To submit the report of the Senior Manager Revenues and Risk.
Minutes:
The Senior Revenue and
Risk Manager set out the background and context of the report. It was reported that four defendants
had been found guilty at Caernarfon Crown Court on 2nd October
2018, on charges of fraud involving claims for subsidies
by Express Motors for running
the concessionary fares scheme in Gwynedd. A fifth defendant had pleaded guilty at an earlier
hearing. It was noted that on 31 October
2018, all defendants had been
sentenced at Mold Crown Court to prison for periods of between 12 months and seven and
a half years. It was noted, as the matter had been subject to court proceedings, it had not been possible until
now for the Committee to discuss the matter at a public meeting.
It was noted that the matter had been referred to Internal Audit by the Regulatory Department in 2014, within a few weeks
of discovering fraud at the
Bws Padarn company. It was explained
that the matter had been referred due
to the Department's concerns
and furthermore they had received complaints from customers that bus travel cards
were being swiped more than once (when stepping onto
the bus and when leaving) for
journeys made with Express Motors.
The Senior Manager explained that the Wayfarer system by Parkeon was the system used to
record concessionary fare
data for bus operators. It was noted that it was difficult to get the relevant data out of the system to gather evidence that could
be discussed with the Monitoring Officer to see if there
were grounds to refer the matter to the police. It was noted that it was not possible at the time to produce an exceptions report
from the system, however this was now possible.
It was noted that risks remained with a great deal
of money in question and the Council using the national system.
The Cabinet Member for Environment
noted that he was not in his role at the time of the fraud, however, he was when the matter went to court. He emphasised what was important was what would be done
from now on. He suggested that the situation perhaps highlighted that there was an over dependency
on grants and Welsh Government understood this and was undertaking work to get to grips with the issue.
The Head
of Environment Department explained that following the fraud discovered at Bws Padarn company that it appeared there was over-claiming of concessionary tickets from Express Motors company. He noted that the Internal Audit had investigated Express Motors before
fraud was found at Bws
Padarn, but there was no evidence. The fraud at Bws Padarn had highlighted
the over-claiming at Express Motors, due to the expectation that the subsidy level for both
companies would be fairly similar. He explained that it was difficult to extract data from the national system and therefore the Council had to pay a company to seek the data. He noted that pressure would
be placed on Welsh Government
to improve the system, and some improvements had been made, however,
difficulties in terms of extracting data easily from the system continued.
The Head of Environment
Department noted that the Welsh Government had recently placed a requirement on authorities who wish to continue
to be part of the concessionary
fares scheme to sign a new contract. The new contract stated that local authorities
will be held liable for any
fraud discovered. He noted that if
the national system was suitable
then the Council would be willing to commit to this requirement. He elaborated that they had written
to the Welsh Government to state
this.
During the ensuing discussion the following main observations were noted by members:
·
Was there
evidence or suspicion that both companies
were working together?
·
There may
be a weakness in terms that some
operators had their own back office
that enabled them to produce their own reports
and send them directly to the Department, rather than uploading
their data from the national system to Flintshire County Council as the majority of companies did;
·
That there
were risks attached to the national system, bearing in mind
that it was not easy to extract data from the system. That it was frightening that the situation had been allowed to develop and if
customers had not complained
then the fraud might have continued.
There was an over dependency on some companies
and the situation raised issues in
terms of internal control and Welsh Government management.
·
How had Flintshire County Council not noticed the overuse when they were responsible for the administration of the national system?
·
Amazement that
it was possible to use a card more than once in a short period
of time. Welsh
Government should be asked to investigate the period of time in order to prevent
fraud.
·
Was the national
system sufficient in terms of data extraction? Concern that a risk remained and
committing to the requirement
for the Council to be held liable for
any fraud discovered in the new Welsh Government contract maximised the risk to the Council. Did councils come together to discuss the matter with the Welsh Government?
·
Would it have
been possible for officers to look at CCTV footage to check for fraud?
·
The existing
national system was not sufficient
and as it was a Welsh Government
national system, they should be responsible for this;
·
That investment
was required in the system
to improve this. Had other councils sent correspondence to Welsh Government
regarding this?
·
Did the Council
have steps to mitigate risk if
they commit to the new contract?
·
To thank
the Environment Department for their work
with Express Motors that indicated that Gwynedd Council was on top of its game. Would
the money be reclaimed?
·
There was no
choice but to commit to the new contract as stopping the concessionary fares scheme would
lead to a loss for the most vulnerable persons. Had such an investigation been undertaken in any other
area of Wales, either prior
to this case or currently? Were there any suggestions
noted in court regarding the deficiencies of the national
system that could persuade Welsh Government to change and improve
the system?
·
Many people
believed that the Council was responsible as fraud had not been discovered earlier, however, this was not true and the Council
was not at fault.
·
The officers
were congratulated on their work
in light of the difficulties to gather evidence. In accordance
with what was suggested, the Committee should send a letter
to Welsh Government regarding
the system;
·
A member
had been present to hear the Senior Manager, Revenue and Risk
submitting evidence in court, and
the member praised that he had submitted
evidence in a professional manner.
