Council Fraud up £50m Eric Pickles- so let’s relax auditing nearly 100 authorities

Eric Pickles: Slashing audit checks as council fraud booms

Detected fraud in local councils has jumped £50m in one year – with the biggest scams involving cheating on council tax benefits, unlawfully subletting council homes and false benefit claims.

 You would think Eric Pickles, the communities secretary, and Grant Shapps. the local government minister, would only be too delighted that someone is collecting this, advising councils how to tackle the problem, and saving the taxpayer up to £185m.

But soon you won’t know because the Audit Commission, the body that collects  all this information,  is to be abolished. And to save more money the government is raising the ceiling on councils that needed to be fully audited from £1m to £6.5m next year.

 Perhaps you might think these councils – mainly town and city councils, museums and drainage boards, are paragons of virtue and nobody working so close to the parish pump would dream of defrauding them.

But read the Audit Commission report,Protecting the Public Purse 2011, (summary and download here http://bit.ly/sSfVJG ) and you will find that one parish clerk managed to defraud four councils  out of £63,000 and get an 18 month prison sentence. As the report reveals: “The clerk forged signatures, altered cheques, and made unauthorised payments to herself and her family. ”

The chair of one of the parish councils said, “We have had to take out a £30,000 loan as a result of her leaving us practically bankrupt.”

In another reported case a parish council clerk set up an internet banking account for the council without its knowledge. He used this account to pay himself. The clerk told councillors the council did not require an audit. Councillors believed him and failed to ensure their responsibilities for protecting public money were undertaken properly.

So perhaps it is a bit stupid of ministers to decide that 96 authorities each spending between £1m and £6.5m a year WILL no longer require a full audit – the perfect excuse for the fraudster who conned his local councillors.

Not only is  this an opportunity for fraud but incompetence as well. An investigation I did for Exaro News revealed that among the 96 – a number had recently had their accounts qualified because they were full of mistakes or just plain wrong. One authority, Swanage Town Council, was  qualified twice in successive years. Another council, Tavistock, was told by its auditors to  resubmit its accounts to the council because they had approved completely inaccurate documents.

 You will find the full story and the  list of authorities on the Exaro News website ( http://bit.ly/vWuRFK ). In the meantime you could always ask Mr Pickles to justify what he is doing – his work e-mail is eric.pickles@communities.gsi.gov.uk . Bet you he won’t want to know.

9 thoughts on “Council Fraud up £50m Eric Pickles- so let’s relax auditing nearly 100 authorities

  1. It’s good that you mention corruption occurring in parish council administration – contrary to the saying, the English local government fish rots from the bottom upwards and more attention needs to be given to parish and market town councils, despite their reputation for apparently petty squabbles and trivial arguments (which is what deters Private Eye from covering them in “Rotten Boroughs”, as Tim Minogue told me – to name-drop) – removing what checks there are will only worsen the present unsatisfactory arrangements for citizens to monitor their local authorities.

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    • Consider it from a cost point of view…

      In the example you give, fraud cost £63k – likely around the cost of say 2-3 audits of the 96 councils

      Assuming fraud is not so widespread as to affect every single one of these bodies to this extent, then removing/reducing this cost is likely to save far more that increasing regulation to detect fraud.

      I am in no way suggesting anyone should be able to get away with such fraud, however purely from a value for money perspective, removing audit requirements from this many bodies is likely to save money overall.

      Your article also makes the common mistake of assuming auditors have responsibility for detecting fraud – they do not. This is the responsibility of management. You only have to read an audit report to see this.

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      • Anna, yes up to a point.. but if auditors do check sums of money they often come across fraud.Also looking at the advice the Audit Commission also gives councillors it should make them much more aware of the problem. The Swanage cases revealed a lack of understanding on how to record finances and take decisions both as a council and a charity where they were the sole trustee.

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  2. ISA 240 is the auditing standard on fraud. It state, pretty explicitly, that the responsibility for identifying fraud lies with management. Audit is not conducted on an absolute basis, as it is simply impossible for auditors in a few weeks of fieldwork to review a year’s worth of transactions. This is why it is management’s responsibility to identify fraud.

    It’s not as though Pickle’s scrapping all audits, he’s simply finding a way to cut the public spending on non-frontline services. It’s pretty rare that money obtained fraudulently is fully recovered, so what we’re talking about in terms of additional fraud is from people who decide to think “Aha! we’re not being audited any more! NOW I shall put my masterplan into action!” Which must be a pretty small number.

    I’m not about to do the maths, but I am almost certain that the money lost by any additional fraud committed is dwarfed by the amount of money saved by scrapping the audit commission. It will ultimately still be the same entities conducting the audits (PwC, KPMG, Deloitte, etc.), in the same way, but by cutting out the audit commission, the whole process should be a lot quicker and cheaper. It will even be the same people, as the same amount of work will still need to be done, so, those who used to work in the AC will be snapped up by the auditing firms to benefit from their experience and understanding (this has been happening for a few years already).

    Basically, what Anna said.

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  3. I know a council were fraud has been a way of life since it was founded in 1973. I doubt if the Audit Commission knew where it was, let alone cared about the high levels of fraud and malfeasance.So the loss of the Audit Commission will mean very little in reality.

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    • Hi Matt,
      Actually the Audit Commission does care a damn – all the research on fraud used in the article has been collected by them. As I am a journalist if you have got stuff on fraud since 1973 at a council give me the details and I will investigate.

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  4. What your headline should really say is that an “additional £50m of council fraud has been discovered since the incompetent gravy train of an organisation previously rife with Labour nepotism was abolished.”

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    • Andy, if you have read this properly – the £50m took it to £185m. Also the Audit Commission has not yet been abolished – it was their report on fraud. Mr Pickles has delayed its demise until post 2015 because he hasn’t got his Act of Parliament together to do it and has run into trouble with how to replace all its functions. No doubt you will blame this delay in nepotism!

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  5. What is most disturbing, is the notion that the threshold for (presumably external) audit is being increased. I do feel that when public money is involved there should be public accountability. Whilst detection of fraud is management’s responsibility, it is also the responsibility of external auditors to detect fraud when it materially affects the accounts and as a result auditors must conduct their work accordingly. Even if audit doesn’t detect every fraud, scrutiny is also a deterrent and the question does need to be asked “what would the level of fraud be if there is no audit?”

    If local authorities take advantage of audit exemption; management will need to look even more closely at governance and risk management.

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