Fraud in the public services

How to prevent, detect andinvestigate fraudulent claims

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Contents

Fraud – what is the current problem? Page 5

What is fraud? Page 6

How do you prevent fraud? Page 8

How do you detect fraud? Page 9

How do you investigate fraud? Page 10

How do you handle fraud? Page 11

What tools are available to help you Page 12

Contact Page 10

AcknowledgementsThis guide has been prepared by Zurich Municipal.

We would like to thank Knowsley Metropolitan District Council

for its contribution.

Zurich Municipal is also working in partnership with ALARM, the national

risk management forum for the public sector.

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Fraud – what is thecurrent problem?

According to research, local

authorities and housing

associations believe fraudulent

insurance claims against them are

rising dramatically, and it seems

the public is not prepared to help

stop it. Zurich Municipal’s findings

show that fraud is already an issue

for the majority (63%) of local

authorities, a quarter believe more

than 20% of their claims to be

fraudulent and 38% expect the

problem to grow. Amongst

housing associations, around one

tenth of claims are thought to

be fraudulent.

A quarter of local authorities

(24%) and one in five housing

associations (19%) believe fraud

is having a significant impact on

resources. While communities

suffer, it is unclear whether the

public makes the link between

fraudulent claims and the quality

of their services. When asked who

they think pays for successful

insurance claims, over a third

(38%) of respondents believed the

costs were met by the council's or

housing association’s insurance.

A majority of local authorities and

around half of housing associations

felt that a fraudulent claimant

should be placed on a financial

blacklist. Alarmingly, in a public

survey, many people professed

to not be willing to help stop

insurance fraud. Over a third

(34%) said they would do nothing

if they knew of a fraudulent claim,

only 16% said they would contact

the police.

This best practice guide looks at

what you can do to tackle the

growing problem of fraud. It shows

you the steps you can take to

make it harder for bogus claimants

to succeed, suggests ways to

prepare your authority or housing

association by increasing your

protection, and features the

services that we provide to help

you fight this crime.

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What is fraud?

As the law stands today, there is

no actual offence defined as

fraud. The only accepted offence

is that of Conspiracy to Defraud,

whereas fraudulent insurance

claims are usually prosecuted

under the Theft Act 1968.

Section 15 of the Theft Act 1968

states that; “A person who by

any deception dishonestly obtains

property belonging to another,

with the intention of permanently

depriving the other of it, shall

on conviction be liable to

imprisonment for a term not

exceeding ten years.”

There are numerous fraud-related

offences under current legislation

and one of the difficulties of

securing a conviction depends on

identifying the appropriate offence

to charge. This issue has been

recognised by the Law

Commission, which reviewed the

issue and recommended to

Parliament in July 2002 that;

“Any person who, with intent

to make a gain or to cause a

loss or to expose another to

the risk of loss, dishonestly

(1) makes a false representation,

or

(2) fails to disclose information

to another person which

(a) he or she is under a legal

duty to disclose,

or

(b) is of a kind which the

other person trusts him

or her to disclose, and

is information which in

the circumstances it is

reasonable to expect

him or her to disclose,

or

(3) abuses a position in which

he or she is expected to

safeguard, or not to act

against, the financial

interests of another person,

and does so without the

knowledge of that person

or of anyone acting on that

person’s behalf,

should be guilty of an offence

of fraud.”

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This is due to be put before

Parliament in the form of the

Fraud Bill. However, until this

has been considered we have to

depend on existing legislation

and definitions.

The failure to define fraud led

to the insurance industry being

unable to accurately measure

the size of the problem. The

Association of British Insurers has

worked closely with a number of

companies in order to establish

set definitions. These are broken

down into two stages of the

insurance contract; underwriting

and claims. The first relates to the

financial advantage secured as

a result of deceit at the time of

proposal, and the second relates

to fraud committed at the

claims stage.

Fraud at claims stage

Fictitious losses, incidents orinjuriesThis occurs when the claimed loss

or incident did not happen. The

policyholder or a third party

deliberately presents a false set of

circumstances and/or evidence for

their financial gain.

Staged incidentsThis occurs when a claim is

received in respect of damage,

loss or injury that has been

caused deliberately.

Material misrepresentationor exaggeration of loss orpersonal injuryThis occurs when genuine losses

or incidents occur and the

policyholder or a third party

deliberately misrepresents relevant

material facts, or exaggerates the

true extent of damage sustained

or material loss or personal injury

received above and beyond what

they would be entitled to, for

financial gain.

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How do you prevent fraud?

A few practical, preventative steps

will reduce risk and cut the time,

effort and cost of investigations.

Injury claims on the highway or in

the workplace are a prime example.

These claims arise from an allegation

that the local authority or housing

authority was negligent, allowed

the situation to become dangerous

and led to a foreseeable risk.

