Appendix F: IA and EA

Introduction

In the December 1999 AC update of its publication Protecting the Public Purse: Ensuring Probity in Local Government, benefit fraud was recognised as the main risk area facing local government. Detected fraud increased by 22% in 1998/99 to £95 million and 99% of all detected cases involved abuse of the benefits system. It is essential therefore that LAs have all necessary processes and controls in place to support the drive against fraud and error in benefit delivery.

The AC appoints EA. It is independent from Lambeth and has a statutory duty to enter an opinion on Lambeth's accounts, and report on the economy, efficiency and effectiveness of Lambeth's services. EA is also able to offer management guidance on the effective use of IA.

LAs are required to provide a continuous effective audit function in accordance with the Accounts and Audit Regulations made under section 23 of the Local Government Finance Act 1982. The purpose of IA is to ensure that public money is safeguarded by means of regular review of key controls.

Conclusions

IA has regularly reviewed HB operations in Lambeth. However, the number of days allocated and used by IA on HB issues is insufficient to safeguard Lambeth 's systems. Major issues remain unresolved and the lack of progress on high and medium priority recommendations is unacceptable.

At the end of each audit, an action plan is agreed between IA, Lambeth and Capita. These plans identify key milestone dates and detail the urgent action required by each party. However, it is clear from our inspection that there has been insufficient monitoring by Lambeth to ensure that Capita fully discharges its responsibilities, as action plans produced by Capita have not been adhered to.

IA – Housing Benefit

IA has undertaken an annual review of the administration of HB at Lambeth in each of the last 3 financial years.

Recommendations are prioritised as high, medium and low to reflect the degree of risk that the issue poses to the Lambeth. Each rating has been given a timescale to match what IA consider to be level of urgency with which remedial action should be taken. These are:

high – action required within 3 months
medium – attention within the next year
low – dependent on the resources available.

In June 1999, IA made a total of 21 recommendations to Lambeth, of which 13 were considered to be high priority.

When IA completed a further review in March 2000, it reported that 11 of the previous recommendations had been fully implemented and work had been undertaken on 4 of the remaining recommendations. However, action had not been taken on 4 high priority recommendations and 2 that had been classified as medium. IA made a further 10 recommendations and these are broken down in to:

9 high priority
one medium priority.

We are concerned that Lambeth has made little progress on issues that are considered by IA to be high and medium risk areas.

Figure F.1 sets out the high-risk recommendations contained in IA reports, the progress made by Lambeth and BFI's findings. Figure F.1 further demonstrates significant delays or limited progress on the recommendations made by IA.

Action plans have been developed and agreed between Capita and Lambeth. However, we found that there is a lack of clear procedures to ensure that Capita reports issues and, where appropriate, is made to properly account for failing to progress them.

Key areas of work in terms of internal controls and checks remain outstanding as we found that:

9 recommendations made in June 1999 remain outstanding
3 recommendations made in June 1999 have been fully implemented and progress has been made on a further 2
3 recommendations made in March 2000 have yet to be cleared
limited progress has been made on one recommendation made in March 2000.

