Counter-fraud report 2022/23

In early 2020, CIPFA published - Fighting Fraud & Corruption Locally – A strategy for the 2020s (FFCL 2020) which succeeded the previous FFCL strategies written in 2011 and 2016.

In the executive summary, it advises:

• “local authorities continue to face a significant fraud challenge and while the official figures are dated the argument about protecting funds and vulnerable people remains”
• “every £1 that a local authority loses to fraud is £1 that it cannot spend on supporting the community. Fraud and corruption are a drain on local authority resources and can lead to reputational damage and the repercussions may be far-reaching"

The strategy also advises:

• “the previous two strategies focussed upon pillars of activity that summarised the areas local authorities should concentrate efforts on, these were ‘acknowledge’, ‘prevent’ and ‘pursue’

These pillars are still applicable, however, another two areas of activity have emerged that underpin tenets of these pillars. These are ‘govern’ and ‘protect’.

The pillar of ‘govern’ sits before ‘acknowledge’. It is about ensuring the tone from the top and should be included in local counter-fraud strategies.

Govern - having robust arrangements and executive support to ensure anti-fraud, bribery and corruption measures are embedded throughout the organisation. Having a holistic approach to tackling fraud is part of good governance.

Acknowledge - acknowledging and understanding fraud risks and committing support and resource to tackling fraud in order to maintain a robust anti-fraud response.

Prevent - preventing and detecting more fraud by making better use of information and technology, enhancing fraud controls and processes and developing a more effective anti-fraud culture.

Pursue - punishing fraudsters and recovering losses by prioritising the use of civil sanctions, developing capability and capacity to investigate fraudsters and developing a more collaborative and supportive local enforcement response.

Local authorities have achieved success by following this approach; however, they now need to respond to an increased threat and protect themselves and the community.

The second new area that has appeared during the research recognises the increased risks to victims and the local community:

Protect - protecting against serious and organised crime, protecting individuals from becoming victims of crime and protecting against the harm that fraud can do to the community.

For a local authority this will also cover protecting public funds, protecting its organisation from fraud and cybercrime and also protecting itself from future frauds.

Local authorities can ensure that their counter-fraud response is comprehensive and effective by considering their performance against each of the six themes (the six Cs) – that emerged from the 2016 research:

1. culture
2. capability
3. competence
4. capacity
5. communication
6. collaboration

This strategy:

• recognises that fraud is not a victimless crime and seeks to protect the vulnerable from the harm that fraud can cause in the community
• calls upon senior management in local authorities to demonstrate that they are committed to tackling fraud and corruption
• calls upon local authorities to continue to tackle fraud with the dedication they have shown so far and to step up the fight against fraud in a challenging and rapidly changing environment
• calls upon local authorities to work together to illustrate the benefits that can accrue from fighting fraud more effectively

With the past work performed on counter-fraud processes and specific high-risk areas, the council is already well-aligned with the local elements of FFCL. The council will continue to consider current and emerging fraud risk, both generally and in future service area audits.

The FFCL 2020 document re-emphasises the 2011 and 2016 message that “acknowledgement must start at the top and lead to action”. In response to this, the council’s then Chief Executive (James Hassett) affirmed that:

“This council recognises that fraud is a significant issue nationally and that every successful fraudulent act places an additional financial burden on the honest residents and taxpayers of the district. In collaboration with both central government and our local partners, we will ensure that effective ongoing measures are in place to prevent, detect and pursue fraud against the council.”

General

The council is required to provide information on fraud arrangements, etc. in response to the annual request from the external auditors (Ernst & Young LLP), relating to the risks of, identification of and responses to fraud (relevant to ISA 240 – ‘The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements’).

Various publications and briefings on fraud are held by the council (e.g. from central government, CIPFA, etc.) and the guidance and recommendations in these documents have been used as a basis for counter-fraud work by Internal Audit.

Arun District Council is committed to the prevention, detection and investigation of fraud and corruption. It is expected that all those who work for, serve or deal with the council will act in a fair and honest way.

The council has a specific anti-fraud, corruption & bribery policy, including the requirements of the Bribery Act 2010.  he original 2013 document was reviewed/updated in 2019 and adopted by full council in January 2020.  There are also other policies and procedures that support and promote this.

There is also a published fraud response plan, which was reviewed/updated and the changes noted by the audit & governance committee in December 2017.

