The CIPFA “Fraud and corruption tracker” summary report, based on responses from 144 local authorities, estimates that approximately 80,000 frauds have been detected by local authorities in 2017/18 with a value of £302 million.
71.4% of that figure is under the heading of ‘housing fraud’ (though the number of cases represents only 5.7% of the total, the largest number of cases being with regard to council tax):
– 1518 Right to buy cases at a value of £92m
– 1051 unlawful sub-letting cases at a value of £55.8m
– 2164 other cases (e.g. wrongful assignments and tenancy successions, false applications) at a value of £68.3m
1. Public sector organisations need to remain vigilant and determined in identifying and preventing fraud in their procurement processes. Our survey showed this to be one of the prime risk areas and practitioners believe this fraud to be widely underreported.
2. Effective practices on detecting and preventing adult social care fraud should be shared and adopted across the sector. Data matching is being used by some authorities with positive results.
3. All organisations should ensure that they have a strong counter-fraud leadership at the heart of the senior decision-making teams. Fraud teams and practitioners should be supported in presenting business cases to resource their work effectively.
4. Public sector organisations should continue to maximise opportunities to share data and to explore innovative use of data, including sharing with law enforcement.
5. The importance of the work of the fraud team should be built into both internal and external communication plans. Councils can improve their budget position and reputations by having a zero- tolerance approach.
CIPFA’s chief executive, Rob Whiteman, said in a recent article for “Public Finance”:
“…the number of serious and organised crimes detected and prevented by councils has doubled this year to 56, highlighting the seriousness of the issues faced – and the effectiveness of councils’ efforts. Overall, 636 prosecutions were completed in 2017-18, up from 614 the previous year.
However, these successes were owing not to increased resources but increased capability and collaboration. The number of in-house qualified financial investigators appears to have dipped slightly, but shared services structures have risen from 9% to 14% of authorities. Fraud is a crime that crosses organisational and geographic boundaries. By collaborating, sharing data and jointly investing in new technologies, councils can improve resilience and cost-effectiveness.
The London Counter Fraud Hub, a data-sharing and analytics solution led by Ealing Council and London Councils and run by CIPFA and other partners, is an example. About to go live, it forms a part of CIPFA’s enhanced counter fraud services, which seek to drive a collective change in councils’ approach to fraud.
It’s important to maximise opportunities to share and explore innovative use of data, including working with law enforcement. Fraud is not a victimless crime. It inevitably diverts resources away from those who need it most. With local government running on empty, councils must preserve every drop.”
See the earlier blog article on the National Fraud Initiative Report 2018
The right of private prosecution is expressly preserved by section 6 of the Prosecution of Offences Act 1985.
On 23 May 2018 Lord Justice Gross and Mr Justice Sweeney handed down judgment in R (on the application of Martin Kay and Scan-Thors (UK) Limited) v Leeds Magistrates’ Court (Defendant) and Marek Karwan (Interested Party)  4 WLR 91, allowing a judicial review challenge to 2 decisions of a district judge at the Magistrates’ Court in Leeds:
1. Her refusal to dismiss summonses for offences of fraud between 2007 and 2012, which had been issued against the Claimants on the basis of an information laid at the behest of the Interested Party.
2. Her refusal to stay proceedings as an abuse of process, having decided that this issue should be determined in the Crown Court.
The District Judge’s decision and the summonses were quashed because of breaches of the duty of candour on the part of the private prosecutor, Mr Justice Sweeney concluding:
“38. As this case demonstrates, the grant of summonses, typically conducted ex parte, can have far reaching consequences. Compliance with the duty of candour is the foundation stone upon which such decisions are taken. In my view, its importance cannot be overstated.
39, The DJ undoubtedly had the power to deal with the breach of the duty of candour in this case by quashing the summonses. Logically, that was the first issue that she should have engaged with, but she failed to engage with it at all.
40. Whether breach of the duty of candour comes under the broad umbrella of abuse of process, or falls to be dealt with in its own right, applying the test most favourable to Mr Karwan (see  above), namely whether the inaccurate and/or non-disclosure would have made a difference to the judge’s decision, my answer is, unhesitatingly, “yes”, Even if the application had not been refused without more, it would inevitably have resulted in more focussed enquiries, the notification of the Claimants, and (in my view) the Claimants being heard.”
