london borough of lambeth...contract between 1 june 2008 – 31 imay 2008. this report is being...

London Borough of LambethAnnual Report to the Finance Strategy Board Final Report 3 June 2008Confidential: Restricted

© 2007 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. �

CONTENTS

Page

� Context and approach [ 2 ]

� Summary of 2007/08 [ 4 ]

� Forward plan for 2008/09 [ 8 ]

� Appendices [ 10 ]


CONTEXT AND APPROACH

Introduction

KPMG was awarded a three year contract to work in partnership with the London Borough of Lambeth to counter fraud in May 2007. This document outlines the work KPMG have completed as part of that contract between 1 June 2008 – 31 May 2008. This report is being delivered in accordance with the terms of the contract dated 20th July 2007.

Our approach

KPMG’s “Comprehensive Approach to Fraud” identifies the key required processes and capabilities for countering fraud in the public sector. The model is in line with the Government's new cross economy strategy for countering fraud. For each piece of work we undertake will focus on a specific part of the comprehensive approach outlined below; measurement, strategy, structure, and action ranging from the development of an anti-fraud culture to seeking redress where losses are incurred. Each separate piece of work will highlight the areas being focused on and will explain how they integrate.

As outlined previously to the FSB, the comprehensive approach tocountering fraud applied by KPMG has been developed to meet the highest professional standards. We have committed to work with Lambeth to tackle fraud in the following ways:

Identification of the nature and scale of the problem of fraud, focussing on key areas, procurement and payroll;

The development and communication of a clear strategy and business process to tackle Lambeth’s fraud problem;

Advice on the most effective and suitable counter fraud structure to implement the strategy; and

Working with Lambeth to take an appropriate combination of integrated action to tackle its problems.

Methodology

At the outset of the first year we stated that our work would be delivered within five stages, each focussing on a particular aspect of the process:

PROBLEM – STRATEGY – STRUCTURE – ACTION – DELIVERY

The work plan we delivered in July for year one set out the proactive steps that we would be taking as part of the process outlined above (190 days work). Additionally, there were 40 reactive days built into the work plan.

A variety of methodologies have been used to undertake the pieces of work and these are outlined in the work statements and reports agreed and delivered as part of that process. These will not be discussed in detail in this report. If you require further information on a particular project please request the relevant report from the Chief Internal Auditor.

MEASURE FRAUD LOSSES

ACCURATELY

DEVELOP A HOLISTIC

STRATEGY AND

BUSINESS PROCESS

CREATE A PROFESSIO

NAL STRUCTURE

TO IMPLEMENT

THE STRATEGY

USE THE STRUCTURE TO TAKE A RANGE OF

ACTION

DELIVER REDUCED LOSSES

DETECTION, INVESTIGATION,

SANCTION, REDRESS

ANTI-FRAUD CULTURE

DETERRENCE, PREVENTION


CONTENTS

Page


� Summary of 2007/08 [ 4 ]




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OverviewThe first year working in partnership with Lambeth has seen a significant impact being made in the way in which the Council counters fraud and other types of harm. Key projects have been a success due to the hard work and determination of key counter fraud business partners (Human Resources, Complaints and Legal and Democratic Services). All of the work outlined below has been fed into the Key Lines of Enquiry (section 4.3) and the Annual Governance Statement. This joined up approach should help Lambeth to continue to develop and maintain its status as a three star Council.

Strategy A Counter Fraud Strategy for Lambeth: Protecting Lambeth against fraud –delivering resources for better public services has been effectively launched and presented to all Departmental Leadership Teams all of which have nominated Fraud Champions to work with us on this programme of change.

The new website www.lambeth.gov.uk/fraud launched with the strategy will continue to grow and publicise work in this area to promote an anti-fraud culture and deterrent effect.

Launch of new Whistleblowing Policy and Procedure On the 9th May the new policy and procedure were launched at the Lambeth Leadership Forum where the agenda focused on staff engagement. The policy and procedure were given to the Top 200 staff and noted by the CEO, Derek Anderson, in his opening speech with specific reference to Lambeth’s FRESH value, Honesty. It took nine months from fieldwork to inception and we now enter a phase of embedding and monitoring to measure success. The bringing together of three of the directorates with a responsibility for this work (Legal and Democratic, Corporate Complaints and Internal Audit) within the new larger Finance and Resources Department, will improve monitoring and help to entrench a culture where whistleblowing is seen as a positive tool to increase effectiveness.

Pre-employment Screening

The vast majority of people are honest. The Council’s first line of defence against those who would seek to defraud it is pre-employment checks. The agreement to implement recommendations for more pre-employment checks marked the start of a new approach to protecting Lambeth from those who may seek to harm the Council. Ensuring the integrity of staff is paramount to this work going forward, and Internal Audit and Human Resources will be developing an implementation plan over the summer. This will mean a period of adjustment, however, this is a really positive step towards the creation of an anti-fraud culture, strong deterrent effect and is a vital preventative tool.

