MEASURES TO COMBAT HOUSING BENEFIT FRAUD
WHAT ARE
THE DEPARTMENT
DOING TO
TACKLE FRAUD?
New Powers to Combat Fraud
23. The Social Security Administration (Fraud)
Act, which received Royal Assent in March 1997, has implications
for all social security benefits, but many of the key measures
focused on Housing Benefit. These include: improved access to
data, and the sharing of data between the Department and local
authorities; better access by local authorities to information
held by each other, by landlords and by the Post Office; new criminal
offences and improved powers to recover money; and powers to examine
and report on how well local authorities administer Housing Benefit,
through the newly created Benefit Fraud Inspectorate.[24]
24. We asked the Department whether these
new powers were sufficient to enable them to deal with Housing
Benefit fraud. They said it was difficult to tell. They had fairly
extensive powers over data matching, over landlord fraud, and
over administrative penalties and offences, and had set up the
Benefits Fraud Inspectorate. They told us that they needed to
get these powers fully into use and then see whether there were
other areas they needed to move into.[25]
25. As regards their influence over local
authorities, the Department said that they had stronger powers
in the Fraud Act. If, following an inspection by the Benefits
Fraud Inspectorate, the performance of a local authority gave
sufficient cause for concern, the Secretary of State could give
directions to the authority to bring their performance up to standard.
If it did not do so, there were powers to impose subsidy penalties
or even to direct that the authority should contract out part
of their Housing Benefit operation. However, the Department saw
these as powers of last resort, and hoped that their existence
would bring about the desired result.[26]
The Complexity of Housing Benefit
26. The complexity of the Housing Benefit
regulations increases the risk of confusion and error on the part
of claimants and on the part of benefit assessors when determining
claimants' entitlement. For example, there are over 60 different
allowances, premiums, deductions and disregards attached to the
benefit and one standard text on the interpretation of the regulations
runs to nearly 500 pages.[27]
27. We asked the Department what consideration
had been given to simplifying the benefit to reduce the opportunities
for fraud and error. They acknowledged that the scheme was complex,
although they pointed out that when it was introduced in 1988
it was a simplification of what had gone before. One of the reasons
it was complex was that it was a means-tested scheme, and was
designed to give people in different categories, such as elderly
people and disabled people, different amounts of benefit. The
Department accepted that it would be possible to have a simpler
scheme, and thereby reduce the scope for fraud, but it would not
be so finely tuned to people's individual needs and resources
and would be harsher in some respects, or more expensive.[28]
28. They added that Housing Benefit was
being looked at as part of the Government's Comprehensive Spending
Reviews, and that one thing they would be looking at was the proneness
to fraud. The Review would be reporting in Spring 1998.[29]
The Impact of Fraud in Other Social Security Benefits
29. Some 66 per cent of claimants on Housing
Benefit are also in receipt of Income Support or income-related
Jobseeker's Allowance. When a claimant for Housing Benefit receives
Income Support or Jobseeker's Allowance, local authorities do
not have to calculate the claimant's applicable amount of income
when assessing entitlement to Housing Benefit.[30]
30. In July 1995, the Department published
their first fraud review of Income Support and Unemployment Benefit.
It revealed that frauds againt Income Support cost the taxpayer
£1.4 billion a year, and that 1 in 10 claims were fraudulent.
More recently, they have estimated that this fraud has risen to
£1.77 billion a year.[31]
In their review of fraud in Housing Benefit, the Department estimated
that the knock-on effects of fraudulent claims for Income Support
on Housing Benefit could amount to £178 million, almost 20
per cent of the total estimate of fraud.[32]
31. The Department told us that over the
last three or four years the Benefits Agency had been putting
a lot of effort into tackling accuracy in Income Support, and
they had a series of local plans to try to raise the level of
accuracy. They believed that the pendulum had swung too far in
the direction of claims clearance without enough attention being
given to accuracy but there had been a big change of emphasis
within the Agency and after a very bad period it was beginning
to improve.[33]
Detecting Fraud
32. In 1996, the Audit Commission reported
that the amount of Housing Benefit fraud detected had increased
fourfold during the 1990s to £55 million in 1995-96.[34]
Local authorities have reported to the Department increasing levels
of savings from their anti-fraud activities, rising from £91
million in 1993-94 to £306 million in 1996-97.[35]
33. The Department's main established measure
for combating Housing Benefit fraud has been an Incentives and
Penalties scheme which rewards local authorities for detecting
fraud, based on estimated weekly benefit savings on claims stopped.
