Fraud investigation and the ‘flawed architecture’ of counter fraud entities in the United Kingdom

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International Journal of Law, Crime and Justice 39 (2011) 249e265 www.elsevier.com/locate/ijlcj

Fraud investigation and the ‘flawed architecture’ of counter fraud entities in the United Kingdom Mark Button 1 Director of the Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK

Abstract This paper considers the multiple entities in the public and private sector in the UK focused upon investigating fraud and argues their architecture is flawed for effectively countering fraud. The paper maps the different entities engaged in countering fraud and provides an analytical framework for assessing their foundations. It then moves on to show how this architecture has consequences for many in their capacity, independence and ultimately survival. The paper concludes with some possible areas of reform which require further consideration and research to address this gap. In undertaking this, the paper draws upon publicly available documents, survey data and semi-structured interviews drawn from various personnel working in the field of counter fraud in the police, local authorities, the National Health Service, government departments and agencies, private sector and other relevant fraud bodies. Ó 2011 Elsevier Ltd. All rights reserved.

Keywords: Fraud; Investigation; Counter fraud; Policing

1. Introduction There can be few crimes which have so many ‘entities’ engaged in countering it than fraud. The police, various Government departments (and sections of), the Serious Fraud Office (SFO), specialist private investigation firms, numerous entities in local authorities and private companies account for some of the most salient in this sector. This reflects the diversity of fraud E-mail address: [email protected] Mark Button is a Reader in Criminology at the Institute of Criminal Justice Studies and Director of the Centre for Counter Fraud Studies. 1

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which has been defined by Wells (1997: 2) as, ‘any crime which uses deception as its principal modus operandi’ and thus embraces a wide range of deviant behaviours by individuals and organisations. The fight against fraud is therefore conducted by a very diverse range of counter fraud entities, of varying capabilities and whose architecture has been the subject of regular change. Many counter fraud entities are also quangos, government departments or parts of them. All of these e but particularly quangos e are subject to regular reform. Over the past 15 years in the UK there have been various initiatives to reduce the number of quangos and agencies as well as initiatives to ‘join them up’. Indeed in the most recent in October 2010, in one of the biggest culls -the Government announced a reduction of quangos from 901 to 648 through mergers, abolition and change of status (Cabinet Office, 2010). This included a number of entities with significant roles in countering fraud:
Audit Commission (National Fraud Initiative, audit etc) abolished
Office for Trading (Investigation and prevention of consumer fraud, cartel fraud etc) merged with Competition Commission
Consumer Focus (Operates hotline for receiving consumer complaints including fraud) proposed to be hived off to Citizens Advice
Serious Organised Crime Agency (Cross-border fraud and organised fraud) to be merged to create National Crime Agency Many counter fraud entities are built on even weaker foundations than quangos. They are departments or parts of departments in local authorities and companies. These often face even more ‘organisational turbulence’ which culminates in re-branding, mergers and abolition. This contrasts to the police whose structure of 43 constabularies has been fixed for over 30 years and whose dominance over the investigation of other volume crimes such as burglary and robbery remains constant. Given there are so many counter fraud entities and they vary in their status, capabilities and effectiveness this does raise questions over the viability of the current architecture of fraud investigation in the UK. Fraud is not a minor problem to be dismissed. In the UK it has been conservatively estimated as a £38 billion problem by the National Fraud Authority (2011) (there is much contention on how much fraud actually costs with this been a conservative estimate). This is over double the costs to society of Class A drug use, estimated at £15.4 billion (Reuter and Stevens, 2007). There are also substantial numbers of members of the public who have become victims of fraud. The 2008-9 British Crime Survey found that 6.4 per cent of bank, debit and credit card users had been a victim of card fraud in the previous 12 months (Moon and Flatley, 2010). The Office of Fair Trading (OFT) has commissioned research which has found 48 per cent of the UK population have been targeted with a scam and 8 per cent have fallen victim (OFT, 2006). Questions also arise over victims with comparable losses having unequal access to justice as a result of the capacities of some of the counter fraud entities. There has been only limited interest in examining in greater depth some of these many entities, and particularly those focused upon fraud (Gill and Hart, 1997; Jones and Newburn, 1998; Button, 2002; Prenzler, 2006; Doig and Levi, 2009; Smith et al., 2010). This paper will seek to begin to fill this gap by mapping the different entities engaged in countering fraud and providing an analytical framework for assessing their foundations. It will then move on to show how the architecture of counter fraud entities in the UK has consequences for many in their capacity, independence and ultimately survival. Before this is explored the methodology will be outlined.

