Penny wise and pound wiser?

The subject matter of the following articles coming from the UK is ferreting out procurement abuse. It makes the point that "routine" fraud (basically, "cheating") is usually more petty and easily ferreted out than the larger, more cleverly contrived fraud that undermines faith and confidence in both the procurement process and government more broadly.

It suggests that, on a cost benefit basis, it pays in many ways for government to focus its resources and tighten its regulations on the big stuff, and to demand greater accountability and culpability from those involved in such shenanigans.

£185m council fraud ''tip of £2bn iceberg'

England's councils unearthed £185m worth of fraud in 2010/11, an improvement of 37 per cent on last year's figure of £135m – money that could pay for around 700 libraries or the wages of up to 11,000 care workers – but the figures are just the tip of a £2bn iceberg, according to the Audit Commission.

The 'Protecting the Public Purse' report showed that 121,000 scams were detected in 2010/11, including false benefit claims, council tax discount cheating, and unlawful use of social housing.

The Audit Commission chairman Michael 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.

"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."

He added: "We are all victims of fraud against councils. It is heartening to see councils making inroads, and improving detection rates in areas like council tax discounts. But they need to do more to tackle housing tenancy and procurement frauds."

Facing up to fraud, an opinion piece by Chris Clements, forensic and investigations services partner at Grant Thornton

The larger frauds, which potentially account for the missing £1.8bn, are most likely to be ‘off-book’ scams – harder to trace and dealing with far larger sums. This type of fraud would usually take the form of bribery and corruption, and as such would be unrecorded in the books and records, making it incredibly hard to detect. An example of this type of fraud might be a key figure in a public procurement taking a bribe to tip off bidders with insider tips about the tender requirements and\or other bidders.

Large-scale fraud is preventable through good quality controls and particularly an effective whistle-blowing policy. The majority of this type of criminal activity is spotted not by accountants, but by fellow colleagues who have noticed and reported unusual or suspicious behaviour.

With this in mind, the checklist below can help council employees to identify a fraudster.

1 An employee who has a lifestyle above and beyond what could be reasonably expected for their position. For example expensive holidays and expensive cars. And don’t forget close relatives, family and friends.

2 An employee who frequently circumvents controls. For example avoiding authorisation limits by processing one large payment as two separate payments. In local government we have seen this with people trying to circumvent procurement rules, including, in one case an attempt to employ a forensic accountant!

3 An employee who displays erratic behaviour. For example overly aggressive with colleagues, members of the public or suppliers.

4 The use of extreme disorder and confusion to cover up fraud. We have had examples of where the fraud started out as incompetence, but, once the member of staff realised that the incompetence could conceal extractive fraud, they continued using it as a technique to get away with thousands of pounds. The corollary of this is the control freak who wants to keep control of all transactions and never take holidays.

5 Frequent complaints from suppliers/others in the department/ members of the public. For example, suppliers complaining that they haven’t been paid whilst the accounting information indicates payment has been made. Members of the public insisting they have paid whilst the accounting information indicates that no payment has been received.

6 A refusal by a member of staff to delegate key tasks. For example doing the banking, performing control account reconciliations etc.

7 The frequent changing of supplier details, in particular bank details. Or duplicate bank details for multiple suppliers. This is a particularly common fraud at the moment and we have seen a number of public sector bodies defrauded out of amounts that have run into the millions.

Of course any one of the above, on its own, may not be a definitive indication of fraud, but they should be seen as red flags if combined with other concerns.