Fighting fraud: healthy attitude

For the last 25 years there has been a general assumption of ‘public sector
bad’ and ‘private sector good’. This simplistic notion does not, of course,
reflect the more complex truth; namely that there are well run public sector
organisations and badly run ones just like there are well run companies and
badly run ones.

There are areas of work in both sectors where each can learn from the other,
particularly as the boundaries between the two are increasingly blurred as
private sector organisations deliver services across the public sector. In
respect of fraud and corruption, a better distinction is between organisations
that take a proper ‘business approach’ and those that don’t.

The real benefit

Why do organisations and businesses fight fraud? Because it is the right
thing to do? Yes. Because fraud is morally wrong? Perhaps. Because it would be
embarrassing to do nothing, if this became public? Sometimes. There are many
reasons why organisations and businesses spend money on countering fraud.

But rarely do these include the reality that, if the right investment is made
in the right combination of action, it can result in a return which is many
times the original sum. In the NHS, since 1999, there has been an accurately
measured and validated financial return of 12 times the investment – £811m of
financial benefits generated from budgetary expenditure of around £66m – with
reductions in losses of up to 60%.

This has been achieved because the NHS took a hard-edged, business approach
to the problem of fraud. The nature and scale of total losses (not merely of
detected fraud) were accurately measured; a proportionate investment was made in
a solution; a comprehensive range of integrated action was taken; and with clear
metrics established focussing on what really matters – losses – progress was
tracked annually with accurate measurement exercises.

Over the last decade, and mostly in the public sector, a new business-like,
integrated approach to fraud has been developing. Milestones have included the
creation by government of the new profession of counter fraud specialist in
2001; the National Audit Office’s ‘Tackling External Fraud’ guidance in 2003;
the creation of the European Healthcare Fraud and Corruption Network in 2004 and
the recent publication by CIPFA) of the first professional standards in this
area.

These developments have culminated in the government’s Fraud Review of 2006
with announcements just published about plans to implement its recommendations.

For the first time, it looks highly likely that this country will have a
cross-economy strategy to counter fraud implemented by a new National Fraud
Strategic Authority and seeking to tackle a problem of fraud losses carefully
identified by accurate measurement.

The ‘business approach’ to fraud goes beyond the customary areas of audit and
investigation, looking to develop a real anti-fraud culture in the area
concerned, mobilising the honest majority and seeking to create a strong
deterrent effect and to deter the dishonest minority. It will use intelligent
design to fraud-proof policies and systems so that fraud is prevented even if it
is not deterred.

It will apply the latest analytical intelligence techniques alongside easily
accessible information pipelines with proactive exercises to detect fraud where
it isn’t prevented. And it will undertake fair and objective investigations to
determine the truth or otherwise of suspicions as they arise. Where fraud is
believed to be present, it will seek to apply a hard hitting combination of
criminal, civil, disciplinary and regulatory sanctions and ensure that any
financial losses are fully recovered.

By taking the next step and integrating each of these areas of activity, a
comprehensive approach can be implemented with a return on the budgetary
investment which is many times what it would otherwise be. And with such a
return, stakeholders can be closely linked to the work, each seeing the benefits
for themselves from reducing fraud losses.

Put in context

Of course, fraud will still emerge as action is taken, but because of the
integrated approach and with metrics demonstrating progress in reducing losses,
they can be set in a proper context of an organisation successfully tackling its
own problems to a higher standard than its peers. In the NHS, over eight years,
and out of over 1900 media articles, less than 10 were critical, which shows
that adverse publicity is far from inevitable.

So, perhaps fraud is an area where good practice from the public sector can
be applied more widely.

The rigorous approach of the last eight years in the NHS, has paid great
dividends and the opportunity now exists for other organisations to place
themselves at the cutting edge of these developments.

With changes likely to result from the fraud review anyway, perhaps now is
the time for many private sector organisations to be asking themselves what
benefits a real ‘business approach’ to fraud might bring them.

Jim Gee is director of fraud services at KPMG Forensic, and formerly head of
counter fraud services at the NHS. He is also vice-chair of the Counter Fraud
Professional Accreditation Board.

Review results

The government last week announced that it will be implementing almost all of
the measures in the attorney general’s fraud review, presented in July 2006.

These include the setting up of a national fraud strategic authority to
coordinate and drive forward counter-fraud work across the country; the setting
up of a national fraud reporting centre to collate and quantify instances of
fraud; and the implementation of fraud loss measurement exercises across major
sections of the economy.

But is it simply too little, too late.Andrew Gordon, head of investigations
in forensic services at PwC, says: ‘Fraud is not just an ethical issue but a
business concern too. Any measures that enhance the speed or transparency with
which prosecutions can be brought about is a good thing and will be significant
in improving the rate of both detection and prosecution.’

But the fraud advisory panel, set up by the ICAEW, criticised the government
response for lacking urgency. Chairman Ros Wright said: ‘As far as the growing
number of victims go, the government’s response is very disappointing.’

According to the panel there are no pledges of new resources, legislation or
even a firm timetable for action,‘Fraud has a devastating effect on individuals,
businesses, communities, and the economy,’ said Wright. ‘Yet the government will
not commit the £27m per year the review suggests is required to implement its
recommendations. This would be tremendous value for money in view of the huge
cost of fraud.’