How widespread is undetected fraud and corruption in UK local government?

By Tony Collins

Private Eye’s “Rotten Boroughs” has two stories in its current edition that seem unrelated but there may be a link.

One of the stories is about a £2m fraud at Tory-controlled Barnet Council. It was committed by a former council employee whose job was outsourced to Capita. He made use of his budget-holder status on Capita’s Integra financial system. He gave instructions for 62 payments, totalling £2,630,972, into his own bank accounts between July 2016 and December 2017.

Internal and external auditors failed to spot the fraud. Highly-paid local government officers did not spot it; and accounting controls were ineffective, in part because they were geared to highlighting irregularities of £15m or more. The fraud was detected by chance, by a query raised by the employee’s bank. This raises the question: could other frauds be happening now in local government across the country, unnoticed?

The other Private Eye story in the current edition is about attempts by various (Tory-controlled) councils, Harrogate, Nottinghamshire and Thurrock, to stifle reporting of their affairs. And at South Ayrshire Council the chief executive wanted councillors to attend mandatory re-education sessions on why they should not talk to journalists.

What does a fraud at Barnet have to do with attempts by councils to stop journalists looking too closely at what’s going on?

Comment:

Local reporters (and local bloggers) may turn out to be the only effective check on local councils exploiting local taxpayers. Is this one reason many councils seem to regard journalists’ scrutiny as an unnecessary evil?

It may be difficult for some in British society to imagine it but what if some local council officials and councillors found themselves operating in such a void of accountability that they realised that frauds and corruption were likely to go unnoticed?

Have the sums spent in local government – the plethora of multi-million contracts – become so vast that it’s easy for small amounts – say £2m – to go unnoticed? Does the lack of accountability in local government encourage some officials and councillors to look after their own interests?

Auditors are beholden to councils for future work. This may give them a disincentive to be too nosy when things don’t look right. They’ll investigate – but how deep will they want to dig? How much cooperation will they have if they dip too deep?

An incentive to stamp out fraud and corruption exists when council officers have a public service ethos which most undoubtedly have – but what when they don’t?

It could be said that the public service ethos went out the window years ago when departmental officers began receiving private sector-type salaries for jobs in which a failure to run the department properly was no drawback to a successful career in local government.

Failure matters only to taxpayers – and how much do they matter?

Some blame Capita and outsourcing for the Barnet fraud but it could have happened unnoticed whether or not the council had outsourced IT and other services to Capita. The point about the fraud is that it was spotted by chance. Could undetected fraud and corruption be prevalent in local government?

The uncomfortable truth is that nobody knows; and taxpayers will remain in the dark if councils continue to avoid the accountability and oversight provided by journalists (and local bloggers).

At least Barnet knows what to do to put robust controls in place, thanks to Grant Thornton’s in-depth report on the causes of the fraud. Will other councils have the slightest interest in Grant Thornton’s report? They have not the slightest incentive to read it let alone check whether they have the same weaknesses.

In 2013 Transparency International published a report funded by the Joseph Rowntree Charitable Trust “Corruption in Local Government: the mounting risks”. It said that a “disturbing picture emerges”, and one on which experts and interviewees were agreed:

“On the one hand, the conditions are present in which corruption is likely to thrive – low levels of transparency, poor external scrutiny, networks of cronyism, reluctance or lack of resource to investigate, outsourcing of public services, significant sums of money at play and perhaps a denial that corruption is an issue at all.

“On the other hand, the system of checks and balances that previously existed to limit corruption has been eroded or deliberately removed. These changes include the removal of independent public audit of local authorities, the withdrawal of a universal national code of conduct, the reduced capacity of the local press and a reduced potential scope to apply for freedom of information requests. We have identified 16 areas in which we find a marked decline in the robustness of local government to resist corruption.”

Some will argue that the cases of fraud and corruption that have come to light, including the Barnet fraud, will represent the tip of the iceberg. Others will argue equally strongly that the relatively small number of obvious corruption and fraud cases is a sign that there is no iceberg.

But one point made by Transparency International is unarguable:

“When accountability is absent, public officials may exercise their power for private ends unchecked by scrutiny, complaint, or the threat of punishment. Clear opportunities exist for unethical officers and members to exploit public trust for private gain. In any sector, corruption tends to increase as oversight and enforcement are weakened.”

Private Eye reports regularly on attempts by councils to gag local reporters. Perhaps some councils are aware that in trying to escape journalistic scrutiny they are providing the perfect conditions in which fraud and corruption thrive.

Conclusion

Is fraud and corruption widespread in UK local government? The most obvious answer is that we don’t know. It could be. But it’s not the British way to force councils to act. In the circumstances, taxpayers have only one effective control against widespread fraud and corruption in UK local government: trust.

Thank you to openness campaigner David Orr for his help on this blog post.

Postscript

It’s tempting to praise Barnet Council for publishing Grant Thornton’s report on the fraud but a much-respected local blogger Mr Reasonable has provided the facts that show Barnet was, initially, less than open.

Mr Reasonable was aware of the fraud in February 2018 but nothing was mentioned publicly until April when a major fraud investigation was mentioned at an Audit Committee meeting, although no details were given. In July some councillors were given a draft copy of the Grant Thornton Report in private session. Mr Reasonable asked the council at the time why the public were not allowed to see this report. The reason?

“Council officers/the report author determined that Appendix 1 (the Grant Thornton report) should be exempt. Capita has made a request for more time to respond on the accuracy of this document and this was considered”.

The Grant Thornton report was not published until September 2018 – by which time it was in its seventh draft.

Mr Reasonable has an excellent analysis of the GrantThornton report here.

Corruption in local government: the mounting risks