The Audit Commission has today published the results of its annual survey of fraud against English councils and related bodies (Protecting the Public Purse 2011). The 2010/11 report shows that:
- fraud directed against public sector organisations costs taxpayers £21.2 billion/year
- fraud against councils costs more than £2 billion/year
- councils detected more than £185 million worth of fraud (<10% of the total), involving 121,000 cases
- the total value detected increased by 37 per cent compared against 2009/10, with the number of cases detected also rising
Excluding council tax and benefit fraud, procurement accounted for 46% by value of all other frauds directed against councils. In 2010/11 there were 145 detected cases with a value of £14.6 million, compared with 165 cases and a value of £2.7 million. That’s an increase in value of 441%!
Councils in England spend over £50 billion each year, buying goods and services from suppliers and funding construction projects. Procurement fraud can be carried out by officers of the council, or by external providers. The key areas of external fraudulent activity detected in the last year include:
- cartels involving collusion among some bidders to agree that they will not submit competitive bids for a particular contract. See our post on the Office of Fair Trading investigation.
- applicants tendering, but not in accordance with contract specifications and then submitting false claims for extra costs under the contract.
- contractors providing inferior goods or services to those tendered.
- contractors avoiding their obligations under statutory minim pay or health and safety regulations to boost their financial return.
- contractors presenting false invoices
- contractors providing inflated performance reports to secure larger payments than are due
The National Fraud Authority (NFA) estimates that procurement fraud costs councils about £855 million a year, but this is purely an academic extrapolation and could be much higher than this figure. Although the overall value detected in 145 cases last year was £14.6 million, in just two of the cases the loss amounted to £6 million. With the losses in individual cases being as high as this it’s easy to see that the true figure for overall losses could be much, much higher.