Tackling fraud and corruption against government

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Sixty-Ninth Report of Session 2022–23

Author: Committee of Public Accounts

Related inquiry: Tackling fraud and corruption against government

Date Published: 8 September 2023

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Contents

Introduction

While some fraud and corruption is inevitable, all public bodies have a responsibility to minimise losses due to fraud and corruption. In 2018, the Cabinet Office set up both the Government Counter Fraud Function (GCFF) to provide a structure for those working in counter-fraud, and the Government Counter Fraud Profession (GCFP) with membership across the public sector. Since the start of the COVID-19 pandemic, government has recorded a higher level of fraud in the accounts audited by the National Audit Office. This reflects the nature of government’s response to the pandemic, including the rapid implementation of large new spending and loan programmes that came with an unusually high risk of fraud. Since the start of the pandemic, this committee has considered the risks of fraud, and how they could have been better managed, across various schemes and departments, including in our reports on the Department for Business, Energy & Industrial Strategy’s grant schemes, the Coronavirus Job Support Scheme and the Self-Employment Income Support Scheme, the Department for Work & Pension’s administration of benefits, the management of PPE contracts, and the Bounce Back Loans Scheme. In 2022, in response to concerns over the level of fraud during the COVID-19 pandemic and the lack of a coordinated response, government established the Public Sector Fraud Authority (PSFA). The PSFA acts as government’s centre of expertise for the management of fraud against the public sector, leads the GCFF and GCFP, and reports to both HM Treasury and the Cabinet Office.

Conclusions and recommendations

1. There is a significant risk that increased levels of fraud seen since the start of the COVID pandemic undermines public confidence in the integrity of government. Fraud against government rose from £5.5 billion in total over the two years before the pandemic to £21 billion in total over the two years since the start of the pandemic. The latest Transparency International survey of public and business perception of corruption shows that the UK fell from 8th out of 180 countries in 2017 to 18th in 2022 for the perceived level of corruption. Emerging technologies both increase the scope for committing fraud at scale, which can be particularly attractive to organised crime gangs, and provide opportunities for fighting fraud if they can gain the confidence of the public. Government has started to invest in its counter fraud function. HM Treasury has committed to an investment of £1 billion since the pandemic to tackle fraud, which includes an investment of £900 million in the Department for Work & Pensions (DWP) over the period 2022–23 to 2024–25, from which the Treasury is expecting a return of £9 billion by 2025.1 They are also increasing the number of Public Sector Fraud Authority (PSFA) staff from 60 to around 150. However, while the counter fraud function has an important role to play in supporting government to combat fraud, tackling fraud and corruption will require leadership at the most senior levels and a clear plan to demonstrate government’s resolve to get on top of the problem.

Recommendation 1: HM Treasury and the Cabinet Office should, in the Treasury Minute response to this report, set out the steps government is taking to both restore public trust in the administration of public services and encourage senior officials to demonstrate leadership on tackling fraud and corruption.

2. There are large gaps in government’s understanding of the extent and location of fraud and corruption risks. Most departments are exposed to several types of fraud and corruption risk in their income and spending, but few produce regular, reliable, and comprehensive estimates of the level of fraud and corruption of their risky areas. Government expects the number of fraud measurement experts across public bodies to increase from 99 to around 180. But the current system of fraud measurement does not tell us, beyond the well-known problems in tax and benefits, where the problems are or which public bodies are most affected. Where government does attempt to measure fraud, it often includes more innocent errors because it finds it difficult to establish the intent behind the misinformation provided. Conflating error with fraud can give the impression that government is underestimating and obscuring where the real fraud problems are. PSFA estimates that, for the two thirds of government expenditure where it does not have specific estimates, the level of fraud and error is somewhere between 0.5% and 5% of expenditure. This implies that in addition to the £10 billion of tax fraud and £6.4 billion of benefit fraud last year (2022–23), government lost somewhere between £2.5 billion to £28.5 billion from fraud and error, but it does not know exactly where or how.

Recommendation 2: The Public Sector Fraud Authority should publish an annual strategic intelligence report on the level of fraud and corruption across government and where across government’s activities the main risks and issues lie. This should build on the previous landscape reports and use better targeted fraud measurement and assurance exercises to provide an overall estimate of the extent and location of fraud and corruption by recognising the difference between fraud and error.

3. Departmental counter-fraud staff often lack the credibility and authority needed to exert influence at senior levels. Historically, counter-fraud experts have focused on investigating suspected fraud and have not been brought into wider policy making and design. Many departments lack senior counter-fraud professionals with influence in their organisations and counter-fraud staff have often struggled to get the attention, understanding and support needed from senior decision-makers. In part, this is because the counter-fraud profession itself is relatively young and needs time to reinforce itself as a function. But many of those working in the counter-fraud function are not members of the profession and have not been trained or assessed against the professional standards. The Cabinet Office and HM Treasury have said that government will conduct annual workforce and performance reviews to provide insights on areas outside tax and welfare that demand attention and support. HM Treasury, starting with an expectation of a return of £3 for every £1 spent, also says that it will, where possible, expect increasing returns on its counter-fraud investments.

Recommendation 3: The Public Sector Fraud Authority should:

a) update the Committee in 12 months on the outcomes of its next annual Workforce and Performance Review and whether public bodies start to invest the right amount in their counter-fraud and corruption capability and achieve value for money from their efforts.

b) set out what it has done to address any identified weaknesses in the effectiveness of departments’ efforts to tackle fraud and corruption, including their understanding of risks, resourcing of counter-fraud and delivery of counter-fraud outcomes.

