We think we're honest. Are we?: Martin Whitfield on corruption and backhanders in British life

AT times, it seems they are all at it. Stories of malpractice, fraud and corruption in the public sector can give the impression that half the country's public servants have their hands in the till.

Few dispute a rise in bribery, corruption and theft. It occurs at all levels and in all elements of the public sector. The increase has taken place against a steady decline in the value of public service and a rise in entreprenurial spirit across Whitehall, the NHS and local government.

There have been lurid reports of gifts, donations and financial jiggery-pokery, but many of the most publicised allegations are not illegal, just a breach of self- imposed etiquette. In such a category would come the failure to register the sponsorship of a pounds 2,600 pond at the home of John Selwyn Gummer, Secretary of State for the Environment. He was censured earlier this year by the Select Committee on Members' Interests.

The payment of pounds 4,700 of Norman Lamont's legal fees following the eviction of the sex therapist 'Miss Whiplash' from his London home resulted in new guidelines covering the use of public funds to meet the expenses of ministers. Such cases generate debate over declining standards and may add to the general bad smell over public morality.

But the debate over maintaining rigid and formal financial controls is not confined to Westminster. Alan Doig, co-director of the unit for the study of white collar crime at the University of Liverpool, said a new ethos of service delivery and customer care was causing problems.

'We have lost the sense of public service. There is a lot of pressure on people to deliver the services where speed is of the essence. The checks that are needed to keep an eye on that are not in place,' he said.

Mr Doig met members of the London Audit Group, the chief internal auditors of the capital's local authorities, last week to advise them on fraud detection and prevention. More than half of London's 31 borough councils have the fraud squad, local police or special audit teams investigating allegations of a variety of corrupt practices.

The total sum of fraud losses following discovery and prosecution remains small, with the Audit Commission detailing 105 cases in local government worth about pounds 950,000 in the last reported financial year. The amount is tiny in proportion to the volume of spending, but the web of bribery, corruption and malpractice spreads much wider into unquantifiable sums. Money lost often cannot be traced to anyparticular crime, merely incompetence or lack of organisation. In Lambeth, pounds 20m of unlawful spending on highways was carried out without authorisation or competitive tender. The borough's financial systems were almost non-existent and rent, poll tax and rates were left uncollected.

Excessive spending on computers and consultants in Wessex and West Midlands regional health authorities led to losses of more than pounds 67m. Money in the West Midlands was wasted on 'team building dinners', while pounds 20m in Wessex was written off after the authority's computer integration package was abandoned. Hackney's 'keys for sale' scandal involved more than pounds 10m, with one housing officer alleged to be privately letting 100 flats.

The police are not immune from such activities, with some officers from Stoke Newington, north London, alleged to have been receiving up to pounds 1,000 a week from dealing in crack.

Most cases reported to the Audit Commission are low-level theft, such as multiple housing benefit or student grant applications. Once outside individuals or staff find they can get away with it, the frauds multiply.

A study of six years of fraud in the Ministry of Defence by the National Audit Office found 283 proven cases, excluding procurement, involving pounds 2.9m, an average of pounds 348,000 a year on an annual budget of pounds 12bn. The largest volume of cases was petty crime, such as fiddling expenses, while theft from stores and of equipment accounted for the greatest value of losses. Even so, the rate of fraud in the MoD, per pounds 1bn of expenditure, was less than half that of a large multi- national private company. The CBI estimates the annual cost of fraud in business exceeds pounds 3bn.

Central government agencies have been the subject of NAO pressure to improve their accounting systems. Training and Enterprise Councils, the private sector led bodies responsible for pounds 2bn of public money for youth and adult training, have been the subject of more than one critical report over methods of payment.

Mr Doig said that the increasing links between public and private sectors would mean a rise in the amount of behaviour that was acceptable in commercial organisations but unacceptable in public service. Lavish entertainment of business contacts is an accepted practice in private industry, but offends many codes of ethical public behaviour.

Staff in local authorities have been under pressure and have seen their status eroded in the past decade. Where individuals feel they are not being adequately rewarded, the temptation to raise their income through theft and bribes often becomes irresistible.

'There has often been 20 years of power with no political opposition,' said Mr Doig. 'The local press is very weak and there is no effective monitoring. In some of the smaller communities, the officers, politicians and local industrialists form part of the same enclosed world.'

In many ways, it is the 'old boy's network'. Bending the rules to guarantee a contract for your Saturday golfing partner can become acceptable. Conflicts of interests between land-owning councillors and committee decisions affecting their property are often deliberately ignored.

Financial systems in a number of local authorities, as the recent district auditor's report on Lambeth made clear, are deficient. Where gaps exist, the criminal and the unscrupulous fill them.

Brian Willmor, associate controller of the Audit Commission, said the commission had ordered two surveys in local government and the health service to provide some accurate statistics of the value of corruption.

'The way legislation is moving with devolution and deregulation, grant-maintained schools, outsourcing, privatisation, means a lot more work is now done outside authorities. The risk must be increasing and will continue to do so over the next few years.'

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