Watchdog calls on councils to maintain focus on fraud despite cuts

Local authorities must maintain strong defences against fraud as they make significant cuts to budgets, the Audit Commission has insisted.

In its report – Protecting the public purse 2010 – the watchdog called on councils to address fraud risks in significant areas of expenditure such as adult social care.

The Audit Commission pointed to the expansion of personal budgets as a potential problem. “If the full benefits of the new approach are to be realised, safeguards will be needed to protect vulnerable people and to prevent financial loss,” it warned.

A clear policy on the appropriate use and unacceptable misuse of personal budgets should be established and communicated to budget-holders, the watchdog said. Whistle-blowing arrangements for staff, care providers and the public should also be promoted to encourage early identification of potential abuse.

The report added that more needed to be done to prevent and detect fraud and other illegal activity in procurement, the single largest area of councils’ expenditure at £80bn a year.

The Audit Commission also urged local authorities to maintain their strong focus on housing and council tax benefit payments, with councils uncovering around 63,000 frauds and £99m of fraudulent payments in 2009/10.

In total, fraud amounting to £135m was detected by councils in 2009/10, with 119,000 individual cases of fraud. Nearly 1,600 properties with a replacement value of £240m were recovered from unlawful tenants by 60 councils. In addition, 48,000 fraudulent claims for council tax discounts were stopped – this increased the local tax base by £15m.

The Audit Commission called on councils to implement good practice, including adopting a zero-tolerance policy towards fraud, working with partners in the public and private sectors to overcome barriers, and taking legal action to recover fraud losses.

Its specific recommendations for councils included:

• Continuing to focus on benefit fraud risks and use the National Fraud Initiative and other data matching schemes
• Working together in county areas to share the costs and benefits of single person discount fraud
• Using the Audit Commission’s comparator tool to decide whether to take more action on SPD fraud
• Checking claims for other council tax discounts are not fraudulent
• Making sure recruitment processes for permanent and temporary staff are secure
• Using recent advice from CIPFA and the Office of Fair Trading on procurement to ensure they are doing enough to prevent and detect procurement fraud and other illegal activities such as cartels
• Keeping a comprehensive record of any frauds perpetrated against them
• Using the report’s checklist to assess whether their counter-fraud plans and actions are effective.

The Audit Commission also issued a number of recommendations for registered housing providers (including councils). These include: undertaking tenancy audits to ensure only properly authorised tenants occupy properties; treating unlawful tenancy cases as fraud, recording them as such and taking immediate action when they identify them; working with other housing providers to develop joint incentives to tackle housing tenancy fraud, such as sharing specialist investigative staff; and using DCLG guidance on awareness-raising and the reporting of suspicions.

The report added that “where appropriate”, legal action should be taken to target fraudulent profits made out of housing.

Cllr David Sparks, vice-chairman of the Local Government Association, said: “Local authorities work hard to clamp down hard on unscrupulous fraudsters who cheat the tax payer and take money that could be spent on the genuinely vulnerable. Benefits are there to help the needy – not line the pockets of the greedy.”

Sparks added that the £135m recovered last year could now be spent supporting those in genuine need, housing the homeless, caring for the elderly and supporting the infirm.

“The success of these councils demonstrates the importance of them being equipped with the necessary powers to identify and catch those trying to steal from the public purse,” he argued.

“Local authorities adopt a zero tolerance approach to this sort of abuse. At a time when councils will be struggling to find money to balance their budgets next year, local authorities will come down hard on those trying to steal money intended for the sick and the elderly."

Andrew Gillett, a partner specialising in fraud at law firm Weightmans, said it was vital that the good work of the Audit Commission and the ongoing progress made by the National Fraud Authority did not go to waste.

He argued that counter fraud activity was now more important than ever before. “Cuts now may provide short term savings but in the long term, they will simply cause more public suffering at a greater cost to local authorities,” Gillett said.

The Weightmans lawyer added: “While continuing with progress already achieved, future fraud fighting activity should also be concentrated towards local authorities’ procurement exercises.

“The Bribery Act, due to come into force in April 2011, will crack down upon those contracting with local authorities’ and their desire to win contracts and an organisation's propensity to accept bribes.

“Local authorities should implement processes, training and procedures around the Bribery Act so they can enjoy direct savings from procurement projects untainted by fraud– worth £80bn a year – without falling foul of tougher fraud and bribery regulations.”