4. Government has often failed to implement basic counter-fraud measures into its new initiatives. Government’s COVID-19 response highlighted the importance of designing counter-fraud measures, including controls, reporting and recovery, into new initiatives at an early stage of the policy cycle. Government could have maintained several basic standards of public accountability, even at the height of the COVID-19 emergency: more transparency; better management of conflicts of interest; promptness in addressing known fraud risks; and timely financial reporting. Some lessons learnt have already been put into practice, for example, in the case of government’s energy schemes where customers received discounted bills from the suppliers rather than direct cash payments from government. Government’s introduction of the Initial Fraud Impact Assessments (IFIAs) is a welcome development that will help public bodies address known vulnerabilities sooner. HM Treasury intends to embed the IFIAs into its spending approval processes. It has trained 700 of its staff on matters relating to fraud.

Recommendation 4: HM Treasury should:

a) confirm, in its Treasury Minute response, how it plans to embed Initial Fraud Impact Assessments (IFIAs) within its formal departmental spending approval processes; and the consequences for public bodies if they do not meet its expectations.

b) work with departments, as part of its existing work to share best practice with departments, to help them use IFIAs to inform Accounting Officer Assessments and to ensure that a summary of the IFIAs, where they flag significant risks, is included in the published summary Accounting Officer Assessments sent to the Committee.

5. Government is not generating enough of a deterrence effect from pursuing those that commit fraud against the public purse. Most of government’s investigatory and enforcement capability sits in HM Revenue & Customs and DWP. PSFA will in due course set up a central enforcement unit. Some departments have the choice of referring a fraud they detect for prosecution or applying a civil penalty, normally with a lower burden of proof and lower fine. The latter can offer a more cost-effective route to investigate fraud and recover funds, but may not offer the same deterrent effect. Government has not set out the level of prosecutions and convictions for fraud that it wants to achieve in order to produce an effective preventive deterrent. Departments are also not yet able to demonstrate that they have the right balance between civil and criminal sanctions to achieve both the optimal recovery of funds and a deterrent effect. Government can do more to increase transparency on the extent of prosecutions to highlight the consequences of committing fraud, deter people from committing fraudulent activities, and reassure the public that fraud and corruption does not go unpunished.

Recommendation 5: The Public Sector Fraud Authority, in collaboration with other departments, should develop a cross-government communication strategy for highlighting government’s efforts in pursuing fraudsters and the effectiveness of counter-fraud measures. It should, in the Treasury Minute, confirm it will oversee the implementation of this strategy.

6. It is very unlikely that most of the losses due to fraud and corruption will ever be recovered. While fraud detection levels are rising, a large gap still remains between the estimated underlying levels of fraud and amounts detected. In 2020–21, while PSFA estimated fraud and error losses between £3.5 billion and £29.1 billion excluding tax and welfare fraud, government only detected £243 million of fraud. Government also only ever recovers a small minority of this detected fraud. For example, in 2020–21, only £29 million of the £243 million detected fraud was recovered. Enforcement and recovery powers are also fragmented across government. The Cabinet Office and HM Treasury say they will continue to try to recover as much of the £21 billion lost during the pandemic as possible, and will not write off any amounts, but accept that it is unlikely they will be able to recover most of it. But while it is too late to prevent this fraud and most will never be recovered, government could do more to retrieve what it can. HM Treasury has committed an additional £900 million to the Department for Work & Pensions on which it expects a return of £9 billion by 2027–28 through improved general compliance. It has not invested similar amounts to tackle fraud in the other departments.

Recommendation 6: HM Treasury should work with departments to help them recover as much of the money paid out to fraudsters as possible and set out in the Treasury Minute:

  • its expectation of the extent of departments’ recovery of losses due to fraud;
  • the return on investment it expects from money spent on recovery; and
  • why it is not investing more money to recover more.

7. Central government often relies on local government to manage fraud risks on its behalf but does little to support local authorities’ capability to do so. For example, the Department for Business, Energy and Industrial Strategy required local authorities to pursue any losses from error and fraud they identify arising from payments in COVID-19 business grant schemes. However, as all recovered monies must be paid back to central government, local authorities have had no financial incentive to go beyond the minimum required action to identify losses. And only a small proportion of the estimated losses, £21 million out of an estimated £1.1 billion, has been recovered so far. Central government has tried to provide some support to local authorities, for example, local authorities were provided with around £200 million for the cost of administering the schemes, and local authorities have been able to make use of the data matching functionality of the National Fraud Initiative to counter fraud. But the different governance architecture in place across local government has added a layer of complexity to the interactions of central and local government. Local government bodies have also struggled to maintain timely financial reporting. The Treasury agreed to speak to the Department for Levelling Up, Housing and Communities officials about what more can be done to support local authorities manage the risk of fraud and corruption in their spending.

Recommendation 7: HM Treasury should set out, in its Treasury Minute response:

a) how it plans to understand the challenges for local government counter-fraud work.

b) what support central government plans to provide to local government bodies who administer schemes and manage fraud and corruption risks to funds on behalf of central government.

1 The problem

1. On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury, Cabinet Office and the Public Sector Fraud Authority (PSFA) about tackling fraud and corruption against government.2

2. Fraud, as set out in the Fraud Act 2006, is to dishonestly make a false representation, fail to disclose information that is legally required to be disclosed, or abuse a position for financial gain or to cause loss to another. Corruption is the abuse of a public or private office for personal financial gain or avoidance of loss. While some fraud and corruption against the taxpayer is inevitable, all public bodies have a responsibility to minimise it. Accounting officers are responsible for managing their organisations’ responses to fraud and error risks as part of their overall control environments. In 2018, Cabinet Office established the Government Counter Fraud Function (GCFF), which brings together some 13,000 people working on counter-fraud activity across the public sector. In October 2018, government launched the Government Counter Fraud Profession (GCFP) to support the development of capability for counter-fraud professionals across government.3

