Anti-Fraud Strategy
NORTHUMBERLAND COUNTY COUNCIL
ANTI –
FRAUD & CORRUPTION STRATEGY
A
POLICY STATEMENT
1. Introduction
1.1 Northumberland
County Council is committed to sound corporate governance and has demonstrated
this by adopting a code of Corporate Governance based on the CIPFA/SOLACE
Framework. This requires the Council to define the standards of personal
behaviour and conduct that members and staff and those involved in service
delivery are expected to display. An integral element of this approach is the
Council’s determination to eradicate fraud and corruption whether it is
attempted from within or outside the Council.
1.2 It is important to
emphasise that the County Council has traditionally had a good record with
respect to probity and the instances of detected fraud and corruption within its
activities have been relatively few.
1.3 In administering
its responsibilities the Council is committed to the highest ethical standards.
It expects all its members and staff to lead by example in ensuring adherence to
rules, procedures and recommended practices whilst maintaining conduct of the
highest standards such that public confidence in their integrity is maintained.
1.4 The Council also
expects that individuals and organisations that it comes into contact with will
act towards the Council with integrity and without thought or actions involving
fraud or corruption.
1.5 Under Section 10.8
of the Council’s Finance and Contract Rules, the Director of Finance has been
given the responsibility for the development and maintenance of an anti-fraud
and anti-corruption policy which shall include the avoidance of involvement in
money laundering.
1.6 The
Council’s Anti-Fraud & Corruption Strategy is based on a series of comprehensive
and inter-related procedures designed to frustrate any fraudulent or corrupt
act. The Strategy covers:
-
Culture
-
Prevention
-
Detection and Investigation
-
Training
1.7 This
document is an update of the revised Anti-Fraud & Corruption Strategy adopted by
Northumberland County Council in 2002. It reflects the many changes in the fraud
and corruption arena since then including the introduction of new anti-money
laundering legislation. The Strategy will be made available to all members and
staff of the County Council to ensure that they are aware of the Council’s
stance on fraud and corruption. In addition the Anti-Fraud and Corruption
Strategy will be included on the public part of the County Council’s Internet
site as a demonstration to the public of how seriously the Council treats this
issue.
2.
Definitions
Fraud
The
intentional distortion of financial statements or other records by persons
internal or external to the organisation that is carried out to conceal the
misappropriation of assets or otherwise for gain. (See Theft Act 1968 and
Criminal Justice Act 1987 as amended)
Corruption
The
offering, giving, soliciting or acceptance of an inducement or reward that may
influence the action of any person. (See Prevention of Corruption Acts 1889,
1906 & 1916 and Section 117(2) Local Government Act 1972 as amended
Culture
3.1 The Audit
Commission, in its annual survey and report on fraud and corruption in the
Public Sector (“Protecting the Public Purse”) has highlighted the need for
members and senior staff to create an anti-fraud culture and environment within
the organisation. The fight against fraud and corruption can only be truly
effective where these acts are seen as anti-social, unacceptable behaviour and
whistleblowing is perceived as a public spirited action.
3.2 The
Council has determined that the culture and tone of the organisation will
continue to be one of honesty and opposition to fraud and corruption. The
Council will not tolerate malpractice or wrongdoing in the provision of its
services and is prepared to take vigorous action to stamp out any instances of
this kind of activity.
3.3 There is
an expectation and requirement that all individuals and organisations associated
in whatever way with the Council will act with integrity and that Council staff
and members at all levels will lead by example in these matters.
3.4 The
Council’s staff are an important element in its stance on fraud and corruption
and they are positively encouraged to raise any concerns that they may have on
these issues where they are associated with the Council’s activity. They can do
this in the knowledge that such concerns will be treated in the utmost
confidence and properly investigated. If necessary, a route other than a normal
line manager may be used to raise concerns. Examples of such routes are:
-
Internal Audit Division
-
Director of Finance
-
Chief Executive
-
Departmental Chief Officers or Heads of Service
-
Monitoring Officer (The Director of Personnel and Administration)
-
External Agencies e.g. external auditor
A full list of
internal and external contacts is attached at the end of this document.
3.5 The Council has
adopted a Whistleblowing Policy giving staff a mechanism for reporting instances
of bad practice, illegal acts and corruption outside of the formal grievance and
complaints procedures. A copy of the policy can be found within the Personnel
and Administration Directorate section of the Council’s web site.
