Fraud is an insidious and often hidden crime. Total UK fraud losses last year are estimated at £193 billion, with £144 billion in the private sector and £37.5 billion in the public sector, of which £7.3 million was in the local government arena.
In these days of austerity and cuts, fraud affecting the public purse is particularly heinous. When a school becomes the victim, the financial and reputational damage is very real and the inevitable victims are the children themselves.
Finance is often an area that can cause headteachers something of a headache. Especially new heads who might have been brought in to urgently address educational standards but often find themselves stumbling into chaos regarding the way in which finance, HR and admin systems have been operating.
It is prudent to be familiar with various critical financial matters and to be empowered to be able to ask pertinent questions. It is important for your staff to know that you do have an understanding of fraud risk that you have plans to identify and mitigate these risks.
Between 1994 and 2017, I was an anti-fraud manager at a well-known London borough, where I encountered all types of fraud, irregularity, inappropriate expenditure, conflicts of interest and corrupt behaviour. The schools sector cases were generally the most financially material.
From virtually my first day in the early 90s, it was clear that school fraud investigations are complex, multi-faceted, contentious, material in nature, and that bullying, harassment and nepotism are often either a feature or indeed a facilitating factor in the offences which were under scrutiny.
Typically the investigations in schools resulted from either whistle-blowing allegations or tip-offs. Occasionally investigations arose due to the internal audit regime. On some occasions, incoming new headteachers would spot problems and this also formed the basis of detailed investigations.
During my local government fraud career, which spanned almost 30 years, the areas carrying the most risk of fraud in schools were as follows:
- Inappropriate expenditure: Travel, hotels, holidays, car rental, petrol, car repairs, shopping, groceries, mobile bills, collectible paintings.
- Out and out fraud: Theft of income, inflated payments to suppliers, contractors, consultants or fraudulent misuse of school cheques, falsification of timesheets, overtime claims and expenses, fraudulent payments through payroll, bonus or honoraria schemes.
- Theft of assets: Especially luxury items including tablets and ICT kit.
- Manipulation of school bank accounts: To effect fraudulent transfers or to run unauthorised and hidden bank accounts, into which fundraising monies were hidden and later stolen.
- Laundering mechanisms: Purchasing from fictitious suppliers or buying and later stealing, expensive assets such as mobile phones, televisions, laptops, projectors and other expensive ICT kit.
- Undeclared conflicts of interest: In the supply of goods and/or works, e.g. over-specified and/or underdelivered.
While not always the case, allegations normally involved long-standing senior staff, admin or finance staff or headteachers/senior leaders who had since left, sometimes having retired. And while the vast majority of schools staff are beyond reproach, completely honest and watch every penny of funding to ensure it is used for the benefit of the children, it is true to say that when fraud does occur in a school setting, it often happens in spectacular style. Here are eight tips to address the risk of fraud.
Financial understanding
Develop a sound understanding of budgets and management information. Make sure you understand the reports. If the reports are too detailed, too long, too specialist or simply not fit-for-purpose, then get them redesigned by a specialist and re-task internal staff accordingly – especially for key income, expenditure and staffing costs.
Suppliers
Make sure you understand who your suppliers are, especially long-term suppliers, who have been on the books for several years or more. Ask for a detailed creditors listing for last year and the current year. Look for anything that doesn’t look right. For example payments to a mystery supplier or payments for things you thought you had cancelled. Also look for strange payments to individuals or to people with surnames that match people on your payroll.
Inventories
Make sure inventories are up-to-date, held by you and that all static and issued ICT kit is on there.
Procurement
Raise your understanding of procurement rules, regulations and European requirements for procurement. In essence, you need to be aware that there is a critical level of expenditure over a three-year period which is in the region of £181,000. If anything you pay for in terms of goods and/or services equals or exceeds this amount, you need to invoke European procurement law.
This means, for example, if your school is outsourcing their ICT arrangements and you are looking to replace equipment and provide a maintenance contract, this will form the basis of one contract and if this exceeds the amount mentioned over three years, it will need to go out to European tender. This will also be the case for any new builds, extensions or other major works.
Vetting of staff
Vet all existing and new staff to a high standard. Often fraudsters infiltrate schools knowing that the standards of vetting are not high. We found that staff sometimes had undeclared disciplinaries in their histories or other suspicious backgrounds. Proper pre-employment vetting will help with this.
Nepotism
Deal with nepotism, either historic or current. Ensure no-one is employed outside proper procedure and that the HR process is fair and transparent. We often found that sham recruitment practices were evident in schools where fraud had been alleged and/or proven.
Additional payments
Ensure you have a good understanding of payments that are made for overtime and other extra payroll enhancements. From experience, schools where fraud was alleged often had instances of irregular honorarium payments, irregular overtime payments and did not adhere to the national schemes for salary banding.
Declarations of interest
Conduct a review of declaration of interest forms. Ensure that these are completed once a year and any known potential conflicts of interest have been declared. Raise the importance of declarations of interest at team meetings.
- Dave Verma was one of the UK’s first anti-fraud managers and lectured at the Metropolitan Police Detective Training School for 12 years. He is currently a lead consultant working with headteachers and schools to identify their financial risks and prevent fraud. Visit https://daveverma.com