Are local authority fraud teams fit for purpose?

DOIhttps://doi.org/10.1108/13590791111127769
Pages195-213
Publication Date10 May 2011
AuthorSimon Wesley Lane
SubjectAccounting & finance
Are local authority fraud teams
fit for purpose?
Simon Wesley Lane
London Borough of Brent, Wembley, UK
Abstract
Purpose – The purpose of this paper is to analyse fraud investigative practice in London local
authorities with ref erence to recognised b est practice and two com parator organisat ions,
the Department for Work and Pensions (DWP) and National Health Service (NHS).
Design/methodology/approach – Primary research was undertaken through questionnaires to
all London Boroughs and interviews with key personnel in two comparator organisations.
Findings – Each London Borough has a specialist anti-fraud response with professionally qualified
investigators, demonstrates compliance with best practice and excels in areas such as case supervision
and joint working. However, concerns remain, regarding a lack of agreed national standards and some
failing to use the full range of investigative techniques, such as surveillance and computer forensic
examination.
Research limitations/implications – The research was limited to London local government and
further work is needed outside the capital.
Practical implications – Recommendations are made for: the introduction of national professional
guidance to investigators; minimum competency standards for fraud investigation; research into the
applicability of the National Intelligence Model to high volume fraud; and a less fragmented approach
both within and across local authorities.
Originality/value – There has been no previous research of this type and it may be useful to
government when considering how to deal with fraud, local authorities and those with an interest in
public sector fraud.
Keywords United Kingdom,Local authorities, Risk intelligence,Fraud, Corruption
Paper type Research paper
1. Introduction
1.1 Background
The UK Government recently committed £29 million (NFSA, 2008) to boost efforts to
combat fraud, including the establishment of the National Fraud Authority (NFA) and
a national fraud reporting centre. In their first annual fraud estimate the NFA have
estimated losses in the UK at £30 billion annually (NFA, 2010). With significant
anti-fraud campaigns such as, “We’re Closing In” (DWP, 2008b), wide-scale mortgage
fraud in the USA contributing to the collapse of global financial markets (Lander et al.,
2009) and international fraud causing losses to UK banks (BBC, 2008a), there is
significant political and public interest in fraud.
Public sector fraud is estimated at £17.6 billion (NFA, 2010), almost three times the
size of the earlier estimate by Association of Chief Police Officers (ACPO) (Levi et al.,
2007, p. 93). Whilst, there are many caveats in the NFA’s first attempt at national
measurement, the direction of travel is not encouraging.
A significant player in the anti-fraud arena is local government. Traditionally
ignored and sometimes criticised in key policy publications, the NFA have, to their
credit, recognised local government as a key component. This is essential given
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1359-0790.htm
Local authority
fraud teams
195
Journal of Financial Crime
Vol. 18 No. 2, 2011
pp. 195-213
qEmerald Group Publishing Limited
1359-0790
DOI 10.1108/13590791111127769
the public funds entrusted to local government, which total some £170 billion in
combined expenditure and non-grant income (CIPFA, 2008b, p. 4).
The Fraud Review (Attorney General, 2006, p. 96) suggested that local government
was “less well equipped” to deal with fraud than some government departments. The
review mentioned the Department for Work and Pensions (DWP) but gave no other
comparators and provided no empirical evidence to support the contention. Further,
Levi et al. (2007, p. 35) noted that fraud investigation in local government was the
responsibility of internal auditors, which some authors would consider a weakness if
those auditors do not possess specialist investigation training or skills.
Widespread criticism of local government has also emerged in the media. Much
public furore resulted over the alleged misuse of surveillance powers, incorrectly
described by the Daily Telegraph (2008a, b, c) as being brought into deal with
terrorism. This has been exacerbated by the previous labour government consulting on
possible changes to the Regulation of Investigatory Powers Act 2000 (RIPA) (Home
Office, 2009) and the new coalition (HM Government, 2010, p. 12) stating they will
restrict its use. This may have resulted in unnecessary reluctance by investigators to
use valid techniques.
Given the lack of empirical research in this area, the basis for the criticisms is
unclear and this study sought to identify the techniques in use in local government and
compare those with identified best practice and two national organisations, the Fraud
Investigation Service (FIS) of the DWP and Counter Fraud and Security Management
Service (CFSMS) of the National Health Service.
1.2 A brief history
As a response, in part, to the corruption of local government officials by architect
John Poulson, the 1970s saw two government enquiries established: Prime Minister’s
Committee on Local Government Rules of Conduct in 1974 and the Royal Commission on
Standards of Conduct in Public Life (1976) (Doig, 1996). These laid an early foundation
for anti-fraud effort in local authorities. Many recommendations arising from these
reviews were not implemented and Doig and Skelcher (2001) report little activity until
the Audit Commission (AC, 1993) confirmed that fraud and corruption were a live issue
requiring a robust response, including culture change and effective investigation.
Prior to 1993 the government had concerns about the lack of investigation into
housing benefit (HB) fraud following transfer of responsibility for administration to
local authorities in 1988. The National Audit Office (NAO, 1989) suggested that
insufficient work was being done to prevent and detect fraud and Loveland’s (1989)
bleak portrayal of the approach in one North London Borough concluded little political
or officer support for anti-fraud work, no stomach for prosecution and no separate fraud
team. A perverse administration subsidy regime meant local authorities lost money if
they identified fraudulent HB claims and the AC (1993) found that that 17 percent of
authorities had no anti-fraud function. That year the government introduced incentives
to detect HB fraud (Benefits Agency, 1993, p. 1) and free training was offered to local
authority staff including interviewing, investigation techniques and the Police and
Criminal Evidence Act 1984 (PACE).
Thus, the AC (1993) focuson local government fraud was opportune and corresponded
with a decline in police fraud resource, Levi (1993, p. 175) noting, “[...] police chiefs
appear to treat fraud as something that has to be tolerated rather than embraced
JFC
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