Costs were determined on 26 October 2018, they being awarded against the Interested Party on an indemnity basis, Mr Justice Sweeney explaining:
“21. In our view there is no merit in either the Interested Party’s principal or alternative submissions under this heading. He was the driving force in obtaining the summonses in significant breach of his duty of candour, and in persuading the District Judge to act as she did (whilst still failing to disclose the content of the Polish Regional Prosecutor’s second written justification). In all the circumstances we conclude that it is not appropriate to make an order for costs out of central funds in relation to the proceedings in the Magistrates’ Court or in this Court, nor to order that the Interested Party should only be liable for a portion of the costs. Put bluntly, these submissions are misconceived….
28. The Claimants underline that, for Orders on an indemnity basis, proportionality is irrelevant. They submit that Mr Kay is a man of 71 of impeccable good character who, when faced with serious charges of fraud, was entitled to instruct lawyers with the necessary skill and experience to deal with such a case, and that the amount of work that was carried out by his lawyers was entirely reasonable – including proper delegation with the majority of his solicitors’ work being done at associate rather than partner level. The Claimants draw attention to R (Haigh) v City of Westminster Magistrates’ Court  EWHC 232 in which the Court made an Order for costs of £190,000 against a private prosecutor for the Magistrates’ court proceedings alone (albeit that two sets of defence lawyers were involved). The Claimants went on to rebut each of Interested Party’s submissions in relation to particular items of expenditure.
29. We have considered these submissions and the Amended Costs Schedules, having regard to s.51 of the Senior Courts Act, CPR 44.2 and s.19 of the Prosecution of Offences Act 1985. In the result we have decided, in the exercise of our discretion, to assess costs summarily in the total amount of £250,000. We are satisfied that, looked at robustly and in the round, this figure does justice to both parties. Accordingly, we propose to make an Order in favour of the Claimants, here and below, in that total sum – payable within 28 days. The Claimants must draw up a draft Order accordingly.”
This case not only serves as a warning to would-be prosecutors that their duty of candour must be taken seriously but also, in the substantive judgment, provides a helpful update on the procedure applicable to bringing such a prosecution.
The Tenancy Fraud Forum (TFF) held its annual conference at the BMA in London on Wednesday, 3 October 2018:
The TFF was launched in April 2012 and arose out of a recognition that there was an increasing need for a fraud forum that focused solely on tenancy fraud issues because of the complex law that surrounds such matters, and the requirement for niche investigations. The Executive Committee of TFF is made up of fraud specialists from local authorities and housing associations.
The annual event was as ever well attended and I was privileged to be asked to give the keynote speech, and focused on the need for greater understanding of the extent of fraud ‘in the system’, the litigation tools at the disposal of landlords and the need to consider widening the local authority investigation powers to be found in the Prevention of Social Housing Fraud (Power to Require Information) (England) Regulations 2014/899 and the Prevention of Social Housing Fraud (Detection of Fraud) (Wales) 2014/826 beyond the suspected fraud and their family.
The lasting impression I got from listening to some excellent speakers on topics such as money laundering, surveillance and right to buy fraud – and speaking to many delegates – was that there was some tremendous work going on in the social housing sector to detect fraud and an increasing cross-working practice in the sector, alongside an acknowledgement that there is a long way to go:
The TFF is a an important organisation led by the brilliant and indefatigable Katrina Robinson MBE…I’m already looking forward to the 2019 Conference!
The Cabinet Office has produced the National Fraud Initiative Report 2018, the headline figure of which is that the National Fraud Initiative (NFI), the Cabinet Office’s data matching service, has enabled participating organisations to prevent and detect over £300 million UK fraud and error in the period April 2016 to March 2018, a rise from £222 million in 2014/15.
The NFI compares sets of data, such as the payroll of a company with benefit records, allowing fraudulent claims and payments to be identified. Between April 2016 and March 2018, the NFI worked with over 1,200 public and private sector organisations.
The report highlights 4 NFI products:
- National – Data is collected from organisations across the UK for national fraud detection batch matching. Matches are accessed through a secure web application.
- AppCheck – Fraud prevention tool that helps organisations to stop fraud at the point of application, thereby reducing administrative and future investigation costs.
- ReCheck – Flexible batch matching tool that allows an organisation to repeat national batch matching at a time to suit them.