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2. Methodology This article is the result of research from a three year project designed to investigate counter fraud predominantly in the public sector. The project included a survey of public sector organisations (government departments, executive agencies and non-departmental public bodies) and FTSE 100 companies (Brooks et al., 2009). The research team also conducted a survey of counter fraud specialists (CFS), largely in the public sector (Button et al., 2007). These surveys were supported by 28 semi-structured interviews drawn from various personnel working in the field of counter fraud in the police, local authorities, the NHS, government departments and agencies, and other relevant fraud bodies. The team also secured a comprehensive resource of primary and secondary sources of information related to counter fraud. This paper draws predominantly upon the 28 interviews as well as the primary and secondary data. 3. A fragmented patchwork of entities Research illustrating the pluralisation or fragmentation of policing and in-particular the major role played by a range of hybrid state, private and charitable actors has been growing over the last 20 years (Hutter, 1988, 1997; Johnston, 1992; Gill and Hart, 1997; Jones and Newburn, 1998; Levi, 1987; Loader, 2000; Button, 2002). The patchwork of entities countering fraud has received less academic attention. One of the few attempts to map this patchwork of entities is Levi (2003), who identified 17 organisations and groups ranging from the Civil Aviation Authority (CAA), Insolvency Service to local authorities and the police, although some of the largest groupings were missing, such as fraud investigators involved with social security and the NHS. It also failed to capture the extensive number of entities within larger organisations focused upon fraud. He also developed a typology of the different types of bodies involved, based upon an underdeveloped simplistic bifurcation of ‘high policing’, represented by the SFO and ‘low policing’, which is linked to cheque card fraud with less police involvement (Levi, 2003, 2007). The 2006 Fraud Review Team Interim Report (Fraud Review Team, 2006) identified the following groups of investigators focused upon fraud:





Serious Fraud Office (270 employees) The police (524 police officers in fraud squads) Serious and Organised Crime Agency (SOCA) (resource yet to be determined) Other Public Sector Bodies Her Majesty’s Revenue and Customs (HMRC) 7500 staff e including drugs investigators; DWP 3250; NHS 344; Financial Services Authority (FSA) 46; Department of Trade and Industry (DTI) 150 etc)
Private sector (in-house investigations departments e the six largest banks alone having 2500 investigators) To any map of the counter fraud infra-structure of the UK must also be added the substantial number of entities in the state, private and voluntary sector focussed on countering fraud. These might include departments focused upon fraud in companies, local authorities, government departments, charities etc (Button et al., 2007). Some of these departments may have multiple functions, only one of which is fraud, such as compliance, audit, security and risk assurance. The entities countering fraud in the UK, therefore range from large statutory bodies such as the Serious Fraud Office with multi-million pound budgets focussed on fraud and corruption alone, to audit departments of a local authority who may have one or a handful of staff dedicated to

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countering fraud. The literature does not offer much analytical insight of the different entities involved in countering fraud. Nonetheless as will shortly be shown, the sophistication and foundations of these entities does vary significantly. One development underpinning the complexity of entities countering fraud is the emergence of the CFS (Button et al., 2007). The term originated in the NHS where under legally binding directions issued by the Department of Health each NHS Trust had to appoint a CFS. The CFS was linked to the completion of a training scheme which resulted in the award of Accredited Counter Fraud Specialist (ACFS). Since the establishment of this award in the NHS the same common training curriculum leading to ACFS has expanded to the Department for Work and Pensions (DWP), local authorities, HM Revenue and Customs, Identity and Passport Service, Child Maintenance Enforcement Commission, Abbey and KPMG with over 12,000 accreditations (CFPAB, 2010). This has led to the term CFS becoming the common description for a fraud investigator in the public sector. The police and much of the private sector have not embraced this scheme so far, but at the time of writing (February 2011) the National Fraud Authority was looking to join the board which oversees ACFS bringing with them a police and more private sector organisations to make the board fully representative of the sector. 3.1. Structure and legal status As has been alluded to already many counter fraud entities exist as organisations in their own right. The SFO exists in its own right established under the 1987 Criminal Justice Act as amended. There are also some ‘private’ bodies formed that have a role in countering fraud, such as The Insurance Fraud Bureau (IFB), a central counter fraud agency funded by the insurance industry and CIFAS (a fraud prevention bureau), funded by the services it charges fees for. Some counter fraud entities are therefore ‘legal personalities’. There are then some counter fraud entities which exist as organisations e at least in a public facing way e but which are in reality parts of other organisations. The National Health Service Counter Fraud Service is actually part of the NHS Business Services Authority. It has its own organisational status within the BSA, website, budget etc, but it is not an organisation in its own right. Similar to this are the many organisations which have some form of counter fraud department. For example the Department for Work and Pensions has the Fraud Investigation Service of 3100 staff. Some private organisations have such departments such as many insurance and financial services companies. There are also professional services companies such as KPMG and PKF and private investigation firms such as Kroll who offer counter fraud services amongst others. It is also common to have departments with a variety of responsibilities e one of which is countering fraud e within an organisation. Most commonly this might be audit, security, compliance to name some of the most common. The capacity in such departments can also vary from in some cases a lone counter fraud specialist to much larger teams. Finally there are organisations where there is not even a defined counter fraud capacity where other specialists or generalists have to take responsibility for countering fraud. Most commonly this might be an auditor or security manager. Fig. 1 below illustrates a continuum of the weakest to the strongest counter fraud entities based upon their status foundations. At the bottom is a generic entity or department of a larger organisation, such as audit or security, which has multiple functions including fraud with generalist staff who have responsibility for fraud, often with others. Then there are sections of entities. These are persons who have responsibility for fraud, but who don’t exist as a defined structure on their own. They are usually part of a larger department such as security, audit,