3. Fraud against government increased during the COVID-19 pandemic. The amount of fraud in government expenditure that was reported in the accounts audited by the National Audit Office rose from £5.5 billion in total in the two years before the pandemic (2018–19 and 2019–20) to £21 billion in total in the following two years. Of the £21 billion, £7.3 billion related to temporary COVID-19 schemes and £12.7 billion related to benefit fraud. This reflects the nature of the government’s response to the pandemic, including the rapid implementation of large new spending and loan programmes that came with an unusually high risk of fraud, and the easing of some of the normal controls, for example, to process new Universal Credit claims.4 We have previously reported on the risks of fraud across various individual schemes and departments and how these risks of fraud could have been better managed, including in our reports on the Department for Business, Energy & Industrial Strategy’s grant schemes, the Coronavirus Job Support Scheme and the Self-Employment Income Support Scheme, the Department for Work & Pension’s (DWP’s) administration of benefits, the management of PPE contracts, and the Bounce Back Loans Scheme.5

4. The level of fraud in government’s COVID-19 schemes increased the profile and awareness of fraud attacks against government. In 2022, in response to concerns over the level of fraud during the pandemic and the lack of a coordinated response, government established the PSFA. The PSFA is now government’s centre of expertise for the management of fraud against the public sector. It reports to both Cabinet Office and HM Treasury, leads the GCFF, and provides the secretariat to the GCFP.6 This report considers government’s efforts to improve its counter-fraud capability, and how the PSFA intends to improve government’s approach.

Confidence in the integrity of government

5. In the two financial years since the start of the pandemic, 2020–21 and 2021–22, over £21 billion has been lost to fraud, compared with £5.5 billion in the two years leading up to the pandemic. The latest Transparency International survey of public and business perception of corruption shows that the UK fell from 8th out of 180 countries in 2017 to 18th in 2022 for the perceived level of corruption. Historical data show that it takes a long time to rebuild trust when it is diminished.7 Both HM Treasury and Cabinet Office acknowledged the risk that such findings pose to public trust and confidence in government.8 Cabinet Office, however, suggested that the increase in the perceived levels of corruption in the UK could have been influenced by “some of the noisy reporting over the time of COVID about some of the expenditure”, and it expects, in due course, the UK’s rating to recover.9 HM Treasury told us that the large sums of money that government was giving out during the pandemic and the provision of support to people and businesses that departments did not have a prior relationship with inevitably led to the increase in fraud levels during the pandemic.10 PSFA told us that following the pandemic, general statistics indicate a gradual increase in the underlying fraud levels across government spending in areas unrelated to COVID-19.11

6. While highlighting the benefits of digital technologies, HM Treasury told us that the digital economy is another factor in the rise of crime levels relating to fraud. Digital developments provide organised criminals with more opportunities to instigate large volume attacks on systems and schemes using hidden identities, phishing and other methods.12 We also received evidence which set out some of the threats posed by emerging technologies in allowing new means of committing fraud across borders and with ever greater reach.13

7. Cabinet Office and PSFA explained to us how the same tools used by fraudsters can also be used by government to prevent and detect fraud. For example, data analytics and government’s ‘one login project’, which will improve the quality of identity verification and assurance, both play an important role in preventing fraud.14 We are also aware of other initiatives, such as DWP’s trialling of machine-learning to identify suspicious Universal Credit claims before an advance is made. We have in the past identified the need for transparency to increase public confidence in the use of data analytics and machine-learning for the detection of fraudulent activity.15

8. We were interested to hear about how government was demonstrating leadership at the most senior levels on tackling fraud and corruption. HM Treasury explained the steps it is taking to change and embed the counter-fraud culture across the public sector. It has asked every major department to target a return on investment of at least £3 for every £1 spent on counter-fraud.16 It has committed to an investment of £1 billion since the pandemic on tackling fraud, including £900 million on DWP, over the period 2022–23 to 2024–25, from which it expects a return of £9 billion by 2028.17 Cabinet Office brought to our attention that as part of government’s wider investment in tackling fraud and corruption, the number of people working at the PSFA has increased from 60 to 150.18 HM Treasury has also implemented Initial Fraud Impact Assessments (IFIAs) with the intention of designing out fraud at the start of initiatives.19 IFIAs are rapid assessments of potential fraud and corruption risks in policies so that appropriate controls can be designed and put in place before implementation.20 In tandem with the creation of the PSFA, HM Treasury told us that these collective changes are testament to the resolve of government to tackle fraud and corruption.21

Gaps in government’s understanding of fraud and corruption risks

9. Most departments are exposed to more than one type of fraud risk, while all have exposure to internal fraud and corruption risk.22 However, few departments produce regular, reliable, and comprehensive measurements on the level of fraud and corruption in major areas of their spending.23 PSFA estimates that, for the two-thirds of government expenditure where there are no specific estimates, the level of fraud and error is somewhere between 0.5% and 5% of expenditure.24 This implies that in addition to the £10 billion a year of lost tax revenue from evasion and criminal attacks and £6.4 billion of benefit fraud last year (2022–23), government is losing somewhere in the range of £2.5 billion to £28.5 billion to fraud and error each year across the rest of its expenditure.25 PSFA and its predecessors have run a Fraud Measurement and Assurance (FMA) programme since 2014 to assess the level of fraud and error outside of the few areas, such as tax, welfare and Ministry of Defence (MoD) spending, where there are annual exercises.26

10. Each FMA exercise covers a specific area of spend and estimates the level of fraud and error in that spending. Since 2014, the FMA programme comprised 62 assessments covering £224 billion of spending. The GCFF’s Oversight Board concluded that 32 of the assessments, representing more than half (57%) of assessed expenditure, produced outcomes that are not reliable.27 When challenged on the value of the counter-fraud function, PSFA told us that the UK is the only country in the world to have a standard on fraud risk assessment. The standard means that all risk assessments across government are comparable and it is clear to what quality they are conducted. The technical advances were made possible through counter-fraud practitioners working as a function.28 PSFA told us that the reason all assessments conducted since the start of the COVID-19 pandemic were deemed to be unreliable was the scale and complexity of the schemes, which in tandem with the inherent difficulties associated with fraud measurement, resulted in shortcomings against the fraud measurement standard. For example, the Department of Health and Social Care’s assessment of the level of fraud in its procurement of PPE was not based on a fully random sample and could not be extrapolated.29 We asked PSFA about the reliability of the MoD’s estimate that 4.8% of its annual procurement spend is fraudulent. PSFA explained that MoD, in the absence of a random sampling exercise, had to rely on benchmarks from academic research, and therefore its estimate does not come with a high level of confidence. The most reliable estimate of the level of fraud and error is the range 0.5% to 5% of expenditure, which is based on the most reliable FMA fraud measurement exercises. PSFA explained that the NHS Counter Fraud Authority’s assumption that 1% of all NHS expenditure is wasted on fraud is also, similar to the MoD’s estimate, based on comparators elsewhere.30

