Fraud Response Plan
NORTHUMBERLAND COUNTY COUNCIL
FRAUD RESPONSE PLAN
INTRODUCTION
This document is intended to set out the responsibilities of staff and the action that should be taken in relation to suspected instances of theft, fraud or corruption within the Council. Appended to this document are a series of flowcharts which provide a framework of procedures. This document is not intended to provide direction on fraud prevention, more information on which can be found in the Anti–Fraud & Corruption Strategy.
CORPORATE POLICY
The County Council has adopted an Anti–Fraud & Corruption Strategy in which it sets out its overall policy in respect to fraud and corruption. This clearly states that the Council wishes the culture and tone of the organisation to be one of honesty and opposition to fraud and corruption. It also states that malpractice or wrongdoing in the provision of its services will not be tolerated, and it will take vigorous action to stamp out any instances of this kind of activity.
The County Council has also adopted a Whistleblowing Policy giving staff a mechanism for reporting suspicions of fraud and corruption in the Council’s activities. Although this policy protects whistleblowers from victimisation, disciplinary action may be taken against staff if it is found that they have acted frivolously, maliciously, or for personal gain.
The Anti–Fraud & Corruption Strategy and the Whistleblowing Policy are available for viewing or download from the Council’s web site.
DEFINITION OF FRAUD AND CORRUPTION
The Council’s Anti–Fraud and Corruption Strategy has defined fraud and corruption as follows;
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.
Corruption
The offering giving, soliciting or acceptance of an inducement or reward that may influence the action of any person.
ROLES AND RESPONSIBILITIES
Staff
The Council’s Staff Code of Conduct and Anti–Fraud & Corruption Strategy both require all staff to report any suspicions of theft, fraud or corruption to enable a proper investigation into the circumstances to be undertaken. If a member of staff does not feel comfortable speaking to their line manager, the Strategy incorporates a list of both internal and external contacts that they may wish to refer their concerns to.
Line and other managers
If a member of staff raises a concern regarding financial malpractice then the details must be passed immediately to the Head of Internal Audit for consideration of appropriate action. Managers should only establish the basic facts of the suspicion and should not attempt to carry out any investigation themselves.
Schools
Schools’ Financial Regulations require that any matters which involve or are thought to involve fraud, financial irregularity, or corruption must at once be brought to the attention of the Head of Internal Audit. Under no circumstances should Headteachers or Governors attempt to question staff or gather evidence themselves.
Members
All Council Members have a duty under the Council’s Members’ Code of Conduct and the Anti–Fraud & Corruption Strategy to report any instances of improper conduct. The Strategy incorporates a list of both internal and external contacts that they may wish to refer their concerns to.
Head of Internal Audit
The Head of Internal Audit has delegated responsibility for the investigation of all alleged instances of financial irregularity within the Council’s activities. Where appropriate he/she will inform third parties such as the Council’s external auditor and the Police with respect to any investigations that are being undertaken.
The Head of Internal Audit will document all reported suspicions, including those dismissed as minor or otherwise not investigated, on an Investigation Assessment form. The form will detail conclusions reached and decisions taken. A summary of all reported suspicions will be presented on at least an annual basis to the Audit Committee. Significant matters will be reported to the Audit Committee as soon as is practical.
The Head of Internal Audit is responsible for ensuring that procedures are in place for the compilation of proper audit investigation files including accurate notes of any interviews undertaken and copies of all working papers compiled during the conduct of the investigation. All investigation files will be held securely in a locked cabinet within the Internal Audit office.
Director of Personnel and Administration
The Director of Personnel and Administration has responsibility for the preparation and updating of capability and disciplinary procedural guidance to be followed by all those involved in the conduct of investigations and hearings.
The Director of Personnel and Administration has responsibility for the preparation and periodic revision of the Council’s Whistleblowing Policy as a guide for staff wishing to report suspicions of theft, fraud or corruption and the monitoring of the operation of the policy to ensure that suspicions are acted upon and staff are not subjected to victimisation as a result of their actions.
As the Council’s statutory Monitoring Officer, the Director of Personnel and Administration has a special role to play in providing policies, advice and specific actions in relation to Member misconduct under the provisions of the Local Government Act 2000.
The Standards Committee has separate Procedures for Local Investigations and Determinations of Misconduct Allegations to be followed when an Ethical Standards Officer of the Standards Board for England refers an allegation of misconduct to the Council’s Monitoring Officer for local investigation.
The Director of Personnel and Administration will advise those involved in investigations in matters of employment law, organisational policy and other procedural matters as necessary.
Director of Finance
Under the Council’s Constitution the Director of Finance has overall responsibility for the maintenance of an adequate and effective internal audit function and the development and maintenance of an anti-fraud and corruption policy. The Director has in turn delegated the responsibility for all aspects of anti-fraud and corruption work to the Head of Internal Audit.
KEY STEPS IN FRAUD RESPONSE
Initial action
The Head of Internal Audit will assess the need for an investigation and decide whether the allegations/concerns warrant the utilisation of Internal Audit resources to determine whether they can be substantiated.
A Senior Auditor will normally be responsible for managing the conduct of an investigation including the gathering of evidence and the interviewing of witnesses, under the overall direction of the Head of Internal Audit. They may be supported in their work by one or more Audit Assistants.
Internal auditors have statutory defined powers of investigation granted to them by the Accounts and Audit Regulations 2003. The Council’s Finance & Contract Rules and the Internal Audit Charter give effect to this legislation. Internal Audit staff have the authority to require and receive from staff or Members, any documents, information, answers and explanations they consider relevant to the matter under investigation.
