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Fighting fraud

Sunday September 20th, 2009

by Morven MacNeil, GO Features Editor

A recent Audit Commission report has uncovered key fraud risks and pressures facing councils.

There has been a growing recognition of the damaging impact that fraud has on the UK economy and on citizens. This recognition has resulted in some important initiatives to combat fraud. Fighting fraud is high on the agendas of government and most private and public sector organisations. The newly formed National Fraud Authority is committed to measuring and analysing the incidence and impact of fraud across the UK.

With the UK facing the many and varied pressures of economic recession, few commentators see the risk of fraud reducing. Most anticipate that internal and external pressures on organisations will increase the risk of fraud and threaten counter-fraud defences. In addition, changes in the way that councils and partner organisations deliver services can affect the incentives to tackle fraud.

The Audit Commission has produced a report entitled Protecting the public purse – local government fighting fraud, which considers the key fraud risks and pressures facing councils and related bodies and identifies good practice in fighting fraud. The report examines risks that are often not adequately addressed, in particular those around housing tenancy, council tax and recruitment fraud.

The Commission found housing tenancy fraud could be tying up at least 50,000 council and housing association properties worth more than £2 billion, while demand for homes has increased by more than 50 per cent over the last six years.

Council tax payers could be losing almost £2 million a week to fraudsters claiming a 25 per cent Single Person Discount on their council tax. The discount can be claimed by householders where there are no other residents aged 18 or over living at an address.

The report provides an overview of the fraud threats facing councils. It calls on them to urgently reassess their counter-fraud plans and to ensure that staff understand, and have faith in, whistle-blowing arrangements.

Procurement fraud

Councils spend around £80 billion each year on capital projects and buying goods and services. Fraud can occur at any stage in the procurement cycle, from the initial business case to the award and management of the contract. Procurement fraud may take various forms and be perpetrated by external providers or internal parties.

The key areas of external fraudulent activity include: 

  • cartels that involve collusion among some bidders to agree that they will not bid competitively for a particular contract
  • applicants deliberately failing to tender in accordance with contract specifications and then submitting false claims for extra costs under the contract
  • contractors providing inferior goods or services
  • contractors failing to meet obligations such as minimum statutory pay and health and safety regulations
  • contractors submitting false invoices
  • contractors providing inflated performance information to attract greater payments than are due.

The existence of cartels can have a major impact on procurement costs and value for money. The Office of Fair Trading is currently investigating alleged cartel practices in major public and private sector building and construction contracts. It has produced guidance that public bodies should follow to lessen the risk of such illegal practices affecting the way they award and allocate contracts.

Corrupt practices internally include the awarding of contracts where the evaluation process is manipulated to favour a particular provider, and decision makers not fully disclosing personal interests or agreeing that invoices should be paid when they know contractors have not provided goods or services to the required standards.

Councils need to ensure that their arrangements reduce the risk of procurement fraud and are operating as intended. They should follow the Office of Fair Trading’s guidance to minimise the risk of unlawful practices when they award and allocate contracts.

Key recommendations

The Audit Commission recommends that local government consider the possible impact of the recession on the risk of fraud and amend their counter-fraud plans accordingly. Councils should be satisfied that their vetting procedures for recruiting permanent and temporary staff accord with good practice.

Councils must also ensure that their arrangements for tackling housing and council tax benefit fraud are up to date, effective and address increased service demands, as well as testing their whistleblowing arrangements against good practice guidance and ensuring staff understand and trust them.

Local government should work with the Audit Commission and other stakeholders to ascertain the extent and tackle the incidence of housing tenancy fraud and false Single Person Discount claims, while putting the appointment of audit committees in local government on a statutory footing.

It is also recommended that authorities provide a single, definitive source of information on reported fraud in local government for the National Fraud Authority; and that they make that information available to inform the National Fraud Strategy by reviewing and updating arrangements for collecting reports of fraud in local government to ensure they are suitable for the emerging national fraud agenda. This can also be achieved by undertaking annual surveys that collect information on fraud in local government in England.

Basildon Council – a perfect role model

Basildon Council is one of a handful of local authorities to be praised in the Audit Commission’s report on fighting fraud, where others are criticised for not doing enough.

The report used Basildon Council as a case study in taking a proactive approach to detecting Single Person Discount fraud.

Councillor Philip Turner, Cabinet Member for Resources, said inclusion in the report showed Basildon was a leader in fighting fraud. He said: “This type of fraud is a criminal activity that costs the taxpayer. Basildon is committed to investigating and prosecuting cheats who falsely claim discounts they are not entitled to.

“Inclusion in the report sends a message to those who think they can get away with it. There is no such thing as lesser types of fraud. We will use innovative techniques to protect the public purse.

“Where there is a legitimate claim for Single Person Discount we will endeavour to make sure residents receive the savings they are entitled to.”

Basilson used data matching to review the number of people claiming Single Person Discount and uncovered over 600 claimants who were not entitled – a fraud totalling £235,000, most of which has been paid back.

Councils determined to crack down on fraud

Responding to the report, Margaret Eaton, Chair of the Local Government Association, said: “Councils are dedicated to bearing down on cheats to keep council tax as low as possible for the vast majority of honest, hard-working taxpayers.

“The Audit Commission’s report is full of examples of town halls making sure their residents are not ripped off by fraudsters. One of the reasons the commission has been able to highlight some types of fraud as an issue is because of the hard work of many authorities which have tracked down cheats and taken action against them.

“Councils are never complacent. We strongly support the commission’s call for more research into fraud and will look carefully at the many positive ideas in the report.

“In these tough times when councils are facing a perfect storm of falling revenues and growing demand for services they will not turn a blind eye to crime.”

 

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