Fraud risk in government has risen rapidly due to the pandemic, said a report by the National Audit Office (NAO).
The spending watchdog said it was impossible to calculate the amount of fraud accurately. But it estimated that even before the pandemic the government lost between about £29 billion and £52 billion annually.
Fraud risk has risen significantly, it said, because the government spent more on welfare, business support and grants. All these are vulnerable to fraudsters. In addition, it prioritised speed over caution when it set up new initiatives. And it set up new supply chains at pace, among other things.
The government’s Counter Fraud Function issued a standard for countering fraud in 2020. The NAO concluded that this initiative has led to greater fraud detection and reporting.
The NAO has also published its Fraud and Error Audit Framework to help organisations assess how well they are tackling the issue. The framework includes key questions for risk managers to consider:
1. Is there a strategy for tackling fraud and error risk, based on robust evidence and analysis, leading to clear prioritisation?
2. Are options for tackling key risks considered in a timely manner to keep pace with emerging threats and opportunities?
3. Are fraud and error trade-offs with other policy impacts considered?
4. Is the governance structure providing effective oversight of the fraud and error strategy, including clear reporting and performance measurement, and ensuring adherence across the organisation?
5. Has the organisation set clear targets towards a cost-effective control environment?
Risk managers will find the NAO case studies useful. They examine five real scenarios and assess how well the government departments involved have performed against its framework.
For instance, the Department for Work and Pensions faces unprecedented levels of fraud and error in benefit expenditure. The NAO shows how increased resources in controls have double the amount of overpayments it detects. But that it now needs to examine the cost-effectiveness of its individual controls to seek improvements.