Fig. F.1: Recommendations from IA in respect of HB functions
Date of report	Work area covered	Main recommendations	BFI comment
June 1999	Evaluate, review and test effectiveness of the controls operating in the HB function.	Actioning of post by Fast Track Officers –controls should be devised and implemented to ensure that all post is actioned within the 3-day target turnaround time. (Fast Track team replaced by Pre-Assessment Team).	No evidence that action is being undertaken. Risk of urgent claims and post not being detected and referred for assessment.
June 1999	10% benefit check.	Team Leaders should complete and sign the 10% check form each week. The Benefits Manager should consider spot checks to ensure that the control is operating.	Evidence from BFI sample and interviews shows that 10% check not undertaken by team leaders. Risk of errors being undetected remains. Benefit Managers do not check to ensure compliance by team leaders.
June 1999	Unpresented cheques.	The Control Team Manager should request a monthly report of unpresented cheques from the Treasury and Banking section. The Benefits Manager should review this report promptly and evidence of the review should be retained.	Report is not being produced. Invalid payments could go undetected and cheques may fall into the wrong hands.
June 1999	Communications with CAFT.	Where cases have been referred from CAFT and the assessment team receives post, CAFT should be informed immediately for its information and action.	Not undertaken by team leaders. Due to backlog of work, post could take several weeks before cases are examined and information transferred to CAFT. Risk of CAFT undertaking unnecessary action remains.
June 1999	Processing of claims by Fast Track Officers.	Fast Track supervisors should conduct daily spot checks on a sample of claim applications before they are passed to the assessment team. Evidence of these should be retained and the Fast Track manager should review the evidence on an ad hoc basis to ensure that the control is operating effectively. (Fast Track team replaced by Pre-Assessment Team).	No evidence that procedures are being operated. HB/CTB assessments continue to be delayed through a lack of evidence.
June 1999	Tracking files through determination process.	Capita should improve tracking procedures to ensure that all assessed claims are passed to the determination team and are accounted for.	Not implemented, resulting in illegal payments being made.
June 1999	Checking input of cancelled cheques.	All cheques which are cancelled and stopped on the system as shown on DR07 Mapben report, should be checked on a one to one basis to the daily cheques list, stopped cheques forms and the returned cheques record. A senior officer should undertake spot checks to ensure this done within timescales.	Correct procedures in place. However long delays unacceptable. BFI sampling found 288 cheques awaiting action.
June 1999	Write-off of overpayments.	Appropriate procedures for the write-off of debt arising as a result of overpayment should be devised and implemented as soon as possible. Additionally, after Academy conversion all outstanding debts should be reviewed regularly to determine their recoverability. Debts deemed to be irrecoverable should be written off in line with agreed procedures.	Working draft procedures in operation. BFI has recommended changes.
June 1999	Mapben generated letters.	All standard letters to HB debtors should comply with relevant HB Regulations.	Issue addressed following conversion to Academy. Notices to claimants now compliant with Regulations. XXXX XXXX XXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXX
June 1999	Monitoring write-offs.	The overpayment team should receive a weekly report showing all write-offs of overpayments. These should be checked on a one to one basis to support documentation.	Fully implemented.
		Access to write-off overpayments on the system should be restricted solely to those officers who will be responsible for writing off the overpayments.	Process insecure due to a lack of systematic management checking.
March 2000	Supporting evidence.	When tenancy agreements are used to establish rent liability, officers should ensure that the agreements are appropriately signed. The signed tenancy agreements should be filed together with all correspondence with the landlord. Officers should also be reminded to "vouch" for dependants.	Poor verification of rent details. Photocopies of documents accepted. Continued risk of payments being made to false landlords or incorrect rent amount quoted. HB assessment may not include the correct allowance for dependants. "Vouch" means to confirm identity and qualifications.
March 2000	14-day target.	All staff should be reminded of the importance of the 14-day target. Management should ensure that the control is met. Incentives could be introduced to motivate staff to ensure completion.	14-day target missed on a significant number of cases. Lambeth not meeting legal obligations. Staff only have a target to action a case within 14 days. This is not interrupted by staff as fully assessing the HB and CTB application. Current organisation of work reduces staff accountability and undermines steps to improve productivity.
March 2000 High priority	Lost/misplaced files.	An effective system for storing and tracing files should be introduced. Consideration should be given to recording the whereabouts of files on the system.	Action plan in place, but details still to be implemented. Ability of staff to deal effectively with information put at risk.
March 2000 High priority	Overpayment letters.	Follow-up letters in respect of overpayments raised on the old Mapben system should be issued as soon as possible.	Limited action on 1997 debt, but nothing on pre 1997 debt. Debt remains unrecovered.

Source: IA Lambeth reports and BFI analysis

IA – CAFT

In May 2000, IA commenced its review of the systems of control within CAFT as part of the 1999/2000 IA plan. This audit built on previous audits, which included a full review of all CAFT activities in September 1998 and a follow-up review in July 1999 to check the progress of the recommendations made in its 1998 report.

In September 1998 IA had made 11 high priority recommendations and a further 6 were classified as medium. These were all in respect of internal investigations undertaken by CAFT.

In July1999 IA found that:

2 high priority recommendations had been fully implemented
7 high priority recommendations had been partially implemented
5 medium priority recommendations had been partially implemented.

None of the outstanding recommendations related specifically to HB.

IA published its report in August 2000. It reported that the control framework of the CAFT Business Unit required improvement. Also, that the internal controls that were in place within the unit were not operating effectively all of the time. Four of the 12 recommendations outstanding from1998 had been fully implemented, and progress had been made on the remaining 8. As a result of this review, IA made a further 34 recommendations which were classified as:

22 high
10 medium
2 low.

Figure F.2 lists the HB recommendations classified as high risk by IA in respect of CAFT in the last 2 years and the findings of BFI.

Fig. F.2: Recommendations from IA in respect of CAFT
Date of report	Work area covered	Main recommendations	BFI comments
July 1999	Communications between CAFT and benefit sections.	To avoid unnecessary investigation, where cases have referred to CAFT and post is received by the assessment team, CAFT should be informed immediately for their information and action.	Not implemented due to arrears of work on the benefit sections. At the end of March 2000, 250 notices from CAFT to the benefits to stop HB remained unactioned, therefore increasing the potential for LA overpayments and fraud and error entering the system.
August 2000	Standard performance criteria.	The Scrutiny Committee and the head of CAFT should agree a comprehensive set of performance criteria against which CAFT may be measured. This should represent the minimum level of performance information to be reported quarterly.	Fully implemented. Linked to BV PIs.
August 2000	Overlapping reporting periods.	Standard reporting should be established and adhered to.	Fully implemented.
August 2000	Evidence of review of performance reports.	All reports should be reviewed for accuracy by a senior officer of CAFT to ensure that all the information is accurate at the time of publication. There should be evidence of the review.	Scrutiny of files confirms review undertaken by senior officer who completes a 100% check.

