Preventing Fraud in Contracted Employment: Strategies and Ensuring Accountability

1. Welfare to Work Conference : 10 July 2012 Mark Ripley DWP Head of Internal Audit Jenny Dibden DWP Head of Provision Performance and Controls

2. “The Department treats any allegations of fraud by contractors very seriously. Any fraud is completely unacceptable.” Rt Hon Chris Grayling May 2012

3. Preventing fraud in contracted employment programmes – in numbers • 126 allegations of potential fraud by Welfare to Work providers between April 2006 and 31 March 2012; • 46 cases (38%) concluded in a case to answer; • 37 providers with a case to answer; • 24 cases of false representation (Fraud Act 2006); • 22 cases of procedural non-compliance; • 9 referrals to the police; • £773,000 estimated loss in the cases investigated; • 0.01% estimated loss as percentage of spend on contracted employment provision; • 55% of accepted investigations were in respect of New Deal; • 17% of accepted investigations were in respect of ESF; • 61% of providers achieved a “strong” or “reasonable” level of assurance through Provider Assurance Team (PAT) by January 2012

4. The Fraud Triangle

5. Causes of Fraud • Failure to observe existing controls (41%) • Absence of proper controls (21%) • Manipulation of IT (14%) • Other (14%) • Internal collusion (8%) • External collusion (2%) Audit Commission – Sept 2011

6. Four Principles • An established system to enable provider staff to report inappropriate behaviour by colleagues in respect of performance claims (i.e. a "whistleblowers charter") • A performance management system within the organisation that does not generate perverse incentives among individual employees to falsely claim performance achievement • A segregation of duties within the provider's operation between those achieving performance and those reporting it to DWP • An audit regime in place that provides for periodic check of the effectiveness of the performance reporting regime.

7. “Our providers are required to have stringent controls to guard against fraud, and we have a thorough system of checks covering every provider in every contract. When providers fall below those standards we will not hesitate to act.” Rt Hon Chris Grayling May 2012

8. Key elements of an effective control environment to prevent fraud where services are contracted out • Design – outputs/outcomes • Contract – pre-appointment, anti-fraud conditions • Oversight – management, assessment of provider controls, pre-payment checks • Investigation and assurance Source: Preventing fraud in contracted employment provision, NAO 16 May 2012

9. Design and management of contracted employment provision 1998 - 2009 • Multiple contracts, small contracts, contracts often established and never used • Local procurement, locally based contract managers, District based Quality Teams • Clerical payments, later Contracting and Funding System • Job definitions – expected to last • Payments skewed towards attendance • Targets against leavers • Numerous programmes by claimant group • Ad hoc contract MI • Few mechanisms to drive performance and increase value for money • Contracts repeated extended restricting new entrants to the market

10. Design and management of contracted employment provision 2009 onwards • Framework identifying providers meet delivery standards • Small number of larger contracts, Prime contractors • Contracting and procurement centralised • Central Account Managers, central Performance Managers • Payment validation process, PRaP • 100% off benefit check • Extrapolation process • Minimum performance levels • Provider Assurance Team, Compliance Monitoring Teams • Fewer, bigger programmes • Detailed, contract based MI • Competition within CPAs using market share shifting • Achieved, sustained outcomes, benefit savings fund the programme

11. Measures taken to improve controls “The Department has now significantly improved the controls” “The Department now has the infrastructure for an effective control environment” NAO 16 May 2012 But not complacent – ongoing programme of review and improvement In response to NAO recommendations: annual risk assessment; extra checks in MWA; fraud awareness training for PAT; unannounced/short notice visits; annual report on contracted employment provision; audit plans Payment validation process: effectiveness and efficiency of ‘as is’ process; future process

12. Questions?