Social security: minimising fraud risk | Mark Said

It may be that the department has limited administrative capacity to verify eligibility or detect fraudulent or corrupt behaviour

Former Labour MP Silvio Grixti
Former Labour MP Silvio Grixti

Social protection programmes channel a large amount of public resources, providing opportunities and incentives for corrupt and fraudulent practices. Integrity challenges in social security systems involve corruption in defining eligibility and enrolling beneficiaries, collusion, political patronage and clientelism, conflicts of interest, corruption in pension investment funds and fraud.

We had a clear example of the above scenario when, in December 2021, it was revealed that former Labour MP Silvio Grixti was implicated in a scandal that allegedly enabled hundreds of people to receive disability benefits to which they were not entitled.

Medical documents were provided for people to apply for benefits averaging €450 per month intended for severe disabilities they do not suffer from. It was a major scandal consisting of mass fraud, stealing, and abuse through social services. That scandal involved the creation and usage of fraudulent certificates that showed the signatures of medical professionals who had either never seen the ‘patients’ indicated on the certificates or knew that the individuals were not suffering from the indicated conditions but signed regardless.

It was a sophisticated, planned, and thought-out system involving a large number of people entrusted by the law to prevent those abuses from happening, but instead they complied with and facilitated the abuses.

It is time to consider introducing mechanisms that can successfully combat the prevalence of error, fraud and corruption within our social security network. We need to develop good governance guidelines that provide a broad framework for anti-corruption activities, framed around principles of accountability, transparency, predictability, participation and dynamism. A number of tools can also be implemented by various programmes, such as hotlines and portals to report abuse, random sample spot checks, information campaigns and training, and data matching.

Our social security system refers to the redistribution by the state of resources across ages, classes and occupational groups in the form of social programmes like public pensions, family allowances and benefits for the unemployed. While the scope, size and eligibility for benefits vary greatly, social protection programmes channel a large amount of public resources, representing a high average of our gross domestic product (GDP). Social welfare expenditures can represent between 20% and 30% of overall government spending.

No social security system is immune from fraud and corruption. Given the large amounts involved, the losses of taxpayers’ money due to fraud and corruption can be potentially considerable. While there is no accurate data to assess the scale of the problem, it is estimated that a significant percentage of overall expenditures on social security are lost to error, fraud and corruption.

We must identify the drivers of fraud and corruption challenges in social security services. There are a number of contextual factors that can provide fertile ground for corruption. The intensity of corruption risks varies greatly depending on circumstances and our country’s legal and institutional frameworks. Generally, I contend that corruption risks in our social security services are due to procedural weaknesses in grant administration and systemic weaknesses, such as ill-functioning audit systems, weak capacity, poor oversight and controls, inadequate training and the relatively low pay of social protection workers.

Politicians and administrators may be unwilling to expose fraud and corruption within the social security system, either because they might be implicated in some fraudulent schemes or because it could undermine the credibility and support for the programme. Exposing fraud and corruption may also raise unwelcome scrutiny from external accountability bodies such as parliament or the National Audit Office.

Lack of auditing capacity and controls and inadequate monitoring or reporting procedures can lead to a breakdown or override internal controls, low detection rates and ineffective punishment of corrupt officials.

The complexity of the benefit system can also be considered a major driver of fraud and corruption, providing opportunities and incentives for corrupt and fraudulent behaviour. The multitude of benefits and rules, the number of eligibility requirements, the lack of clarity and possibility for cross-jurisdictional claims and the confusion among administrative staff and claimants can be associated create potential risks for corruption.

Complex and vague eligibility requirements, frequent changes in eligibility requirements and administrative procedures of programmes, a lack of transparency and the vagueness of operating procedures introduce some discretion in the interpretation of the rules, making it easier to circumvent and exploit them.

As it is, the design of our social security setup leaves room for the government’s undue interference in the management and decisions within the system. This is especially true since the department does not enjoy budgetary independence. In such a situation, there is a risk that financial decisions are taken for political or strategic goals other than managing risks and maximising the net return, as the government is in a better position to coerce the board or governing body to follow its directives.

It may be that the department has limited administrative capacity to verify eligibility or detect fraudulent or corrupt behaviour. Staff is possibly either inadequate in number or inadequately trained and remunerated. In addition, the wage structure and guidelines of the civil service may not attract and retain qualified staff. Lack of support and training, inadequate or obsolete IT systems, and problematic information management combined with excessive caseloads, exacerbate error, fraud and corruption challenges.

We must defeat any possibility for politicians and parties to design policies aimed at benefiting selective groups with a range of patronage-oriented practices, including log-rolling, constituency service, and intensive interest group involvement in policymaking, whereby politicians offer benefits to selective groups of voters in return for their votes.