Speech to the Chartered Institute of Public Finance and Accountancy

Speech by Solicitor General Edward Garnier QC MP to the Better Governance Forum Annual Conference 2010

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Sir Edward Garnier KC

“I would like to thank the Chartered Institute of Public Finance and Accountancy for inviting me to address you today.

“This year marks the Better Governance Forum’s tenth anniversary and it is clear that the forum has gone from strength to strength. During its 10 years it has carried out some much respected counter fraud work, something which all of its members should be proud of.

“In particular I would like to thank the chairman Derek Elliot, who I understand will be retiring soon following many years of excellent service to the Audit Commission. I would like to wish him, on behalf of the government, all of us here today, and myself, the best of luck for the future and thank him for the outstanding contribution that he has made to combating fraud against the public purse. He has been a committed and passionate champion of the fight against fraud, which is the subject of my remarks today.

“The National Fraud Authority has estimated levels of fraud against the public sector to be between £18 billion and £25 billion a year. Fraud in the public sector goes beyond benefit cheats and tax evaders to include fraud in procurement and grants and occurs across central government, local government and the National Health Service.

“The result is the same. These crimes make us all victims. Money that could be spent improving public services is being lost to fraudsters. For example, housing tenancy fraud has been estimated to have reduced the stock of available housing in England by nearly 50,000 properties. There were families and individuals that needed those properties.

“This fraud also drains councils of much needed funds as they are forced to find alternative accommodation in costly temporary lodgings for legitimate applicants. The average cost of temporary accommodation is around £11,000 for each family. With currently 64,000 families housed in this way it is costing £704 million. This makes a real impact on the services we can deliver.

“The coalition government, as you all know, has been forced to reduce public sector expenditure dramatically. Tough decisions have to be made. That up to £25 billion a year of public money is falling into the hands of fraudsters is intolerable. This government has made clear its intention to address this problem. Things have to change.

“The first step is to acknowledge the scale and nature of the problem. The Treasury and the National Fraud Authority recently brought together practitioners across departments to raise awareness of fraud in the public sector. Many key figures attended and outlined their commitment to addressing fraud within their departments and organisations. I was pleased to hear this because it is vital that we have a common understanding of the threats we face and work together to tackle them.

“The threats from fraud are many and varied. The threats to revenue and benefits are widely known. We need to pay similar attention to fraud in procurement and the award of grants. Public service procurement amounts £220 billion a year. Even if only 1% of this is lost to fraud, we are still talking about £2.2 billion loss.

“We believe that greater transparency in public procurement will go some way to disrupting and deterring the fraudsters, as greater public engagement and scrutiny of how public bodies are procuring goods and services will disrupt and deter fraudsters who currently benefit from a more closed environment. Since the 1 July we have published all central government ICT contracts online and will publish all new central government contracts in full from January 2011.

“There is also the growing threat from organised crime. Cybercrime is no longer in the realms of science fiction. It is real and present, a critical issue facing us now. Organisations also need to protect themselves against fraud instigated from within. Whether we like it or not it is an inescapable fact that people sometimes get jobs in order to exploit opportunities for criminal purposes.

“They join organisations in order to commit frauds. If we do discover that people we employ are defrauding us, what do we do to prevent them doing the same somewhere else within the public sector? Currently not enough. Fraudsters are able to move from employer to employer relatively easily because of poor referencing and inadequate vetting. We need to catch up with the private sector. It boils down to the sharing of information. Fraudsters rely on our not doing this, yet in many cases it is relatively easy to do.

“A further risk comes from the large scale and rapid changes to the current systems for delivering services. Of course we have gone through and will continue to go through great change but it would be naïve of us not to realise that change brings risk.

“But it is not all doom and gloom. There are 2 highly effective ways of dealing with public sector fraud. The first is to prevent it happening in the first place. The second is to share information and develop the ‘data analytics’ - hideous jargon but I think you know what I mean - which can bring fraud to light.

