by Kerry Ace, Finance and Policy Manager at CIPFA and Rachael Tiffen, Head of Counter Fraud Centre, CIPFA.
Over the course of this year, high profile fraud cases in the academy and free schools sector have continued to be in the news. In August, two members of staff and the founder of the Kings Science Academy in Bradford were convicted of making payments into their bank accounts from Department for Education grants allocated to help establish the academy in 2011. In June this year, the accounts manager who stole more than £4m from Haberdashers' Aske's Federation, in a case described as the "biggest ever educational fraud", was sentenced to nine years in prison.
Such cases are a reminder that the sector must take appropriate actions to help mitigate against fraud risks. Fraud, bribery and corruption in academies are all becoming more common including examples such as embezzling petty cash or money for trips, and wages and overtime being falsely claimed. Where schools are undergoing restructuring through, for example, mergers between single academy trusts, a single academy trust joining an existing muti-academy trust (MAT), or through a maintained school converting to a new MAT, fraud risks may increase in the short term as a result of changing systems and processes.
Academies need to be able to spot fraudulent activity and to ensure that they have sound oversight and regular monitoring processes in place. Recognising a fraud is only part of the problem, a bigger challenge comes when academies need to address the issue – academies have limited resources and many lack the skills to tackle fraud properly once it is in the system. It is crucial therefore that robust anti-fraud and corruption policies and procedures are developed and maintained for all new and existing trusts, as it is preferable to be in a good position to prevent fraud happening in the first place than to deal with its consequences. Summarised below are some key actions for academies to take to help protect themselves from fraud and deter those that might take advantage of opportunities.
Know who you are employing
Employing someone who does not have the necessary qualifications and experience can lead to both reputational and financial damage. It is essential that original documents and proper references on headed paper are provided by potential employees and that potential employers scrutinise what they are given – qualifications, references and employment history should all be checked thoroughly.
Know your finances
The fraud at Haberdashers’ Aske’s Federation had been going on for at least seven years unnoticed. Whatever lies and barriers to viewing the accounts were put in the way, they should not have been allowed to prevent those responsible for governance from gaining a true picture of the finances. It seems that the accounts manager had a level of delegated authority that allowed him to commit fraud.
It is essential that those charged with governance carry out their financial responsibilities effectively. They must ensure that they receive the information necessary to allow them to do so and that they ask challenging questions and receive satisfactory answers.
Put in place effective internal controls
Academies must ensure that they have in place sound internal controls in accordance with the Academies Financial Handbook. There are a number of different types of internal, including financial, control. Some examples are set out below.
- Roles and responsibilities should be defined to ensure that there is an appropriate segregation of duties and that areas of activity involving risk are separated. For example, the person responsible for authorising a payment should not be the person inputting the data, making the payment, checking the transaction or destroying the documents. Areas of work should be independently supervised, validated or reconciled.
- An academy’s organisational structure should ensure that clear lines of authority exist.
- Appropriate physical safeguards should exist to limit access to assets, systems and records and to protect personnel. There should be clear control regarding the use of assets and custodial responsibility for them.
- Authorisation and approval procedures should ensure that only legitimate activities are performed and that the operation of authority is documented and that a clear audit trail is maintained.
- Agreed accounting procedures should be in operation to ensure that balances and reconciliation procedures are carried out to ensure that transactions are correctly recorded and processed. Revenue streams should be monitored effectively.
- Personnel arrangements should ensure that staff employed are of the required standard to meet the needs of work and its control. Appropriate training should be provided to maintain the competence of personnel.
Put in place effective anti-fraud and corruption policies and procedures
An academy trust’s control framework must ensure that the risk of fraud and theft is reduced. It is essential that academies have a fraud policy statement setting out the trust’s stance on fraud and corruption and governing how individuals should act in the event that there is a suspicion of fraud. Staff should know who to report fraud to and management should have a clear fraud response plan – a plan that gives instruction on how the allegation will be dealt with and how any investigation will be managed.
Don’t underestimate the power of whistleblowing
Academies are required by the Academies Financial Handbook to have in place appropriate procedures for whistleblowing. For this to be effective, it is vital that the whistleblowing process:
- is well publicised and acted upon
- ensures that potential whistleblowers know that they will be listened to by management and senior leaders.
Failing to act in any of these areas can result in staff feeling that they should not report their concerns.
Keep up to date with alerts and fraud news
To counter fraud, it is essential to know what to look out for. It is therefore important keep up to date with trends and behaviours and be able to assess the risks that external threats may present. Keeping informed through regular newsletters and counter fraud briefings is particularly useful. Some examples of fraud to look out for include:
- mandate fraud – if a supplier asks for his bank details to be changed staff need to ensure that this is correct and the genuine supplier
- contracts – ensure that leasing agreements are necessary and genuine, and check to see if contracts are split, who is awarding them and the processes that they are using
- invoices – staff should watch out for false invoices.
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