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Report for: INFORMATION

Contains Confidential or Exempt Information

No

Title Quarter 2 Audit & Investigation Performance Report

Member Reporting N/A

Contact Details Mike Pinder, Head of Audit & Investigations, ext. 2350

For Consideration By Audit Committee

Date to be Considered 21 December 2017

Implementation Date if Not Called In

21 December 2017

Affected Wards All

Keywords/Index Audit & Investigation Performance Report

1. Details of Recommendations

1.1 To note the report on the Quarter 2 update.

Summary The attached reports on the work undertaken by the Audit and Investigation Shared Service team to the end of Quarter Two.

If the recommendations are adopted, how will residents benefit?

Benefits to residents and reasons why they will benefit, link to Values

Dates by which they can expect to notice a difference

Internal Audit activity provides independent assurance to the Chief Executive, Members and Senior Officers on the adequacy of the internal control environment in Hounslow Council. This aids Members and Officers in ensuring that we are continually learning from experience. All counter fraud activity assists the Council in its value of spending money wisely. Every pound lost through fraudulent behaviours is a resource or asset diverted away from services provided to those who are in genuine need.

Ongoing

2. Background

2.1 This report outlines the performance of the Audit & Investigations Shared Service from April 1 to the 30 September 2017.

2.2 Internal Audit and Investigations activity within the Council is delivered under a

shared service arrangement with the London Borough of Ealing.

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3. Reason for Decision and Options Considered

The Audit Committee is presented with details in the attached report.

4. Key Implications

4.1 The performance of the audit team (including the Strategic Audit Partner) is measured by: The shared service KPIs for delivery against the audit plan for each quarter are (based on draft reports issued):

Quarter 1 – 15% of 17/18 audits delivered (draft report issued) Quarter 2 – 35% of 17/18 audits delivered (draft report issued) Quarter 3 – 65% of 17/18 audits delivered (draft report issued) Quarter 4 – 100% of 17/18 audits delivered (draft report issued)

4.2 The performance of the fraud team during the year is measured by:

• The number of cases where fraud is established; and

• The amount of money identified for recovery In addition to these performance indicators, the benefits of counter fraud work are reported within Appendix B.

5. Financial Details

a) Financial Impact on the Budget

In terms of the impact on the Internal Audit and Investigation service budget, there are no impacts on the basis that all services are delivered within existing budgets.

b) Comments of the Director of Finance and Corporate Services

The Director of Finance and Corporate Services liaises closely with the Head of Internal Audit and Investigation on the progress of specific cases.

6. Legal (to be completed in conjunction with the Legal Department)

a) Legal Details

All Local Authorities are required to make a proper provision for Internal Audit in line with the 1972 Local Government Act and Accounts and Audit Regulations 2015 (as amended). The Public Sector Internal Audit Standards (2017) also require the proper planning of audit work. Local authorities are required to demonstrate proper stewardship of public funds in line with the 1972 Local Government Act. The London Borough of Hounslow utilises a fraud and investigation team to assist in its safeguarding of public funds and the recovery of funds that have been misappropriated.

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c) Comments of the Head of Governance

The Director of Finance and Corporate Services, as the Council’s Chief Finance Officer, continues to have a personal statutory responsibility concerning the proper administration of the council’s financial affairs notwithstanding any appointment to perform the internal audit and investigation function.

7. Value for Money

Internal Audit seeks to provide value for money both in terms of the delivery of the service and through reviews of individual auditable areas. The investigation team provides good value for money to the Council and residents: the presence of the team helps prevent fraud by acting as a visible deterrent.

8. Sustainability Impact Appraisal

Not applicable.

9. Risk Management

Internal Audit activity is directly influenced by the Council’s risk management processes.

10. Links to Council Priorities

Efficient use of Council resources.

11. Equalities, Human Rights and Community Cohesion

No direct implications arising.

12. Staffing/Workforce and Accommodation implications

None

13. Property and Assets

None.

14. Any Other Implications

None.

15. Consultation

None.

16. Timetable for Implementation

Not applicable.

