By Daniel Hunter

One in five pension schemes has reported fraud within the past two years, but a quarter of trustees are failing to recognise their responsibility to detect and prevent it, according to the latest survey from Baker Tilly.

The results of the third annual Baker Tilly Pensions Fraud Risk survey, published today, found that almost one fifth of pension schemes are still not actively considering fraud risk and over half have not tested their internal controls for over a year — up from a third last year.

Worryingly, 86 per cent of defined contribution schemes surveyed had either not tested their internal controls over the previous year or had never tested them at all.

Fraud costs the UK an estimated £52 billion every year, with tens of millions of that total lost to pension scheme fraud. Public sector pensions alone suffered over £20m of fraud in 2012 according to the National Fraud Authority’s Annual Fraud Indicator.

The Baker Tilly survey found that the level of reported fraud has remained broadly consistent with the previous two years. Larger schemes of more than 10,000 members appear to be most susceptible. However, this could either be because of vulnerability resulting from their size and complexity, or conversely because their stricter governance controls are better at identifying fraud.

The findings also suggest that trustees of third-party administered schemes may be over-relying on their external provider to mitigate fraud risk, rather than investing the additional resources to tackle the issue themselves.

Ian Bell, Baker Tilly Head of Pensions said: "While the level of fraud reporting is high, there are likely to be significant levels of fraud which remain undetected. Ultimately, it’s the scheme members who stand to lose out, so it’s incumbent on all trustees to ensure they are acting in their members’ best interests.

"There are some encouraging signs from our report as more than 80 per cent of trustee boards are actively considering fraud risk, which is slightly up on last year. However, the approach adopted by some trustees is at best inadequate, and at worst complacent."

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