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Fighting fraud locally

Fraud costs local government more than £2bn a year, money that is desperately needed to provide public services. Yet there is wide variation between councils, with some devoting far more effort and resources to detecting and deterring fraud. PSE spoke to Audit Commission head of counter fraud Alan Bryce.

‘Protecting the public purse’ is a major analysis of local government fraud across England, and the 2013 edition shows a number of important trends. In England, 22% of councils reported a decrease in investigative capacity in 2012/13, and overall the number of specialist fraud investigators across all the councils has dropped by a fifth since 2010.

Fewer cases were detected (excluding housing tenancy frauds), with the total down 14% on the previous year, though the value of those frauds was down only 1% on the previous year.

But this hides big regional variations – London boroughs increased the number and value of frauds detected by 36%, and 76% of all the non-benefit fraud cases in England were picked up by just a quarter of councils.

There were 79 district councils that reported no non-benefit fraud at all. This does not, of course, mean that no non-benefit fraud had taken place – just that it hadn’t been detected.

Acknowledging the scale of the problem

We asked Alan Bryce, head of counter fraud at the Audit Commission, which produced the report, for his thoughts on this variation.
He told us: “It does suggest that there are councils out there who can do more.

“But it must be remembered that we’re looking at a one-year snapshot in time, so some local authorities may have decided not to look at the high-volume, low-value frauds – such as council tax discount fraud or blue badge fraud – in this particular year. You always get some variability. We had one particular local authority that happened to have looked at both of those, plus council tax student discount, all in the same year, and got a lot of cases as
a result.”

Investigative capacity is an important issue, Bryce said, but so is attitude – acknowledging the scale of the problem. “That’s the first step in tackling it,” Bryce said. “These top performing councils nearly always have a clear commitment to tackling fraud and a recognition of it importance – and have the appropriate resources in place.

“The best councils will stand up and say: ‘We have a zero-tolerance approach to fraud, and if it’s committed against us, we will take action.’ But others see it as an embarrassment and don’t want to bring what’s happened to public attention. All that does is aid the fraudster.

“We should be applauding those councils who are taking action. We need to  be challenging those councils who aren’t doing as much as they should.”

He said it was a “stark realisation” that 79 out of 201 district councils in England were unable to detect even a single case of non-benefit fraud. “Some of them are perhaps too small and don’t have the capacity, but others aren’t acknowledging the problem,” he told us.

The reduction in investigative capacity is “possibly having a growing impact on their ability to tackle some fraud types, particularly non-benefit frauds,” he added.

Disincentives

But there are misaligned incentives, too – for example, on council tax discount fraud, it’s the districts in two-tier areas responsible for collecting the tax and thus detecting the fraud. However, Bryce told us that generally the county council will get 80p or 85p in the pound of all council tax collected.

“That has created a disincentive, in effect, for some district councils to take action, because they spend the money but don’t get the proportional benefits of doing so.”

“These are questions that councillors should be wanting to ask on our behalf as taxpayers.”

Indeed, in an appendix to the report, the Audit Commission has provided a good governance ‘checklist’ for councillors and others with which to interrogate their local authorities.

Council tax discount fraud is an area where some councils are failing in their duty to deter the crime. While some do prosecute, and look for evidence of fraud in previous years by the same person to recover that cash too, others do not – the discount will simply be stopped.

“That just invites opportunistic fraudsters to try their luck because they know there is no downside,” Bryce said. “Attempting fraud should never be punishment-free. There are penalties that can be applied,  and not all councils apply them. They can get money back for local taxpayers, but not all councils are doing so.”

The right sort of deterrence

He wanted councils to do a better job of spreading the message that fraud is not a victimless crime – that it has a direct effect on others in the community, who have to
pay more.

“From a deterrence perspective, the fraudster should be aware of and fearful that if they commit fraud, there’s a very good chance that they will be identified and detected, and that appropriate action will be taken against them – not that a discount will simply be stopped.”

Similarly, social housing fraud must be recognised as a serious problem.

