Tackling fraud in the public sector

16 May 18

Public sector bodies should protect themselves against the potential of highly costly fraud attacks, says ‘white collar’ crime solicitor Rahman Ravelli.

Fraud

 

Many people will think of fraud as something that happens in big business rather than in the less spectacular world of public bodies.  But that would be a mistake.

As an example, just a matter of weeks ago reports surfaced in the media that an investigation was under way at Midlothian Council into allegations of fraud in the awarding of road servicing contracts.

The council is examining claims that a senior official set up at least one company to award himself up to £2 million-worth of council work between 2014 and 2017.

This investigation was prompted by other council staff raising concerns with senior councillors. More than 50 people have already been interviewed about the claims.

Midlothian Council can be viewed as a valuable snapshot of the public sector’s vulnerability to fraud. This should not be ignored - the size of the potential losses to fraud make it too important to be overlooked.

Councils and other public sector bodies are as vulnerable to fraud as any privately-run enterprise.

They may be funded by taxation rather than an income derived from trading but they can endure the same financial problems and damage to reputation and staff morale that any private company suffers when fraud is committed against it.

Just because they are run for the public benefit does not make them immune to fraud.

Local authorities are often large organisations controlling large amounts of money. They can be as attractive a target to those looking to commit fraud as any private enterprise. For that reason, they should be aware of the need to prevent it.

Prevention

Whether fraud is or isn’t being committed in a public sector organisation, each one has to take all necessary steps to assess the potential for wrongdoing being committed by staff, third parties, intermediaries, clients, trading partners and anyone else with a connection to it or knowledge of its workings.

It is the responsibility of senior staff to identify the potential for problems and then devise, introduce and maintain procedures that allow wrongdoing to be identified and prevented. Any organisation without adequate prevention measures is an organisation that is vulnerable to fraud, not to mention other forms of business crime.

Fraud prevention requires such a body to take the time and effort to assess the way it works and the ways in which it could be vulnerable to it.  

It needs to look at every aspect of its operation: activities inside and outside the workplace, those working for or with it, record keeping, payment procedures and management and monitoring structures. Each aspect may contain weaknesses that could be exploited by those looking to make fraudulent gains.

If this sounds something beyond the scope of council staff, business crime lawyers with the relevant expertise and experience can examine a council’s workings, identify where it may be vulnerable to fraud and then devise ways for these vulnerabilities to be “designed out’’.

Investigations

An appropriate whistleblowing procedure will complement any fraud prevention measures that a council introduces.

Encouraging staff to report their suspicions of wrongdoing (in the knowledge that their concerns will be treated seriously) can help promote an anti-fraud workplace culture.

This can be crucial in a council, where there may be many people employed over a number of sites and departments.

This approach creates an awareness of the possibility of fraud, makes it more likely to be detected and serves as a deterrent to those who may be thinking of committing it. Such reports can be investigated thoroughly and discreetly to allow a council to determine what, if any, wrongdoing has been committed and what response is necessary.

As a firm, we have carried out many internal investigations for organisations who have felt unable to conduct them for themselves. Such investigations can be a vital first step in determining whether wrongdoing has been committed and, if so, who by.

If an investigation does show that fraud has been committed, a council (or other public sector body) can report it to the police or other agency, initiate civil proceedings against those suspected of committing it or bring a private prosecution against them, under the Prosecution Offences Act 1985.

But it must be remembered that such options are only available if an independent internal investigation has been carried out properly. An internal investigation is only likely if information has come to light that indicates possible fraud.

And that information in itself is only likely to emerge if the organisation has procedures in place for fraud to be prevented, identified and reported.

These procedures cannot be dismissed as mere bureaucratic exercises. Public sector organisations must be aware of the potential for fraud and act accordingly.

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