By implementing a policy of

regular inspection, defects on the

highways, in the workplace or in

housing estates will be identified

sooner and therefore accidents

prevented. Ensuring that all

inspections are carefully

documented means they can be

presented as evidence in court if it

becomes necessary to defend

against charges of negligence.

At the very least, you should make

every effort to disrupt the activities

of the would-be fraudster who

thinks that local authorities

and housing associations are

a soft touch.

Remember, if you do have a claim

against you, act quickly. If you

delay, valuable evidence will be

lost, and lawyers will apply

pressure. If claims are handled

in-house this could be used to

panic the claims handler into

making an unnecessary payout.

Example: A local authoritytackles the problem

Knowsley Metropolitan Council

saw its claims from slips and

trips soar with the potential

to cost the council up to

£5 million annually.

Councillor Norman Keats,

Cabinet Member for Finance

and Information Society

Technologies, said: "At

Knowsley we have made a

conscious decision to make

sure we are not regarded as a

'soft touch' for fraudsters.

Working in partnership with

our insurers and Merseyside

Police we thoroughly

investigate every application for

compensation, and, while we

recognise our responsibility to

compensate genuine claimants,

we are not prepared to pay out

for false or invented claims."

Rigorous detailed checks,

including the compilation of

claimant and witness profiles,

coupled with a robust defence,

has brought estimated savings

of £1.7 million during the year.

With this approach, and an

enhanced inspection and repair

regime, claims have been

reduced to an all time low

at Knowsley.

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How do you detect fraud?

So much more can be achieved

if you keep one step ahead of

the fraudster.

By putting your strategies in place

as soon as possible, you can be

ready to deal with the claims

quicker, more effectively and more

efficiently. Consider taking these

steps to help detect fraud:

• Validate every piece of

information that is presented

to you.

• Refer suspicious claims to a

fraud co-ordinator for an

expert opinion.

• Check the claimant exists on

the electoral role and

investigate their living situation.

• Visit the scene as soon as

possible to obtain your own

photographic evidence.

• Liaise with regional

counterparts to deliver a

consistent approach in your

prevention and sanctions.

• Consider visual mapping of

claims to see if a pattern

emerges regarding the location

of incidents and claimants,

(eg. clusters of claims in a

particular area).

• Check for similar handwriting

on sketches to track regular

claimants or intermediaries.

• Deploy effective staff training

in claim investigation techniques.

• Don't delay – this may lead

to pre-action discovery

proceedings and other

increased costs.

Example: A false claim can lead to prosecution

A woman made a claim against Knowsley MBC for

a severe back injury that she claimed was due to a

fall. The Council received a call to its fraud hotline

providing information that the claimant suffered

the injury pulling an item from under her bed.

The hospital records supported this information.

The woman was successfully prosecuted and

received a four month prison sentence.

Example: A false claim revealed

A man made a claim alleging he’d injured his

arm when he slipped on steps owned by a

housing association. Liability was initially

admitted, however further investigation by

the insurer revealed that the man was in his

girlfriend’s bedroom when her parents returned

home. He left in a hurry, not wishing to be

caught, and jumped out of the window injuring

his arm in the process.

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How do you investigate fraud?

Dealing with those individuals

who set out to deliberately stage

or fabricate a claim is far more

difficult if you are not totally

prepared. There are many steps

you can take to make it harder

for a perpetrator of fraud to

be successful, for example:

• Prepare a list of questions that

will help you establish every

detail of the claim.

• Ask for the answers in writing

so they can be used as evidence.

• Ask for names and addresses

of any witnesses.

• Find out who transported the

claimant from the scene to

hospital or home.

• Request photographs and

sketches of the incident and

acquire copies of the treatment

records.

• Establish whether the

ambulance service or police

were involved.

• Record the exact time, date

and place of accident.

• Discover the precise route that

the claimant took, including

their direction and reason for

their journey.

• Record details of any

intermediaries involved.

Example: Evidence by thirdparties can foil the fraudsters

1. A claimant alleged that he

had come off his bike due

to a pothole in the road.

An anonymous caller

pointed out the cyclist was

‘showing off’ by standing

on his saddle at the time.

2. A probe into hospital records

proved that the claimant

with a severely injured arm

from ‘a fall from his

ground floor flat window

due to faulty catches’

had told the hospital he’d

punched a tree after a row

with his girlfriend.

3. A claimant with a facial

injury had alleged that his

injuries were caused by a

fall. Medical records

revealed that he had be

arrested by Police for

being “drunk and fighting”

in a local pub.

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How do you handle fraud?

Whatever precautions you put in

place, claims against you are

inevitable. It's therefore essential

to make every effort to sort the

fraudulent ones from the genuine

ones. Here are some considerations

that will help:

• Ensure your initial response to

the claim places you in a

position of strength.