“Tackling social housing fraud has been a success story this year. It should not be forgotten that this is about homes for people who have genuine need and entitlement. It’s unacceptable that there are individuals sub-letting their council homes for profit, or fraudulently applying for those homes.

“Unfortunately, I’ve heard social housing providers say ‘as long as a family in the home is paying their rent, is it really fraud?’ Yes it is, because it’s stopping a family in B&B accommodation from getting a home they should be in. That costs the taxpayer, and directly impacts people’s quality of life. It’s far cheaper to tackle tenancy fraud than it is to build new homes.”

National figures

Estimating the true scale of fraud is difficult; even the best-performing councils can’t detect all of it, so knowing how much is going on undetected is difficult.

There are national estimates, which Bryce says can be used as a starting point, by applying those percentages locally.

“For example, at the Audit Commission we undertook research, which the government uses, suggesting 4-6% of all people claiming council tax discounts are doing so fraudulently.

“The National Fraud Authority has also used some of these estimates to create a tool that allows you to put your data into to give you a potential likely range of local fraud loss.”

The best councils are keen to work together, to benchmark their performance and to do cross-sector working by co-ordinating with the NHS, UK Border Agency and others. “Those types of partnerships are out there, but not by any means universal,” Bryce said.

He said social housing fraud is one area that has shown a real improvement. “Five years ago, this was not really recognised as an issue; only a handful of London boroughs and some housing associations had looked at this. But housing associations have been coming together with councils to better share what their local risks are and good practice, and in effect in some places to share investigations and investigators.

“When we looked at this in 2008/9, looking just at council homes rather than housing associations, fewer than 1,000 council homes were recovered from tenancy fraud. Now, there have been nearly 2,700 in the current year we’ve just been reporting on. Many housing associations are also taking action.
That shows what can be achieved.

“But there are still many councils with social housing doing little or nothing in this area. If organisations do not make the commitment to participate, they’re missing a big opportunity for their local area.”

The future

The Coalition has decided to abolish the Audit Commission, most likely in March 2015, and there is not yet a firm commitment on who if anyone will continue doing the collection and analysis of data as in the ‘Protecting the public purse’ reports. The Commission will produce a final 2014 report, however.

Bryce said: “There is no definite continuation of this report, but we are working with the government to try to come up with a public sector focused solution so it can continue. There’s nothing else in the UK – public, private or voluntary sector – that collects and publishes data in this way. Local government is far more transparent on a national scale than any other sector in the country, and more transparent in England than local government in Scotland, Wales or Northern Ireland. 100% of councils have to send us in this data, which we publish and analyse.”

Bryce and his team are also providing every principal local authority in England with an individually tailored fraud briefing for their external auditor. The councils’ audit committees can then use that to benchmark their performance against similar councils.

Another appendix to the 2013 report comprises a list of questions for councillors to support those fraud briefings, such as: “Does my organisation have any dedicated investigative resources specifically allocated to tackling tenancy fraud?” and “Has my organisation considered the impact of Single Fraud Investigation Service (SFIS) implementation from April 2014, on capacity to investigate non-benefit fraud?”

That is an important question. Bryce told us: “We don’t know what the final picture will be, but at this stage it’s likely that it will take investigate capacity out of local authority control, particularly on housing benefit fraud. Many councils rely heavily on those investigators to tackle non-benefit fraud related activities. We’re already seeing many councils, especially smaller district councils, struggling to tackle non-benefit fraud.
We need councils and councillors to
think what the future will look like without those investigators.

“Tackling benefit fraud nationally might be an understandable priority, as it’s a £350m cost to the public purse, but housing benefit accounts for about 14% of all the annual loss. Local authorities have got to think about a proportionate response. Currently two-thirds by value and about 44% by cases of all fraud detected by local government are about housing benefit. That’s only because they currently have this investigative capacity.

“It may be in the national interest for these investigators to go and work for the DWP directly, but it does raise the question of how councils will influence the DWP to tackle non-benefit frauds when they need it. These are big issues for local authorities to get to grips with – and they only have a few months to
do so.”