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Fig. 1. The increasing strength of foundations of counter fraud entities.

compliance. Then there are departmental entities within larger organisations, but with a clear focus upon fraud. Finally there are independent entities which have their own legal personality focused largely upon fraud. It is argued the further along the continuum one goes the stronger the foundations and the greater resilience the entity has. 3.2. History and culture The longer an organisation has existed in its own right the stronger it may become as well as develop its own unique culture (Schein, 1992). Some police forces can trace their histories back to the early nineteenth century, others for at least 30 years or more. Police forces also have strong organisational and occupational cultures, which vary between forces (Reiner, 2000; Foster, 2003). Some of the weaker entities are relatively new and maybe more likely to disappear, merge or re-brand in the short to medium term. They also often have less developed cultures. The organisational turbulence that leads to changes in the composition of entities will shortly be explored further. 3.3. Functional and geographical domination Organisations also vary as to the degree to which the functions they carry out represent a monopoly over in both a functional and geographical sense. The police in the UK have faced significant challenges to their dominance in a range of functions, but on core volume crimes, such as the investigation of burglary and robbery, they dominate their geographical area as the main entity responsible for those types of incidents. With most volume frauds this is not the case and the police certainly do not possess a monopoly over fraud. For example, there are some frauds which can and are potentially investigated by more than one entity. A fraud in a local authority for example might be investigated completely by the local authority, or they

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might hire private investigators, or there might be a partnership with the police or ideally the police will investigate. There are some entities that rely on the goodwill of others to carry out functions. For example, the police are often required for support in arrests, searches and the ultimate pursuit of criminal prosecution. Many CFSs in local authorities rely on other bodies such as the police to carry out their work. If they can’t secure the support their work frequently comes to a halt. They might also rely more on non-specialists to support their work in terms of managerial support and resources. There are also some entities that monopolise certain frauds. The SFO for example, monopolises the most serious and complicated cases (£1 million plus) for criminal prosecution. There are also a number of bodies that build upon others existing provision. The IFB for example, builds upon the insurers own capacity. There is therefore much less functional and geographical domination when it comes to fraud. The table below brings together some of the most significant counter fraud entities in the UK. It first briefly states their capacity and then using the discussion above assesses their structure and legal status, history and culture and monopoly status in functions and geography. 4. Consequences of the architecture of counter fraud entities The architecture of counter fraud entities in the UK has consequences for the fight against fraud. Primarily as illustrated in Table 1 there is a patchwork of hundreds of entities of varying status and capabilities countering fraud. Some are good, some are average and some are poor. Many frauds require joint actions and partnerships, which are often difficult to create (Fraud Review Team, 2006; Doig and Levi, 2009). Moreover the architecture shows differences in funding and capacity, with many entities lacking appropriate resources and being prone to cuts. Some entities are more open to interference in their activities. Finally their status and organisational foundations means many lack resilience in their ability to survive the frequent organisational turbulence of reform and the impact this can have on effectiveness. These areas will now be considered. 4.1. Funding and capacity Many counter fraud entities do not have the resources necessary to undertake their role. Their status means they can also be much more susceptible to cuts in their budgets. In the climate of 2010 and the new era of austerity and public cuts there is nothing unusual about cuts. However, prior to 2010 there was evidence of some counter fraud entities with strong foundations being subjected to heavy cuts. For example in July 2009 it was announced the SFO budget was to be reduced from £51.5 million to £43.4 million in the forthcoming financial year, a 15.7 per cent cut (Mason, 2009). The budget deficit has meant that many more entities countering fraud e as well as in other sectors e will face these levels of reduction and more cuts and will be less able to resist them than more established policing bodies such as the police (who even in the current climate will face substantial cuts). Interviews on the ground with some CFS confirmed the impact of budgetary pressures and other aspects of their foundations had on their capacity to do their job. The foundation of many counter fraud entities is also questioned by their capacity to do what they are formally mandated to do. This is demonstrated in two clear ways: resource limitations and operational impotence. For example a CFS from a small unitary authority interviewed expressed the challenges of securing even small amounts of money for training:

Table 1 Selected counter fraud entities (1). Capacity

Structure and legal status

History and culture

Geographical and functional dominance

Police fraud squads

524 police officers according to the Fraud Review (2006). Gannon and Doig (2010) suggest declined further

