Public sector fights back against fraud

The National Fraud Authority will shortly publish their annual fraud report detailing the cost of fraud to the UK economy in 2011.  In 2010, the National Fraud Authority estimated that 55% of all reported fraud affecting the UK economy was in respect of the public purse.  That amounted to £21bn.  This approximately translated to three pence in every pound spent by the Government on public services being lost to fraud.

It is well documented that central and local government budgets are being slashed and austerity measures and operational changes are being implemented to cut public expenditure and also to stem the loss of public monies to fraud.  The deficit caused by fraud to the public sector only adds to the pressure where such losses would be of greater benefit if available for front line services.

Central and Local Government Response

Last year the Government commissioned a counter fraud task force headed up by Frances Maud MP to investigate and set about implementing initiatives to reduce the impact of fraud in the public sector.  It is clearly not an easy task having to create a new cultural and process driven approach to tackle fraud but this report brings a long overdue initiative to the fore. 

The task force have set about putting in place pilot projects to test the ability to make savings and in doing so seeking to move away from the “pay now check later” culture. 

The task force has identified that a consistent approach from public bodies is needed in order to prevent, detect, deter, correct and punish fraud.  Four priorities have been identified, these are:

• Collaboration – intelligence sharing on fraudsters, initiating joint use of data analytics to identify potential fraudsters before release of monies.
• Assessment of risk and measurement of losses – seeking to implement a need for fraud risk assessment at the outset of projects and programmes before release of monies and implementation of specific checks and balances throughout a project’s life.
• Prevention – emphasising the importance of counter fraud techniques prior to release of funds noting that prevention will save more than seeking to secure fraud by recovery of fraudulent games.
• Zero Tolerance – there is no acceptable level of fraud.

Whilst this is a positive step forward and it has been accepted as much, it is clear that there is a great deal of work required to make the savings that are clear for all to see.  There is significant emphasis on creating a zero tolerance culture.  The approach sets out that there should be the sharing of information between procurement departments about companies which routinely over charge public sector organisations to ensure future invoices are rigorously checked.

However, the aims of the taskforce have to be balanced against the reality of budgetary cuts.  These budget cuts to central and local departments not only cause practical restrictions but also one must question whether there is buy in from all staff involved to counter fraud. 

Specific Projects
Specific projects have been set up to target the ongoing threat of fraud.  Increased training is now taking place, for example by educating staff to spot key fraud indicators. Training for departments to help identify fraud is vital when considering how simplistic some frauds are against central and local government. A good example would be the £2m lost by a public sector organisation because organised criminals, pretending to be a legitimate supplier told the purchasing department that an existing suppliers bank details had changed.

At the local government level, it is estimated that there are losses of £2bn a year to fraud.  The National Fraud Authority has established a specialist team to support local authorities tackling this issue and is instigating projects targeting high risk areas including single person discount fraud, housing tenancy fraud, personal budgets, council tax exemptions and business rates fraud. 
Whilst the National Fraud Authority is now developing this first unified strategic approach to counter fraud against local authorities, there needs to be identifiable incentives available to local government to buy into the new approach and culture.  These incentives must see that that the savings and recovery from such fraud will be reserved for the future budgets for those authorities. Unless that truly occurs, the buy in to a degree will be limited. 

There clearly is a need for local government to find savings.  Recent announcements that council tax should be frozen as indicated by central government has not been adopted universally by all local authorities.  They need to seek opportunities to rebuild their budgets and the Fighting Fraud Locally event that took place in December 2011 demonstrated the enthusiasm of local authorities to target fraud in terms of prevention and recovery as a means to in part address their budgetary concerns. 

In terms of central government, the fraud error and debt task force set up last year will be launching an interim report on tackling debt owed to the government.  This will be followed with an updated report on reducing levels of fraud and error in government. 
On 6 February 2012, an event will take place in London to mark the launch of these two reports, the Fraud Error and Debt Conference.  The event is hosted by the Cabinet Office, The Department for Work and Pensions and HM Revenue and Customs and clearly is a strong indication that the public bodies are fighting back. 

Our fraud and risk services team were proud sponsors of the Fighting Fraud Locally Event in 2011 and are also pleased to be sponsoring the Fraud Error and Debt Conference.

The team are seeking to devise innovative funding arrangements which will assist both local and central government in recovering losses caused by fraud which allow for the sharing of risk on recovery.  Such an approach in our view will aid the process of responding to the challenges fraud creates to the public sector.

Conclusion
There has been a gathering of pace within local and central government to seek civil recovery and Cobbetts are well placed to assist both local and central governments in those efforts.

The bottom line is that the public sector is fighting back and must continue to do so consistently to achieve the savings desired.

For further information do not hesitate to contact a member of our expert fraud team:

Arun Chauhan
Tel: 0845 404 2391
arun.chauhan@cobbetts.com

Mark Kenkre
Tel: 0845 404 2379
mark.kenkre@cobbetts.com

The content of this article is for information only and should not be relied upon as a substitute for legal advice.  Copyright 2012 Cobbetts - All rights reserved - January 2012