• Use an effective Data Protection

Act notification to enable

proper verification of the

claimant's identity and

claims history.

• Look for indicators of increased

risk at every stage of the claim,

such as:

i) aggressive behaviour

ii) suspicious circumstances

such as delayed medical

treatment, drink/drug related

iii) injury inconsistent with story

iv) no time off work, insufficient

documentation, no landline

telephone number

v) witness has previous

claim history.

• Send out a clear message that

you treat all fraud seriously,

no matter how small. However,

take care not to alienate

genuine claimants.

• Have a clear policy of litigation

and cost recovery to ensure a

fraudster realises there is a

consequence to their actions.

• Some companies have been

found to fabricate claimants

and they often produce a high

number of claims from the

same location.

• If you are suspicious about

a claim ask the claimant's

solicitor whether they have

conducted their own enquiries

to establish the circumstances

of the claim.

Example: Judge ordersclaimant to pay large costs bill

A shoplifter who tried to sue

a council after falling down

a flight of stairs whilst running

away from the scene of her

crime, failed in her attempt to

profit from her claim. The

judge ruled that the ‘claimant’s

credibility is a serious issue’ and

ordered her to pay all costs.

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What tools are availableto help you

The following specialist services offered by ZurichMunicipal will help you fight fraud.

FraudLineThis subscription-based service provides a freephone number for the

public to enable them to ‘name and shame’ dubious claimants. It has

been proven to reduce fraud by 25%* since its installation in pilot

organisations. The success of the FraudLine initiative has now seen the

launch of CrimeLine to deal with vandalism and anti-social behaviour, and

for housing associations, it also incorporates fraud.

*Cunningham Lindsey 2005

Local Fraud Co-ordinatorsSituated in every claims team with the specialist knowledge to carry out

desktop investigation with a view to securing evidence of fraud.

Claims Inspectors Will visit the scene and conduct enquiries into a claim. Provide invaluable

resource at the early stages when evidence gathering is needed.

Zurich Claims Investigations UnitA dedicated team of 28 members comprising specialist telephone

interview resources, intelligence handling and field investigators

The Claims Processing TeamA unit dedicated to telephone investigation and skilled in the use of

cognitive interview techniques. Especially useful when you have direct

access to the claimant to secure a verbal account that can be used

in evidence.

The Hunter SystemSearch software that scans internal and external databases to search for

anomalies in a claimant's details or matches them to previous claims or

fraud register.

CIFAS – Credit Industry Fraud Avoidance SystemA register used by more than 200 financial service providers, who register

proven fraudsters. This acts as a very effective alternative sanction to

prosecution by the police.

Companies House/DVLA RecordsA speedy way to confirm a claimant’s business interests and vehicle details.

Insurance Fraud Investigators Group (IFIG)Intelligence SharingA group of more than 100 investigative bodies, which share intelligence

in accordance with the Data Protection Act and the National Intelligence

Model (NIM) used by the police.

Dedicated in-house solicitorAvailable for our Fraud Co-ordinators to consult for advice on the legal

implications of a claim where fraud is suspected.

Industry DatabasesAll our claims handlers have access to the various databases that have

been established by the industry to combat fraud and deter repeat

claimants. This includes the Claims Underwriting Exchange (CUE)

Personal Injury database, which contains almost ten years of data.

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Contact

Contact

Steve Jackson

National Fraud Controller

Zurich Municipal

Tel: 07734 336 771

steven.jackson@uk.zurich.com

“Every time public services are forced to investigateand pay for a bogus claim, money is being divertedaway from vital front line services affecting the wholecommunity as a result. Public services are now showingthey are not soft targets.” Steve Jackson

About Zurich MunicipalZurich Municipal is the leading provider of risk and insurance solutions

to Britain’s public services. The company employs nearly 600 staff

dedicated to providing expert advice and support to public service

providers. For information visit www.zurichmunicipal.com

Zurich Municipal is part of Zurich Financial Services, an insurance-based

financial services provider with a global network that focuses its activities

on its key markets in North America and Europe. Founded in 1872,

Zurich is headquartered in Zurich, Switzerland. Zurich has offices in more

than 50 countries and employs about 57,000 people.

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Zurich MunicipalSouthwood Crescent, Farnborough, Hampshire, GU14 0NJ, England.Telephone 0870 241 8050 Fax 01252 370404 www.zurichmunicipal.com

Zurich Municipal is a trading name of Zurich Insurance Company. A limited companyincorporated in Switzerland. Registered in the canton of Zurich No. CH-020.3.929.583-0.

UK branch registered in England No. BR105. UK Head Office: Zurich House, Stanhope Road,Portsmouth, Hampshire PO1 1DU.

Authorised and regulated by the Financial Services Authority.