Criminals using transparency data to defraud public bodies, warns Audit Commission

Criminals – including some based outside the UK – are using transparency information that councils publish on their websites to defraud public bodies, the Audit Commission has warned.

Describing this type of fraud as an emerging risk, the watchdog said the fraudsters were using data – such as details of key creditors – "to mislead and to redirect payments to and from public bodies".

“The fraudsters have sent letters to council finance teams that appear legitimate and often follow them up with phone calls to chase payments,” the Audit Commission said.

In the Commission’s annual survey, Protecting the Public Purse, councils revealed several detected frauds of this type worth £7m. Controls – such as greater sharing of information and awareness of risk – had helped prevent a further £20m in attempted fraud, the report.

The watchdog said that, overall, councils in England detected a total of £185m in fraud over the year – a third more than in 2009/10 (£135m). However, its chairman, Michael O'Higgins, warned that this could be “the tip of the iceberg”.

Some 121,000 scams took place in areas such as benefit claims, procurement, council tax discounts and unlawful subletting of social housing.

Key findings from the report included that more than half of councils outside London failed to recover a single property during the year even though social housing fraud – worth at least £900m a year – is the largest category of fraud loss across local government.

A total of 1,800 homes were recovered after tenancy fraud, up 75% in three years. However, the vast majority of these properties are in London.

The watchdog also revealed that in 2010/11:

• Councils uncovered 145 cases of procurement fraud involving losses of £14.6m during the 12 months – a 400% rise. The report said councils were “vulnerable to a range of [procurement] frauds such as cartels skewing bidding processes, contractors providing shoddy goods or services, inflated performance claims and false invoicing”. Losses in individual cases could be large – two cases in 2010/11 were worth a total of £6m.
• There was more than £22m worth of false claims for student and single person council tax discounts. Single Person Discount Fraud is estimated to cost £90m each year. Investigations by Bristol City Council uncovered widespread abuse of Student Discount, with 34% of a sample of 4,500 exemption applications proving to be fraudulent, worth £1.9m
• There were 59,000 cases of housing or council tax benefit fraud valued at £110m. In the last three years councils have detected almost 210,000 cases of benefit frauds worth more than £310m

The Audit Commission also sought for the first time to track care budget fraud, which it said was hard to detect.

This exercise revealed that there were 102 cases of proven social care budget fraud worth over £2.2m, or an average of £21,000 per case. The watchdog said direct payments for adult care increased the recipient’s choice and control, but could be exploited by fraudsters.

O'Higgins said: “Councils are certainly acting on fraud, and it is now firmly on the government agenda. But our latest survey of detection rates shows that we may be seeing just the tip of a very large iceberg.

“Our research shows high rates of council tax discount fraud and widespread unlawful occupancy of council houses. Now, for the first time, we are also able to publish details of fraudsters targeting care payments to the elderly and vulnerable. Also scams involving fraudulent student council discounts and fraud that goes to the heart of councils' multi-million pound procurement budgets.”

O'Higgins added that councils needed to do more in particular to tackle housing tenancy and procurement frauds.

He said: “In these tough times councils need to maintain the strongest possible anti-fraud defences to safeguard jobs and services.”

Philip Hoult