Public Audit Committee

Meeting date: Wednesday, June 9, 2010

Official Report 480KB pdf

---

“National Fraud Initiative in Scotland”

Item 3 on the agenda is on the report “National Fraud Initiative in Scotland”. I invite the Auditor General to brief us on the report.

I invite Russell Frith, who is our director of audit strategy and who had led on the project, to brief the committee.

Thank you for the opportunity to brief the committee on the report. One of the key messages in it is that attempted fraud is likely to increase during times of financial hardship, so public bodies need to remain vigilant. Giving exposure to reports on anti-fraud exercises through Parliament and the media can only help to increase the deterrent effect that such exercises have.

The national fraud initiative is a data-matching exercise that Audit Scotland carries out to help our audited bodies to detect fraud and error. It matches a number of data sets, such as payroll, housing and council tax benefit records and student, pensioner and deceased persons records across a range of public bodies to identify matches that require further investigation by the public bodies. Just because something appears on one of the match lists, it does not automatically mean that it is a fraud or an error. All matches require further investigation to clarify the circumstances.

We conduct the exercise jointly with the Audit Commission in England, which takes the lead on procuring the company that carries out the matching and on providing the secure website. That is, in a small way, an example of a shared service that really works—it would be much more expensive for us to try to do the exercise alone. We operate to very high security standards. Data can now be submitted to the exercise only electronically and matches are provided back to the participating bodies via a secure website. There is no physical transmission of data.

The outcomes from the exercise have been valued at just over £21 million, which is the highest so far of the three full exercises that we have carried out. That does not necessarily mean that fraud and error are increasing, because the amount includes a fairly large amount that has come through from the previous exercise since we last reported two years ago, and it also reflects a widening of the scope of the exercise, particularly the introduction of looking for invalid single person discounts in council tax.

Examples of the outcomes from the exercise include 179 occupational pensions that have been stopped because they were being paid to deceased persons and about 1,600 housing benefit payments to public sector employees, pensioners or students that have been reduced or stopped.

We have included a number of case studies covering some of the more interesting matches in the report, such as a salaried professional who was paid by two councils for nearly two years. That is a good, simple example of something that the NFI can pick up on because we have taken the payrolls from all the councils and have run them together and can see whether someone appears on more than one, in which case a question arises.

A new area of work this time has been to match electoral roles to council tax records to identify possible cases where single-person discounts have been invalidly deducted. Our work led to some 4,300 discounts being withdrawn across a number of councils. Further, the fact that NFI was doing that prompted other councils to employ a private sector credit reference agency to carry out similar work, which identified many more invalid discounts. We regard that as a success, because NFI has prompted councils to take controls in this area much more seriously, which has resulted in them gaining big cash rewards.

Similarly, in the years between NFI exercises, the Scottish Public Pensions Agency now matches its records to data on deceased persons, which are provided by the general registrar. That results in a good increase in the control environment.

This report has followed up a number of the case studies from the previous report to indicate the range of sanctions that are being imposed, which range from fines through to community service orders to a small number of jail terms. We now know that 190 cases from the last exercise have been referred to the procurator fiscal and that there have been about 80 successful prosecutions, with another 48 or so in the pipeline.

When I briefed the committee on the last report in 2008, I said that our sister organisations in the rest of the UK had been given explicit powers to conduct these exercises, and that we hoped to obtain similar clarification of our powers in Scotland, to enable us to increase the range of bodies taking part and to enable cross-border matching to take place. At the moment, if someone lives on one side of the border and works on the other side of the border, we cannot include those matches. The committee was supportive of that, and the new powers are contained in the Criminal Justice and Licensing (Scotland) Bill that is before the Parliament and will proceed to stage 3 in the next couple of weeks. We intend, assuming that the bill is passed, to widen the scope of the next exercise, which starts in October, to include the larger central government bodies. That will give us a pretty full coverage of the public sector in Scotland.