11. HM Treasury told us that to improve government’s fraud measurement capability, the number of fraud measurement experts will be doubling from 99 to about 180 across government.31 PSFA told us that it would not advocate departments to conduct fraud measurement exercises in all the areas where there are currently gaps because that would be too expensive and complicated.32 For example, DWP and HM Revenue & Customs (HMRC) spend £22 million each year on measuring fraud and error in the welfare and tax systems.33 PSFA told us that it will mainly focus its efforts on fraud risk assessments and outcomes from counter-fraud work to prevent and detect fraud.34 We asked PSFA about the conflation of fraud and error, and what plans, if any, it had to separate them as they are different concepts with different public perceptions. PSFA explained that differentiating between fraud and error requires an assessment of intent, which is not always practical to undertake in large scale fraud measurement exercises. It told us that when public bodies have “established vulnerabilities, the response that we may use would not look just at error or fraud” because both often require the same preventive approach.35

Professionalisation of government’s counter-fraud workforce

12. In 2018, Cabinet Office established the GCFF, which in turn launched a set of Counter Fraud Functional Standards to set out minimum expectations for how government organisations should manage their fraud and corruption risks. In October 2018, government also launched the GCFP to support the development of capability for counter-fraud professionals across government. The GCFP grants membership to the profession based on the evaluation of knowledge and skills codified by the GCFP standards.36 We asked PSFA about the impact of introducing government counter-fraud functional and professional standards. PSFA told us that the functional standards have provided the public with transparency on the basics of what they can expect public bodies to do to counter fraud and corruption. PSFA’s assessments prior to the onset of the pandemic suggested that use of and compliance with the functional standards was on the increase. It plans to repeat its assessments to establish recent trends. On the professional standards, PSFA explained that they have led to an upskilling of the counter-fraud practitioners across government by sharing with them the available skills, knowledge and experience of the profession. PSFA told us that, internationally, the UK is the first country in the world to have a counter-fraud profession, as well as the first to have a professional standard for fraud prevention.37

13. However, PSFA recognised that there is further work to be done on developing the counter-fraud profession. There are over 13,000 members of the counter-fraud function across government, around 84% of whom work for DWP or HMRC. Less than 45% of counter-fraud practitioners are members of the GCFP.38 HM Treasury told us that the aim is for 3,000 more people to be members of the GCFP in the next three years.39 PSFA explained that historically counter-fraud practitioners were not always able to demonstrate a wider understanding of the business context in which they operated. There is also evidence that many departments lack senior counter-fraud professionals with influence in their organisations.40 Cabinet Office highlighted the fact that the counter-fraud function is a relatively young function compared to more established functions, such as, HR, finance and commercial. The counter-fraud discipline needs time to reinforce itself as a function, a profession, and “a key way of doing business in government”.41

14. In 2021, HM Treasury commissioned GCFF to undertake a Workforce and Performance Review (WPR) to map the counter-fraud resources and delivery outcomes of 70 central government organisations.42 HM Treasury and Cabinet Office said that the WPR exercise will now be an annual undertaking to enable government to focus on areas, particularly outside the tax and welfare systems, most in need of improvements.43 HM Treasury explained that in return for its investment in government’s counter-fraud capability, and to encourage a culture change in public bodies’ attitudes towards tackling fraud and corruption, it will ask for organisations to achieve, or work towards, a return of £3 for every £1 they spend on counter-fraud activities.44 PSFA told us that a 3 to 1 return on investment is a “reasonable place to start” but expectations will have to be tailored to reflect the risk profile of organisations.45

2 Government’s response

Designing out fraud and corruption

15. Government’s response to the COVID-19 pandemic underlined the need to design counter-fraud measures, including controls, reporting and recovery, into new initiatives at an early stage of the policy cycle. Government could have maintained several basic standards of public accountability to minimise opportunities for fraud and corruption. It could have: increased transparency to parliament and the public; better managed conflicts of interest; promptly addressed known vulnerabilities; and ensured timely financial reporting.46 The Public Sector Fraud Authority (PSFA) recognised the imperative to build in fraud and corruption controls when new schemes are introduced. HM Treasury and the PSFA told us that government, to achieve its aim of designing out fraud from the start, has now introduced Initial Fraud Impact Assessments (IFIAs), which are embedded within HM Treasury’s formal spending approval processes.47 IFIAs are rapid initial assessments of the likely fraud risks in new major spending initiatives.48 HM Treasury told us that 700 of its staff have been trained on matters relating to fraud to ensure they are able to fulfil their responsibilities on scrutinising departmental IFIAs.49

16. PSFA also informed us that it would soon launch its ‘risk, threat and prevention service’, which it wants to provide departments with further support on early risk assessments.50 The Cabinet Office made an announcement on 24 May, shortly after our evidence session, confirming the launch of this new team and that it was starting work immediately.51 PSFA brought to our attention the work of a cross-government ‘tiger team’ of experts, which undertook IFIAs and fraud risk assessments, and provided initial prevention advice on government’s energy schemes.52 HM Treasury told us that some of the lessons learned from government’s experience of administering the COVID-19 schemes have already informed the design of some new initiatives to minimise fraud. For example, government, in its energy schemes, used discounted energy bills, administered by the energy suppliers, to provide support to those in need rather than giving out cash up front.53

