Audit and Governance Committee	17 February 2021
Report of the Head of Internal Audit
Counter Fraud Framework Update

Summary

1 The council last approved a new counter fraud and corruption strategy and action plan in 2017. This report presents a new counter fraud and corruption strategy for the City of York Council based on the new national counter fraud strategy for local government, Fighting Fraud and Corruption Locally. The report updates the council’s fraud risk assessment and counter fraud and corruption policy to meet latest guidance. There is also an update on the national and local counter fraud trends and developments; particularly arising from the covid-19 pandemic.

Background

2 Fraud is a serious risk to the public sector in the UK. When fraud is committed against the public sector, money is diverted from vital public services into the hands of criminals. Fraudsters are constantly refining their tactics and techniques in order to circumvent the checks and controls put in place to prevent fraud from occurring. In order to protect income and assets public sector bodies must therefore continuously develop their counter fraud measures to meet the evolving threats. A strong deterrent is required to prevent fraud from being committed.

National Picture

3 In the current financial year, as part of the government’s response to the covid-19 pandemic, local authorities have been responsible for issuing grants to eligible businesses. A number of schemes have been open to support businesses at different times throughout 2020/21. During the first business support scheme, which ran from March to September 2020, £11.7 billion was distributed nationally. Fraudsters have attempted to divert grants from legitimate businesses, and ineligible businesses have attempted to mislead councils about their circumstances in order to receive grants. Councils have been required to implement suitable counter fraud measures and are now undertaking post assurance work to help ensure that grants were correctly paid. If fraud or error is detected then a recovery process will begin that can include the prosecution of offenders.

4 Cyber-crime is a growing concern for local government in the UK. There have been a number of attacks on UK public sector organisations over the past few years, e.g. Parliament and the NHS. In 2019 Kaspersky reported a 60% increase in ransomware attacks on local governments worldwide and pointed towards similar attacks in the United States. A council in the North East suffered a catastrophic cyber-attack in early 2020. The ransomware attack removed access to multiple systems across the organisation and criminals tried to extort money from the council to restore them. A return to full functionality took many months at great financial cost. In October 2020 a council in London suffered a similar attack and it was recently reported that their data had been released on the dark web. It is important that all councils make members of staff aware of cybercrime and what precautions to take in order to prevent it.

5 Veritau has provided support to the council throughout the current financial year around covid-19 related payments The counter fraud team is currently undertaking post-assurance checks on grant payments in line with government guidance and further checks will be made as part of the upcoming 2020/21 National Fraud Initiative. Cyber-crime awareness forms part of all fraud awareness training delivered to staff at the council.

Local Picture

6 As part of the Small Business Grant Fund, Retail, Hospitality and Leisure Grant Fund and the Local Authority Discretionary Grant Fund the council made payments to over 4,300 businesses, totalling more than £49.7 million. Council officers, with the support of the counter fraud team, conducted checks into each application to make sure they met the criteria set by government and the payments were being made to the correct people. Where concerns were identified cases have been directed to the counter fraud team.

7 The council is sending monthly reports detailing payments to the Department for Business, Energy & Industrial Strategy (BEIS) and has produced a risk assessment for the covid-19 grant schemes detailing what steps have been taken to mitigate fraud risk.

8 The counter fraud team has been liaising with the National Investigation Service (NATIS), the National Anti-Fraud Network (NAFN), and the Department for Business, Energy & Industrial Strategy to report fraudulent applications by organised criminals, as well as sharing intelligence with council colleagues.

9 Some aspects of the work of the counter fraud team have been disrupted by the covid-19 pandemic. Activities like visits to people’s homes and interviews under caution in council offices are still affected, but the team have found new ways to undertake this work.

Counter Fraud Framework Review

10 The council’s Counter Fraud and Corruption Strategy 2017-19 was approved in February 2017, and covered the same time period as the national counter fraud strategy for local government – Fighting Fraud and Corruption Locally. The national strategy was refreshed in April 2020, and has the support of counter fraud professionals and the Local Government Association. The most recent iteration, Fighting Fraud and Corruption Locally – A Strategy for the 2020s, is contained in annex 1 for reference.

11 An updated council Counter Fraud and Corruption Strategy for 2020-23 (see annex 2) and an associated action plan has been drafted. The strategy takes into account the guidance in the new national strategy.

12 As part of this review the council’s counter fraud risk assessment was also updated to reflect current risk. The assessment is included at annex 3.

13 The council’s Counter Fraud and Corruption Policy was last updated in 2017. On 31 December 2020, new guidance from the Attorney General on disclosure in criminal prosecutions came into force. The new guidance seeks to ensure that all relevant evidence is disclosed to the defence ahead of a criminal prosecution, and that there is an opportunity for discussion between the defence and prosecutor up to commencement of any proceedings. The policy has been updated to reflect this new guidance as well any other references that need to be updated, e.g. job titles. Proposed changes to the policy are shown as tracked changes in annex 4.

Consultation

14 Not relevant for the purpose of the report.

Options

15 Not relevant for the purpose of the report.

Analysis

16 Not relevant for the purpose of the report.

Council Plan

17 The work of internal audit and counter fraud supports overall aims and priorities by promoting probity, integrity and honesty and by helping to make the council a more effective organisation.

Implications

18 There are no implications to this report in relation to:

· Finance

· Human Resources (HR)

· Equalities

· Legal

· Crime and Disorder

· Information Technology (IT)

· Property

Risk Management Assessment

19 The council will fail to comply with proper practice if counter fraud and corruption arrangements are not reviewed periodically.

Recommendations

20 Members are asked to;

- comment on the new Counter Fraud and Corruption Strategy  and action plan in annex 2

- comment on the updated Fraud Risk Assessment and Counter Fraud and Corruption Policy in annexes 3 and 4.

Reason

In accordance with the committee’s responsibility for assessing the effectiveness of the Council’s counter fraud arrangements.

Contact Details

Author:	Chief Officer Responsible for the report:
Max Thomas Head of Internal Audit Veritau Limited Telephone: 01904 552940	Janie Berry Director of Governance Legal Services Telephone: 01904 555385
	Report Approved	ü	Date	5 February 2020
Specialist Implications Officers Not applicable
Wards Affected: Not applicable					All	ü
For further information please contact the author of the report

Background Papers

None

Annexes

Annex 1 – Fighting Fraud and Corruption Locally: A Strategy for the 2020s

Annex 2 – Counter Fraud and Corruption Strategy 2020-2023

Annex 3 – Fraud Risk Assessment

Annex 4 – Counter Fraud and Corruption Policy