Volume Seven 2012 focusing on Law, Order and Emergency Services

Offenders are not paying financially for their crimes

Since the Victims’ Compensation Scheme started in 1989, $1.6 billion has been paid to victims of crime, but only $57.4 million or nearly four per cent has been recovered from convicted offenders. The remaining 96 per cent has been funded by the taxpayer.

“I am concerned that offenders have effectively caused $1.6 billion of damage but have only paid $57.4 million in compensation,” said Mr Achterstraat 

The Department of Attorney General and Justice had 21,946 pending claims for victims’ compensation at 30 June 2012, representing more than four years of claims backlog. The backlog has more than tripled since 2006.

“The backlog in claims for victims’ compensation is substantial and must be addressed,’ said Mr Achterstraat.

“The Department is having an independent assessment of the Scheme undertaken, with the view to providing faster and more effective financial support to victims of violent crime,” said Mr Achterstraat. “I will monitor the Department’s progress in implementing any recommendations coming out of its assessment,” he added.

IT projects have had troubled histories 

There are shortcomings in the way some agencies conduct, and control some of their major IT projects.

"The LifeLink project has encountered significant delays and cost overruns," said Mr Achterstraat.

The LifeLink project was to be terminated in 2011-12 with $10.5 million written off, bringing the total write off to $13.9 million. However, after negotiations with the contractor, the project will completed for an additional $750,000 and a new completion date of August 2013. 

Problems have also occurred with a segment of another IT project, Offender Financials, at Corrective Services. An internal audit identified issues with the project’s financial governance, and in late 2011 reported the project is expected to run 28 per cent over budget, or $620,000. 

"All agencies should review progress, governance and controls over all current and future IT projects, and promptly identify and address any problems that arise," he added.

$21 million in fraud

NSW Government agencies identified 4,649 frauds valued at $21 million in the three years to 30 June 2012.

“It is no surprise that procurement is the top fraud risk in NSW government agencies,” said Mr Achterstraat.

The largest fraud identified was an $840,000 procurement fraud. Forty-eight per cent of agencies experienced a fraud in the last three years with 12 agencies identifying at least one fraud in excess of $100,000. 

“There is an increasing trend of frauds in outsourced functions or non-government organisations that are providing services on behalf of government”, said Mr Achterstraat.

“Excluding those unique types of fraud committed by public citizens, such as false identity licensing frauds, fraudulent state tax self assessments and land registration frauds, 10 per cent of frauds by number or 55 per cent of frauds by value, occurred in outsourced functions and contracted non-government organisations,” he added. 

“Agencies must ensure fraud risks are managed in outsourced arrangements”, said Mr Achterstraat.

Agencies are at greater risk of fraud from their own employees than from an external perpetrator. Ninety per cent of frauds involved an internal perpetrator. Twenty five per cent of frauds occurred because internal perpetrators didn’t think they would get caught. Twenty three percent of frauds occurred because internal controls or processes were not followed.

The average internal perpetrator is male, 40 years of age, has no prior criminal record and has worked in the agency for more than 5 years. 

“The length of time worked within the agency suggests internal perpetrators do not enter an organisation with the intention of committing a fraud”, said Mr Achterstraat.” So what happened for these employees to change, and why didn’t their colleagues notice?” he added.

Anecdotally, people commit fraud when three conditions are present; pressure, opportunity and capacity to rationalise their behaviour. Agencies can address these fraud trigger points by having a full suite of fraud prevention, detection and investigation policies and procedures.

"While fraud control measures are improving in NSW Government Agencies, there is more work to be done," said Mr Achterstraat.

"I am concerned some agencies simply ‘tick the box‘ and put their commitment to fraud control in the bottom drawer”, said Mr Achterstraat. "Most importantly, fraud control requires an ongoing commitment that goes well beyond setting up policies and procedures," he added.

The report found that:

  • there are weaknesses in fraud awareness and training

  • while a high proportion of agencies conduct risk assessments and have a fraud control plan, a much lower proportion revise these when there is a major change to their role or function 

  • while a high proportion of agencies have a code of conduct, a much lower proportion require staff to regularly attest they know and understand it.

Specifically, the Auditor-General is concerned that:

  • more than two out of five agencies do not require staff to take at least two weeks continuous leave each year

  • one in ten agencies do not routinely conduct pre-employment checks of criminal records, work histories and qualifications.

The Auditor-General is recommending a whole of government approach to fraud control in the NSW public sector.

"I do not believe the current agency-based approach to fraud control adequately protects NSW Government agencies against fraud," said Mr Achterstraat. "I believe fraud control would be significantly improved if New South Wales adopted a whole-of-government approach that establishes mandatory fraud mitigation measures," he added.

Death and Disability Schemes continue to cost the taxpayer
“I have reported over several years that the previous NSW Police Death and Disability Scheme needed to be urgently reviewed," Mr Achterstraat said.

The NSW Police Force has now introduced a new commercial insurance arrangement from January 2012 for its death and disability scheme. Under the new arrangements, the Force paid an insurance premium of $80.2 million in 2011-12 and has budgeted for $102 million in 2012-13. Lump sum benefits have been replaced with an income scheme limited to 75 per cent of the employee’s salary for up to five years. 
The Force advised that:

  • 1,357 sworn officers were off work due to sickness or injury when the new scheme started in January 2012

  • these officers are not covered by the new Scheme. If eligible, they will receive an internally funded payment based on the new scheme.

“The former death and disability scheme continued to cost the state with $221 million in claims paid during the year end 30 June 2012, a 34 per cent increase on the previous year’s $165 million," Mr Achterstraat said. ”Liabilities now stand at $60.7 million for 30 June 2012, substantially down from $284 million in 2011,” he added.

The Fire and Rescue NSW death and disability scheme liability increased by 78 per cent from $41.5 million last year to $73.8 million at 30 June 2012.
“The large increase in the Fire and Rescue NSW death and disability scheme liability was mainly due to a lower discount rate used in the liability calculation, and an increase in the number of reported claims.’ Mr Achterstraat said. “Claims increased following a review of permanent officers in temporary positions who were unable to return to their original role due to injury,” he added.

Further information 

Barry Underwood, on 02 9275 7220 or 0403 073 664 and email barry.underwood@audit.nsw.gov.au