12. NFI in Scotland 2022
North Ayrshire Council · 15 November 2022
Back to Audit and Scrutiny Committee — 15 November 2022 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
NORTH AYRSHIRE COUNCIL 15 November 2022 Audit and Scrutiny Committee Title: National Fraud Initiative (NFI) in Scotland 2022 Purpose: To provide the Committee with an overview of the NFI 2020/21 exercise outcomes. Recommendation: That the Committee notes the outcomes of the exercise. 1. Executive Summary 1.1 Audit Scotland has published its most recent biennial National Fraud Initiative (NFI) report. The report is provided in full at Appendix 1. 1.2 North Ayrshire Council’s participation in the NFI exercise is coordinated by the Corporate Fraud Team, with matches investigated by appropriate teams across the Council. 1.3 Investigation of the 2020/21 data matches was concluded earlier in 2022. 2. Background 2.1 The NFI is a major counter fraud exercise carried out across the UK every two years. Participating bodies provide sets of data and, following matching of data provided by various public sector bodies, anomalies in the data are provided for investigation. 2.2 The exercise is coordinated across the UK by the Cabinet Office, and in Scotland is delegated to Audit Scotland through the powers in the Criminal Justice and Licensing (Scotland) Act 2010. 2.3 The NFI exercise is Scotland is well established and remains the most comprehensive detective and preventative scheme in which vast amounts of data across numerous public bodies can be compared and matched using dedicated software. A data match does not necessarily mean there is fraud or error present, but highlights that further investigation is required in order to make a determination. Outcomes are recorded on the system and collated for each public body in order to arrive at a total value of recoveries across the whole of Scotland. 2.4 132 public bodies across Scotland participated in the 2020/21 NFI exercise, with 507,354 matches recommended for investigation across the country. Matches are
Page 2
categorised into risk priority to enable resources to be focussed on the matches with the most likely outcomes and recoveries. 2.6 The value of fraud and error identified across Scotland in 2020/21 was £14.9m, resulting in cumulative outcomes of £158.5m since the NFI first launched in 2006/07. In the UK, the 2020/21 result was £442.6m, and £2.4bn cumulatively since 2006/07. 2.7 The majority of the NFI results arise from the following key match areas: • Council tax discounts • Blue badges • Pensions • Housing benefit • Housing tenancy • Council tax reduction • Housing waiting lists • Creditors 2.8 For North Ayrshire Council, financial recoveries from the 2020/21 exercise amounted to £0.091m. 2.9 External audit also carried out an assessment of the Council’s planning and progress with the NFI and makes recommendations for improvement where appropriate. North Ayrshire Council was assessed as Satisfactory. 2.9 Audit Scotland continues to work with the Cabinet Office in developing new ways to prevent and detect fraud. This includes piloting new data matching opportunities, and where pilots achieve matches that demonstrate a significant level of success these are extended nationally and included in the main NFI exercise going forward. 3. Proposals 3.1 It is proposed that the Committee notes the content of the Audit Scotland report on the National Fraud Initiative in Scotland 2022. 4. Implications/Socio-economic Duty Financial 4.1 None. Human Resources 4.2 None. Legal 4.3 None. Equality/Socio-economic
Page 3
4.4 None. Climate Change and Carbon 4.5 None. Key Priorities 4.6 The work of the Corporate Fraud Team, including participation in the NFI, helps to support the efficient delivery of the strategic priorities within the Council Plan 2019- 2024. Community Wealth Building 4.7 None. 5. Consultation 5.1 No consultation has been required in the preparation of this report. Mark Boyd Head of Service (Finance) For further information please contact Laura Miller, Senior Manager (Audit, Fraud, Safety and Insurance), on 01294 324524. Background Papers None
Page 4
The National Fraud Initiative in Scotland 2022 Prepared by Audit Scotland August 2022
Page 5
Key messages The National Fraud Initiative (NFI) is a counter-fraud exercise which aims to prevent and detect fraud. The exercise operates across the UK public sector and includes 132 public bodies in Scotland. The NFI shares and matches data held by public bodies and helps confirm that services and payments are provided to the correct people. See Appendix 1 for more information about the NFI exercise. 1 The 2020/21 NFI exercise has identified outcomes valued at £14.9 million (see page 4). 2 The cumulative outcomes from the NFI in Scotland since 2006/07 are now £158.5 million. Across the UK, the cumulative total of NFI outcomes are now £2.4 billion (see page 4). 3 The overall level of fraud identified by the NFI has fallen since our last report. Outcomes from the Scottish NFI exercise fell by £0.4 million in 2020/21, from £15.3 million in 2018/19. The reduction in outcomes could be due to less fraud and error in the system, strong internal controls or due to some key data sets from previous exercises not being included in the latest exercise (see page 4). 4 Data sharing enables matches to be made between bodies and across national borders. Data submitted by Scottish bodies for the 2020/21 NFI exercise helped other organisations in Scotland and across the UK to identify outcomes of £1.2 million (see page 17). 5 Most bodies that participate in the NFI continue to demonstrate a strong commitment to counter fraud and the NFI (see page 18–19). However, a lower percentage of participating public bodies managed their roles in the 2020/21 NFI exercise satisfactorily compared to the 2018/19 NFI exercise. 6 Pilot work to look at potential data matches for future NFI exercises identified £2.2 million in incorrect non-domestic rates relief. The pilot work also identified one £25,000 fraudulent Covid-19 grant payment and 1,737 national entitlement travel cards which should have been cancelled (see pages 20–23). An NFI outcome describes the overall amounts for fraud, overpayments and error that are detected by the NFI exercise as well as an estimate of future losses that it prevents (see Appendix 3). The National Fraud Initiative in Scotland 2022 | 2 |
