My outdoor tap leaks. Not very much, just a small drip. And though I put a bucket underneath to catch the drips, I’ll admit that sometimes the bucket overflows before I can use the water in my garden. I know I should find out if it’s just a dodgy washer or I need a replacement tap but somehow it never makes it to the top of my to-do list.
Out of interest, the other day I looked up how much a leaky tap costs the average household. Potentially hundreds of pounds each month, so safe to say it makes financial sense to get it fixed. Then I saw that leaky taps cost UK householders an estimated £3 million every year. Thousands of little drips adding up to a big chunk of money being washed away.
The Government Counter Fraud Function (GCFF) faces a similar challenge when trying to tackle fraud against the public purse. Government estimates that £26.8 billion a year is lost to fraud and error in the tax and welfare system, but for me, the most surprising thing is that GCFF estimate that up to £25 billion a year more is lost through fraud and error in other areas of government spending. The measurement data available suggests that most departments are losing a relatively small amount to fraud and error every year, but these hundreds of small leaks add up to an eye watering cost to the taxpayer.
Part of the problem government faces is this sheer diversity of risk – fraud and error impacts everything from grants and procurement to income collection. Fraud and error has also traditionally been the sole responsibility of each department to manage leading to considerable variations in approach to similar risks. Although this has clear benefits for accountability, focusing on risks by organisation rather than type and across multiple organisations leads to missed opportunities. Most government grant programmes are likely to face similar challenges when it comes to managing fraud and error risks, even if their exact nature varies.
The GCFF was established in 2018 as a means to bridge these gaps and bring together the 16,000 or so people working in public sector counter-fraud to share knowledge and best practice. Though progress has been made, in June 2021 the Committee of Public Accounts reported that the Cabinet Office and HM Treasury’s central mechanisms for managing fraud and error are still in their infancy.
There are also less than 7,000 recognised counter-fraud professionals working across central and local government and policing, with more than 75% of these working in tax and welfare. That doesn’t leave many qualified specialists to tackle all the other fraud risks across government.
The GCFF recognises that the information it holds on fraud and error losses outside the tax and welfare system needs improvement – its fraud loss estimate of 0.5% to 5% of expenditure is a massive potential range. In our Good Practice Guide on Fraud & Error, we set out how departments need to ensure they have a cost effective control environment. This means doing everything they reasonably can to minimise fraud and error, to the point where doing anything more would have a detrimental impact on wider objectives. In a world of limited resources is it enough to replace a washer or do they need a brand new tap?
The Good Practice Guide also includes our Fraud and Error Audit Framework, developed over several years based on best practice in government and the private sector. Fraud and error risk is continuously evolving, and the Framework provides a structure for assessing how management uses an iterative approach to measure the effectiveness of its counter-fraud and error activities and to continuously improve its controls.
Ultimately, without more precise information on the scale and causes of fraud and error outside the tax and welfare system, government risks large amounts of fraud and error remaining unidentified or untackled. Ensuring that more effort goes into improving government’s understanding of exactly where money is leaking from the system is a key focus of our ongoing work on fraud and error. Now, more than ever, it’s important to make sure that vital taxpayers’ money isn’t being washed down the drain.
Author
Katie Dixon
Katie manages our work on fraud and error within the Financial and risk Management Hub. She joined us as a trainee in 2011 and, after qualifying as an accountant, completed a masters degree in counter fraud and counter corruption studies. She has experience auditing fraud and error risks across financial, investigative and value for money audits and represents the NAO on several public sector fraud expert panels.
