SCOTLAND’S councils are increasingly attractive targets for fraudsters because insecurities are being made worse by budget cuts, watchdogs have warned.

In a new report, the Accounts Commission said “significant amounts of public money” could be lost to scammers and corrupt staff because internal controls were “strained”.

Auditors reported “recurring weaknesses” threatened public services and risked reputational damage.

Examples included sloppy financial controls that resulted in one council falling victim to a £1.1m fake invoice fraud over five years.

The report also highlighted the risk to the new hybrid NHS-council bodies responsible for the delivery of around £9billion of integrated health and social care services each year.

The document is intended to remind council staff and councillors of their fundamental duty to safeguard public money, whether in local government or on related outside bodies.

Scotland’s 32 local authorities spent a combined total of £12.4bn last year.

The Commission said fraud was associated with high staff turnover, including the loss of experienced finance personnel, new IT systems, restructures and staff having dual roles.

It said council officials should never be responsible for both purchasing goods or services and arranging the payments for them, as this was a golden opportunity for fraud.

The report said decreasing budgets and rising demand for services, particularly for the elderly, meant “effective risk management and strong internal controls” were vital.

It said: “There are signs from councils’ internal auditors and the work of councils’ external auditors that standards of internal controls may be strained. Some recurring weaknesses are becoming apparent among councils and the consequences could be serious, including the loss of significant amounts of public money, impacts on services and reputational damage.”

Some of the case studies it quoted involved errors, but others were crimes.

In one council, poor bookkeeping led to 800 salary overpayments worth £812,000 in three years, including six of more than £10,000 and one of £15,500.

The council then struggled to recover the cash, especially from former staff.

In another case, lax security resulted in £5400 of mobile phones being stolen from a council store.

The door entry code was “widely known among employees”, fire exits were left open, and the phones were not recorded on the council’s asset tagging system upon delivery.

The importance of avoiding dual roles was highlighted by the £1.1m fraud case in which a council official arranged payments based on fake invoices, and was sentenced to five years in jail. Auditors and Police Scotland found “fundamental control weaknesses”.

However most of the theft and fraud was down to the general public

The last National Fraud Initiative exercise in 2016/17 found £12m of fraud in Scotland’s councils - more than half was due to false claims for the single person discount for council tax and abuse of the blue badge parking scheme.

Wrongly claimed or accepted benefits or pensions accounted for another third.

The Commission also flagged the potential vulnerability of Integration Authorities (IAs), the partnerships between the NHS and local government, for health and social care.

It noted these had gone through “numerous leadership changes in the past few years”, showed “significant variation” in the roles of chief officers, suffered from “cultural differences” that made collaboration harder, and lacked the necessary support services.

It said: “The scale and complexity of ongoing organisational change; significant financial and demographic pressures; and the level of resources involved make it imperative that councils, NHS boards and IAs have rigorous systems of risk management and internal control.”

The Commission also said councillors needed to pay close attention to the finances of council spin-offs known as arms-length external organisations (ALEOs), such as leisure trusts, and new multi-million pound city region deals with central government.

“Some councils participating in city region or growth deals may risk gaps between their income and spending in future years, which could threaten their financial sustainability if risks are not managed carefully,” it said.

Commission chair Graham Sharp said: “Robust management and scrutiny of the finances at Scotland’s councils is more important now than ever before.

“Councils face complex and challenging financial pressures, and rising demand for services.

“At the same time, budgets are tightening and there is significant uncertainty from factors such as the UK’s withdrawal from the EU.

“There are many examples that the systems for managing finances in Scotland’s councils are working effectively. However, councillors are ultimately responsible for scrutinising a council’s use of public money, and they should seek assurances from council officers that rigorous systems and processes are in place to safeguard finances.”

Labour MSP James Kelly said: “Councils are finding it harder to fight fraud because of squeezed budgets. This report highlights how austerity, passed on to local communities by the SNP, is ultimately counterproductive and can end up costing more money.”

Alison Evison, president of the council umbrella organisation Cosla, said the report was a “timely reminder” of the many pressures on local government”.

She said: “Scotland’s councillors appreciate their role and duty in safeguarding public money and take it seriously.”

The Scottish Government said: “Local authorities will receive £11.2 billion in 2019-20 through the local government finance settlement. This is a real-terms increase in both revenue (1.2%) and capital funding (21.5%) compared to the previous year.

“They must use their resources as efficiently as possible and deliver services effectively to ensure taxpayers get the best possible value for money.

“We welcome the Commission’s report as providing useful advice for councils on how to meet their financial responsibilities, and encourage councils to consider it carefully.”