Councils weak on fraud prevention, audit finds

Fewer than one third of councils train staff in fraud detection, NSW auditor finds.

NSW’s audit office determines the majority of the state’s councils have poor fraud control procedures, prompting a call for improved funding and training.

Two thirds of the 83 local governments surveyed by NSW’s Auditor-General did not have any fraud control plans that would direct resources to address specific fraud risks they face.

Only 15 councils had conducted any form of risk assessment within the past two years, according to the survey, released on Friday.

The most common weaknesses in councils’ fraud controls were a failure to review fraud risks, tailor responses to address these loopholes or provide sufficient information to staff on identifying and reporting fraud.

The auditor found significant inconsistency in fraud controls across councils, with only five of the 83 councils having implemented most of the recommended measures.

Less than one third of councils regularly trained staff to identify and respond to fraud, with the auditor noting that likelihood of fraud in councils increases when such safeguards are not in place.

“The audit identified a pattern of councils putting in place a policy, procedures or systems but not ensuring people understand these or how they work,” the report noted.

Metropolitan and regional councils have stronger fraud control systems than rural councils, the auditor also found.

“Rural councils told us that they have difficulty implementing some fraud controls because they lack resources and capability.”

However, it noted that some rural councils reported they had adopted approaches to address the challenges of their size, location and capabilities.

Despite several NSW state entities collecting data on suspected fraud, “the cost, extent, and nature of fraud in local councils is not clear,” the auditor concluded.

‘Very problematic’

Professor Roberta Ryan, director of the UTS Institute for Public Policy and Governance said that the new findings was “very problematic” and could erode trust in local government.

“It’s one of the issues that leaves local government exposed with respect to public confidence and people being confident that councils can deal with public funds adequately and appropriately,” she said.

Streamlined training would ensure greater consistency in standards among councils given the vast majority of fraud within councils is most likely a result of poor understanding among staff rather than willful deceit, Professor Ryan argued.

More consistent fraud protection policies, greater funding and strong leadership were also needed, she said.

“Writing a policy doesn’t mean councils will be equipped to do the best they can. It has to be supported by policy, resourcing, training and leadership,” she said.  

Committees, framework being introduced

The Office of Local Government NSW said the auditor’s report “clearly shows that local councils need to do more to protect themselves and ratepayer funds from potential fraud.”

An OLG spokesperson said the office would work with councils, the Independent Commission Against Corruption, the NSW Ombudsman and the Audit Office to strengthen fraud prevention and detection in local councils.

The spokesperson pointed out the NSW Government is also introducing mandatory audit, risk and improvement committees in local councils and developing an internal audit framework to help strengthen fraud control systems in the sector.

The NSW auditor’s findings comes after earlier Queensland and Victorian audits found that councils are at an increased risk of fraud because of the large number of services that are procured.

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