Closing in on the cheats

13 Feb 13
The public sector loses billions from fraud each year as criminals exploit technology to further their ends. But IT is also helping the good guys catch up

By John Thornton | 1 February 2013

The public sector loses billions from fraud each year as criminals exploit technology to further their ends. But IT is also helping the good guys catch up


With fraud costing the public sector an estimated £21bn a year, it is not surprising that prevention is high on the government’s agenda.

Fraud is an old crime but evolving technology has given criminals many new and more efficient ways of operating.

They use online techniques to steal personal and financial data, while social networking enables them to collect intelligence and target individuals.

The technology disguises their identity, hides their location and also enables them to operate across borders, on a much larger scale, and to hide the proceeds of their crimes.

However, technology also has the potential to help the good guys. We have entered the era of what has been termed ‘big data’. One of the most effective ways of catching fraudsters is through data sharing and matching and the public sector is creating large amounts of information that has the potential to be pooled, aggregated, analysed and shared.  While there are data protection issues, these are not insurmountable if the purpose is appropriate and the approach well structured.

The payback can also be significant. One London borough has ‘saved’ more than £1m a year by clamping down on single occupancy claims for council tax. A comparison of council tax records with other local authority records, such as parking permits and parking fines, quickly revealed individuals who claimed to be living in properties where other named individuals were claiming single occupancy.

A West Country council saved £2m by stopping fraudulent claims for student exemptions, identifying not only false students but also false colleges.

The localisation of business rates and council tax support will undoubtedly encourage more local authorities to pursue these sorts of initiatives, as in future the losses from these will fall on councils. The changes should also encourage counties and districts to work together more to reduce losses from such frauds.

Fighting fraud locally, the strategy for local government, estimates that annual losses through fraud in the sector amount to £2.2bn. These include £900m from housing tenancy swindles,  £890m in procurement fraud and £46m from abuse of the Blue Badge disabled parking scheme.

The strategy paves the way for creating local counter-fraud hubs that can come together to enable national sharing of data and intelligence. One local hub already estimates that it will save £10m by collaborating on data matching between local councils and housing associations.

This type of data sharing becomes even more important when countering frauds linked to networks of criminals operating across the UK and beyond.  These criminal gangs operate with business structures, chains of command and supply chains of service providers and are believed to be responsible for at least £9bn of losses across both public and private sectors.

Traditionally, counter fraud work in local and central government has been mostly reactive, with a focus on investigation and prosecution. Where it is proactive, it tends to focus on exceptions, but this is usually time consuming and resource intensive.

The more modern approach is to look for patterns of behaviour, relationships and linkages, and use specialist software that enables you to map, analyse and visualise these patterns. You then focus on the areas where the patterns of behaviour deviate from those expected.

The faceless nature of fraud contributes to a view that it is a victimless crime. But the reality is that we all pay for it and in many areas reducing fraud will help offset service cuts and tax increases. 

John Thornton is the director of e-ssential Resources, an independent adviser and a writer on business transformation, financial management and innovation [email protected]


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