Agenda item

To submit the report of the Senior Manager Revenues and Risk.

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.