Developing an anti-fraud culture and increasing the deterrent effect

The work we do to counter fraud feeds back to help progress the development of an anti-fraud culture. The results of the joint Internal Audit/Audit Commission survey are proof of this. Over 74% of respondents were aware of the new strategy to counter fraud, with over 50% of staff being more accepting of their responsibility to counter fraud than they were six months ago. These two figures are extremely positive, demonstrating how far Lambeth has come in one year. In this survey, Lambeth has achieved higher than the national average in many areas. This survey provides us with a baseline metric to track progress and provides some good figures for use in positive publicity pieces around counter fraud work.

There are improvements which can be made in the communication arena. In 2007/08 there have been missed opportunities for publicising Lambeth’s new comprehensive approach. It is important that business units do not operate in silos on this issue and that sufficient notice is given to the Chief Internal Auditor of any communication to the press or residents, no matter how small, about counter fraud work within the borough. For example, the door drop to 70,000 households about benefit fraud could have directed people to the website and the new strategy, adding to the development of a deterrent effect in Lambeth – certainty of being caught is a far more effective deterrent than awareness of sanctions.


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Training

The one day training for Business Unit Managers has received excellent feedback from participants. This year we have delivered three one day courses and this will increase to six in the next year. The survey revealed that only 18% of staff had received any counter fraud training in the last two years and the overwhelming majority of those were based in Adult and Community Services and Finance and Resources. We are looking forward to working in partnership with Lambeth to improve this score.

An e-learning induction tool is awaiting final implementation of the Oracle People e-learning facilitation tool We are liaising with Learning and Development and the implementation team to get this up and running as soon as the tool is accessible via the network. This package includes basic fraud awareness as well as data protection issues and may extend to IT security.

Prevention

Throughout April and May each department has received a Fraud Risk Workshop. We are now in the process of writing up the findings to send to the Risk Manager before disseminating to the Fraud / Risk Champions within each department. There are several risks which have been identified by all departments and these will be added to the Corporate Risk Register, with remaining risks forming Departmental Risk Registers. The inclusion of all grades from a range of business units has helped to raise the profile of risk and fraud more generally. This is closely linked to the development of an anti-fraud culture across the organisation. Emerging themes include fraud and theft around fixed assets, pre-employment checks undertaken by the Managed Service Provider, high reliance on temporary staff, illegal sharing of data and sharing of passwords. We have seen evidence of most of these risks transposed to the organisation in our first year.

Detection Data analytics work has thrown up several queries which are currently with Internal Audit for processing. We await the completion of FLM work to deliver this report to you.

Investigation

We have worked closely with Lambeth on four investigations, two in Regeneration and Housing, one in Finance and Resources and another in Environment Culture and Community Services. Some key lessons have been learnt and we will be tracking the implementation of recommendations closely. We have requested that Internal Audit provide us with monthly updates via the tracker as without implementation at the coal face this work will not succeed.

Sanctions

Lambeth is now working with a specialist law firm on the development of a parallel sanctions policy. We will be working with the officers named below to ensure a joined up approach to this work. The first round table discussion later this month will help to ensure the policy does not conflict with any existing practices or legal requirements, that changes to existing policies are minimal and effective implementation once the policy is drafted. Officers involved are the Chief Internal Auditor, Senior Fraud Investigator, Strategic HR Manager, Blue Badge Officer, Parking Internal Auditor , Head of Risk and Insurance, Head of Benefits and Tenancy Investigations, Head of Consumer Protection (Trading Standards), Legal Services –Prosecutions Manager and Senior Employment Lawyer, as well as the Assistant Director responsible for Safeguarding Children. The draft policy is due to be presented to Corporate Committee in September with training scheduled for early 2009.

Redress

We are working with Adults and Community Services on the issue of Direct Payments and bad debt with a view to recovering outstanding balances owed to the Council.


CONTENTS

Page


� Summary of 2007/08 [ 4 ]




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Overview

In order to move forward we must evaluate the key challenges faced in the first year. To improve the quality of the work going forward and meet our objective of delivering reduced losses to fraud we need to draw on our experiences in three key areas and agree plans to improve these.

Delays in project implementation

In three key areas it has taken up to six months to hold initial meetings to discuss terms of reference for projects or get hold of relevant data; sanctions policy, stakeholder and partnership agreements and payroll data for data analytics work. These delays have impacted on the level of level of progress made in the first year and in some cases, such as the development of the parallel sanctions policy, have impeded the Council’s ability to reduce losses to fraud and other forms of undesirable behaviour.

Communications

We have been working very closely with the Finance and ResourcesCommunications team to launch the strategy, whistleblowing procedure and to develop Lambeth’s first Integrity Week. This relationship is working extermely well and we are thankful for their support.

This work is significantly undermined when departments undertake major counter fraud campaigns, interviews and other communications work without consultation. The combined effect of missed opportunities and conflicting language and messages reduces the overall impact of the new approach.

