The question whether staff should be prosecuted for fraud would, on the surface, seem a straightforward answer of Yes, so why is it that, when caught committing fraud, so few staff are actually prosecuted?

For the private sector this would seem obvious. If you prosecute a member of staff through the courts usually, but not always through the police, the case will get some publicity. If the publicity is severe enough then it may affect public confidence in the company’s performance. A bank, for example, that appears vulnerable to fraud, would not be considered a good investment risk.

A solicitor who steals money from a client is more likely to be prosecuted. Firstly because those who work in the legal profession understand the importance of taking action, quickly and effectively. The second reason is that the client or their families are likely to be the ones to take action.

The public sector these days is more likely to take action but usually then gets bogged down in the internal disciplinary procedures, that have been agreed between management and the trade unions. Unfortunately these procedures, whilst trying to maintain some semblance of natural justice – which is not something that bothers the private sector – become too complicated. Managers do not understand them and trade union representatives use the processes as though they were starring in an episode of TV’s "Kavanagh".

Several recent reports have shown the government’s resolve to deal with such issues. The report by Lord Grabiner on the Black Economy, John Scampion’s report on organised benefit fraud and the Home Office report on Fraud all include comments and statements by ministers on the importance of cracking down on fraud within the economy. Other statistics suggest that our own employees commit 30% of such fraud.

Shop lifting by staff is an issue for retailers, also the disappearance of stock from lorries and warehouses. Such problems are not unknown to maintenance stores across the private and public sectors. Similarly the problems of cash stolen from tills and the payment of customers’ monies into managing agents’ accounts and so on and so forth.

Recently the Benefits Fraud Inspection Service targeted Glasgow City Council and several staff were found to be claiming benefits whilst actually working for the council. This discovery resulted in an internal Benefits Agency "Fraud Management Letter" instructing staff that any public sector workers found committing benefit fraud would be prosecuted regardless of the amount of the overpayment.

I am not aware that, in reality, any of those found by BFIS in GCC were actually prosecuted. I suspect that the reason for this is that the frauds had been discovered on the balance of probabilities rather than beyond reasonable doubt.

However, the GCC fraudsters raise some interesting questions:

1. They were not internal fraudsters. As they were not claiming from GCC but from the Benefits Agency, prosecution of these people would be a challenge to the test of public interest. For example, if they were school cleaners who had committed a low level fraud, amounting to a small overpayment of benefit, should they be prosecuted simply because they work for a public institution ? Would they be prosecuted if they were private sector contractors? Wouldn’t it be better to leave them working and recover the overpayment?
   
2. Could it be a breach of their Human Rights? According to Benefits Agency solicitors this is not a Breach of HRA. I personally would not want to rely on that being the case, since if someone is to be prosecuted, within the framework of the public interest, solely because they work for a local council this would probably be a breach of their human rights.
   
3. What happens in disciplinary terms if someone is found guilty of low level benefit fraud ? Is this enough to say that the council has been brought into disrepute? The answer would be Yes dependent on the employer obtaining a copy of the judgement. There may well have been mitigating circumstances that would affect the decision of a disciplinary panel. The judgement of the panel however should be like that of the Courts and reflect the seriousness of the offence. (Although without the variances that we have come to expect of the Courts.)

A member of staff who is sentenced by a court for a criminal offence, regardless of that offence, cannot be accused of bringing their employer into disrepute unless it can be proved that the individual is linked to their employer in the public imagination. If this can be demonstrated, and in Glasgow’s case I would have thought that this was so, then it cuts to the heart of the contract and disciplinary action must follow.

What of those caught committing internal fraud or similar offences?

As stated at the beginning of the article, they are unlikely to be brought to book: The reasons are as follows:

• The potential negative impact on the image of the organisation
• Inconsistency of sentencing within the Courts.
• Investigations not being properly carried out.

The second reason is a major problem. Magistrates and Crown Court Judges show little consistency and in the case of the Magistrate Court allow unsubstantiated mitigation to affect their rulings.

Consider the case of a young woman who appeared before Liverpool Crown Court on the charge of theft. A straightforward case of writing some £15,000 worth of her employer’s cheques to her boyfriend. On appearing she was contrite and apologetic. She was nine months pregnant, her boyfriend had disappeared and had beaten her and stolen all her money to fund his drug habit. The young woman had not even told her family that she was appearing in court. The judge was very sympathetic but nonetheless sentenced her to 21 months.

Consider also the ex-leader of Doncaster City Council who illegally claimed approximately £700 worth of council expenses. He pleaded guilty and received a £1,000 fine, costs and a three month suspended sentence, over six months

Consider a bigamist accountant who has two wives, steals £30,000+ from his employer and gets a 12-month suspended sentence.

Where is the consistency?

The third bullet point on the list deals with the difficulties facing an employer confronted with internal fraud. The lack of proper disciplines and procedures, coupled with little training and support for those tasked with the job of investigation, usually means that a pay-off or out of court settlement for the accused is more likely than the culprit being brought to book.

Consider a director of contract services accused of back-handers and various other frauds, such as having his house built for him by council staff and stealing plant equipment. He did not go to court but was given a golden handshake and told to go on his way.

Where there is such an abuse of public funds you have to question why the individual wasn’t prosecuted. The answer is simple. Fraud – regardless of whatever charges you use, s15 1968 Theft Act, s111a Social Security Administration Act etc – is still a criminal offence. The purpose of an investigation is to establish the facts of the matter, not to come to the conclusion that suits the director of finance, chief executive, the managing director, share holders or councillors.

In many cases the investigation is passed over to the police. In the financial arena it is often passed over to forensic accountants. More often this is left in the hands of the auditors, which with all due respect to auditors is not a good idea. Auditors whilst having the necessary disciplines for proper investigations, do not have sufficient training in the areas of criminal investigation. Also auditors are too focused on the internal disciplinary procedures.

In the example cited above, the auditors interviewed the accused without informing him of his rights and placing him under a formal caution. Consequentially the evidence was damaged and a fair trial was not possible.

Often in these cases the investigator, under pressure from management to obtain a confession, will question the individual outside the scope of the employer’s own disciplinary rules and push for a confession. This system is medieval in its endeavours and only lacks thumbscrews or a ducking-pond to complete the picture.

So if a member of staff is investigated by a third party organisation, who then successfully prosecutes them for fraud or another criminal offence, such as shop-lifting, or fare dodging, it is important that the employing organisation has a disciplinary policy in place. For example let us for a moment consider all those senior and junior mangers who were caught recently by Connex trains, either not paying their fares or with forged or altered season tickets.

A disciplinary policy should include the following:

With the Regulation of Investigatory Powers Bill having been passed by Parliament and the Human Rights Act coming fully into play by October 2000, it is now more important than ever to ensure that internal investigations are properly undertaken. To take full advantage of the Government’s resolve to prosecute public servants who commit fraud on public funds, proper procedures and policies need to be in place.