1. Department for Work and Pensions Welfare to Work Conference : 10 July 2012 Mark Ripley DWP Head of Internal Audit Jenny Dibden DWP Head of Provision Performance and Controls

2. Department for Work and Pensions “The Department treats any allegations of fraud by contractors very seriously. Any fraud is completely unacceptable.” Rt Hon Chris Grayling May 2012

3. Department for Work and Pensions Preventing fraud in contracted employment programmes – in numbers 126 allegations of potential fraud by Welfare to Work providers between April 2006 and 31 March 2012; 46 cases (38%) concluded in a case to answer; 37 providers with a case to answer; 24 cases of false representation (Fraud Act 2006); 22 cases of procedural non-compliance; 9 referrals to the police; £773,000 estimated loss in the cases investigated; 0.01% estimated loss as percentage of spend on contracted employment provision; 55% of accepted investigations were in respect of New Deal; 17% of accepted investigations were in respect of ESF; 61% of providers achieved a “strong” or “reasonable” level of assurance through Provider Assurance Team (PAT) by January 2012

4. Department for Work and Pensions The Fraud Triangle

5. Department for Work and Pensions Failure to observe existing controls (41%) Absence of proper controls (21%) Manipulation of IT (14%) Other (14%) Internal collusion (8%) External collusion (2%) Audit Commission – Sept 2011 Causes of Fraud

6. Department for Work and Pensions An established system to enable provider staff to report inappropriate behaviour by colleagues in respect of performance claims (i.e. a "whistleblowers charter") A performance management system within the organisation that does not generate perverse incentives among individual employees to falsely claim performance achievement A segregation of duties within the provider's operation between those achieving performance and those reporting it to DWP An audit regime in place that provides for periodic check of the effectiveness of the performance reporting regime. Four Principles

7. Department for Work and Pensions “Our providers are required to have stringent controls to guard against fraud, and we have a thorough system of checks covering every provider in every contract. When providers fall below those standards we will not hesitate to act.” Rt Hon Chris Grayling May 2012

8. Department for Work and Pensions Key elements of an effective control environment to prevent fraud where services are contracted out Design – outputs/outcomes Contract – pre-appointment, anti-fraud conditions Oversight – management, assessment of provider controls, pre-payment checks Investigation and assurance Source: Preventing fraud in contracted employment provision, NAO 16 May 2012

9. Department for Work and Pensions Design and management of contracted employment provision 1998 - 2009 Multiple contracts, small contracts, contracts often established and never used Local procurement, locally based contract managers, District based Quality Teams Clerical payments, later Contracting and Funding System Job definitions – expected to last Payments skewed towards attendance Targets against leavers Numerous programmes by claimant group Ad hoc contract MI Few mechanisms to drive performance and increase value for money Contracts repeated extended restricting new entrants to the market

10. Department for Work and Pensions Design and management of contracted employment provision 2009 onwards Framework identifying providers meet delivery standards Small number of larger contracts, Prime contractors Contracting and procurement centralised Central Account Managers, central Performance Managers Payment validation process, PRaP 100% off benefit check Extrapolation process Minimum performance levels Provider Assurance Team, Compliance Monitoring Teams Fewer, bigger programmes Detailed, contract based MI Competition within CPAs using market share shifting Achieved, sustained outcomes, benefit savings fund the programme

11. Department for Work and Pensions Measures taken to improve controls “The Department has now significantly improved the controls” “The Department now has the infrastructure for an effective control environment” NAO 16 May 2012 But not complacent – ongoing programme of review and improvement In response to NAO recommendations: annual risk assessment; extra checks in MWA; fraud awareness training for PAT; unannounced/short notice visits; annual report on contracted employment provision; audit plans Payment validation process: effectiveness and efficiency of ‘as is’ process; future process

12. Department for Work and Pensions Questions?