Council fraud detection has increased by over one third in the last year, but this is only the tip of the iceberg.

Councils have succeeded in detecting £185 million worth of fraud in 2010/11, an improvement of 37 per cent on last year’s figure of £135 million. This is equivalent to a year’s funding for around 700 libraries or the wages of up to 11,000 care workers. But the total loss of revenue through fraud is estimated to be £2b.

The annual survey by the Audit Commission shows that 121,000 scams were detected last year, including false benefit claims, council tax discount cheating, and unlawful use of social housing.

The Commission’s research shows high rates of council tax discount fraud and widespread unlawful occupancy of council houses. For the first time details are published of fraudsters targeting care payments to the elderly and vulnerable. Also scams involving fraudulent student council discounts and fraud that goes to the heart of councils’ multi-million pound procurement budgets.

Fraudsters blocking social housing is the largest category of fraud loss across local government. Housing tenancy fraud is the use of social housing by someone not entitled to occupy it. At its worst, fraudsters sub-let for profit. Although councils have increased the number of properties recovered by 75 per cent in the last three years, the vast majority of these are in London. Over half of councils outside London with housing stock failed to recover a single property. There are nearly four million social housing properties in England. In 2010 almost two million families were waiting for council houses, with temporary housing for homeless families costing nearly £1 billion a year.

Fraudulent claims for discounts directly increase the amount of council tax that everyone pays. It is estimated that Single Person Discount fraud alone costs taxpayers at least £90 million each year. Investigations by Bristol City Council have also uncovered widespread abuse of Student Discount, with 34 per cent of a sample of 4,500 exemption applications proving to be fraudulent, worth £1.9 million.

Councils spend over £50 billion each year buying goods and services from suppliers and funding multi-million pound construction projects. In doing so, they are vulnerable to a range of frauds such as cartels skewing bidding processes, contractors providing shoddy goods or services, inflated performance claims and false invoicing. Losses in individual cases can be large – the total value of just two in 2010/11 was £6 million.