The council’s whistleblowing policy (in respect of the Public Interest Disclosure Act 1998) is periodically reviewed and published on the council’s website.

The council’s internal audit service is now provided by the Southern Internal Audit Partnership (SIAP) and any specific fraud concerns would be referred to them for investigation. They are also scheduled to review the council’s fraud framework (including the policies mentioned above) in 2023 and any recommendations for improvement will be considered by senior management.

The fighting fraud & corruption locally strategy recommended that councils publicise the risks of fraud and encourage public response. Information on the key fraud risk areas facing the council and contact numbers for members of the public to report suspected fraud cases/concerns is set up as a ‘fraud’ area on the council’s website.  A small number of articles in relation to fraud (e.g. single person discount) have previously been provided by the council for publication in the local press and updates have also been provided to members (e.g. in respect of work undertaken on housing fraud).

No fraud and/or corruption investigations have been carried out during the year in respect of members, under the code of conduct.

Benefits Investigations

Until December 2015, the council had a small, dedicated benefits investigations team handling benefit-related fraud and investigations. Under the Welfare Reform Act 2012, benefits investigations were centralised into a ‘Single Fraud Investigation Service’ operated under the control of the DWP, although the council is still required to provide data to support DWP investigations. Members of the public are still encouraged to report suspected incidents of fraud via the National Benefit Fraud Hotline or through a link to the appropriate www.gov.uk pages on the council’s website.

Housing tenancy

As advised in past reports, housing tenancy fraud is an area of significant concern to the Government and this is now a criminal offence under the Prevention of Social Housing Fraud Act 2013.

The council has over 3300 properties in its social housing stock and there is a dedicated fraud investigation & enforcement officer post within housing. In addition to investigating active fraud leads, the investigator’s remit included prevention - working with other areas of housing in respect of:

• the verification process for acceptance to the Housing Register
• the process for verifying Right To Buy entitlement to purchase council properties
• exchange and succession requests.

(Prevention of housing tenancy fraud allows the placement of new tenants from the Housing Register and potentially reduces emergency B&B costs).

The audit & governance committee now receives an annual progress update on housing tenancy fraud from the neighbourhood services manager (most recently in February 2023).

In 2022/23 the fraud investigation & enforcement officer advises there were:

• 267 referrals received
• 10 properties successfully obtained back
• 4 mutual exchange applications refused
• £8,600 of Housing Benefit and Council Tax reclaimed

With an estimated financial saving to the council of £1.3 million. (The government currently estimates that cases of prevented social housing tenancy fraud are valued at £93,000 per property, based on an average four-year fraudulent tenancy and an estimate of the duration that the fraud may have continued undetected).

Other investigations

Other than the two above areas, all other fraud work is the responsibility of Internal Audit (except for any electoral fraud issues, which are handled by the returning officer/police). 

National fraud initiative

The council is a mandatory participant in the National Fraud Initiative (NFI), now operated by the Cabinet Office. This is a data-matching exercise that involves comparing records held by one body against other computer records held by the same or another body to see how far they match.  An example would be comparing Arun District Council Housing Benefit claimants with the licensed taxi drivers recorded by Arun and other councils.

Data for the 2022 main biennial NFI review (covering a wide range of areas e.g. housing, licensing, payroll, creditors, etc.) was provided to the Cabinet Office in October 2022 and reports have been received and review commenced, with queries identified referred to Housing and Benefits.

In December 2022, Council Tax and Electoral Roll data was again provided for annual council Tax SPD entitlement checking and the match reports received. Review of these is progressing and any queries on entitlement to SPD will be referred to the revenues section.

Since March 2020, in response to the Covid-19 crisis, the government has provided significant funds to the council for distribution to qualifying local businesses in line with guidance issued for a number of mandatory and discretionary grant schemes. Through the Covid period and into 2022/23, the council has distributed over £50 million in respect of these.  At the outset, the government was concerned that unscrupulous parties would take advantage of the crisis to obtain funds to which they were not entitled and the Government Counter Fraud Function (GCFF) requested local authorities undertake appropriate checks to minimise the risk of fraud. From 2020, the requirement for pre- and post-payment assurance checking has been extended across the various different schemes by the Department for Business, Energy & Industrial Strategy (BEIS), often with different eligibility criteria and checking requirements. Between them, the revenues section (mandatory grants) and the economy section (discretionary grants) have processed over 11,000 grant payments to eligible businesses after appropriate checks have been undertaken and any queries/suspicious applications investigated.  A significant amount of work has also been undertaken by Internal Audit (in liaison with the two areas) in respect of post-payment assurance checks and reconciliation of scheme payments to meet BEIS checking and reporting requirements and this work is continuing, following the closure of the remaining schemes on 31 March 2022.