Any persons making an allegation will be interviewed by Internal Audit staff and notes will be taken at the time of the interview. Management in the employing directorate will also be consulted by the auditors to obtain an understanding of the internal controls and procedures in operation. During the course of the investigation, Internal Audit will normally keep management updated with the progress of the investigation.
Referral to the Police
Investigations will try to establish at an early stage whether it appears that a criminal offence has taken place. This will shape the manner in which the investigation is handled and determine the likely outcome and course of action.
Where initial investigations point to the likelihood of fraud or corruption for sums of more than a nominal amount set by the Head of Internal Audit and subject to consultations with the Director of Personnel and Administration, Northumbria Police will be contacted with a view to determining whether they wish to conduct their own criminal investigation. Where the Police decide to take action Internal Audit will liaise closely with them to ensure that there is no possibility of internal investigation work compromising the criminal investigation.
Suspension from duty
There may be a need to suspend a member of staff from duty if an investigation might be impeded by their presence at work or if the allegations are sufficiently serious to warrant potential dismissal if proven. Suspension in these circumstances is not a form of disciplinary action and does not indicate that the Council has pre-judged the case. Its purpose is to remove an individual from their workplace to allow a full and fair investigation of the circumstances to take place unhindered. Suspension will ensure that evidence is not tampered with and will also prevent any undue influence by an individual on the course of the investigation.
Staff members cannot be suspended by Internal Audit but only by management in consultation with Personnel or, in the case of schools, by the Headteacher or Governors although Internal Audit may be consulted.
Where the subject of the investigation has not been alerted to management’s concerns and their suspension would frustrate the objective of the investigation then suspension will usually occur after the investigation has determined whether any allegation/concerns were substantiated. The employing directorate should not do anything to alert the subject of the investigation unless it is with the agreement of the Senior Auditor managing the investigation or where the individual is caught ‘red handed’.
Covert investigatory techniques
It may be necessary during an investigation to carry out directed surveillance (the covert observation of individuals/premises) or use a covert human intelligence source (the establishment of a relationship with an individual for the purpose of secretly using that relationship to obtain information). In such cases the Regulation of Investigatory Powers Act 2000 will be considered and observed. The necessary authorisation required under the Act will be sought in order to ensure that any activities undertaken are not in contravention of Human Rights legislation.
Physical evidence
The Senior Auditor will take control of any assets, documents, records and correspondence which may be relevant to the investigation. Physical evidence will be either secured on site or removed and retained by Internal Audit for examination. Where it is necessary to remove property for audit purposes, a Retention of Property form detailing all records taken away from the premises will be completed and a copy given to management.
Electronic evidence
If the Senior Auditor suspects that computers or storage media may contain information pertinent to the investigation then these computers or media will be quarantined and evidentially sound copies created for analysis. Where necessary, the Computer Services Division of the Finance Directorate and the Council’s computer audit consultants, the Durham and Tees Audit Consortium (DATAC) will be involved.
Formal investigatory interviews
It is usually necessary to require staff members who are under investigation to attend a formal investigatory interview. Anyone accused of fraud or corruption will be given a full and fair opportunity to answer the case against them before any audit report is written about them and presented to management.
Regardless of whether the staff member under suspicion has been suspended or not, a letter will be sent inviting them to interview. A minimum period of 5 working days will be allowed before the date of the interview to allow adequate preparation. The individual being interviewed will also be given the opportunity to have a trade union representative or fellow employee (although not any other member of staff subject to investigation) present in an observational role.
Interviews will usually be carried out by the Senior Auditor, supported by an Audit Assistant. Contemporaneous notes will be made of all that is said. It will be emphasised that the meeting is not a disciplinary hearing but a fact-finding exercise. The individual being interviewed will also be advised that they are free to ask for the interview to be adjourned at any time.
This type of interview will not normally take place under caution. If, as the interview proceeds, the answers given make it clear that the interviewee has committed a criminal act, the interview will either be terminated immediately and Police advice sought or the interview will continue only after a caution has been issued.
Once the interview is over, the individual concerned will be given the opportunity to read the written record and both the interviewer and interviewee will sign each page in acknowledgement of its accuracy. The individual who was interviewed will be given the option of receiving a photocopy of the handwritten sheets or the typed-up interview notes for their own reference.
Outcome of investigations
Internal Audit will produce and issue an investigation report that provides management with their findings and recommendations. It is management’s responsibility to take further action.
If disciplinary action is warranted then the Council’s Capability and Disciplinary Procedures will be invoked at the earliest opportunity. These include the appointment of an Investigating Officer and a Nominated Officer to hear the evidence and make the final decision in the case. Capability and disciplinary procedures will normally begin after an audit report recommends that disciplinary action should be taken against a member of staff. However, there may be circumstances, due to the nature of the allegations, where capability and disciplinary procedures run alongside the audit investigation and the audit investigation effectively is the capability and disciplinary investigation.
Audit investigations into the conduct of Members will be reported on to the Director of Personnel and Administration, as the Council’s Monitoring Officer, who will determine what further action to take.
Any weaknesses in the system of controls will be identified in the audit report and recommendations will be made advising management as to how the controls can be improved to prevent any recurrence of fraud or corruption.
The Council will seek to recover any financial loss through the appropriate mechanism. This may involve either civil or criminal proceedings where it is cost effective to do so, the recovery from salary or accumulated pension benefits of staff, or a claim against the Council’s insurers.
The External Auditor will be notified by the Head of Internal Audit of frauds over £1,000 or any corruption for incorporation within the Audit Commission fraud return form (AF70).
Chart 1 – The Response
Chart 2 – The Investigation
