A Call For Effective Counter-Fraud Measures: British government fails on surging pandemic fraud

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Shaun Reardon-John, consultant solicitor-advocate with Martin Kenney & Co., Solicitors

There is a ticking time-bomb of Covid-related fraud across the U.K.

Matters have come to a head following a report from an influential cross-party parliamentary committee, which has said that the U.K.’s Department for Work and Pensions (DWP) has lost control of the country’s major form of social security payment — Universal Credit. This comes after new figures showed billions of pounds were lost to scams during the first year of the Covid-19 pandemic.

The public accounts committee (PAC) said benefits fraud and errors hit record levels in 2020-21, when £8.3 billion was overpaid — up from £4.5 billion the previous year. These overpayments accounted for 7.5% of the DWP’s non-pension benefits spending. This is a meteoric and damaging loss by any standards to the U.K. public purse.

Universal Credit is ultimately paid for by the British taxpayer, so the burden of any fraudulent activity falls upon each and every citizen. Given the nature of this benefit and its intended recipients, the most vulnerable in society are also victims — at a time when the U.K. government is seeking to bring the deficit and eye watering debt repayments under control via limited increases to such benefits. In this context, we can already gauge the type of character who would pillage the limited funds intended to help the more vulnerable members of society.

Most of the losses here can be attributed to the impact of the pandemic and the opportunities it provided to fraudsters. Some 10,000 claimants had their benefits stopped or were wrongly asked to repay money as a result of a “mass identity hijack” carried out by organized crime groups, who stole the identities of thousands of claimants to fraudulently obtain advance payments.

Looking for accountability

The chair of the Parliament’s public accounts committee, Dame Meg Hillier, described the situation as “untenable.” The DWP response has been disappointing, even if there are mitigating circumstances owing to the nature of the pandemic.

The U.K. government has attempted to shift blame onto “an unprecedented pandemic,” but such responses totally miss the point. When you are dealing with taxpayers’ money, it is incumbent to mitigate risk and put systems in place to prevent (often foreseeable) fraud.

The pandemic was not a blip that lasted a couple of weeks. Covid-19 has been around and impacting the U.K. for almost two years — and with new variants that may be around for some time to come. Surely the DWP’s systems should have picked up the ever-increasing losses; if not, why not?

The DWP was certainly under pressure to deal with a surge of genuine claimants, but its counter-fraud systems have clearly been inadequate and not fit for purpose. The issue now will be pursuing those who have over-claimed or lied to secure Universal Credit payments. However, many will not have the money to repay the misappropriated sums and are unlikely to ever be in a position to do so. What can the DWP do to rectify the problem? Unfortunately, almost nothing in most cases at this point.

This all follows a further highly-damaging report from the U.K.’s National Audit Office (NAO), which estimated that 11% of all “bounce back loans” provided during the pandemic to businesses through a government-backed program set up in April 2020 were fraudulent.

The Department for Business estimated these fraudulent loans cost the U.K. taxpayers £4.9 billion. A total of 1.5 million loans worth £47 billion were issued through the initiative after about a quarter of U.K. businesses applied.

Counter-fraud activity was “implemented too slowly,” which resulted in “high levels of estimated fraud,” the NAO said.

How can this be prevented?

What the DWP and other U.K. government bodies need to recognize is the value of effective counter-fraud measures. Perhaps the DWP and these other departments need to consider a closer working relationship with external agencies who specialize in fraud countermeasures, as well as provide better and more effective training for its staff to spot fraud far earlier in the cycle.

Digital systems can be effective where claims are based online. But the introduction of more face-to-face interviews with claimants once they have submitted their paperwork online, in conjunction with a genuine threat of prosecution if they have lied, may act as a better deterrent. Again, the problem with the deterrent lies in the lack of law enforcement funding, coupled with genuine deterrents at the sentencing stage. 

 

While the pandemic has put unprecedented strain on people, resources and organizations around the world, Covid can no longer be an excuse. After nearly two years, governments or their agencies can’t bury their heads in the sand and abandon basic anti-fraud checks and controls with so much taxpayers’ money at stake. Even though too much time has passed to remedy fraud in some areas, it’s not too late for the government to adopt effective counter-fraud measures that can help stymie fraud’s continuing growth — and prevent further losses to its citizens.

SOURCE: ACFE Insights – A Publication of the Association of Certified Fraud Examiners