Public sector fraud is a growing threat. Councils need to be vigilant and keep a close eye on everything from employees to suppliers
KPMG’s recently released fraud barometer recorded £2.5bn worth of fraud during the second half of 2011, and the government and the public purse saw the highest number of cases at over £1bn. PwC’s Global economic crime survey also revealed that the percentage of public sector respondents that had experienced one or more incidents of economic crime rose from 37% to 46% over the last twelve months. These are worrying statistics as local authorities continue to adapt to budget cuts from central government and experienced personnel leave, taking with them the embedded knowledge of anti-fraud processes.
Described as ‘far from a victimless crime’ and a ‘problem that affects us all’, management teams in local authorities will need to be increasingly vigilant if they are to detect fraud early and begin to put an end to the huge financial impact it can have on already fragile departments. But how can they do this? Fundamentally, fraud detection relies on continuous monitoring across all aspects of the organisation, from employees to supplier, yet by doing so significant savings can be made and spend on services protected.
PwC’s report found that fraud by employees accounted for 67% of cases in 2011 and that, worryingly, public sector employers are less likely to dismiss employees for fraud than those in other sectors. Regular internal audits carried out by an external party as well as systems based controls to assess employee management will highlight any irregularities and enable swift action to be taken. Similarly, running through a list of common fraud indicators such as inconsistent behaviour, access to sensitive or financial information, or unusual downloads of data can help to detect fraudulent activity at an early stage. Tighter controls and policies against fraud and making employees aware of punishments for straying from them may also be enough to deter potential activity.
Knowing your suppliers and keeping control over the arrangements is a crucial way of detecting fraud in the supply chain. The NAO warned in November 2011 that procurement fraud had risen by 400% and is now costing councils £14.6m. Carefully assessing suppliers and contractors on a regular basis throughout the lifetime of an arrangement, and regularly returning to service level agreements, will offer early indication of any activity outside of the norm. It can also allow local authorities to return to evidence quickly and easily if fraudulent activity is suspected.
Fraudulent claims from local authority residents can be just as damaging for the public sector however. The same report from the NAO identified over £1bn in claims from the two combined. Yet, even with modest resources, there are ways to tackle this. Ashford Borough Council for example, spent £10,000 on an initiative to tackle tenancy fraud, seeing great results in six months. A good fraud defence can be simple, using a combination or data and human analysis to reveal anomalies.
By its very nature, we are all the victims of local authority fraud and, with the threat of another recession around the corner, it is important that councils strengthen their defences in the short term to reduce large financial losses in the future. Cutting fraud is one way of providing significant savings without any real downside, ultimately even safeguarding the very services and jobs we value so much.
