Litany of fraud on public bodies revealed by Audit Scotland

Fiona Kordiak said that systems that avoid fraud generally work.
Fiona Kordiak said that systems that avoid fraud generally work.
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A catalogue of criminal behaviour, including a £500,000 fraud at Scottish Water, stolen drugs and credit card fraud demonstrate major failures in public sector financial controls, according to a new report by the nation’s official accountants, Audit Scotland.

The “fraud and irregularities” update document lists an array of scams on Scottish councils and government quangos, including an estimated half a million loss to Scottish Water as a result of four employees using work vehicles for cash payments.

The report for the last financial year also details six cases of fraud and irregularity around changing the bank details of suppliers amounting to £82,000; four cases of fraud involving income totalling £36,500; two cases involving payroll totalling £10,000 and three cases involving theft and totalling £45,000.

Of those, £12,000 was defrauded from Historic Environment Scotland when a corporate credit card was used to buy overseas events tickets before they were resold while £12,500 was stolen by a Perth and Kinross Council employee who sold refuse sacks and retained the cash and also kept refunds from council tax and rent accounts which had overpaid.

In the Western Isles, a care home employee who stole prescribed drugs from a locked medicine cabinet in a council-run care home replaced them with paracetamol, while the owner of a council-funded care home in North Ayrshire embezzled £38,000 from residents and an occupational therapist who defrauded £8,000 from West Lothian Council by falsely claiming to be unfit for work, while establishing their own private business.

Other frauds included a council tenant sub-letting their home, the theft of school laptops valued at £7,000, and fundraising money totalling £1,200 being stolen by a school staff member in West Lothian.

Audit Scotland said its report’s aim was to help prevent similar circumstances happening again by sharing lessons learned across the public sector, and that not every case was provable fraud which would have warranted police action.

But the watchdog warns public sector bodies to consider whether the “weaknesses in internal controls” shown in the report exist in their own organisations – and charges auditors to confirm whether controls “are sufficiently strong” to prevent similar frauds occurring.

The biggest case involved Scottish Water where four employees had used tankers to transport waste, without authorisation, for cash payments.

The misuse of the vehicles for the drivers’ personal gain was discovered when a member of the public called Scottish Water’s call centre to express his concerns regarding the employees’ activities. The concerns were also substantiated by a Scottish Water whistle-blower and the four employees have left their employment as result.

The Audit Scotland report says Scottish Water is “currently assessing opportunities for recovery of the lost revenue” and the Scotsman understands that while no charges have been brought Police Scotland are involved. It adds that the fraud showed “weakness in internal controls”, with “too much flexibility given to the drivers in scheduling their work and a lack of monitoring of the driver’s activities and the vehicles movements.”

A spokesperson for Scottish Water said: “As an organisation we take any allegation of fraudulent activity extremely seriously. This matter remains ongoing and as such it would not be appropriate to make any further comment.”

But Scottish Conservative local government spokesman Alexander Stewart MSP said: “This is a huge amount of money to lose, and it’s staggering that it took so long for Scottish Water to discover this.

“A handful of employees have managed to carry out a significant level of fraudulent activity and go undetected for some time. Given the sums involved there needs to be far closer monitoring of the activity of their drivers to ensure that this cannot happen again.”

Fiona Kordiak, director of Audit Services at the agency, said: “The level of fraud and irregularity we’ve outlined in this report is very small compared to the £44 billion that’s spent across Scotland’s public sector each year.

“That shows that systems to avoid fraud are generally working well.

“However, there were avoidable weaknesses in all the cases we’ve highlighted, and it’s important that all public bodies ensure that similar vulnerabilities don’t exist within their own organisations.”

The care home fraud in North Ayrshire saw the owner embezzle residents money by not managing funds through individual bank accounts, as required by the contract with the council. A council employee responsible for managing the contract identified that residents were having financial difficulty and cash flow problems and a subsequent investigation identified unusual bank transfers with a lack of supporting information.

The business owner was reported to the Procurator Fiscal and is awaiting trial but has repaid the funds. Audit Scotland said the “weakness in internal control” enabled the fraud to be perpetrated.

The Western Isles council care home employee who stole prescribed drugs from a locked medicine cabinet and replaced them with paracetamol, admitted the theft and was charged by Police Scotland and received a six month suspended sentence.

But again, Audit Scotland said, it showed “weakness in internal control”, as “the theft was possible as the keys to the cabinet were used by a number of staff on the shift.”

A college received a fraudulent request to change employee details for two employees from hacked email accounts.

This led to a loss of £2,000. Key features The college’s payroll team paid the salary of the two employees into the fraudsters’ bank accounts instead of the employees’ bank accounts. The fraud was uncovered when one of the employees alerted the payroll accounting officer about the nonpayment of their salary. In one case, emailed payslips appear also to have been misdirected, revealing personal details.

Weakness in internal control payroll did not seek a confirmation from the staff, either in person or on the phone, prior to making a change to bank account details.