Fraud prevention is insufficiently embedded across government, Covid corruption commissioner Tom Hayhoe has warned.
Hayhoe’s final report into fraud and error in Covid-19 spending programmes, published yesterday afternoon, makes a series of recommendations to tackle this shortfall, including the creation of a scrutiny panel to ensure that departments are learning and implementing lessons and recommendations from crises.
Hayhoe’s report, Pursuing Recoveries and Preventing Reoccurrence, finds that the government lost £10.9bn to fraud and error in schemes including furlough and Eat Out to Help Out – much of which is now “now beyond recovery”.
Around £1.8bn has been recovered, and Hayhoe says there are still areas where investing in recovering money paid out incorrectly is “worthwhile and work should continue”. HM Revenue and Customs, the Department for Media, Culture and Sport, Department for Work and Pensions, Department for Education and Department for Transport should all continue their recovery activity, he says.
Hayhoe found that most public organisations were unprepared for a crisis that required spending “on such a scale and with such urgency” and “consequently, some measures to protect against potential fraud were inadequate, particularly where new delivery structures were established or novel measures employed”.
He said one example of this was PPE procurement, where more than twelve months’ volume against the “reasonable worst-case scenario” was ordered at a pace that overwhelmed the newly created supply chain and “involved measures that invited mistrust, opportunism and profiteering”.
The issue also applied to support for small businesses, where lending relied on self-certification “with inadequate checks to prevent abuse” and depended on delivery by third-party lenders, Hayhoe said.
Hayhoe also found “much good work” from departments to contain the losses and make recoveries.
He noted work undertaken by the Department for Health and Social Care, Insolvency Service, HM Revenue and Customs and Public Sector Fraud Authority – and pointed to the creation of the new Public Authorities Fraud Investigation and Enforcement Service.
Hayhoe’s lessons and recommendations
Hayhoe, who will now leave his role as Covid corruption commissioner, draws four key lessons from the pandemic in his final report and makes a series of cross-cutting and department-specific recommendations to respond to these lessons.
Hayhoe’s first lesson is that fraud prevention is insufficiently embedded in thinking and practice across government.
“Throughout my tenure, organisations told me they lacked the capability, capacity and legal powers to deal with Covid-19 fraud yet have generally not sought innovative approaches or to use outside expertise,” Hayhoe says in the report.
Hayhoe says government has made steps towards public sector fraud reform since the pandemic, through new legislation and the creation of the Public Sector Fraud Authority, “which has set out a vision for how fraud against the public sector can be tackled by focusing on prevention and improving capability”.
To improve on this, he says the authority should set out an action plan for how it will work with other departments and public bodies to make full use of legislative powers to tackle fraud.
The report also calls for the PSFA and government counter fraud function to "promote a culture of innovation in countering fraud that is evidence-led", including "evaluation of how a range of private sector expertise can be successfully drawn upon where capability or capacity within a government body is insufficient".
It also calls on the PSFA to work with the COBR directorate to embed fraud control in resilience planning, and says crisis-preparedness exercises should include fraud prevention and mitigation. This should include how effective data sharing and public communications can support counter fraud responses during emergency spending, the report says.
Hayhoe’s second lesson is that ambitious programmes are intrinsically risky, requiring robust challenge in related decision making. He says this should be addressed by the following measures:
- Building challenge into crisis decision making by designating a “challenge champion” specifically charged with providing challenge
- The business case approval processes should recognise risk of fraud and error and set aside an indicative "clean-up cost" at the outset.
- Treasury Managing Public Money guidance should be amended to require that ministerial directions bearing on fraud risk are refreshed after four months
His third lesson is that during a crisis and in its aftermath, there is a risk that decision takers assume that everyone shares the same commitment to tackling fraud and making recoveries.
Consequently, Hayhoe recommends that:
- Departments should be incentivised to maximise action to prevent and recover fraud, including permitting departments to retain a proportion of the funds they recover
- Working with professional bodies and regulators, the government counter fraud community should work out how to raise standards to protect the public against professionals assisting clients who abuse or defraud emergency schemes
- Preparations for future crises should include communications that aim to reduce fraudulent behaviour, reminding people that fraud and abuse of public spending programmes are not victimless crime and demonstrating that perpetrators be pursued and punished
Hayhoe’s final lesson is that good data and proper scrutiny are critical to good decision making, particularly when dealing with unknown counterparties.
He suggests that the Treasury should establish a scrutiny panel to address the issue that lessons are often not learned from crises and recommendations not implemented. Hayhoe says the panel should include senior officials from across government and external members, chaired by a minister, to review implementation of recommendations at six-monthly intervals for at least two years.
He also recommends that the Public Sector Fraud Authority should undertake a project to address how government departments can share data more effectively during a crisis.
Hayhoe also calls for public sector bodies to be more transparent in the award of grants, loans and contracts to businesses and other organisations.
Commenting on the findings, the chancellor Rachel Reeves said: “Leaving the front door wide open to fraud has cost the British taxpayer £10.9 bn – money that should have been funding our public services, supporting families and strengthening our economy.
“We have started returning this money to the British people and we will leave no stone unturned in rooting out the fraudsters who profited from pandemic negligence.”
Reeves said the government "will now carefully consider all recommendations made in the report, working at pace to provide a full response early next year".