- FraudHub – this enables groups of organisations to regularly screen more than one dataset with the aim of detecting errors in processing payments, or benefits and services.
Looking at the figures in a housing context for England (£275.3 million of the £300 million figure) the report shows:
- £5.5 million related to tenancy fraud, £25.5 million to waiting lists, and £1 million to right to buy (RTB – 4 cases);
- 58 social housing properties were recovered, a small increase from the 54 properties in 2014/15. The NFI use an estimate of £93,000 per property recovered based on average four year fraudulent tenancy – this includes temporary accommodation for genuine applicants; legal costs to recover property; re-let cost; and rent foregone during the void period between tenancies;
- 7601 false applications were removed from local authority allocation schemes during 2016/17 – over half of these applications were cancelled by one council. The NFI works on an estimate of £3,240 per case for future losses prevented as a result of removing an applicant from a list;
- The NFI estimate a saving of £65,000 per RTB application withdrawn based on average house prices and the minimum right to buy discount available (this has some regional variations such as with London it is £104,000 per application withdrawn to reflect the maximum value of RTB discount available for London properties);
- The Annual Fraud Indicator 2017 highlights that housing tenancy fraud costs local government £1.83 billion. This has increased from the £1.76 billion quoted in 2016;
- Whilst there are 400 local authority participants in the NFI, there are just 7 Housing Associations.
The report gives 2 examples of local authority use of NFI initiatives:
- Royal Borough of Greenwich – an NFI housing tenancy to housing tenancy match showed two matching tenancies between two London boroughs. Investigations in the Royal Borough of Greenwich showed their tenant had used false identity documents to gain a one bedroom flat in May 2013; claimed housing benefit; used the same documents to gain employment as a waste operative in the borough four years earlier, in October 2009 (he was no longer in that employment at the time of the investigation). The Royal Borough of Greenwich evicted the tenant from the property in February 2017 and he was prosecuted and sentenced at Woolwich Crown Court on 4th October 2017 to 33 months imprisonment. In total the man had received in excess of £60,000 in employment and housing benefit payments.
- Portsmouth City Council – a housing tenants to housing benefit match identified a tenant in a property owned by Portsmouth City Council. The tenant had however been claiming housing benefit in excess of £150 per week for a different property in a nearby authority area since January 2016. The match revealed the tenant had let the property from Portsmouth City Council in February 2013, but investigations found the tenant’s partner had been subletting the Portsmouth property for up to two years. The council sought a prosecution in October 2017 and the property was successfully recovered.
The recent judgment of Kazakhstan Kagazy Plc & 5 Others (Claimants) v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva (Defendants) & Harbour Fund III LLP (Additional Party)  EWHC 369 (Comm) handed down on 28 February 2018 dealt with consequential orders following the court’s earlier substantive judgment in this fraud claim –  EWHC 3374 (Comm) – given by Mr Justice Picken on 22 December 2017.
Paragraphs 155 to 165 of that earlier liability judgment helpfully set out the basic and established principles relevant to proving fraud:
- Fraud has to be both clearly alleged and proved: Paragon Finance plc v DB Thakerar & Co  1 All ER 400 at p. 407 per Millett LJ (as he then was).
- The court should not have to rely on inferences from facts not pleaded: Elena Baturina v Alexander Chistyakov  EWHC 1049 (Comm).
- Nor will it find fraud from facts which have been pleaded but are consistent with honesty: Three Rivers District Council v Bank of England (No 3)  2 All ER 513 per Lord Millett at para. 186.
- It is however perfectly legitimate for the Court to proceed by way of inference from circumstantial evidence: JSC BTA Bank v Ablyazov  EWCA Civ 1411 at para. 52 per Rix LJ.
- Although fraud need only be proved to the civil standard of probability, in practice more convincing evidence will often be required to establish fraud than other types of allegation (see Clerk & Lindsell on Torts, 21st Ed., paragraph 18-04):
“When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence …”
[In re H (Minors)  AC 563 at pp. 586-7 per Lord Nicholls]
“The burden of proof lies on the [Claimants] to establish their case. They must persuade me that it is more probable than not that [the Defendants] made fraudulent misrepresentations. Although the standard of proof is the same in every civil case, where fraud is alleged cogent evidence is needed to prove it, because the evidence must overcome the inherent improbability that people act dishonestly rather than carelessly. On the other hand inherent improbabilities must be assessed in the light of the actual circumstances of the case …”.