3.6 Members of the
public are also encouraged to report any concerns they may have about Council
staff or members through any of the above-mentioned routes or via the external
agencies listed at the back of this document.
3.7 Financial
malpractice or corruption will not be tolerated. Any suspicion of fraudulent or
corrupt practices will be promptly investigated by Internal Audit staff and a
decision taken, in conjunction with the Monitoring Officer where appropriate, as
to whether to refer the matter to the Police for criminal investigation.
Referral for police investigation is the norm where fraud or corruption is
suspected for sums of more than a nominal amount as determined from time to time
by the Head of Internal Audit. Following investigation and notwithstanding
possible Police involvement, if appropriate, senior management or, in the case
of schools, the Headteacher and Governors will instigate the Council’s
disciplinary procedures in respect of those who are suspected of defrauding the
Council or who are suspected of corruption.
3.8 Where either
Council staff or members are implicated, the Director of Finance and Monitoring
Officer must be informed immediately. Any subsequent investigation into members
conduct will be conducted under the procedures set out under the Local
Government Act 2000. To this end, the County Council has set up a Standards
Committee of 6 members with an independent Chairman. The remit of this Committee
covers the promotion and maintenance of high standards of ethical conduct by
members, including the consideration of any reports referred to it by the
Monitoring Officer in respect of any alleged breaches of the Members Code of
Conduct.
3.9 There is, of
course, a need to ensure that any investigation process is not misused and
therefore any abuse such as the raising of unfounded or malicious allegations
will be dealt with under appropriate disciplinary processes or codes of conduct.
4. Prevention
4.1 The Audit
Commission has stressed the importance attached to raising awareness about fraud
and corruption and about its damaging effect on the public purse. The Council
is committed to raising the profile of its anti-fraud and corruption work and
this strategy, which underpins the whole framework, will be widely distributed
and publicised. The work undertaken by the Council’s Internal Audit Section is
now formally reported to members through the Council’s Audit Committee on a
quarterly basis. This will help raise awareness generally about measures in
place to prevent and detect fraud at all levels within the Council.
4.2 Whilst the thrust
of the Council’s anti-fraud and corruption activities is centred on the work of
the Finance Directorate’s Internal Audit Division, there is an important role to
be played in the prevention of fraud and corruption by managers within all
departments. It is essential that managers understand the importance of soundly
designed systems which meet key control objectives and minimise opportunities
for fraud and corruption. They are responsible for assessing the potential for
fraud and corruption within their own department’s activities and for
implementing appropriate strategies to reduce this risk. To this end Internal
Audit endeavours to provide appropriate advice to departmental managers to
ensure that they are fully aware of the need to give sufficient emphasis to the
preventative aspects of fraud and corruption work.
4.3 There are five
main strands to the measures taken by the Council to minimise the opportunities
for fraud and corruption. These are as follows;
-
Staff measures
-
Member measures
-
Internal Control Systems
-
Information and Communications Technology measures
-
Liaison with other Agencies
These measures
are discussed in the following sections of this strategy:
Staff
4.4 As a
major public sector employer the Council is obliged to maintain, and is entitled
to expect, a high standard of conduct among its staff. The public are entitled
to demand the highest standards of conduct from Council staff and to have the
utmost confidence that staff are working honestly and without bias in order to
achieve the Council’s objectives.
4.5 The
Council recognises that a key preventative measure in the fight against fraud
and corruption is to take effective steps at the recruitment stage to establish
as far as possible the propriety and integrity of all potential staff, whether
temporary, contracted or permanent. The Council’s Recruitment Code of Practice
contains comprehensive advice about good recruitment practice and in particular
the sorts of checks that should be made prior to any appointment being made e.g.
Criminal Records Bureau, written references etc.
4.6 The
Council has adopted a Staff Code of Conduct that sets out the conduct expected
of all its staff in the performance of their jobs. A number of clauses in the
code specifically deal with fraud and corruption issues and offer guidance to
staff on correct procedures to follow. Failure to comply with the requirements
of the code is treated as a serious matter and can lead to action being taken
against the member of staff under the Council’s Capability and Disciplinary
Procedure, up to and including dismissal.
4.7 In order
to ensure that all staff are fully aware of the Council’s stance towards fraud
and corruption, and the responsibilities it places on its employees, the
Anti-Fraud and Corruption Strategy will be incorporated within staff handbooks
and highlighted on induction. A copy of the strategy is available from any
staffing officer and is available for reference in all workplaces and on the
Council’s intranet.
