The commission says there is mounting evidence that organised crime is moving in on local government.
Some gangs have set out to defraud many councils. Attempted rackets include invoices being sent for professional organisations to which councils do not belong, Nigerian gangs obtaining bank account details to abstract funds and landlords claiming housing benefit for non-existent tenants.
The value of detected fraud has increased from pounds 34m in 1993/4 to pounds 69.5m last year. The number of cases has doubled from 83,000 to 166,000.
The commission, the local-authority watchdog, stresses that much of the increase results from better detection methods, in particular the use of computers to prevent housing-benefit fraud. It points out that for the past two years councils have been rewarded with more government grant when they detect fraud.
The commission says it is unable to estimate the total amount of fraud in Britain's 400 councils and wants more to be done to prevent and detect it.
The commission has been working with a group of local authorities to increase detection, particularly of benefit rackets which accounts for 79 per cent of the value of fraud. Andrew Foster, commission controller, said that a pounds 600 computer program could save 100 times its cost in a year. "All councils should use these programs," he said. One racket detected by the program is fraudsters using a false identity in all 33 London councils to claim housing benefit at empty houses in each.
There is very little detected "insider" fraud. All but 1 per cent of the fraud uncovered by auditors relates to the public, rather than staff, attempting to steal from local authorities. Only 21 cases of corruption were detected in 1995/6 compared with 57 in the previous year, but the commission accepts that "corruption remains difficult to identify and to prosecute successfully".
One area where fraud has increased is in student grants. The amount of detected fraud has risen from just over pounds 1m in 1993/4 to pounds 5m. One woman made claims in respect of five deceased members of her family. When her home was raided, it was discovered that she had 60 birth certificates, 17 marriage certificates and 14 British passports.
The commission criticised local authorities for failing to take sufficient care over cheques. One borough lost pounds 40,000 after thieves intercepted and altered a cheque.
Mr Foster said: "There are safe ways of transferring money through computers. Issuing big cheques like this is ridiculous in this day and age."
Protecting the Public Purse: Ensuring probity in Local Government, Audit Commission, pounds 6.Reuse content