The government’s recent announcement to provide advice helping local councils fight procurement fraud, follows a succession of reports on local government lost income, fraud and corruption. With unique demands – such as the temporary changes to the S114 notice – exacerbated by the stresses resulting from COVID-19 on financial operations in local government, teams are under pressure to reduce operating costs and simultaneously reduce incorrect payments, under more challenging circumstances than ever before. Forensic solutions and services provider FISCAL Technologies says that the key to combating this fraud is in pre-emptively taking a defensive approach to operations.
It was reported that fraud and corruption in local government costs taxpayers up to £2.75bn a year, with procurement fraud the largest single area of financial loss. Further, following the lost income resulting from COVID-19, such as in parking income, commercial waste services and rental income, many councils are facing a situation in which they believe their only route is to action a section 114, meaning a freeze on all but essential spending, which especially during this time, could create further problems.
As a result of these worries, the finance function within local government needs to make the accounts payable (AP) department and purchase to pay (P2P) processes as efficient as possible, and most importantly, implement predictive forensics in order to retain and protect cash proactively.
David Thorley, Director of Customer Development at FISCAL Technologies says; “While a need to tackle the fraud and corruption in local government has been present for some time, the pandemic caused by COVID-19 has worsened these issues and opened up further vulnerabilities through remote working. It’s become imperative that councils address these issues and the role of accounts payable (AP) has therefore never been more important. Ultimately, any AP teams that are able to act on data and factual information and have oversight, rather than reacting in hindsight, will be in a strong position to battle these challenges.”
In order to adopt a proactive strategy, finance leaders within local government need a rethink and need to go back to understanding what their risk factors are. David outlines: “Risk factors, such as those posed by the current climate, human errors or poor controls present an opportunity for payment errors, exceptions and fraud, which directly affects the bottom line. With regards to payment exceptions, there is a tendency to either conduct audits or write the amount off, rather than conduct a thorough forensic review of past transactions, due to many incorrectly believing these exceptions to be low risk or value.
“Taking this retrospective approach creates risk. In most cases, because funds have already left the organisation – i.e they’ve paid an invoice twice accidently – these funds will remain lost unless action is taken. Furthermore, tracking and resolving these issues takes time away from more productive activities. Identifying duplicate payments, investigating causes, gathering evidence and recovering lost funds is a lengthy process. This undoubtedly reduces the effectiveness of the finance function, the ability to deliver compliant financial reporting, meet supplier terms of payment and internal targets.
“Organisations will already have the data required to run this kind of project due to the information that is required for the National Fraud Initiative (NFI). The NFI is an exercise which takes place once every two years that matches electronic data within and between public and private sector bodies to prevent and detect fraud. However, councils submit this data in October but have to wait until February to get the results. Instead, this data can be forensically analysed and reported on instantly, resolving payment exceptions rapidly or before they’ve occurred.”
FISCAL Technologies enables local councils to identify historical payment errors and adverse payment trends with exceptional accuracy and clarity, to uncover lost working capital, through its Forensic Payables Analysis service. Refined over 12 years of working with over 100 local councils, FISCAL’s unique service uses payables data from any ERP system to apply an extensive range of AI powered tests and logic to support financial stability and maintain supply chain relationships.
David adds, “Without strong controls, the risk of financial loss is greatly increased. Continuous, preventative analysis and monitoring of payments – independently from the ERP system – delivers greater control and reduces loss due to error and fraud. Ultimately, in the current climate it’s never been more important to protect cash and uncover lost income. Having the right predictive forensic insights in place enables councils to do this.”