The NHS loses tens of millions of pounds a year to cheating, but some observers are asking if the Counter Fraud Service is getting too tough. Helen Mooney reports

Fraud costs the NHS millions of pounds every year. In 2006-07 - the latest year for which figures are available - the service was defrauded of over£70m. In a bid to curtail this, the government set up the NHS Counter Fraud Service, part of the NHS Business Services Authority, 10 years ago.

Its stated aim was: "To have overall responsibility for all work to counter fraud and corruption within the NHS, with particular priority countering fraud in family health services. To have direct responsibility for developing policy and strategy and for all operational work to counter fraud and corruption alongside that which is proper to health authorities and NHS trusts."

In the same year then health secretary Alan Milburn promised to get tough on people who cheat the health service: "The presumption should be about preventing fraud by designing systems to stop it happening in the first place. But where it occurs there should be an equal presumption that its perpetrators will face tough action."

The agency has performed well. From 1999 to 2006 there has been a 56 per cent fall in fraud committed against the NHS, from£171m to£76m. In 2006-07, 409 cases were investigated by the Counter Fraud Service, of which 62 resulted in successful criminal prosecutions and 66 in civil prosecutions or disciplinary sanctions.

Managing director Dermid McCausland says its ultimate aim is to reduce fraud to an absolute minimum and hold it there permanently, thus releasing resources for better patient care and services.

The fraud can be anything from a nurse falsely claiming overtime to dentists charging for work done on non-existent patients.

Action by the agency is widespread: creating an anti-fraud culture; maximising deterrence of fraud; successfully preventing fraud which cannot be deterred; promptly detecting fraud which cannot be prevented; professionally investigating detected fraud; applying effective sanctions, including appropriate legal action against people committing fraud; and effectively seeking redress in respect of money defrauded. While the service does not have any targets to hit, it takes a broad approach, measuring loss in areas of NHS spending and then tracking progress in reducing those losses that are the result of fraud.

Preventive measures

Mr McCausland says it is the job of the service to prevent fraud from happening in the first place: "We look at why fraud happens, whether there are systems weaknesses or loopholes that need to be closed and new policy developed and we try to use the media to deter fraudsters by publicising our successes."

On average the service has 400 cases open at any time and works with a network of local counter-fraud specialists. While the fraud is opportunistic and the gains low value, there is also a skilled criminal element making bigger money.

Fraud can be difficult to identify. As a non-violent and sometimes entirely paper-based activity, it has little visibility and there may not be any immediately apparent victim. But the Counter Fraud Service is keen to ensure its work is not seen as an end in itself but as a means of making the best possible use of NHS resources.

The service wants the NHS to be accountable for fraud across the board, with work to combat it being a "core management responsibility".

Paul Dillon-Robinson, chair of the Healthcare Financial Management Association's corporate governance and audit committee and a local counter-fraud specialist, says every trust is required to have a counter-fraud specialist.

"The NHS still has some rotten apples in the barrel and there are high profile cases and small ones... it is about recovering savings that are more than the cost of recovering them," he says. Mr Dillon-Robinson's organisation South Coast Audit is a shared services consortium employed by 23 NHS organisations to provide internal audit and counter-fraud services across the South Coast.

"Cases can range from anything including GPs making small claims to nurses fiddling their overtime to suppliers giving duff quotations."

Mr Dillon-Robinson says counter-fraud at both local and national level is increasingly focusing on proactive work rather than simply waiting for fraudulent activity to be reported. "Local counter-fraud does need to do more. We do need to meet and come together as local counter-fraud specialists, but ultimately local performance is down to the NHS organisations' finance directors," he explains.

A July 2006 Audit Commission report, Learning the Lessons from Financial Failure in the NHS, pointed to an "inadequate calibre" of leadership in key posts, including that of NHS finance directors, which was leading to financial failure.

The report said "a culture of respect for professional turf and reluctance to tread on board colleagues' toes" could leave the finance director isolated.

"There is frequently an expectation that if the problem is financial in nature, the finance director will identify and deliver a creative financial solution... [Many] accept this challenge willingly, taking some personal pride in engineering a financial fix to see the organisation across the fiscal year-end intact."

The pressure on managers and finance directors to be able to balance their organisations' books is ever-increasing. With personal and professional pride at stake, recent demands from government that NHS trusts must break even have left their mark.

In March Philip Neal, former finance director at Mid-Essex Hospital Services trust (which is applying for foundation status), was jailed for 12 months for forgery, after using the sale of hospital property and assets to exaggerate the trust's profits in a bid to get the organisation from a position of deficit to balance. He was released in June, having served four months of his sentence.

Mr Neal's actions made the trust's debt of£10m appear to have been turned into a surplus of£1m. The prosecution, acting on behalf of the Counter Fraud Service, said Mr Neal had used "creative accounting" and had earned a pay rise of£2,500 on the back of the forgery.

Although Mr Neal was "not caught with his hand in the till", presiding judge Anthony Goldstaub QC said: "You forged bogus land valuation reports designed to present a falsely inflated profit in the revenue account of the trust for that year. In doing so you acted in serious breach of the high level of trust placed on you by virtue of your profession and position at the very top of the financial management of the trust."