Page 6
Recommendations 1. Maximise the benefits All participating bodies in the NFI exercise should ensure that they maximise the benefits of their participation. This includes reviewing matches timeously and prioritising high-risk matches. NFI users should review the guidance within the NFI secure web application, to help ensure the most effective use of limited resources when reviewing and investigating NFI matches. 2. Self-appraisal The NFI self-appraisal checklist should be reviewed by the audit committee, or equivalent, and staff leading the NFI process. This is to ensure that their organisation’s planning, approach, and progress during the next NFI exercise is appropriate. 3. Take improvement action Where local auditors have identified specific areas for improvement, participating bodies should act on these as soon as possible. The National Fraud Initiative in Scotland 2022 | 3 |
Page 7
Outcomes from 2020/21 National Fraud Initiative Trends in overall outcomes between 2018/19 and 2020/21 NFI exercises 4 cases referred for prosecution in Scotland NFI outcomes UK NFI outcomes £14.9 million NFI outcomes in Scotland from the 2020/21 exercise £158.5 million NFI outcomes cumulatively in Scotland since 2006/07 £442.6 million from the 2020/21 exercise £2.4 billion cumulatively since 2006/07 20/21 06/07 Since 20/21 06/07 Since NFI participants include all councils, NHS bodies, colleges and all larger central government bodies, for example, the Scottish Government, Revenue Scotland and Transport Scotland. In addition, 14 councils include data from Arm’s-Length External Organisations (ALEOs), joint boards or subsidiaries within their NFI submissions. A list of all participating bodies is available on our website. Reduced levels of outcomes could be due to less fraud and error in the system, strong internal controls or some key datasets from previous years not being included in the latest exercise. Residential care home data, direct payments and social care customers’ data were not matched in the 2020/21 exercise due to a legal question being raised around the definition of patient data. Immigration data was also not included in the 2018/19 and 2020/21 exercises due to restrictions placed on it by the Home Office. NFI participants have identified pressures on staffing and services particularly because of the Covid-19 pandemic, and the strengthening of controls where previous fraud or error has been identified, as contributing to reduced outcomes in the 2020/21 exercise. The number of public bodies participating in the NFI exercise has increased by eight since the last exercise, to 132 bodies. The number of matches generated has fallen by over 73,000 since the last exercise, to 507,354. Outcomes in Scotland have fallen by £0.4 million since the last exercise, from £15.3 million to £14.9 million. The National Fraud Initiative in Scotland 2022 | 4 |
Page 8
Having fewer outcomes provides some assurance there does not appear to be significant problems in the areas covered by the exercise. However, participants still benefit from the deterrent effect the NFI creates. The fall in the number of matches is mainly due to the matches between housing benefit and payroll or pensions not being included in the matches returned to councils during the 2020/21 NFI exercise. Instead, this data was matched in Department for Work and Pensions (DWP) systems (see page 11). In addition, the removal of immigration, residential care home, direct payments and social care customers’ data has also reduced the number of matches. Four cases were referred to the Crown Office and Procurator Fiscal Service for prosecution. One resulted in Police Scotland issuing a caution and the offender is now repaying the money. The outcomes from the other three cases are not yet known. Although the main purpose of the NFI is to ensure funds and services are provided to the correct people, the review of NFI matches may also identify that a customer is entitled to additional services or payments. A breakdown of the recorded outcomes for Scottish participants is on our Counter-fraud hub. The National Fraud Initiative in Scotland 2022 | 5 |
Page 9
Results Overall outcomes How the latest outcomes compare to the last exercise The areas with significant changes are: NFI outcomes in Scotland have fallen by £0.4 million, to £14.9 million in the 2020/21 exercise Housing benef it Pensions £ m illion Council tax Creditors Blue badges Housing Council tax reduction scheme Waiting lists 2018/19 2020/21 0 1 2 3 4 5 Housing benefit £1.6m Pensions £1.7m Council tax £0.3m Creditors £0.1m Blue badges £0.9m Housing £0.8m Council tax reduction scheme £0.4m Waiting lists £0.1m The National Fraud Initiative in Scotland 2022 | 6 |
Page 10
