1 Tackling Fraud and Error: A Central Perspective Mark Cheeseman 21 April 2016

2 NAO Fraud Landscape Review Examines the Government’s approach to tackling fraud in the public sector. It focuses on fraud associated with central government expenditure, other than tax credit and benefit fraud. Key Findings The exact scale of fraud within the government is unknown. Detected fraud across government was equivalent to only 0.02% of total expenditure. There is a large disparity between the level of fraud and error that is reported and the level of other available estimates. Summary of Government Action The CO is now the policy lead for fraud but departments manage their own fraud risk individually. The CO has provided valuable central guidance and expertise to departments to improve the way they manage fraud. Departments’ capacity and capability to manage fraud is mixed. There are few incentives for departments to record and report the true scale of fraud. Measuring certain types of fraud is inherently difficult and there is a trade ‑ off to be made in respect of the time and costs in doing so. It is hard for government to assess the extent and nature of potential fraud and the areas most at risk of loss, given the lack of quality data. The lack of data and absence of metrics to evaluate performance, make it difficult to assess whether the government’s actions are improving the detection and prevention of fraud.

3 Detected fraud and error represents that which the public sector finds and deals with. Much of this is within welfare, with limited detected fraud across the rest of Government. Detected loss is £2.2bn. In the more mature and scrutinised areas, such as welfare and some areas of health, there are estimates of the level of fraud and error. Estimates outside of these areas are limited but increasing. Estimated loss is £4.8bn. In many parts of government expenditure (including grants and procurement) little is known, and it is not possible to accurately estimate the potential losses. The available comparators (EU, US) suggest that there is significant unknown loss. Extrapolation of the losses using the comparators, suggests this could be between of £1.7 - £13.5bn per year. Local Government losses would be in addition to this. TAX – Fraud and error through tax loss, although not included in this representation, operates in a similar fashion, although definitions vary. Getting to grips with Fraud and Error Loss Detected Estimated Unknown? Welfare Health Grants / Procurement

4 Fraud and Error – the Story to Date Taskforce Reports Published FED Taskforce set up Quarterly Data Summary set up to collect fraud and error data Welfare FED Stock-take Cross Government Capacity Assessment Undertaken Accountable Board members for Fraud appointed Action Plans, Metrics and Capacity Assessment Light National Fraud Initiative moved from the Audit Commission to CO The Taskforce changed to the FED Steering Group Development of Centre of Expertise Development of Fraud Framework and Standards Internal Fraud Defence Hub Developed 2015/ /152013/ Random Sampling Phase 1 Government Fraud Definitions and Typology Agreed Internal Fraud Activity Announced FED as a Function NAO Landscape Report Published Fraud Awareness Push Check-First Agenda

5 Data Collection and Random Sampling Some Functional Activities Driven by the Centre Agreeing reduction targets where we know there is loss Shaping the data- sharing landscape Increasing Capability across the Public Sector to identify and deal with loss areas Delivering products and projects to improve data sharing National Fraud Initiative Proof of Concept Internal Fraud Defense Hub Action Plans and Outcome Based Metrics Standards for Counter-Fraud Work

6 FED Random Sampling Department14/15 Testing - HighlightsRating DCMS BIG Awards for All GrantsGold BIS Student Loans – Undeclared PartnersSilver DEFRA Flooding - Repair & Renew GrantSilver DEFRA European Fisheries FundSilver DCLG European Regional Development FundGold Justice Facilities ContractGold Transport Bus Operator GrantsSilver In 2014 the Public Expenditure Committee mandated fraud and error measurement of high risk areas of spending for Government departments. A best-practice framework was developed and a panel of experts set up to review the work. Phase 2, with 12 more exercises, will report in May Fraud and error measurement is technically challenging and resource intensive and it can be difficult to direct testing on the really high risk areas. Where irregularity was looked for in an area of notable risk, it was generally found and some excellent work was submitted. We continue to work with departments to drive up the quality of the testing, primarily through improving fraud risk assessment.

7 Counter-Fraud Framework General Fraud Awareness General Organisational Level Functional Management Level Specialisms Level All Staff Policy Officials Process Managers People Managers Management and Strategy An awareness across all specialist areas and the capability to define an effective counter-fraud response and how to deploy the specialisms in the business Management and Strategy An awareness across all specialist areas and the capability to define an effective counter-fraud response and how to deploy the specialisms in the business Detection Risk Assessment Sanctions, Redress and Punishment Investigation Intelligence and Analysis Measurement Prevention and Deterrence Use of Data and Analytics Sub Disciplines Cyber Fraud Grant Givers Board Members Culture Disruption Bribery and Corruption Criminal Justice Money Laundering Organisational Standards

8 INVESTIGATION STANDARDS – Key Components Explained © Crown copyright 2016 This document provides an overview of the key skills required for Investigation in Government

9 EXPERT Subject matter expert in a particular area of C-Fraud Highly skilled & experienced in leading a range of complex investigations Excellent application of relevant tools, techniques, departmental policy/processes & legislation EXPERT Subject matter expert in a particular area of C-Fraud Highly skilled & experienced in leading a range of complex investigations Excellent application of relevant tools, techniques, departmental policy/processes & legislation DEVELOPING Targeted at those new to the Profession or who want to understand the skills required to develop to Foundation level Awareness of the processes and relevant legislation– no practical experience necessarily DEVELOPING Targeted at those new to the Profession or who want to understand the skills required to develop to Foundation level Awareness of the processes and relevant legislation– no practical experience necessarily PROFICIENT Ability to work independently on a range of investigations Competent at understanding departmental policy/process and practical demonstration of applying legislation PROFICIENT Ability to work independently on a range of investigations Competent at understanding departmental policy/process and practical demonstration of applying legislation FOUNDATION Practical experience of conducting investigation, demonstrating skill and awareness od how to follow processes Building awareness of legislation and how to apply it FOUNDATION Practical experience of conducting investigation, demonstrating skill and awareness od how to follow processes Building awareness of legislation and how to apply it INVESTIGATION STANDARDS – Skills Matrix MANAGER Usually head of unit or team manager Strategically and operationally experienced with ability to manage counter fraud MANAGER Usually head of unit or team manager Strategically and operationally experienced with ability to manage counter fraud © Crown copyright 2016 Building a Government Counter Fraud Profession

10 © Crown copyright 2016 INTELLIGENCE STANDARDS – Key Components Explained This document provides an overview of the key skills required for Intelligence in Government

11 Government Counter Fraud Standards-Future work Building a Government Counter Fraud Profession Management & Strategy June 16 Sanctions Redress Punishment & Risk July 16 Bribery & Corruption Sept 16 Cyber Nov 16 © Crown copyright 2016

12 Addressing Internal Fraud in Government Research (2014) highlighted issues: Investigations abandoned following resignation. Fraudsters free to move around public sector undetected - no central data held. Progress and next steps Early Adopter is live, covering 41% of the Civil Service. We will onboard central government first, then ALBs, NDPBs and contractors and eventually all of WPS. Amend Baseline Personal Security Standard to incorporate check of IF data. Update disciplinary policy & guidance and communicate advice on adverse references. No zero tolerance approach and only £1.6m loss detected across 52 cases (2014) Introduce a central register of staff dismissed for fraud. Ban staff from employment for 5 years. PS sign off for investigations/disciplinary abandoned. MCO announced in February key aims:

13 Find More Fraud And Error Collaboration as a Default Understand and Communicate Our Impact Increase Capability Identify How to Better Use Data