Home Renovation Grant Application - DOC

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					Module 2: Housing Renovation Grants




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Module 2: Housing Renovation Grants

1 Introduction

1.1   The grant regime is complex and includes:
           Renovation Grants
           Common Parts Grants
           House in Multiple Occupation Grants
           Disabled Facilities Grants
           Home Repair Assistance Grants
           Group Repair Grants
           Relocation Grants.


1.2     Although the reported value of detected renovation grant frauds fell in
1999/2000 to £400,000, in the previous three years it had remained relatively static at
around £1 million a year. However, these frauds when they do occur are likely to be for
relatively substantial sums [Exhibit 1].

              Exhibit 1

          A group of builders, solicitors and architects obtained renovation grants totalling
          £200,000 by submitting applications in the name of nominees. Although the applicants
          actually existed they did not know that their names were being used. The fraud was
          found purely by chance when a new typist in the renovation grant section, who used to
          work for one of the architects, noticed that a claim had been made in her name.

1.3     There are indications that the level of fraud committed may be significantly
higher than the value detected. The Audit Commission has, therefore, published a
detailed audit guide ‘Housing Renovation Grant – Fraud Audit Guide’ (1998). This
should be read in conjunction with this module.




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2.    Types of fraud
2.1    The main fraud risks are set out in Exhibit 2:

             Exhibit 2: The main fraud risks
         Risk                                           Case study      Relevant Controls
                                                                            Checklist
            Application and approval of
             grant                                          1                  1,15
            Preferential treatment of
             approved grant applications                    2                   1,3
            Misrepresentation by the
             applicant of their financial                   3                    6
             position
            Collusion between agents and
             contractors                            4 and Exhibit 1            10,11
            Overclaiming for the value of
             work done                                   5,6 & 7            12,15,16,18
            Claiming for property not
             owned or occupied                            8&9                   4,5
            Non-notification of sale within
             five years                                    10                   22

Audit approach
2.2    Before reviewing detailed internal controls, auditors may wish to assess the
following indicators of risk at their authority [Exhibit 3].




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             Exhibit 3 Indicators of risk
             Grant work being managed by agents who are former council employees.
             Grant work being managed by agents who appear not to advertise locally (i.e.
             how do they get the work?)
             No council veto on officers performing building or grant related work in their
             own time.
             No formal vetting of tender rates submitted by contractors.
             Inadequate vetting of agents or contractors to establish that they are bona fide.
             Inadequate inspection of works where grant is paid in instalments against interim
             claims.
             Additional works being completed without proper inspection to establish that they
             are needed.
             Poor supervision and inadequate separation or rotation of duties.
             Refusal of staff to take annual leave or to accept additional help with a heavy
             workload.
             Poor supervision and inadequate separation or rotation of duties.
             Inadequate internal audit coverage.

2.3     Any of the above, together with a generally poor control environment, make the
system particularly susceptible to fraud and corruption and may suggest that more
detailed work on the arrangements in place is required.




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3     Case Studies

3.1   Application and approval process

      Fraud may involve, amongst other things, the approval of works unrelated to the
minimum fitness standard or the favourable treatment of a particular agent or contractor
by corrupt council staff.

Case Study 1

A landlord and an Environmental Health Officer (EHO) employed by the council
colluded to obtain renovation grants. The EHO forged notices to say that houses were
unfit or lacked basic amenities and drew up fraudulent specifications of work required.
The landlord then provided forged quotations and invoices purporting to show that the
work had been done. A total of £30,000 was obtained for alleged work on five
properties.




Preferential treatment given to approved grant applications

3.2     Applications may be approved but because of funding constraints on the council,
there may be a considerable delay before the work can be carried out. When there is a
large backlog of approved grant applications awaiting funds, there is a risk of staff
offering to allow ‘queue-jumping’.

Case Study 2

At one council there was a large backlog of approved grant applications. A manual grant
register was kept in date order to ensure that the oldest approved applications were dealt
with first. When doubts were raised internally about the speed with which one member
of staff had received a grant, the register was inspected by internal audit and found to
contain a large number of corrections using tippex. The result was that by changing the
dates of receipt of applications some applicants had moved further up the waiting list at
the expense of others.




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Misrepresentation by the applicant of their financial position

3.3     Entitlement to grant is means tested. Applicants have a considerable incentive to
misrepresent their financial position to obtain grants to which they would not otherwise
be entitled.

Case Study 3

A renovation grant applicant withheld information about income received from a
restaurant business. He received a grant of £23,000 to which he would not have been
entitled had the income been declared. The fraud came to light following a call from
another council, which was prosecuting the applicant for food regulation offences at the
restaurant.




Collusion between agents and contractors

3.4    This normally involves the circumvention of the tendering process to secure
work for the contractor at inflated prices. The agent will normally share in any gains
made.

Case Study 4

An architect who regularly did work (unconnected with renovation grants) for a
reputable local building contractor obtained copies of his letterheads. When employed
as an agent to handle a renovation grant application, he would then use one of these
without the contractor’s permission to submit a dummy tender alongside a genuine
tender submitted by another contractor with whom he was in collusion. The dummy
tender was always higher. The fraud was picked up during regular routine checks
performed jointly by the grants section and internal audit staff who noticed that the
agent always sought tenders from the same two contractors and that the same contractor
always won the work. The unsuccessful contractor was contacted regarding a
(contrived) irregularity on one of his tenders and was able to confirm that none of the
tenders had been submitted by him.




