Scottish councils to learn from £1.1m fraud at Aberdeen City Council, says watchdog

Scottish Councils must strengthen controls after an Aberdeen City Council employee embezzled £1.1 million over the course of 17 years, a new report has warned.

The Accounts Commission, the watchdog for public spending and local government, has published a paper which urges other local authorities to learn from the weaknesses that allowed the fraud to occur.

Between 2006 and 2023, Michael Paterson, 59, set up an internal pathway which enabled him to fraudulently issue council tax refunds to his own bank account.

He was employed as a Council Tax and Recovery team later at the time, and issued 622 refunds to his bank totalling £1,087,444.

Another member of staff became suspicious in September 2023 and alerted senior colleagues.

Paterson plead guilty to a charge of embezzlement and was sentenced to four years in prison.

Warning to councils

Aberdeen City Council expects to recover the lost funds with no loss to the taxpayers whose accounts were affected.

However, the Accounts Commission said whilst the local authority had a system of controls in place, they were not adhered to and lacked scrutiny, enabling the fraud to go unnoticed for a significant period of time.

The watchdog said the council acted quickly to identify improvement actions and take immediate steps but must increase momentum to complete improvement actions that remain outstanding.

The report published today states local authorities across Scotland must implement effective systems and checks to monitor, manage and review financial systems.

It adds they must act on recommendations from internal and external auditors to address identified weaknesses and risks in key processes.

Andrew Burns, Deputy Chair of the Accounts Commission, said: "This is a cautionary tale. All councils in Scotland need to learn from this prolonged and significant fraud. It isn’t enough to have controls to counter fraud; checks need to be followed, weaknesses identified, and routine testing of systems carried out. This case shows the risks when internal controls aren’t followed.

“The member of staff who identified and spoke out must be praised. It shows the value and importance of whistleblowing policies and procedures. These are critical to ensure staff across the public sector have the confidence to quickly escalate concerns if they suspect fraud.”

At the time of Paterson's sentencing, Aberdeen City Council said it was in the process of checking its records and apologised to anyone affected.

An Aberdeen City Council spokesperson said: "The Council notes the conclusion of today's court case involving its former employee. We are in the process of checking our records and will be directly contacting anyone impacted with a view to reinstating Council Tax credit due – there is no requirement to contact us. The Council apologises to any resident affected. The Council’s financial controls and processes – including Council Tax refund arrangements – have been reviewed and strengthened.”

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