Located in specialist departments in police forces who determine their own structures. Gannon and Doig (2010) found only 45% of forces responding to survey had a specialist capacity. General CID capacity as well for some frauds

Police forces have long histories and cultures, but specialist departments focused upon fraud generally do not as evidenced by their decline (Gannon and Doig, 2010). City of London fraud squad probably only example

Serious Fraud Office

307 staff

Founded by Statute, the 1987 Criminal Justice Act

Founded in 1987 it is a relatively young organisation. Has been subject to much speculation about its future

DWP Fraud Investigation Service

3100 staff

Founded in 2006 as the Fraud Investigation Service which is a department within the Department for Work and Pensions

Founded in current form in 2006, but fraud investigators can be traced back several decades. Only in the 1990s, however, has the role become more professionalised

NHS

524 staff

NHS Counter Fraud Service and Local Counter Fraud Specialists employed by NHS Trusts. Mixture of central body and counter fraud sections and lone resources in the Trusts

Traced back to 1998 and formation of Counter Fraud Directorate

Many fraud investigations conducted by other state and private bodies require support of state police. Fraud squads would only be dominant in this aspect in their force area. However, the COLP may also become involved in other areas due to its national lead role Frauds where organised criminal element, but otherwise no dominance In its area of responsibility dominant in the UK. Dominance over criminal fraud investigations over £1 million, international frauds, those of public concern and major corruption cases Dominates the UK for most social security fraud investigations, bar housing benefit fraud, which is the responsibility of local authorities Dominant in all social security fraud bar housing benefit fraud and social security fraud involving organised crime (likely to change e DWP, 2010) Dominant over fraud in the NHS. Some involvement of the police in some cases and where organised crime element

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Counter fraud entity

(continued on next page) 255

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Table 1 (continued ) Capacity

Structure and legal status

History and culture

Geographical and functional dominance

Local Authority Counter Fraud Specialists

2000 staff (approximate)

Almost all local authorities have a counter fraud capacity located in either a specialist department, section of department or as a resource in a department. Structures vary considerably

Long history of fraud investigation in local authorities, but structures vary and subject to periodic changes

Specialist Investigative Resources for Hire

10,000 þ but many focused on range of investigations, not just fraud (Gill and Hart, 1997; George and Button, 2000) Thousands, but difficult to determine as there has been no research (2)

Numerous private investigation agencies and professional services practices offer fraud investigation services

Varies. Some private investigation agencies and professional service practices have long histories

Dominate their own local authority areas for frauds such as housing benefit, council tax, housing tenancy for example (Likely to change post DWP reforms e DWP, 2010) Some frauds require police support, particularly those perpetrated by organised crime These firms tend to dominate civil investigations

Many private companies have a counter fraud capacity located in a myriad of different departments, sections and generalist staff

Varies significantly

Founded by the insurance industry in 2006 as a not-for-profit company/trust to target organised insurance fraud

As a new body created in 2006 it has a short history

Private Sector Counter Fraud Specialists

Insurance Fraud Bureau

10 staff

Dominate fraud investigations in their own firms, particularly those which don’t lead to criminal sanction. In some cases specialist resources maybe brought in and in some cases the police too Covers over 95 per cent of the insurance industry in the UK Dominance over organised insurance frauds, but works in partnership with the police and insurance companies

(1) There are dozens if not hundreds of bodies which could be included in this table and for space and time reasons only some of the most significant have been listed. (2) To illustrate size one of the major mobile telecommunications company has a global counter fraud and security staff of 700. Many of the larger companies employ hundreds of staff in counter fraud roles. Sources: Fraud Review Team (2006); DWP (2010); Gannon and Doig (2010); Gill and Hart (1997); Serious Fraud Office (2010); Smith et al. (2010).

