Under the radar? Why housing providers need to talk about fraud

Social landlords’ apparent reluctance to report fraud irks counter-fraud experts. It risks creating an unfounded impression that there is not much fraud in the sector, they say. A report by Tenet Law last year, entitled Fraud… Nothing to See Here!, claims that many associations are either “unconsciously” or “consciously” not dealing with fraud risk.

Arun Chauhan, fraud specialist at Tenet Law and co-author of the report, says the social housing sector “doesn’t seem to think that it suffers with fraud”.

“The regulator is not hearing from housing associations about the extent of fraud and it therefore doesn’t give a huge amount of attention to it,” he adds. “It makes it look like associations have got the secret sauce which other sectors do not know about, but which helps them to avoid all fraud. In a country where 41 per cent of all crime is fraud or cybercrime, it seems a huge anomaly.”

So without any reliable data from councils’ or the association’s regulator, what do we know about the extent of fraud in the sector? Again, this is a difficult question to answer.

The financial cost of corporate fraud in social housing rarely emerges and does so most often in details from court case reports. Recent ones include a collusion between two maintenance workers and an external contractor who defrauded Greenwich Council of just over £1.5m.

But only a fraction of fraudsters see the inside of a courtroom. “Police became involved in only four of the 50 investigations which I’ve been involved in,” says Crowe’s Mr Chapman. And associations are cautious about pursuing fraudsters in civil courts when there is little chance of recovering their lost cash, such as when gambling or alcohol addiction is involved.

Housing consultant James Tickell says it is also difficult to recover money from big corporate frauds when it is moved through international banks, such as in the Bahamas or Belgium. “I’d like to think that most people do get caught, but you can’t be sure, and the police are often reluctant to get involved,” Mr Tickell says.

Corporate frauds of up to six figures can also go under the radar without being picked up or reported by external auditors either. “Some of the major frauds we’ve seen are around the £100,000 mark,” says Michael Tourville, a partner at accountancy firm Beever and Struthers. “That isn’t a figure which is material to accounts; it isn’t going to make an association go bust and so won’t typically be picked up through external audit.”

Scams of this scale often leave no obvious stain in the paperwork, adds Lee Cartwright, a partner at the same firm. “Dodgy contractors might invoice £100 for something instead of £50. If it does this thousands of times, the amounts can be relatively significant. It can come from an approved contractor and is commissioned by and signed off by different people in the organisation. Sometimes there’s nothing to spot in the paperwork.”

Counting the cost of cybercrimes

“The cost of recovering from a serious cyber incident or fraud goes far beyond the obvious financial and operational costs to include potential legal costs and long-term reputational impact. Therefore, organisations must have strong governance processes in place to manage a response to an incident and test these so everyone involved knows their responsibilities. This can’t be simply left to the technologists in the organisation to manage.

“Social housing providers have become a target for cybercriminals due to the significant quantity of personal data they control and process on behalf of their residents and the importance to maintain operations on a 24/7 basis. This makes them particularly vulnerable to extortion via ransomware attacks.

“The types, sophistication and speed of attacks are forever increasing, which means it is important for social housing providers to understand what the emerging threats are so that they can remain resilient to them.”

Tim Robinson, director of cyber security and counter fraud, Crowe

Develop an anti-fraud culture

Associations can take steps to prevent fraud by pinpointing weaknesses and tightening processes and controls with internal audit. But even this has its limitations.

Mr Tickell, who has advised on many major frauds, says halfway decent controls should pick up small-scale scams by a fraudster working on their own. “But as soon as two or three people, particularly in different teams, are involved it can become more difficult to detect, as they can cover for each other,” he adds.

Tenet Law’s Mr Chauhan says internal controls and processes are also limited by the fact that they are circumnavigated by staff for convenience. “This can be to make their jobs easier or more efficient, but leaves gaps which others can exploit,” he adds. “Controls and checklists don’t protect against fraud when people go off script and fraud is about manipulating those controls,” he adds.

Fraudulent activities in social landlords are, in fact, most often brought to light by whistle-blowers. “When it comes to detecting specific frauds, it is very often someone seeing something that doesn’t smell right; they dig further, call us in, and then find out what actually happened,” says Mr Cartwright.

This key role of whistleblowing in uncovering fraud makes it essential that social landlords develop a “strong anti-fraud culture” that shows they take fraud seriously, says Tim Robinson, counter fraud director at Crowe. “It’s important… they fully investigate suspicions of fraud to recover any lost funds and set a deterrent to others.”

All the above limitations on detecting corporate fraud, alongside the absence of collated data from the RSH, make it impossible to put a price tag on corporate fraud in social housing.

Tenancy fraud

What is easier to identify is the likely scale of tenancy fraud. The TFF’s claims that 148,000 social homes in England are subject to some form of tenancy fraud is based on a methodology developed by Alan Bryce, former head of counter fraud at the Charity Commission, now a non-executive director at the TFF.

Mr Bryce says the commission’s spotlight on tenancy fraud had over a six-year period pushed tenancy fraud detection rates up threefold to 3,000 homes a year. He is frustrated by what he sees as a lack of attention now given to tenancy fraud. “There are some fantastic housing associations which do some absolutely remarkable detection work,” he adds. “But our evidence indicates that there are many housing associations that are doing little or nothing to effectively tackle it.”

Associations that have concentrated resources on tenancy fraud have seen a jump in detection rates and savings.

West Midlands-based Bromford has since 2021 seen a 100 per cent year-on-year increase in the number of properties it has recovered from tenancy fraudsters. “Many associations are very reactive in their response to tenancy fraud, but we’ve taken a different approach and looked at the proactive things we can do,” says Allan Maund, the association’s fraud, probity and insurance manager.

L&Q has recovered 179 social homes since establishing a five-strong fraud squad the same year, saving the public purse £7.5m. “Tenancy fraud has always been there, but in today’s climate, the need to deal with it is far greater than it has ever been,” says Nicola Evans, tenancy fraud manager at L&Q. And fellow G15 member Peabody says that its specialist tenancy fraud team saved taxpayers £2.5m last year. “In our experience, landlords with their own fraud teams tend to be more successful in identifying tenancy fraud and recovering homes,” a Peabody spokesperson says.

Even associations without dedicated tenancy fraud-busting teams have some potentially powerful tools at their disposal. One is the National Fraud Initiative (NFI), a data-matching exercise run by the Cabinet Office.

But vanishingly few associations use it. Only 16 have taken advantage of the NFI in the past five years. The amount of tenancy fraud it has helped the initiative identify is correspondingly small, and has halved in two years from £5.6m in 2020 to £2.3m in 2022 – as individual associations with specialist teams have seen detection rates rise. “We encourage housing associations to join the National Fraud Initiative as they have a vital role to play in combating social housing fraud,” a Cabinet Office spokesperson said.

Paul Roberts, former finance director at The Guinness Partnership, and now one of the troubleshooting board members drafted in to Rochdale Boroughwide Housing, is the other co-author of the Fraud… Nothing to See Here! report. He believes there are many good reasons housing associations should do more to tackle fraud.

“Associations may have a great story on fraud and if so, how best could we tell this story, perhaps through the Sustainability Reporting Standard?” he says. “But if not, what could we do to better safeguard our assets, our customers, and our reputations, as well as benefit from the money saved or recovered to invest in our businesses?”

He says board members should ask “sharper” and “challenging” questions of their executives. “If you’ve sent in nil returns on fraud to the regulator for the past five years, shouldn’t you pause to think about that for a second? Where is the conversation and the analysis? If there is fraud and we are leaking funds, why aren’t we getting that money back?”

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