The National Fraud Initiative – what is it?

Origins

The National Fraud Initiative (NFI)  started in 1996 and was originally managed by the Audit Commission. It is a data-matching exercise now conducted by the Cabinet Office under powers set out in the Local Accountability and Audit Act 2014 (which also abolished the Audit Commission). Under this legislation (section 33, Schedule 9) the Cabinet Office:

  • may carry out data matching exercises for the purpose of assisting in the prevention and detection of fraud;
  • may require certain bodies to provide data for data matching exercises;
  • may accept data submissions on a voluntary basis;
  • must prescribe a scale or scales of fees for mandatory data matching exercises;
  • may charge a fee for voluntary data matching exercises; and
  • must consult mandatory participants and relevant stakeholders before prescribing the mandatory scale or scales of fees.

In broad terms, it is a bi-annual exercise that matches electronic data within and between public (e.g. local and police authorities) and private sector (e.g. housing associations) bodies with the purpose of identifying possible fraud.

Data-matching is merely the first stop however. The information obtained will be provided to the relevant participating body via the secure NFI software and it will be for them to decide what to do with it. 2018/19 matches were due to become available to participants from 31 January 2019.

Participants

Public sector bodies are required to submit data to National Fraud Initiative on a regular basis, and should follow the requirements of the Code of Data Matching Practice 2018. For example, local authorities will provide information relating to:

  • payroll
  • pensions
  • trade creditors’ payment history and trade creditors’ standing data
  • housing (current tenants) and right to buy
  • housing waiting lists
  • housing benefits (provided by the DWP)
  • council tax reduction scheme
  • council tax (required annually)
  • electoral register (required annually)
  • students eligible for a loan (provided by the SLC)
  • private supported care home residents
  • transport passes and permits (including residents’ parking, blue badges and concessionary travel)
  • licences – market trader/operator, taxi driver and personal licences to supply alcohol
  • personal budget (direct payments)

The NFI also provides additional services for the public sector and there are in all approximately 1200 participating organisations.

As for those private sector bodies choosing to participate in the NFI, and supplying certain information as a result, the Cabinet Office says this about housing associations:

Our data screening in this area can help identify tenants who:

  • have no right to reside in the UK
  • are illegally subletting houses
  • are illegally claiming benefits
  • are abusing the ‘Right to buy’ scheme
  • are making invalid applications for housing

By identifying this type of fraud, we make sure that social houses can be recovered by social landlords and given to individuals who need them.

An example of the fees chargeable to a participating private sector body, such as a housing association, can be seen in the Private Sector Fees report (July 2018).

An example of the benefits to NFI participants can be seen from one example given in the 2018 report:

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.

Data Protection

Data protection legislation requires NFI participants to tell individuals at the very least that their data will be processed, usually by means of privacy notices.

For example, Northampton Borough Council’s corporate privacy statement says:

This authority is required by law to protect the public funds it administers. We may share information provided to us with other bodies responsible for auditing or administering public funds, in order to prevent and detect fraud, such as national data matching exercises like the National Fraud Initiative (NFI).

Hyde Housing Association Ltd’s privacy notice can be seen here. The NFI’s privacy notice is here.

The Code of Data Matching Practice referred to above says this about data protection:

1.6. Relationship to data protection legislation and other information sharing codes
1.6.1. In addition to this Code, when participating in data matching exercises, bodies should have regard to any other relevant data or information sharing codes and guidance, including any statutory guidance from the Information Commissioner, which is available on the Information Commissioner’s website at https://ico.org.uk/
1.6.2. References to compliance with, or in accordance with, data protection legislation should be construed as compliance with current data protection legislation applicable in the UK, as defined in the Data Protection Act 2018, which includes the General Data Protection Regulation (EU) 2016/679 (GDPR).
1.6.3. The Cabinet Office will review this Code in light of changes in the law and consider, at that point, whether the Code requires further amendment and if so, the appropriate time to do so.

Housing context

In a housing context, and as seen from the Portsmouth City Council example above, the NFI can help identify possible housing fraud for local authorities and housing associations.

In previous exercises, this has led to tenancies being terminated and properties re-allocated to genuine applicants on the housing waiting list who might otherwise have stayed in expensive temporary accommodation. The NFI Report 2016-18 showed during 2016/17:

  • 58 social housing properties were recovered, assisted by using the combined Council Tax and Electoral Register data to help identify an individual’s current residence.
  • 7601 false applications which were removed from housing waiting lists (over half of which came from one authority alone). In its 2018 report there was an estimate of £3,240 per case for future losses prevented as a result of removing an applicant from council housing waiting list.
  • Over £1 million was saved in 2016/18 by rejecting right to buy applications from tenants found not to be entitled.

The Housing tenant screening can:

  • identify individuals who potentially have more than one property in their name
  • highlight individuals with no right to reside in the UK
  • ensure that tenants are only resident at one address, and aren’t claiming housing benefit for a different property
  • make sure that right-to-buy claimants qualify for the scheme

For the 2018/19 NFI exercise the housing information required can be seen here re waiting lists and here re tenants. Other data can be found here.

Tools

FRAUDHUB

FraudHub has been devised to enable public and private sector organisations to share information. The annual subscription for a housing association of 10,000 or more properties which wishes to use this service is presently £4240.

