Technical Notes 2021, Issue 87 - 2020/21- CORPORATE FRAUD PERFORMANCE UPDATE, COMMUNITY GRANT ANTI FRAUD CONTROLS AND ‘FRAUD AND IRREGULARITY 2020/21’ – A REPORT BY AUDIT SCOTLAND

The purpose of this Technical Note is advise Members of the Corporate Fraud Performance Outcomes for the financial year 2020/2021 and to provide detail on audit counter fraud recommendations following a question from Cllr Low at Council on 17^th June 2021 in relation to further advice on appropriate controls for community grants.  A copy of ‘Fraud and irregularity 2020/21’, a report by Audit Scotland is also attached.

Corporate Fraud Performance Update

The Corporate Fraud and Corruption Policy outlines the Council’s strategy in relation to fraud and commitment to creating an anti-fraud service and culture, whilst maintaining high ethical standards in its administration of public funds.  A summary of performance outcomes for the main counter fraud activities in 2020/21 is provided at Appendix 1.

The Council is committed to safeguarding public funds and maintaining the highest standards of probity.  In order to fulfil this commitment the Council has a zero tolerance approach to fraud and corruption.  There is no acceptable level of fraud and corruption. 

The Corporate Fraud and Corruption Policy is part of a suite of policies developed to safeguard public funds and assist in maintaining the highest standards of probity.  Other policies include the Council’s Anti-Bribery Policy, Anti-Money Laundering Policy, Whistleblowing Policy and Employee Code of Conduct.

Community Grant Anti-Fraud Controls

As advised at Council on 17 June 2021, the Council’s Audit and Risk Manager received notification in January 2021 from the Community Planning and Partnership Policy Adviser that an embezzlement had occurred in a third party.  The theft of funds related to an organisation, which has in the past received funds via the Community Grants Scheme (CGS).  Auditors understand that Police Scotland have charged the Body’s former Treasurer with embezzlement.

Auditors provided a high level overview of the embezzlement to Members following which there was a request for further advice could be provided to Members, Officers or applicants involved in the Community Grants Scheme to support the development of appropriate controls and monitoring throughout the process. 

Audit work concluded that the Governance arrangements surrounding the awarding and approval of community grants is robust.  Given the nature of the embezzlement there is, however, scope for improvement actions that could be implemented with relative ease by the grant recipient to help reduce the risk of further fraud or, as a minimum, increase the chances of detecting any fraud.  Further detail on these recommendations is provided below.

Auditors have recommended that assurances are sought from the grant recipient  to ensure that key financial internal controls surrounding payments have been improved before the awarding of any further funds to the Body.  The Body should confirm to the Council that the following are in place:

• Segregation of duties in financial transactions entailing two signatories on the bank mandate for cheque payments and a requirement for dual authorisation for BACs payments (if applicable),
• Regular reviews of bank mandates and authority limits,
• Cheque books are kept in a safe location and there is a prohibition of a signing of blank cheques, and;
• The Committee, Trustee Board or governing body are supplied with regular information around the financials.

Auditors further recommend that the Council obtains a reasonable level of assurance from future awardees by outlining the above controls on the application forms and have the applicants confirm that these measures are in place.

The Council should also consider recommending or requiring that an individual other than the Treasurer conducts a secondary review of the organisation’s annual accounts.  Auditors are aware of such a review process being in place for funds such as School Funds and the review acts as an effective detective control and also as a deterrent to individuals who may be considering committing fraud.

Fraud and Irregularity 2020/21 – a Report by Audit Scotland

This report is attached, with members asked to note the key messages of the report, copied below for ease of reference:

1. Significant challenges due to Covid‑19

Since the start of 2020/21, the Covid‑19 pandemic and the associated lockdowns have brought significant challenges across the public sector. Public bodies have sought to continue to deliver services in new working environments while at the same time experiencing an increase in demand for many services. The challenges during the last year include additional fraud risks for public bodies to identify and manage.

2. Wide range of action required to mitigate new risks

The new fraud risks cover a variety of areas. This means a wide range of actions are required by public bodies to attempt to mitigate these risks.

3. Weaknesses in controls contribute to fraud and irregular activities

Weaknesses in controls have contributed to a variety of fraud and irregular activities being identified across the Scottish public sector. During 2020/21, external auditors reported 13 cases of fraud and irregularity valued at £0.4 million. The value of reported fraud and irregularity remains small compared to the 2020/21 annual Scottish budget of £49 billion.

4. Counter-fraud hub

Audit Scotland’s counter-fraud hub contains useful counter-fraud information.

There are no specific aspects of this technical note that require to be treated confidentially (or for Elected Member information only) and therefore all content can be shared, where appropriate.