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

A council employee embezzled more than £1m from his bosses and spent the cash on Apple goods, foreign holidays and eating out, a court heard.

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

The High Court in Edinburgh heard on Friday how Paterson was a council tax and recovery team leader at the time he stole the money.

Judge David Young KC heard how Paterson started his criminal activity in November 2006 and continued scamming the local authority until September 2023.

He began stealing cash to pay off debts but continued to take the money for a luxurious lifestyle.

The court heard how he was still in debt at the time of his arrest.

Prosecutor Brian Gill KC told the court how Paterson had unsupervised authority to issue council tax refunds of up to £3,000. He could also alter payee account details without “authorisation or verification” and he did to transfer money to himself.

Mr Gill said that Paterson had figured out he could benefit in situations where a householder had left a property and had not reclaimed for overpayment of their council tax.

He would make payments into a Nationwide bank account in his name.

Aberdeen City Council apologised to any resident affected by Paterson’s scam and said it was checking its records to make sure any tax credit due would be issued.

A 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 counc said its financial controls and processes – including council tax refund arrangements – had been “reviewed and strengthened” in the wake of the case.

Paterson’s scam worked until a colleague noticed that a refund of more than £2,000 had been made on a computer system using his username – Mike P – on September 12, 2023.

The court heard how she confronted him about it as she thought that the taxpayer account that the payment had been made to wasn’t due a refund.

She reported her concerns to bosses who launched an investigation which revealed Paterson had been paying council tax money to himself and had made more than £1m.

Judge Young heard that Paterson was sacked and police were called in. Detectives eventually arrested him in November last year.

Mr Gill said that Paterson “spoke freely” during an interview with officers.

He added: “The accused explained the state of his financial affairs. When he had started the embezzlement in 2006, he had been in debt to the sum of £20,000 through credit cards and other loans.

“Although he had paid off his mortgage approximately 13 years previously he had always spent more than his salary and had been in a state of perpetual debts.

“He had originally started the embezzlement because he was worried about the debts.

“But over time he had just continued his overspending.”

Paterson spent the stolen money on technology, particularly Apple goods, foreign holidays, eating out approximately once a week, shopping and the maintenance of his flat, the court heard.

“The accused expressed his remorse saying, ‘I know I’ve done wrong, I regret what I’ve done’,” the prosecutor said.

“He explained that he had no intention of ever repaying any of the sums that he had taken.

“He had just been hoping that he would not be found out.”

The story emerged after Paterson, of Great Western Road, Aberdeen, pleaded guilty to a charge of embezzlement before judge Young.

At the time, Paterson was carrying out the scam, Aberdeen City Council sought redundancies from staff members.

In January 2023, the local authority faced having to make as much as £134m in savings and slash its wage bill by £40m by 2027 to balance its books.

The SNP-Liberal Democrat coalition in charge of the council maintained a policy of no compulsory redundancies.

Budgetary concerns prompted the building of two social housing projects to be paused, and tens of millions of cuts are expected in the upcoming budget for the next financial year.

Bosses warned the scale of the budget gap, as well as the impacts of the pandemic and cost of living crisis, mean services must be “redesigned” in the coming years.

Staff in all services across the authority were invited to apply for pay-off packages. Those choosing voluntary severance will get a one-off lump sum while early retirement gives workers early access to their pensions.

On Friday, Mr Gill told the court that Paterson made £35,000 per year from his position – he has no dependents and no previous convictions.

The court heard how the accused started working for the local authority in 1988 and rose through the ranks to become the council tax and recovery team leader.

Paterson supervised a team of 12 employees. When he was confronted by a colleague about a false payment, he told her that he had made a mistake.

“He said that he had been conducting testing and had accidentally put the refund through the live system instead of the test system,” Mr Gill told the court.

“He said that he had used details of a bank account which he knew was closed so that the refund would come back as a rejected payment.

“The accused’s colleague was troubled because the explanation did not make sense. The following day she noticed that the refund had been returned by a transfer back from the account and not as rejected payment.”

Investigators discovered that between 2006 and 2019, there had been 490 refunds totalling £711,401.62 to a Nationwide account in the “accused’s name”.

The council also discovered that a further £376,042.85 had been made to another Bank of Scotland account belonging to Paterson. These payments were then transferred to the Nationwide account.

He was then arrested.

Mr Gill told the court that the Crown would bring action under the Proceeds of Crime Action against Paterson in a bid to recover the sums stolen. These proceedings will be heard later this year.

Defence solicitor advocate Iain Paterson told the court that since his client was a first offender, he would reserve his mitigation until a future hearing. This is because the law states that the court must obtain a report into a first offender’s background before proceeding to sentence.

Mr Paterson added: “The accused accepts imprisonment is inevitable in relation to this case and there’s no application for bail.

“He has attended today expecting to be remanded.”

Judge Young deferred sentence on Paterson, who came to court with a large holdall containing his personal possessions, to obtain reports on his background. The accused was remanded in custody.

He added: “I’m going to adjourn to obtain a Criminal Justice Social Work Report on you.

“You will understand that it is a strong possibility that a considerable custodial sentence will be imposed on you in this case.”

Paterson will be sentenced on July 5, 2024 at the High Court in Edinburgh.