National Fraud Initiative
Under item 5, we shall hear a briefing from Russell Frith, director of audit strategy, on the national fraud initiative. Welcome to the committee, Russell. The floor is yours.
Russell Frith (Audit Scotland):
Thank you, convener. The national fraud initiative is a major fraud detection exercise, which has been carried out by the Audit Commission in England and Wales since 1998. It puts the public sector payrolls, pensions and housing benefit data all together in a pot and looks, using computer techniques, for matches. Those matches are then reported back to the bodies that have contributed so that they can follow them up further and determine whether any fraud has taken place.
I shall give a couple of examples of the type of things that emerge, which should help to illustrate how the exercise works. In local government and in the NHS, examples have been found of an employee having full-time employment at more than one local authority or more than one NHS body. That is clearly an incompatible position and it is only by carrying out an exercise such as the national fraud initiative across a whole range of public sector bodies that we can hope to detect that type of fraud.
Similarly, there have been a large number of cases in which employees in the public sector have not declared their income when they have been claiming housing benefit or council tax benefit. Occasionally, that is within the same authority, but more often it happens when employees have been living in one authority area and working in another. In England and Wales, there have been several hundred cases of that each time the exercise has been run.
In Scotland, in 2002, we carried out a pilot exercise covering only the local authority pension schemes and the NHS and teachers' pension schemes. That data-matching exercise was relatively limited, because what it was doing was matching those records against the Department for Work and Pensions data on deceased persons. All pension schemes, as part of their normal control procedures, write out to their pensioners every few years, essentially to establish whether they are still alive. That can pick up error, but if the pension is being claimed fraudulently after the pensioner has died, it is a very easy system to defraud. However, the matching exercise does a 100 per cent match of pensioner records against the DWP's register, and the 2002 exercise detected 199 cases in Scotland where the pension was still being claimed after the pensioner had died. We estimate that there were overpayments of £720,000 and, given that those fraudulent claims would probably not have been detected, the estimated saving to the public purse is around £8 million. Therefore, even that pilot exercise was very worth while.
For the 2004 exercise, we are widening the data sets quite considerably. We are including local government employees, police and fire service employees, all the pensioners who were previously housing benefit recipients and student award recipients. So that we can be seen to be whiter than white, our own payroll will also be included. The exercise will be carried out on our behalf by the Audit Commission; because the commission has the infrastructure and technology in place, it is much more efficient and effective for us to buy into that system.
The data will be drawn down this month. The matches will take place over the next few months and be reported back on early in the new year to the participating bodies, which will then spend the following months examining and prioritising the matches that they have been given and following up those that have a high priority. Once the whole exercise has been completed, we hope to come back with a summary report, but that will not happen until the end of 2005 at the earliest.
Will that report be laid?
That has yet to be determined, because the content will have a very strong local government element. As a result, it could be a joint report with the Accounts Commission.
Thank you for that briefing, which I think might have provoked a few questions. Do members want to raise any points of clarification or information?
I am somewhat struck by the fact that so much of the committee's work comes down to plain common sense, which simply leaves us to ask why such an exercise has never been carried out before. Indeed, we should welcome it, given the fact that large sums that could be used for other services are being defrauded from the public purse. I wish you every success in your efforts.
I welcome the fact that this exercise is being carried out at a Scottish level, but we will be able to learn lessons from it that will allow us to introduce it in each of the audited bodies to ensure that they are carrying out checks themselves. Obviously, such an exercise will apply to those bodies' own internal audit procedures. When your report is complete, will you consider which elements of best practice should be disseminated to all the audited bodies?
Yes, to an extent. Most of the audited bodies already have internal control procedures. Instead, this exercise looks across organisations. Although we would prefer it to be carried out as part of the usual control mechanisms within bodies, we found that the legal powers to do so lay better with auditors than with those bodies.
Is the exercise being carried out to comply with the Data Protection Act 1998?
Yes. That is also the reason why we cannot currently carry out cross-border matches. Scottish data will be matched only with other Scottish data, not with English data, because our powers to obtain information in Scotland and the Audit Commission's powers to obtain information in England relate only to our own geographical areas. The UK information commissioner has expressed considerable concern about carrying out cross-border matches.
Margaret Jamieson has anticipated my question about the cross-border issue and the legal constraints in that respect. Should we query that matter?
I certainly think that, as a member of the Scottish Parliament, you can query the matter, because it highlights an area in which freedom of information and data protection come into conflict. It is only proper to ask whether such an approach is right in this case. However, I suspect that it will not be easy for the committee to take up the matter.
Mr Frith, I found your information very illuminating and, like Mr Welsh, I am encouraged by the fact that such action is being taken. Is there a communications strategy that lets people know that this work is being carried out and highlights the type of evidence that is being sought from participants to make it clear to those who might be thinking about defrauding the public purse that efforts are being made to track down such activity and that they can be caught? I imagine that the knowledge that such action is being taken will reduce the incidence of such behaviour.
Over the past couple of weeks, we have put out a press release about the exercise, and all the participating employees and pensioners are being individually notified that it is being carried out.
That answer is useful. As members have no other questions, I thank Russell Frith for his helpful briefing. We will now move into private for item 6. I ask members of the public and the press to vacate the room.
Meeting suspended until 11:42 and thereafter continued in private until 12:45.