We have set up a Counter Fraud Communications Group, overseen by the Chief Internal Auditor and Engagement Leader. If early warning could be given to these two people before communications, we can work with the Corporate and Finance communications teams to enhance the value of this work for Lambeth.

Fraud Loss Measurement

In the first year of partnership KPMG has utilised all of the days set aside in the work plan for year one as well as significant additional time for this exercise. Following our review of the Oracle system we required additional information relating to almost 70% of the sample. This is as a result of insufficient information being held on Oracle.

Of the 455 ready for analysis and decision, 99 have been examined. All of those have been deemed to be correct which is encouraging.

A request for further information was sent out by the Chief Internal Auditor on 24 April with a request that additional information be submitted by 9 May. As of the 30 May we have received supporting information for an additional 104 payments. We are liaising closely with the departmental Heads of Finance to complete this exercise and have a cut off date of end of July at which point we will report on levels of assurance based on the information received. If there is a significant amount of information still outstanding we will be unable to report on the amount (£) or % of losses the Council is currently experiencing to fraud and error.

6897OCE

As a % of original sampleFurther information required

1,117

364

34

145

253

224

69.5%Total

81HR

51FR

66ECCS

61CYPS

74ACS


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Projects for 2008/09

Outlined below are the projects we believe will have a real impact at Lambeth in the coming year. We are unable to assign a timeline to much of this work until we complete the first stage of FLM (see appendix II).

Training

As a result of a skills gap analysis we will be providing training as outlined at Appendix IV. All of this training combined with other work to counter fraud should have a significant impact in reducing financial resources lost to fraud and corruption.

Stakeholders

We will continue to drive forward our work for Counter Fraud Charters and Memorandums of Understanding with key partners and stakeholders. The Lambeth’s Voluntary Action Council (LVAC) will be consulting with members on the signing of the first charter of this type this month. The charter will provide a firm basis for the Council to work with local groups to increase capacity and safeguard resources. Other groups we would like to see Lambeth working more closely on counter fraud include the NHS and the Unions.

Communications

We will continue to work closely with the Communications Group on the planning of Lambeth Integrity Week in November (week to be confirmed). This will include road shows, publicity, launch of A Parallel Sanctions Policy for Lambeth and a Counter Fraud Charter with LVAC (should members agree).

Survey

Full analysis of the Survey results will be available in June.

Process review (Detection and Investigation)Two highly skilled Counter Fraud Specialists will be reviewing the processes used by the investigation teams in Parking, Benefits and Housing, Insurance and Corporate Fraud. This work combined with cumulative knowledge of the structure at Lambeth will produce a report outlining any recommending changes to organisational design (structure and process).

Fraud Loss Measurement – Stages two and three

Following work to identify the nature and scale of the problem of fraud in procurement at Lambeth, we will be working closely with the Head of Procurement and the business units to improve any areas which expose the Council to fraud risks. We aim to have accurate information on Lambeth’s risks which will prevent the need for overly bureaucratic systems to over compensate as we will focus on the KNOWN problems areas.

The information will then be used to inform strategy, better direct resources and we will use the qualitative information to drive Data Driven Intelligence through all of the 2007/08 Oracle data.

Any payments flagged by this process will be referred to the Chief Internal Auditor for further investigation.

Stage one will be repeated once Lambeth has had time to implement any changes to reduce fraud and sufficient time has been allowed for this to take effect.

© 2007 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

CONTENTS

Page


� Summary of 2007/08 [ 4 ]

� Forward plan 2008/09 [ 7 ]


I. Whistleblowing leaflet II. Fraud Loss Measurement diagrams III. DisclaimerIV. Training Plan


APPENDIX I: New images used at the launch of the Whistleblowing Policy at Lambeth Leadership Forum (9 May 2008)


APPENDIX II: Nature and Scale of the problem � ��

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Lambeth is inStage 1

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Stage 2Year two

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This Report has been prepared on the basis set out in our Contract addressed to the London Borough of Lambeth, dated 20 July 2007, and should be read in conjunction with the Contract. This Report is for the benefit of only the Client and the other parties that we have agreed in writing to treat as addressees of the Contract (together the Beneficiaries), and has been released to the Beneficiaries on the basis that it shall not be copied, referred to or disclosed, in whole or in part, without our prior written consent. Nothing in this report constitutes a valuation or legal advice. We have not verified the reliability or accuracy of any information obtained in the course of our work, other than in the limited circumstances set out in the Contract. This Report is not suitable to be relied on by any party wishing to acquire rights against KPMG LLP (other than the Beneficiaries) for any purpose or in any context. Any party other than the Beneficiaries that obtains access to this Report or a copy (under the Freedom of Information Act 2000 or otherwise) and chooses to rely on this Report (or any part of it) does so at its own risk. To the fullest extent permitted by law, KPMG LLP does not assume any responsibility and will not accept any liability in respect of this Report to any party other than the Beneficiaries.

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