Is fraud really an issue for pension schemes?

In a recent article on fraud risk, we considered the results of our 2011 Baker Tilly Fraud Risk Survey and identify some of the key actions and best practice measures, which trustees should be undertaking to minimise the likelihood of fraud.

Although the issue of deceased pensioners is the most common type of fraud, other key risk areas for trustee consideration were provided.

However, let us take the issue of deceased pensioners as a starting point.  In a recent facilitated Fraud Risk session with a sub group of trustees, the following matters around pensioners, deferred members and data generally were raised:

• we asked if the data used for the pensioner existence exercise had been checked by an independent person and this was not the case
• further investigation highlighted that only 90% of pensioners were actually verified! The others were missed off the original list
• deferred members had not been included with the data. However, when the exercise was re-run to include deferred members, 3 records were highlighted which were ‘dummy records’ – set up during system testing and never removed.

The above highlighted that it was not difficult in this particular scheme for a fraudster to ‘hide’ records or use ‘dummy’ records to pay benefits out of the scheme.

Whilst I would point out that the likelihood of fraud in a scheme is low, as you can see from the above, the impact could be high. The benefits of a facilitated fraud risk review using a bespoke tool can ensure the trustees consider issues never considered in the past.