UK Department of Education Pays £1 Million To Non-Existent Companies in Latest Fraud

Another public sector fraud hit the press last week, with an unusual aspect in that the perpetrator was exposed by a combination of his girlfriend and his Mother. That must have been a difficult decision for both of them, and you have to admire their sense of values for doing what they did – I would hate to be put in a similar situation.

Edward Fowkes Chapman, 37, of Wandsworth in London was sentenced to three years and four months in jail after being found guilty of stealing £1 million from the Department of Education. He was a Higher Executive Officer (a junior management level, basically) administering a multi-million-pound budget for community youth projects, encouraging sport and with an aim of tackling obesity. It appears that he basically created at least two “dummy companies” himself, - 'JP Swimsafe Ltd' and 'My Swim Ltd' and then authorised seven separate money transfers totalling £1,103,000 to these companies of which he was the sole Director between July 2006 and December 2008.

The money was used mainly to buy property – the good news about that is given the price inflation in the London property market, the government has made a profit assuming they reclaimed the value of the  property - one flat is worth £1.4 million against the £850,000 he paid in 2009.

But for us, perhaps the key element of this was that he was not found out through the department, his employer. Not through audit checks, suspicions of his colleagues or anything like that. It was his girlfriend who noticed large sums of money had gone into his bank account, and told his mother – who is a senior manager in the same department! She informed the department and he admitted his guilt immediately in October 2015.

That raises some obvious concerns about the processes within the Department. How were the dummy firms able to be registered as recipients of money without any checks as to their validity? How were the payments authorised – did Chapman have sole signing rights i.e. the ability to request the payment and authorise it? Why did no-one check what the (non-existent) recipients were actually delivering for their million pounds?

It’s all pretty shocking really, but it supports a theory that we’ve had for some time. If you want to defraud the public purse, look for those areas where large amounts of money are available but not through a conventional “procurement” process. These were grants rather than payment to suppliers of goods or services, and as such seem to have been subject to far less scrutiny, checks or balances compared to a conventional procurement.

You would like to think that in a procurement situation, there would have been a competitive procurement process before a supplier was even appointed. There may well have been some “onboarding” checks to assure the validity of the business. Then at least two people would be involved in approving and authorising the spend, and there would have been at least some basic contract management in terms of what was received back from the provider.

But whether it is grants to charities (as in the case of Kids Company), or this sort of programme, or funds provided to Academy Schools, the public sector seems to pay out cash much more casually. We suspect the Department will say “processes have been tightened up since then” – the victims of fraud always do – but we would suggest the public sector in total needs to look hard at these, what we might call,  external  non-procurement expenditures. We’ll return to that issue at a future date.

Voices (9)

  1. Ian Heptinstall:

    I’ve just had a look at what is included in the CIPS “Global Standard for Procurement”, the list of things professionals should know, and I can’t find much listed under “know and understand”. Only about rules/laws, the importance of obtaining info from suppliers during selection, and using communication plans internally. And fraud is bundled with corruption, bribery, and human rights.

    Nothing about knowing what the look for, or how to set up basic risk-reduction processes. I also can’t remember anything in the CIPS Corporate Award programme materials (the in house training leading.to MCIPS

    I can’t find any reference to segregation of the roles of budget holding/selection-award/receipt confirmation, which seemed at the heart of this example (and many others)

  2. bitter and twisted:

    I disagree with this focus on the supplier validity.

    The opportunity for most purchasing frauds is that delivery is not scrutinized.

    1. Mark Lainchbury:

      Completely agree.
      I was just being pedantic & exploring how much groundwork, the guy had put into this fraud.

      1. Peter Smith:

        Good point – so checks need to establish more than just the company exists, need to look at trading, names of directors etc

  3. Mark Lainchbury:

    Looks like they actually existed
    Company No. 06625812

    http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo

  4. Ian OO:

    The failure to even check whether these companies existed is breathtaking. The average transfer value exceeded the OJEU threshold, surely that warrants a small investigation of the validity of the supplier.

  5. bitter and twisted:

    The sad irony is his fraud was less wasteful than some ‘legitimate’ spending.

    1. Nick @ Market Dojo:

      So true! I might have to track this guy down and give him an investment fund – a compound annual growth rate of 7.4% is better than cash in the bank. Wolf of Wandsworth perhaps?

  6. Anna-Marie:

    As part of any due-diligence (or process) one would expect the basic checks…
    As part of any contract management, (or process) one would expect the basic information…
    As part of anyone’s terms of reference…one would expect they are qualified….or acknowleged and deleiver the expectations…
    As part of anyone’s day to day work activities, one would expect integrity to their duties…
    Maybe i expect too much..
    it is simply summed up in one word..
    ‘Incompetence’

    Its with regret that I am able to use this word to describe other examples…

    The one area that I hear so much about and is the new focus, of which I see real devotion and commitment…….is the commercial aims to be …the ‘centre of excellence’…..

    ought to be more ‘applying’ rather than relying ..I’m just saying..

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