Deterrence

17. Detecting and pursuing fraudsters and corrupt officials is important for the provision of justice, to provide intelligence on the types of fraud and corruption occurring and to act as a deterrent for others.54 Cabinet Office told us it is the intention of government to step up its enforcement activities, and in a very public and transparent way, to demonstrate to people the consequences of fraud. Under the new Procurement Bill, if passed by Parliament, government can bar people from taking part in public procurement if they have committed fraud. There is also scope to disqualify people as company directors. Cabinet Office explained that these examples, alongside the other sanctions available to government, are part of a plan to create an environment in which people are deterred from committing fraud and the public have confidence in the way government pursues fraudsters.55

18. On the deterrence effect of convictions and whether there is a sufficient level of convictions to create a suitable deterrent, the PSFA told us that it was not aware of any evidence to indicate what the right level of prosecutions would be to create a deterrent.56 After our evidence session, the Cabinet Office wrote to us providing us with statistics for the main areas of government’s prosecution activity, including HM Revenue & Customs (HMRC) and Department for Work & Pensions (DWP). Between 2019–20 and 2021–22, HMRC’s criminal investigations had led to the prosecution of 1,090 and the conviction of 983 individuals. Between 2020–21 and 2022–23, DWP referred 1,213 cases to the Crown Prosecution Service or Procurator Fiscal for prosecution, and secured 1,154 convictions.57 While it acknowledged the importance of prosecutions and convictions, the PSFA said it was important to make use of the full suite of interventions available to government in tackling fraud and corruption, for example, better controls, better prevention and better use of data analytics. Cabinet Office told us about the importance of getting the balance between civil and criminal sanctions right. While successful criminal sanctions can create a very strong deterrent effect, they can also be expensive and time-consuming.58 Civil sanctions on the other hand can be discharged more quickly and with a lower burden of proof but may not offer the same deterrent effect.59

19. DWP and HMRC are the two departments at the front line of the battle against fraud. These departments have their own fraud investigation and enforcement legal powers.60 Cabinet Office told us that the PSFA will itself be setting up an enforcement unit to meet the demand across government for effective civil and criminal enforcement actions.61 Government has neither the ability or capability to detect, investigate and gather sufficient evidence to support a prosecution for all fraud and corruption.62 We asked how government planned to use transparency to make the most of its investigative capabilities. Cabinet Office told us about the importance of annual reporting on fraud, where it occurs, the actions taken in response to it and the outcomes achieved. It is also of vital importance to provide transparency to public on the consequences of fraudsters’ actions, and for organisations to expose themselves to internal and external scrutiny of their counter-fraud and corruption efforts.63 HM Treasury also acknowledged the importance of transparency and celebrating tackling fraud and corruption to deter others.64

Recovery of losses

20. Departments have detected an increasing amount of fraud and error outside of tax and welfare expenditure. Cabinet Office has reported that since 2014–15 departments have detected £0.9 billion of fraud.65 It is not, however, possible to tell whether the increase in detected fraud relates to better detection or increased occurrences of fraud.66 PSFA told us that government’s investment in analytical tools and the National Fraud Initiative have contributed to the increasing levels of detected fraud.67 We asked PSFA why government was only detecting a small proportion of the estimated levels of fraud and error outside the tax and welfare systems. In 2020–21, departments and their arm’s-length bodies had detected £243 million of fraud, excluding tax and welfare fraud, while the PSFA had reported between £3.5 billion and £29.1 billion of fraud and error in the same year. PSFA acknowledged the need to investigate the reasons behind the gap between the estimates of fraud and error, and the levels of detected fraud.68

21. Departments also only recover a minority of the fraud they detect. In 2020–21, departments had recovered £29 million out of the £243 million of detected fraud. Enforcement and recovery powers are also fragmented across government, which exacerbates the challenge government faces to recover fraud losses.69 We asked HM Treasury how much of the £21 billion estimated fraud over the pandemic it expected to recover. HM Treasury told us that DWP and HMRC will have their own specific targets, and the returns on their spending are scrutinised by the Office for Budget Responsibility at fiscal events. HM Treasury and Cabinet Office confirmed that government was not writing off any of the losses associated with fraud during the COVID-19 pandemic period. It was actually increasing its efforts to recover those losses, for example, through its £1 billion investment in counter-fraud capability, but it would not be reasonable to expect government to recover all of the losses.70

Local government

22. The accountability system between local and central government is complex. This complexity means it can be difficult to identify who is accountable for what.71 Central government often relies on local government to manage fraud risks on its behalf, for example, on grants administered to individuals and businesses. An organisation’s exposure to grant fraud often depends on how specific the grant agreement objectives and outcomes are, and the quality of the post-award monitoring arrangements.72

23. Between March 2020 and March 2022, local authorities distributed COVID-19 grants costing £22.6 billion via 4.5 million payments to businesses. By October 2022, the Department for Business, Energy & Industrial Strategy (BEIS) estimated that error and fraud across all the COVID-19 grant schemes was in the region of £1.1 billion (just under 5% of the value of grants paid to businesses). BEIS required local authorities to pursue any losses from error and fraud they identify arising from payments. However as all recovered monies must be paid back to central government, local authorities have had no financial incentive to identify losses beyond those contained within the BEIS-directed samples used to derive the estimates of error and fraud losses73 Only about 2% of the fraud and error losses, £21 million, had been recovered when we took evidence in May.74 Local authorities are also under considerable pressure to complete their audits. Only 9% of local government bodies received audited accounts for 2020–21 by the extended statutory publication deadline of 30 September 2021 and 12% received audited accounts for 2021–22 by the statutory deadline of 30 November 2022. Against such a background, we asked HM Treasury whether PSFA should be given a wider remit to also cover the management of fraud across local government.75

24. HM Treasury told us that while it may appear reasonable to extend the PSFA’s remit to also cover local government, there are different governance architectures across central and local government, and any change to the roles and responsibilities of the PSFA would entail “a very large increase” in the mandate of the PSFA and there are no plans to take such a course of action. HM Treasury brought to our attention a cost-sharing agreement that they had agreed with local authorities to provide them with £200 million for the administration of the schemes.76 HM Treasury agreed to engage with the Department for Levelling Up, Housing and Communities to ascertain what more government could do to support counter-fraud activities in local authorities.77

