Efficiency without deficiency:Tackling fraud and error in the public sector

Sanjay Mackintosh – Cabinet OfficeJonathan Lloyd-White – HMRC

UNCLASSIFIED

Overview• Context• Benefits, credits and revenue fraud• Cross-cutting fraud and error

• Procurement• Grants• Payroll and insider-enabled fraud

UNCLASSIFIED

Fraud in the public sector - context

Fraud in the public sector

Fraud Loss

Tax £15bn

Benefits & tax credits £1.5bn

Procurement £2.4bn

Grants £515m

Payroll £329m

HMG Counter Fraud Taskforce• Established October 2010• Ministerial and senior officials group

– Francis Maude MP – Minister for the Cabinet Office (Chair)– Lord Freud – Minister for Welfare Reform (DWP)– David Gauke MP – Exchequer Secretary (HMT)– James Brokenshire – Minister for Crime and Security (HO)

What has the taskforce done so far?• Overseen eight pilot projects across government that

saved £12m and will save £1.5bn by 2014/15• Set up cross-government network of Counter Fraud

Champions• Cross-government fraud alerts system• Fraud, error and debt metrics on departmental quarterly

data summaries• Civil service learning – counter fraud e-learning tool• Identified cross-cutting issues – procurement, grants and

payroll/insider-enabled fraud

Interim report – June 2011• Collaboration across public

services

• Properly assess risk and quantify losses

• Focus on prevention

• Establish a zero tolerance culture

Benefits, Credits and Revenue Error and Fraud

Size of the prize and approachBenefits & Credits• 6 million customers – £327bn paid

annually• Complex policy – 160 moving parts

– 1 million new claims– 8 million changes of circumstance– 6 million renewals

• 1,800 staff working on error and fraud• 8.9% error and fraud rate in 2008/09

reduced to 7.4% in 2009/10 - £2bn over last two years

Benefits & Credits – The New Strategy• Customer Understanding – knowledge of risk

categories and losses drive design of services • Right first time – shift from “Pay now, check later” to

clear strategy of “Check first, then pay”• Measure – proxy in-year targets informed by real

time data to engage staff and drive redeployment• Professionalism – campaigns on risk groups based

on data mining and analytics

Tax Compliance• Approximately 4.5 million businesses

and 31 million individual customers• Estimated £16bn tax gap attributable to

fraud & error• 25,000 staff in Enforcement &

Compliance working on spectrum of non-compliance rising to 28,000 by 2014/15.

Tax Compliance• Risk driven strategy – risking done at national level

based on data analytics• Increased coverage - significant re-investment of

staffing over next three years• Connect - Continued investment in our data

matching and analysis tool• Campaigns & Taskforces – focused activity to

tackle specific populations and risks

Tax Credits Error and Fraud StrategyPREVENT

Fraud & Error Assessment Risk Tool (FEAST) – Screening tool for new tax credit applications – finds

risks that would be extremely difficult to detect using

manual intervention;

High Risk Changes of Circumstances - Working in

partnership with Contact Centre colleagues allows us

to challenge customer information when they try to

make changes to their awards.

High Risk Renewals – our chance to correct previous

year awards whilst putting current year claims on

correct footing. Based on feedback and lessons

learned, moved towards a more targeted risk-based

approach based on Risk Groups.

MAINTAIN

•Pilot with Credit Reference Agencies on Undeclared

Partner

•20k Tax Credit claims with some evidence of an

Undeclared Partner.

•CRAs ranked the cases into high, medium low risk.

•Red – letter issued to customers where we have

specific information or data from the CRA that

strongly suggests there is a high risk of and

Undeclared Partner.

• Amber – letter issued where we have

information from the CRA which suggests there

maybe a risk of an Undeclared Partner

Driving effective interventions with data• Matching data from 26 separate systems - Connect• Approximately 1 billion matched data items• £45m invested over last three years - £1.3bn in tax yield• Top-end data analytics used to address whole spectrum of

risks • High volume-low value error, to sophisticated on-line organised

criminal attacks or complex corporate tax affairs• Driving focused taskforce activity on evasion – scrap metals in

Scotland• Driving focused campaigns on populations – Medics, Offshore,

Plumber

Ongoing investment• Data/capacity – growing storage, processing capability and user

numbers• Text mining – ability to mine unstructured text based information• In-house academy for data analytics – keeping people up to

pace with technology• ‘Upstream Transaction Risking’• Credit Reference Agency trials – using third party data to check

declared income• Predictive analytics – spotting behavioural trends to separate

error from deliberate evasion

Cross-Cutting Fraud and Error – New Opportunities

Procurement fraud

£2.4bn lost in the public sector each year

Pre-contract award fraud – cartel activity, corruption, collusion

Post-contract award fraud – false payments, duplicate invoicing

HO/DfT – detected £4m and £0.5m in overpayments using spend analytics

Counter fraud training and awareness for public procurement specialists in the public sector

Undertake cross-govt analysis on spend through accounts payable systems to detect fraudulent or erroneous payments

Spend analysis audits - £100m may have been paid across government

Procurement fraud training – CiPS have partnered with CIPFA to provide a course, but more courses should be run for public bodies

Grant fraud

£515m lost to fraud in the public sector each year

Grants expenditure not fully understood – cross-cutting fraud threats even less well understood

Applying for grants no different from applying for benefits or tax credits – fraud and error risks is the same

Deeper analysis of grants administration across government – identify how much is paid out, to whom, what processes are used, fraud/error risks

Deploy use of data analytics to detect grant fraud and error at application stage as well as post-payment

Piloting prevention/ detection screening tools with government departments who issue grants

Insider-enabled fraud

£329m lost to fraud in payroll and recruitment, but unknown how much fraud is ‘insider-enabled’

PwC estimate 39% of economic crime in public sector is enabled by staff within organisations

Analysts believe insider threat grows during recession – risk is highest now

Staff fraud database – record staff dismissed for insider-enabled fraud and allow public bodies to use this as a pre-employment tool

Training and awareness for public servants

Whistleblowing/fraud reporting line

Insider-enabled fraud database – possibly outsource this

Whistleblowing function – individual services within departments or single cross-government reporting tool

Summary• Tax and benefit fraud and error is well understood – has

the investment to match• Other cross-cutting issues need to be better understood

and solved – could be bigger than what we already know

• New opportunities for supplier engagement – work with us to understand the problems and develop solutions

• Engage with counter fraud champions across government

Contact usfed@cabinet-office.gsi.gov.uk