A SURVEY of NSW government departments has found $21 million worth of fraud has been committed in the past three years and the O'Farrell government has been warned its cost cutting and outsourcing drive may exacerbate the risk.
The survey, by the NSW Auditor-General, Peter Achterstraat, comes after a request by the Treasurer, Mike Baird, in April for a performance audit of fraud control strategies within all NSW government agencies, which coincided with work already underway.
Mr Baird requested the audit in response to a Queensland Health scandal in which a public servant was alleged to have stolen more than $16 million, and who then tried to explain his wealth by pretending to be a Tahitian prince.
The survey found that, while fraud control measures were improving in NSW, there was ''more work to be done''.
It reported that 48 per cent of agencies identified fraud in the past three years, but that one in 10 agencies did not routinely carry out criminal record, work history and qualification checks on staff.
But it also noted that, as the survey was based solely on fraud reported by departments, there was no way of determining the real extent of the problem.
''Because fraud inherently involves deception and concealment, many may never be detected,'' the report says.
There were 4649 cases of fraud within NSW government agencies worth $21 million in the three years to June 30. The largest was an $840,000 procurement fraud.
Mr Achterstraat said the average perpetrator of fraud in NSW was male, aged 40, with no previous criminal record and had worked in the agency for at least five years.
''The length of time in the agency suggests internal perpetrators do not enter an organisation with the intention of committing a fraud,'' he said.
The report found weaknesses in fraud awareness and training and Mr Achterstraat raised concerns that more than two in every five agencies did not require staff to take at least two weeks of continuous leave each year.
The survey identified an increase in fraud in outsourced government work and contracted non-government organisations from 8 per cent in 2009-10 to 14 per cent in 2011-12.
This coincided with the Premier, Barry O'Farrell, signalling the government would introduce more private sector contestability of government work.
The report warned the government's decisions to slash departmental budgets, impose a 2.5 per cent cap on public sector wage rises and cut jobs in the public service might worsen the fraud risk.
The Greens MP John Kaye said the report ought to ''send alarm bells ringing'' in the government.
''Every major policy step they have imposed on the state's public sector has increased pressure on the integrity and honesty of the workforce,'' he said.
Mr Baird said the government would consider all the findings closely and minimising fraud would remain ''a key priority''.