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Counter fraud entity

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CFS in Unitary Authority 1 But as . said, a lot of our problem is actually budgetary, so we have to try and scrimp and save and try to get it free. If we can get it free we’re alright we haven’t got a problem. To effectively undertake their roles, staff are needed with suitable skills and knowledge having undergone the appropriate training. They may need specialist equipment related to surveillance, computer forensics or simply the recording of interviews. They may need special legal tools or access to staff who can facilitate the use of such powers. There is evidence from the research of the variability of the tools available for CFSs to undertake their roles, rendering some of them occasionally operationally impotent. In one interview with a private contractor who undertakes the CFS role for NHS Trusts he admitted that he was not confident enough to conduct interviews under caution alone, he stated: NHS Contractor CFS The way that I have tended to undertake those is, one, do it in conjunction with the regional, the South East region team, so I get one of their people to come along, one, that they’ve got a lot more experience of doing it than I have, they’ve got all the equipment, and although I’ll undertake the interview it’s handy to have that extra knowledge, experience and so forth on tap. Make sure do it right, basically. This is an illustration of a major weakness in one counter fraud entity when the investigator was reluctant to conduct interviews under caution alone. Shortages of equipment, and specialist facilities were other areas noted by different CFSs in undertaking their role. To effectively carry out their work most counter fraud entities need a strong working relationship with the police. For example the police are required to utilise their powers of arrest and search when suspects will not co-operate, or ultimately to take the case forward for prosecution. The Fraud Review Team (2006) discovered evidence of variable police interest in pursuing investigations with fraud which has been well documented elsewhere (Levi, 1987; Doig et al., 2001; and Levi, 2003; Doig and Levi, 2009). In this research mixed evidence was discovered of examples of both good and bad practice. For example the CFS from one County Council told us of their relationship with the police where one substantial fraud had not been pursued for criminal prosecution because of lack of police interest. County Council CFS I think the wording of the police, ‘it has to have a significant impact on the tax payers of ****shire’- that’s their words, in terms of whether to get involved or not. Although £22,000 is an awful lot of money to me and am sure, probably to you. To the Police? Probably, it isn’t! I think I remember having conversations with one senior officer who at one stage said to me that they had a big fraud in one of the local banks in *****, not far off from a million pounds, and there was even talk about the police not possibly having the resources to get involved! Another CFS in an NHS Trust explained how rare it was for a police involvement and prosecution through the CPS, rather: NHS Trust CFS .nine out of ten, they (the police) would say we are happy to help you do that but we don’t want to take the investigation on. So the investigation would go through CFSMS to

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the central unit and we have to put in a request for prosecution form because they pay for the prosecution. That then goes to one of the Operational Directors to decide before getting referred to the NHS Solicitors Branch (they are the same people that deal with DWP investigations). Investigation then begins and they would prosecute for us. Occasionally, you would get a case conference, and they would suggest one or two statements they would like to see on file. Once they’ve got everything as they want to, they would then phone locally to get a Barrister and they would be prosecuted on our behalf. Note that the police would be involved in investigations ONLY if we require an arrest. Many CFSs, nevertheless, described support from police that allowed them to utilise police facilities to conduct interviews under caution, arresting suspects on their behalf as well as carrying out searches. In one local authority this had extended to a local service level agreement with the police where: Unitary Authority 1 CFS If we want someone to come for an interview under caution, we send up to three letters e the first is just an invitation, here’s your time and date, please present yourself. The second goes out recorded delivery e you failed to attend, please come in, otherwise we’ll take action. The third one says if you don’t come in or respond to this within so many days, the matter will be handed to the police. We then have an arrangement whereby we prepare an arrest request, the police arrest them on our behalf, and if necessary will identify if the premises need searching or what have you, and then we are responsible for everything when he gets to the police station. We also in this particular case, we are using the police because the man’s previous convictions include several of violence, one attempted murder, so we would rather have him interviewed in secure accommodation after he’s been searched and obviously we also want to search him, business premises and his home. And without police presence there we can’t do that. So we don’t use them very often e half a dozen times a year e it for people who fail to attend despite three requests, for people who are known or believed to be violent, or where we need to search. 4.2. Operational independence The doctrine of constabulary independence implies a degree of autonomy and distance of the police from external influences, particularly from Government (local, regional and national). Most entities engaged in countering fraud do not have ‘constitutional’ independence. Any lesser independent structures based upon law, organisational rules or codes of practice, as will be shown, are also often compromised. Even in counter fraud entities built on solid foundations as independent organisations there is evidence of ‘interference’. In the UK in December 2006 the Serious Fraud Office (SFO) halted an investigation into allegations of bribery concerning an arms deal between BAE Systems and Saudi Arabia worth an estimated £43 billion (BBC News, 2008). The publicity (and indeed outrage) relating to this decision, led to allegations of high level political pressure been placed on the SFO to end the investigation for fear of jeopardising Anglo-Saudi Arabia relations, relating to national security. Most CFSs are located in entities built upon weaker foundations than the SFO. Many are departments or sections where there are a range of internal and external influences that can affect what they do either directly (decisions made not to investigate or to end by management) or indirectly (through their capacity to do what they would like).