Source: IA reports to Lambeth and BFI analysis

External Audit

Studies by EA on HB administration and fraud and corruption have resulted in the following reports:

1996/97 Countering Housing Benefit Fraud
1997/98 Fraud and Corruption Report
1998/99 Regular Review Report.

EA advised BFI that there had been no formal follow-up on the issues raised in these reports, but the main points were examined during subsequent audits.

In each of the reviews, EA has identified good practices and areas where the LA needs to improve. An action plan is agreed between EA and Lambeth, which sets out priorities and timescales for the implementation of recommendations made by EA.

During the inspection, the level of progress made by Lambeth was measured in relation to high priority recommendations. Our findings are detailed in Figure F.3 that shows:

5 (71%) of the recommendations raised in 1997 have still to be implemented
the single (14%) recommendation raised in 1997 has, since September 1999, been fully operational
the single (14%) recommendation raised in 1997 has been partially implemented
one (50%) recommendation raised in 1998 has been fully implemented and the other (50%) is still outstanding
the only (100%) recommendation raised in 1999 has been partially implemented.

The above results raise serious concerns regarding the level of commitment by Lambeth to undertake recommendations set out in its action plan. It also identifies the need for a more structured approach by EA to ensure that Lambeth takes action to improve its existing procedures and service to claimants.

Fig. F.3: Summary of high priority recommendations made by EA
Date of report	Work area covered	Main recommendations	BFI comment
Countering HB Fraud. November 1997	Corporate Support.	A full programme of propriety checks covering all permanent and temporary staff should be implemented.	XXXX XXXX XXXX XX XXXX XXXX XXXX XXX XXXX XXXX XXXX XXXX XX XXXX XXXX XXXX X
November 1997	Managing benefit administration.	The Authority should ensure that the monitoring process of the new contract include the reporting of key target indicator standards such as: quality standards (written correspondence, telephone contact and processing claims) speed of processing changes of circumstances error rates number of cases correctly assessed first time number of frauds/errors identified before processing claim number of complaints.	None of these issues have been addressed by Lambeth. See comments on contract in Appendix E.
November 1997	Managing investigations.	Discussions should be held with external organisations (DSS and Fraud Inspectorate) and written confirmation obtained, to ensure the level of evidence gathering undertaken for visiting programme, is acceptable.	Other than oral discussions with DSS Headquarters in 1997, there is no evidence that these procedures are undertaken.
November 1997	Investigating Fraud.	The procedures for withdrawing WBS should be monitored on a monthly basis to ensure that reinstatement of HB claims are properly identified and WBS adjusted.	Procedures commenced September 1999. Action undertaken annually, before DA validation of subsidy claim to DSS.
November 1997	Investigating Fraud.	For every identified "gone away" claimant a standard letter should be issued to the landlord asking whether the claimant resides at the address and, if not, the date when the claimant left.	Not operated. Opportunity to gather evidence at an early stage for both prosecutions and overpayment recovery missed.
November 1997	Recovering overpayments.	Recovery targets should be re-set and basic monthly management information should be produced and monitored, for example: overpayment figures per category recovery statistics per category recovery levels per recovery method full aged debt analysis write-off statistics and reasons for write-off.	Progress made on some issues. Targets detailed in the contract with Capita are unrealistic. Write-off policies still at draft stage. Recovery details per category outstanding.
November 1997	Recovering overpayments.	To ensure that income is maximised senior management should ensure that a high priority is given to overpayment recovery activities.	Rate of recovery remains low. Authority not maximising all available methods of recovery.
Fraud and Corruption Audit December 1998	Overall Arrangements.	Increase the emphasis on preventative control work in future CAFT work plans.	Fully implemented.
December 1998	Overall Arrangements.	Improve the quality of CAFT reports to Members by including details of the number of frauds detected.	Details omitted from reports.
Regularity Review December 1999	Housing benefits.	Bank reconciliation's for HB rent allowances must be performed on a regular basis, reviewed and authorised.	Major weaknesses in procedures remain. Risk of internal and external fraud remains. Reconciliation of cheques issued by the authority has not been undertaken since March 2000. Reconciliation of girocheques issued by the authority during April and May 2000 are currently under review by Lambeth.

Source: EA reports to Lambeth and BFI analysis