Magazine article Public Finance

How to Prevent, Identify and Combat Grant Fraud

Magazine article Public Finance

How to Prevent, Identify and Combat Grant Fraud

Article excerpt

Assessing applications and awarding grants to businesses or charities, like all areas where public money is involved, present significant fraud risks. When grant making is mishandled, it can damage an organisation's reputation and public trust. It's not just local authorities that are vulnerable: the Lottery Commission, European Union and the Student Loans Company can all receive fraudulent claims from any number of individuals, organisations or organised criminal groups. It's important to remain vigilant.

Some have suggested that grant fraud is an emerging fraud risk. However, our experience is that this risk emerged some years ago and the risks present in those earliest investigations remain today. They can be categorised into the following areas:

* The decision to engage in a project

An investigation by Mazars' public sector counter fraud specialists involved small grants made in response to perceived risks of increased violence among gangs in an area. The grants were paid to charities involved in youth work and aimed to prevent violent behaviour; however, the risks cited as the catalysts for gang violence were bogus, as were the charities that received funding.

* The award process

If a grant-funding organisation fails to follow the procurement process properly, this can result in disingenuous or fictitious charities receiving money. It is worth bearing in mind that those responsible for awarding grants may have close links to organisations receiving them; Mazars has seen conflicted officers making awards. This risk is not exclusive to local government; it affects other funding bodies, especially where monitoring officers are also awarding officers.

* Contract monitoring and delivery

It is often difficult to measure outcomes in relation to the work of grant-funded organisations. A high volume of low-value grants can exacerbate risk because it is simply not proportionate to undertake monitoring at a level that might find fraud. In one case, Mazars examined a charity given funding to deliver a community event, for which proof of spend - including invoices, a licence for public performances and bank statements - was provided. The investigation found all these documents had been fabricated; witness statements were taken and the matter was referred to the police.

The CIPFA Counter Fraud Centre and Mazars have prepared this overview of some grant fraud areas to help organisations consider their response.

1 Avoid contract conundrums

Ensure the contract stipulates what is expected. A lack of clarity in a grant funding agreement can mean that genuine organisations can inadvertently deliver the wrong thing. It is very difficult to distinguish this error from deliberate abuse of a funding arrangement.

2 Carry out due diligence

Those awarding grants should know about the organisation they are funding. Checks should be carried out on it, including checks using freely available information. Mazars has investigated cases where simple due diligence at the award stage would have prevented money from being lost and increased the potential for the recovery of losses.

3 Steer clear of monitoring mayhem

Mazars has undertaken several investigations where monitoring has proved fraud and where a lack of monitoring has made it impossible to establish dishonesty. A particularly high risk involves the use of the same data to verify delivery of different events. …

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