From April 2022 the council has also distributed almost £9 million of government funding in support of national schemes to assist residents with their increased fuel bills, through Council Tax Energy Rebate payments and to qualifying applicants through the Energy Bills Support Scheme (EBSS) Alternative Fund and Alternative Fuel Payments. These have required similar levels of pre- and post-assurance checking by Revenues and Internal Audit staff.

Other revenues activity

The council’s revenues area also undertakes a number of other checks in order to reduce the risk of fraud in respect of the eligibility for Council Tax and Non-Domestic Rates (NDR) exemption or reduction. These include:

• inspection of empty business rated properties
• review of mandatory and discretionary NDR discounts
• review of entitlement to Council Tax exemptions and other discounts
• inspection of residential properties that have been empty for more than 2 years
• contact by the empty homes officer with homeowners where the property has been empty for 6-18 months

In respect of the last 2 points, a further 128 properties have been brought back into occupation and the ‘empty’ status removed in 2022/23 through the direct intervention of the empty homes officer which currently has a positive impact on the council’s New Homes Bonus income. (This is also reported to Members in Corporate Plan indicator CP22).

The local government transparency code, ‘issued to meet the government’s desire to place more power into citizens’ hands to increase democratic accountability and make it easier for local people to contribute to the local decision-making process and help shape public services’ was extended in 2014 to include fraud information.

The council must now publish certain information on its website on its counter-fraud work on an annual basis and this will contain some information that is covered in more detail in this report.

Managing the risk of fraud and corruption is the responsibility of management.  Audit procedures alone cannot guarantee that fraud or corruption will be detected.

Internal audit (or the housing fraud investigator for tenancy-related cases) should be informed of all suspected or detected fraud, corruption or improprieties for investigation and to allow the effectiveness of any relevant controls to prevent/detect such cases to be reviewed. The implications of any identified fraud and corruption will also be assessed against the council’s overall governance arrangements. Internal audit (now through SIAP) provides an annual opinion on the adequacy and effectiveness of the systems of internal control operating within the council and any identified cases of fraud or corruption may influence this opinion.

Further to the publication of CIPFA’s Code of Practice on Managing the Risk of Fraud & Corruption and the revised Fighting Fraud & Corruption Locally strategy, the council has considered the content and the actions to be taken in the coming years and:

• will monitor the progress of national initiatives and engage in the various consultations that will be required to implement the strategy
• will continue to examine reports on initiatives undertaken at other local authorities, together with published guidance and advisory documents, to ensure that lessons learnt and emerging fraud risks are considered as part of our counter-fraud activities
• will continue to assess our current activities against the best practice contained in the strategy for local consideration and ensure that our counter-fraud activities are as effective as possible
• will ensure that appropriate counter-fraud measures remain in place in service areas impacted by changes from management/operational restructures or efficiency/cost-saving initiatives

SIAP are due to review the council’s fraud framework in 2023 and recommendations for improvement will be considered/progressed by senior management.

As identified in the report, counter-fraud work is already performed by the council in a number of areas, in addition to the continual consideration of emerging fraud risks and assessment of the council’s policies and procedures against best practice and appropriate guidance notes.

Figure 1 above shows identified fraud loss estimates by the victim.

Please see the information below for the full image description.

Annual Fraud Indicator 2013 -  total - £15.5 billion 

Split into the below:

Individuals £9.1 billion: 

• £2.7 million - pre-payment meter scams
• £3.5 billion - mass marketing fraud
• £3.3 billion - online ticket fraud
• £755 million - private rental property fraud

Charity sector £30 million: 

• £1 million - income £0-£1000,000
• £11 million - income £100,001 - £500,000
• £14 million - income £500,001 - £5 million
• £4 million - income over £5 million

Unknown - £?

Public sector £702 million

• £455 million - central government
• £207 million - local government
• £40 million - tax system 

Private sector £5.7 billion

• £4.6 billion - small businesses 
• £44 million - medium businesses 
• £555 million - large businesses 
• £515 million - financial & insurance activities

Please note the identified fraud loss estimates include both identified fraud losses and estimates that have been extrapolated to sectors. It is not always possible to clearly demarcate fraud types to identified and hidden fraud losses as some estimates spread across both. 

