensation should targets not be met or missed by a specified period, the case for compensatory redress is strong. Otherwise targets are to be taken as indicators of a satisfactory or unsatisfactory performance rather than as a firm commitment that a specific performance will be achieved in every individual case. Cases should be considered on their individual merits and in the light of their individual circumstances.

Actual Financial Loss or Costs

15. Cases involving actual financial loss or costs are likely to fall into three broad categories:

  • where the complainant has lost in whole or in part an entitlement to a grant, subsidy, or other payment;

  • where the complainant has been put to additional expense or incurred fruitless expenditure; and

  • where payment of a grant, etc. has been delayed and compensation has been sought on account of the delay.

Loss of Entitlement

16. Loss of entitlement to a payment may occur, for example, because of misleading advice by the public sector organisation about closing date rules, with the result that an application was not submitted in time. Where the organisation is satisfied that failure to comply with the rules was a direct result of official failure the redress should restore the complainant to the position he or she would have enjoyed had the maladministration not occurred. Compensation for delay in payment may also be an issue.

Additional Expenses / Fruitless Expenditure

17. In considering claims for additional expenses which have arisen as a result of departmental error amounting to maladministration or service failure, the general principle is that public sector organisations do not as a rule reimburse costs incurred in establishing claims for grants, subsidies etc. Where an individual or body has, as a result of maladministration, incurred extra expenditure (for example, out of pocket expenses in having to go through an administrative procedure which would not otherwise have been necessary, in order to obtain a proper decision, or having to employ professional advice or representation to do so), organisations may reimburse such additional costs to the extent that they were reasonably and legitimately incurred. Reimbursement of costs would not, however, be appropriate, where an organisation had properly made a decision (i.e. there was no maladministration) which was subsequently altered through some appeals mechanism.

18. Claims may also be made for lost earnings or income, through having to spend time to pursue complaints, or for out-of-pocket expenses incurred in the process - for example, expenditure on travel, post, photocopying or telephone calls. Similar questions should be asked: was the time spent to sort things out excessive; was the expenditure beyond what would normally have been necessary, and reasonable in the light of the circumstances of the case?

19. In making recommendations for compensation, the Scottish Public Services Ombudsman may include an element for additional costs incurred in pursuing the case. Complainants may also seek reimbursement of the cost of bringing a complaint before the Ombudsman.

20. Consideration of compensation for fruitless expenditure may arise where a complainant has incurred, as a direct result of an organisation's maladministration, expenditure which he or she would not have incurred if the case had been handled correctly at the outset. (For example, where an individual had been told he or she would qualify for assistance under a scheme and, in the light of that assurance, incurred expenditure only to be told subsequently that the original assurance was incorrect.) Organisations may pay compensation for reasonable expenditure which would not otherwise have been incurred.

Delay in Payment

21. Delay is something which is generally considered to be covered by the term maladministration. In considering compensation for delay, relevant factors include:

  • the need, when assessing the amount of such compensation, to allow for normal delay i.e. the span of time which normally elapses, because of the administrative procedures properly involved in dealing with the matter; this is not to imply that compensation is appropriate simply because this period has been exceeded - the test is whether the delay is excessive or unreasonable;

  • any contribution to the delay by the claimant's own conduct - his or her actions or inaction - which may be a material factor; and

  • the degree to which the claimant can be considered to have suffered financially as a result of the delay.

22. If the compensation for delay is to be calculated as if it were an interest payment, it should usually, for administrative simplicity, be on the basis of simple interest. The rate used should normally be the one used by HM Revenue & Customs for the interest supplement which is added to certain repayments of tax. This rate is calculated under a formula set out in tax legislation, which includes an abatement for taxation. However, the HM Revenue & Customs' rate may not always be appropriate: for example, if there had been a delay in making a large cash payment, which the complainant could establish would have been placed on deposit, a bank or building society deposit rate might be appropriate, as might be compound interest if the delay has been for a long period. The general approach should be to compensate for loss of value or loss of use of the funds. There may also be cases where the complainant has been forced to borrow, either by loan or overdraft, as a result of the maladministration. These are cases of additional expenditure in which it might be appropriate to reimburse the actual interest paid.