NFI participants have cited the following reasons as to why outcomes are less in the 2020/21 exercise: • staff have had less time available to commit to NFI because of the added pressures on services caused by the Covid-19 pandemic • external agents were used instead of the NFI to carry out certain data matching such as the council tax single occupant discounts • new controls were introduced because of previous errors identified through the NFI • a new system was introduced for reporting the death of customers. More information about the outcomes for each category is provided on pages 8 to 15. A full breakdown of outcomes for each participating body is available on our Counter-fraud hub. Once overpayments have been identified, public bodies can take appropriate action to recover the money. How NFI matches help to identify areas for improvement The NFI exercise has helped participants to identify system weaknesses and to make improvements. These include the introduction of: • a more robust control environment in the creditors system. This includes monthly purchase ledger reviews, improved checks on new suppliers, and controls to identify duplicate payments and duplicate suppliers • revised procedures when setting up new suppliers • a review and cleansing of data held in systems • strengthened controls in the blue badge system • improved controls around the change of bank details • a review of policies aimed at supporting good governance such as declaring interests, registering of conflicts of interest and checks for identifying potential related parties. (95%) of cash overpayments were being recovered At 31 March 2022 £4.3 million31 March The National Fraud Initiative in Scotland 2022 | 7 |
Page 11
Council tax discounts People living on their own, or with no countable adults in the household, are eligible for a 25 per cent single person discount (SPD) on their annual council tax bill. Council tax data is matched to: Electoral register 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £5.6m £4.4m £4.9m £4.6m 4,846 4,802 4,588 3,720 Outcomes 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £5.6m £4.4m £4.9m £4.6m 4,846 4,802 4,588 3,720 Cases £4.6 million £1,248 3,720 Total outcomes in 2020/21 exercise Average outcome Cases The 2020/21 NFI exercise found that the total council tax discount incorrectly awarded across Scottish councils totalled £4.6 million. Four councils reported that they did not use the NFI and instead used alternative data matching or verification arrangements to review SPD cases during 2020/21. The graphs below include outcomes from the other 28 councils. Note. Due to an error with the data deletion schedule in the Cabinet Office, some supporting evidence for 11 councils was inadvertently deleted. Therefore, full supporting documentation is not available for these councils. The Cabinet Office has taken steps to prevent this error from re-occurring. The National Fraud Initiative in Scotland 2022 | 8 |
Page 12
Blue badges The blue badge parking scheme allows people with mobility problems to park for free at on-street parking meters, in ‘pay and display’ bays, in designated blue badge spaces, and on single or double yellow lines in certain circumstances. Blue badge data is matched to: Deceased persons Amberhill data1 1. Amberhill is a system used by the Metropolitan Police to authenticate documents presented for identity £2.7 million 4,616 1,401 Total outcomes in 2020/21 exercise Total number of blue badge outcomes in 2018/19 exercise Increase from NFI 2018/19 exercise 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 3,073 4,505 3,215 4,616 £1.8m £2.6m £1.8m £2.7m Outcomes 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 3,073 4,505 3,215 4,616 £1.8m £2.6m £1.8m £2.7m Badges The 2020/21 NFI exercise identified 4,616 blue badge outcomes, an increase of 1,401 (44 per cent) since the last exercise. The estimated value of these outcomes is £2.7 million. Blue badges are sometimes used or renewed improperly by people after the badge holder has died. It is an offence for an unauthorised person to use a blue badge. The National Fraud Initiative in Scotland 2022 | 9 |
Page 13
Pensions The NFI provides both councils that administer pensions and the Scottish Public Pensions Agency (SPPA) with an efficient and effective way of checking that they are only paying people who are alive. Pension data is matched to: Deceased persons Payroll Housing benefit Injury benefits Amberhill data In total, pension outcomes for the 2020/21 NFI exercise are £1.5 million, down £1.7 million (53 per cent) from the 2018/19 NFI exercise. This includes two outcomes identified through the pre-application screening (AppCheck)2 part of the NFI system. Pension outcomes may have fallen due to the ‘tell us once’3 reporting process and to controls working effectively within pension bodies. Case study An NFI match identified one fraud with a gross annual pension amount of £10,560 which was stopped and resulted in an overpayment of £6,601. The fraudster had notified Fife Pension Fund of a change of bank details for receipt of the pension after the pensioner had died. The council reported the fraud to Police Scotland which identified the person who submitted the fraudulent bank mandate. Following a police caution, the full amount was repaid. This case was reported as part of a 2020/21 NFI Progress Update to both the council’s Standards and Audit Committee and the Superannuation Fund & Pensions Committee in December 2021 for their consideration. 2. AppCheck is an NFI data matching service used at point of applications for a service or benefit. 3. ‘Tell us once’ is a service that lets you report a death to most government organisations when registering the death. £1.5 million £1.7 million Total outcomes in 2020/21 exercise Reduction on the 2018/19 NFI exercise 2014/15 2016/17 2018/19 2020/21 £1.5m £3.2m £5.4m £4.6m Outcomes The National Fraud Initiative in Scotland 2022 | 10 |
Page 14
Housing benefit Housing benefit helps people on low incomes pay their rent. The NFI provides councils and the DWP with the opportunity to identify a wide range of benefit frauds and errors. Housing benefit data is matched to: Student loans Housing benefit Housing tenants Right to buy (in England) Licences Deceased persons Amberhill data 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £3.0m £2.1m £2.8m £1.2m 868 710 1,238 177 Outcomes 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £3.0m £2.1m £2.8m £1.2m 868 710 1,238 177 Cases The value and number of housing benefit cases recorded with overpayments has significantly reduced, from £2.8 million from 1,238 cases in the 2018/19 NFI, to £1.2 million from 177 cases in the 2020/21 NFI. Over the same period, the average individual value of overpayments has risen from £2,292 in 2018/19 to £6,663 in 2020/21. The fall in outcomes is mainly due to the matches between housing benefit and payroll or pensions not being included in the 2020/21 NFI exercise. These matches historically identified significant outcomes. These matches were not included in the 2020/21 NFI exercise as similar data matching is undertaken by the DWP’s Verify Earnings and Pensions (VEP) Alerts service which identifies discrepancies between payroll and pension details held by HM Revenues & Customs and council benefits services. Alerts from VEP are sent to councils to investigate discrepancies. £1.2 million £6,663 177 Total outcomes in 2020/21 exercise Average individual value of overpayments Cases The National Fraud Initiative in Scotland 2022 | 11 |