25. Cabinet Office and the PSFA told us that while local government does not explicitly fall under their remit, they still provide support to local authorities through various means. Local authorities can make use of the data-matching functionality of the National Fraud Initiative. Local authorities have access to the resources of the counter-fraud profession and members of the profession work in local government. And under the new procurement legislation, people could also be barred from local government procurement.78 HM Treasury, however, confirmed that central government does not monitor local government’s management of fraud and corruption risks.79

Formal minutes

Wednesday 19 July 2023

Members present:

Sir Geoffrey Clifton-Brown

Olivia Blake

Ashley Dalton

Mr Jonathan Djanogly

Mrs Flick Drummond

Sarah Olney

Anne Marie Morris

Tackling fraud and corruption against government

Draft Report (Tackling fraud and corruption against government), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 25 read and agreed to.

Summary agreed to.

Introduction agreed to.

Conclusions and recommendations agreed to.

Resolved, That the Report be the Sixty-ninth of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Adjournment

Adjourned till Thursday 7 September at 9.30am.


Witnesses

The following witnesses gave evidence. Transcripts can be viewed on the inquiry publications page of the Committee’s website.

Monday 15 May 2023

James Bowler CB, Permanent Secretary, HM Treasury; Alex Chisholm, Chief Operating Officer of the Civil Service and Permanent Secretary, Cabinet Office; Mark Cheeseman OBE, Chief Executive, Public Sector Fraud AuthorityQ1–96


Published written evidence

The following written evidence was received and can be viewed on the inquiry publications page of the Committee’s website.

TCG numbers are generated by the evidence processing system and so may not be complete.

1 Bantock, Mr Geoff (TCG0001)

2 Collins, Dr Jennifer (TCG0006)

3 Institute of Chartered Accountants in England and Wales (TCG0002)

4 Macfarlane, Tom (TCG0007)

5 Spotlight on Corruption (TCG0005)

6 Transparency International UK (TCG0003)

7 UK Anti-Corruption Coalition (TCG0004)


List of Reports from the Committee during the current Parliament

All publications from the Committee are available on the publications page of the Committee’s website.

Session 2022–23

Number

Title

Reference

1st

Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21

HC 59

2nd

Lessons from implementing IR35 reforms

HC 60

3rd

The future of the Advanced Gas-cooled Reactors

HC 118

4th

Use of evaluation and modelling in government

HC 254

5th

Local economic growth

HC 252

6th

Department of Health and Social Care 2020–21 Annual Report and Accounts

HC 253

7th

Armoured Vehicles: the Ajax programme

HC 259

8th

Financial sustainability of the higher education sector in England

HC 257

9th

Child Maintenance

HC 255

10th

Restoration and Renewal of Parliament

HC 49

11th

The rollout of the COVID-19 vaccine programme in England

HC 258

12th

Management of PPE contracts

HC 260

13th

Secure training centres and secure schools

HC 30

14th

Investigation into the British Steel Pension Scheme

HC 251

15th

The Police Uplift Programme

HC 261

16th

Managing cross-border travel during the COVID-19 pandemic

HC 29

17th

Government’s contracts with Randox Laboratories Ltd

HC 28

18th

Government actions to combat waste crime

HC 33

19th

Regulating after EU Exit

HC 32

20th

Whole of Government Accounts 2019–20

HC 31

21st

Transforming electronic monitoring services

HC 34

22nd

Tackling local air quality breaches

HC 37

23rd

Measuring and reporting public sector greenhouse gas emissions

HC 39

24th

Redevelopment of Defra’s animal health infrastructure

HC 42

25th

Regulation of energy suppliers

HC 41

26th

The Department for Work and Pensions’ Accounts 2021–22 – Fraud and error in the benefits system

