Losses to fraud and error in the public sector are more than twice as high as previously thought, according to a report co-authored by a Portsmouth academic.
The Centre for Counter Fraud Studies at University of Portsmouth and MacIntyre Hudson in April published the Financial Cost of UK Public Sector Fraud report.
It claims £38bn is lost to fraud and error in the public sector in the UK, of which £22bn is lost through public expenditure, and £16bn is lost through uncollected tax at national and local levels.
The authors claim that by changing the way public sector fraud is managed, losses could be reduced by up to 30 per cent by 2013-14, saving £22bn over the next three years.
Mark Button, Director of the Centre for Counter Fraud Studies and a Reader at University of Portsmouth, said: “This report is based on hard evidence collated from around the world where organisations have measured losses in an accurate and statistically valid way. Estimates which have not met these standards have been excluded. As a result we have a report which is the first to consider the totality of losses to UK public expenditure and revenue.
"In a climate where political parties are talking of cutting costs we highlight one substantial area of waste which can be reduced with relatively small levels of investment without compromising the quality of front-line public services over the next three years.”
The report also highlights a significant perception gap between official estimates of losses to fraud and the actual likely losses based on data from public sector losses around the world. For example:
* HM Treasury estimates losses to Government departments administrative expenditure to be £4.219m (0.026%) whereas the global average loss rate is 4.57%, 175 times greater.
* Official estimates for local government losses to fraud are £684m (0.56%) but the report argues the figure is closer to £5.562bn.
* The NHS puts its losses at £263m (0.28%) but the report argues the figure is about £2.837bn.
Overall, official estimates of losses are less than half of actual likely losses.
Jim Gee, Director of Counter Fraud Services at MacIntyre Hudson LLP and Chair of the Centre for Counter Fraud Studies, said: “It is deeply shocking that the financial cost of public sector fraud has reached this level.
“The bottom, line is that you and me as UK tax payers are essentially being denied the quality of public services we’ve paid for.
“We need to learn from countries like the US, where public sector organisations have a legal duty to accurately measure the nature and extent of their losses each year and to publish this information together with their plans for reducing them.
“Best practice shows that we need a culture change. Introducing measures to counter fraud is the least painful way to tackle the incredible budget deficit we’re facing and reduces the extent of cuts needed to public services and jobs.”
The report makes several recommendations to address fraud including the need to create a Public Sector Counter Fraud Agency work specifically to reduce losses; introducing the equivalent of the US-style Improper Payments Information Act, requiring public authorities to estimate the annual amount of payments made where fraud and error are present, and plans to reduce them; and a cultural shift in the public sector’s approach to countering fraud.