Page 15
Housing tenancy The NFI uses housing tenants’ data to identify possible cases of tenancy fraud. This may happen when a tenant has sublet their property. It also helps identify cases where the tenant has died, and the property is either empty or has other individuals living in it. Housing tenancy data is matched to: Waiting list Housing benefit Housing tenants Right to buy (in England) Deceased persons Amberhill data Council tax reduction NFI matches resulted in councils recovering ten properties as part of the 2020/21 NFI exercise, compared to one property in 2018/19. The estimated value of these cases is £0.93 million, based on a calculation of the average four-year fraudulent tenancy. £0.9 million 10 Total outcomes in 2020/21 exercise Cases Outcomes Cases 2016/17 2018/19 2020/212016/17 2018/19 2020/21 2 1 10 £0.2m £0.1m £0.9m Case study An NFI match identified a Midlothian Council tenant who had failed to disclose that they had purchased a property within another council area at the same time they had been allocated a council house. Enquiries established the tenant moved into the owned property ten years ago and sublet their council house to a family member. The council has recovered the property. Outcomes Cases The National Fraud Initiative in Scotland 2022 | 12 |
Page 16
Council tax reduction Council tax reduction helps people on low incomes to pay their council tax bills. The NFI provides councils with the opportunity to identify a range of council tax reduction frauds and errors. Council tax reduction data is matched to: Council tax reduction Payroll Pensions payroll Housing benefit Housing tenants Right to buy (in England) Licences Deceased persons Amberhill data This is a relatively new match which has been included in the NFI since 2016/17. Outcomes of £0.7 million were identified in the 2020/21 NFI, an increase of £0.4 million from the £0.3 million reported in 2018/19. Councils have identified 772 cases in 2020/21, more than 2.5 times the number of cases in 2018/19 (280). One council advised that the increase in outcomes was directly caused by the Covid-19 pandemic. For example, an increase in mortality rates for those with underlying health conditions disproportionately impacted on people in receipt of disability benefits, council tax reduction and blue parking badges. In addition, there was an increase in the number of un-notified increases in the hours worked by those in lower paid service jobs who are more likely to be in receipt of council tax reduction. 2016/17 2018/19 2020/21 2016/17 2018/19 2020/21 115 280 772 £0.5m £0.3m £0.7m Outcomes Cases £0.7 million 772 Total outcomes in 2020/21 exercise Cases Case study An NFI match identified that a council tax reduction claimant in Renfrewshire Council had failed to declare their company pension and pension lump sum. This resulted in the claimant fraudulently receiving £14,450 council tax reduction. This amount is being recovered by the council. The National Fraud Initiative in Scotland 2022 | 13 |
Page 17
Housing waiting lists The NFI uses housing waiting list data to identify possible cases of waiting list fraud. This may happen when a person has registered on a council’s waiting list but there are possible undisclosed changes in circumstances or false information has been provided. Social housing provides affordable accommodation, allocated according to need. It usually provides a more secure, long-term tenancy when compared to private renting. Housing waiting list data is matched to: Waiting list Housing benefit Housing tenants Right to buy (in England) Deceased persons Amberhill data Councils identified 187 cases in 2020/21 where applicants were removed from waiting lists (230 in 2018/19). The estimated value of these cases is £0.6 million. This is based on a calculation of the annual estimated cost of housing a family in temporary accommodation and the likelihood a waiting list applicant would be provided a property (see Appendix 3). £0.6 million 187 Total outcomes in 2020/21 exercise Cases 2016/17 2018/19 2020/21 2016/17 2018/19 2020/21 90 230 187 £0.3m £0.7m £0.6m Outcomes 2016/17 2018/19 2020/21 2016/17 2018/19 2020/21 90 230 187 £0.3m £0.7m £0.6m Cases The National Fraud Initiative in Scotland 2022 | 14 |
Page 18
Creditors 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £0.7m £1.1m £0.6m £0.5m 139 168 147 144 2014/15 2016/17 2018/19 2020/21 2014/15 2016/17 2018/19 2020/21 £0.7m £1.1m £0.6m £0.5m 139 168 147 144 The NFI provides an efficient way to check for duplicate payments and that payments are only made to appropriate creditors. A creditor is a person or an organisation that a public body pays money to for a good or service. Creditor data is matched to: Creditor data Payroll The 2020/21 NFI exercise identified 144 creditor outcomes of £0.5 million, a fall of three outcomes and £0.1 million from 2018/19. Recovery action is taking place for these overpayments. £0.5 million 100% 144 Total outcomes in 2020/21 exercise Recovery action is taking place Cases Outcomes Cases The National Fraud Initiative in Scotland 2022 | 15 |
Page 19