“Prevention does not have to mean poor service and endless form-filling and -checking. There are many examples in the private sector where better fraud prevention leads to a better service, and the public sector can learn from this. For instance, a major mobile telephone provider found that too many of its customers hadn’t got the appropriate level of documentary identity on them when they came into the shop to buy a mobile contract.

“This meant a huge numbers of lost sales. But the company also noticed high levels of fraud through the use of forged documents. So what did they do about it? They introduced an electronic solution which used a unique interactive question and answer process. It meant that genuine customers who did not have the correct documentation could now be electronically authenticated instead of walking away as a lost sale. Unlike a potential fraudster, they were able to answer the questions put before them. Result: sales increased by 8% and fraud levels reduced by 50%.

“All government departments and local authorities should be following and learning from these examples of best practice. For example the Passport Validation Service allows public and private sector customers to check the validity of the passports presented as proof of identity.

“This service began several years ago to support efforts in the private sector to prevent money laundering and is now widely used. It has saved businesses millions of pounds and is now a vital tool for many organisations where UK passports are presented as proof of ID. It is also currently used by around 20 government departments or agencies.

“But we need to do more in the field of information sharing within the public sector. Fraudsters rely on the fact that we are just not very good at doing this. Across government and between government and the private sector, we a hold a lot of information on fraudsters. There are some real and perceived barriers, including statutory ones that we need to break down. There can be no doubt that if we made the sharing of this information a lot easier then a good many problems would disappear and a vast amount of precious public money could be saved.

“We are already making good progress with data analytics. HMRC has created a data-matching tool called ‘Connect’ which links various data sources in order to detect tax fraud. It has enabled the department to uncover £330million of fraudulent VAT claims since June 2008.

“Local councils are also addressing the issue. Many are now using counter-fraud tools that share data from other parties to catch out those who attempt to defraud the benefits system. Southampton City Council managed to save almost £385,000 in single person Council Tax discount claims after discovering that over 18% of its 37,000 claims were found to be incorrect.

“We can make better use of technologies that already exist and are being widely used in the private sector. A leading insurance company used a fraud prevention solution which matched data to show links between claims. It was able to flag up fraudulent activity and create a far clearer picture of the perpetrators of fraud. Detected and prevented fraud rose to £75 million - 10 times more than it had managed in previous years. So it is clear that there are fraud prevention solutions out there and in many cases they are bringing massive financial rewards and better service.

“To this end we have seen the launch of the National Fraud Intelligence Bureau run by the City of London Police. It brings together intelligence from government departments, the police and the private sector. It analyses millions of previously unconnected reports of fraud and identifies criminal networks stretching across the country.

“It is painting a far clearer picture of the nature of fraud offending and is helping both the private and public sectors to become more resistant to fraud. Recently it used information received from members of the public who had called Action Fraud, the UK fraud reporting service, to investigate a criminal gang who had set up fake ticket websites defrauding people of hundreds of pounds each. It led to 4 people being arrested. It is still very early days for the National Fraud Intelligence Bureau but I expect to hear more of its successes in the future.

“Countering fraud requires not only eternal vigilance but a continuous search for new methods of investigation, deterrence and detection. Resources are important of course but it does not always require money but intelligence, application and sheer doggedness and determination to beat the criminal at their own game. Fraudsters are constantly on the look out for new opportunities, new methods of attack, for new areas of weakness and for new categories of victim and we need to be not one but several steps ahead of them.

“We need to be more than reactive, we need to be tackling it from the outset with better design of our goods and services - we did it with car crime and we should do it with fraud. There are already some encouraging examples of this. HMRC was successful in taking early action to prevent the UK becoming a major target of carousel fraud in connection with the trading of emission allowances.

“As you no doubt know, carousel fraud involves the dishonest obtaining of a VAT registration to acquire goods or services VAT-free from other EU member states. The crooks then sell the goods on at a VAT inclusive price, but disappear without paying the VAT to Her Majesty’s Revenue and Customs (HMRC). HMRC simply designed legislation zero-rating the supply of emission allowances within the UK which has prevented significant fraud losses.

