Andreas Whittam Smith: In no other business would Trevor Phillips survive

The auditors refuse to sign off the accounts of the Equality and Human Rights Commission. The Treasury declines to approve certain financial transactions. And the chief executive and four non-executive Commissioners leave the board in quick succession. In these disturbing circumstances, the chair, Trevor Phillips, comes up for re-appointment and what happens? Harriet Harman, the Equalities minister, gives him a second term!

I have added the exclamation mark because nowhere outside government would Mr Phillips have stood the remotest chance of hanging on to his position. Naturally this wouldn't have taken place in a business setting where jobs and capital are at risk. Nor would such blithe disregard of warning signs have occurred in the world of charities. Only in politics, or at least only in the worn-out, corrupt political system that we now have, can this happen.

I naturally looked at the list of ministers running the small government department, the Equalities Office, over which Harriet Harman presides. For if rot is being allowed to flourish unchecked at the Commission, then one must look at the supervisory body to see whether it is also infected. The Equalities Office has four ministers in charge of only just over 100 staff. This ministerial overstaffing is deliberately done to swell the Government payroll vote in the House of Commons. This is one of the games politicians play.

I also looked to see what "use" the four ministers had made of the parliamentary expenses system. Maria Eagle, the Minister of State at the tiny department, claimed £3,500 towards refurbishing a bathroom at her constituency home in Liverpool in 2005 and then four months later changed her nominated second home to a flat in south London with higher mortgage interest charges.

Vera Baird, Solicitor General who leads on the Equalities Bill, tried to get taxpayers to foot a £286 bill for her Christmas tree and decorations. Fortunately even the Fees Office could see that this was a try-on and refused to pay. So neither Ms Eagle nor Ms Baird would be my first choices as guardians of taxpayers' money.

I can only assume that when deciding on Mr Phillips' future, Ms Harman and her ministerial colleagues studied the question of how it was that the Commission spent almost £325,000 on re-employing seven executives who had recently left one of its predecessor bodies with generous redundancy packages.

This is a reference to the fact that the Commission is the product of a merger of what were three separate Government units covering racial equality, sex discrimination and disability rights. What seems to have happened is that some of the staff made redundant when their original employers ceased to operate pocketed their compensation and then immediately moved to the successor body. The Treasury commented that these re-engagement salaries were significantly higher than they had received before.

Even if it was proper to re-engage staff in such circumstances, why would it be necessary to pay them more? And this is the burden of the Treasury's second comment: "There was insufficient evidence to demonstrate that re-engaging staff provided value for money compared to other options." The Treasury went further in its criticisms: "There was insufficient evidence to support the view that the Commission fully considered the pension and tax liabilities of re-engaging staff."

Mr Phillips would say, presumably, that as chairman he did not directly appoint junior staff and fix their salaries. And he will have a chance to make this point to the powerful Public Accounts Committee of the House of Commons when Parliament resumes work in the late autumn. But it won't wash as an excuse. The chairman appoints the chief executive and has the ultimate responsibility.

The Commission was born in chaos. As the National Audit Office commented: "Delays in bringing in resources sufficiently quickly meant that, when it started doing its job, it lacked more than half of its complement of directors." And in turn this shortage weakened the Commission's ability to develop a clear business strategy, agree an organisational design and ensure effective operational management was in place.

I am more critical of Ms Harman than of Mr Phillips. The story gives off a strong smell of incompetence and a whiff of corruption and yet the minister doesn't appear to have noticed. This is probably because the same odours pervade our entire political system.