Will fraud increase because of austerity?

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The UK was ranked 17th in the 2012 edition of Transparency International's Corruption Perceptions Index. Having heard Professor Alan Doig at the recent CIPFA Audit Conference I wonder if we may slip down the ranking over the next few years. Prof Doig is undoubtedly an expert in fraud and corruption and has applied his knowledge around the world. His friendly, wryly-humoured delivery belied what I thought was a rather bleak message. In fairly short order he demonstrated how much of the UK's public sector anti-fraud apparatus has been, or soon will be, demolished:

  • only 25% of police forces have fraud squads
  • only one force (West Midlands) out of 43 has anyone looking at election fraud
  • the Audit Commission will be abolished.

These changes come at a time when more and more public money is being moved outside of the traditional accountability structures. So, for example, a local authority's rules apply to its schools and they would be subject, amongst other things, to visits from the internal auditors. We've already seen financial management problems at academies, such as this example in London. What arrangements will apply to free schools which seem to me to be even further outside the traditional accountability arrangements? Another example: our traditional approach to providing personal social care has been for local authorities to assess needs, commission someone to provide care and then pay the bills. Increasingly individuals are being given more control of their care. After their needs are assessed they receive a direct payment from the local authority and they arrange their care and pay for it. I can see the benefits to individuals of this approach but it introduces the potential for the misapplication of the money. Surely taxpayers and the local authority need new accountability mechanisms to cover this element of public spending?

One comment made by Prof Doig has stuck in my mind: on average only 30% of fraudsters are detected. If that is the rate when we've got a lot of anti-fraud work in place what will the detection rate be in the future?

High volume, low value frauds, he said, pose a particular problem. Fraudulent claims of social security benefits have long been an issue in the UK (the Department for Work and Pensions has worked hard to get the rate down to less than 2% but it still amounts to about £2billion a year, and consequently their accounts have been qualified every year for more than two decades).

Perhaps a strategy for public bodies is to carry out a risk assessment and focus the resources on areas where the potential payback is best. When asked about this, Prof Doig identified housing tenancies and direct payments for personal social services as areas to focus on.

It's understandable that public bodies which are under pressure to reduce their expenditure have reduced the level of resources applied to preventing and detecting frauds. But it's just like cutting training. It may be understandable but we all know that in the long run it will cost us more money. To borrow a quotation from Peter Senge, "The easy way out usually leads back in."

I started this post by pondering whether the UK will fall in the CPI. That index is a relative measure so the UK's position depends also on what other countries do. I would be interested to hear if comments about whether other countries are breaking up their anti-fraud infrastructure in the way that the UK is.

UPDATE

Since I wrote this article the National Fraud Authority has published the Annual Fraud Indicator report for 2013. They estimate fraud in the public sector amounts to £20.6billion, which is of the order of 3% of total annual public spending.