23. Where a compensation payment includes an element for delay, this should be explained to the complainant. And if this element has been calculated as an interest payment, the method of calculation should also be explained. As a general rule, recipients of financial redress should be given an explanation of its basis.

24. As a general rule, compensation for delays caused by industrial action, whether within or outside the public sector organisation, should not be paid. This is because the organisation has been prevented from achieving the normal standard of effective administration by circumstances beyond its control. This does not preclude financial redress for other reasons coincident with the industrial action.

Other Grounds

25. Claims for compensation may arise on grounds other than actual financial loss or costs. These include the following:

  • inconvenience, annoyance, frustration, worry, distress, suffering or anguish: such "consolatory" payments (also described sometimes as "solace" payments) would be appropriate in only exceptional cases and for exceptional reasons.

  • hardship: where maladministration has resulted in some form of privation, for example where an official error had led to loss of employment for a period, causing a substantial deterioration in standards of living. Such claims may cover both loss of income and compensation for the effects of the loss.

  • loss of an opportunity to make a gain: for example, where a delay in granting planning permission as a result of maladministration has delayed the setting up of a business, with the result that the complainant claims loss of income.

  • loss of a physical or financial asset, or a reduction in its value: an example might be where it is claimed that a the public sector organisation had failed to carry out a regulatory function properly or that its action or inaction had resulted in the creation of a false market.

26. Cases of these types are difficult and potentially very expensive and repercussive. Given that there is no ready measure of the detriment suffered and that the relationship between cause and effect may be open to argument, the assessment of whether financial redress is appropriate, and if so the appropriate level, is a matter of judgement. (For example, the delayed business might have been unsuccessful, leading to a loss rather than a profit.) The use of public funds to pay compensation in such cases must therefore be approached with particular care. Payment on grounds other than actual financial loss or costs should only arise in exceptional circumstances. If financial redress is felt to be justified, the approach might be a payment in general recognition of the detriment suffered as a result of official failure rather than to put the complainant into the position it is argued he or she might have been if the official failure had not occurred. Such a position is inevitably highly uncertain.

27. In considering claims of this type the following points should be taken into account:

  • the fact that some degree of inconvenience, frustration, worry or distress etc. may be involved, in the administrative process which has caused the complaint (for example, in the establishment of an entitlement to benefit) and may also be unavoidable in the investigation of the complaint. In short, the occurrence of inconvenience, etc. does not of itself constitute grounds for payment. Public sector organisations should look at the degree and the reasons for its occurrence.

  • the effects of the inconvenience, etc. Organisations may need to seek corroborative evidence as regards the claimed effects. Similar tests might be relevant in claims of hardship.

  • the complainant's own contribution to the situation - for example, the amount claimed may represent a loss which the complainant could have taken reasonable steps to reduce or avoid.

  • whether the loss may have been caused wholly or partly by the fault of a third party rather than the public sector organisation.

  • whether the inconvenience, etc. was caused by the wilful action of, or improper behaviour by, a member of the public sector organisation's staff. This might be regarded differently from the results of a genuine error.

  • any legal analogies which might help inform the decision.

  • whether the amounts claimed are realistic taking into consideration the position in which the complainant would be likely to have been in if the maladministration had not occurred.

28. In claims of financial hardship as a result of maladministration the complainant's financial circumstances may also be a relevant consideration.

Allowing for Tax

29. Many ex gratia payments are not taxable. Public sector organisations should therefore consider whether allowance for this should be included in calculating the amount of financial redress, to avoid putting the recipient in a better position than if the maladministration had not occurred, for example, where making a payment to compensate for loss of income which would have been taxable if received or earned in the normal way.

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Page Published / Updated: September 2008