Public sector fraud: are you prepared?

in association with Introduction

Fraud can take different forms and can Our in-depth survey of UK companies RSM Robson Rhodes is pleased to be impact on organisations in many ways. last year, backed by the Home Office, associated with the Guardian Public It includes embezzlement, bribery, Fraud Advisory Panel and CBI, estimated initiative to raise awareness and cheque and credit card fraud, corruption, the annual total losses due to corporate research public sector fraud. This leaflet computer crime, identity theft, fraud at £32bn with a further £8bn spent features the output from a roundtable procurement fraud, benefit, revenue on prevention. discussion of experts convened by the and VAT fraud. Guardian and RSM Robson Rhodes in The Public Sector does not escape May 2005 which provided the impetus Recent research and trends indicate fraudulent activity and particularly as for a new survey into the issue. that fraud is a growing, global, issue public spending increases so does the and affects organisations of all types opportunity to defraud the system. You are encouraged to participate in this and sizes. Money laundering of the survey; its findings are likely to inform Public sector fraud can involve members proceeds of crime is also growing. public sector policy in combating fraud. of the public, employers in and suppliers to the public sector alike.

This unique roundtable event Whilst everyone at the meeting had brought together a broad range a slightly different perspective and, of expertise from across the public possibly, a slightly different agenda sector — resulting in a compelling there was broad agreement in many discussion on fraud. areas. It was interesting to hear how in some areas the creation of Three broad issues stood out. Firstly, specialist counter fraud services there is a need to understand the size (for example in the NHS) has met with Eugene Sullivan of the fraud problem faced — are you David Prior Head of Public Sector Forensic partner considerable success in reducing the doing enough to assess the extent of Consulting level of fraud encountered. By fraud in your organisation? Secondly, contrast the fight against white collar crime is not are you doing enough to prevent, detect and pursue a high priority in many police authorities; the number fraud when it happens? Finally, if you do have a problem of detectives dedicated to investigating fraud continues with fraud, are you in a position to deal with it promptly, to fall. decisively and proportionately — minimising the delay and exposure of the problem? There was agreement that priorities should include development of a strong anti-fraud culture coupled with On occasion, public bodies may need external help with effective systems of internal control together with a problem of this kind — due to limited capacity, the need appropriate structures in place to detect investigate and for specialist skills or the desire for an independent view. take appropriate measures wherever fraud happens. The Our recommendation to public sector bodies is to importance of measuring not just detected fraud but the establish a panel of experts that are appointed in total level of fraud occurring within a department or advance of need — this would enable them to draw body was recognised, so that appropriate measures may down specialist resources quickly, with minimum delay be taken to prevent and detect such fraud. and exposure of the problem when it arises. Whilst good measures to protect and detect fraud, to I hope you find the article of interest and please some extent, merely displace where fraud happens, they do not hesitate to contact me with any questions also have an impact in reducing the overall level of fraud. on E: [email protected] Increasing cooperation between departments and law enforcement agencies together with an increasing level of partnering with the private sector is vital to fighting and reducing the impact of fraud. Are you prepared? Take our online survey Fraudsters are very professional in going about their Please visit www.rsmi.co.uk/publicfraud work, and so they will go for the soft targets. It was good and complete the survey by July 29th 2005. to see a real determination around the table to ensure that in future things are not made easy for the fraudster.

Public sector fraud: are you prepared? Telling it like it is * Fraud is not just a scam or a victimless crime, it is outright theft that costs the public sector billions of pounds a year, according to a roundtable of experts

