Fighting Fraud

Through recent work with local authorities, we have found that the public sector is subject to a wide range of frauds, notably benefit and tax, procurement, insurance, lending, and payment card frauds.

Findings published earlier this year by the Association of Chief Police Officers (ACPO) in its report, ‘The Nature, Extent and Economic Impact of Fraud in the UK’, show that the public sector lost some £6.5bn to fraud in 2005/2006. Research by insurer Zurich Municipal indicates that council tax payers are annually shouldering the burden of £1bn of fraudulent claims. But the exact costs are impossible to ascertain from the current levels of reporting, and the above figures are likely to be conservative estimates.

Fraud also impacts on local authorities and tax payers in indirect and immeasurable ways, ultimately resulting in higher taxes, poor-quality services and low morale.

Levels of fraud can fluctuate widely depending on the effectiveness of internal controls and offenders’ abilities. Annual departmental reports, which may conceal variations in any given year, are only a rough guide to fraud levels in the future.

Unfortunately, UK police authorities do not have sufficient resources to deal with the increase in local authority fraud as a priority, despite its expense to society, which is second only to Class A drugs.

Fraud has been a notoriously difficult offence to prove, resulting instead in charges such as false accounting and deception being used to pursue offenders. The expense and difficulty of securing a conviction has also meant that many allegations of fraud have not been investigated.

The investigation and prosecution of fraud was highlighted in the Attorney General’s Fraud Review 2006. The review, together with the new Fraud Act 2006, which introduced fraud as a statutory offence for the first time, and the proposed provisions of the Serious Crime Bill, will change the framework under which local authority counter-fraud work functions.

The Fraud Act makes provision for criminal liability for fraud and obtaining services dishonestly a criminal offence. It covers the key areas of false representation, failing to disclose information and abuse of position.

In addition to the new offences under the Fraud Act, the Serious Crime Bill sets out new measures that will affect counter-fraud practices, including the development of data-sharing within the public sector and between the private and public sectors. Local authorities will also be affected by other provisions in the Serious Crime Bill. These include the introduction of serious crime prevention orders and new offences of encouragement and assistance in crime.

The Fraud (Trials Without a Jury) Bill, which promotes non-jury trials in serious and complex fraud cases, is currently before Parliament. Under this proposed new legislation, local authorities can prepare cases for the police, who will then process them for court. This is similar to the existing arrangement between the Association of British Insurers (ABI) and ACPO.

A person found guilty of fraud under the new Act is now liable, on summary conviction (i.e. in a Magistrates’ Court), to imprisonment for up to six months or to a fine not exceeding the statutory maximum, or to both. On conviction on indictment (i.e. by jury in a Crown Court and above) the maximum sentence is imprisonment for up to ten years or a fine, or both.

Misconduct in public office, bribery and corruption remain serious offences, which can result in custodial sentences of up to 25 years and heavy fines.

As law enforcement officials have limited resources and skills for dealing with local authority fraud, anti-fraud initiatives work best where local authorities employ the services of expert fraud investigators. These investigators have both the resources and expertise to help gather evidence and prepare cases to be presented to the relevant law enforcement agency.

The recent changes to the law should increase the prosecution and conviction rates for fraud. With a joint approach, utilising the different skills and powers of investigation experts and law enforcement officials, local authorities should be able to increase their chances of recovering misappropriated funds.

• Bank reconciliations
• Cheque frauds
• Forged bank notes
• Overpayments
• Procurement

• Compliance with directives
• No emergency orders
• Proper authorisation

• Recruitment/selection policies
• CV vetting
• Reference checks
• Accredited recruitment agencies

• Payment before completion
• Fraudulent invoices
• Duplicate payments
• Over-invoicing

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.