17. Appendices

Appendix A – Internal Audit Performance Report 1 April – 30 September 2017. Appendix B – Counter Fraud Performance Report 1 April – 30 September 2017.

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18. Background Information

Counter Fraud Plan / Internal Audit Plan 2016/17 https://democraticservices.hounslow.gov.uk/ieListDocuments.aspx?CId=453&MId=9559&Ver=4

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APPENDIX A

LONDON BOROUGH OF HOUNSLOW INTERNAL AUDIT PERFORMANCE REPORT 1 April – 30 September 2017 21 December 2017

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1. Internal Audit Performance 1.1 This report provides a progress update on the work of internal audit for quarter

2. 1.2 The 2017/18 Plan was approved by the Audit Committee in February 2017. The

plan presented was indicative and can be subject to revision during the year to take account of changing priorities and emerging risks, which is aligned with good internal audit practice.

1.3 The following table shows progress against the 2017/18 audit plan, illustrating

the status (draft/final/in progress etc) of each review: Audit Title Scope Audit Status Final Report

to Audit Committee

1 Delivery of DLO Services (FM360)

Internal Audit review of the capability and capacity of the DLO to deliver the required services.

Defer to 2018/19. In order to optimise the value of this project, we are discussing deferring this to early 2018/19.

2 Lampton 360 – Governance

To consider set-up arrangements and reporting to the Council.

Not started (specific coverage recently agreed)

3 Lampton 360 – Investments

To consider the investment programme in to affordable housing.

Not started (specific coverage recently agreed)

4 Continuous auditing and monitoring phase 1

2 cycles of key financial systems testing during 2017/18 – will include specific issues raised during 16/17, key financial testing programme and the transfer of financial systems to the new service provider.

Fieldwork in progress

5 Continuous auditing and monitoring phase 2

Not started.

6 Savings Plans – monitoring of delivery (including budgetary control)

Review of delivery against agreed savings plans and budget monitoring arrangements.

ToR agreed.

7 Health & Safety Review of compliance with legislation – areas not covered by 16/17 review, e.g. gas safety in housing stock.

Draft report.

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8 Data Protection Review to assess the readiness for 2018 legislation (GDPR). Will be conducted across shared service.

ToR in draft.

9 Workforce planning Focused review on higher risk business areas – e.g. including the Occupational Health Unit.

Draft report

10 Highways Contract Specialist internal audit review covering commercial assurance of the PFI scheme.

Draft report

11 Commissioning Arrangements

Review of arrangements for commissioning of adult services from external providers.

ToR agreed

12 Care Homes Review of contract/Performance management of external care homes.

Finalised (Limited Assurance)

Q2

13 Children and Adults – budget management

Review of the management and control of budgets.

Draft report

14 Leaseholder Services Internal audit review focusing on Section 20 processes.

Draft report

15 Service Charges Establishment of service charge levels in Council properties.

ToR in draft

16 Temporary accommodation

Review of the strategy for managing temporary accommodation demands.

Not started

17 Cyber security Cyber security review to be conducted across Shared Service.

ToR in draft

18 Contract management - review of draft policies

Review of the new contract management policies and guidance.

Draft report

19 Fortnightly waste collection

Project assurance review that looks at planning for transition to fortnightly waste collection.

Finalised (Reasonable Assurance)

Q2

20 Direct payments Review of the assessment process and expenditure monitoring.

Not started

21 Procurement Compliance

Reviewing off contract procurement

Field work in progress

22 Building Control Reviewing the Building Control section

Draft report

23 Invoicing Care Provider

Reviewing the invoice process for care providers

Not started

24 Housing of Care Leavers

Children leaving care and placed in accommodation

Not started

25 Children out of Borough

Children placed in out of borough placements

Not started

26 Schools x 5 Reviewing the school’s compliance

In progress

27 Fleet Management Reviewing the financial processes for Fleet Management

Finalised (Limited Assurance)

Q2

1.4 2016/2017 Audit Plan: the IT Governance and Third Party management review

has been finalised. This was limited assurance.

