Agenda item

To present the report of the Head of Audit and Risk.

The report of the Head of Audit and Risk incorporating the Annual Counter Fraud, Bribery and Corruption report 2020/21 was presented for the Committee’s consideration. The report presents the activity carried out in 2020/21 to minimise the risk of fraud, bribery and corruption occurring within and against the Council; it highlights some of the current and emerging areas of fraud risk including those related to the Covid-19 pandemic and provides a conclusion on the effectiveness of the Council’s arrangements to minimise the risk of fraud.

The Head of Audit and Risk guided the Committee through the annual report with reference to the following -

·         The contextual information including the definition of fraud as advocated by the CIPFA Counter Fraud Centre and the reasons why countering fraud is important. Fraud poses a major financial threat for councils and can affect their reputation and divert funding from vital public services undermining public trust, financial sustainability and organisational efficiency.  In Wales the Auditor General’s 2019 report highlighted that Welsh public services could be losing anything up to £1billion per year to fraud.                           

·         The Wales wide arrangements for counter fraud. Following the transfer of fraud investigators from Local Government to the Department for Work and Pensions in 2014, most councils in Wales including the Isle of Anglesey County Council, no longer have a dedicated council wide fraud resource with the counter fraud role instead being assigned to Internal Audit. Neither is there any over-arching group or professional network that specifically promotes counter fraud in local government. To fill this gap in North Wales a sub-group of the North and Mid Wales Audit Partnership has recently been formed to share and drive good practice in relation to counter fraud.

·         Current and emerging fraud risks. UK Councils reported that approximately 47,000 instances of fraud had been detected or prevented in 2019/20 with the biggest losses arising from Council Tax fraud (estimated at £35.9m) followed by disabled parking concession and housing fraud. The largest growing fraud area in the UK is housing tenancy with an estimated £60.1m lost in 2019/20 compared to £47.7m in 2018/19. The Head of Housing Services has assessed that generally, tenancy fraud is low in Anglesey. However, an awareness raising article was included within a newsletter circulated to all tenants informing them of what to do if they suspected anything in a neighbouring property and the Service’s Housing Management Officers have undertaken tenancy fraud training.

·         Council Tax single person discount (SPD) is the next largest growing fraud area in the UK which has an estimated increase of £9.6m to an estimated value of £29m from cases detected/prevented in 2018/19. The Council uses an external company to review and validate its SPD claims on a periodic basis to identify claims at risk of fraud and error. The last exercise in August 2018 identified errors to the value of £340,347 with an error rate of 4.3%. The two highest perceived fraud risk areas for 2019/20 are procurement and Council Tax SPD followed by business rates, adult social care and tax reduction respectively. A review of the Council’s vulnerability to procurement fraud will be undertaken in 2021/22.

·         CIPFA endorses a common set of principles across the public services to improve counter fraud practice and these are set out in its 2014 Code of Practice on Managing the Risk of Fraud and Corruption. An assessment of the Council’s practices benchmarked against the five principles within the Code has been carried out and the report provides a high level summary of the results.

·         Fraud attempted against the Council during 2020/21. This included two malicious redirection frauds also known as mandate frauds when someone impersonates a third party such as a supplier, one of which was detected by the genuine supplier’s bank and the other which was thwarted by a Payroll Officer. The Grants Team also detected and stopped a number of attempted fraudulent Covid 19 business grant applications.

·         Some level of public sector fraud is likely even in normal times but 2020/21 was a year of unprecedented challenges as the Covid 19 pandemic dramatically transformed the work of the Council, the lives of its staff and lockdown restrictions significantly impacted on the economy. The planned work to improve the Council’s counter fraud arrangements were put on hold while the team supported the Council’s response to the pandemic. However, the redeployment of one member of the Internal Audit Team to the team distributing Covid 19 business grants helped ensure a rigorous and robust challenge to the payment of the grants. The effective management of fraud and corruption risks is a critical part of an effective, modern council that manages its resources efficiently to secure value for money.

