Trustees should actively consider fraud risk as one in five pension schemes has reported fraud within the past two years, Baker Tilly has urged.

According to the latest survey from Baker Tilly, a quarter of trustees are failing to recognise their responsibility to detect and prevent fraud.

Despite the figures, 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, the accountancy firm has found.

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."

Of the defined contribution (DC) schemes which were surveyed, 86% had either not tested their internal controls over the previous year, or had never tested them at all.

Baker Tilly said that this was "worrying", especially in light of the fact that public sector pensions suffered over £20m of fraud in 2012, according to the National Fraud Authority's Annual Fraud Indicator.

The survey also revealed that the level of reported fraud has generally remained consistent with the previous two years, although larger schemes of more than 10,000 members appear to be more susceptible, either because of vulnerability from their size and complexity, or because their stricter governance controls are better at identifying fraud.

The findings have also suggested 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.

Bell said: "There are some encouraging signs from our report as more than 80% 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."

First published 16.10.2013

monique_simpson@wilmington.co.uk