The scheme has led to significantly greater efforts in combating
fraud, and in 1996-97 the Department paid local authorities £43.6
million in subsidy based on their achievements. But the scheme
has a number of shortcomings. In particular it has not yet produced
results that approach the estimated level of fraud; there is error
and abuse of weekly benefits savings claimed which may artificially
inflate the levels of fraud detected; and the scheme offers a
few incentives to prevent or deter fraud.[36]
34. We asked about the effectiveness of
the scheme. The Department told us that although the amount of
fraud detected had increased to over £300 million in 1996-97,
there was no evidence that the actual level of fraud itself had
increased. Rather, detected fraud had increased because they had
put in incentives to get local authorities to go and detect it.[37]
The Department acknowledged that the scheme was not ideal and
had some perverse incentives. But they felt that it had been successful
in getting local authorities to detect a lot more fraud.[38]
35. The 32-week multiplier at the heart
of the weekly benefit savings calculations may distort reported
levels of fraud, detected, and it does not reflect the actual
savings to the public purse achieved by fraud detection. The Department
told us that the current multiplier had the advantage of being
easy to operate, and was based on research on the average length
of time which Income Support cases would have lasted if fraud
had run on. They acknowledged that the same figure did not apply
to all benefits, and told us that one aim of the local benefit
reviews they were undertaking was to look at whether they could
find a more accurate multiplier for Housing Benefit.[39]
36. There were doubts about the validity
of weekly benefits savings claimed in 30 per cent of the sample
of claims examined by the National Audit Office/Audit Commission
joint study team at the 14 local authorities they visited. A parallel
exercise by the Audit Commission and the Benefits Agency showed
a higher rate of questionable claims.[40]
37. The Department told us that the figures
for detected fraud should not be wildly out, but they accepted
that some of them had been overstated. They would be surprised
if this cast doubt on the figure of 190,000 cases of detected
frauds reported in 1996-97, but they felt that it might cast doubt
on their total value.[41]
In their view something like weekly benefit savings would always
be required to measure the effect of individual detection initiatives
even if they could find other measures and incentives to put alongside
it.[42]
In consequence, they were putting a lot of effort into making
sure that the weekly benefits savings claimed were right. For
example, they had issued new guidance about calculating savings,
and the Benefit Fraud Inspectorate would look in their inspections
at how authorities calculated them.[43]
38. The Benefits Agency also use weekly
benefit savings to measure their anti-fraud performance, and they
can claim savings where their investigative work on Income Support
identifies cases where Housing Benefit is also in payment and
fraudulently obtained. In 1995-96, the Agency claimed £193
million Housing Benefit weekly benefit savings out of the total
£716 million they claimed across all benefits.[44]
39. Reviews by Internal Audit identified
significant problems in the accuracy of the weekly benefits savings
claimed by the Agency, and concluded that this would have resulted
in significant overstatement of their achievements. In response,
in 1996-97 the Agency reduced their figures for weekly benefit
savings achieved from £1,870 million to £1,524 million.[45]
40. In answer to our enquiries, the Department
admitted that the accuracy of the savings claimed by the Agency
had not been good in the past, but they had issued new guidance
to the Agency and were now having claims checked both locally
and at area level. They said that the overstatement rate was 18
per cent in 1996-97. The final reported performance figure of
£1,509 million reflected the remaining 82 per cent.[46]
41. We asked what impact this overstatement
of weekly benefits savings had on the performance related pay
and bonuses paid to the Chief Executive and other staff. The Department
told us that under his contract the Chief Executive could earn
up to 15 per cent of his salary by meeting the objectives in his
performance bonus scheme. Achievement of the security savings
target contributed to his bonus award, which in 1996-97 was 10.5
per cent.[47]
42. The Department added that the Agency's
Finance Director could also earn a bonus of up to 5 per cent of
salary, of which 1 per cent related to the total fraud and security
savings target for the Agency. For other staff, a proportion of
their annual pay increase was determined by their annual performance
appraisal rating which was determined by their performance against
all key work objectives and demonstration of a number of competencies:
for fraud investigators, these could include performance in meeting
savings targets.[48]
43. We asked the Department what guidance
they provided to local authorities on targeting anti-fraud investigations.