The identified fraud loss figures are likely to be an underestimate in some areas where the NFA has not been informed of detected losses, therefore, fraud losses are unknown, rather than zero or not present. See Appendix 2 for fraud by type breakdown. 

Please note figures may not add up exactly due to rounding. 

Source - National Fraud Authority, Annual Fraud Indicator 2013

 

Figure 2 above shows hidden fraud loss estimates by victim

Please see the information below for the full image description.

Annual fraud indicator 2013 - total - £36.5 million

Split into the below:

Charity sector £117 million

• £4 million - income £0-£100,000
• £5 million - income £100,001 - £500,000
• £9 million - income £500,001 - £5 million
• £99 million - income over £5 million

Other/mixed £919 million 

Private sector £15.5 billion 

• £3.1 billion - small business
• £1.4 billion - medium business
• £6.1 billion - large business 
• £4.9 billion - financial & insurance activities

Unknow £?

Public sector £19.9 billion

• £2.1 billion - central government 
• £1.9 billion - local government
• £1.9 billion - benefit & tax credits system
• £14 billion - tax

Individuals £ unknown

Please note it is not always possible to clearly demarcate fraud types to identified or hidden fraud losses as some estimates spread across both. The hidden fraud loss estimate, therefore, includes those estimates that bridge both hidden and identified fraud losses (see Annex 2).

Annex 2

Annex 2 shows a breakdown of losses within victim type. Please note figures may not add up exactly due to rounding. 

 

 

 

 

 

 

 

 

 

 

Please see this government website page to see an accessible PDF version of this image on page 65.

Counter-fraud for data transparency

S43 of the Local Government Transparency Code 2014, requires local authorities to publish information about their counter-fraud work.

The figures in appendix 1 cover the period of1 April 2022 - 31 March 2023.

Number of occasions powers were used under the Prevention of Social Housing Fraud (Power to Require Information) (England) Regulations 2014, or similar powers

• Internal Audit - not used
• Revenues - not used
• Benefits- not used
• Housing - not used

Total number (absolute and full-time equivalent) of employees undertaking investigations and prosecutions of fraud:

• Internal Audit - one employee (approx. 0.1 FTE) may be involved in investigations that could relate to fraud and also reviews potential fraud cases from annual National Fraud Initiative (NFI) reports received. (Since April 2022, the council’s internal audit service has been provided by the Southern Internal Audit Partnership (SIAP) who would now conduct any specific fraud investigations, as and when required)
• Benefits - investigations staff were transferred to the DWP SFIS in December 2015. No fraud officer since April 2019
• Housing - one fraud investigation & enforcement officer since June 2021 (0.6 FTE)
• Legal services - no prosecutions in 2022/23

Total number (absolute and full-time equivalent) of professionally accredited counter-fraud specialists

• Internal Audit - none
• Benefits - none
• Housing - one (0.6 FTE)

Total spent by the authority on the investigation and prosecution of fraud

• Internal Audit - £6,000 (based upon staff time)
• Revenues - £2,500 (additional review of NFI reports)
• Housing - £25,000

Total number of fraud cases investigated

• Internal Audit - general review of NFI reports only
• Housing - 267 referrals received (resulting in 10 properties successfully obtained back and 4 mutual exchange applications refused)

Covid-19

Since March 2020, the council has been responsible for the distribution of over £50 million of government Covid-19 business support grants. As part of this, the government has required significant pre- and post-payment assurance checking to prevent fraud. This work has been undertaken by staff in the revenues, economy and internal audit sections. Time and costs for this have not been calculated but as part of the Covid-19 response the council has received ‘New Burdens’ funding from the Government to cover this. Final payments under these schemes were made in March 2022, but assurance work continued through 2022/23.

Energy Payments

From April to November 2022 the council was responsible for the distribution of £8.5 million of government funding for their Council Tax Energy Rebate scheme and since March 2023 for further payments under their Energy Bills Support Scheme (EBSS) – Alternative Funding and Alternative Fuel Payments schemes, to assist residents with the significant rise in energy prices. Pre- and post-payment assurance work has also been required to be undertaken by Revenues and Internal Audit staff for these schemes and final payments are due to be made by the end of June 2023.

It should be noted that more detailed information on the council’s counter-fraud activities is presented to the audit & governance committee in July, covering the previous financial year. A copy of this report is provided on the data transparency web page.