Tony Blair and the home secretary, Yet the roundtable was wary of total annual losses to fraudsters of Charles Clarke, would have been exaggeration. Public bodies are not over £60bn. That is a guess but no gratified. If their backbenchers and being comprehensively ripped off by one disputed the damage fraud opposition MPs are not pleased with dishonest claimants, taxpayers and caused public bodies’ reputations or identity cards, the roundtable’s suppliers or by their own staff. If (Wardle’s phrase) its impact on support for a national identity that, broadly, was the optimistic society. scheme was vocal and most conclusion, fraud was none the less Yes, the incidence of fraud was unqualified. This sample of a pressing problem which did not uneven. Sandra Moss said white- regulators, prosecutors, auditors, yet get adequate recognition at collar crime was on the march as finance directors and anti-fraud board level. people moved from a culture of need managers were of one mind. The Fraud could be repulsed, as the to one of greed. But if so, institutions growing risk of fraud demanded efforts of anti-fraud units in the were afflicted in different ways. The better safeguards against identity Department for Work and Pensions key, the roundtable said, was theft and the government’s scheme – and Department of Health showed. opportunity. The motivation to cheat in principle, with one or two caveats Yet while the size of fraud should was constant (“human nature,” said about the accuracy of its biometric not be overestimated, unknown John Alpass); it flowed to where data – had to be the way forward. billions of taxpayers money are opportunity presented itself as Yet these experts in fraud and its being stolen – some by taxpayers technology, institutional shape and prevention were in no panic. themselves, in failure to pay their policy changed. More effective Calibrating the fraud phenomenon, dues, fines and taxes. Much could be policing of fraud in one arena in the private as well as public sector, done – first, in heightening public displaced it to others. is uphill work and we are nowhere awareness. The Home Office had tended to take near definitive figures. The Growth industry the view that the incidence of fraud Department for Work and Pensions was broadly equivalent across public samples some 40,000 benefits The prosecutors were forceful in and private sectors, said Paul cases each year but would not claim identifying fraud as a growth Goggins, the former prisons minister its picture is yet comprehensive. Tim industry. Public bodies were being who now has responsibility for Harvey said it was difficult to extract targeted by organised crime, which fraud. But that view might need reliable numbers from the crime moved to where it spied lucrative revising. David Russell said post-16 statistics. opportunity. To expand public colleges were much less obviously spending is to expand the Everyone agreed there exists a dark subject to fraud than they might have fraudsters’ opportunity. archipelago of criminal intent in been a decade ago. Inevitably local society. But how large? Fraud, all Robert Wardle put a £2.5bn annual authorities varied in the attention told, could cost each UK household value on his caseload. Ros Wright they gave fraud and anti-fraud some £2,500 a year. A survey had cited a now out of date Home Office procedures; Alan Bryce noted how found half of all companies said they estimate for the total value of fraud the perspective of senior managers had been defrauded during the of £14bn. That turned out to be and councillors did not always reflect previous 12 months. But four-fifths under half of a surveybased figure of the practice of staff lower down the of the losses were attributed to £32bn, based on estimates for the hierarchy. internal fraud, suggesting their private sector from RSM Robson recruitment consultants should be Rhodes. The public sector could be held to account. losing a similar amount, suggesting

* This article appeared in the June edition of Guardian Public Magazine and is reproduced with permission.

in association with Around the table RSM Robson Rhodes and the Guardian convened: Paul Goggins MP, Home Office minister; Robert Wardle, director, Serious Fraud Office; Jim Gee, director, NHS Counter Fraud Service; John Alpass, divisional manager, fraud and error strategy, Department for Work and Pensions; Ros Wright, chair, Fraud Advisory Panel; Eugene Sullivan, senior partner and David Prior, partner, RSM Robson Rhodes; David Russell, director of resources, Learning and Skills Council; Tim Harvey, detective superintendent, City of police; Graham Miller, director of international audit, National Audit Office; Sandra Moss, director, better governance forum, Institute of Public Finance; Chizu Nakajima, director, Centre for Financial Regulation and Crime, Cass Business School, City University; Alan Bryce, Audit Commission; Geoff Jennings, director, National Anti-Fraud Network for Local Authorities; David Walker, editor, Public magazine Photograph: Anna Gordon

Definitions Perhaps the propensity to defraud two of its biggest social benefits. Its finance companies and public work showed that hundreds of Part of the measurement problem bodies linked to other instances of millions of pounds of public money had to do with definition. The police “collective” dishonesty such as could be saved – though fraud still counted a wide variety of criminal false declarations on electoral cost the department an estimated behaviour as fraud. Eugene Sullivan registration forms and illegal £1.5bn a year, or 1.5% of the value of distinguished fraud by suppliers voting. The minister recollected benefits claims. Those were still from data fraud and – a new canvassing homes during the figures to hit the headlines. category in evidence in an era of election where the visible targets – “performance fraud”, Solutions ranged from extra police inhabitants did not match what the dishonesty about how well to organisational reform. Three ps electoral register said. Others indicators were reached. “Claiming were discussed: policing, policy and wondered about possible links public funding without regard to the professional skills. Home Office between anti-fraud work and tighter added value delivered or exploiting minister Goggins promised to review border control and the tendency loop-holes in funding criteria is the number of police officers towards the internationalisation, if considered by some to be specialising in fraud after Tim the not the globalisation, of certain “respectable” fraud, but still Harvey claimed they had been cut types of crime. represents fraud on the public by nearly half since the early 1990s, purse,” Sullivan said.He did not Ad hoc anti-fraud programmes had from just under 900 in England to condone the behaviour but we had been successful. Fraud against the around 500. Demand was to recognise the public’s tendency NHS was a fraction of former levels, outstripping supply. The minister to wink at certain kinds of theft. according to Jim Gee. He laid claim noted the Home Office had allocated The definition of fraud might even to savings that matched the cost of an extra £1m to the City of London extend to fictitious reasons given 10 new hospitals. The DWP had made police for fraud, matched by an by employees for absence from work combating fraud a priority, and had equivalent amount from the City itself. or sickness. succeeded in cutting fraud in half for