There are “local” versions of such schemes. For example, the East Sussex Counter Fraud Hub:

“…was created to use new and innovative methods to tackle fraud against local authorities throughout the rural, urban and metropolitan areas of the county. The hub is made up of representatives from Brighton and Hove City Council, Eastbourne Borough Council, East Sussex County Council, Hastings Borough Council, Lewes District Council, Rother District Council and Wealden District Council.”

The London Counter Fraud Hub, which is managed by CIPFA, is a counter fraud service, which has been developed to supply data analytics, investigations and recoveries service for London local authorities and the City of London Corporation. 

APPCHECK

 AppCheck is a service that helps a participant identify any fraud, clerical errors or inconsistencies at the point of an application (rather than wait for the NFI bi-annual exercise), with over 300 million records available to this end (including access to the Home Office’s immigration database).

The 2018 NFI report gave this example of AppCheck’s use:

City of London

The City Corporation Anti-Fraud Investigation Team, along with the Housing Allocations Team, are tasked with working across London to detect, prevent, and deter people from attempting to obtain social housing under false pretences.

As part of its commitment to supporting the NFI, and to help evolve its approach to fraud prevention, the City Corporation decided to deploy AppCheck on a trial basis to see if it could help to improve its ability to identify those applying, or who have obtained, social housing under false pretences.

The AppCheck system was easily assimilated into the teams’ existing procedures and was able to provide an additional layer of intelligence to the verification process.

Following its successful trial in combating social housing tenancy application fraud, AppCheck has been rolled out across the City Corporation in areas such as HR, housing benefits and blue badge applications.

Chris Keesing, Anti-Fraud Manager within the City of London Corporation commented on the AppCheck trial:

“The AppCheck solution was a great success and proved itself early on by allowing us to identify social housing application fraud that would have otherwise potentially not been detected. We are pleased that, owing to the success in this area, we have now been able to roll out AppCheck to other departments across the City Corporation to help us identify fraud in more front-line service areas.”

RECHECK

This is designed to enable the matching of social care payments to deceased person data in order to identify payments that are continuing in error.

Conclusion

This blog has previously reported on the NFI’s 2018 report mentioned above, and the service provides just one means for local authorities and housing associations in their detection and understanding of housing fraud and it’s extent (in global terms the Annual Fraud Indicator 2017 found that housing tenancy fraud costs local government £1.83 billion).



Compensation Orders – an introduction

We have reported on a number of social housing fraud convictions in this blog, and along with unlawful profit and costs orders the court may consider making a compensation order . For example, a £45,000 compensation order was made in a sub-letting case reported in the Islington Gazette (and here) in April 2018.

In the same month,  a former housing officer was ordered to pay £20,000 to his erstwhile employers, after receiving a 3-year sentence in 2016 “after admitting fraud offences relating to social housing applications and job references”.

When it comes to profits from a housing fraud, if a person is convicted of an offence under either sections 1 or 2 of the Prevention of Social Fraud Act 2013 the court must decide whether to make an unlawful profit order. An unlawful profit order can be made instead of or in addition to an order under the court’s sentencing powers (see section 4(1) and (2) of the 2013 Act).

If a court decides not to make an unlawful profit order, section 4(4) of the 2013 Act states that it must give reasons for that decision when passing sentence.  

As for questions of loss and compensation orders, the criminal court must consider this in any case where personal injury, loss or damage has resulted from the offence, and the court must also (as with the unlawful profit order) give reasons if it decides not to order compensation.

And so section 130 of the Powers of Criminal Courts (Sentencing) Act 2000 provides:

“(1) A court by or before which a person is convicted of an offence, instead of or in addition to dealing with him in any other way, may, on application or otherwise, make an order (in this Act referred to as a “compensation order”) requiring him—
(a) to pay compensation for any personal injury, loss or damage resulting from that offence or any other offence which is taken into consideration by the court in determining sentence; or
(b) to make payments for funeral expenses or bereavement in respect of a death resulting from any such offence, other than a death due to an accident arising out of the presence of a motor vehicle on a road;
but this is subject to the following provisions of this section and to section 131 below.”

There are some salient points to remember about such orders:

1. They are ordered by the criminal courts following a conviction, and in a housing fraud case may be made, for example, where the local authority ‘victim’ has been put to the expense of putting a household in temporary  accommodation because the defendant has wrongly been allocated housing due to their misrepresentation.

2. No upper limit applies to those aged 18 or over (see s. 131 of the 2000 Act, which limits the amount to no more than £5000) though the amount of loss to the victim, such as the social landlord, is the matter being compensated. Continue reading “Compensation Orders – an introduction”

Proving fraud – the basic principles

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) [2018] EWHC 369 (Comm) handed down on 28 February 2018 dealt with consequential orders following the court’s earlier substantive judgment in this fraud claim – [2017] 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:

  1. Fraud has to be both clearly alleged and proved: Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at p. 407 per Millett LJ (as he then was).
  2. The court should not have to rely on inferences from facts not pleaded: Elena Baturina v Alexander Chistyakov [2017] EWHC 1049 (Comm).
  3. 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) [2001] 2 All ER 513 per Lord Millett at para. 186.
  4. It is however perfectly legitimate for the Court to proceed by way of inference from circumstantial evidence: JSC BTA Bank v Ablyazov [2012] EWCA Civ 1411 at para. 52 per Rix LJ.
  5. 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) [1996] 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 [2010] 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.

 

Route of challenge to judgment procured by fraud

 

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) [2017] 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 [42] (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.