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1.5 As indicated above there were three limited assurance reports finalised during quarter 2. A summary of these is set out below::

1) IT Governance and Third Party management (2016/17)

One finding was considered high risk, which related to the IT risk register which had not been updated recently. Further medium and low risks were reported around performance management and management information; policies and procedures; and contract management procedures. Management have advised the risk register has now been updated and provided an action plan to address the remaining risks by the end of December 2017.

2) Care Homes – two high risk recommendations relating to:

• there being no defined protocol and approach for detecting instances of supplier failure and contingency plans in the event of.

• a lack of defined service standards and agreement terms with the care homes.

Further medium and low risk issues were identified around due diligence not being performed on out of borough care homes; formalising procedures and templates; and recording of issues, lessons learnt. Management have provided an action plan to address the risks by the end of April 2018.

3) Fleet Management - three high risk recommendations. These related to:

• there being no formal financial policies and procedures being in place;

• a lack of segregation of duties between key processes; and

• there being no central electronic records of equipment. There were further medium risks issues identified around budget monitoring; performance information; overtime not being authorised in advance; and recommending suppliers. Management have provided an action plan to address all of the risks by February 2018.

The progress against the actions plans for these will be followed up and reported Committee following the agreed implementation dates.

1.6 Key performance indicators (KPIs) have been established to measure the

delivery of the audit service across the shared service. These are how we measure our performance to ensure that all audits on the plan for each Council are delivered by the end of the financial year. The shared service KPIs for delivery against the audit plan for each quarter are (based on draft reports issued):

Quarter 1 – 15% of 17/18 audits delivered (draft report issued) Quarter 2 – 35% of 17/18 audits delivered (draft report issued) Quarter 3 – 65% of 17/18 audits delivered (draft report issued) Quarter 4 – 100% of 17/18 audits delivered (draft report issued)

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Performance against these targets is set out in the table below:

KPI Actual Variance

Q1 15% 7% -8%

Q2 35% 37% +2%

Q3 65% TBC TBC

Q4 100% TBC TBC

1.7 The table below provides a summary of progress in terms of the number of reports at draft or final stage and those in progress as reported in the table above:

Audit Status Number of reviews Percentage Completion

Finalised 3 11%

Draft report 7 26%

Fieldwork in progress 3 11%

ToR 5 19%

Not started 8 30%

Deferred 1 3%

Total 27 100%

1.8 With a combined total of 37% of reports issued in draft or final the service

remains on target.

2. Follow-ups

2.1 Follow-up of high recommendations due to be implemented has been completed. The results are summarised as:

Number of high risk findings 16

Number of high risk findings completed 13

Number of high risk findings in progress. 3

Satisfactory progress has been made on the 3 recommendations. This will be monitored until completion. In the event that delays occur this will be reported to committee.

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Appendix B

LONDON BOROUGH OF HOUNSLOW COUNTER FRAUD TEAM PERFORMANCE REPORT Quarter 1 1 April – 30 September 2017 21 December 2017

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1. Introduction

1.1 This report details the performance of the Audit & Investigations Shared Service

in respect of the delivery of investigation services on behalf of the London Borough of Hounslow. The purpose of the report is to provide Audit Committee members and management with an update on the work undertaken by the Shared Service to quarter 2 (1 April to 30 September 2017) and highlight key issues for the attention of Members.

1.2 The service achieved a total of 34 proven cases to the end of September 2017 against a target of 68 for the year. Within this the team also identified in excess of £627k in losses, representing in the region of £561k (notional) and £66k (actual) for the Council as a whole.

2. Background

2.1 As previously reported to the Committee, Internal Audit & Investigation services are delivered by the Internal Audit and Investigations Shared Service, which has brought together the Internal Audit and Investigation resources of the London Boroughs of Hounslow and Ealing.

2.2 The Shared Service, hosted by the London Borough of Ealing, enhances the Internal Audit and Investigation services delivered to the two boroughs, by bringing together a wealth of experience, improving overall service resilience, whilst also providing the opportunity to share best practice and harmonise counter fraud processes.

