Payment and accounting

Debt management

5.24 Our inspection of Inverclyde Council revealed a lack of both control and ownership of the ‘end-to-end’ process of identification, classification and recovery of HB/CTB overpayments. More detail is at Appendix C9.

5.25 We recommend that the LA improves its control over the debt management process by:

• reporting overpayment levels to members on a quarterly basis
• giving priority to the identification and recovery of fraud overpayments
• introducing managerial checks and controls
• liaising regularly with other organisations, such as BA, to recover overpayments from other benefits
• ensuring that staff are adequately trained in recovery procedures including:

  - the rules on whether or not an overpayment is recoverable
  - the application of discretion
  - the need to properly classify and record overpayments on the new IT system

• ensuring that overpayments debited to rent accounts are clearly identified as such
• issuing clear guidelines to staff regarding when reference to legal services or write-off is appropriate
• requesting regular review of debt management procedures by internal audit.

5.26 A coherent debt management strategy will bring positive benefits to the LA both in terms of increased efficiency and the deterrent effect that prompt recovery will have on the fraudster. Although there will be some set-up costs, it is our view that the current inefficient processes are costly to the LA.

5.27 According to DSS figures, the average value of fraud overpayments across Scottish LAs in 1996/97 was 10% of their total overpayment figure. The comparative figures for GB as a whole and, in particular, Inverclyde Council were 18% and 4.6% respectively. Even allowing for the lack of resources put into counter-fraud work in recent years, we feel that these figures support our view that Inverclyde Council could improve its classification process. Our sampling of some 1997/98 WBS cases also identified cases where fraudulent overpayments had not been pursued.

5.28 To illustrate the potential for subsidy gain, if the LA had classified 10% of its 1996/97 total identified overpayments figure as fraud, as opposed to other, then it would have received around an additional £8,500. A more efficient recovery process could have gained the LA around £15,000 in additional income during 1997/98. We feel that these illustrative figures are a powerful argument for the LA seeking to review its debt management strategy as a matter of urgency.

Counter-fraud

Deterrence

Strategic approach to fraud

5.30 Our inspection revealed that the LA has no history of prosecuting benefit fraudsters and does not have a formal counter-fraud strategy.

5.31 We recommend that the LA draws up a counter-fraud strategy, and puts in place the means to implement it, as a matter of urgency and submits this to members for approval. The Management Handbook published by the Audit Commission (Countering Housing Benefit Fraud – A Management Handbook) lists the aspects to be covered by a coherent counter-fraud strategy such as:

• a definition of fraud and corruption
• a statement that members support a counter-fraud culture
• a description of key counter-fraud arrangements:

- audit
- systems
- procedures

• a definition of the responsibilities of managers and staff in countering fraud
• a clear statement of responsibilities and arrangements for investigating:

- fraud by elected members
- internal fraud
- other fraud by council employees
- external fraud

• whistle-blowing arrangements to encourage staff to report suspected internal and external fraud.

5.32 Once this is achieved, we further recommend that the following steps are taken to underpin the strategy:

• the benefits administration and counter-fraud areas are adequately resourced
• a formal prosecution policy is formulated, approved by the Council, publicised to staff as well as the public and implemented
• consideration is given to the use of administrative penalties as an alternative to prosecution
• inspectors are appointed
• a fraud hotline is established to generate referrals from the public
• a register of members’ interests is maintained in line with the guidance given in the National Code of Local Government Conduct (issued to LAs by the Scottish Development Department under cover of SDD Circular 11/90)
• vetting arrangements are introduced at the recruitment stage
• a code of conduct is introduced for employees in line with the guidance in the National Code of Conduct for Local Government Employees in Scotland (published by the Convention of Scottish Local Authorities in November 1997)
• regular data matching is introduced using both the HBMS and comparison of HB/CTB records with other LA records, for example payroll
• the annual internal audit plan incorporates an allocation of audit days to HB/CTB commensurate with the amount of benefit involved and the inherent fraud risk
• that internal audit presents an annual report to the LA’s Social Work and Housing Committee.