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CFSs, working alone or in sections or departments in larger organisations (as is usually the case in local authorities, the NHS and some large companies) face having to undertake their work under the auspices of actors such as directors of finance, chief executives, boards and councillors to name some. Each of these may have different views on priorities, resources and a particular case and may sometime culminate in conflict. Indeed the author was told of a manager of a team of CFS in a London borough who uncovered a major fraud by a senior officer. The manager was forced to resign and the fraud was covered up. An equivalent scenario of a police force investigating a major fraud in a local authority and the chief executive not liking the findings and therefore forcing the chief investigating officer to resign to pursue a cover up would be very difficult if not impossible to achieve because of the greater police independence. Analysis of some of the interviews found interference was a particular problem in local authorities where some Councillors were able to block some of the policies CFSs wanted to pursue. For example one CFS heading a housing benefit fraud unit in a unitary local authority informed the researchers of his exasperation over the attitudes of some Councillors concerning his desire to advertise a hotline: Unitary Authority 1 CFS This local authority refuses to let me advertise on buses. They don’t - the current people in power don’t want us to be telling the public - they don’t want to create an impression that the local authority is chasing people for benefit fraud. In another interview with the CFS from internal audit in a County Council, although the interference was not noted, the answer given clearly indicated it was a thought in the back of their minds: County Council CFS We try not to involve members due to interferences unless we really have to. Obviously, with all the education ones (current frauds under investigation), we had to involve the member of the Cabinet so he is aware of and the person who deals with the LEA. We do an update to him on how things are progressing. Sometimes, it could also become very political as well. Linked to the differing objectives are what might be described as the malign influence of KPIs. These have been well documented as having an impact on the direction of the police (Loveday, 2000). There was also evidence in some areas of fraud investigation this was also happening. For example one fraud investigator told the research team: Unitary Authority 2 CFS Yes you’re absolutely right, from my point of view as much as I shouldn’t be led by that at all, and I’ll look at the cases I get and I could easily prioritise the ones I know I’m going to be able to put through quick, I will go looking for cases that are fast and won’t take up my time and I can get a very fast turnaround and result on. As opposed to long drawn out, protracted investigations that are being committed by .., and in a way they should be the people we’re targeting however when you get given targets, you’ve got to hit them so you don’t have a lot of choice in the matter because it might be all well and good me saying ‘brilliant I’ve just spent the last 3 months investigating this person and I’ve got them to court’, well I could probably have 5 cases through in that time, so it’s one of those things common targets but the whole point is, you’ll understand it’s the same as policing.

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One of the best illustrations of the lack of independence was interference by senior managers in ongoing investigations found in the research by Button et al., (2005). This survey of CFSs raised both quantitative and qualitative evidence of this. A significant minority (18.8 per cent) of the CFSs surveyed had been subjected to pressure to end a suspected fraud investigation. The reasons for interference included: resource limitations (36.3 per cent), pressure to meet targets (22.5 per cent), political reasons and bad publicity (20 per cent) amongst others. Some of the most concerning were the twenty per cent of responses which accounted for political and bad publicity (Table 2). As the following extracts from Button et al. (2005: 52,53) reveal, Q78CFS Person being investigated was a personal friend of a Director and other Directors were culpable in the fraud being committed. Q394CFS A local high profile figure who is a friend of those in senior management due to be prosecuted case closed with no action. I believe there were some who had too much to lose by upsetting the person in question. Q370CFS Both cases involved claimants with close ties with the council e I suspect that the council didn’t want possible bad publicity or to become involved in a ‘messy’ discipline matter. It is to be remembered, however, the vast majority of those surveyed had not been subject to interference in investigations and some of the interviews with CFSs drew this out. For example one investigator from a London borough with a history of fraud and corruption stated: London Borough CFS I’ll say we do have legal parameters that we work within but there are no pressures from senior management, council members or officers on us to pursue or not to pursue any investigations. They realize that if there is something wrong that needs sorting out, we are better off dealing with it rather than trying to sweep it under the carpet or interfering with it. I mean this council has been very good at that and we enjoy the full support of all the members, and I personally have never experienced any pressure to conduct investigations in any particular way or another or to reach a conclusions no other than what I’d reach as a result of the investigation. We have dealt with very sensitive issues here in the past which involved very senior officers, but there were no pressures on me or the team to prevent us from doing anything.

Table 2 Experience of pressure by senior management to end fraud investigation. Experience of pressure by senior management to end fraud investigation

