This article first appeared on lgcplus.com on 16th November 2011.
According to the Audit Commission’s annual fraud survey, a total of £185m of fraud was detected by local councils during 2010-11; a figure described as, “the tip of a very large iceberg”. Fraud, it seems, is an evolving risk, with growing complexity, that local authorities should be very
aware of.
One year ago, our Tough Choices research into the long-term risks facing the public sector, ranked the impact of fraud and compensation culture on local authorities as an increasing priority. However, as council budgets are tightened and the economic situation continues - with the crisis in the Eurozone and rising personal debt - it is becoming increasingly evident that both the likelihood and impact of fraud are set to rise across all sectors for local authorities.
Housing is one area in which the impact of fraud is becoming increasingly evident, according to the Audit Commission’s findings. Our research concluded the same; heightening attritional costs for housing associations and further squeezing margins. However, with the growing Government agenda to open up public services and devolve responsibility for certain service budgets, plus the drive to work in partnership with community and charity organisations, the opportunity for fraud to occur increases across many areas.
Issues like organisational change and workforce rationalisation will also only add pressure as internal checks and controls risk being reduced or weakened. The procuring of goods and services for Councils has long been a fertile ground for fraudulent activity, reduction in management controls in this instance presents a good example of where fraud incidences could escalate. Reduced staff numbers and skill sets, plus over-stretched resources, will test local councils’ systems of control and could allow fraudulent activity to occur undetected for some time.
However, there is some light at the end of the tunnel. As the Commission chairman claimed, “Councils are certainly acting on fraud”, and we are finding that the judiciary is more willing to recognise and act on fraudulent claims from the general public against councils than in the past. Insurers are also better placed now to help councils locate and recognise fraud as it happens, putting in place checks and balances and offering access to industry databases that can identify known fraudsters and identify patterns of behaviour and financial transactions that warrant closer inspection. So, with careful planning around the management of risk, there are still ways that councils can remain opaque to potential fraudsters while still responding to the Government’s transparency agenda.
