Fraud discovered in councils hits pounds 25m: Authorities warned on rising cost of benefit cons and corruption

DETECTED fraud in local government has risen from pounds 17.5m to pounds 25m over the last three years, with defrauders continually finding new ways to commit their crimes, the Audit Commission said yesterday.

There were 54,000 identified instances of fraud and corruption last year, and 96 per cent were benefit frauds. Improvement grants and student awards were giving 'cause for concern' with some students backing up fraudulent claims with high-quality forged documents.

The number of benefit frauds increased by 48 per cent and losses by 43 per cent over the last three years. During this period caseloads rose by only 3 per cent and benefits payments by 17 per cent.

'There is much evidence that defrauders can be well organised and quick to exploit known weaknesses in controls and to discover new ways of committing frauds. Local authorities must not drop their guard,' the commission warns.

The number of fraud cases other than benefit fraud has increased by nearly 40 per cent over the last three years, its value rising from pounds 3.6m in 1990-91 to pounds 4.8m in 1992-93. In London the major problems were student awards and payments to third parties such as contractors.

In the last three years there have been 143 instances of corruption where cases have been proved and action taken, amounting to a loss of pounds 1.2m. But the commission warns: 'Proven instances of corruption do not reflect the large numbers of allegations that are made and the suspicions that surface each year.'

In the private sector 30 per cent of large companies have suffered at least one fraud of more than pounds 50,000 in the last two years. Although less than 10 per cent of local authorities had detected a fraud of this magnitude in the last three years the commission says: 'The number of large frauds identified in local government is increasing and a substantial number of investigations are in progress.

'At the end of March 1993, 11,000 benefit investigations and 750 other fraud and corruption investigations remained to be concluded. The losses involved in these investigations were estimated to be some pounds 10m.'

Examples of fraud included:

Two landlords set up a company to let properties to homeless people. They also claimed to provide other services to tenants such as meals and laundry facilities. They received payments directly from a large city council. Following complaints it was revealed that the 'other services' had not been provided and overpayments of pounds 750,000 had occurred. The landlords were jailed for two years.

A claimant said he was living at a friend's house when he was merely using it as a mailing address. A council official noticed the handwriting on the claim was the same as the landlord's reference. A total of pounds 2,620 had been claimed.

A number of frauds involved the interception of printed cheques and changes to amounts and payees. One cheque for pounds 43.13 was amended to pounds 250,243.13.

An administrative assistant kept on the payroll some people who had left. She arranged for their cheques to be routed through her, and then cashed them. The fraud was discovered when cheques were passed by mistake to her supervisor. The amount totalled pounds 13,000.

An insurance officer orchestrated payments to a fictitious firm of loss adjusters. He collected the cheques personally from the cashiers, and pounds 250,000 was misappropriated before a junior member of staff became suspicious.

Protecting the Public Purse. Probity in the Public Sector: Combating Fraud and Corruption in Local Government; HMSO; pounds 9.