N

Percentage

Yes No Don’t Know

79 332 9

18.8 79.0 2.1

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4.3. The ebb and flow or organisational reform The architecture (or organisational structures) of many counter fraud entities is also characterised by weak resilience. The plurality of counter fraud entities are subjected to regular reform and change. The less resilience an entity possesses the more open it is to the ebb and flows of organisational changes. These changes can often frustrate the ability of entities to counter fraud as resources are diverted or lost in the reforms. Those entities established by legislation on a practical basis can be much harder to change. There is the challenge of simply securing legislative change to undertake this. Bodies like the police have proved difficult to reform their organisational structures. For example, the attempt in 2006 to turn the 43 constabularies to 13 through amalgamations failed because of a strong campaign by the forces opposed, even though the Home Secretary was strongly committed to them (Loveday, 2006). This also illustrated the standing of constabularies in local communities and the desire to retain them. The ultimately successful campaign to protect them, however, illustrated that even with a degree of political will the police forces possessed a degree of resilience which ultimately protected them from the changes the Home Secretary wished to pursue. It is doubtful that such political support would exist for most counter fraud entities. However, even where police constabularies have proved resilient police fraud squads (economic crime departments, etc), which are formed within constabularies at the discretion of the chief constable, have not. There has been a substantial reduction in specialist departments and the total number of specialist officers over the last two decades (Gannon and Doig, 2010). However, even counter fraud entities with a comparable organisational status to the police have been subjected to regular reform or are about to. The SFO, which was established in statute, has been earmarked for reform into a new financial crime agency incorporating the parts of the FSA and OFT (HM Government, 2010). The National Health Service Counter Fraud Service (NHSCFS) has experienced the regular ebb and flow of organisational reform. In 1998 it was founded as the National Counter Fraud Directorate and it was originally a section of the Department of Health. It then became a Special Health Authority in its own right in 2003 also taking on the additional responsibilities of security as the NHS Counter Fraud and Security Management Service (NHSCFSMS). In 2006 its independent status ended with its merger with several other special health authorities to become the Business Services Authority (BSA), although name, structures, operations all remain largely intact within the BSA. However, in 2010 under yet another review it looks set to change its name to ‘NHS Protect’ and face further reductions in resources (NHSCFSMS, 2010). With some entities their strength is such they cannot resist being abolished. The Benefits Fraud Inspectorate (BFI) was established in 1997 to improve the standards of local authorities in tackling housing and council tax fraud, but was abolished in 2008 with its functions moving to the Audit Commission, Audit Scotland and the Wales Audit Office (Benefits Fraud Inspectorate, 2007). Subsequently in 2010 the Audit Commission itself was confirmed as being abolished by the new Conservative/Liberal Democrat Coalition. The Audit Commission undertakes a range of functions focused upon counting fraud both directly through the National Fraud Initiative (a data-matching exercise), as well as other fraud prevention work combined with audit, which indirectly prevents and detects fraud (Cabinet Office, 2010). The structures of Government are frequently changed. CFSs employed within these structures frequently get caught up in those reorganisations. For example, various benefits payments have been located in Government departments that have included the Department of Health and Social Security (DHSS), Department of Employment, Department of Social Security (DSS) and

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currently the DWP. The fraud investigators have moved in their structures below these major changes. Thus even without major departmental changes there have been changes to the structures of fraud investigations. The structures and bodies to address social security fraud have also been subject to significant changes in structure and approach over the last 30 years. During the 1980s in the DHSS the structures consisted of Fraud Officers (FO) who vetted cases of suspected fraud referred to them who were based in local offices and under their control. Second were Special Investigators (SI) who dealt with cases referred by the FOs where further evidence was required to prove fraud. These were also based in the local offices but had greater autonomy than FOs in their work. Finally there were Special Claims Control Units who were teams of six officers who would swoop on a particular office to target fraud. The latter were replaced by Regional Benefit Fraud Teams in 1986. In 1984e5 there were 1512 FOs, 564 SIs and 112 in the SCCU (Cook, 1989). Much of the counter fraud resource was therefore organised at a local level, there were few central structures nor professional training for these staff (Scampion, 2000). During the late 1990s and early 2000s there were, for example, a series of reports and initiatives directed at fraud and social security. The Green Paper Beating Fraud is Everyone’s Business (Department of Social Security, 1998), the White Paper A New Contract for Welfare: Safeguarding Social Security (Department of Social Security, 2000), the Grabiner Report (2000) and Scampion Report (2000) all stimulated debate, increased professionalism and substantial organisational changes (NAO, 2003). The latter was most debated with a recommendation for a single agency to investigate all social security fraud, which was initially rejected. These initiatives culminated in a structure in the early 2000s which consisted of the DWP headquarters Fraud Strategy Unit and Housing Benefit Division with responsibility for strategy. Below this within the Executive Agency Jobcentre Plus were located the vast bulk of the investigative resource in the Counter Fraud Investigation Division and also providing counter fraud services to the Pension service (the other main Executive Agency of the DWP). This was headed by a Chief Investigation Officer and Head of Profession and divided between 11 investigation intelligence teams located in the 11 regions of Jobcentre Plus. There were also a number of specialist units. The National Intelligence Unit, providing intelligence; an Operations Branch, investigating the most serious fraud; a Professional Standards Unit, responsible for training and advice on investigations; and a Joint Working Group responsible for joint investigations with local authorities, the police etc. There was also and still is a role for frontline staff in checking and spotting fraud. In total 5100 staff were employed within these counter fraud structures (NAO, 2003). These structures were reformed yet again when in April 2006 the Fraud Investigation Service (FIS) was created. This provides counter fraud services to the constituent parts of the department (largely Job Centre Plus and the Pensions Service). This also resulted in a reduction of the counter fraud staff to 3100 staff. It is overseen by a Head of Profession and is part of the Department for Work and Pensions. It is divided into 11 area investigation commands, a FIS (Organised) Command, dealing with organised fraud; a FIS (Intelligence) Command; and Technical Support. It is also supported by about 800 Customer Compliance Officers who deal with low level frauds that are unlikely to be processed through the courts. Over the last few years these changes illustrate on the one hand a movement towards the original recommendation of Scampion, towards a single body responsible for fraud (although not as a single agency within the department). On the other hand it is still within the structures of Jobcentre Plus and its staff resources have almost been halved. Further reform is now going to occur with

