Around £135 million of the MoD's expenditure on property management, some 15%, is at risk from fraud, according to a report by the National Audit Office published yesterday. The NAO found that "the current level of control against fraud in property management is unacceptably low." Many Property Managers were unsure of reporting arrangements for fraud and had difficulty in distinguishing between fraud, poor performance and sharp practice.

The NAO examined the MoD's overall approach to managing the risks of fraud; controls to prevent fraud; the risks that are faced; and arrangements for detecting, investigating and learning lessons from fraud. The Audit Office concluded that, although the Department has taken steps to minimise the likelihood of fraud, it has not carried out an assessment of fraud risk and does not yet have a coherent anti-fraud strategy.

The MoD spent an average of some £900 million annually over the last five years on property management. Expenditure is currently managed by over 200 Property Managers, supported by Works Services Managers (commercial contractors) who engage and monitor subcontractors to carry out works, and Establishment Works Consultants (usually commercial contractors) who provide technical support and advice. Much of this is set to change under the Prime Contracting initiative (see i-FM News Story)

Current formal arrangements with contractors do not make clear their responsibility to protect the Department from fraud, says the NAO, although changes are now being made to the contracting strategy and communications with contractors. Controls, including the provision of expert advice on pricing, inspections of completed work and checks between invoices and standard contractual rates, were operated less frequently than staff believed.

The NAO's recommendations include risk assessments, better controls and incentivising contractors to prevent and detect fraud.

The NAO's Comptroller and Auditor General Sir John Bourn said: "The risk of fraud in property management is intrinsically high, and despite a number of Departmental fraud management initiatives, remains at unacceptable levels after operation of the existing controls. By implementing the recommendations in my report, the Department could reduce significantly the risks of fraud in this important area of expenditure."

Richard Byatt

Ministry of Defence: The Risk of Fraud in Property Management
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