HC 44

27th

Evaluating innovation projects in children’s social care

HC 38

28th

Improving the Accounting Officer Assessment process

HC 43

29th

The Affordable Homes Programme since 2015

HC 684

30th

Developing workforce skills for a strong economy

HC 685

31st

Managing central government property

HC 48

32nd

Grassroots participation in sport and physical activity

HC 46

33rd

HMRC performance in 2021–22

HC 686

34th

The Creation of the UK Infrastructure Bank

HC 45

35th

Introducing Integrated Care Systems

HC 47

36th

The Defence digital strategy

HC 727

37th

Support for vulnerable adolescents

HC 730

38th

Managing NHS backlogs and waiting times in England

HC 729

39th

Excess Votes 2021–22

HC 1132

40th

COVID employment support schemes

HC 810

41st

Driving licence backlogs at the DVLA

HC 735

42nd

The Restart Scheme for long-term unemployed people

HC 733

43rd

Progress combatting fraud

HC 40

44th

The Digital Services Tax

HC 732

45th

Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2021–22

HC 1254

46th

BBC Digital

HC 736

47th

Investigation into the UK Passport Office

HC 738

48th

MoD Equipment Plan 2022–2032

HC 731

49th

Managing tax compliance following the pandemic

HC 739

50th

Government Shared Services

HC 734

51st

Tackling Defra’s ageing digital services

HC 737

52nd

Restoration & Renewal of the Palace of Westminster – 2023 Recall

HC 1021

53rd

The performance of UK Security Vetting

HC 994

54th

Alcohol treatment services

HC 1001

55th

Education recovery in schools in England

HC 998

56th

Supporting investment into the UK

HC 996

57th

AEA Technology Pension Case

HC 1005

58th

Energy bills support

HC 1074

59th

Decarbonising the power sector

HC 1003

60th

Timeliness of local auditor reporting

HC 995

61st

Progress on the courts and tribunals reform programme

HC 1002

62nd

Department of Health and Social Care 2021–22 Annual Report and Accounts

HC 997

63rd

HS2 Euston

HC 1004

64th

The Emergency Services Network

HC 1006

65th

Progress in improving NHS mental health services

HC 1000

66th

PPE Medpro: awarding of contracts during the pandemic

HC 1590

67th

Child Trust Funds

HC 1231

68th

Local authority administered COVID support schemes in England

HC 1234

1st Special Report

Sixth Annual Report of the Chair of the Committee of Public Accounts

HC 50

2nd Special Report

Seventh Annual Report of the Chair of the Committee of Public Accounts

HC 1055

Session 2021–22

Number

Title

Reference

1st

Low emission cars

HC 186

2nd

BBC strategic financial management

HC 187

3rd

COVID-19: Support for children’s education

HC 240

4th

COVID-19: Local government finance

HC 239

5th

COVID-19: Government Support for Charities

HC 250

6th

Public Sector Pensions

HC 289

7th

Adult Social Care Markets

HC 252

8th

COVID 19: Culture Recovery Fund

HC 340

9th

Fraud and Error

HC 253

10th

Overview of the English rail system

HC 170

11th

Local auditor reporting on local government in England

HC 171

12th

COVID 19: Cost Tracker Update

HC 173

13th

Initial lessons from the government’s response to the COVID-19 pandemic

HC 175

14th

Windrush Compensation Scheme

HC 174

15th

DWP Employment support

HC 177

16th

Principles of effective regulation

HC 176

17th

High Speed 2: Progress at Summer 2021

HC 329

18th

Government’s delivery through arm’s-length bodies

HC 181

19th

Protecting consumers from unsafe products

HC 180

20th

Optimising the defence estate

HC 179

21st

School Funding

HC 183

22nd

Improving the performance of major defence equipment contracts

HC 185

23rd

Test and Trace update

HC 182

24th

Crossrail: A progress update

HC 184

25th

The Department for Work and Pensions’ Accounts 2020–21 – Fraud and error in the benefits system

HC 633

26th

Lessons from Greensill Capital: accreditation to business support schemes

HC 169

27th

Green Homes Grant Voucher Scheme

HC 635

28th

Efficiency in government

HC 636

29th

The National Law Enforcement Data Programme

HC 638

30th

Challenges in implementing digital change

HC 637

31st

Environmental Land Management Scheme

HC 639

32nd

Delivering gigabitcapable broadband

HC 743

33rd

Underpayments of the State Pension

HC 654

34th

Local Government Finance System: Overview and Challenges

HC 646

35th

The pharmacy early payment and salary advance schemes in the NHS

HC 745

36th

EU Exit: UK Border post transition

HC 746

37th

HMRC Performance in 2020–21

HC 641

38th

COVID-19 cost tracker update

HC 640

39th

DWP Employment Support: Kickstart Scheme

HC 655

40th

Excess votes 2020–21: Serious Fraud Office

HC 1099

41st

Achieving Net Zero: Follow up

HC 642

42nd

Financial sustainability of schools in England

HC 650

43rd

Reducing the backlog in criminal courts

HC 643

44th

NHS backlogs and waiting times in England

HC 747

45th

Progress with trade negotiations

HC 993

46th

Government preparedness for the COVID-19 pandemic: lessons for government on risk

HC 952

47th

Academies Sector Annual Report and Accounts 2019/20

HC 994

48th

HMRC’s management of tax debt

HC 953

49th

Regulation of private renting

HC 996

50th

Bounce Back Loans Scheme: Follow-up

HC 951

51st

Improving outcomes for women in the criminal justice system

HC 997

52nd

Ministry of Defence Equipment Plan 2021–31

HC 1164

1st Special Report

Fifth Annual Report of the Chair of the Committee of Public Accounts

HC 222

Session 2019–21

Number

Title

Reference

1st

Support for children with special educational needs and disabilities

HC 85

2nd

Defence Nuclear Infrastructure

HC 86

3rd

High Speed 2: Spring 2020 Update

HC 84

4th

EU Exit: Get ready for Brexit Campaign

HC 131

5th

University technical colleges

HC 87

6th

Excess votes 2018–19

HC 243

7th

Gambling regulation: problem gambling and protecting vulnerable people

HC 134

8th

NHS capital expenditure and financial management

HC 344

9th

Water supply and demand management

HC 378

10th

Defence capability and the Equipment Plan

HC 247

11th

Local authority investment in commercial property

HC 312

12th

Management of tax reliefs

HC 379

13th

Whole of Government Response to COVID-19

HC 404

14th

Readying the NHS and social care for the COVID-19 peak

HC 405

15th

Improving the prison estate

HC 244

16th

Progress in remediating dangerous cladding

HC 406

17th

Immigration enforcement

HC 407

18th

NHS nursing workforce

HC 408

19th

Restoration and renewal of the Palace of Westminster

HC 549

20th

Tackling the tax gap

HC 650

21st

Government support for UK exporters

HC 679

22nd

Digital transformation in the NHS

HC 680

23rd

Delivering carrier strike

HC 684

24th

Selecting towns for the Towns Fund

HC 651

25th

Asylum accommodation and support transformation programme

HC 683

26th

Department of Work and Pensions Accounts 2019–20

HC 681

27th

Covid-19: Supply of ventilators

HC 685

28th

The Nuclear Decommissioning Authority’s management of the Magnox contract

HC 653

29th

Whitehall preparations for EU Exit

HC 682

30th

The production and distribution of cash

HC 654

31st

Starter Homes

HC 88

32nd

Specialist Skills in the civil service

HC 686

33rd

Covid-19: Bounce Back Loan Scheme

HC 687

34th

Covid-19: Support for jobs

HC 920

35th

Improving Broadband

HC 688

36th

HMRC performance 2019–20

HC 690

37th

Whole of Government Accounts 2018–19

HC 655

38th

Managing colleges’ financial sustainability

HC 692

39th

Lessons from major projects and programmes

HC 694

40th

Achieving government’s long-term environmental goals

HC 927

41st

COVID 19: the free school meals voucher scheme

HC 689

42nd

COVID-19: Government procurement and supply of Personal Protective Equipment

HC 928

43rd

COVID-19: Planning for a vaccine Part 1

HC 930

44th

Excess Votes 2019–20

HC 1205

45th

Managing flood risk

HC 931

46th

Achieving Net Zero

HC 935

47th

COVID-19: Test, track and trace (part 1)

