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 London 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.