Pippa Stephens and Elli Koukoulli-Rowe analyse what schemes can do to manage their fraud risk, and how those including Vauxhall Motors and Fujitsu have responded to the Bribery Act
The ongoing GP Noble saga, and the introduction of the Bribery Act in July, are forcing schemes to confront the danger of fraud, which costs them millions of pounds each year.
Marian McDonald, trustee of the Vauxhall Motors pension scheme at General Motors, completed online fraud training alongside fellow trustees with legal firm Shoosmiths, in response to the Bribery Act.
She said it was a relatively easy exercise and that Shoosmiths could track who had and had not taken part.
On whether schemes should follow suit, McDonald said: “I would suggest to do something similar to what we’ve done would be a very good idea.”
Since the act came in, Helen Harris, pensions specialist at Fujitsu Services, said trustees were no longer allowed to be taken out for lunch and could not accept any more than a pen as a gift.
Schemes are tightening up their data and introducing risk registers to manage the risk of scheme or member fraud. Specifically following the Bribery Act, schemes including Fujitsu and Vauxhall Motors have brought in training and protocols to ensure compliance.
The National Fraud Initiative predicted £16m will be lost this year through fraudulent claims concerning death and identity fraud alone. Between 2008 and 2009, it found 2,643 cases of fraudulent use of pensioners' death benefit.
This type of fraud occurs either through the payment of pensions to deceased members, or the withholding of information on living circumstances affecting the value of a member's pension.
Dealing with the problem
Data cleansing is vital in ensuring members are where they say they are, and are indeed alive, otherwise known as “confirmation of existence”. This can be as simple as a letter to the member, requiring response.
Carrying out a confirmation of existence should be done as frequently as possible, say experts, but cost can limit the degree to which schemes implement this.
Another type of fraud common in pension schemes is through the human resources department creating a fictitious employee, setting them up with pension benefits.
David Archer, independent trustee and partner at Pitmans Solicitors, said: “Despite the regulator’s issuing of guidance notes making sure their data is all up to scratch, you still encounter discrepancies.”
Inaccuracies such as National Insurance (NI) numbers not reconciling with data held by the NI office are frequent, especially with larger memberships.
Archer added: “It’s not uncommon in a largish membership to not know where 25 of your members are – when they come up for pensionable age what do you do?”
Ensuring data does not include any gaps will safeguard against this.
Smaller schemes are also at risk, as they may lack resources and adequate advice through inadequate governance.
Abigail Watts, general manager of Pitmans Trustees, said: “We’ve definitely seen an increase on the risk register side and we’ve done a lot of work on that.
“There has been a big increase in how often that’s looked at. Obviously, there are a lot of schemes out there that didn’t have one, so we’ve been introducing that across quite a few schemes.”
Deferred members were more difficult to collate data on, Watts added.
The history of the scheme determines the level of risk. A scheme in place since the 1960s, for example, might have changed administrator three or four times, meaning data records will not be as comprehensive.
A closed scheme with members dating back a number of years also poses a threat to data efficiency, opening up opportunities for bribery and fraud.
Schemes defending themselves against bribery will look to rely on the act's section 7 defence – protecting a company if it can demonstrate it had "adequate procedures" in place. Such procedures need to be very specific on anti-corruption protocols.
Marcus McCaffrey, partner in forensic services at Baker Tilly, said a proper risk assessment by scheme managers was vital to fully understand their exposure to legislation, and what sort of jurisdiction they’re operating in.
Appropriate strategies should reflect the type of business conducted and level of bribery and fraud schemes are at risk of.
