Local Authority Procurement: Fraud and Corruption Risk Review

Simon Clarke Excerpts

Monday 8th June 2020 Written Statements

[The Minister of State, Ministry of Housing, Communities and Local Government (Mr Simon Clarke)]

Today I have published a review into the risks of fraud and corruption in local government procurement in England, in collaboration with the Government’s anti-corruption champion, the hon. Member for Weston-super-Mare (John Penrose). This report delivers on a commitment by the Ministry of Housing, Communities & Local Government (MHCLG) in the UK anti-corruption strategy 2017-2022 and is an important part of the wider agenda to strengthen the UK’s response to the risks posed by corruption. The findings highlight the importance of continued vigilance across the whole procurement lifecycle and is particularly relevant at this time of heightened activity by councils, as they are working hard to respond to the challenges posed by covid-19.

Acknowledging and mitigating the risk of fraud and corruption is critical to sound financial management and ensuring that every pound spent by local councils supports the communities they serve. Activities to reduce vulnerability to the risks of fraud and corruption will also have the potential to improve efficiency and identify losses resulting from error, by highlighting weaker areas within systems and processes.

The potential benefits to both councils and the local taxpayer are significant. Under “business as usual” circumstances councils in England spend around £55 billion a year on goods, works and services[1]. Estimates[2] of the losses to Government expenditure caused by fraud and error range between 0.5% and 5%[3], equating to between £275 million and £2.75 billion per year for local government procurement spend.

It is also important to emphasise that fraud and corruption are by their nature hidden, and a low level of reported cases does not necessarily indicate a lack of fraudulent or corrupt activity.

Recent cross-Government reports demonstrate that detected fraud and corruption is only a proportion of the true scale of the problem[4]. Furthermore, of the 86 councils responding to the survey as part of this review, 23% reported having experienced cases of fraud and corruption within procurement in the 2017-2018 financial year.

Although there is no silver bullet for tackling the issue of fraud and corruption within procurement, this review draws together a range of activities which collectively help identify and mitigate the risks faced by local councils. The report details anonymised examples of good practice already in place across England, providing excellent evidence of local authorities’ innovation, commitment and collaborative approach.

The case studies of incidents of fraud and corruption and examples of best practice in prevention, illustrate how risks can materialise and what can be done to mitigate them. In addition, the report includes a risk matrix, which highlights possible measures that councils can use to strengthen their resilience to the risks of fraud and corruption. I hope the report will serve as a valuable resource for councils across the country to learn from. In additional to this report, I would also encourage councils to make best use of the national fraud initiative[5], CIPFA Counter Fraud resources[6] and the case studies from the counter fraud fund pilots MHCLG funded in 2014[7], as well as the latest fighting fraud and corruption locality strategy[8].

Taking forward the findings of the review

This report sets out suggested next steps for the public sector as a whole, for local councils and for MHCLG. Those for the public sector focus on putting in place standard definitions and measurement methodologies, ensuring there is a central place to record reports of fraud and corruption and strengthening whistleblowing arrangements.

MHCLG has a key role in supporting a culture of strong governance and robust accountability within the local government sector, and the counter fraud and anti-corruption agenda are important strands within this work.

At the level of individual councils, appropriate capacity is needed to prevent, detect and respond to incidents of fraud and corruption within the procurement lifecycle. This means having in place effective fraud and corruption risk management structures and risk assessments, effective due diligence and management of gifts and hospitality and conflicts of interest.

Capacity and capability within local authority contract management and commercial activities have been identified as areas for improvement and all those involved in procurement must understand their roles and responsibilities, whenever commissioning, procuring or purchasing on behalf of their council. Councils should consider how the risks of fraud and corruption are managed in their wider networks, including local authority companies, Arms-length management organisations (ALMOS) and other special purpose vehicles.

Procurement is only one area where fraud and corruption risks are present for councils, and similar risks are present in other areas of council operations. Many of the recommendations in this report should support efforts by councils to prevent and detect fraud and corruption, and to hold perpetrators successfully to account.

[1] National Procurement Strategy for Local Government in England 2018, LGA, page 5, https://www.local.gov.uk/sites/default/files/documents/11.122%20-%20National %20Procurement%20Strategy%202018_main %20report_V7.pdf

[2] See page 16, https://assets.publishing. service.gov.uk/government/uploads/system/uploads/attachment_data/file/764832/Cross-GovernmentFraudLandscapeAnnualReport2018.pdf

[3] The Fraud Measurement and Assurance Oversight Board concluded that there is an upper and lower range of likely losses: 0.5% to 5%. See page 31,

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/764832/Cross-GovernmentFraudLandscape AnnualReport2018.pdf

[4] Page 15, Cross-Government Fraud Landscape Annual Report 2018,

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/764832/Cross-GovernmentFraudLandscapeAnnualReport2018.pdf

[5] https://www.gov.uk/government/collections/national-fraud-initiative

[6] https://www.cipfa.org/services/counter-fraud-centre

[7] https://www.local.gov.uk/our-support/efficiency-and-income-generation/counter-fraud-hub-outcomes-counter-fraud-fund-0

[8] https://www.cifas.org.uk/insight/public-affairs-policy/fighting-fraud-corruption-local-authorities

[HCWS275]