Other data matches Payroll The NFI also matches all participating bodies’ employee payroll data as well as those of MSPs and councillors to identify cases of potential payroll fraud. The 2020/21 NFI exercise identified three outcomes valued at £27,000 compared to eight outcomes valued at £20,000 in the 2018/19 exercise. Past NFI exercises have identified larger outcomes for payroll. This fall in outcomes is partly due to immigration data not being included in the 2020/21 exercise due to restrictions placed on it by the Home Office. 2018/19 £20,000 £27,000 2020/21 three outcomes valued ateight outcomes valued at Case study An NFI match identified an employee who left Fife Council in September 2019 and who continued to be paid their salary until February 2021. The council overpaid a total of £20,288 to the ex-employee. Recovery of the overpayment is in progress and internal audit services have investigated the circumstance surrounding the overpayment. Recommendations for improvements have been discussed with management and an audit on the council’s leavers process is part of the 2022/23 Internal Audit Plan. This case was reported as part of a 2020/21 NFI Progress Update to the council’s Standards and Audit Committee in December 2021 for consideration. Case study New NFI matching of non-domestic rates small business bonus scheme (SBBS) in East Dunbartonshire Council identified a case where a ratepayer had failed to declare other business premises in another council area. This resulted in almost £11,000 in SBBS relief being claimed from April 2018. The case is being referred to the Crown Office and Procurator Fiscal Service for prosecution. We understand this is the first business rates case to be reported for prosecution in Scotland. The National Fraud Initiative in Scotland 2022 | 16 |
Page 20
Councils Central government NHS Colleges Total £601,591 £483,943 £100,456 £0 £1,185,990 2018/19 2018/19 2018/19 2018/19 2018/19 £854,760 £759,879 £120,408 £12,672 £1,747,719 Matches benefiting other public bodies A key benefit of a UK-wide data matching exercise is that it enables matches to be made between bodies and across national borders. For those public bodies taking part in the NFI which may not always identify significant outcomes from their own matches, it is important to appreciate that other bodies and sectors may do so. Most of these outcomes relate to housing benefits, housing waiting list and council tax reductions where, for example, payroll data from an NHS board may allow a council to identify a council tax reduction fraud or error. Data provided by Scottish participants for the 2020/21 NFI exercise helped other public bodies, both within and outwith Scotland, to identify outcomes worth £1.2 million (a reduction of £0.5 million from 2018/19). The National Fraud Initiative in Scotland 2022 | 17 |
Page 21
How bodies worked with the NFI in 2020/21 How bodies work with the NFI Auditors reviewed each participating body’s planning and progress with the NFI and provided recommendations for improvement where appropriate. Overall rating of NFI arrangements by year Local government 2016/17 Local government 2018/19 Local government 2020/21 Central government 2016/17 Central government 2018/19 Central government 2020/21 NHS 2016/17 NHS 2018/19 NHS 2020/21 Colleges 2016/17 Colleges 2018/19 Colleges 2020/21 Percentage 0 20 40 60 80 100 Satisfactory Mostly adequate Unsatisfactory The National Fraud Initiative in Scotland 2022 | 18 |
Page 22
Most participating bodies continue to demonstrate a strong commitment to counter fraud and the NFI. However, across all sectors, a smaller percentage of participating bodies managed their roles in the 2020/21 NFI exercise satisfactorily compared to the 2018/19 NFI exercise. Auditors identified that some bodies could be more pro-active in their approach to the NFI. One central government body was unable to review matches due to a cyber-attack, one council did not review matches citing resource issues as the reason, and a central government body was unable to action matches due to the impact of reallocating resources to the provision of Covid-19 grant funding to organisations. Six key contacts felt they did not have sufficient time and/or resources to allow them to oversee the NFI exercise. In four bodies, the key contact considered that they lacked sufficient authority to seek action across the relevant departments. The Covid-19 pandemic created additional pressures for public bodies and impacted upon the resources available to support the NFI exercise. Auditors reported that 15 bodies reduced their participation in the NFI exercise due to resourcing issues including staff vacancies, sickness absences or changing priorities as a result of Covid-19. We recommend that all bodies use our checklist to self-appraise their involvement in the NFI before and during the 2022/23 NFI exercise. For the 2020/21 NFI exercise, 64 per cent of bodies completed the checklist, although not all presented it to their audit committee; ten per cent reviewed it but did not complete it; and just over a quarter did not review it. This was reported as being because either the key NFI contact had changed and was unaware of the checklist, staff had prior experience of the NFI process, and Covid-19 pressures. A key contact is appointed by the NFI participating body. They are responsible for coordinating and monitoring the overall NFI exercise, ensuring outcomes from investigations are accurately recorded and nominating appropriate users of the NFI system. 64% 26% 10% completed the checklist did not review it reviewed it but did not complete it Public bodies usage of our NFI checklist 20/21 The National Fraud Initiative in Scotland 2022 | 19 |
Page 23
Pilots help identify the value of extending the NFI exercise Audit Scotland undertakes new areas of data matching on a pilot basis to test their effectiveness in identifying fraud. Only pilots which achieve matches that demonstrate a significant level of success are extended nationally and included in the main NFI exercise going forward. A small number of serious incidents of fraud or a larger number of less serious ones may both be considered successful. The NFI pilots undertaken or under way over the last two years are shown on the following pages. Exemptions for NHS dental and ophthalmic charges Data matching was undertaken to help identify NHS patients who have claimed to be exempt from NHS dental and ophthalmic charges, when they are not entitled. Patient exemption claims were matched to payroll data to ensure that dental and ophthalmic exemptions, eg for glasses or dental treatment, are only awarded to those patients qualifying for exemptions. NHS Scotland Counter Fraud Services (CFS) received the matches in the second half of 2019. It worked to identify the highest-risk matches and then started verifying payroll details before undertaking investigations. As part of this investigative work, CFS asked dentists and opticians to supply the original exemption claim signed by the patient. However, CFS was unable to progress this part of the investigation due to dentists, opticians and the CFS being required to close down due to Covid-19 lockdown restrictions. CFS then decided not to use the matches as originally intended but instead use them as intelligence, for example, as an alert if the same people claim again. CFS considered it not worthwhile re-doing the pilot in 2021 as there were very few exemptions claimed between April to December 2020. This was due to opticians and dentists initially being closed and then only able to do emergency treatment which was free of charge. CFS intends to re-run the exercise after new payroll data goes into NFI in autumn 2022. The National Fraud Initiative in Scotland 2022 | 20 |
Page 24
Covid-19 grants for businesses Following a Covid-19 grants data matching pilot exercise in England in the summer of 2020, it was decided to expand the English pilot to cover Covid-19 business grants paid to Scottish businesses. These grants were paid under the Small Business Grant Fund (SBGF) and the Retail, Hospitality and Leisure Grant Fund (RHLGF). Scottish councils submitted data from early in 2021. Initial matches were released in April 2021, however, match numbers were low. The Scottish schemes were more complex than similar schemes in other parts of the UK, eg in respect to second and subsequent properties held by each ratepayer. As a result, the algorithms were rechecked and additional matching was undertaken. Additional matches were released in September 2021. Despite the data having been rematched, only one fraudulent grant payment of £25,000 was identified. Due to Covid-19 grant payments having stopped, it is not expected that this matching will be required again. However, the systems are in place should the matching be required for any similar grants or payments in the future. Additional counter-fraud measures introduced by NFI participants in respect of Covid-19 grant funding Auditors identified that around 43 per cent of NFI participating bodies awarded Covid-19 funding during the pandemic. Almost three-quarters of these bodies introduced additional counter- fraud measures such as new internal controls. This included actively working through national networks, such as the Scottish Local Authority Investigators Group, the Institute of Revenues Rating and Valuation, the National Anti-Fraud Network, and with Police Scotland as well as strengthening internal controls. This resulted in, for example, Dundee City Council preventing 143 attempted fraudulent applications valued at £381,500 from being paid in 2020/21. It also resulted in Aberdeenshire Council identifying eight fraudulent grants totalling £107,000 plus 14 attempted frauds totalling £151,000. The bodies that did not take additional counter-fraud measures reported these were not necessary as for some, payments were made to existing customers using the existing controls whereas others relied on existing controls around the setting up of new suppliers and associated payments. Only one fraudulent grant payment of £25,000 was identified Aberdeenshire Council identified eight fraudulent grants totalling £107,000 The National Fraud Initiative in Scotland 2022 | 21 |
Page 25
Non-domestic rates – Small Business Bonus Scheme In 2019/20, a pilot was undertaken with the Scottish Government and seven Scottish councils to help identify businesses inappropriately claiming Small Business Bonus Scheme (SBBS) relief. The SBBS provides rates relief to owners of non-domestic properties with rateable values under certain thresholds. The seven participating councils provided 81,827 ratepayer records to the NFI system, which were then matched across the councils and with data from Companies House in order to identify SBBS fraud. The pilot identified £412,974 in incorrect awards. Due to the success of this pilot, a national roll-out of this data matching exercise was carried out in 2021/22. The 2021/22 pilot identified 17,676 matches which resulted in £2.2 million in incorrect SBBS relief being identified in 208 SBBS awards. Councils will now try to recover SBBS which was incorrectly awarded. Recovery is already in progress for 119 cases with a value of almost £745,000 in incorrectly awarded relief. Given the success of the 2021/22 pilot, consideration is now being given as to how this data match can be repeated on a regular basis as part of the main NFI exercise. The pilot report is available on our website. National entitlement cards for travel The National Entitlement Card (NEC) is Scotland’s National Smartcard. Supported by the Scottish Government to deliver national and local services, the NEC makes it convenient for people to access various public services and facilities with only one card. The NEC can be used for services such as a travel pass, a library card, a leisure membership card and a Young Scot card as well as providing access to other local services. In 2021/22, a pilot was undertaken with Fife Council, to match travel passes for elderly and disabled customers with deceased customer records. Fife Council provided a total of 112,044 NEC records for matching against deceased person records. This resulted in 1,737 matches being identified for review by Fife Council (a return rate of 1.6 per cent). Following Fife Council’s review, all 1,737 cards (100 per cent) were cancelled on the NEC system as it was established that the customers had died. This means no further cards can be requested for these customers, and the card will be blocked should someone attempt to use it. No matches were identified where the customer was still alive. Thirteen matches showed cause for concern as the NECs appeared to have been used after the death of the cardholder. Two of these cards were used for journeys to the value of almost £2,300 for one, and £240 for the other. The value of the journeys for the other 11 cards varied from £3.10 to £69.00. Given the success of this pilot, consideration will be given as to how this data match can be expanded to other councils in Scotland and included in the main NFI exercise in the future. The pilot report is available on our website. The pilot identified £412,974 in incorrect awards The National Fraud Initiative in Scotland 2022 | 22 |
Page 26
Social security benefits A pilot is under way with Social Security Scotland to identify any instances where claimants received support but were not residing in Scotland, or where claimants appear to have claimed benefits more than once, eg from more than one Scottish address. Claimant data was matched to data already in the NFI system from across the UK. Data was submitted in March 2022, with matches released to Social Security Scotland in May 2022. Social Security Scotland is currently reviewing the matches. Police Scotland’s use of AppCheck Police Scotland’s Serious and Organised Crime Interventions Team deals with vetting applications, eg for landlord registration and pre- contract procurement check requests from public bodies such as councils and the NHS. These checks aim to prevent and detect fraud within public procurement and other public services such as landlord registration and taxi licencing. Police Scotland is undertaking a pilot to identify if data in the NFI data base can be used to help its vetting processes to prevent and detect fraud. Data has yet to be shared. A match was highlighted, demonstrating the benefit AppCheck can bring in preventing fraud Applications for student awards A pilot was undertaken with Student Awards Agency Scotland (SAAS) to help confirm residency and address details for students applying for awards for tuition fees, grants and bursaries. SAAS funds students from Scotland and as such it is interested in verifying the address of student applicants and flagging where students are potentially fraudulently misrepresenting their address to benefit from the more attractive financial support offered to Scottish students. Student applications were matched against data held in the NFI system. An initial batch of 50 applications was processed which SAAS found very helpful in verifying and querying address details. One known fraud was put through the NFI pre-application screening service (AppCheck) to test the system. A match was highlighted, demonstrating the benefit AppCheck can bring in preventing fraud. SAAS is now looking to expand the pilot to allow the upload of a large batch of applications to the NFI system quickly, securely and easily. Case study A new NFI pilot matching National Entitlement cards in Fife Council against deceased person records identified one card that had been fraudulently used for bus travel valued at almost £2,300 after the cardholder had died. Investigations are continuing into the individual(s) who used this card. The National Fraud Initiative in Scotland 2022 | 23 |
Page 27
Future developments The 2022/23 NFI exercise is due to start in late summer 2022. Datasets have been reviewed and updated as necessary. Audit Scotland continues to work with the Cabinet Office in developing new ways to prevent and detect fraud. This includes piloting new data matching opportunities. The Scottish Parliament approved The Digital Government (Scottish Bodies) Regulations 2022 in March 2022. These Regulations name Audit Scotland under Regulation 3 - ‘Scottish bodies for the disclosure of information in relation to fraud against the public sector’. This allows Audit Scotland to access HM Revenue & Customs income and savings data for Scottish residents for future NFI exercises. This will help identify outcomes where customers have received benefits and services above what they are entitled to. Audit Scotland continues to work with the Scottish Government in promoting and enhancing participation in the NFI across Scotland. The Scottish Parliament’s Public Audit Committee (PAC) is considering the expansion of legislative powers around the NFI. This may include expanding the NFI to bodies in receipt of significant amounts of public funding that do not fall under the audit remit of the Auditor General for Scotland or the Accounts Commission. The Cabinet Office recently consulted on extending its legal powers around the purposes for which data matching can be used. It is looking to potentially extend its legal powers in the following areas: • to assist in the prevention and detection of crime other than fraud • to assist in the apprehension and prosecution of offenders • to assist in prevention and detection of errors and inaccuracies. The NFI data could be used to help public-sector bodies to ensure citizens get access to their full benefit entitlements. For example, a number of passported benefits across the welfare system entitle recipients to help with housing costs, free school meals, etc. A match could identify citizens entitled to additional help they are not claiming • to assist in the recovery of debt owing to public bodies. Public bodies may need to trace individuals with outstanding overdue debt and with no arrangement to pay in place. In some instances, these individuals may be difficult to trace. The NFI data could be used to help identify where a debtor was living or working, for example. The Cabinet Office is considering the responses and will publish a formal consultation response in due course. Section 97 of the Criminal Justice and Licensing Act 2010 already permits Audit Scotland to use data matching for the first two purposes. We will monitor developments. The National Fraud Initiative in Scotland 2022 | 24 |