They said that their fraud investigation manual issued in 1995
drew on figures available from the Benefit Review and therefore
drew attention to the kinds of areas that they should be targeting.
The guidance was being revised for reissue in 1998. However, the
Department admitted that although some checking was done by the
Audit Commission, they themselves had not been checking whether
this guidance was being followed except during visits, and that
these visits were not a real audit of performance. They recognised
that they could do more and that was one of the reasons why the
Benefit Fraud Inspectorate had been introduced to carry out a
much closer check than occurred at present.[49]
44. The use of visiting officers to check
claimants' circumstances can be very cost effective, offering
returns of between 6 and 20 times their costs of £15,000
to £20,000 a year.[50]
We asked whether the number of visiting officers was increasing
and whether it would be cost-effective to have more. The Department
confirmed that the number of full- time designated fraud officers
in local authorities and visiting officers in the Benefits Agency
had gone up considerably in recent years. Returns from local authorities
for 1996-97 showed that 1,900 full-time staff had been specifically
designated as fraud officers and that authorities also employed
visiting officers to undertake residency checks and customer care
duties.
45. The Department added that on quite a
lot of occasions in recent years they had been given extra money
by the Treasury to produce specific extra results. Of the £16
million Challenge Fund money this year, £8 million was being
given to local authorities to employ people for visits to claimants.
In this packaged way both the Department and the Treasury could
see the outcome of putting in more resources.[51]
46. In briefing to Parliament during the
passage of the Social Security Administration (Fraud) Act the
National Association of Citizen's Advice Bureaux drew attention
to evidence which suggested that innocent people who had been
overpaid benefits might be suffering as a result of over-zealous
anti-fraud strategies. None of the authorities visited by the
National Audit Office had a code of conduct for their fraud investigators.[52]
47. We asked whether compensation would
be paid to people who had suffered trauma as a result of gross
errors in fraud investigations carried out. The Department said
that, as local authorities were responsible for the administration
of Housing Benefit it would be for them to decide what they should
do. If the authorities did not settle the matter themselves it
would be for the local authority ombudsman to deal with it. The
Department had its own redress schemes and there would be compensation
if such cases happened in the Benefits Agency.[53]
Preventing Fraud
48. The Department's anti-fraud measures
on Housing Benefit have focused on encouraging local authorities
to detect fraud.[54]
The Audit Commission reported in 1993 that perhaps only a third
of authorities largely administer benefits properly, efficiently
and effectively and that some authorities were reluctant to invest
the necessary resources to prevent fraud.[55]
In his report, the Comptroller and Auditor General noted that
there continued to be highly variable standards of benefit administration
by local authorities, and that to a degree the Incentives and
Penalties scheme encourages, or at least leads to the toleration
of, weak administration. This is because authorities can get subsidy
for detecting fraudulent claims which enter the system.[56]
49. In response to our enquiries, the Department
accepted that they needed measures and incentives to prevent fraud
in the first place.[57]
50. The Department told us that since the
Committee's previous report in 1990 they had done a great deal
to bring the standards of administration in all authorities up
to the level of the best. They had progressively issued more good
practice guides, and in 1993, they had introduced the incentive
scheme whereby authorities could earn subsidies by detecting fraud.
