Departments and their agencies must embark on a concerted drive to employ data analytics to cut down on the public sector’s estimated £55bn-£81bn annual fraud-and-error losses, the National Audit Office has said.
The public-spending watchdog said that while many parts of government are exploring the use of technology to combat fraud, savings so far have been “modest” compared to the amount potentially achievable.
Its just-published report Using data analytics to tackle fraud and error says that despite Government Digital Service projections that annual savings of £6bn are possible, there is “no clear plan” for how to realise the potential.
The Department for Work & Pensions and HM Revenue and Customs are longstanding users of data analytics to tackle fraud and error. The NAO said much of the departments’ work involved data-matching, analysing networks, anomaly-detection and predictive modelling to verify that benefit claims and tax returns match other data sources.
However it said that most tools used in by government bodies are designed to detect fraud and error rather than prevent incorrect transactions before payment. The NAO said that just two of 14 case studies of anti-fraud data analytics that it looked at were preventative. Eleven were “detective” and one had elements of both.
The watchdog said that “preventative” tools could be more cost-effective as when they are successful public bodies do not have to go through “costly, time-consuming and often unsuccessful processes” to get their money back.
It identified 10 challenges the government needs to overcome if it is to generate more fraud-and-error savings through data analytics.
They include better cross-government leadership, scaling up projects to focus on fraud-prevention, making the investment case for data analytics, boosting data-sharing between departments and ensuring that the best use is made of existing central counter-fraud initiatives.
The report concludes that there is a “clear mismatch” between the scale of the problem of fraud and error in the public sector and the lack of concrete plans to implement better data analytics.
It says that the Public Sector Fraud Authority, which reports to both the Cabinet Office and HM Treasury, needs to help government to work with departments and their arm’s-length bodies to “innovate and generate significant fraud and error savings”.
It adds that GDS “needs to make sure its work facilitates fraud and error analytics” because it is “such a significant component of its vision for achieving cost savings through digital government”.
Among the report’s recommendations are a call for PSFA and HM Treasury to develop a mechanism that allows public bodies to pool some of the costs, resources and savings associated with fraud-and-error data analytics.
The proposal is an attempt to circumvent difficulties associated with short-term funding and the need for projects to pay for themselves quickly.
The NAO said one solution could be for PSFA to manage a portfolio of seed funding for projects across government that saw savings shared between the public body involved and the seed fund.
The report also calls for PSFA and the GDS to publish a playbook setting out how public bodies can develop the multidisciplinary teams and capabilities needed for creating and deploying counter-fraud data analytics.
Another recommendation is for HM Treasury to make the use of the National Fraud Initiative mandatory. The initiative compiles data to identify potentially fraudulent activity. Additionally, the Treasury is asked to agree criteria for where public bodies should use other centrally provided tools with the PSFA.
NAO head Gareth Davies said that wider and more effective use of data analytics was a clear route to spending taxpayers’ money better.
“Government has the opportunity to make significantly more use of data analytics to tackle fraud and error, with potentially billions in savings available,” he said.
“It should learn from those who are doing this well, in both the private and the public sectors, to maximise the savings it can achieve.”
Sir Geoffrey Clifton-Brown, chair of parliament’s Public Accounts Committee, said prioritising data analytics was “vital” to ensuring government pays the right amount of money to the right people.
“Whilst tools used in government are often designed to detect transactions where fraud and error has already occurred, it is the preventative use that is much more cost-effective,” he said.
“Some public bodies have achieved significant returns on investment, but the overall scale of savings is far too modest. Government will now need to address the challenges identified in today’s NAO report and begin to implement its highly ambitious vision for digital transformation if it is to achieve significant value.”