Source · Select Committees · Public Accounts Committee
Recommendation 23
23
Accepted
Local authorities lack financial incentive to recover COVID-19 grant fraud losses.
Conclusion
Between March 2020 and March 2022, local authorities distributed COVID-19 grants costing £22.6 billion via 4.5 million payments to businesses. By October 2022, the Department for Business, Energy & Industrial Strategy (BEIS) estimated that error and fraud across all the COVID-19 grant schemes was in the region of £1.1 billion (just under 5% of the value of grants paid to businesses). BEIS required local authorities to 65 Q 37; C&AG‘s Report, para 1.18 66 C&AG’s Report, Figure 5 67 Qq 20, 33 68 Qq 37–38; C&AG’s Report, Figures 1 and 5 69 C&AG’s Report, para 1.18, 3.11 and Figure 5 70 Qq 83, 86 71 C&AG’s Report, Departmental Overview 2019–20: Ministry of Housing, Communities & Local Government, January 2021 72 C&AG’s Report, Tackling fraud and corruption against government, Session 2022–23, HC 1199, 30 March 2023 Tackling fraud and corruption against government 17 pursue any losses from error and fraud they identify arising from payments. However as all recovered monies must be paid back to central government, local authorities have had no financial incentive to identify losses beyond those contained within the BEIS-directed samples used to derive the estimates of error and fraud losses73 Only about 2% of the fraud and error losses, £21 million, had been recovered when we took evidence in May.74 Local authorities are also under considerable pressure to complete their audits. Only 9% of local government bodies received audited accounts for 2020–21 by the extended statutory publication deadline of 30 September 2021 and 12% received audited accounts for 2021–22 by the statutory deadline of 30 November 2022. Against such a background, we asked HM Treasury whether PSFA should be given a wider remit to also cover the management of fraud across local government.75
Government Response Summary
The government states that local council Chief Financial Officers are responsible for tackling fraud, while DLUHC accepts responsibility for the wider accountability framework and has published new guidance. The PSFA already shares practices, makes standards available, and runs the National Fraud Initiative to support local government.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation Recommendation implemented With respect to fraud against local government, it is the responsibility of each council’s Chief Financial Officer to put in place appropriate arrangements to support the proper administration of their financial affairs, as well as an internal audit system to ensure that effective and sound financial controls are in place. This is a core principle of local government’s overall accountability system and includes tackling fraud and safeguarding public money. Nonetheless, the Department for Levelling Up, Housing and Communities (DLUHC) accepts responsibility for the sector’s wider accountability framework. DLUHC has published new, statutory Best Value guidance for consultation, and sought to provide guidance and advice on how these can be delivered in a manner that minimises the risk of fraud and error. In 2020, DLUHC published a review into procurement fraud in local government, which included a series of case studies to demonstrate where councils have acted against procurement fraud to enable councils to learn from one another, as well as highlighting possible measures that councils could implement to strengthen their resilience to procurement fraud. In addition, DLUHC and the PSFA are working together to better understand local government fraud. Supported by the PSFA, DLUHC is leading a Fraud Risk Assessment exercise across a number of funds administered by local authorities. It aims to understand better the counter fraud challenges faced by these local authority funds and identify thematic fraud risks. The outputs from the Fraud Risk Assessment exercise will be used to identify where further government action might be required to support local authorities. The PSFA works directly with ministerial departments and public bodies (bodies publicly funded to deliver public or government services), as set out in the PSFA mandate. Whilst implementing arrangements and controls to tackle fraud and safeguard public money is the responsibility of each council's Chief Financial Officer, the PSFA also shares practices and makes available standards to the wider public sector, including local government. In addition, local government counter fraud professionals can join the Counter Fraud Profession. When requested, the PSFA also supports assurance processes on selected schemes delivered through local authorities. For example, the PSFA provided expert advice and counter fraud services to the recent energy support schemes, to understand and minimise potential fraud loss. The PSFA also runs the National Fraud Initiative (NFI). This is a highly successful counter fraud data matching exercise. Between April 2020 and March 2022 this enabled participating organisations to prevent and detect/recover £443 million fraud and error across the UK. Data for the NFI is provided by over 1,100 participating organisations from the public and private sectors, including local authorities