They had introduced monitoring of local authority performance,
and they had made visits to authorities to try to help them with
their performance. They had also produced service level agreements
to facilitate working with the Benefits Agency, and they had issued
a fraud investigation manual.[58]
They felt that their work to put in incentives and provide guidance
had begun to pay off,[59]
and that the standards of administration had improved considerably
in recent years.[60]
51. The Department added that they were
now putting in a verification framework which would give authorities
guidance about exactly what information they should be getting
at the start of a claim to ensure it was correct, and how they
should carry out checks and reviews later.[61]
At the end of the year there would be an auditor's certificate
that they had complied with the framework.[62]
52. We asked the Department what they were
doing to pinpoint those authorities which were performing really
badly. They told us that the new Benefit Fraud Inspectorate would
be their main tool on that and they would get a series of reports
on the performance of individual authorities. The Inspectorate's
first full inspection was currently underway and the Department
expected the Inspectorate's reports to be published once cleared
with the local authorities concerned.[63]
53. The most frequently expressed local
authority grievance is that the Department do not meet their costs
of administering Housing Benefit in full, and that local authorities
bear the full marginal cost of any increases in expenditure to
improve administration. [64]The
Department told us that they used to pay authorities their actual
costs but they found this to be not a very good system because
the costs shot up year after year.[65]
They now paid around £300 million as a basic administration
subsidy, which fell short of the £400 million authorities
said they spend; this sum was the Government's view of what local
authorities needed to administer Housing Benefit and it was then
up to each authority to decide how it spent its money. The Department
pointed out that there was an enormous range of cost per case
in the figures authorities provided, and that they found it extremely
difficult to assess what an efficient administration cost was.[66]
54. The Department added that in addition
to the separate incentive schemes for detecting fraud and recovering
overpayments, local authorities which signed up to implement the
verification framework would also get funding, so that there would
be a straight incentive to apply that system in their Housing
Benefit administration. In these ways, they were trying to ensure
that extra money could be geared to things which directly improved
administration rather than just going into a general pool. They
hoped to start that soon: the framework was ready, they just had
to reach agreement with local authorities.[67]
Deterring Fraud
55. There are limited incentives to deter
fraud, and there has been a low level of prosecutions by local
authorities. Of the 380 local authorities now administering Housing
Benefit 182 authorities undertook no prosecutions at all in 1996-97.[68]
56. We asked the Department about the low
level of prosecutions. The Department told us that the evidence
they had was that fear of detection, and a very tight policing
system, was actually a stronger disincentive than fear of prosecution,
because the penalties applied by the courts did not tend to be
very high. And they pointed out that something like a third of
those convicted when the Benefits Agency prosecuted just got a
conditional discharge.[69]
57. The Department added that local authorities
have been reluctant to prosecute. Some were reluctant in principle,
despite Audit Commission advice that they should and guidance
from the Commission and the Department on how to go about it.
Prosecutions were very low; particuarly compared to the Benefits
Agency which prosecuted some 12,000 to 13,000 cases a year, and
the Department told us that they wanted to encourage local authorities
to prosecute more.[70]
58. We asked the Department what they could
do to increase the level of prosecutions, and whether they had
any contact with the courts on sentencing policy to discover whether
there were regional variations in sentencing. They told us that
they and the Audit Commission had given authorities advice, and
that they were looking to see whether they could offer the use
of the Department's solicitors. In addition, the Benefit Fraud
Inspectorate would be looking at authorities' prosecution policies.
However, the Department was reluctant to offer financial incentives
because that might lead authorities to prosecute people who ought
not to be prosecuted. They said that they did not know whether
they had any information about regional variations.[71]
59. Of the 385 claims for weekly benefit
savings examined by the National Audit Office and the Audit Commission,
overpayments had been identified in 164 cases, but recovery had
been attempted in only 38 per cent of these. And only one of the
14 authorities visited maintained a central record of the status
of Housing Benefit overpayments.[72]
The Department told us that local authorities could recover such
overpayments and they believed that they did so in about 60 per
cent of cases. They added that, under the 1997 Fraud Act, the
Department and local authorities would be able to offer administrative
penalties as an alternative to prosecution where there was sufficient
evidence to prosecute. The penalty would be related to the amount
of the fraudulent overpayment.[73]
Specific Measures to Address Landord Fraud
60. Nine of the local authorities visited
by the National Audit Office said that, although they had indications
of landlord fraud, they did not pursue them because of the opportunity
costs involved. Diverting investigators to complex fraud cases
was not economically viable, and the Incentives and Penalties
scheme encouraged the pursuit of "easy pickings".[74]
61. The Department told us that initiatives
already introduced, such as the Fraud Hotline and data matching,
would help tackle landlord fraud. There was also a number of new
measures in the Fraud Act. These included provisions for local
authorities to enter business premises, to find details of other
properties owned by the same landlord and to stop direct payments
to landlords under suspicion.[75]
62. The Department had also set up and financed
the London Organised Fraud Investigation Team in 1996. They had
established this first pilot in London because Benefits Agency
evidence suggested that 75 per cent of all detected organised
fraud occur there. The Team had a commitment to supply the Department
with monitoring and evaluation data to enable a report of their
results to be made available by the end of January 1998.[76]
63. As regards prosecutions, the Department
told us that they did not know how many landlords had been prosecuted.