[Foodco UK LLP v Henry Boot Developments Ltd  EWHC 358 (Ch) at para. 3 per Lewison J (as he then was)]
These cases provide a useful reminder of the importance of careful and clear pleading, and proper consideration of the evidence available and its proper and most appropriate conclusion.
The Court of Appeal handed down judgment on 15 December 2017 in the case of (1) Shahan Salekipour (2) Amir Saleem v Jashan Kaur Parmar (In her own right & as executrix of Mohinder Singh Parmar, Deceased) sub nom Re Parmar (Deceased)  EWCA Civ 2141.
The original claim was for sums owing from the defendant landlord, and at trial the judge preferred the landlord’s evidence. A fresh claim was brought by the claimants seeking a rescinding of the earlier judgment on the basis that one of the landlord’s witnesses had, they said, been pressured to give perjured evidence.
This second claim was struck out as an abuse of process and the application to set aside this order was dismissed on the basis that the county court had no jurisdiction to rescind one of its previous judgments. The High Court, on appeal, upheld this decision and Garnham J held that the more common and appropriate route to challenge a decision procured by fraud was by appeal.
The claimants appealed, and the defendant sought to uphold the High Court decision on the additional ground that, even if she had been aware of the fresh evidence, the trial judge would still have dismissed the claim.
In delivering the main judgment of the Court of Appeal, which allowed the claimants’ appeal, Sir Terence Etherton M.R. rejected the notion that the County Court, as a creature of statute, had no jurisdiction to rescind one of its own judgments. The relevant provisions of the County Courts Act 1984 were sections 23, 38 and 70:
“23. Equity jurisdiction.
The county court shall have all the jurisdiction of the High Court to hear and determine-
(g) proceedings for relief against fraud or mistake, where the damage sustained or the estate or fund in respect of which relief is sought does not exceed in amount or value the county court limit.
“38. Remedies available in county courts.
(1) Subject to what follows, in any proceedings in the county court the court may make any order which could be made by the High Court if the proceedings were in the High Court.
“70. Finality of judgments and orders
Every judgment and order of the county court shall, except as provided by this or any other Act or as may be prescribed, be final and conclusive between the parties.”
Previously, the County Court Rules had a provision, Order 37 r. 1(1), which would have allowed the County Court to have jurisdiction:
“In any proceedings tried without a jury the judge shall have power on application to order a rehearing where no error of the court at the hearing is alleged.”
The Master of the Rolls said at paragraph 73 of his judgment:
“If however, the respondent is correct about the County Court’s lack of jurisdiction, the only remedy for a litigant in the County Court who wishes to have a prior final County Court order set aside for perjury or fraud is to appeal, even though that will often not be the most appropriate course consistent with the overriding objective in CPR r.1.1. It was common ground before us that the High Court has no jurisdiction to hear independent proceedings to set aside an earlier final order of the County Court obtained by perjury or fraud. If that deprivation of a previous County Court jurisdiction was the effect of the repeal of CCR Ord. 37 r.1(1), then it appears that it would have been the result of oversight rather than intention, and, contrary to objective of the CPR, would have produced a significant difference between the High Court and the County Court and would have seriously disadvantaged County Court litigants, for no sound policy reason.”
This led to his conclusion at paragraph 74:
“I agree with the appellants that such an anomaly does not exist because, leaving to one side the CPR, including the management powers under CPR 3.1, sections 23 and 38 of the 1984 Act confer jurisdiction on a County Court judge to determine proceedings to set aside a final County Court order obtained by perjury or fraud. Such proceedings appear to me to fall precisely within the wording of section 23. The right of a party to have a judgment set aside on the ground of fraud is a principle of equity: Flower v Lloyd (1877) 6 Ch D 297; Noble at  (Elias LJ). The present proceedings are, consistently with the terms of section 23, “proceedings for relief against fraud … where the damage sustained … does not exceed in amount or value the county court limit”. “
This is a useful confirmation therefore of the route of challenge to a judgment procured by fraud. The example given in “Cornerstone on Social Housing Fraud” – in Chapter 4 at pages 65-69 – is a claim for possession against a would-be successor to a tenancy being dismissed upon a finding that the defendant has in fact succeeded to the subject tenancy.