POLICE are investigating a case of suspected fraud in the States. The revelation follows warnings from the States financial watchdog in its annual report that internal fraud is on the rise

And the Public Accounts Committee also fears that staffing problems may contribute to poorer control over public funds in the future.

Treasury will conduct a review of internal audit early in 2008.

In the year to April 2007 there were two full investigations into fraud, one involving police that did not lead to a prosecution and six instances of potential unsubstantiated fraud. The latest investigation post-dates the report.

‘As resources within the States become more stretched, internal controls necessary to safeguard the assets of the States are being reduced or removed,’ said PAC chairman Leon Gallienne in the report.

The Internal Audit Unit is responsible for investigating frauds.

It transfers its staff to work on them when the cases are identified, reducing the amount of time directed to checking internal controls, said Deputy Gallienne.

‘Continuing staff difficulties in Internal Audit has meant that the actual number of internal audits carried out through the year has been reduced,’ he said.

PAC has an Audit Working Party that receives quarterly updates from the Internal Audit Unit.

These identify the progress made on reports and staffing issues and highlight any review areas which may warrant further investigation by the committee.

‘The working party is still concerned by the lack of professionally qualified staff in the department and, indeed, the number of qualified financial staff leaving the States. These two facts may contribute to poorer control over the way in which public funds are handled.’

Treasury minister Lyndon Trott said the whole issue of internal audit would be the subject of a short review early next year.

This will show what needs to be done and what resources would be required.

The department comes up with audit guidelines which are implemented by others.

‘Where instances of fraud are discovered, we will usually pass them over to the police to handle,’ he said.

‘Treasury and Resources always takes cases of fraud very seriously and ensures they are thoroughly investigated and that appropriate is action taken.’

Police confirmed an investigation was ongoing but would not release any more details.