4.8 All
professional staff employed by the Council are also expected to comply with any
relevant codes of practice that may have been issued by the professional
institute to which that person belongs.
4.9 Staff are
required to comply with the Council’s Constitution. They must also operate
within Section 117 of the Local Government Act 1972, regarding the disclosure of
pecuniary interests in contracts relating to the Authority or fees and rewards
other than proper remuneration.
Members
4.10 Members
of the County Council are expected to operate honestly and without bias within
both a regulatory and advisory framework as follows;
-
County Council Constitution and Finance and Contract Rules
-
Local Authorities Member’s Interest Regulations 1992
-
Local Government Act 1972: Sections 94 – 96
-
National Code of Local Government Conduct
-
Local Government Act 2000: Part III
-
NCC
Member’s Code of Conduct 2001 (based on the standards set in the above Act)
4.11 Any suspected
fraud and corruption involving members will be dealt with under the specific
provisions of the Local Government Act 2000.
Internal
Control Systems
4.12 The Council has
adopted a Constitution incorporating a Scheme of Delegations and Finance and
Contract Rules. These rules act as the framework for financial control within
the Authority. All staff are required to act in accordance with these
procedures when carrying out their duties. The most recent revisions of these
documents are available within the Constitution section of the Council’s
website.
4.13 The Director of
Finance has a statutory responsibility under Section 151 of the Local Government
Act 1972 to make arrangements for the proper administration of the Council’s
financial affairs. To this end he has adopted financial codes of practice and
accounting and has developed departmental procedural instructions in relation to
the Council’s activities. These instructions are distributed to all relevant
staff.
4.14 The Council has
put in place efficient and effective systems of control that as far as possible
prevent potential fraudsters from exploiting weaknesses in procedures. The
prime responsibility for maintaining such systems lies with departmental
management with support provided by the Council’s Internal Audit Service, which
provides an independent appraisal of the integrity of all internal control
systems.
4.15 The statutory
basis of Internal Audit is set out in Section 10.4 of the Council’s Finance and
Contract Rules. Additionally the Risk Management and Control of Resources
section of the Financial Procedures gives further information concerning the
powers and duties of Internal Audit. The role, objectives, authority and terms
of reference of the Council’s Internal Audit Section are also set out in the
Internal Audit Charter.
Information & Communications
Technology
4.16 The Council is
utilising Information and Communications Technology (ICT) to an increasing
degree in the conduct of its business. Increased use of the internet, e-mail
facilities for staff and members, electronic purchasing systems and computerised
systems in line with the government’s e-government targets brings new
opportunities for the perpetration of fraud. It is important that the Council
has in place procedures and systems that minimise these opportunities and
improve the chances of fraudulent activity being detected.
4.17 There are three main
strands to the Council’s attempts to combat fraud conducted via the mechanism of IT. These are as follows;
-
Adoption of an Information Security Policy for staff and members.
-
Internal Audit and external review of major computerised financial and
management systems.
-
Review of the detailed workings of computer systems.
Information
Security Policy
4.18 This policy covers
a wide range of issues related to the general controls to be adopted when
utilising ICT, including specific sections dealing with the use of passwords,
access permissions, physical security, responses to security breaches and the
use of the internet for the purposes of ordering, purchasing and the sales of
goods.
4.19 The Information
Security Policy is posted on the Council’s intranet. All new starters entered
onto the computer network receive an e-mail incorporating a link to the Policy.
Deliberate breaches of the procedures set out in the policy are regarded as a
serious matter and could lead to relevant disciplinary procedures being invoked.
Internal
Audit Review
4.20
The strategic audit plan provides for
system reviews of all major financial and management systems, whether
computerised or manual. The audit frequency is determined by a formal audit
risk assessment model with the aim of all major systems being reviewed over a
five year period. The five financial systems regarded by the external auditor as
core systems i.e. creditors, debtors, payroll, cash & bank, and budgetary
control are all audited on an annual basis.. Fraud is one of the business risks
identified by the risk management process and this is used to target areas for
proactive internal audit work.
4.21 Internal audit
reports include an audit opinion which provides assurance to management in one
of four categories (full, significant, limited, or no assurance) about the
reliability of internal controls to achieve the organisation’s objectives.
These objectives include the prevention of fraud.
Review of
Computer Systems
4.22 The most difficult ICT system fraud to detect, and potentially the most costly, is that which
occurs when there is tampering with the running of the computer program itself.