·
If a letter should be sent by the Committee
to Welsh Government regarding
the system, it should be shared
with other councils and the Welsh Local Government Association;
·
To request
that the Committee receive information at the next meeting on
the steps that can be taken to mitigate the risk the new contract with Welsh Government will place on
the Council.
In response to the
above observations, the officers and the Cabinet Member for
Environment noted:
·
There was no evidence of collaboration between both
companies. The nature of the fraud in both companies was quite different, with Bws Padarn using their own
personal back office system to change the 6 week data use to look like a period
of a month, whilst Express Motors had over-used 4 bus travel cards that led to
inflating the concessionary travel figures over a number of years;
·
In terms of Bws Padarn, the only way they could have conducted the fraud
was through their own back office system. The fraud at Express Motors would have been undertaken without or with their own back
office. There was a valid benefit for companies to have their own back office,
as they could generate management reports etc. There was one company on the
County's boundary that had recently received permission to have their own back
office, the Environment Department was not completely happy with the situation,
however, if the back office was used appropriately then it would be acceptable.
·
That alarms had sounded prior to 2014 regarding
Express Motors. In 2007, an officer from Internal Audit travelled on buses to
see what was going on, however there was no evidence, and at the time the system was that the driver pressed a button. The Smart Card was issued by Welsh Government partly following
discussions regarding concerns about the system at the time. Criticism
was accepted to a degree, however, at the time of the court case it became
apparent that when a card was deleted from the system as a
result of the user losing it or following the user's death, the cards
then came back into use after 3 days. The Council had delivered in terms of
controlling the use of the cards in accordance with Welsh Government requirements, it was difficult to see how the Council could
have identified the overuse. Although some companies had high usage
percentages, there may be valid reasons for the numbers. In order to find the
fraud it was necessary to go further than the requirements to get evidence.
Risks remained with the national system;
·
That the machine on the bus recorded the use of the
card to the system. The data of smaller companies went to Flintshire County Council's
system who produced reports for them whilst larger companies produced their own
reports;
·
That officers from Flintshire
County Council contacted the machine providers to get the data. With the
Council's internal systems, parameters could be set that would highlight the
issues, however, in this situation Council officers had no access to the
information;
·
Officers had mentioned to Welsh Government about
the period of time and they were looking into the
matter. In the Express Motors fraud case, changing the period of time when the
card may be used more than once would not have totally prevented fraud as
several cards were used;
·
Furthermore, it was necessary to consider if it was
reasonable in terms of the period of time between using an individual card,
bearing in mind that users changed buses when travelling;
·
Withdrawing from the concessionary fares scheme
would be politically contentious. The
solution was a better national system and in the long term there should be a
system similar to the Oyster Card that operates in London;
·
That the report noted the work undertaken by
Internal Audit. In terms of CCTV footage, it was the Police
who were entitled to look at footage to gather evidence. Officers were
not expected to look at hours of CCTV footage;
·
No response had been received
thus far to the letter sent to Welsh Government. It was possible for the
Council to work with other councils;
·
If the Council was not
willing to accept the risk in terms of the new contract then the Council would
not be part of the concessionary fares scheme. There would be a financial
saving of £0.5 million as a result of this, but bus
users eligible for the scheme would suffer. The risk would have to be accepted
when committing to the new contract;
·
That the current situation in terms of the national
system was unacceptable, however, it was not possible to face the option of not
committing to the new contract. Therefore, the best option was to commit to the
new contract and that the Environment Department continues to lobby the Welsh
Government for improvement. The Committee could reinforce the Department's
viewpoint by sending a letter to the Welsh Government noting that the Council
was being placed in a corner without much choice but to sign a contract that
was not acceptable and asking them to readdress the situation;
·
The fraud was on applications processed by Welsh
Government and discussions would continue regarding the money, however, under
the current contract the Council had no responsibility for the money lost through
fraud. There was potential for the money to be recovered by the Crown
Prosecution Service under the Proceeds of Crime Act;
·
That the Judge had stated that it was the pure
dishonesty of the individuals that was responsible for the fraud;
·
Officers were unaware of such an investigation in
Wales, however they could confirm that currently there was no investigation in
Gwynedd;
·
That good work had been
undertaken by the Environment Department and the Finance Department to
find evidence for the Police. It could not be proven
how much earlier the fraud had commenced, with the evidence submitted based on
robust facts received from the system. Officers had been witnesses in the court
case and at the end of the proceedings the thorough
work undertaken by Council officers was praised. That risks remained, however,
the ability to mitigate the risk was out of the hands of officers as it was a
national system.
RESOLVED:
(i)
To accept the
report as a background of the fraud perpetrated at Express Motors against the
Council, and what the Council had done in response;
(ii)
To note the risk that the new
contract with the Welsh Government
imposes on the Council;
(iii) Send a letter to the Welsh Government stating that the Council was being placed in
a corner without much choice but to sign a contract that was not acceptable,
asking them to readdress the situation and share the letter with other councils
and the Welsh Local Government Association;
(iv) That the Committee receives information at its
meeting on 14 February 2019, regarding the steps that can be
taken to mitigate the risk that the new contract with Welsh Government
imposes on the Council.
Supporting documents: