The government is to set up a new counter-fraud network to identify career fraudsters who target the public sector, contributing to £21bn of taxpayers’ money leaking out of the system illegally.
Ministers say 3p in every pound spent by the government is lost to fraud, the vast majority through tax evasion and corruption in the welfare system, and there is evidence of fraudsters manipulating the government’s payment systems repeatedly to siphon off funds. Some get insider help from state employees.
The Cabinet Office counter-fraud taskforce has published a report revealing in detail how fraud operates across all levels of government and proposing plans for a new zero-tolerance approach which, it said, would end the “pay first, check later” culture in the civil service.
Intelligence-sharing networks across government will issue alerts when new types of fraud are identified. Names of individuals who are defrauding the system could be circulated.
The taskforce says it will “consider the development of a watchlist of people who have committed insider-enabled fraud against the public sector”.
The £21bn of fraud in the public sector identified in a report last year includes £15bn of tax evasion, £1.5bn of tax and benefits fraud and £1.5bn of procurement fraud.
That includes the practice of double-invoicing government departments for the same items.
More than £472m is lost to grant fraud – groups wrongly securing government grants.
There is also £177m of payroll fraud – including operators of the systems setting up fake employees to siphon off salaries, £165m in NHS patient charges being fraudulently submitted by contractors and £31m of student finance fraud.
In local government, £900m is lost to council tenancy fraud, £855m to procurement fraud, £90m to council tax fraud and £46m to fraud in the blue badge parking schemes.
Francis Maude, the Cabinet Office minister, said pilots launched last year to tackle fraud had already saved £12m out of the £21bn annual total.
That included more than £10m cut from both fraud and error in the tax system through better screening techniques.
The transport department had also saved £500m by detecting overpayments. The Cabinet Office could not say what proportion of each was from deliberate fraud instead of error.
HMRC has reduced late self-assessment returns by 5% by texting previous offenders to remind them.
A Cabinet Office spokesman said: “The £12m savings equate to pilots that have focused on preventing and detecting fraud, but these have also had an impact on preventing error.
“HMRC’s pilot, which saved £10.63m, prevented payments being made following false or incorrect applications and so making sure that payments go to those who are most eligible and those who need it most.”
In a foreword to the document, David Cameron writes: “It is deeply unfair to allow opportunist fraudsters and organised criminals to steal money that should be used for frontline services, especially at a time when we have had to ask many in the public sector to make difficult decisions to bring the economy back on track.”