Combating Fraud – Council Tax & Business Rates

Business Case 

 

 

 

 

 

Filmer Wellard, Fraud Manager,

Mid Kent Services (Maidstone, Tunbridge Wells & Swale BC)

01622 602940

Filmer.Wellard@MidKent.gov.uk

 

30 July 2015

 

1.    Business summary.

 

Maidstone, Tunbridge Wells and Swale BC (the councils) award council tax support and council tax and business rates discounts/exemptions totalling £72.7 million per annum.  This business case outlines how the councils, Kent County Council, Police and Fire & Rescue services can work together to minimise losses through customer fraud and error and maximise the collection rate.

 

The proposal includes:

 

·      Joint funding for a dedicated team of fraud investigators;

·      A programme of proactive exercises to identify and detect fraud;

·      A responsive service to investigate reported allegations of fraud; and

·      Fraud awareness training for front line staff.

 

2.    Background

The councils entered into a shared service for the delivery of counter fraud services in 2014 recognising the future challenge of maintaining an effective service after the transfer of Housing Benefit Fraud Investigation to the DWP, Single Fraud Investigation Service (SFIS) in March 2016. 

The transfer of housing benefit fraud investigation to DWP allows for the current investigation team (5.42FTE) transferring to DWP but would mean the councils losing the specialists skills and capacity to protect the councils and preceptors, against fraud and error within the wider system.

The team currently consists of 6.42 FTE (reducing to 5.42 FTE January 2016) and operates at an annual cost of £237,000 (£310,000 including corporate recharges).  That cost has until this point been met through an administration grant from DWP, which is to end on the transfer to SFIS.

 

 

The focus of the team has until this point been fraud and error within the housing benefit and council tax support scheme, with savings to the public purse of £891,500 during 2014/2015.

Prior to the introduction of the rates retention scheme in April 2013 there was no direct incentive for authorities to investigate any incorrectly claimed business rates exemptions or reliefs because the rates collected were handed over to central government and therefore had no effect on the income of councils. Now that part of this income makes up our budgets and as this proportion is likely to increase over future years councils will need to monitor the award of these exemptions and reliefs, which for the 3 councils total £24.8 million.

This proposal concerns the maintenance of a counter fraud team principally focussed on revenues and benefits.  This is to keep consistency with current provision and directly address the scope of DWP SFIS and potential funding from precepting bodies.  However, following publication of the CIPFA Counter Fraud Code in October 2014 the Council is considering its wider fraud response (that is, non-revenues and benefits fraud, referred to as corporate counter fraud).  The Council’s proposals for tackling corporate counter fraud will come forward separately later in the year, but whatever approach is decided in that field, the Council’s ability to combat fraud of any type will be enhanced by the retention of skilled and experienced counter fraud staff proposed in this business case.

3.    Financial summary.

 

The councils currently award discounts and exemptions totalling £72.7million.  By targeting the skills and experience of the fraud team to the wider risk of fraud within the tax base, the councils expect to deliver reductions in the award of Council Tax exemptions and discounts in the region of £600,000 per year. This will increase the amount of council tax that is collectable. The reduction has been based on a removal rate of 2-3%. In recent Single Person Discount (SPD) reviews there has been a removal rate of between 4% and 7%. The councils have been cautious in their predictions because it is acknowledged that when reviews are carried out on a frequent basis the removal rate will diminish.

 

 

Maidstone

Swale

Tunbridge Wells

Total

Predicted reduction in CTS/exemptions

 

Council Tax    

 

£

 

£

 

£

 

£

 

£

Empty property discounts

115,429

225,439

49,178

390,046

-

Exemptions

1,477,814

1,285,706

851,135

3,614,655

72,000

Disregards

362,515

307,154

210,012

879,681

-

Disabled reductions

71,628

48,560

59,785

179,973

-

Single person discounts

7,465,260

5,674,531

5,594,662

18,734,453

562,000

Council tax support

8,971,396

9,778,758

5,384,667

24,134,821

482, 700

Business Rates

 

£

 

£

 

£

 

£

 

£

 

Exemptions

2,384,635

1,570,644

999,010

4,954,289

99,000

Small Business Rates relief

2,475,263

3,287,636

2,366,767

8,129,666

162,000

Mandatory & Discretionary  relief

4,113,540

3,373,611

4,239,254

11,726,405

234,000

 

27,437,480

25,552,039

19,754,470

72,743,989

1,654,000

 

The increases in Council Tax and Business Rates from the removal of awards of Council Tax Support,  Council Tax and Business Rates exemptions will be retained by the billing authority to which they relate, with KCC, Fire and Police to receive their share based on the level of their precept.  The cost of the service is apportioned based on the projected level of collectable council tax and Business Rates to be achieved by each organisation.

