Tackling public sector corruption with better information: the U.K. Treasury Fraud Report

Posted by Bill Dorotinsky

Anti-corruption is a major focus of governments and international organizations. An enormous amount of work is underway to combat corruption. Anti-corruption commissions are being established or operating in many countries, ranging from an advisory model (Macedonia) to those with police powers (Indonesia). Laws are being toughened. Anti-money laundering commissions are being established. Internal audit bodies and internal control systems are being reviewed and strengthened. Legislative oversight arrangements are being enhanced, and Supreme Audit Institutions (external auditors) fortified. And many other measures to enhance transparency and accountability undertaken.

But despite the attention to anti-corruption, most of the available data is limited to perception-based indicators. These are useful, but do pose challenges when trying to develop measures to tackle corruption in a specific country or context. For example, in the public sector, what are the most common patterns of corruption in country X?

PFM Blog has run across a useful practice underway in the U.K. for some years by H.M. Treasury.  Annually, government departments are surveyed for actual fraud cases detected (within government, primarily, but also capturing some external fraud against government programs). The latest report, Fraud Report 2006-7 (October 2007), and prior reports, are down-loadable.

As the report notes, it is not a complete record, as undetected cases would of course not be covered. But by collecting actual cases of detected fraud or corruption, and making it public, the report serves as an alert for managers and policy makers of potential areas of weakness, enabling appropriate responses.

One of the interesting features of the report is summaries of fraud data, showing various categories of fraud and their ranking in terms of frequency of reporting and value-at-risk, enabling risk-based responses.

For the 2007-07 period, the top two most frequent sources of fraud were

1. theft of government assets (37 % of cases) and
2. personnel management related fraud (24 %).

In terms of value at risk, the top two categories were

1. payment fraud (65 % by value) and
2. theft of assets (13 % by value)

Moving beyond simply collecting cases of fraud or corruption, the 2006-07 report also provides information on steps taken by agencies to reduce fraud and corruption in recent years, including responses to a survey about the measures in place by departments to detect, combat, and manage the risks of fraud.

As part of its efforts to combat fraud, the Assurance, Control and Risk (ACR) team of HM Treasury has also published a volume for managers Managing the Risk of Fraud: A Guide for Managers (2003). The guide may be updated soon to reflect some recent changes in the definitions and approaches to fraud, but it serves as a valuable guide for line managers in understanding the issues and what they can do about them.

With all of the focus on anti-corruption, it is surprising that more countries are not undertaking such data collection and publication. PFM Blog has not been able to readily find other internal or external audit bodies, or anti-corruption commissions, that provide such a clear, concise summary of issues and enable appropraite action by managers to reduce fraud and corruption in the public sector.