Warning after worker got away with stealing £1m from Aberdeen city council over 17 years

Scottish councils must learn from the issues that allowed a local authority worker to steal £1.1m undetected over 17 years, a financial watchdog has warned.

The local authority watchdog sounded the warning to Scotland’s local leaders following the theft at Aberdeen City Council.

Michael Paterson, 59, set up an internal pathway at the local authority which allowed him to fraudulently issue council tax refunds into his own bank account.

Between 2006 and 2023, Paterson, who was employed as a council tax and recovery team leader, issued 622 refunds totalling £1,087,444.

He was jailed for four years at the High Court in Edinburgh in July after pleading guilty to a charge of embezzlement.

North East & Tayside

Council employee stole more than £1m in tax refund scam

Michael Paterson, 59, exploited his position at Aberdeen City Council to pocket a total of £1,087,444.47.

The theft was not stopped until another staff member became suspicious in September 2023 and alerted the council – nearly two decades after he began defrauding his employer.

The council expects to be able to recover the lost funds, with no loss to the taxpayers whose accounts were affected.

But the Accounts Commission is concerned that whilst the council had a system of controls in place, these were not adhered to and lacked scrutiny.

Michael Paterson, 59, exploited his position at Aberdeen City Council to pocket a total of £1,087,444.47. Police Scotland

Chiefs said the council acted quickly to identify improvement actions and take immediate steps. But with a year since the perpetrator was charged, the council needs to increase momentum to complete improvement actions that remain outstanding.

The Commission’s recent report says officers and councillors across all of Scotland’s councils have a duty to safeguard public money and protect against fraud by implementing effective systems and checks to monitor, manage and review financial systems.

They must also 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.”

An Aberdeen City Council spokesperson said: “Aberdeen City Council will carefully examine the findings of the Accounts Commission. A report will be brought to the Council for consideration, including the Accounts Commission’s recommended actions and the Council’s proposed response to the recommended actions.”