Ealing’s Ian O’Donnell on the future of the National Fraud Initiative

Ian O’Donnell is Executive Director of Corporate Resources at Ealing Council

The government is consulting on the draft Local Audit Bill in the wake of its decision to do away with the Audit Commission.  One question is what to do with the National Fraud Initiative (NFI), which the Audit Commission has been running since 1996.  The NFI matches data provided by councils with data from a variety of other sources and returns the matches to councils for investigation.  An example of a successful match might be a full time council employee also found to be claiming housing benefit elsewhere.  Over the years the NFI has expanded its client list to include health bodies and even the private sector.

Councils fund the service and see it as a useful tool in the fight against fraud.  However, the service is not optional for councils, as the Audit Commission is empowered under the Audit Commission Act 1998 to demand the data.  The Audit Commission has been very effective in ensuring that action has been taken on the matches, making use of its role as external auditor to monitor progress.  In the financial year  2010/11 the NFI claimed it helped trace £275 million in fraud, error and overpayments across the UK.

Continuing the service is viewed as an important strand in local government’s strategy for fighting fraud, as set out in the document Fighting Fraud Locally, published earlier this year by the National Fraud Authority.  The problem of how this can be achieved has fallen to the Department for Communities and Local Government (DCLG), the Audit Commission’s owner. In search of a solution, DCLG has invited other government departments to pitch for ownership of the NFI and the associated powers.  It should be no surprise that the Department for Work and Pensions (DWP) has made a bid, given its stated ambition to provide a government wide single fraud investigation service. However, councils fear that DWP’s focus on benefits would lead to the NFI narrowing its activities. The National Fraud Authority has also stated an interest, offering to set up a stakeholder-led independent board to govern the operation.  The National Fraud Authority is due to become part of the new National Crime Agency, providing links into wider crime fighting initiatives in the public and private sector.  It is understood that DCLG had been ready to announce its decision – a compromise involving shared ownership, despite councils having clearly stated a preference for the National Fraud Authority’s solution – when a third, surprise bidder emerged: the Cabinet Office.

Cabinet Office’s motives for wanting NFI are unknown.  Francis Maude has shown much interest in fighting fraud since taking up his ministerial role, setting up a Fraud, Error and Debt Task Force to advance the agenda across government. However, the Cabinet Office is not an operational arm of government, and does not have strong connections with local government, so it is not well positioned to take on such a transactional service.  Some council finance directors have expressed a fear that behind the move there may be an unrealistic expectation of savings from counter fraud activity.

No doubt the Cabinet Office’s mysterious plans for the NFI will emerge shortly.  In the meantime, it would be difficult for local government to back anything other than the option it previously preferred: the National Fraud Authority’s offer.

The consultation on the draft Local Audit Bill runs until 31^st August 2012.

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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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