The tip of the iceberg: Unlocking billions by fighting fraud and error

The UK National Audit Office is renewing its focus on helping the government deliver value for money by preventing fraud and error – potentially saving billions for the UK taxpayers

Our main role at the UK National Audit Office (NAO) is to give Parliament and taxpayers assurance that public money is properly accounted for and well spent.

Recent tax, spending and borrowing forecasts show that any UK government will face a tough challenge in the years ahead. So it’s absolutely critical that government gets the most out of every pound that it spends.

The Comptroller & Auditor General and Head of the NAO, Gareth Davies, recently told Parliament that there is good evidence from our work that the UK Government could achieve more with existing resources. There are no magic bullets, but there are several key areas where large savings could be achieved by improving productivity and efficiency – certainly tens of billions of pounds a year.

Tackling fraud and error is one of these areas, so that’s why we have invested in an expert team, specifically focused on helping government improve its approach.

Reported fraud has doubled

As in other countries, the UK Government’s response to the pandemic required difficult decisions to be made at speed that increased its exposure to fraud and error. The accounts we audit reported £7.3 billion of fraud in COVID-19 schemes – not including health – where we were unable to fully audit spend. Clearly the pandemic was an exceptional global event, but fraud and error still remain stubbornly high in the UK.

We have seen a doubling in reported losses to around £10 billion a year. This is mostly due to a sustained rise in benefit fraud since the introduction of Universal Credit – the UK’s main working-age benefit. But it’s also driven by other areas of government getting better at measuring and reporting fraud and error.

An incomplete picture

The fact that we can talk about these numbers at all demonstrates a strength of the UK system of accountability. Public bodies must estimate the extent of fraud and error where it may be material to their accounts. Not all countries do this, so the UK stands out for its transparency.

This has encouraged the UK Government to act – setting up the Public Sector Fraud Authority (PSFA), tightening requirements around fraud risk assessment, and investing more in high-risk departments.

But most areas of government outside tax and welfare still don’t produce proper risk assessments and can’t accurately measure fraud and error in their schemes.

Too many public bodies say they have a “zero tolerance” for fraud, but haven’t properly assessed the risks they face or been honest about the extent of loss they inevitably have in procurement and grants.

Two-thirds of counter-fraud officials work on investigation, rather than prevention, which is where the real savings lie.

A clearer picture of the full extent of fraud and error is desperately needed, so that government can invest wisely in those areas with the highest risks and greatest potential return.

A massive opportunity for savings

Fraud and error aren’t just unfair and wrong, but lead to a huge cost to the taxpayer. Actual fraud and error losses are likely to be far higher than what we see officially reported.

The PSFA estimates that £30 to £60 billion of government expenditure is wasted each year due to fraud, error and tax evasion. Only a fraction of this is directly detected, and even less is likely to be recovered – just the tip of the iceberg.

We want government to view combatting fraud and error through the lens of achieving large efficiency savings. These could run into billions of pounds a year – money that would be gratefully received by a government of whatever complexion.

Positive steps

The PSFA is training a new cohort of counter-fraud leaders and experts specialising in risk assessment and prevention.

And HM Treasury now requires all new schemes in need of its approval to have an initial fraud impact assessment and monitors those with a high risk.

We now need to see this followed through with the fraud risk management cycle properly embedded in programmes across government.

This means:

1. Proper fraud risk assessment
2. Design and implementation of preventative controls
3. Inspection and monitoring to test whether the controls are working and estimate the extent of fraud and error
4. Evaluation of the root causes of fraud and error.

This cycle needs to be repeated continually and faster than fraudsters can discover new ways of exploiting the system.

Fraud: Government needs to get this right

We’ll continue to highlight fraud risks in our value-for-money reports to Parliament and make recommendations on how public bodies can embed the fraud risk management cycle.

Read: Lessons Learned: Tackling fraud and protecting propriety in government spending during an emergency. You can find out more on the NAO’s work on fraud and error at https://www.nao.org.uk/topics/money-and-tax/.