SWift Newsletter, November 2007 - Public Sector Fraud

UK local authorities are potentially losing billions to fraud due to limited resources. We look at how they can fight this crime. We also discuss how modern technology can reduce the cost of forensic investigations.

FIGHTING FRAUD

John de Wit examines the scale of local authority fraud in the UK and new legislation which may help in the fight against it.

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.

A Heavy Burden

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.

New Legislation Offers Hope

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...