5.33 There will be a cost to the LA in drawing up a counter-fraud strategy, together with the policies and procedures that are needed to support it, both in terms of staff and members’ time and practical issues such as setting up a hotline. However, doing nothing is not an option. This said, there is help available that would reduce costs such as:

• the guidance contained in the Audit Commission publication Countering Housing Benefit Fraud – A Management Handbook
• advice from other LAs with counter-fraud strategies
• membership of bodies such as LAIOG
• support from BA’s BIS and CSUS in the context of both general advice and the handling of prosecution work.

Prevention

Internal controls

5.34 We found an absence of internal controls, which could lead to internal fraud. We believe that the total lack of involvement by internal audit in the benefits administration area over the last few years has contributed to this.

5.35 This is a situation that cannot be condoned, given the large sums of benefit involved. We therefore recommend that internal audit urgently examines the arrangements for:

• handling valuables
• post opening
• handling the unpresented cheque list
• dealing with overpayments
• the security of the new IT system
• validating WBS claims.

5.36 As internal audit has already allocated 20 days for an examination of the benefits area in the current year, this recommendation can probably be implemented at no additional cost to the LA.

Detection

Referral process

5.37 Our inspection found that the LA did not keep records of all fraud referrals and therefore was not in a position to analyse referrals by source as a means of targeting future effort. In addition, our sampling of some 1997/98 WBS claims indicated that less than 1 in 10 referrals came from members of the public.

5.38 We recommend that the LA develops an effective fraud referral system as a means of generating additional referrals and dealing more efficiently with those it does receive. Such a referral system would incorporate:

• clear guidance to staff, including a standard referral form
• a form for formal feedback to staff
• a recording system for referrals that would generate management information on progress and outcomes
• a facility to analyse referrals and outcomes.

5.39 Implementation of this recommendation would be at minimum cost and, in our view, outweighed by the advantages to be gained from more, and better quality, referrals in terms of both additional subsidy and benefit savings. In the 2 years preceding our inspection, the LA had recorded enough WBS to avoid subsidy reductions, but failed to generate enough savings to earn additional subsidy through the counter-fraud incentive scheme. During 1997/98, the LA’s WBS total amounted to less than 1% of its total benefit expenditure. This figure does not compare well with the average figure of 8% quoted in the 1996 Housing Benefit Review published by DSS. If the LA can generate quality referrals from its staff and the public, then there is scope to increase the number of worthwhile referrals 2 or 3 fold. This scenario could increase the LA’s income from subsidy by up to £20,000.

Data matching

5.40 As an aid to the detection of internal and external HB/CTB fraud, we recommend that the LA:

• subscribes to the HBMS at the earliest possible opportunity
• considers matching its employees’ payroll records against the HB/CTB database.

5.41 The LA would undoubtedly benefit from joining the HBMS, as 40% of the referrals generated by this system result in successful investigations leading to both WBS and the recording of fraudulent overpayments. As the LA’s new HB/CTB system is compatible with the data requirements of HBMS, the cost to the council should be minimal and more than offset by additional WBS.

Investigation

Resourcing and management of investigations

5.42 At the time of our inspection, the LA’s counter-fraud effort was under-resourced and we doubted the council’s long-term commitment to tackle HB/CTB fraud. In addition, the methods of investigation used were largely reactive in nature and focused on ‘quick wins’. The methods used to track referrals and progress being made were also inadequate.

5.43 We therefore recommend that the LA demonstrates its commitment to tackling fraud effectively by:

• making the current DFO appointments permanent
• purchasing an IT-based case management system
• placing referrals to be investigated into fraud files
• developing procedural guidance for fraud officers
• providing some clerical support to the DFOs
• checking the quality of investigation work, including validation of WBS claims
• liaising regularly with the local police and PF.

5.44 The LA would benefit from the implementation of these recommendations by having:

• readily-available management information to help target and prioritise work
• a clear audit trail of all investigations carried out
• an assurance that subsidy claims are accurate
• an improved monitoring facility.

5.45 As well as the opportunity cost in management time and the salary cost of the current DFOs, some of which is met by Challenge funding, the additional cost to the LA is likely to be around £10,000, broken down as follows:

• case management system £4,000
• clerical support (part-time) £6,000

5.46 Increased investment in the resourcing and management of fraud investigations will bring about increased WBS claims and improved detection of fraudulent overpayments. Eventually, this additional income could conceivably offset the costs involved in setting up a more professional and effective counter-fraud service.