In an era of swingeing cuts, who are you going to call? Fraudbusters!

A crackdown on fraud in the academy could deliver savings greater than the costs of retrenchment, argue Mark Button and Jim Gee

March 25, 2010

The recent announcement of £1 billion in cuts to higher education over the next three years has concentrated managers' minds on measures to slash costs. One initiative that should be on the list - but probably won't be - is a strategy to counter fraud and corruption.

Many parts of the public and private sector have already channelled substantial investment into counter-fraud capacity, reaping benefits in terms of reduced costs, higher profits or increased resources for services.

Higher education at first glance may not seem to be a sector prone to fraud. It generally has an image of high ethical standards, with very few exposes of criminal behaviour.

However, the Higher Education Funding Council for England's fraud updates and other sources highlight a variety of sector-specific rackets, potential risks and examples of fraud common elsewhere.

Some of the most salient sector-specific areas include:

  • Exaggerated claims to funding bodies
  • Fraudulent claims for student loans, grants and other student support
  • Students using bogus qualifications to secure places, working visas or income via loans or grants
  • Bogus and counterfeit award certificates
  • Academic or student plagiarism and falsified research data
  • Failure to declare interests when endorsing products or services.

There are also a variety of frauds common to most organisations that it would be reasonable to assume also occur in the academy, including the abuse of expenses, "ghost" staff and inflated payroll claims. Some of these directly affect institutions through the loss of resources; others do so indirectly through the penalties levied by overarching funding bodies or reputational damage.

The lack of a sector-wide assessment of fraud losses means it is difficult to estimate the damage incurred. However, in the Financial Cost of Fraud Report 2009, the University of Portsmouth and law firm MacIntyre Hudson put average losses from fraud across different sectors and countries at 4.57 per cent of expenditure.

Applying this to the UK academy - which spends £22.9 billion a year, according to Universities UK - would indicate that losses should be more than £1 billion a year, greater than the cuts announced to state funding.

In the NHS, which also has an image of ethical and moral probity, government initiatives to identify and counter fraud have been pursued since 1998. Significant levels of fraud were uncovered, but between 1998 and 2006 the NHS also delivered a reduction in losses of up to 60 per cent. This released audited financial benefits of £811 million for better patient care - a 12:1 return on the cost of the work.

We would argue that the higher education sector is in a similar position to the NHS in 1997. Countering fraud is largely down to the discretion of individual institutions, with little national oversight.

The guidance issued by Hefce on fighting fraud contains much in the way of good advice, but lacks some vital elements of an effective counter-fraud strategy.

These include accurately measuring losses, creating an anti-fraud culture and putting in place appropriately and professionally trained counter-fraud specialists.

The first element is important. If an organisation does not know the nature and scale of its fraud problem, how can it apply the right solutions? Where organisations have accurately measured their losses, this has been shown to be a key factor in reducing them.

Measuring losses is also key to knowing how much to invest in tackling the problem and is part of a strategy that relies more on pre-empting fraud than reacting after the damage has been done. A strong anti-fraud culture can mobilise the honest majority and, through peer pressure, shrink the size of the dishonest minority. As a result, fraud is reduced - and so are the costs of fighting it.

In higher education, alongside reputational damage, it is the financial cost of fraud that is its most pernicious effect, undermining the quality and extent of the services that can be provided.

Several UK institutions have made major contributions over the past decade to the development of more sophisticated counter-fraud strategies - culminating in the government's creation of the National Fraud Authority.

Now is the time for this knowledge and expertise to be refocused on the sector from which it was derived, so that the pain of funding cuts can be minimised.

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