China gets tough on welfare fraud

Jim Gee, Director of Counter Fraud Services, MacIntyre Hudson LLP and Chair of the Centre for Counter Fraud Studies at University of Portsmouth, has been in China advising the Chinese Government on tackling social security and healthcare fraud. Read his account of his trip below:

When you arrive at Beijing International airport your first impressions are of scale and energy - the number of planes, the size of the terminal building, and the number of people. As a country with 1.3 billion people and an economy which has grown at an average of 9.7% a year over the last decade, China will be a powerful force during the 21^st century. Put simply, whatever area of life we are talking about, it will matter what China decides to do, or not do.

 Your second impression shows another side to the country. As you make your way sleepily through Immigration after your flight arrives, you present your passport to an impeccably groomed official, and then you look at the kiosk in front of you and see that there are a series of buttons for you to press. Before she has even completed looking at your passport and visa, you have an opportunity to press one of four buttons - are you very satisfied, satisfied, dissatisfied or very dissatisfied with the service that you are receiving? While I imagine that there are few entrants who are bold enough, or irascible enough, to press the 'very dissatisfied' button, it is simply inconceivable that entry to the UK would provide a similar opportunity. In this area, as in others, the Chinese are reaching for standards which would be dismissed by many in the UK as fanciful.

I was entering China as part of the EU - China Social Security Reform Project, a five year initiative designed to share good ideas as the Chinese seek to improve their social security and healthcare systems (in China the phrase 'social security' covers pensions, healthcare, unemployment, maternity and injury 'insurance'). My visit was organised by British project leader Grayson Clarke and his Chinese colleagues Fei Jing and Ma Lan. Grayson has been sharing his expertise in China, Africa and several other countries for many years. The first part of my stay concerns a three day seminar held just outside Beijing in the coastal city of Tian Jin.

The seminar involves presentations and detailed discussions on a new Regulation designed to stop fraud and related problems. As China develops, it needs more developed and regulated social and healthcare systems. Those present at the seminar include the Director-General of the Ministry of Human Resources and Social Security, Chen Liang, his deputy, Lin Zhichao, and the senior officials from each of the provincial bureaux. We have been provided with a draft text of the new regulations which has already gone through many versions, under the watchful eye of Professor Hu Jiye of the China University of Political Science and Law. (In the UK context this would be an innovation in itself, including an academic with specialist knowledge of the subject and giving them such a prominent voice).

On the first day, I give my presentation about the financial cost of fraud in social security and healthcare around the world, and how it can be measured and reduced. In the last decade total fraud losses have been accurately measured more than 130 times in more than 40 organisations in nine countries across 32 types of expenditure with a value of £800 billion sterling equivalent. Average losses in healthcare and social security are just under 5.6% of expenditure, but there are examples of this cost being reduced by up to 40% within 12 - 15 months with a 12 : 1 return on the costs of the work.

I pause after each section to allow consecutive translation by Victoria and Ting Ting, our translators. I am immediately impressed by the eagerness of the Chinese delegates for me to finish speaking in English so that they can hear the Chinese translation. An English speaking Chinese observer comes up to me later (not much later actually!) with a whole series of questions from delegates about how the measures I recommended would work in China. I explain how I think this could happen and we begin a series of exchanges of questions, ideas and thoughts which lasts the whole three days. The thirst for knowledge combined with the determination to challenge new ideas is unmistakeable.

On the second and third days we discuss the detailed text of the Regulation. It feels a bit like what it might have done if this discussion had taken place in the UK as the new welfare state was created in the late 1940s. The only difference is that such discussions around fraud simply didn't take place in the 1940s. Minutes of Cabinet discussions show that Ministers were aware of the problem - with Aneurin Bevan, Minister for Health, talking about hospitals working on 'fraudulent balance sheets' and several others talking on the record about a wide variety of 'rackets' and 'abuses' - but nothing was put in place for many years. Indeed, in the NHS, it took 50 years after its creation, until 1998, for any proper counter fraud arrangements to be established. Yet here, in July 2010, the detailed future arrangements for countering fraud in the Chinese welfare system are being hammered out around the table with remarkable speed and a refreshing openness.

There is a real hunger for the latest and the best ideas. The Chinese, who understand a lot more English that they show, and who have clearly already studied the subject, are focussed on the cost of fraud, going beyond the world of 'fraud risk management' to accurate measurement of actual losses and beyond the reactive idea of the 'fraud response plan' to that of comprehensive action to pre-empt fraud. One senior delegate, who has clearly picked up some English slang from somewhere, refers to this as a 'no brainer'. I muse to myself that, despite positive changes in recent times, there are still too many organisations in the UK who cling to the safety of these old concepts.

As we end the seminar, we have covered many areas which will be familiar to counter fraud specialists in the UK:

• the need for professional training and accreditation linked to academic qualifications and with the substance of best practice described in a mandatory manual 
• the need for accurate and statistically valid fraud loss measurement 
• the importance of pre-emptive action to develop a strong anti-fraud culture (what the Chinese call 'comprehensive good faith'), and deterrent effect (what the Chinese call 'strengthening the awareness of risk') alongside preventing fraud through the design and re-design of processes and systems 
• the need for continuing action to detect, investigate and sanction fraud (and especially to combine criminal, civil, disciplinary and regulatory sanctions) and 
• the importance of being clear about re-investing the financial benefits from reducing fraud losses in better systems and services.

China has much still to do to protect its' welfare state against fraud, but it is moving at an enviable pace, and with a refreshing openness to new ideas. Some in the UK should take note of this. The last decade has seen tremendous progress in countering fraud - best symbolised by the National Fraud Authority - and many parts of the public sector have arrangements in place which are unrecognisable from the 1990s. In the private sector, progress has been much slower although this is now starting to change with major companies beginning to understand that there are real financial benefits to be derived from reducing fraud losses.

At the moment we are travelling to China to share our best practice but on the basis of my recent experience, it may not be too long before the traffic-flow in ideas is fully two-way - something we should be pleased to benefit from.

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