Council losing millions to fraud ‘has failed to put in measures to counter it’

Martin Shipton

Caerphilly Council could be losing up to £26.8m a year due to fraud and error and Audit Wales says the authority has failed to put in proper measures to counter fraud.

Councillor Lindsay Whittle, leader of the opposition Plaid Cymru group, said he was alarmed that the council had failed to implement 15 recommendations made four years ago to tackle fraud.

Cllr Whittle said: “I was shocked to read that the auditors believed that the council does not champion the importance of a good anti-fraud culture.

“It was also disturbing that the auditors did not see any evidence that the council undertakes any proactive counter-fraud work, such as fraud awareness campaigns. Officials and indeed the cabinet, who make the decisions, need to bear in mind that any fraud represents public money that is being lost and it is money that cannot be spent on retaining vital services,

“All senior managers have a public duty to assist here. They are paid highly to resolve these issues and if they fail then top management must take full responsibility for the failings.”

Range

In a report to the council, Audit Wales said: “A Cabinet Office report in 2019 identified an upper and lower range for likely losses in government between 0.5% and 5% of expenditure.

“Applying those estimates to the £536m gross revenue budget of Caerphilly County Borough Council in 2023-243 suggest that losses to fraud and error may be anywhere between £2.68m and £26.8m per annum.

“A further report of the Auditor General for Wales on fraud published in 2020 made 15 recommendations to public bodies in Wales. Overall, we found that the council lacks appropriate counter-fraud arrangements, which exposes it to increased risks of fraud and it has not addressed our previous recommendations in this area.

“The 15 recommendations made by the Auditor General in 2020 remain valid as the council has not addressed those recommendations,“ said the report which will go before councillors this week.

Fraud Response Plan

The council has produced a new draft Fraud Response Plan, which will be considered by members of the authority this week.

It states: “A potential fraud or other issue may be uncovered in a variety of ways – it is important that you know how to deal with your suspicions. Remember you are a witness not a complainant. You should write down or record the relevant details and make sure your report is supported by facts. “Do not attempt to investigate without support, do not confront the person and do not discuss your concerns with anyone other than the officers named in this document.

“Do not gossip or speculate. Don’t forget that you could be mistaken or there could be an innocent explanation. Also investigations can often take some time, particularly if external agencies such as the police are involved.

“The objectives of the Fraud Response Plan are to ensure that timely and effective action can be taken to:

* Establish there is a clear understanding over who will lead any investigation and to ensure heads of service, service managers, internal audit and people management are involved as appropriate.

* Prevent further losses of funds or other assets where fraud has occurred and maximise recovery of losses.

* Demonstrate there is substance and evidence to support any allegation against an employee before that employee is subject to disciplinary action or referral to the police.

* Minimise the risk of inappropriate action or disclosure taking place which would compromise an investigation or recovery of losses.

* Secure evidence and containment of any information or knowledge of any investigation into the matter reported.

* Identify the perpetrators and maximise the success of any disciplinary / legal action taken.

“As an individual (employee, member or third party stakeholder of the council), there are a number of actions you may be required to take depending on who is involved in the fraud or irregularity … You should never confront the suspected individual or act in a manner which might draw their attention to your suspicions or put yourself in a position of personal risk by confronting this person.

“At the earliest opportunity you should clearly record all the activities you have witnessed and information you have received or are aware of. It is important to record as much information as possible to inform any subsequent management assessment or investigation, including dates, times and sequences of events.”

Response

The draft plan then sets out how individuals should respond if they suspect fraud committed by different parties:

* Suspected fraud by a council employee. As an employee, if a work colleague is giving rise to suspicions that she / he is committing a fraudulent or corrupt act within the authority, then under normal circumstances you should report it to your line manager. However, you may not wish to report to your line manager, particularly if you suspect them of committing a fraud or corrupt act or having an involvement in what you have observed. Therefore, the option exists to report your concerns to any of the following officers: your line manager’s manager; your chief officer; the internal audit manager fraud referral link on the intranet;

* Suspected fraud by an elected member. If you need to report a suspicion, an actual fraud or corrupt act by a councillor, you should report this to one of the following officers in the council: the head of legal services and monitoring officer; the head of financial services and Section 151 officer; the internal audit manager fraud referral link on the intranet;

* Suspected fraud by a contractor, supplier, volunteer or a member of the public. If the fraud or corrupt act is being committed in your service area, then under normal circumstances you should report your concerns to your line manager; if your suspicions do not relate directly to your area, then you should not ignore the information you have, but should report the matter directly to the internal audit manager. This could include information that comes into your possession through your profession or social life;

* Where members come into possession of information which may indicate that a fraudulent or corrupt act is being perpetrated against the council, they must report this to either the chief executive, the internal audit manager, the relevant chief officer, the head of financial services and Section 151 officer or the head of legal services and monitoring officer. The officer in receipt of the report should ensure that any subsequent investigation follows the requirements of this Fraud Response Plan.

A CCBC spokesman said, “A report by the Auditor General for Wales in 2019 acknowledged that precisely how much the public sector loses to fraud is unknown. The same report also stated that headline estimates should be treated with considerable caution.

“The estimated figures quoted for Caerphilly CBC are theoretically based on a 2019 Cabinet Office report that identified an estimated range of potential public sector losses at a UK level that has simply been overlaid against the council’s budget. Actual levels of known fraud in the council are low and where fraud is suspected it is fully investigated.

“However, the council fully accepts the recommendations of the Audit Wales report and several key actions are already being implemented to address the points raised. This includes the introduction of a robust Fraud Response Plan and the development of a detailed fraud risk assessment process. Regular progress reports will be presented to the council’s Governance and Audit Committee to ensure we remain focused on this key priority going forward.”