Report calls for public sector counter fraud agency

The government should create a new public sector counter fraud agency, a report by the University of Portsmouth and accountants Macintyre Hudson has suggested.

The report, The Financial Cost of UK Public Sector Fraud, said:

• The new agency should be linked to the Treasury and given a defined remit, authority and resources to work specifically to reduce losses
• A programme of accurate measurement of losses should be implemented across each major area of public expenditure
• The government should enact a new Improper Payments Information Act to mandate the annual accurate measurement of losses and their public presentation, and
• A major programme of work should be undertaken to reorientate existing public sector counter fraud resources to pre-empt fraud losses.

The report cited official estimates for losses in local government as a result of fraud – at £684m or 0.56% of local government expenditure for 2008-09 – and suggested they are significantly underestimated. The actual losses are likely to be eight times higher, at some £5.62bn, it claimed.

Jim Gee, director of counter fraud services at MacIntyre Hudson and chair of the Centre for Counter Fraud Studies at the University of Portsmouth, said: “In the run up to the general election, with all political parties struggling to devise ways of reducing public expenditure, there has been little comment about one way in which major savings can be achieved – and painlessly. There is now the potential for real savings, rather than just rhetorical ones, from reducing losses to fraud.”

Gee said the most effective way of reducing fraud losses is to change the culture “by mobilising the honest majority of people, incentivising them with the clear financial benefits that flow from good practice, and creating strong peer group pressure against fraud”.

He added: “By combining that pressure to do ‘the right thing’ with information targeted at the dishonest minority about the real risks of detection, investigation and sanctions, it is possible to deter – and significantly reduce – the dishonest minority.”

Gee said the establishment of a public sector counter fraud agency would help change the reactive approach of most of the public sector to fraud.