Public sector fraud: are you prepared? investments – such as the National Have your say in our fraud reader survey Audit Office’s initiative against Compare the measures taken by your organisation to combat fraud with others. Having money laundering. Graham Miller read the views of our expert panel, Public offers you the opportunity to contribute. This identified the NAO as the oversight survey aims to capture the views of senior managers across the public services. You will body “of last resort”. But the also be able to request a bespoke confidential report from RSM Robson Rhodes which benchmarks your responses. The survey will take 10 minutes to complete online at regulators recognised, with the www.rsmi.co.uk/publicfraud. It asks: government, that their visitations and audits had to be proportional, z Is fraud increasing? said Alan Bryce. The Audit z How prepared is your organisation? Commission had been commended z Which agencies provide the best support? by the committee on standards in All respondents to the survey will be entered into a prize draw to win the latest public life for its “toolkits” on Sony VAIO laptop. fighting fraud. He noted that because a council was not reporting Policy measures could counter encourage smaller employers and fraud did not mean it wasn’t fraud. The minister reminded voluntary organisations to play a happening. The regulatory task was participants that Labour had bigger part in training increased to ensure systems were in place to promised new anti-fraud legislation risk: good governance was monitor and redress problems. in its manifesto. The passage of generally related to organisational Informal networks such as Geoff money from the state to individuals size. And yet surveys suggest it is Jennings’ for local authority anti- created opportunity for theft. larger companies that lose fraud efforts could spread best Individual learning accounts, proportionately most to the practice – for example the checks on through which the Department for fraudsters – FTSE 100 companies staff developed at the London Education and Skills had hoped to lose around 5% of turnover to borough of Waltham Forest. give people an incentive to take fraud, but the next tier of A third p was professionalisation. vocational courses, had been companies just 1%. Maybe they are The NHS anti-fraud initiative had abused. Re-routing spending to perceived by public and perhaps stimulated training and research. institutions with barriers around some of their own staff as large, Qualified antifraud experts were now them reduced fraud. The Labour faceless corporations that can widely placed in police forces and in government was committed to sustain the loss. public bodies: they were acting as a expanding “choice and Counter-fraud measures new professional cadre. Would the contestability”. Ministers wanted ongoing professionalisation of the new providers to enter the markets Regulation was an essential part of procurement function also serve to for health and schooling. But risks counter-fraud, posing the question combat attempted theft by suppliers were attached. whether the bonfire of red tape of goods and services to the public being proposed by the chancellor Russell said the Learning and Skills sector? Procurement fraud had been and prime minister might have the Councils had learned that rife, said Wright, citing contracts let unintended consequence of channelling funds to well-governed by the Ministry of Defence for weakening the fight. The principal institutions was safer. He warned armament supply and the Jubilee auditing bodies had extensive that the government’s wish to Line extension on the London

Who’s who: (from far left) Chizu Nakajima, Ros Wright, Jim Gee, Paul Goggins Photographs: Anna Gordon

in association with in association with Public sector fraud: are you prepared? For your chance to win The Guardian's Public magazine and RSM Robson Rhodes a Sony notebook have launched a survey focusing on public sector fraud. enter our reader survey. Our survey will help you identify your organisation’s current state of readiness to respond to the threat. Complete our online questionnaire by July 29th 2005 and you could win the latest Sony VAIO VGN-B3XP laptop. To participate in the survey and enter the prize draw please visit www.rsmi.co.uk/publicfraud Good luck.