The main control applied is the verification of the integrity of system inputs
and outputs during reviews of the main financial systems by Internal Audit with
more specialised audit of computer systems carried out by the Council’s computer
audit consultants, the Durham and Tees Audit Consortium (DATAC).
Liaison
with Others
4.23 The Audit
Commission have highlighted the importance of high levels of co-operation
between the various agencies involved in the prevention and detection of fraud
and corruption in the public sector. To this end the Council maintains links
with, and shares information with the following organisations;
-
External Auditor (Deloitte & Touche)
-
Audit Commission
-
Northumbria Police
-
CIPFA national and regional audit groups
-
Northumberland Chief Finance Officers Audit Sub Group
-
National Anti-Fraud Network
-
North East Fraud Forum
-
Government Agencies
-
Other Public Sector Bodies
4.24 Ultimately, the
best method of deterring fraudulent activity may be to ensure that fraudsters
are left in no doubt about the consequences of their actions. This Council will
investigate fully all instances of suspected fraud and corruption brought to its
attention and will normally refer such matters to the Police for criminal
investigation. More information can be found in the Council’s Fraud Response
Plan.
5. Detection and
Investigation
5.1 The internal control systems within the
Council have been designed to provide indicators of any fraudulent activity
although generally the systems should be sufficient in themselves to deter
fraud. It is also often the alertness of staff, members and the general public
to signs of fraud and corruption that enables detection to occur and the
appropriate action to be taken.
5.2 Internal Audit is
also proactive in the use of proven methods for the detection of fraud and
corruption such as computer assisted audit techniques (the Interactive Data
Extraction and Analysis software) and data matching (the Audit Commission’s
National Fraud Initiative). It is also subscribes to the
National Anti Fraud
Network by which information on potential frauds and fraudsters is disseminated
amongst members.
5.3 Despite the best
efforts of financial managers and auditors many frauds are discovered by chance
or by a “tip-off” and the Council has in place arrangements to enable such
information to be properly dealt with via the mechanisms set out in the
Council’s Whistleblowing Policy. The responsibilities of staff and the action
that will be taken in relation to suspected cases of theft, fraud or corruption
are summarised in the Council’s
Fraud Response Plan. A copy of the plan can be
found on the Council’s website.
5.4 Council staff are
required by Financial Regulations to report all suspected irregularities to
their Chief Officer who must then inform the Director of Finance immediately.
Prompt reporting is essential to the Anti–Fraud & Corruption Strategy and:
-
Ensures the consistent treatment of information regarding fraud and corruption.
-
Facilitates proper investigation by an experienced team.
-
Ensures the proper implementation of a fraud response investigation plan.
5.5 Any notification
of suspected irregularities will be referred to the Internal Audit Division of
the Finance Directorate for a preliminary investigation. Depending on the
nature and extent of the allegations, Internal Audit will normally work closely
with departmental managers to ensure that all allegations and evidence are
properly investigated and reported on.
5.6 In order that a
consistent approach is taken to the investigation of potential fraud or
corruption, Internal Audit has produced and made available to all staff a
Quality Procedures Manual, Section F of which gives guidance on the methods and
procedures to be followed by audit staff involved in investigation work. The
investigation procedures have been revised to take account of recent legislation
including the Human Rights Act 1998 and the Regulation of Investigatory Powers
Act 2000.
5.7 Prosecution is a
prime deterrent to prospective fraudsters. The Council has therefore decided
that where evidence of potential fraud or corruption is uncovered, and subject
to consultation with the Director of Personnel and Administration, the matter
will normally be referred to the Police for further investigation with a view to
criminal proceedings taking place.
5.8 Notwithstanding
the requirement of staff to abide by the Finance and Contract Rules and the
Employee Code of Conduct in reporting all suspected irregularities it is
recognised that on occasions staff will feel unable to voice their suspicions
for fear of reprisals or discrimination against themselves by other members of
staff. To encourage staff to come forward and report their suspicions, and in
compliance with the provisions of the Public Interest Disclosure Act 1998, the
Council has introduced a Whistleblowing Policy. This policy ensures that any
suspicions that are reported are dealt with in a consistent and confidential
manner and provides staff with an assurance that they will not be discriminated
against.
5.9 The Council’s
formal Capability and Disciplinary procedures will be invoked where the outcome
of an investigation reveals improper behaviour.
Anti-Money Laundering
5.10 The Proceeds of Crime Act 2002, the Money Laundering Regulations 2003 and other
legislation now make it a criminal offence to help a criminal “launder” the
proceeds of crime i.e. to benefit from any type of criminal activity.
