Responding to COVID-19: insight, support and guidance
Marc McAuley from the CIPFA Counter Fraud Centre argues that the time is ripe for the public sector to take advantage of private sector innovation designed to prevent fraud at source.
Fraud has existed for many years, with the earliest recorded attempt around 300BC. A Greek sea merchant named Hegestratos took out an insurance policy known as ‘bottomry’.
This allowed merchants to borrow money to the value of their ship and cargo and, as long as the ship arrived safely with its cargo intact, the loan was paid back with interest. Hegestratos planned to sink his boat, having already sold his cargo, then keep the loan.
However, he was caught in the act and drowned trying to escape. Today, although fraud is becoming evermore sophisticated, so too are the means of combatting it. New technology that enables fraud also provides opportunities to improve prevention and detection. Advanced analytics build a better picture of fraud and its root causes, and sharing best practice strengthens organisational resilience.
But are we doing enough? There is an argument that the public and private sectors have evolved differently, with differing priorities steering investment and digital transformation.
Lacking funds to invest in technology, it is fair to say most public sector organisations are at least a decade behind the private sector in terms of the tools at their disposal.
Private sector investment has led to systems that identify patterns, connect common denominators and even predict future fraud risk. Advanced analytics have helped identify the root causes of fraud, establish effective controls and implement decision-making tools that can prevent fraud in the first place.
Although the public sector may be years behind the private sector and suffering from the impact of continuous austerity measures, the time is right to take advantage of the innovation and investment-led developments of the private sector.
For many years, public organisations have tried their best to keep up, embracing technology and implementing ever-improving data-matching solutions in the fight against fraud.
In 2014, the Ministry of Housing, Communities and Local Government established a counter-fraud fund to increase the capacity and capability of local government to tackle losses from non-benefit fraud. Funding of around £16m was shared between 52 authorities, and projects were established to develop shared services, data sharing and analytics, and apps for fraud reporting, among others.
Receiving an average of just over £250,000 each, these projects achieved over £142m of savings in the first two years alone, representing almost a tenfold return. This represents only a small fraction of the possibilities technology could offer in the fight against fraud.
Primarily focused on detecting the risk of fraud, these solutions have been an invaluable source of intelligence to focus investigative resources, stop suspicious payments, or withdraw fraudulently obtained services. But now the public sector should take advantage of private sector innovation designed to prevent fraud at source.
We should not be relying solely on existing methods of detection, costly investigation and recovery. Organisations should work together and collaborate to develop new ways of working, innovating to tackle existing issues and evolving to keep up with the changing landscape. While fraud may be thousands of years old, digital technology is in its infancy; a powerful tool to be embraced in our counter-fraud efforts.
CIPFA’s Technology in Public Finance Conference will explore the rapidly advancing digital world.