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Strategies for Minimising Risk and Financial Irregularities within Academies
Lisa Forster
Principal Consultant
© CIPFA
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• Regulatory landscape, legislation and frameworks
• Risk analysis, successful protocols to minimise irregularities
• Effective risk mitigation and strategies to counter fraud
• Support available
What are we going to cover?
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Story so far – the landscape
Significant changes created gaps in counter fraud and financial management and a unique opportunity:
National Fraud Authority (NFA) closed
Audit Commission closed
Standards Board for England closed
Single Fraud Investigation Service (SFIS) created by the Department of Work and Pensions (DWP)
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Academy regulatory requirements:
Companies Act, Directors’ Report:
‘a fair review of the charitable company’s business incorporating a description of principal risks and uncertainties.’
Managing Public Money (HMT)Governance Statement:
‘capacity to handle risk’
‘risk and control framework’
Academies Accounts Direction:
Approach to developing and implementing the risk management strategy.
Financial Management & Governance Self-assessment (FMGS):
Is a contingency and business continuity plan in place?’
‘Has the AT assessed the risks arising from its operations?’
Academies Financial Handbook
ATs must be aware of the risk of fraud, theft and/or irregularity occurring and, as far as possible, address this risk in their internal control and assurance arrangements by putting in place proportionate controls. 4
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Addressing financial irregularities
Why worry about deliberate financial mismanagement and fraud- and why now?
It is big business!
Financial pressures caused by the current ‘economic crisis’ can increase motivation (and opportunity) to commit fraud
Skills and capacity gaps in the public sector
Widespread use of technology has increased the risk of fraud
What is fraud?
Fraud Act 2006 created a general offence of fraud
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Emerging fraud risks
• ‘Phishing’
• Electronic/internet fraud –fake website and invoices
• Hacking - Personal information inc bank details
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Sign of the Crimes
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Every year in the UK, fraud costs public services an estimated £21 billion. This represents a terrible misuse of money – money that should be spent on schools, hospitals and frontline staff Eliminating Public Sector Fraud – NFA and Cabinet office
NHS fraud and error 'costing the UK £7bn a year‘2014 Portsmouth University study
£10.9bn –est. cost of online crime in UK PWC 2016 Global economic crime survey
In the UK, 52% of public sector
organisations experienced economic
crime in the last 12 months.
.
Since 2008 an epidemic of fraud has cost
the UK economy £125bn every year
2016 Portsmouth University study
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A special-school headteacher falsely claimed expenses to finance trips to the horse races. He used school funds to pay his own mobile phone and petrol bills. The headteacher was helped in the theft by the deputy headteacher, who was complicit in the fraud. The loss to the school was £90,000.
Audit Commission report in 2014: fraud in
maintained schools cost £2.3 million.
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Source: PWC Fraud in the Public Sector
Types of economic fraud experienced by public sector organisations
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Collateral damage reported by Govt organisations
9Source: PWC 2016
How would this impact on
your school / academy?
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Risk analysis: Fraud Motives and Indicators
Fraud investigations often reveal ‘warning signs’ or ‘indicators’ that should have alerted some-one in the organisation that fraud was actually occurring and that the organisation was vulnerable to fraud
PWC survey:
Fear of loss of job 41%
Targets more difficult to achieve 37%
For snr mgmt. to achieve results 16%
Bonus not paid 11%
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Financial and organisational Fraud Indicators
Documentation
Missing / lost documents
Photocopies when originals would be expected
Obvious amendments to documents
Clearly falsified documents (particularly signatures/ dates)
Documents rewritten (on pretext of neatness)
Lack of detail on documents
Other
Queries from customers / other organisations ie. Final demands
Discrepancies in information
Reconciliations that don’t balance
Unexpected trends or results
Unusual or unauthorised changes to systems/ procedures
Cash transactions when cheques/DD/BACS would be expected
Key decisions taken outside of meetings
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Behavioural fraud indicators
Increased stress for no obvious reason.
Hesitancy, avoidance or confrontation when asked direct questions.
Secretive or economical with the truth.
Personal problems, including financial problems, alluded to but not shared.
Reluctance to take holiday entitlement.
Poor work practices, including bending rules, or using ‘short cuts’.
Constant complaints about the person from others.
Person works late for no obvious reason.
Lifestyle not equal to income
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Risks for academies
Segregation of duties likely to be very limited in smaller ATs
Capacity – especially at conversion
Lack of awareness/ training on the possibilities
Scams’ – handing over bank details
Invoice fraud
Internal fraud- Falsify paperwork - travel claims, petty cash, timesheets, setting up fictitious suppliers/staff. Use of assets for personal use/sale. Contracts- accepting bribes, selling confidential information
Limited scrutiny / governance
Limited / no policies i.e. whistleblowing, gifts and hospitality
Conflicts of interest not monitored.
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Financial Irregularities in Academies
Would you….
Spend school grant on buying furniture for you home and phones for your family?
Use school grant to pay for your 50th birthday party (champagne, marquee, landscaping)?
Invent ‘ghost’ pupils to boost funding?
Set up fake companies and individuals and siphon off school funds?
Fabricate invoice for rent (and keep the money)?
As a headteacher - Award contracts to your own company?
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How are these ‘irregularities’ detected?
Whistleblowing / 3rd parties tip offs
Alertness to fraud indicators
Operation of control procedures
Internal / external audit / special investigations
Confession
By accident!
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Establish a Risk Management Process (simple)
Identify the fraud risks (use the checklist)
Consider types of fraud
Evaluate the fraud risks (likelihood / impact)
Respond to the fraud risks
What controls should be in place to help reduce the risk
Segregation of duties, lines of authority, clear protocol, attitudes and ethical stance of leadership
Verify to ensure that the ‘responses’ work
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Recognising fraud is only part of the problem
Addressing the issue can be a bigger challenge
Top tips
Know who you are employing
Know your finances
Effective internal controls*
Effective anti-fraud and corruption policies and procedures
Don’t underestimate the power of whistleblowing
Keep up to date with alerts and fraud news
DON’T ignore the dangers and pitfalls
Top tips
‘Head in the sand’
Too trusting of individuals
Lax attitude to controls
Staffing issues
Ignoring the fraud indicators
‘We’ve never had any problems in the past’
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* Includes segregation of duties, clear lines of authority, physical safeguards on tangible assets,
authorisation and approval on orders and payment of invoices and appropriate training for staff.
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Support
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CIPFA Accredited Counter Fraud Specialist (ACFS) Qualification
School Fraud risk
health check
http://www.cipfa.org/services/academies-hub
http://www.cipfa.org/services/counter-fraud-centre
https://www.gov.uk/guidance/academies-financial-assurance