HC 932

48th

Digital Services at the Border

HC 936

49th

COVID-19: housing people sleeping rough

HC 934

50th

Defence Equipment Plan 2020–2030

HC 693

51st

Managing the expiry of PFI contracts

HC 1114

52nd

Key challenges facing the Ministry of Justice

HC 1190

53rd

Covid 19: supporting the vulnerable during lockdown

HC 938

54th

Improving single living accommodation for service personnel

HC 940

55th

Environmental tax measures

HC 937

56th

Industrial Strategy Challenge Fund

HC 941


Footnotes

1 Q 54

2 C&AG’s Report, Tackling fraud and corruption against government, Session 2022–23, HC 1199, 30 March 2023

3 C&AG’s Report, paras 4, 1.2 and 2.5

4 C&AG’s Report, Figure 6

5 Committee of Public Accounts, Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2021–22, Forty-Fifth Report of Session 2022–23, HC 1254, 26 April 2023; Committee of Public Accounts, HMRC performance in 2021–22, Thirty-Third Report of Session 2022–23, HC 686, 11 January 2023; Committee of Public Accounts, HMRC Performance in 2020–21, Thirty-Seventh Report of Session 2021–22, HC 641, 11 February 2022;Committee of Public Accounts, Covid-19: Support for jobs, Thirty-Fourth Report of Session 2019–21, HC 920, 20 December 2020; Committee of Public Accounts, The Department for Work and Pensions’ Accounts 2021–22 – Fraud and error in the benefits system, Twenty-Sixth Report of Session 2022–23, HC 44, 9 November 2022; Committee of Public Accounts, Management of PPE contracts, Twelfth Report of Session 2022–23, HC 260, 20 July 2022; Committee of Public Accounts, Bounce Back Loans Scheme: Follow-up, Fiftieth Report of Session 2021–22, HC 951, 27 April 2022; Committee of Public Accounts, Covid-19: Bounce Back Loan Scheme, Thirty-Third Report of Session 2019–21, HC 687, 16 December 2020

6 C&AG’s Report, paras 1, 4, 1.19, 2.6 and 2.7

7 Qq 1, 12; C&AG’s Report, para 1.4 and Figure 6

8 Qq 1–2, 5, 15

9 Q 12

10 Q 3

11 Qq 6–7

12 Qq 8–9

13 Q 9; TCG0006

14 Q 20

15 Committee of Public Accounts, The Department for Work and Pensions’ Accounts 2021–22 – Fraud and error in the benefits system, Twenty-Sixth Report of Session 2022–23, HC 44, 9 November 2022, conclusion 5

16 Qq 50–51, 61

17 Qq 54, 61, 72

18 Q 44

19 Q 61

20 C&AG’s Report, para 2.5

21 Q 72

22 C&AG’s Report, para 1.17 and Figure 3

23 Q 58; C&AG’s Report, Figure 3

24 C&AG’s Report, para 1.16

25 C&AG Report, Figures 1 and 6; Fraud and error in the benefit system: financial year 2022 to 2023 estimates

26 C&AG’s Report, para 1.12–1.15

27 C&AG’s Report, para 1.15–1.16

28 Qq 23, 79

29 Qq 18–19; C&AG’s Report, para 1.20

30 Qq 40, 42; C&AG’s Report, para 1.14 and 1.16

31 Q 18

32 Qq 31, 56, 58

33 Q 31; C&AG’s Report, para 19

34 Q 58

35 Qq 29–30; C&AG’s Report, para 1.9

36 C&AG’s Report, para 2.5

37 Qq 17, 34–36

38 Q 17; C&AG’s Report, Figure 10

39 Q 38

40 Q 49; C&AG’s Report, para 3.8

41 Q 50

42 C&AG’s Report, para 2.11

43 Qq 39, 48

44 Q 65

45 Qq 66–67

46 C&AG’s Report, para 1.23 and 3.10

47 Qq 32, 34, 61

48 C&AG‘s Report, para 26

49 Q 62

50 Q 34

51 www.gov.uk/government/news/new-specialist-fraud-squad-to-help-departments-prevent-fraud-in-public-services

52 Qq 46, 70; C&AG’s Report, para 2.5

53 Qq 71, 82

54 C&AG’s Report, para 3.11

55 Qq 5, 93

56 Q 11

57 Letter to the Chair of the Public Accounts Committee from Alex Chisholm, Cabinet Office Permanent Secretary, 25 May 2023

58 Qq 10–11

59 Q 11, C&AG’s Report, para 3.11

60 Q 25; C&AG‘s Report, para 22

61 Qq 25, 55

62 C&AG‘s Report, para 3.11

63 Q 88

64 Q 28

65 Q 37; C&AG‘s Report, para 1.18

66 C&AG’s Report, Figure 5

67 Qq 20, 33

68 Qq 37–38; C&AG’s Report, Figures 1 and 5

69 C&AG’s Report, para 1.18, 3.11 and Figure 5

70 Qq 83, 86

71 C&AG’s Report, Departmental Overview 2019–20: Ministry of Housing, Communities & Local Government, January 2021

72 C&AG’s Report, Tackling fraud and corruption against government, Session 2022–23, HC 1199, 30 March 2023

73 C&AG’s Report, COVID-19 business grant schemes, Session 2022–23, HC 1200, 24 March 2023, para 7, 12 and 14

74 Committee of Public Accounts, Oral evidence: Local Authority administered COVID grant schemes, HC 1234, 11 May 2023, Qq 13–14

75 Q 92; C&AG’s Report, para 1.23

76 Q 92

77 Q 93

78 Q 93; C&AG’s Report, Figure 10

79 Q 94