2.3 The Shared Service is responsible for the investigation of all types of suspected fraud within the Council, including but not limited to:

• Corporate fraud matters in relation to offences committed by employees;

• Procurement fraud by employees, Contractors or other third parties;

• Fraud within schools;

• Housing tenancy related fraud; Council Tax fraud, including Council Tax Reduction, discounts and exemptions; and

• Blue Badges.

3. Proactive 3.1 The Audit and Investigation team participated in International Fraud Awareness

Week, between November 12-18. This week was set aside to raise awareness about the impact of fraud on the community.

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3.2 The team raised awareness of fraud through:

o A fraud awareness roadshow located in the reception area;

o a tenancy fraud drive in the borough

o a news story featured in ‘7 days’:

o launching a fraud awareness eLearning package.

3.3 Full results are being compiled and will be reported in quarter 3, a summary of

some highlights from the week are set out below:

• 500 fraud contact cards issued to staff and residents.

• 109 tenancies visited: o 7 strong leads (4 known and 3 new). o 4 substantial leads. o 29 follow-ups required (e.g. no one in). o 69 tenancies verified.

3.4 The Housing Investigations team will be following up on cases to conclusion. We will provide updates on the outcomes of this project to future committees.

3.5 Increasing employee awareness of fraud and educating employees about fraud prevention, detection, and reporting, is critical for reducing the incidence of fraud against Hounslow Council.

3.6 The pro-active plan can be found in Appendix Bi, the plan is fluid in order to ensure that we manage new fraud risks in an ever changing landscape.

4. Detail

4.1 Performance 1 April – 30 September 2017 4.1.1 The table below provides a summary of cases open and closed during the

quarter: 1 Summary of open/closed cases (Table 1)

Case Numbers

Open Cases (end quarter 1)

135

New Cases added (during quarter 2)

176

Cases Closed (during quarter2)

196

Open Cases (end quarter 2)

115

4.1.2 Table 2 provides ‘new offences’, which is a breakdown on new cases reported

for the period:

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New offences (Table 2)

Case type Fraud alleged

Total Sub-total

Council Tax 89

CTax discount 17

CTRS 70

Other 2

Parking 29

Blue Badge 29

Tenancy 27

Occupancy 9

Right To Buy 7

Sub-let 11

Other 14

Other 14

Deception 10

Benefit 4

Employment 2

IOP 1

Other 2

Planning 1

Corruption 3

Other 3

Financial investigation 3

Planning 2

POCA 1

Business rates 1

NNDR 1

Total 176

4.1.3 At the end of the period there were 115 open cases. It should be noted that cases will frequently and necessarily run for a number of months, so that the number closed does not correlate directly to those opened (shown in Table 1 above) in the same period.

4.1.4 Audit & Investigation must have reasonable and sufficient grounds to conduct a criminal investigation. Cases will be screened out, or not progressed with, for a variety of reasons including: that there is a more appropriate agency to deal with the allegation; that the allegation has no merit (including cases that are suspected of being malicious); or cases where after initial enquiries it is apparent that there are insufficient grounds to warrant further action. Only a proportion of the allegations received will progress to a full investigation. Resource is required to adequately address each stage of this process.

4.1.5 Table 3 below shows the number of cases completed during the period 1 April to 30 September 2017, including those passed to other agencies (such as Department for Work and Pensions, Police or other London Borough) and those for which no further action was taken following initial enquiries.

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Cases closed 1 April – 30 September 2017 (Table 3)

Case

type

Fra

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Council Tax 102 C-Tax discount 14 12 2 CTRS 86 19 50 17 Other 2 1 1

Tenancy 35 Application 1 1 Occupancy 10 1 8 1 Right To Buy 14 14 Sub-let 10 1 8 1

Parking 31 Blue Badge 31 14 17

Other 14 Other 14 6 8

Deception 9 Benefit 5 2 2 1 Employment 2 2 Planning 2 1 1

Business rates 3 NNDR 3 2 1

Corruption 2 Conflict 1 1 Other 1 1

Total 30 110 56

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4.1.6 The details of the 56 investigations completed between the 1 April and 30 September 2017 are detailed in table 4 below.

