How an Onion Ring can help detect UK Government Fraud
Fraud costs the UK Government an estimated £29bn-£52bn each year. That’s up to £776 per person in the UK! We need to start tackling fraud in a smarter way. In this blog, I present the some of the startling figures for fraud in 2021 and discuss some of the challenges faced by UK Government and how new technology can help.
Where are the critical areas of concern from a UK Government fraud perspective?
2022 has seen a huge change for everyone. The inflation rate has soared to 8.4%, the highest rate since 1982. Typical household income has dropped by 4% – the sharpest annual income fall since the 1970’s.[1]
The estimated cost to the Government when fraud against the tax and welfare system is included is £29.3bn-£52bn.[2] Despite these extremely high levels, fraud is set to rise further.
Welfare transactions and benefit payments totalled £258.2 billion, representing 22.5% of all government spending in 2021. It’s a key target for Organised Crime groups as well as individuals trying their luck with benefit fraud; this specialist fraud type more than doubled from £2.8 billion in 2020 to £6.3 billion in 2021[3]. The majority of fraudulent claims involved dishonest declarations – from undeclared earnings (£1.9 billion) or excess capital (£0.9 billion) to failure to declare personal circumstances or changes in personal circumstances – partner not declared (£0.8 billion), incorrect reporting of housing costs (£0.5 billion) and moving abroad or applying for benefits whilst abroad (£0.2 billion).
The Furlough Worker Scheme is estimated to have suffered the largest fraud and error losses at £5.3bn, followed by the Bounce Back Loan Scheme (BBLS) where £4.9bn is thought to have been lost. The Department for Business, Energy & Industrial Strategy (BEIS) estimates it could lose up to £27 billion through fraud or credit issues on the BBLS alone[4].
Procurement fraud costs the UK £2.4 billion a year, while grant fraud costs £515 million, according to the National Fraud Authority. The NHS Counter Fraud Authority estimates that the NHS is vulnerable to £1.14 billion worth of fraud annually[5].
This constantly evolving growth in economic crime and fraud poses a challenge to Government and has resulted in the new Public Sector Fraud Authority (PSFA) formation – a £25 million central Government task force, which came into force on the 3rd August 2022. PSFA will be working with departments, public bodies and partners to “reduce the impact of fraud and safeguard public money”. They will take a modernised approach, developing a greater depth and breadth of expert-led services and focus upon performance and outcomes.
Issues in tackling fraud
Amount of fraud and error has risen…
The risk of fraud and error has risen significantly as a result of the government’s response to the COVID-19 pandemic. Government has spent more on things that are prone to fraud and error, such as welfare, business support and grants, then, understandably, prioritised the speed for setting up these new initiatives over reducing fraud and error. The Government Counter Fraud Function (GCFF) assessed the value of the Covid-19 relief schemes at £387 billion, with 16 of the 206 schemes being high or very high risk accounting for 57% (£219 bn of the £387bn)[6]. The true amount of the fraud and error will become clearer as departments measure the levels across specific initiatives.
….which means there are more cases to tackle with the same staff numbers and time.
What are the challenges to investigating this surge in fraud?
Finding fraud and error
Counter Fraud teams face tougher challenges than ever before; workloads have increased dramatically. For some Government agencies being able to justify their response to this escalating challenge will be difficult. 2020 and 2021 were unprecedented years and the usual detection and prevention rates will not be easily converted to adequately reflect the impact of the covid pandemic.
The Cabinet Office estimates that for every £100 of UK public spending, between 50p and £5 is lost to fraud and error. However, most Government departments currently report less than 5p in every £100 as detected fraud[7]. Why? Because the staff struggle to gather the data from various sources, assess the risk and design and implement controls to react to new risks emerging. There simply isn’t enough time to investigate the multiple lines of enquiry to the depth required.
Finding the right data?
Much of the UK Government relies on legacy systems for many important services; they established the Legacy IT Programme to address this problem in 2020. Later findings in November 2020 made recommendations on how the Government could make progress in reducing its reliance on legacy systems. In the 2020 Spending Review HM Treasury prioritised investment in legacy IT and agreed funding for approximately £600 million to invest in modernising legacy systems. But little has changed in 22 years. Department’s struggle to extract the data from the legacy systems for use with their own services or to share with other Departments.
Migration to cloud technology to modernise the issue only partly addresses some of the legacy IT challenges. Many argue that the Government still has a poor appreciation of the state of the data in legacy systems and its impact on the transformation of operational services. Migration from legacy infrastructure is dependent on having data quality and consistency in place, but Government transformation programmes and business cases often fail to explicitly address data at the start, so instead it becomes a cause for delays further into the project.
Getting the right data in the right place at the right time is a fundamental driver of value in Government: making services work for the people who use them, improving government’s systems and processes, and supporting better decisions.
Government recognises the value of using data more effectively, and the importance of ensuring security and public trust in how it is used. In its 2017 digital strategy, it stated that it would “…take the actions needed to make the UK a world-leading data-driven economy, where data fuels economic and social opportunities for everyone, and where people can trust that their data is being used appropriately”. The 2020 National Data Strategy to position “the UK as a global leader on data, working collaboratively and openly across Government” is now in force, but hasn’t fully solved the problem yet. It is acknowledged that joined-up working can save money, by removing duplication of effort and preventing illicit activities, such as fraud[8].
The National Audit Office (NAO) stated, “access to accurate and timely data that would help it perform effective data-matching and is looking into new data sources where existing sources are insufficient.” [9]
So, what is at the heart of the problem?
Legislation?
Data sharing is key. The Digital Economy Act (DEA) 2017 has not been used to its full advantage – it permits data and intelligence sharing for fraud and error purposes, but on the face of the evidence, HMG departments are still losing this fight.
