Outstanding Proactive Detection
Procurement was recently named in CIPFA’s 2017/18 Counter Fraud and Corruption Tracker as one of the three greatest areas of perceived fraud risk, however it is an area where it is notoriously difficult to detect perpetrators, let alone convict them or recover any losses.
A best practice example can be found in the work of Leeds City Council, whose sharp detective work found a £178k fraud at a partner organisation, which evolved from two co-conspirators and unregistered companies, to criminal proceedings and a five year sentence.
When put to the team what their successful detection and investigation came down to, LCC Head of Audit Sonya McDonald says it was the investment of time and resources in proactive data analysis, in addition to using traditional audit techniques.
“Data analysis in isolation, no matter how technically advanced, is not enough to draw together all the dots. There must be some level of follow up procedure and robust investigation,” says Sonya.
"We first uncovered the fraud by comparing our creditor records with other data sets to confirm the financial probity of each organisation, and offer a source of assurance that companies in receipt of payments were still actively trading in business.”
Soon they had identified links between two creditors, but found no record of company registration for either. Follow up searches found no evidence to support the authenticity of these organisations.
With 54 invoices totalling £178,380 having been paid to these two creditors between June 2011 and May 2013, a comprehensive investigation was needed to establish the full nature of what had happened.
Very early on in their investigation Sonya says it became clear that a potential fraud had been committed, and the team linked together with the police.
As a result two men were jailed for ‘Conspiracy to Commit Fraud by False Representation’ on 27 October 2016, with one receiving a five year prison sentence, and a co-defendant a 16 month sentence after pleading guilty to the same charge.
“This case should act as a deterrent to other fraudsters, with the detection, investigation and action taken against this particular fraud reinforcing Leeds City Council’s zero tolerance stance on fraud and corruption,” says Sonya.
Formal proceedings were instigated to recover the monies and these have now been received in full.
The fundamental techniques demonstrated by the Leeds City Council Internal Audit team during the detection and investigation of this six figure creditor fraud can be scaled and replicated across any authority, and show what can be achieved through focused and proactive ways of working.
“All authorities have access to a wealth of data and intelligence, and the smart organisation and analysis of this data will invariably have the potential to highlight underlying trends or issues that can be indicative of fraud and corruption,” says Sonya.
“Coupled with a robust and independent Internal Audit function, authorities will be well placed to manage fraud risk in an efficient, effective and proportionate manner.”
Not only was the team “delighted” to have their work recognised at the Government Counter Fraud Awards, Sonya believes sharing these stories strengthens the counter fraud profession.
“This case has provided a learning opportunity for others across the public sector, and an example other councils can use when running their own proactive activities,” she says.
“Fraud investigations like this can go on for a long time and need to be approached with care and diligence.
Our committed team of audit professionals worked alongside the police over a three year period to bring this case to its conclusion, from finding the initial discrepancies through to the trial.
“Being able to share in each other’s successes builds on our ability to respond, demonstrates the effectiveness of being proactive, and encourages other authorities in their work uncovering fraud.”
True to her word, after the Internal Audit team received the award Sonya went to both London and Birmingham in May 2018 to present on ‘Best Practice in Counter Fraud’ for other counter fraud professionals.
Don't forget to get your nomination in before they close on Friday 30 November.
This case study was originally published on Public Finance on 14 November 2018.