Public sector fraud: PSFA targets £40bn a year problem

The UK’s new Public Sector Fraud Authority (PSFA) will be engaged in a high-stakes game of cat and mouse with fraudsters, according to Nicola Sharp

Public sector fraud has always been with us. It has, however, become an increasingly prominent issue in recent years.

While the Covid-19 pandemic had many awful consequences, the huge amount of taxpayers’ money that was paid out to those making fraudulent applications for pandemic financial support has been – so far, at least – the most embarrassing aspect of it for the UK government. For all the bold statements about cracking down on fraud, the bald facts are that fortunes are being lost to those who see the government and other public bodies as sitting targets for fraud.

That, however, could be a thing of the past. At least it could be if we take the government’s latest claims at face value. Having created and heavily promoted the Public Sector Fraud Authority (PSFA) a matter of months ago, the government has now announced that the promised specialist squad to prevent fraud in public services is now up and running and set to “surge into departments’’. There will be a central team of experts to identify areas where there is greatest risk of fraud and specialists who will help civil servants ‘design out’ the potential for fraud when new schemes and services are being launched.

This use of experts is in keeping with the PSFA approach, which was created by the government to be its centre of expertise for fraud prevention and management. Given a target to detect and prevent £180m of fraud in its first year, receiving £25 million in funding and on close working terms with the Cabinet Office and HM Treasury, a lot of hope is being placed on the PSFA.

The specialist squad now being let loose is being hailed as a global first by the government. Which may be true. But then maybe no other government has haemorrhaged so much public money it has needed to take such a step. And it is debatable whether such fanfare has any credibility with a public that is so used to shocking reports about the scale of fraud – and those reports being followed by government statements banging on about how they are going after the fraudsters.

Huge challenge

If the estimates of annual public sector fraud being around £40bn are anywhere near accurate, the crack new team that has just been put into action has a sizeable challenge. It should also be remembered that those who carry out fraud on a systematic, large-scale basis are not likely to give it up because one or more of their routes to making illegal gains are identified and closed off. Those who look to make fraudulent gains are adept at identifying new opportunities, meaning that the new government team of experts will be engaged in a high-stakes game of cat and mouse. And the mouse is very good at getting what it wants.

The National Audit Office (NAO) has made it clear that most public bodies do not know how much fraud they face. The NAO has stated that the amount of fraud in government expenditure rose from £5.5 billion in total for the pre-pandemic period 2018-20, rising to £21bn in total for the two years after that. The NAO also cites another £10bn a year in taxation revenue lost to tax evasion and crime and the Public Sector Fraud Authority’s own estimate that in 2020-21 there was between £33.2bn and £58.8bn of fraud and error in government spending and income that was unrelated to the pandemic.

Such figures underline the sheer size of the task facing those whose arrival has been hailed as a first by the government. Unfortunately, they also show quite clearly just how poor fraud prevention in the public sector has been – despite the seemingly continual pronouncements about getting tough on those who commit it. And let’s not forget that these figures only cover the fraud that is known about.

This latest, much-trumpeted approach may well live up to the claims being made for it. It has been set up with the best of intentions, has a strategy in place and is set to identify where it needs to focus its energies. But the scale of the problem – and the wily nature of those who are causing it – will mean those energies are set to be sorely tested.

Nicola Sharp, a partner at Rahman Ravelli, has expertise in fraud, civil recovery and business crime