The
legislation is very wide ranging and anti-money laundering offences:
-
Include cash profits or savings earned
from crime and not just stolen property.
-
Apply to any crime, including petty drug
crime, benefit fraud and tax evasion.
-
Need not
involve contact with criminal property
as there are “failure to report”
offences which depend upon knowledge or
suspicion of money laundering.
5.11 It is an
anti-money laundering offence to conceal, disguise, convert, transfer, acquire,
use, or even to “possess” criminal property. If a member of staff suspects an
individual or organisation is committing an anti-money laundering offence then
they must tell the Internal Audit Division. Staff must not tell the suspected
individual or organisation of their concerns and that they will be reported to
the police or investigators. This constitutes “tipping off” and enables illicit
funds/property to disappear before the appropriate authorities can seize it. It
is a very serious crime to “tip off” in these circumstances.
5.12 Some sections of the Council are in the
“regulated sector” and special rules apply. Separate advice is available
for those members of staff as they are obliged to report suspicious activity to
the Director of Finance, who is the “nominated officer” as set out in Section
18.1 of the Finance and Contract Rules.
6. Training
6.1 The Council has
achieved corporate Investors in People accreditation and is committed to
ensuring that all its staff are properly trained to fulfil their
responsibilities. It recognises that the continuing success of its Anti-Fraud &
Corruption Strategy and its general credibility will depend largely on the
effectiveness of programmed training and the responsiveness of staff throughout
the organisation
6.2 To facilitate
this, the Council supports the concept of induction and re-induction training
for both members and staff. Formal induction training sessions will incorporate
appropriate elements relating to the Council’s Anti-Fraud & Corruption Strategy.
These are organised by the Council’s Personnel and Administration Directorate.
Additionally, training is provided for members targeted at specific areas of
relevance such as the requirements of the government’s Ethical Framework, the
Members’ Code of Conduct and the operation of the Council’s Standards Committee.
6.3 Directors should
ensure that all staff likely to be involved in the conduct of investigations
receive appropriate training and guidance to enable them to fulfil any
obligations placed upon them by the operation of the Council’s Capability and
Disciplinary procedures.
6.4 The investigation
of fraud and corruption is primarily centred on the Council’s Internal Audit
Service. It is apparent therefore that staff involved in this work should be
properly and regularly trained. All Internal Audit Staff receive biannual staff
appraisals during which training requirements are identified and subsequently
referred for approval by Departmental Management. In this way audit staff are
able to keep up to date with current techniques and methods of fighting fraud
and corruption. Individual training plans are maintained for each member of
staff as a formal record of training received and additionally a post training
evaluation is undertaken by audit managers to ensure that training is effective
and meets its objectives.
Anti
Fraud & Corruption Strategy
Internal Contact List
Advice
or guidance about how to pursue matters of concern regarding potential fraud or
corruption may be obtained from any of the people named below.
Chief
Executive
Mr Mark Henderson
01670
533100
Deputy
Chief Executive
Ms Jill Dixon
01670 533103
Monitoring Officer
Mr Nick Cook
01670 533700
Deputy
Monitoring Officer
Mr Peter Watts
01670 533202
Director of Finance
Mr Steven Mason
01670 533104
Internal Audit
Mr Malcolm Campbell
01670 533175
Standards Committee
Chairman
Mr David Seymour
01661 860190
Audit
Committee
Chairman
Mr Alexander Kerr
01434 672816
Other
Chief Officers:
Children’s Services
Mr Trevor Doughty
01670 533600
Adult
Services
Mr Gene Hill
01670 533800
Community and
Environmental Services
Mr John Nicholson
01670 533450
Fire
and Rescue Service
Mr Brian Hesler
01670
534700
External Contact List
If you have used the appropriate internal
procedures and are not satisfied with any action taken in relation to your
concerns and if you feel it is right to take the matter outside the County
Council, further possible contact points are given below. It is stressed that
the list below is not exhaustive and you are free to contact any organisation
which you feel will be able to deal properly with your concerns.
Audit
Commission
0845 052 2646
Standards Board for England
0845 078 8181
External auditor (Deloitte & Touche)
0191 261 4111
Northumbria Police Area Command Headquarters
01661
872555
Professional body (CIPFA)
0207 543 5600
Whistleblowing charity (Public Concern at Work)
0207 404 6609
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