Almost a quarter of councils in England reported fraud or corruption in procurement processes, according to a study.
A report into local government procurement fraud by the Ministry of Housing, Communities and Local Government found 23% of 86 councils experienced fraud or corruption in 2017-18, but said this was likely to be the tip of the iceberg.
The report estimated local authority fraud losses at between £275m and £2.75bn each year, but also referred to National Fraud Authority research from 2013 that put the figure at £876m. It said councils spent around £55bn a year on goods, works and services.
The report said adult social care and construction were areas of particular concern, “given the high level of spend and complexity of the supply chains involved”.
Weaknesses in contract management made councils vulnerable, said the report, citing the example of a bus operator who inflated claims for concessionary passes, which were reimbursed to the operator. An estimated £1.5m was overcharged over three years due to “not enforcing the terms of the contract and conducting the required spot checks and audits”.
“Efforts to combat fraud and corruption within procurement have often focused on the phase between invitation to tender and contract award, but an increased focus is needed on the phases before formal tendering begins and after contracts are let as well as on purchasing outside of the formal tendering process,” said the report.
“Weaknesses within contract management can leave councils open to the risks of fraud and corruption by staff and external parties, through overcharging, invoicing for work that is not carried out and falsification of performance reports.”
The report said councils’ commercial operations, including setting up companies and working in consortia, brought risks. “These ways of working bring additional risks that need to be managed, particularly concerning conflicts of interest, where local authority directors may take on roles in local authority companies for example. A lack of commercial awareness by councils can also lead to outcomes that do not secure the best value for money.”
John Penrose, the government’s anti-corruption champion, said the coronavirus outbreak had “increased opportunities for criminals to defraud taxpayers everywhere”.
“Procuring medical supplies and equipment at high speed means that corners of well-established practices are more likely to be cut, weakening controls and making local councils and their officials more vulnerable to fraud,” he said. “Designing stronger controls into, and exploitable weaknesses out of, end-to-end procurement processes is more important than ever.”
The report called for more training and awareness for buyers, stronger whistleblowing arrangements, and the creation of standard definitions and measurement methodologies, including a central reporting repository.
A report by Tussell found contracts worth £1.6bn had been awarded by the UK public sector in response to Covid-19, mostly without competitive tender.
Malcolm Harrison, group CEO at CIPS, said one of the biggest opportunities to tackle fraud was at the contract management stage.
“The approach to eliminating fraud must be a pan-organisational one as there are so many stages where the danger signs present themselves and where there must be processes in place to support prevention,” he said.
“One of the biggest opportunities is at the contract management stage. If contracts are not managed properly by skilled and trained professionals, then opportunities to defraud can creep in, whether intentional or in error. The use of data and transparency across supply chains is essential and this often involves other teams, not just procurement.
“We must all work together to create an environment where fraud and corruption cannot exist, where whistleblowers are protected and we prevent fraudsters from taking the funds which should be destined to deliver public services to those who most need them.”
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