Completed investigations 1 April - 30 September 2017 (Table 4)

Case

type

Fra

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lo

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Council Tax C-Tax discount 2 2 18,000* 365 CTRS 7 10 8 12,461 3,637

Parking Blue Badge 2 15 14 1,104

Tenancy Occupancy 1 1 104,900

#

Right To Buy 10 4 5 437,600&

Sub-let 1*

Deception Benefit 1 1 50,210 Planning 1

Business rates NNDR 1 3526

Corruption Conflict 1

Total 22 34 31 561,604 66,562 3,637

* This case was referred as C-Tax, but also led to a tenancy recovery valued at £18,000. # This tenancy referral resulted in a rejection of a right to buy as well, which are valued on the basis of £104,900 based on the discount that would be received if the purchase had progressed. & This figures includes 4 right to buys at £104,900 and a tenancy recovered as a result of the right to buy enquiry at £18,000.

Sections 4.2.1 – 4.4.3 below provide an explanation of the sanctions, notional and actual loss columns in Table 4 above:

4.2 Sanctions 4.2.1 Allegations involving ‘Council Tax’ resulted in: identified losses of £12,826; the

acceptance of 8 Council Tax Reduction Scheme financial penalties amounting to £3,637; and the ending of 1 Council tax discount.

4.2.2 A ‘Deception’ case involving a historic welfare benefit fraud case (now

investigated by DWP) resulted in a proved loss of totalling £50,210 and a prosecution.

4.2.3 ‘Parking’ cases resulted in 15 proven instances of Blue Badge misuse. 2 cases were prosecuted and 12 written warnings were issued to first-time offenders.

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4.2.4 A ‘Tenancy’ allegation resulted in the rejection of a Right-to-Buy, with 5 Right-

to-Buy applications refused, in total.

4.3 Notional loss proved - £561,604

4.3.1 The notional loss is the amount the underlying asset would have been worth to the Council.

4.3.2 The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home with a discount, in London, of up to £104,900. A Right to Buy sale that proceeds based on the provision of incorrect information results in a loss to the authority of a valuable asset at a fraction of its true value.

4.3.3 The 5 rejected Right-To Buy applications (including one case initially referred as an occupancy issue see note#) give a notional saving of £524,500. The figure in the table also reflects a tenancy which was also recovered as a result of the right to buy referral. See also para 4.3.5.

4.3.4 In their Protecting the Public Purse 2012 publication the Audit Commission

identified an average annual notional cost of £18,000 to house a family or individual in temporary accommodation. This average notional cost has been used to estimate the nominal cost to the public purse of housing a tenancy fraudster.

4.3.5 Two council properties were recovered one as the result of a council tax investigation (see note *), and another council property that was recovered as part of a Right to Buy investigation (note &) provided a notional saving of £36,000.

4.3.6 In the Annual Fraud Indicator 2011 the National Fraud Authority estimated a notional loss for a misused Blue Badge of £92.

4.3.7 15 Blue Badge cases have been proved and 14 sanctioned, providing a notional saving of £1104

4.3.8 The total of these notional savings to 30 September 2017 is £561,604.

4.4 Actual Financial loss proved - £66,562.

4.4.1 Proved fraudulent loss for the period, including cases where fraud was proved but a sanction was not imposed, totalled £66,562. This loss is subject to on-going debt recovery action against the subjects of the investigations.

4.4.2 This is a direct financial loss to the Council as a result of fraud. It is not possible in all cases to impose a legal sanction, for example if there is insufficient evidence for a realistic prospect of conviction, if it is not in the public interest to prosecute or the subject of the investigation cannot be traced.

4.4.3 The column for ‘additional £ income’ of £3,637 represents fines (see 4.2.1). 4.5 Performance

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4.5.1 As outlined within the previously presented Counter Fraud Plan, the Shared Service had a target of achieving 68 proven cases within the year. The team have achieved 34 proven cases to the end of September, which is in line with the target.

