Tip of the iceberg: Councils are not doing enough to tackle fraud

November 11, 2011 2:59 PM

Yesterday the Audit Commission (AC) released its annual report into fraud against local authorities, with a chilling warning that councils had detected ‘just the tip of a very large iceberg.’ Out of an estimated £2.1 billion lost in fraud from council budgets, just £185 million was detected – the profits of 121,000 cases of criminal abuse of council tenancies, council tax discounts, housing benefits, personalised social care budgets, and procurement contracts. It was an improvement on last year, but local authorities are still not doing enough to tackle this considerable strain on local government finances. Their failure leaves taxpayers out of pocket, and prevents genuine claimants from accessing services.

Most reporters have focused their write-up on eye-catching cons like the local government officials tricked into paying £7m into false bank accounts. But of far greater significance are the everyday, bread-and-butter frauds that make up the vast majority of the stolen money. Of the £185 million detected, £110 million was lost in illegal claims for council tax and housing benefits, and £22 million in false claims for student and single person council tax discounts. The value of the 1,800 homes recovered from social-housing fraud stood at £266 million.

But these are just the amounts detected. It’s welcome news that detection is up 37 per cent, but from such a low starting point the rise is minuscule. £185 million is still less than 10 per cent of the total estimated local government fraud.

The figures also reveal sharp contrasts across the country, with some councils performing much worse than others in their counter-fraud efforts. The Audit Commission estimates that 1 per cent of social housing is occupied by illegal subletters and other fraudulent tenants, but the North East councils recovered only 3 properties – less than 0.002 per cent of their total housing stock. The picture isn’t good anywhere. Even if London councils did proportionally better – they clawed back 0.306 per cent of their housing stock - the Audit Commission estimates housing fraud is also more of a problem in London, with fraud accounting for 2.5 per cent of the housing stock. Some experts put the figure as high as 5 per cent.

So what can be done? Councils have responded to the report by complaining about staff and budget cuts. This ignores the highly successful measures taken by some local authorities at very low cost. Ashfield Council spent £10,000 on a whistleblowing and investigation campaign and recovered 8 council houses which would’ve cost £1.2 million to replace. Havering Council spent £40,000 investigating single-person discounts for council tax and saved £300,000. Effective anti-fraud measures can save councils money.

The Audit Commission has provided a long list of excellent measures councils can easily take to tackle fraud. They range from pooling resources to improved risk assessment. There are more general, but no less important recommendations like highlighting vulnerable spending and a ‘zero tolerance culture towards fraud’.

But these huge lost sums suggest a deeper problem with the benefits system itself. Labyrinthine layers of tax discounts and benefit hand-outs create opportunities for fraudsters and administrative difficulties for local authorities. A simpler tax and benefits system would close those opportunities, and increase the ability of local authorities to detect abuse.

It’s in taxpayers’ interest that fraud is attacked at both ends – restricting the ability of criminals to play the system, and ensuring that authorities notice fraud and consistently prosecute against it. Local government fraud forces up council tax, hinders legitimate claimants, and limits the money that can be spent on services residents want most. With the extra £50 million detected this year local councils could pay off debt, fund 700 libraries, or 11,000 care workers, for example.Yesterday the Audit Commission (AC) released its annual report into fraud against local authorities, with a chilling warning that councils had detected ‘just the tip of a very large iceberg.’ Out of an estimated £2.1 billion lost in fraud from council budgets, just £185 million was detected – the profits of 121,000 cases of criminal abuse of council tenancies, council tax discounts, housing benefits, personalised social care budgets, and procurement contracts. It was an improvement on last year, but local authorities are still not doing enough to tackle this considerable strain on local government finances. Their failure leaves taxpayers out of pocket, and prevents genuine claimants from accessing services.

Most reporters have focused their write-up on eye-catching cons like the local government officials tricked into paying £7m into false bank accounts. But of far greater significance are the everyday, bread-and-butter frauds that make up the vast majority of the stolen money. Of the £185 million detected, £110 million was lost in illegal claims for council tax and housing benefits, and £22 million in false claims for student and single person council tax discounts. The value of the 1,800 homes recovered from social-housing fraud stood at £266 million.

But these are just the amounts detected. It’s welcome news that detection is up 37 per cent, but from such a low starting point the rise is minuscule. £185 million is still less than 10 per cent of the total estimated local government fraud.

The figures also reveal sharp contrasts across the country, with some councils performing much worse than others in their counter-fraud efforts. The Audit Commission estimates that 1 per cent of social housing is occupied by illegal subletters and other fraudulent tenants, but the North East councils recovered only 3 properties – less than 0.002 per cent of their total housing stock. The picture isn’t good anywhere. Even if London councils did proportionally better – they clawed back 0.306 per cent of their housing stock - the Audit Commission estimates housing fraud is also more of a problem in London, with fraud accounting for 2.5 per cent of the housing stock. Some experts put the figure as high as 5 per cent.

So what can be done? Councils have responded to the report by complaining about staff and budget cuts. This ignores the highly successful measures taken by some local authorities at very low cost. Ashfield Council spent £10,000 on a whistleblowing and investigation campaign and recovered 8 council houses which would’ve cost £1.2 million to replace. Havering Council spent £40,000 investigating single-person discounts for council tax and saved £300,000. Effective anti-fraud measures can save councils money.

The Audit Commission has provided a long list of excellent measures councils can easily take to tackle fraud. They range from pooling resources to improved risk assessment. There are more general, but no less important recommendations like highlighting vulnerable spending and a ‘zero tolerance culture towards fraud’.

But these huge lost sums suggest a deeper problem with the benefits system itself. Labyrinthine layers of tax discounts and benefit hand-outs create opportunities for fraudsters and administrative difficulties for local authorities. A simpler tax and benefits system would close those opportunities, and increase the ability of local authorities to detect abuse.

It’s in taxpayers’ interest that fraud is attacked at both ends – restricting the ability of criminals to play the system, and ensuring that authorities notice fraud and consistently prosecute against it. Local government fraud forces up council tax, hinders legitimate claimants, and limits the money that can be spent on services residents want most. With the extra £50 million detected this year local councils could pay off debt, fund 700 libraries, or 11,000 care workers, for example.

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