Judge Goldstaub added Mr Neal had broken the trust not only of the people he worked with but also his employer, Parliament and "the taxpayer at large and the patient at large - people who were financing your organisation and people who relied on it for the maintenance of their health".

The fall guy?

Strong words. But there is a feeling among some managers that Mr Neal was treated harshly and has been made a scapegoat for actions that may be carried out more commonly than some would like to admit.

Consultant and former NHS finance director Noel Plumridge believes he understands some of the pressures on Mr Neal.

"Unless you are in financial balance as an organisation, Monitor [the foundation trust regulator] will not look at you. And that leaves you dead in the water, with others looking to gobble you up. So there is immense pressure from within trust boards to achieve break-even," he says.

"Finance directors really want to hit break-even, not least because then everyone will love them. So the pressure is partly self-imposed. However, now other finance directors will be thinking 'you won't catch me taking risks' and will revert to being safely negative," he adds.

In his defence Mr Neal had said he was under "immense pressure" to meet financial targets set by government and wipe out a predicted huge deficit for the trust. His defence team said he had been working 12-hour days while coping with underfunding in the health service. They added it was an unusual case because Mr Neal had not committed the forgery for his own financial gain.

However, at the time, Alan McGill, the NHS Counter Fraud Service specialist who led the case against the finance director, said: "Mr Neal seriously abused his senior position within the trust by forging important financial documents which were used to try to dupe the external auditors into believing that the trust's financial position was much better than it was. Had Mr Neal's criminal misbehaviour not been discovered, he would have been given credit for a positive financial outcome that was based on deception."

A finance director who asked to remain nameless is critical of the decision to jail Mr Neal. "There is no good in picking on an individual; you have to create a healthier environment where people don't fear for their jobs when they report bad news," he says. "There is an expectation within some boards that finance directors will pull a rabbit out of a hat at year end and finance directors rise to it. It is about an expectation on the finance director to turn a deficit into break-even, which means [using] an accounting trick rather than any change in the reality of income and expenditure."

Mr Neal's solicitor, Steve Sharp, concurs. "He was motivated by a desire to meet financial targets agreed with senior management. His behaviour, though misguided, was in a perverse sense altruistic [and] you have to recognise the tremendous pressure he was working under: he was doing the work of three people. What he did was irrational and it was almost inevitably going to come out, but he acted in a panic. He is not public enemy number one."

Mr Sharp says more proactive work is needed to reduce the stress NHS managers are put under to meet targets.

"Something needs to be done about the pressure on NHS managers. Prosecuting and scapegoating them seems to me to paper over the cracks and distract from the real problem."

Jon Restell, chief executive of the union Managers in Partnership, agrees managers must be given more support in their jobs. "There is a wider issue here of how people can push against the pressures they are under and feel like they are in that type of predicament," he says.

Dermid McCausland of the Counter Fraud Service, however, is clear about the ethics of prosecuting the case.

"Mr Neal's actions gave the hospital trust the impression that it was in a good financial situation when it was not. It has since had to take cost-cutting measures, which mean staff and patients suffer. His actions have had a knock-on effect."

He is also happy the service's actions were "vindicated".

"This is someone who has committed fraud. He could have enhanced his career on the strength of what he did and could have gone on to become an NHS trust chief executive."

Counter-argument

Mr Restell on the other hand has criticisms of the way the Counter Fraud Service sometimes works. "There are sometimes ambiguous terms of reference used by the service when they are investigating a case. Sometimes it can seem like they are leading a fishing expedition, widening the scope and timescale of their investigations. And sometimes the service will question the systems that trusts have put in place. Without finding any evidence of fraud this can be very destabilising and should be dealt with by auditors, because mud sticks," he says.

However, Mr McCausland defends the work of the service. He says counter-fraud specialists collect, collate and document as much evidence as possible and then use a range of different sanctions depending on the nature and severity of the case. Civil actions and internal disciplinary routes or those involving NHS regulatory bodies are often used in cases where staff commit low-level fraud.

"We have to look at cases in a balanced way and ask whether it is worth the expense of pursuing them. They are not all necessarily appropriate for criminal prosecution but they may be subject to one of the other range of sanctions we have available," he says.

However, the case of Mr Neal has thrown up questions over whether the NHS zero tolerance policy is too strict and whether managers under extreme pressure to meet targets can be justified in the use of such creative accounting.

Nice little earner: NHS Fraud

  • Conspiring with a GP, a pharmacist submitted bogus prescriptions for reimbursement with a value of more than£1m.

  • Fraudulently generating fees for emergency opening, a pharmacist claimed to have been called out more than 400 times in a month.

  • A dentist claimed£212,000 over two years by submitting claims for patients who did not exist.

  • A dentist made duplicate claims for patients, making slight changes to their names, with a total value of more than£70,000.

  • A dispensing GP issued bogus prescriptions for residential home patients over several years, with a value of more than£700,000.

  • One GP's claims for night visits rose from fewer than 200 visits per year to 500, but the additional visits had not been made.

  • Claims were made relating to 23 patients supposedly living in a one-bedroom flat owned by the GP claiming for their care.

  • A senior specialist falsified employment agency timesheets, which generated£46,000 over five years.

  • An investigation into one NHS trust revealed more than£380,000 in claims for duty payments and hours worked, with no evidence that the work had been done.