Underground. But progress was Central intelligence gathering on The roundtable agreed on the need registered, too. The NHS model fraud was urged by Geoff Jennings, to sharpen awareness of the risk was being copied and had of the national anti-fraud network of fraud, both among the public influenced the European Union for local authorities: he and public sector staff – or mobilising healthcare fraud office, which is recommended the National Criminal the inherent moral sense of the many, due to be set up next year. Intelligence Service. The minister as Alpass put it. The public had a role Better coordination said he would consider it, but feared in shopping offenders. The DWP’s overloading the new Serious anti-fraud hotline received a quarter Three “cs” were proffered. Organised Crime Agency (SOCA) to of a million calls a year. Computers were both the friend and be set up next year. Councils might emphasise their the enemy of the fraudsters. It was The other “c” was culture. Chizu stewardship of public funds and much easier to copy documents, but Nakajima said it was important to how everyone was damaged by also to detect false ones. Criminals worry about detection, but fraud. The people who suffered from could monitor financial transactions preventing fraud meant examining fraud were citizens themselves and but the IT industry worked hard on the moral state of the nation and communicating this central message counter-measures (see Technology agencies such as schools which was the job of officials as well as on page 16). Another c was a hardy might instil more honesty in the new ministers – and of the media, which perennial: better coordination of generation – to root out the was tempted to extol white collar government agencies; the point commonly held idea that defrauding criminals as heroes. “Scam” was applied in the private sector, too, public bodies was a victimless crime. nothing cosy, said Wright: call it by even if bankers had made recent its proper name of theft. efforts to swap information. Re-education was needed at several Whitehall departments found it hard levels. Those who set and This event was developed enough to talk to one another, let pronounced sentence in courts, for in association with alone connect with local authorities one. Harvey said a bank robber armed RSM Robson Rhodes. To find out how and the regulatory bodies. Data with a shotgun knew he would face a RSM Robson Rhodes can help your sharing was cited by several people prison sentence of 16 years. More organistion address fraud, please as a problem, but was it the Data lucrative fraud ran less chance of contact [email protected] or Protection Act or, as Wright argued, being detected and prosecuted and [email protected] mistaken perceptions of what the act its perpetrators might even face a actually said? non-custodial sentence.

Who’s who: (from left to right) Tim Harvey and Robert Wardle Photographs: Anna Gordon

Public sector fraud: are you prepared? Our services to combate public sector fraud

Technology and multiple jurisdictions have made frauds more complex to investigate. They have also made it more difficult to apply effective remedies, such as prevention, prosecution, and recovery. Consequently, where there is a suspicion or allegation of fraud, or when a fraud has occurred but its details and extent are unknown, it is increasingly necessary to look outside the organisation for an effective investigation.

Services Experience z Investigations into three separate charities into Our forensic team investigates Our work providing expert misapplication or fraudulent allegations of many forms of fraud, accountancy opinions in insurance diversion of donations received. provides advice on the scope and claims, professional negligence z An investigation into what conduct of such investigations, and actions, civil and criminal cases, happened to funds entrusted by carries out inquiry work for involves many of the competencies one party to a business partner regulatory bodies, public sector needed for investigations. We also in a venture in the oil industry. bodies and companies. have a broad understanding of the legal process and the procedures for: z Investigations into allegations Increasingly, we are becoming of fraud at a further education involved at an earlier stage as our z Evidence preservation college for an educational experience can help to ensure that and analysis authority. evidence is captured in a cost z Data capture effective, focused manner and is z An investigation on behalf capable of being used in the z Analysis of trends and patterns of a local authority into an prosecution case or the recovery of organisation administering a z Tracing funds the mis-appropriated assets. funding scheme including the However, we have the technology purposes and eligibility Money laundering regulations have and expertise to assist our clients at also increased the risk of people whatever stage of the investigation z Three S432 inspections for the and organisations falling under the we are appointed. Secretary of State for Trade and suspicion of assisting in the use Industry, the most recent being Not all investigations involve fraud. or acquisition of criminal proceeds. an investigation into the affairs Members of the team have been We have considerable experience of TransTec plc. appointed as inspectors by the DTI of resolving this difficulty through z Several S447 (confidential in a variety of roles including s447 our work in the investigation of investigations) for the and s432 Inquiries. We have also money laundering activities for Department of Trade and conducted inquiries into allegations overseas regulators. We can also Industry. against senior management, draw on the expertise of our including conflicts of interest, colleagues in financial services z Inquiries for financial misuse of funds, and fraudulent consultancy and other specialist services regulators. applications. areas as appropriate. We have been involved in a variety At the close of an investigation, it is of investigations acting for law Methods often necessary to give evidence in enforcement agencies, prosecutors, court. Members of the team have Our teams cooperate closely with and regulatory bodies. Our clients considerable experience of this both other professionals including police, include the Serious Fraud Office, for in the UK and abroad. solicitors, and barristers so that whom we have acted in advisory and investigations are carried out in a expert witness capacities, the DTI, structured and effective manner. Case scenarios several overseas regulators, and This ensures that our reports, Customs and Excise. Much of this z An investigation on behalf whether written for court purposes of a body responsible for work is confidential, however, the or to assist in the progress of an distribution of public funds scope of these investigations and investigation, concentrate on the to local communities for urban the range of cases that we have been important issues and provide value redevelopment, where substantial involved with is comprehensive. to our clients. funds were being diverted for purposes other than that for which they were intended.

in association with June 2005

For further information contact:

Eugene Sullivan, Partner, Head of Public Sector Consulting RSM Robson Rhodes LLP T: 020 7865 2623 E: [email protected]

David Prior, Forensic partner RSM Robson Rhodes LLP T: 0113 225 4170 E: [email protected]

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