 

Authority and precept charge

KCC, Police  & Fire      (75%)

 

Maidstone BC

(10%)

Tunbridge Wells BC (7%)

Swale BC

(8%)

Total

Costs

155,250

19,519

14,053

18,178

207,000

Benefit

511,923

64,362

46,339

59,939

682,563

 

 

4.    Current Position

 

The councils currently focus fraud investigation on the payment of housing benefit and council tax support, reflecting the level of spend, risk of fraud and central funding from DWP.  The service operates at two levels with “compliance activity” through home visits and more formal investigations potentially leading onto a sanction in the form of prosecution, administrative penalty and formal caution.

 

Due to the up and coming change over to SFIS the councils saw an opportunity for the fraud team to  become involved with council tax and business rates. This has started with the review of single person discounts, specifically matches through the National Fraud Initiative. 

 

5.    Proposed Service

 

The localisation of council tax support and business rates has changed the financial risk to the councils and preceptors, which to date has not been addressed within the resourcing or work plan for the councils’ fraud team.  Whilst there has been some activity to address the risk associated with single person discounts, the service has otherwise primarily focused its efforts on housing benefit and council tax support fraud.

 

The transfer of the housing benefit fraud function to SFIS creates both a risk and opportunity to the councils.  With the administration of housing benefit and council tax support being directly linked the councils have in effect been able to “police” the two systems at the same time.  With the removal of housing benefit and potentially the investigation resource that was deployed with it, this will leave council tax support and therefore council tax exposed to fraud with no identified resource to investigate or deter fraud.

 

SFIS also creates an opportunity in releasing a team of experienced specialist staff, with good local knowledge, to both manage the ongoing risk within council tax support and deliver capacity to expand their work into other areas both within the council tax and business rates system.

 

The value of discounts and exemptions (see point 3) is significant and the risk of customer fraud and error high.  As such it is incumbent on the councils to provide proper resources to address that risk.  In maintaining and funding locally the continued operation of the councils’ fraud team the councils would have the resources available to mitigate that risk and drive further savings within the council tax base.

 

An example of the service plan for the next 2 years if funding is secured could be as follows.

 

Year 2016/2017

Type of Review

Council Tax

Council Tax Support – review of cases that are high risk

Annual review programme using risk profiling software to identify for high risk cases.

Council Tax

Single Person discount review

 

Annual review of entitlements, predominantly through the use of an online review facility with discrepancies investigated.

Business Rates

NNDR Small Business Rate Relief

Review of cases carried out with further fuller investigation of a sample of cases.

Council Tax

Review of other Council Tax disregards / exemptions.

Continuous rolling review of all discounts

2017/18

Type of Review

Council Tax

Council Tax Support – review of cases that are high risk

Annual review programme using risk profiling software to identify high risk cases.

Council Tax

Single Person discount review

Bi-annual risk based review through the use of data matching.

 

High risk cases investigated where customer claims continued entitlement.

 

Business Rates

 Mandatory/discretionary relief

Review that premises are occupied and used for charitable purposes.

Council Tax

Review of disabled bandings

Review which will include visiting the property and checking any blue badge awards.

 

6.                   Key outcomes.

 

This project will deliver a number of key outcomes:

 

•             Investigation and recovery of losses through fraud

·                     Visible deterrent to reduce fraud

·                     Programmed reviews to identify the level of risk and actions to mitigate that risk

·                     Awareness created of the risk of fraud and implementing measures implemented to mitigate

that risk.

 

 

 

7.            Recommendation.

 

That the changes outlined in point 5 are approved for a two year period with the cost met through financial contribution from each of the councils, including preceptors KCC, Police and Fire & Rescue.

 

That the arrangement is reviewed in 18 months time to determine whether the service has proved to represent value for money, before a decision is made to extend, reuse or cease the arrangement.

 

 

 

 

Financial Summary

 

The annual saving to the public purse reflects the fact that the service will review the range of discounts and exemptions through a 2 year rolling programme, with 50% of the additional business rates generated retained by central government.

 

 

                     

Risk Register