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the creation of a single investigative service drawing in HM Revenue and Customs Service tax credit fraud investigators and local authority housing benefit fraud investigators, amongst other reforms (DWP, 2010; Tunley, forthcoming). The ebb and flow of organisational reforms described above are much more common in bodies such as local authorities, companies, NHS Trusts etc. Fraud investigators frequently find themselves in renamed departments, with mergers and de-mergers with other sections and frequent changes in the resources directed at counter fraud functions. Local authorities, for example, often have fraud investigation functions located in different sections: housing benefit, audit, council tax to name the most frequent. Some have experimented with merging these together. In the London Borough of Brent in 1994e5 the corporate investigations in audit and housing benefit were merged together to form one investigation service. In 1997 housing tenancy fraud was absorbed and then in 2000 audit also merged back to create one Audit and Investigations service in Brent. The department also includes a dedicated surveillance section and computer forensic analysis capacity. In the other London Borough of Lambeth they have gone from a complete corporate investigations service similar to Brent to a fragmentation to separate Benefits, Housing, Internal, Insurance and Parking in 2002, with some gradual remerging since; demonstrating an authority with regular reforms on the agenda. Conversely Boroughs such as Camden have kept separate investigatory sections of Benefits, Housing, Internal and Parking for some time, with no immediate prospect of reform. Further changes to the composition of fraud teams look very likely with the potential movement of housing benefit fraud investigations to a central service and cuts in local authority budgets (DWP, 2010). 5. Discussion and conclusion The findings from this research raise a number of issues. Fraud is a major problem, probably one of the most expensive e if not the most expensive e crimes to society. Yet the entities focused upon countering it are fragmented with varying capabilities and resilience. This has a number of significant consequences. Some of findings from this research suggest different levels of competence in addressing fraud. There were differences in resources and the security of those resources. This has an impact on the effectiveness of fraud investigation. Linked to this was the capacity of entities to undertake the investigation of fraud within their own spheres, as there was evidence some were not fully capable of this. There was also evidence of the interference in some fraud investigations amongst some counter fraud entities. Some counter fraud entities also regularly experience the ebb and flow of organisational reform, which may further undermine effectiveness. These differences ultimately influence the success in tackling fraud and ultimately on the cost of fraud to society. All of these require more research to identify the strengths and weaknesses in different sectors. The different approach to fraud also illustrates what could be described as ‘differential justice’ when it comes to the treatment of comparable frauds. The different capabilities and aims of diverse entities means comparable frauds been pursued by entities in very different ways. During the research two sets of CFSs in the same city were visited, one set working for an NHS Trust, the other for the County Council. In the latter a case of fraud was described involving a Head Teacher of a sum of around £20k. It was suggested because of the lack of interest of the police it had not led to a criminal prosecution. By contrast, across the city much smaller frauds were prosecuted alongside the NHS policy of parallel sanctions. This additionally could involve the pursuit of civil litigation to recover monies defrauded, termination of employment and where statutory licensing is required by the fraudster, attempts to get them

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‘struck off’. This is illustrative of the variations across many entities of the pursuit of comparable frauds. This differential justice e if applied to different constabularies pursuing burglary e would raise major issues and calls for reform, but with fraud it is largely forgotten. Another finding was the pressure some investigators faced to close investigations. Addressing this challenge provides the potential for a wide range of different policy solutions. Mechanisms for independent whistle blowing to enable CFSs to report undue pressure could provide additional support to many investigators, particularly those located in small sections of bigger departments. A number of professions have strong associations to provide support, advice and a voice. The expansion in size and influence of a body such as the Institute of Counter Fraud Specialists might begin to achieve this, but it would seem to be a long way off. There may also be a case to be considered for a statutory protection for a ‘recognised investigator’, not to be subjected to unreasonable interference in the conduct of their investigations. Perhaps most radically some of the findings point to the need for further centralisation. This could take a number of forms. Bodies such as the police fraud squads, SFO, SOCA, FSA, NFA could merge to create a national fraud agency with both a preventative and investigative capacity. There is already an emerging debate on this issue (see Button et al., 2008; Doig and Levi, 2009; Fisher, 2010). Another model might be for a much stronger network of investigators linked by common accreditations and co-ordinated and over seen by the NFA, similar to what was created in the NHS with Trusts. These all require further research and debate and this is just the starting point. This research has sought to expose the ‘flawed architecture’ of counter fraud entities in the UK investigating fraud and illustrate the consequences of this upon their capabilities. Some ideas for reform have been offered, but further research is needed to develop these ideas further so the architecture of counter fraud entities can be built to maximise the fight against fraud.

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