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Appendix Bi

Ealing and Hounslow Audit & Investigation Shared

Service

Anti-fraud proactive plan 2017-18

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Introduction 1. The Anti-fraud proactive plan is developed in line with the key fraud risks set out

in the fraud strategy (attached as appendix Bii); the single proactive plan is designed to expand the proactive work across the shared service. It will provide the mechanisms for:

• conducting initiatives to prevent fraud

• encourage all employees and other stakeholders to fight fraud and other acts of dishonesty

• detecting fraud The proactive plan will remain fluid to reflect changes from e.g. reactive work, new fraud risks.

Summary of work plan 2. The plan is set up in to two key areas.

• Soft measures are related to strategy and policy, to help set the tone of the organisational culture in relation to prevention and detection of fraud.

• Hard measures which are designed to detect and develop prevention measures for services moving forward.

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Soft Measures

Project Description Fraud Risk Ref (see appendix

Bii)

Tasks

Anti-Fraud e-learning

All Review current e-learning training and refresh training content to include bribery and corruption.

CIPFA fraud checklist

All Undertake a realistic self-assessment of the major fraud risks within the shared service.

Bespoke Anti-fraud training

All, but programmes for 6, 8, 10, 11.

To develop and run bespoke anti-fraud training including:

- Grants awareness for staff administrating and monitoring grants.

Policies and procedures

All To review and update all policies linked to anti-fraud and corruption across the shared service.

Transparency All To review transparency requirements and report in line with requirements

Procurement 2, 8 To obtain the cartels risk assessment form from the Competition & Markets Authority, and conduct a review into its effectiveness within the local authority arena.

Advice All To respond to requests for advice on how to embed anti-fraud messages and prevention into council processes.

Fraud material refresh

All To review all content associated with fraud and audit across the service, to ensure it is up to date and current.

Publicity campaign 10, All Produce and distribute fraud cards to employees. Develop fraud banners to advertise service. Publicise fraud news on the intranet, staff and resident’s newspapers and on social media. Campaign to be arranged around Fraud Awareness Week, 12-18 November 2017.

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Hard Measures

Project Description

Fraud Risk Ref

(see appendix

Bii)

Tasks

National Fraud Initiative

1,2,3,4,5,7, 8,10

Key contact for the NFI programme. Co-ordinate submission of data. Complete work relating to anti-fraud.

iLatch – tenancy checker

1,13 To explore the use of iLatch functionality in preventing housing fraud.

Data Matching 1,2,3,4,9 To undertake any suitable data matches internally to prevent fraud. Housing tenancy data match.

Estate action days 1,4,13,22,11 To conduct targeted tenancy checks across the shared service.

Cyber Security – phishing exercise

23 Raise the profile of phishing and ransomware by carrying out a proactive cyber security test on end users within the Council.

Vetting 1,3,4,9,10 To review key services and access controls. To consider:

- Waiting list and allocations - Right to buy - Council Tax - Personal Budgets - No Recourse to public funds

To identify scope for enhanced vetting; id scanners to help prevent fraud in these areas.

Schools 8 Including potential fraud risks in the schools internal audit plan to help prevent and detect risk.

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Appendix Bii – Anti-Fraud Strategy- Fraud Risks

The key fraud risks set out below were presented to the audit committees for Ealing and Hounslow in February 2017. These were informed by the Fighting Fraud and Corruption Locally strategy 2016-2019 (more details in appendix B iii). Numbers are allocated below and cross reference to the proactive plan.

Known Fraud Risks Emerging/Increasing Fraud Risks

1. Tenancy 12. Business Rates

2. Procurement 13. Right to buy

3. Payroll 14. Money Laundering

4. Council Tax 15. Insurance Fraud

5. Blue Badge 16. Disabled Facility Grants

6. Grants 17. Concessionary Travel Schemes

7. Pensions 18. No Recourse to Public Funds

8. Schools 19. New Responsibilities

9. Personal Budgets 20. Commissioning of Services

10. Internal Fraud 21. Local Enterprise Partnerships

11. Identity Fraud 22. Immigration

23. Cyber dependent crime/Cyber enable fraud