The Chief Internal Auditor reported that the Authority had recently been the subject of a highly sophisticated Bank Mandate Fraud, which resulted in payments of £45,683.86 and £95.60 that were due for a Care Home being diverted to an alternative account. He confirmed that, following an initial assessment and having established that a fraud had occurred, a replacement payment had been issued to the supplier.

He reported that mandate fraud was a very common fraud targeting Local Authorities, Hospitals, Universities, Supermarkets and other major organisations and he indicated that in the first half of 2012, over £150m was lost to this type of fraud within the UK alone. Neighbouring authorities in the North West, including Salford, Wigan, Rochdale, Bolton and Warrington had fallen victim to such frauds in recent years.

Following the fraud being reported to Internal Audit, an investigation was undertaken and the loss was immediately reported to the local Police on 23 August 2013. Internal Audit continued to trace the money trail and share their information with the Police as no confirmation had been received that the matter had been accepted for investigation. Members expressed their concern that it was not until 5 November 2013 that confirmation was received that the matter was being actively pursued by the Metropolitan Police. The Chief Internal Auditor reported also that, since his report was written, further information had been obtained by Internal Audit from the Banking sector that identified the names and addresses of individual account holders resident in Southern England. The information had been passed to the Metropolitan Police who had advised that it could lead to arrests being made.

He outlined the specific circumstances of the fraud and indicated that the audit investigation had sought to establish how it had been allowed to occur despite clear and robust procedures that were in place to prevent the occurrence of such incidents. Members noted that the fraud had been allowed to occur as a result of an error by a member of staff that had been compounded by a failure of a supervising officer. The Strategic Director – Transformation and Resources reported that instructions had been reissued to staff and a disciplinary investigation was being undertaken. Furthermore, an Action Plan had subsequently been prepared by Internal Audit for senior management, which identified ten recommendations that stressed the importance of following documented procedures in respect of changes to any account details.

A Member commented that although the fraud had been discovered early and dealt with appropriately, the manner in which it had been reported reflected badly on the Council’s image. In addition to dealing with such matters quickly and openly, he highlighted the need for details to be reported immediately to senior management and Members and for control to be maintained as to the release of such information to the press.

The Chief Internal Auditor advised that actions to address the issues were included in his report and the corresponding action plan currently being implemented by officers.

Resolved – That the report and the actions currently being taken by officers, be noted.