The COVID-19 pandemic has increased opportunities for criminals to defraud taxpayers everywhere. That’s according to a UK Government review into the risks of fraud and corruption in local government procurement.
In a foreword, the Government’s anti-corruption champion, the Conservative MP John Penrose, said: “Procuring medical supplies and equipment at high speed means that corners of well-established practices are more likely to be cut, weakening controls and making local councils and their officials more vulnerable to fraud.” Designing stronger controls into, and exploitable weaknesses out of, end-to-end procurement processes is more important than ever, he wrote.
Given that councils in England spend £55 billion a year, and it’s estimated that losses to fraud could be within 0.5pc and 5pc, that would ‘equate to between £275m and £2.75 billion per year’, the report said. As a further sign of how the authorities are in the dark about this sort of fraud, there is no definition about what procurement fraud is, nor are there any recent numbers of detected procurement fraud cases. The official National Fraud Intelligence Bureau (NFIB) does have a category for procurement fraud, but does not classify local government.
Counter-fraud in procurement has often focused on the phase between invitation to tender and contract award, ‘but an increased focus is needed on the phases before formal tendering begins and after contracts are let as well as on purchasing outside of the formal tendering process’, the report said.
Only a minority, 86 councils responded to a survey as part of the review; more than one in five, 23pc reported having experienced cases of fraud and corruption within procurement in the 2017-2018 year. In more detail, more than half, 47, said that fraud awareness training was not mandatory for their staff; and some did not even keep a record of who completed such training.
While near all had a whistle-blowing or similar reporting scheme, of the 20 councils that admitted to cases of bribery or corruption in procurement, there were a total of 52 cases; yet only six got as far as a prosecution. The survey did not say what (if anything) became of the six, beyond that some £555,000 was recovered. As for law enforcement, a good half of councils in the survey did not have a ‘structured relationship with other agencies’ relating to counter-fraud such as with HM Revenue and Customs; and about half, 44, councils did not have the risks of fraud and corruption in procurement featuring on the corporate risk register. Some 17 did not have procurement featuring even on the fraud risk register. Only a majority of councils in the survey were using software packages to analyse data, ‘either to
identify red flags or to conduct investigations’.
As the review stated, as procurement is an area of high spend across local government, it’s an area of ‘high-risk’. Procurement fraud need not necessarily be bribery to gain a contract, as the review set out – weak contract management can leave councils open to the risks of fraud and corruption by staff and outsiders, ‘through over-charging, invoicing for work that is not carried out and falsification of performance reports’.
As councils look to generate income, that brings risks that need to be managed, such as conflicts of interest, whereby a council director may take on roles in local authority companies or Arms-Length Management Organisations (ALMOs), for example.
What to do? The review offered a risk tool, that ‘highlights the risks at all stages within the procurement lifecycle, linking these to indicators or ‘red flags’’, signs of suspicion, such as a manager having more income than might be expected, or procuring goods or services at an unusual time, or having a close relationship with a supplier; or wording a tender vaguely or specifically (maybe to favour one firm that has bribed the procurement manager).
The document aired several ideas – as in other fields of counter-fraud, it stressed organisational culture (the right ‘tone from the top’, and ‘a risk-aware and compliant culture’), heeding tip-offs from whistle-blowers, people raising a concern (as that’s where most cases of fraud come to light, rather than audits or other checks), proper processes and good controls – using e-tendering platforms, segregation of duties, adhering to contract procedure rules and management oversight – and spend analysis. However, as the document admitted, the UK does not have a ‘single repository for numbers of cases of fraud and corruption in local government’, and therefore there is ‘little central visibility over the scale and types of detected cases. This reduces the sector’s ability to tackle the problem as analysis cannot be done on common trends’.
Among work praised, the document pointed to Stoke-on-Trent City Council for its “Spot The Cheater” publicity campaign to tackle fraud, which before and after pointed to a return on investment, through prevented losses and recovered properties. UK Government has looked to set up a ‘Counter-Fraud Profession’; that is, counter-fraud as a function inside government, like finance or legal or HR.
Fraud can be as straightforward as someone retaining a fuel card from a temporary replacement vehicle and then making purchases of fuel; or someone at a school misusing a school credit card to purchase personal items.
Among the risks to mitigate are modern slavery in the supply chain; and cartels (a clue being similar bids by companies). A lack of KPIs and metrics can lead to fraud – such as a bus operator inflating claims for concessionary passes. As to where frauds come from – inside a council, or outside, or a mix – it can be any. One anonymous case from the document is of a company that overcharged a council’s highways department for a large number of low value items, such as cutting blades, black sacks and tool containers. A stores controller in the council’s highways depot deliberately placed orders with the company. The store controller’s wife was named as a company director.
The review said: “Sunlight is often said to be the best disinfectant and transparency therefore an antidote to fraud and corruption.” Nearly all councils have a ‘conflicts of interest’ register for officers besides councillors – yet most councils do not publish the register for council staff.
For the 55-page document in full visit https://www.gov.uk/government/publications/local-government-procurement-fraud-and-corruption-risk-review.
