UNISON today (12 September) reveals that fraud involved in public sector outsourcing is hitting taxpayers with a shocking £1.3bn bill* every year.
The governmentÕs estimate is that procurement fraud costs the public sector £2.4bn a year. If the fraud is evenly distributed across government procurement spending on goods such as materials and equipment and procurement spending on services outsourced to private and third sector companies, £1.3bn would come from outsourced public services – £825m from central government department budgets, and £470m from local government.
The unionÕs response to the GovernmentÕs Open Public Services White Paper, contains evidence that the huge amount the public will lose will continue to rise, as more services are exposed to risky competition. Open markets create more opportunities for price-fixing, false invoicing, and other forms of fraud associated with public sector outsourcing.
Recent high profile examples of fraud involved in public service outsourcing include the alleged bid-rigging by construction companies, many of them involved in Private Finance Initiative (PFI) schemes, highlighted by the Office of Fair Trading. As a result of this, the public may have paid as much as £300m over the odds for schools, hospitals, and other infrastructure projects.
At the same time as increasing the amount of money spent on private sector contracts, the government is cutting in-house staff and resources needed to guard against such risks.
UNISON believes that money lost through fraud is only the tip of the iceberg when it comes to money wasted through privatisation. The union is also warning that privatisation leads to under-performance and poor value for money, as well as costly and disruptive restructuring and procurement processes.
Dave Prentis, UNISON General Secretary, said:
ÒBillions of taxpayers cash is wasted during the outsourcing of public services.
ÒThe whole drawn out, costly exercise is often a recipe for disaster. Many employers have to bring services back in-house after money, quality and efficiency has gone down the drain.
ÒThe taxpayer needs to know the risks employers are willing to take to sell-off services. The GovernmentÕs Open Public Services White paper can only lead to the public paying a higher price for fraud. We will continue to campaign against it.Ó
Ends
Notes to editors
* The governmentÕs official estimate is that procurement fraud costs the public sector £2.4bn a year. The fraud figure includes fraud cartel pricing and fraudulent invoicing during service procurement processes. The figure is based on the latest Annual Fraud indicator published by the government. It covers the entire procure-to-pay lifecycle, including fraud in the tender / bidder selection and contract award stages, as well as fraud occurring during the life of the contract, including false, duplicate or double invoicing. This is broken down into £1.5bn from central government department budgets and £855m from local government. Using an official analysis, conducted as part of the GovernmentÕs own public services industry review in 2008 as a guideline, 45% of government procurement spending is on goods bought directly by the government (equipment, materials, etc) and 55% is on services outsourced to private and third sector companies. If the fraud is evenly distributed across government procurement spending on goods, such as materials and equipment and procurement spending on services outsourced to private and third sector companies, we can estimate that £1.3bn arises from outsourced services – £825m from central government department budgets, and £470m from local government.
In the NHS, UNISON has already warned that cuts to the NHS Counter Fraud service at a time of disruptive reorganisation and increasing commercialisation risk increasing the exposure of taxpayers to such practices. In local government, dangers have been highlighted by recent events at Barnet Council, which was found by its own auditors to have paid over £1.3m to a private security firm without carrying out basic checks, opening up the tender to competition, or even keeping adequate records of payments Ð raising concerns about the flagship ÔEasy CouncilÕsÕ ability to provide value for money, as it embarks on a major outsourcing programme.
The Barnet pensions scheme lost another £1.5 million when contractor Connaught went bust, and had failed to comply with their requirement to take out a pensions bond to cover their liabilities. In another recent case, auditors at Calderdale Council have raised concerns about overcharging for home care and meals on wheels, with allegations that the districtÕs largest provider of home care services may have been overpaid 17.5% last year.