The DEA has, so far, not given departments the reassurance they need to be confident about sharing data legally. Our discussions with departments have shown us that they would welcome more support on how to use the Act appropriately to support data-sharing. (see our briefing paper “When can Government organisations and law enforcement agencies share date and for what purposes at https://synalogik.com/whitepaper/when-can-government-organisations-and-law-enforcement-agencies-share-data-and-for-what-purposes/ ).
Some departments use information sharing agreements under GDPR Part 5, but this can be a lengthy process, with approval required from the Delivery Review Board – this acts as a disincentive to pursuing data-sharing opportunities[10]
Technology?
As a technology and data provider we cannot emphasise enough that data sharing, conjoined investigation and automated risk assessment technologies exist and are underexploited. The barriers to proactive fraud investigation are political, not technical. Fraud team managers are increasingly asked to combat the growing level of threat without the ability to significantly increase their head count. Their IT teams simply do not have the time or resource to integrate every emerging and novel data source used by the increasingly sophisticated organised crime groups. Existing in-house capabilities too often rely upon outdated bulk data sets which don’t always give real time insights or fail to include all the relevant sources needed to uncover the fraud.
The Government Digital Service recommends that, wherever possible, departments use application programming interfaces (APIs) as simple and effective ways of sharing data across multiple sources[11]. APIs could extract information from legacy systems, which helps to improve exchange of information and enable data-sharing. However, APIs will not on their own resolve all the issues without proper standards and a clear data model being in place and while it may be technically possible to introduce APIs into a legacy environment, some departments have found that it can be a difficult and expensive process using already overburdened internal IT resource.
Money?
The investment of a new £30 million Fraud Prevention Fund, spread across the next 3 years will certainly help the Department for Work and Pensions tackle these challenges[12]. The difficult decision now is how to best spend the taxpayer’s money and in a way that will make the biggest impact.
The sheer volume of data and variety of different silos within which it is kept are at the heart of the challenge.
Overcoming the challenges
This is a time of change – 2022 has seen the creation the Public Sector Fraud Authority, updated legislation and access to new technology that can transform how the Public Sector tackles fraud investigation.
I spent many an hour talking with the Cabinet Office, while I worked in HM Revenue & Customs. We discussed the need for “datahubs”, data sharing and the prevailing legalisation. The landscape at that time – eight years ago – was of data silos. Each department had many databases, which did not link to the others. Data was hard to extract from the databases and would require IT support from the service integrators at a cost to the department. The Digital Economy Act was embryonic and was forecast to be the saviour for data sharing concerns.
We discussed the idea of ‘an onion ring’ – datahubs connected to departments to extract the data as an API in real time that would connect the user, based on their user profile and permissions to any data held in any datahubs. These datahubs would contain internal Government data and Third-Party data.
The DEA, which supported the recovery of £170m, is now in place but hasn’t been used to its full advantage – not due to what it contains, but rather because of the difficulties the data owners have in extracting it in a compliant and efficient way. They were given limited resource to support this and budgets remain extremely tight.
When I first started to work on joint projects with Synalogik Innovative Solutions Ltd, during my time at Equifax, I heard about a product I thought too good to be true. “Scout®”, the “Single Intelligence Environment”; capable of searching across Government, Third-party, open-source and policing sensitive data all at the same time. It can take a bulk upload of names, telephone numbers, emails, vehicle registrations or companies and conduct one search across them all with a configurable risk assessment engine and multiple visualisations of the merged results. I had to dive in deep to be sure – but it does do all those things.
Can it solve the challenges I laid out? Yes – it can bring the data required for the public services together (both Government owned data, third party and open-source), it can help prevent fraud and error by ensuring the data for the appropriate checks is available to be used and it can detect fraud risks, by not only providing the data but also risk assessments to find that ‘needle in the haystack’. It can also help prioritise those cases to tackle that are the highest priority by categorising them with a RAG rating, if desired.
I’m relieved to say, I have finally found that elusive ‘Onion Ring’!
How Synalogik can help
Pioneering Public Sector teams are using Scout® to support fraud detection and prevention to great effect. Their teams can deep dive into Serious Organised Crime Groups, fraud and intelligence without spending hours searching and inputting the same terms into multiple different data silos – Scout® is consistently delivering up to 85% time savings for fraud analysts.
If you would like to see how our Onion Ring works, do get in touch with me at: public.sector@synalogik.com
References
[1] https://www.resolutionfoundation.org/comment/the-cost-of-living-crisis-is-going-to-hurt/
[2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961505/2609-Executive-Summary-Fraud-Landscape-Bulletin-V7.pdf
[3] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/961505/2609-Executive-Summary-Fraud-Landscape-Bulletin-V7.pdf
[4] https://committees.parliament.uk/publications/6469/documents/70574/default/
[5] https://assets.kpmg/content/dam/kpmg/uk/pdf/2022/02/fraud-barometer-2022.pdf
[6] https://www.nao.org.uk/wp-content/uploads/2021/03/010381-001-Fraud-and-Error-Accessible.pdf
[7] https://icai.independent.gov.uk/html-version/tackling-fraud-in-uk-aid/#section-0
[8] https://www.nao.org.uk/wp-content/uploads/2021/03/010381-001-Fraud-and-Error-Accessible.pdf
[9] https://www.nao.org.uk/wp-content/uploads/2021/03/010381-001-Fraud-and-Error-Accessible.pdf
[10] https://www.nao.org.uk/wp-content/uploads/2019/06/Challenges-in-using-data-across-government.pdf
[11] https://www.nao.org.uk/wp-content/uploads/2019/06/Challenges-in-using-data-across-government.pdf
[12] https://www.gov.uk/government/publications/fighting-fraud-in-the-welfare-system/fighting-fraud-in-the-welfare-system–2
