Press Notice No. 4 of Session 2005-06, dated 11 October 2005
FOURTH REPORT: FRAUD AND ERROR IN BENEFIT EXPENDITURE (HC 411)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today:
"The astronomical scale of the amount of benefit money being lost through fraud and error is vividly brought home to taxpayers by the astonishing fact that the figures are rounded to the nearest half a billion pounds. The Department for Work and Pensions has now had its accounts qualified by the NAO for 15 years running and, according to the Department's own estimates, in each of the three years up to 2003-2004 £3 billion of welfare benefits were lost.
I recognise that the Department has made progress in cutting losses in the highest risk benefits. But fraud and error are unlikely ever to be brought under proper control unless benefits systems for both staff and customers are simplified. To address this the Department must tackle a whole range of besetting difficulties. Progress must be made in tightening up the accuracy of its measurement of fraud and error which is at present full of uncertainty. The high level of error by staff making benefit payments, costing an estimated £1.5 billion a year, must be reduced. And improvements must be made to the poor systems for storing and retrieving customer papers.
Recent organisational change and the plan to shed a quarter of its workforce, possibly lowering morale and increasing turnover among the staff whose skills are most needed to combat fraud and error, will not make the Department's job any easier. But it must not allow its focus on reducing fraud and error to waiver. This is the demand of everyone who wants benefit payments to go to those who are genuinely entitled to them and not to cheats and the undeserving."
Mr Leigh was speaking as the Committee published its 4th Report of this Session, which examined fraud and error in benefit expenditure by the Department for Work and Pensions.
In 2003-04, the Department for Work and Pensions lost an estimated £3 billion out of its total expenditure of £109 billion to fraud and error - £2 billion of fraud and £1 billion of customer and official error. More recent estimates, highlighted at the hearing, suggest losses are still around the same level, but the Department believes the levels of fraud and error are now broadly equal. The Comptroller and Auditor General has qualified the Department's Accounts for the 15th year in succession. Efforts to reduce levels of fraud and error are a priority for the Department, although they must be seen in the context of a wider range of objectives set by Ministers.
Because of uncertainties in measuring fraud and error, figures are rounded to the nearest £500 million. The Department is working to improve measurement but some estimates are more than six years old because priority has been given to the highest risk benefits such as Income Support, Jobseeker's Allowance and Housing Benefit. The Department aims to have arrangements that will measure fraud and error across all benefits on a consistent and up to date basis.
The Department has made progress with reducing fraud levels, especially in Income Support and Jobseeker's Allowance, but levels of customer error, much of it due to the complexity of the benefits, have not changed much in recent years. Official error remains a problem and the Department has lost some ground as a result of a major organisational change to create Jobcentre Plus and the Pension Service.
The complexity of means tested benefits remains a key problem. Simplification is likely to lead to some combination of increased programme expenditure and 'rougher justice' since regulations would not be so finely tuned. But fraud and error are unlikely ever to be brought under proper control without further action to simplify the rules.
Local authorities have been losing considerable sums of Housing Benefit in overpayments amounting to some £600 million in the last twelve months. The Department is helping them to take action against fraud through inspections, advice and incentives. In 2003-2004, local authorities secured 3,747 successful prosecutions for benefit fraud (1,732 in 2001-02) and applied 8,695 administrative penalties and cautions (2,600 in 2001-02).
The Department believes that its planned reduction of 30,000 staff by 2008 will not have an impact on the overall effort to reduce fraud and error. Reductions in the number of staff involved in anti-fraud work are expected to be offset by better utilisation of staff and a more targeted approach with better use of intelligence and data matching.
The Department was unable to find supporting papers in 106 out of 800 Incapacity Benefit cases selected by the National Audit Office for checking. Without these records, including medical reports, the benefit cannot be administered effectively. It is expected that a new storage contract will help the Department to locate files timeously.
Inadequacies remain in the Department's systems for accounting for customers who have been overpaid and so owe the Department money, which totalled £1.1 billion at 31 March 2004. There is no satisfactory audit trail and at March 2004 not all benefit overpayments had been identified; some had been identified but not referred for recovery action; while others were awaiting input into the recovery systems. Of the estimated £9 billion overpaid on the last three years, £550 million has been recovered. Around 2,600 staff work in debt recovery at a cost of £48 million, or 23p per £1 of debt collected.
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