Protecting the public purse

Public bodies have a duty to protect the public purse. The public sector has never before been more at risk of fraudulent activity than it is now. With the extended era of austerity that the UK has faced, and will continue to face for many years to come, securing funding for public services is becoming more and more difficult and every pound lost though fraud reduces the ability to provide valuable public services.

In 2013, the National Fraud Authority estimated that central government might be losing £2.6 billion and local government £2.1 billion to fraud, with a further £14.1 billion lost to tax fraud and vehicle excise fraud, and £1.9 billion to benefit and tax credit fraud, but no one knows for sure the true value of the losses and it is generally accepted that this is probably an underestimate.
   
The Audit Commission reported in its annual Protecting the Public Purse Report 2014 that “Fraud valued at £188 million was detected by England’s councils in 2013/14, a ten-fold increase since 1990.”

A significant problem
Every area of public expenditure is at risk of fraud. In 2013/14 nearly 50,000 cases of non-benefit fraud was identified within local government, worth £16.9 million. This included areas such as Right to Buy fraud cases worth £12.3 million.

There has been a rise in this type of fraud following the large increase of the discount threshold. Social care fraud has more than trebled since 2009/10 to 438, totalling £6.2 million in 2013/14. Insurance fraud against local government is worth £4.8 million. Recovery of social housing as a result of tenancy fraud investigations increased by 15 per cent in 2013/14 to 3,030. These figures are exclusive of housing association properties which make up the bulk of social housing.

Detected cases of fraud in maintained schools is worth £2.3 million. Most of these frauds were committed by staff, suggesting that some schools may have weak governance arrangements that mean they are more vulnerable to fraud.

There is no data available for non-maintained schools or academies who have greater independence so are likely to have increased risks of fraud.

What’s more, business rates fraud is worth £1.2 million and procurement fraud is worth nearly £4.5 million. 

Addressing the risk of fraud
With a focus on the need to ensure every penny is used to provide public services more public organisations are recognising the need to ensure their systems and controls adequately address their risk of fraud as well as putting in place measures to prevent, detect and investigate frauds. Historically, the detection of a fraud was seen as a sign of weak controls in an organisation however, it goes without saying ‘seek and ye shall find’. Increasing the level of detection should be seen as a positive sign that public bodies are taking the risk of fraud seriously and putting in place strong systems of internal control as well as sound counter fraud and corruption frameworks to address the risks.
   
Alarm, The Public Risk Management Association, recognised there was a need to provide its members with guidance to tackle this risk which could impact heavily on a public sector organisations’ strategic and operational planning arrangements, as well as on its performance. In May 2014, Alarm produced ‘Managing the Risk of Fraud: The Alarm Standard for Risk Advisors’ to help risk advisors, working in conjunction with business managers, to address their risk of fraud.

Best practice guidance
The Alarm Standard provides best practice guidance that enables organisations to test they have in place adequate levels of compliance to manage their risk of fraud. It will never be possible to eliminate the risk of fraud completely but there are measures that can be taken that will help to mitigate the risks. In order to effectively manage the risk of fraud it is essential that public sector organisations place this at the top of their corporate governance arrangements. A corporate approach helps public bodies to protect scarce resources. There are five key essentials of good corporate governance that should be in place to manage the risk of fraud. The first is to embed a strategic approach to risk management and then promote a culture of zero tolerance. There must be a sound counter fraud and corruption framework, strong systems of internal control, as well as close working relationships with partners in relation to counter fraud work.

Effective corporate risk management
In addition to identifying the aspects of good corporate governance the guidance reinforces the principles of effective corporate risk management. It highlights that a review of potential fraud risks should be undertaken in a formal manner using the same principles that are adopted for other business risks. This includes identifying the key risk areas; considering the impact of potential frauds; and assessing the scale/likelihood of the risk of fraud occurring. It also recommends identifying/evaluating the adequacy of existing controls and implementing revised controls or action planning for the future.
   
Fighting fraud is the responsibility of everyone. To support the fight against fraud in the public sector it is essential that senior executives and elected representatives actively reinforce the message that fraud against the public sector cannot and will not be tolerated.

Further information
www.alarm-uk.org