Magazine article Public Finance

Buying into Fraud

Magazine article Public Finance

Buying into Fraud

Article excerpt

David Cameron's hosting of the world's first anti-corruption summit in May certainly sent out a message that fraud was a high priority for the UK government. But the PR coup was overshadowed by the publication of a damning report just two weeks later warning that the scale of fraud across the UK had been woefully underestimated.

The annual cost of fraud in the UK could be as high as £193bn - an average of more than £3,900 per adult in the UK - with the rate of loss at £6,000 per second, according to the 2016 Annual Fraud Indicator, based on research by the University of Portsmouth's Centre for Counter Fraud Studies. This dwarfs previous government estimates of around £50bn in 2013.

The private sector bears the brunt of attacks from fraudsters, losing an estimated £144bn a year. By far the biggest source of fraud relates to procurement, which represents a staggering 88% of losses. The figure is likely to be similar in the public sector, so it's a sobering statistic regardless of where you're sitting.

Although the numbers have to be taken with a pinch of salt - Professor Mark Button, director of the centre, admits that no one really knows the true extent of the problem in the UK - the fact remains that procurement fraud, one of the biggest suspected areas of loss for both central and local government departments, remains a notoriously hard nut to crack.

However, there's some good news too. It is two years since CIPFA's Counter Fraud Centre was set up to lead and coordinate the fight against fraud and corruption in local and central government under the watchful eye of Rachael Tiffen, the former deputy director of the now defunct National Fraud Authority. In that time, the issue of procurement fraud - at a senior level at least - has moved up the list of public sector priorities.

Nonetheless, Tiffen remains frustrated that many public sector organisations have little idea what they're dealing with. "Accountants need to try and put a figure on it but, when you do that, it means you have to do something about it."

The scale of procurement fraud is so vast, Tiffen says, in part because it encompasses so many forms of dodgy behaviour. It runs from the submission of false, exaggerated or duplicate invoices, the awarding of contracts in exchange for bribes, goods or services being under-delivered or not delivered at all, to gaining personal benefit from corporate supply contracts.

Then there's the sheer scale of procurement activity across the public sector. Combined with the high volume, low value nature of transactions, this makes procurement easily vulnerable to abuse. "It covers a very broad range of issues and it takes a big commitment to find it," she warns.

The publication in March of the centre's Counter Fraud Strategy offers a huge leg up to local authorities that are floundering in the fight against fraud - specifically procurement fraud. Developed by local authorities and counter fraud experts, Fighting Fraud and Corruption Locally 2016-2019 offers practical advice on sharing best practice and bringing clarity to the changing anti-fraud and corruption landscape to council leaders, chief executives, finance directors and all those with governance responsibilities.

Tiffen says local authorities need all the help they can get. This is particularly so because some council fraud teams have been "decimated" since the the Department for Work & Pensions completed its move to a single fraud and error service for investigations into tax credits, housing benefit and other DWP benefits in March.

Recognising the role that data analytics has to play in mitigating procurement fraud risk, CIPFA is developing anti-corruption services and tools for local authorities with BAE Systems Applied Intelligence. In particular, these use software algorithms to spot patterns between payments and anomalies in data. A pilot scheme to detect procurement fraud is being run at four London councils. …

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