You mentioned that one employee had been paid by two councils for almost two years. Apart from the fraud, does not that say something about the council that continued to pay a salary and about the incompetence of the managers who failed to check their own budgets, which would have shown that that person was still receiving a salary? The fraud has been dealt with, which is commendable, but has the council taken any steps to deal with the incompetence of its staff and their failure to deal with the situation?

12:30

Yes. The council has looked into why the case happened and it appears that there were some unusual circumstances around the employee who left. The person was, in effect, on an internal secondment to another bit of the council and left from that secondment rather than returning to their substantive post. I fully agree with the point that you make, but the council, having looked into the matter, believes that it was a fairly unusual set of circumstances.

Your report states that some councils that declined to take part

“had reservations about providing the electoral register to Audit Scotland for legal reasons.”

I realise that it is possible to have a redacted electoral register, but my understanding is that, as elected members, we have access to the full register.

It is provided to commercial organisations.

The redacted register is provided to commercial organisations, but I am not sure that the full register is.

Specific legal measures apply to the provision of full electronic copies of the register. Theoretically, we could access a written copy of the register and try to scan the whole thing, but there are specific provisions on access to full electronic copies. We hope that the new powers will resolve any remaining grey areas.

Convener, what is the redaction?

Any one of us can apply to the electoral registration office to have our details withheld from the information that is given to commercial companies.

So it is like the telephone preference service.

Yes.

My question is on similar lines to the convener’s first question. In paragraph 58 on page 15, you state:

“The NFI matches council tax records with the electoral register”.

However, I presume that the council already holds both pieces of information, so should it not be able to do the work itself?

Technically, the registers are generally held by joint valuation boards, which carry out the electoral registration work, rather than by councils.

The report makes an interesting point about blue badges. I find it particularly annoying that many able-bodied people park in disabled parking spaces and use them illegally. Paragraph 67 states:

“Perth & Kinross and Fife Councils each corrected more than a thousand records.”

Given that the total number of corrections in Scotland was only 4,340, that suggests that other councils are not making corrections as efficiently and effectively as Perth and Kinross Council and Fife Council are, because I do not think that there are more law breakers in those areas than there are in Edinburgh, Glasgow, Dundee or Aberdeen. What can we do to get the other councils to follow the examples of Perth and Kinross and Fife?

I do not think that that is quite the right position. For example, Glasgow took part in the previous cycle as a pilot exercise—it is the largest council to have been involved—therefore we would not expect it to have a significant number of corrections again. Also, the numbers depend on the steps that councils had already taken and the efficiency with which relatives or others returned badges in the past. Nevertheless, we encourage all councils to take part in the work.

Who is encouraging councils to do that? Is it Audit Scotland, the Government or the Convention of Scottish Local Authorities?

Our auditors having got the results this time, we encourage the individual external auditors to talk to the councils about specific data sets and how they handle them.

Good. Thank you.

Exhibit 5 on page 12 shows the range of offences. The figures add up to about 10,000 offences. You said earlier that they were not all crimes, because some cases were due to errors. For example, housing benefit overpayments can be simple errors. However, there is an incredibly low number of referrals to the Procurator Fiscal Service. An incredibly low number of proceedings were taken up compared with the tally in the report. Are we to conclude that the vast majority of cases were payments that were made in error rather than crimes that were deliberately committed to defraud the state of funds?

It is difficult to say how many were crimes. For example, one of the biggest numbers relates to blue badges. It is quite possible that a significant number of badges were simply left in a drawer when the person died—they were not sent back but nor were they used fraudulently. We are unable to tell from this exercise the degree to which that happened.

In a number of cases, particularly ones that deal with pensioners, the bodies concerned are less likely to refer cases for prosecution. They would rather just sort them out and make any recoveries that they can. It is quite rare for cases involving pensioners to be referred to the procurator fiscal. The exception would be if the case were serious.

In my experience, when local authorities deal with housing benefit overpayments, they do not tend to prosecute anyone. However, a proportion of authorities must have determined that there was a deliberate act rather than a simple error, misunderstanding or delay in submitting forms and receipts. There seem to have been few proceedings in which it was shown that there was a deliberate attempt to defraud. Is there a move to strengthen the process so that we can bring down some of the numbers?

