Warning over cost of council fraud

Cash-strapped councils are being fleeced of millions of pounds by criminals using information put on the internet under transparency drives, a spending watchdog said today.

The warning came as new figures showed a 37% leap in the level of fraud being detected against town halls and other bodies to £185 million last year.

Total fraud committed against councils is believed to be upwards of £2 billion annually.

An Audit Commission survey showed procurement suffered the biggest rise in cases - up four and a half times on the previous year to £14.6 million.

Fraud involving staff also rocketed from £6.6m to £19.5m, now accounting for more than one pound in every ten of uncovered rip-offs.

But one of the biggest areas of concern is mounting efforts by fraudsters to con the public sector into diverting legitimate cash into false bank accounts.

At least £7 million was successfully siphoned off by criminals using legitimate-looking letters based on creditor information available on local authority websites to persuade officials to change the bank account details of building firms and other contractors.

Another £20 million-worth of such scams were discovered before payments were made.

Increasingly sophisticated methods are being employed to get around checks - including temporarily diverting the firms' own phone lines to fool staff who check original records.

And the Commission, while backing the transparency agenda, wants stronger warnings given across the public sector to prevent the scam spreading to other areas.

Housing associations and colleges are believed to be among others targeted.

Police have been brought in to investigate several cases and councils have launched court action but they are not expected by the Commission to be able to recover all the lost cash.

Earlier this year Cumbria County Council got back £460,000 of £581,000 it was duped into diverting earlier this year - a case in which a man was charged and a member of staff disciplined.

South Lanarkshire Council was also fleeced of £100,000 and the Commission said several other cases were pending legal action.

More than half (£110 million) of the detected fraud highlighted by the survey, completed by 99% of councils and other bodies such as police and fire, was in housing and council tax benefit.

It also showed that nearly 1,800 homes were recovered from tenancy fraudsters and that false insurance claims and fraud based on "abuse of position" had both doubled.

It also raised concerns about the growing abuse of care budgets which are increasingly paid directly to users - making them more vulnerable to fraudsters.

More than 100 cases worth an average £21,000 were detected and dealt with last year - more than twice the previous level.

Audit Commission chairman Michael O'Higgins said: "Councils are certainly acting on fraud, and it is now firmly on the government agenda.

"But our latest survey of detection rates shows that we may be seeing just the tip of a very large iceberg.

"Huge amounts of public money are still being diverted from the public purse into fraudsters' pockets. Our report shows fraudsters will exploit any system weaknesses, from an individual's care budget to a multi-million pound building contract. In these tough times councils need to maintain the strongest possible anti-fraud defences to safeguard jobs and services."

Local Government Minister Grant Shapps accused councils of not doing enough to reduce the "shocking" sums being lost to fraud.

"It's shocking how much fraud is costing the country. Fraudsters need to know that their days of picking the taxpayers' pockets are over," he said.

"Councils are losing £2 billion a year in fraud - costing every household £80 a year. Far more can be done by town halls to save money, and so protect frontline services - such as better credit checks on benefits and proper vetting of staff that handle money.

"This Government is also bolstering local efforts to tackle the estimated 50,000 tenancy cheats, with a national crackdown on social home swindlers who unlawfully sublet their homes, to the detriment of those on housing waiting lists."

Commenting on the report, the Local Government Association said Government changes affecting housing and council tax benefit could result in a rise in fraud unless data sharing is fully considered.

Chairman Sir Merrick Cockell said: "Councils are the most efficient part of the public sector and this 37% increase in detection shows that they are working hard for local taxpayers.

"However, we cannot afford to be complacent as this will only lead to an increase of fraud and less money available for front line services.

"The LGA is in discussions with the Government, asking them to ensure that under the new arrangements for council tax benefit and universal credit that they provide councils with all the documents they need to tackle fraud.

"Councils must be allowed to continue keeping up the pressure on anyone defrauding them, as fraud hits hard pressed families who play by the rules in their pocket".

Mr Shapps said the Government gave councils "clear and explicit guidance" on how to avoid payment fraud in February and it was "disappointing that some councils haven't taken it on board".

He added: "Councillors should be scrutinising what steps their council officers are taking to tackle fraud and protect the public purse."

PA