Additional resources needed to combat fraud and keep pace with the ever-changing methods of fraudsters
The picture of counter-fraud arrangements in the Welsh public sector varies across Wales, but there is scope for greater collaboration and cross-agency working to combat fraud.
The losses caused by fraud in the public sector are significant and, in a time of austerity, every pound lost to fraud is a pound that could be spent on public services. Estimates of these losses range from £100 million to £1 billion per year, which gives an indication of the potential risks of fraud facing the public sector in Wales.
Fraud in all its forms is constantly evolving as fraudsters adapt and evolve to exploit any available opportunities, so counter-fraud measures have to keep pace with the fraudsters. Types of fraud committed in the public sector are hugely varied, ranging from expenses and procurement frauds to cyber crime, among many others. The ways in which fraud is most commonly committed are through corruption, asset misappropriation and financial statement fraud. However, the most common type of fraud faced by UK businesses today is cyber crime, and in response public services need to work together and find ways to stop criminals exploiting weaknesses in their IT systems.
Resources devoted to counter-fraud activity vary widely across the public sector in Wales. NHS Wales invests extensively in both national and local counter-fraud activity; Welsh Government activity prioritises investigation rather than prevention; and across local government, counter-fraud resourcing arrangements differ from council to council. In addition, the 2014 establishment of a national Single Fraud Investigation Service by the Department for Work and Pensions (DWP) significantly diluted the capacity for fraud prevention and skill base within local government across Wales.
Our report features case studies of different types of fraud across the Welsh public sector. Two examples that have resulted in successful prosecutions include:
- The Dragon companies, who established a processing plant in Port Talbot and aimed to become the world’s largest supplier of rag worm bait for the fishing industry, defrauded the EU and the Welsh Government of £4.7 million; and
- A temporary Project Manager at Powys Teaching Health Board established a private company and submitted bogus invoices totalling £822,000 to his employer using false names.
The Auditor General for Wales, Adrian Crompton said today:
“New fraud threats are continually emerging in Wales, as elsewhere across the UK and around the world. Fraudsters do not respect geographical boundaries and the ways in which fraud is committed are constantly evolving as society and technology changes – this is becoming ever more apparent in today’s digital age. It’s therefore vital that collaboration and the sharing of intelligence and good practice in tackling fraud takes place between public, private and third-sector bodies across Wales, the UK and internationally. At a time of continuing austerity, I think it is more important than ever for all public bodies in Wales to seek to minimise the risk of losses through fraud. Organisations must prioritise fraud prevention and can help mitigate the risks of fraud by having the right organisational culture supported by effective counter-fraud arrangements.”
Notes to Editors:
- This report focuses on the impact and scale of fraud in the Welsh public sector and provides an overview of counter-fraud arrangements in place.
- We have estimated in this report that the cost of fraud to the Welsh public sector could be in the region of between £100 million and £1 billion annually. We have arrived at this estimate by applying the UK Cabinet Office’s percentage range estimate for public sector fraud, of between 0.5% and 5%, to the total devolved annual expenditure in Wales of £19.6 billion. That figure includes the £14.5 billion block grant plus other spending that is funded by local borrowing, taxation and other income.
- No one knows the amount of fraud that goes undetected or unreported. Even for those frauds that do come to light, the full amount of loss is not always known. The Association of Certified Fraud Examiners (ACFE) estimates that organisations lose 5% of their annual revenues to fraud. Globally, this yields an annual economic loss of £60 trillion.
- The Auditor General is the independent statutory external auditor of the devolved Welsh public sector. He is responsible for the annual audit of the majority of the public money spent in Wales, including the £15 billion of funds that are voted on annually by the National Assembly. Elements of this funding are passed by the Welsh Government to the NHS in Wales (over £7 billion) and to local government (over £4 billion).
- The audit independence of the Auditor General is of paramount importance. He is appointed by the Queen, and his audit work is not subject to direction or control by the National Assembly or government.
- The Wales Audit Office (WAO) is a corporate body consisting of a nine member statutory Board which employs staff and provides other resources to the Auditor General, who is also the Board’s Chief Executive and Accounting Officer. The Board monitors and advises the Auditor General, regarding the exercise of his functions.