Page 28
Appendix 1. Background to the NFI The NFI is a counter-fraud exercise across the UK public sector which aims to prevent and detect fraud. The Cabinet Office oversees it, and Audit Scotland leads the exercise in Scotland, working with a range of Scottish public bodies and external auditors. The NFI uses data sharing and matching to help confirm that services are provided to the correct people. The NFI takes place every second year. 132 public- sector bodies in Scotland participated in the 2020/21 exercise including councils, NHS bodies, colleges and larger central government bodies such as the Scottish Government, Revenue Scotland and Transport Scotland. A full list of participants is available here. The NFI enables public bodies to use computer data matching techniques to detect fraud and error. We carry out the NFI under powers in The Criminal Justice and Licensing (Scotland) Act 2010. It is important for all parties involved that this exercise is properly controlled, and data is handled in accordance with the law. The Audit Scotland Code of Data Matching Practice includes a summary of the key legislation and controls governing the NFI data matching exercise. Although the main purpose of the NFI is to ensure funds and services are provided to the correct people, the review of NFI matches may also identify that a customer is entitled to additional services or payments, eg housing benefit matches may identify customers entitled to council tax discount or reduction. Data matching exercise every two years in partnership with the Cabinet Office Participating bodies submit data to a secure website NFI outcomes are reported by participating bodies, auditors and Audit Scotland The NFI system matches data within and between bodies to identify anomalies Auditors monitor participating bodies' processes and progress Potential anomalies called ‘matches’ are reported to participating bodies to review, investigate and record outcomes The National Fraud Initiative in Scotland 2022 | 25 |
Page 29
Appendix 2. Costs and benefits of participating in the NFI The Scottish Parliament provides funding to Audit Scotland to cover public-sector participants’ NFI fees for the biennial data matching exercise. Participating bodies incur costs following up matches and investigating. Participating bodies also incur costs for pilot work and additional services such as the AppCheck pre-application screening and the ReCheck4 flexible data matching service. Many bodies do not keep separate records for NFI costs as it is just one of many counter- fraud activities they are doing. Those that do have records were able to estimate that their costs ranged from £500 to £71,000. This compares favourably with the average outcome for each public body in Scotland of £113,000 for the 2020/21 NFI exercise. Overall, the £14.9 million of outcomes from the 2020/21 NFI outweigh the costs. £8,416 £204,500 Average reported cost of NFI (total of 25 bodies) Audit Scotland costs 4. ReCheck is a flexible data matching service that complements the NFI biennial national exercise. It allows NFI participants re-perform the existing NFI data matching at a time that suits them. No. of bodies reported Cost range Councils 0 £0 Other local government bodies 2 £1,397 – £5,000 NHS bodies 7 £1,277 – £71,000 Central government bodies 11 £590 – £20,000 Colleges 5 £500 – £6,000 The National Fraud Initiative in Scotland 2022 | 26 |
Page 30
Appendix 3. Estimation bases The figures used in this report for fraud, overpayments and errors include outcomes already delivered (actual amounts participants have recorded) and estimates. Estimates are included where it is reasonable to assume that incidents of fraud, overpayments and errors would have continued undetected without NFI data matching. Details of estimate calculations used in the report are shown below. Data match Basis of calculation of estimated outcomes Council tax single person discount Annual value of the discount cancelled multiplied by two years. Housing £93,000 per property recovered, based on average four-year fraudulent tenancy. Includes: temporary accommodation for genuine applicants; legal costs to recover property; re-let cost; and rent foregone during the void period between tenancies. Housing benefit Weekly benefit reduction multiplied by 21 weeks. Pensions Annual pension multiplied by the number of years until the pensioner would have reached the age of 85. Payroll £5,000 for each employee dismissed or resigns as a result of NFI matching, or £10,000 for each resignation or dismissal for employees who have no right to work in the UK. Council tax reduction scheme Weekly change in council tax discount multiplied by 21 weeks. Housing waiting lists £3,240 for each case based on the annual estimated cost of housing a family in temporary accommodation, the duration a fraud may continue undetected and the likelihood a waiting list applicant would be provided a property. Blue badges Number of badge holders confirmed as having died multiplied by £575 to reflect lost parking and congestion charge revenue. The National Fraud Initiative in Scotland 2022 | 27 |
Page 31
The National Fraud Initiative in Scotland 2022 Audit Scotland’s published material is available for download on the website in a number of formats. For information on our accessibility principles, please visit: www.audit-scotland.gov.uk/accessibility For the latest news follow us on social media or subscribe to our email alerts. Audit Scotland, 4th Floor, 102 West Port, Edinburgh EH3 9DN Phone: 0131 625 1500 Email: info@audit-scotland.gov.uk www.audit-scotland.gov.uk ISBN 978 1 913287 91 7