We can certainly consider that more closely during the next cycle.

I found the report utterly fascinating. I have decided that if I am not re-elected, I will indulge my inner Miss Marple and ask for a job with the national fraud initiative. It is amazing how things are worked out. However, I wondered about the single person’s council tax discount, and matching it with the electoral register. What would be the point of doing that in Glasgow? Most of the city is tenements, and the electoral register does not include flat positions. Paragraph 60 says that Glasgow City Council

“prefers to use a credit reference agency”

to do that work because of the additional data from that source. Is that correct?

That is one of the reasons why councils tend to use credit reference agencies. The data sets are different. I will not sit here and say that matching with the electoral roll is the only way of obtaining the information because, as you know, the electoral roll is not necessarily complete. We used that example because it is a good starting point, using the data sets that are available to us.

I advise anyone who is planning to commit fraud to read the report first.

I have two questions on the Student Awards Agency for Scotland. The first is on an issue that you refer to in case study 8. It is all very well identifying people who are not entitled to be in the UK and taking action against them, but the case study raises the question why they were given the money in the first place if they were not entitled to be in the UK. Are no basic checks done by the SAAS?

I cannot answer that question. I do not know.

Would it be possible to find out? Why is a public agency paying out money to people who are not entitled to be in this country? It is fine for the SAAS to identify such students and tell the Home Office their whereabouts, but it beggars belief that it pays out money in the first place.

Secondly, if a student knowingly provides false information to the SAAS in order to claim additional income, the agency will clearly seek to recover that money if it becomes aware of the situation. However, that is a fraudulent act on the part of the student. To take Willie Coffey’s point, does that render the person who makes the claim liable to prosecution for knowingly giving false information?

I would have thought so, yes.

Does the SAAS carry out any basic checks, or does it just take everything that is sent to it at face value?

We will find out and come back to you.

Okay.

My next question is on something completely different. I had a meeting this week with a number of nursery and out-of-school care providers in my area. They raised an issue with me that I find truly staggering. It started off with a case reported in the local papers of a group of people acting in a criminal way. They were charged and prosecuted for making fraudulent claims for, I think, working family tax credits—they were claiming that money was being paid for out-of-school and nursery care.

It turns out that there was a well-organised scam. One of the nursery providers—who were not involved in any way; it was just that their name was used—told me that they had a 48-place nursery at the time but that, if the number of people in the town who said that they were paying money for their child to be placed at the nursery had been aggregated, it would have come to something like 350. The nursery provider suggested that the fraud was happening not only locally but nationally and indeed internationally, and they gave me the example of people abroad making claims from the child tax credit system.

If that small snapshot is anything to go by, we are talking about multimillion-pound—maybe even billion-pound—fraud in benefit, with no apparent checks being done until after the event. Is that something that the national fraud initiative can look at, or is it simply the case that, if people have suspicions, they must report them to the police? That is not always the easiest thing to do, as the police have other issues that they need to respond to.

It is highly likely that it would not be open to the NFI to look at that issue. The law on all data relating to taxation is extremely strict and predates the NFI. It has always been the case that information held by Her Majesty’s Revenue and Customs is subject to far greater confidentiality requirements than information held by some others. If HMRC data were needed as the source, I doubt that we would be able to bring them in under the present law.

So if people have identified loopholes in the system and are organised with criminal intent, there is virtually no way of identifying that other than by waiting for someone to be reported, charged and prosecuted and for an investigation to be carried out.

I cannot see immediately how we would be able to address it through the NFI, although obviously HM Revenue and Customs has its own data analysis sections.

You could draw it to the attention of HMRC, and if it could link the issue to an individual provider—an individual nursery—it could find out what is happening.

That is part of the problem. In the case that I mentioned, that happened and the police investigated, but it has been said to me that scams are going on all over the country—

And it is not happening in other cases.

That is right—and we are talking about major amounts of money.

Okay, I will take up that issue separately.