·         The government, law enforcement, security agencies, regulators and the private sector are continuing to work together to protect the public and businesses from all types of fraud. Fraud is hard to predict and while these organisations are monitoring crime trends carefully, the most important thing is to get the message out to staff and to the general public to be aware and to be alert. Therefore a comprehensive programme of counter fraud awareness raising via E-Learning and the refreshing of policies will be the cornerstone of the fraud prevention strategy for 2021/22. There is also a need for a tough stance supported by elected members, chief executives and those charged with governance. For anti-fraud and corruption measures to be successful they need to be embedded within the organisation creating a culture in which fraud is not accepted or tolerated.

The following points were raised by the Committee in discussing the annual report –

·         In the context of housing tenancy fraud, reference was made to the difficulties caused when housing benefit is paid directly to tenants and the tenant has no intention of using it to pay rent to their landlord thereby leading to loss of funds to the Council and loss of income to landlords. Although recognising that legislation requires local authorities to make housing benefit payment directly to the tenant, in light of the magnitude of the problem, the losses it entails, and the wider problems it causes, it was queried whether the Council can take any steps to address the issue especially in cases where a tenant has a history of not paying rent. The Director of Function (Resources)/Section 151 Officer advised that housing benefit is a claim made by the tenant which is processed by the Council which then issues payment based on the claim; the Council is not  responsible for ensuring  that claimants use the payment to clear any contractual obligations they have with the landlord. The legislation makes it is clear that it is the tenant’s right to have the money paid directly to them; the Council administers the benefit but does not pay rent on the tenant’s behalf. If the claim for benefit is fraudulent in that the claimant has no entitlement to it, then it becomes a matter for the DWP (fraud investigation having transferred from local authorities to DWP in 2014) to whom the Council will forward any evidence it has. Therefore the Council is limited in what it can do with regard to the matter since it is required to pay housing benefit to a claimant making a valid claim and, in cases where fraud is suspected the responsibility for prosecuting it now lies with the DWP.

·         Reference was made to the publicity given in the local media to sanctions and enforcement in connection with cases of Council Tax fraud and Housing Benefit fraud so as to deter others but not so with cases involving the misuse of disabled parking concessions (blue badges) and whether this is due to failure to detect cases or to there being no such cases on Anglesey. The Head of Audit and Risk advised that in the UK context in which the reference in the report is made, the misuse of blue badges is a significant problem in large city and borough council areas where parking comes at a premium and where the costs to the local authority in lost parking income for example arising from this type of fraud can therefore be very high. In Anglesey, it is not considered a particular risk nor a fraud to which the Council is especially vulnerable.

·         Whilst agreeing that publicity is an useful tool in deterring fraud, it was suggested that the creation of a counter fraud post would help in terms of proactive work to prevent fraud and also to gather information for enforcement action, and that a  soft touch approach is not likely to yield the results which the Council is looking for. The Director of Function advised that it is the job of internal controls to prevent fraud; over time the nature and opportunity for fraud have changed as have the mechanisms to detect and counter fraud e.g. less use of cash and increased availability and digitisation of information making cross referencing and data checking easier. Being a smaller sized authority means that the risk of fraud is reduced and detection more likely, but it is not eliminated altogether. Fraudsters tend to target larger authorities where the returns for successfully perpetrating a fraud are likely to be that much higher. Where fraud occurs in Anglesey it is on a much reduced scale.

·         Whether External Audit has a greater role to play in fraud detection. Mr Alan Hughes, Performance Audit Lead for Audit Wales advised that  while Audit Wales can review the scope of its work when planning its work programme with corporate management at the beginning of the year and share examples of good practice, it is the Council’s responsibility to put in place internal controls in the form of policies, systems and processes to manage the risk of fraud, to obtain assurance that those controls are operating effectively and to ensure that  training is up to date and that staff across the organisation are sufficiently fraud aware.

Councillor Robin Williams, Portfolio Member for Finance highlighted the importance of educating staff about different types of fraud which should be refreshed at least once a year and obtaining staff buy-in to tackling fraud within and against the organisation.

Having considered the information presented and commented thereon it was resolved to accept the Annual Counter Fraud, Bribery and Corruption Report for 2020/21 and to note its contents.

NO ADDITIONAL ACTION WAS PROPOSED