“Let me say a few words about City and financial crime. We are currently reviewing what is widely regarded as a confused landscape. There are overlapping areas of responsibility between various enforcement agencies. And there are also gaps. This lack of clarity leads to delay and inefficiencies, as for example when cases are passed from one agency to another.

“But it also leads to criminals getting away with frauds and other economic crime because they can slip through the gaps. This creates a sense of frustration and anger in the public who see bad people getting away with it and it means that we are suffering huge self-inflicted reputational injury as we attract villains from overseas who see this country as an easy and risk-free place to cheat.

“We need to get the right structures in place that provide clear remits and clear accountability for investigators and prosecutors so that more fraudsters are brought to justice, more quickly and more efficiently than at present. Structural changes are not enough though. We are reviewing the powers available to law enforcement agencies and the courts so that they have the right tools to protect us, our businesses and the public services from serious economic crime.

“During the election the Shadow Chancellor, George Osborne, said on behalf of the Conservative Party, and after the election the government expressed very clearly in the Coalition Agreement, that we take so-called white collar crime as seriously as other crime and that we propose to create a single agency, the Economic Crime Agency, to take on the work of tackling serious economic crime, not to be confused with regulatory discipline, that is currently done by, among others, the Serious Fraud Office, the Financial Services Authority and the Office of Fair Trading.

“As the Solicitor General, one of the two Law Officers of the Crown in this jurisdiction, I am working with ministerial colleagues to develop this policy with a view to making a real and radical difference to our success in preventing, deterring and detecting serious economic crime in this country.

“By having a more coordinated approach we will be more successful in detecting and prosecuting fraudsters. There needs to be a far greater deterrent for this type of crime and criminals inclined to commit fraud need to be far more fearful that they will be caught, prosecuted expeditiously, convicted, severely punished and have their assets and ill-gotten gains confiscated. My feeling at the moment is that far too many fraudsters think that the chances of getting caught are slim enough to take the risk and if they are caught the consequences are worth the financial gain. The status quo is not an option. Things must change. And they will.

“Too often fraud is considered to be a victimless crime; we know that’s not true. What to a newspaper reader is no more than a number on the page could be someone’s entire life savings. Raising public awareness about what fraud is, about what it does and who and how many it damages, how many lives are ruined by it, is essential.

“Admitting to being a victim of a scam can be embarrassing if it means admitting to being a dupe or greedy or just plain stupid. Some may not even realise they have become a victim. We need to get fraud and all that it does out in the open, we need to make people aware of it and all that it can do to destroy communities and individual lives. It may be difficult to achieve this but it is not impossible to do so; indeed, it is imperative that we do so in the national interest.

“But of course we in this room know that it is not just individuals who fall victim to fraud and it is not just individuals who stay silent about it. The public and private sector do as well, corporate Britain and Government Britain. Is that because they do not want to admit to losing money to fraud as it affects public confidence in their services is it because people don’t take the loss of corporate or public money as seriously as private money. The government has endless supplies of cash so what’s the fuss about the dishonest siphoning off of a few thousand quid here and there; a company has no heart or feelings so what’s the harm to me if it gets defrauded? These are simple and easy concepts to express but we must do better and we must change the public culture so that we no longer accept impersonal loss as no loss at all.

“Fraud must be tackled at an international, national and local level. We face a big challenge. It won’t go away and it won’t be easy. But I do believe profoundly that by working together, in partnership, in the private sphere and in the public sphere, we can make a difference at every level. The commitment across government is strong, the commitment of those departments engaged in the criminal justice system is clear, and my personal commitment is undimmed, even after 6 months in office with all the difficulties that getting government to work and cooperate with itself across Whitehall bring. I firmly believe that we can make, not just can, we must make our nation the most hostile place on earth for fraudsters.”

Published 10 October 2010