They agreed that in cases where landlords had committed a substanial
fraud there ought to be prosecution. This would normally be for
the local authority to decide,[77]
though where the Department was investigating fraud against Income
Support and in the same case there was also fraud against Housing
Benefit, Departmental lawyers could prosecute those accused of
Housing Benefit Fraud including landlords.[78]
The Department added that the London Organised Fraud Investigation
Team had had one or two successful investigations that had led
to arrests and the likelihood of prosecution.[79]
Conclusions
64. We are worried at the Department's uncertainty
about whether the new powers contained in the Social Security
Administration (Fraud) Act 1997 will be enough to enable them
to deal effectively with Housing Benefit fraud. This uncertainty
reinforces our concern that the Department do not have sufficient
grip of what is needed. We expect them to monitor closely the
impact of these new measures, and to take decisive action should
further action be necessary.
65. Those designing benefit systems have
to strike a balance between addressing different needs equitably
and fairly on the one hand and simplicity and security on the
other. However the present system does not find the right balance.
There are 500 pages of guidelines as well as over 60 assorted
deductions and allowances to understand. This complexity exposes
genuine claimants to confusion, inadvertent error by omission,
and the risk of investigation; confuses administrators leading
to high levels of errors in payment; and provides a breeding ground
for fraud. In these circumstances, the system can be neither fair
nor secure, and the Department need to take a fundamental look
at the scheme during their current spending review.
66. A significant level of fraud in Housing
Benefit arises because of the failure by the Department and the
Benefits Agency properly to control claims for Income Support
and Jobseeker's Allowance. In effect, this failure provides a
gateway to fraud in Housing Benefit. The Committee of Public Accounts
have previously expressed serious concerns about fraud and error
on Income Support, and recently we have examined this issue again
and will report separately on what more needs be done.
67. The Department's main measure for increasing
fraud detection is an incentives and penalties scheme which cost
£43.6 million in subsidies to local authorities in 1996-97.
This scheme has increased the resources devoted to fraud detection,
but contains perverse incentives which encourage inflated claims
of savings achieved by authorities and do little to encourage
authorities to prevent or deter fraud. There has also been overstatement
of savings achieved by the Benefits Agency. The Department are
looking at how the system could be improved, and are searching
for a more accurate way of assessing savings from anti-fraud work
on Housing Benefit. It is worrying to note their lack of confidence
that they will find a solution.
68. Accurate reporting of savings achieved
is essential in assessing the success of, and returns on investment
in, anti-fraud work, and the rewards to be paid to local authorities
and to individuals in the Benefits Agency. We therefore look to
the Department to secure more robust measurement, and independent
validation, of savings reported. Investment in anti-fraud work
can be very cost effective, and the Department have secured extra
funding for specific initiatives on a `spend to save basis'. In
our view, increased investment may be justified, but there must
be greater assurance over the accuracy of savings achieved.
69. It is disturbing that innocent people
may be suffering as a result of over zealous anti-fraud strategies.
Those who commit fraud should be dealt with effectively, but the
conduct of fraud investigations should also be properly controlled
to inspire public confidence that suspects are treated fairly
and that innocent people do not suffer. We expect the Department
to take the lead in drawing up a code of conduct for fraud investigations.
70. The measures introduced by the Department
have been effective in increasing the amount of fraud detected.
But they have not helped to prevent fraud getting into the system
in the first place. Poor administration in many local authorities
is a contributory factor in the amount of fraud, and the Department
must bear a large share of the responsibility for letting this
happen. The Department are now seeking to improve Housing Benefit
administration by introducing the verification framework, which
will give authorities guidance on the checks needed to ensure
that claims are correct. This is a step in the right direction.
We are surprised, however, that implementation of the framework
is to be on a voluntary basis. If this remains the case, the Department
will have lost the opportunity to drive up standards and ensure
consistency across the country. In our view, compliance with the
new framework should be mandatory.
71. The Department are placing considerable
emphasis on the newly established Benefits Fraud Inspectorate
to drive up standards of administration and anti-fraud work. Inspections
of individual local authorities' performance will also cover,
for example, authorities' targeting of anti-fraud work, prosecution
policies, and weekly benefit savings claimed. The Inspectorate's
reports to the Secretary of State will also be published. We welcome
this initiative.
