Audit Commission warns councils of emerging fraud threats

Councils have raised their game in tackling fraud but need to be aware of emerging problems in areas such as business rates, Right to Buy housing discounts and schools, the Audit Commission has said.

The watchdog’s report, Protecting the public purse 2012, said:

  • Local authorities detected 124,000 case of fraud in 2011/12, with a value of £179m;
  • The number and value of detected fraud cases were broadly similar to the figures reported the previous year;
  • Housing and council tax benefit frauds accounted for more than half of the total fraud losses detected, to a value of £117m;
  • Nearly £21m of false claims for council tax discounts were detected;
  • Some 187 cases of procurement fraud amounting to more than £8m were detected.

The Audit Commission warned that “despite these detection rates, more can still be done”. It cited claims by the National Fraud Authority that fraud targeting local government exceeds £2.2bn per year.

A number of emerging fraud risks were identified, in particular in relation to: business rates; Social Fund payments and Local Welfare Assistance; Right to Buy discounts; Local Council Tax Support; schools; and grants.

The report said tenancy fraud accounted for the largest losses from fraud in local government. It suggested that an estimated 98,000 social housing homes in England were subject to housing tenancy fraud.

Councils managed to recover nearly 1,800 homes from tenancy fraudsters in 2011/12, with a total replacement value of nearly £264m.

Most detected tenancy fraud (69%) was in London, “even though the capital accounts for only 27% of all council housing in England”. However, councils outside London increased tenancy fraud detection by more than a quarter, “reflecting their increasing commitment to tackle this fraud”.

Jeremy Newman, chairman of the Audit Commission, said: “There is no doubt our findings show councils increasingly out-smarting the fraudsters. But while they are busy tackling established frauds, new ones keep emerging. Every threat exposed or investigated safeguards money which is needed more than ever.”

The Audit Commission has updated its checklist that gives organisations an opportunity to consider how effective they are at responding to the risk of fraud.

A copy of the report can be viewed here.

The Audit Commission’s recommendations

Local government bodies should:

  • use the Commission’s checklist for those charged with governance to review their counter-fraud arrangements;
  • review their counter-fraud strategies in the context of Fighting Fraud Locally, the first national strategy for local government fraud, produced by the NFA;
  • apply the NFA’s good practice guidance and tools, and the examples of good practice highlighted in PPP 2012, to match the success of the best in the sector in tackling fraud;
  • actively pursue potential frauds identified through their participation in the National Fraud Initiative (NFI);
  • refresh local strategies to tackle tenancy fraud, to reflect the findings of the Commission’s research into the nature of such fraud
  • engage effectively with the Tenancy Fraud Forum to access good practice in tackling tenancy fraud;
  • use the tool produced by the London Public Sector Counter Fraud Partnership to help prevent and detect procurement fraud;
  • maintain robust staff recruitment and internal controls to guard against internal fraud; and
  • remain vigilant to mandate fraud (formerly known as change of bank details fraud).

Councils in particular should:

  • maintain a capability to investigate non-housing benefit related fraud, proportionate to the risk;
  • ensure they have effective and proportionate defences against emerging fraud risks, including business rates, Social Fund and Local Welfare Assistance, Right to Buy discounts, Local Council Tax Support, schools and grants;
  • explore partnership and funding arrangements in two-tier areas to incentivise district councils to investigate council tax discount fraud;
  • share investigative resources with other social housing providers to tackle tenancy fraud; and
  • assess the potential benefits and cost savings of greater joint working with other councils.

The Department for Communities and Local Government should:

  • consider incentivising social housing providers to tackle tenancy fraud;
  • collect and publish information on properties recovered by housing associations from tenancy fraudsters;
  • ensure the new business rate regulations from April 2013 support councils seeking to tackle fraud, including evasion of business rates;
  • extend existing investigatory powers relating to benefit fraud to all other frauds in local government; and
  • consider what arrangements will need to be put in place to collect and publish data on detected fraud against local public bodies, after the closure of the Audit Commission.

Philip Hoult