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Over-claiming for the value of the work done

3.5     Several methods of over-claiming can be used, including:
     employing sub-contractors to do work at a lower cost than allowed for in the
      accepted tender
     the applicant or agent not using the sub-contractors approved in the original tender,
      but instead doing the work themselves
     the use of sub-standard materials
     not carrying out all or part of the specified work.

Case Study 5

A building firm appointed to carry out renovation grant works obtained estimates from
two specialist electrical sub-contractors, the lower of which was accepted by the
council. The builder then carried out the electrical works himself and, using a photocopy
of the specialist contractor’s letterhead, submitted a dummy invoice for the agreed
amount with a request that the payment be made direct to him. The fraud was eventually
picked up as the handwriting on the dummy invoice appeared to match that of the
builder.

Case Study 6

An applicant complained to the council about the poor quality of renovation work
performed on his property, claiming also that the building contractor had failed to
follow the council’s schedule of works by fitting hardwood instead of UPVC doors and
windows. He was subsequently visited by the contractor, accompanied by the head of
grants section, and placed under pressure to drop his complaint. Instead the applicant
pursued his complaint with his Councillor who in turn passed it to the external auditor.
An independent quantity surveyor was asked to assess the value of work carried out by
the contractor at a claimed cost of £26,000, for which payment had been authorised by
the head of grants section. The payment was stopped when the independent quantity
surveyor assessed the value of the works at £3,400.

Case Study 7

An applicant, a builder, obtained estimates from other builders who were business
associates. The council approved the application based on the estimates provided. The
applicant carried out the bulk of the work himself, preparing invoices for labour and
materials that purported to originate from the appointed contractor.



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Claiming for property not owned or occupied

Case Study 8

An applicant received grant for the renovation of a property where he was not resident on
the basis that he would occupy it when renovation works were completed. He received
total grant of over £30,000. At the audit it was discovered that he had not occupied the
property but had let it to a tenant.

Case Study 9

A grant application was received accompanied by a certificate of title from solicitors
showing the applicant to be the owner of the property. He was actually a tenant of the
house next door. The council had not verified the certificate of title but when this was
done the land registry details showed a different owner for the property. The solicitor and
the tenant were in collusion.



Non-notification of sale within five years

Case Study 10

A simple comparison between the grant register and the register of electors led to the
identification that a property had been sold within the five year period. The ex-owner
who had received the grant could not be traced to recover it.




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4.    Systems control checklist

Control objective: Entitlement to grant assistance is established promptly and in
accordance with statutory requirements
                                                                        Yes       No
1. Procedures are in place to prevent any unauthorised entries in the            
   grant waiting list
2. Policies and procedures for allocating grant resources are clearly            
   defined and documented
3. Procedures are in place for dealing with complaints and allegations           
   in relation to grant issues
4. The validity of certificates of title has been verified                       
5. The occupation of the property in the year after the grant is finalised         
   has been confirmed


Control objective: The level of grant is correctly and accurately calculated in accordance
with statutory requirements.


6. A check of the accuracy of the applicant’s declaration of assets                
   (relating to the means test) has been undertaken with other systems
   within the council e.g. housing benefits system
7. Initial inspections are sufficiently detailed to enable the bulk of             
   additional works required to be identified at an early stage
8. The council requires valid reasons when the contractor doing the                
    work is not the one providing the approved estimate
9. The council requires valid reasons when any sub-contractor involved             
    in the work is not the one providing the approved estimate
10. The council monitors the contractors invited to tender by individual           
    agents
11. Apparent links between particular agents and contractors are                   
    followed up
12. The council calculates its own estimates of costs of work to guard             
    against collusion between builders in the provision of estimates
13. Any Schedule of Rates used by the council is kept confidential                 
14. Systems are in place to ensure that, where the council has paid for            
    work carried out in advance of the grant’s approval, there are valid
    reasons for doing so




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Control objective: Grant aided works are completed satisfactorily to the required
standard and in accordance with statutory requirements.


                                                                              Yes   No
15. There is adequate separation of duties amongst grant officers and              
    adequate supervision and checking of work by managers
16. The council undertakes random inspections as a further check to                
    ensure that work is actually being performed to the required standard
17. Suitable controls exist in relation to the approval of additional works        
    (additional works should only be approved if the works are
    necessary to bring the property up to the fitness standard.)
18. The council requires applicants to submit a form stating their                 
    satisfaction (or otherwise) with the works carried out

Control objective: Payment of grant is properly authorised and made in accordance
with statutory requirements.


19. Payment is only released if an invoice has been provided and the               
    work has been inspected
20. The council ensures that invoices submitted relate to genuine                  
    builders (Vetting procedures could include reference to an approved
    list, the checking of VAT numbers, etc.)
21. Procedures are in place to ensure that the spend on individual grants          
    is monitored and to ensure that the ceiling on grant payments is not
    exceeded


Control objective: Grant is repaid in the event of non-compliance with statutory grant
conditions


22. The council carries out checks to ensure that grant conditions are             
    being complied with, e.g. checks with other systems, postal surveys
    or physical inspections




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