72. Fear of detection can be an effective
deterrent against committing fraud, but only if it is backed up
by sufficient prosecutions and effective penalties. Yet the level
of prosecutions by local authorities is incredibly low, at under
one per cent of detected frauds, and fraudsters have a 99 per
cent chance of getting off scot-free. The Department need to provide
a stronger lead in identifying and resolving the obstacles faced
by local authorities, in helping them to implement cost-effective
prosecution policies, and in looking at regional variations in
prosecution policy.
73. It is unacceptable that authorities
often do not seek repayments from people who have obtained benefit
fraudulently. We remain unconvinced that local authority performance
in recovering overpayments is as good as it should be. The Department
have introduced administrative penalties as an alternative to
prosecution. But the effectiveness of the new penalties as a deterrent
will be diminished unless authorities make more concerted and
consistent efforts to recover overpayments. The Department should
examine ways of making this happen.
74. The Department have introduced a number
of measures to combat organised and landlord fraud, including
the London Organised Fraud Investigation Team. We expect them
to review the success of these initiatives to ensure they are
securing the desired impact, and to assess the benefits of extending
the specialist investigation of landlord and organised fraud to
other parts of the country.
24
C&AG's Report (HC 164 of Session 1997-98) para 3.2 Back
25
Q 72 Back
26
Q 150 to 151 Back
27
C&AG's Report, para 1.16 and 1.23 Back
28
Qs 2-3, 50-51 Back
29
Q 51 Back
30
C&AG's Report (HC 164 of Session 1997-98) para 1.20 Back
31
C&AG's Report (HC 251-Appropriation Accounts 1996-97,
Volume 12, Class XII) Back
32
C&AG's Report (HC 164 of Session 1997-98) para 1.32
and Figure 6 Back
33
Q 7 Back
34
C&AG's Report (HC 164 of Session 1997-98) para 1.30 Back
35
C&AG's Report (HC 164 of Session 1997-98) para 2.16
and Figure 6 Back
36
C&AG's Report (HC 164 of Session 1997-98) paras 22,
2.18 and 2.51 Back
37
Q 18 Back
38
Q 5 Back
39
Q 8 Back
40
C&AG's Report, paras 2.25-2.28 and 2.51 Back
41
Q 71 Back
42
Q 5 Back
43
Qs 9, 70 to 71 Back
44
C&AG's Report, paras 2.66 to 2.69 Back
45
C&AG's Report, paras 2.66 to 2.81 Back
46
Qs 55-59 Back
47
Qs 34 and 36; Evidence, Appendix 1, pp. 25-26 Back
48
Evidence, Appendix 1, pp. 25-26 Back
49
Q 122 to 128 Back
50
C&AG's Report (HC 164 of Session 1997-98) para 13 Back
51
Q 75 to 83, and Evidence, Appendix 1, pp. 25-26 Back
52
C&AG's Report, paras 2.32 to 2.35 Back
53
Q 97 to 102 Back
54
C&AG's Report, para 2.8 and Figure 7 Back
55
C&AG's Report (HC 164 of Session 1997-98) para 2.7 Back
56
C&AG's Report (HC 164 of Session 1997-98) paras 15
and 2.38 Back
57
Q 103 Back
58
Q 4 Back
59
Q 17 Back
60
Q 111 Back
61
Q 19 Back
62
Q 114 Back
63
Q 20-21 Back
64
C&AG's Report (HC 164 of Session 1997-98) para 2.45 Back
65
Q 88 Back
66
Q 104-108 Back
67
Qs 110 to 114 Back
68
C&AG's Report (HC 164 of Session 1997-98) paras 22,
23, 2.40, and Evidence, pp. 1-4 Back
69
Qs 12 and 54 Back
70
Qs 12 and 54 Back
71
Q 66 to 68 Back
72
C&AG's Report, paras 2.59 to 2.62 Back
73
Q 69, Evidence, pp. 1-4 Back
74
C&AG's Report, para 2.45 Back
75
Qs 25 and 94 Back
76
Q 146-149, and Evidence, Appendix 1, pp. 25-26 Back
77
Q 141 to 144 Back
78
Q 142 and Evidence, Appendix 1, pp. 25-26 Back
79
Q 161 Back
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