Select Committee on Social Security Minutes of Evidence


Examination of witnesses (Questions 1 - 19)

TUESDAY 21 JULY 1998

RT HON FRANK FIELD, MP and MS HILARY REYNOLDS  

Chairman

  1.  Good afternoon, ladies and gentlemen, could I declare the public evidence session on child benefit fraud duly open. I welcome Howard Flight who, since 12 hours ago, has been invited to join us and we are delighted to have him as an able alternative to Nick Gibb, who has now moved on to the Treasury Select Committee. Minister, welcome. You very kindly offered to come and spend some time with us and I know your diary is full and we are constrained to maybe an hour, an hour and a half. It is very important work; the whole child benefit area in relation to fraud is an essential part of our interest as well as the Government's interest, and we are pleased now we have got the final report of the Security Review that we can discuss that. You have helpfully brought with you Hilary Reynolds, who is Head of the Security Branch of the Benefits Agency, and we welcome her back from her previous appearances in earlier versions of the Committee. I wondered, Frank, if you wanted to say something at the beginning? The thing we were getting worried about—and some of these fears have been assuaged but not all with the publication of the review—was that it was taking so long. A recent parliamentary answer which you helpfully put into Hansard suggested this has taken more than twice as long as the other reviews. All other things being equal, you would think that a child benefit fraud scrutiny would be actually easier than some of the others. Why has it taken so long?
  (Mr Field)  Chairman, before I answer that can I make a few introductory remarks?

  2.  Please do.
  (Mr Field)  I was anxious to come today because it would be the first time that Hilary appeared before the Committee when I was not sitting on the other side, and I thought it would be rather nice to come and sit on the same side as Hilary for a change. There are two main areas where you may wish to probe me—there are many areas—where I would have difficulty in answering. One is where there is commercial information relevant to it and where contracts are involved, and though I wish to be as open as I can, there are difficulties there. Secondly, while many taxpayers may be watching this programme there will also be fraudsters. On a previous programme under the previous administration where counter-fraud staff appeared, when staff successfully busted a ring the record of that programme was part of the training facilities for that gang. So in some areas, if I may, I may not be able to answer fully but I will supply you with the information. I am anxious we keep some people guessing what we are doing rather than telling them what we are doing. The final thing is about how we might divide questions between us, Archy. At the end of a very happy marriage Beatrice Webb was asked, "Why was your marriage so happy?" She said, "Sidney takes all the long-term decisions, I take all the unimportant decisions, and I determine which are the long-term decisions." So if I may be allowed to choose which are the difficult questions, and of course take those myself, and give Hilary the easy ones, if that would be all right, Chairman, we will go along those lines! You asked a question about the length of time taken to produce the report and there are two reasons why it has taken the length of time it has. This report stems from a request that the previous Committee asked of the previous Government. There are two reasons why there has been a delay. Quite properly, when John Denham worked on fraud he wanted to look at how fraud was defined and whether in the keenness of an administration to chalk up fraud gains one was putting in that category errors and other administrative difficulties which ought not to be defined as fraud. As a result of the work that John asked to be commissioned, not only within the Department but with outside bodies as well including academics, we have a much more robust view about fraud. Then, more recently, looking at the report, I wanted to satisfy myself that the way we had gone about the review was adequate and when I was satisfied it was signed off, and we gave you the report as soon as possible. It is late. It is not because there were difficulties, or unexpected difficulties, it is because the new administration has taken a much tougher line on how we define fraud, and had we had that from the beginning the work you have been doing on the benefit integrity project may not have been necessary. So it is all credit to John Denham for actually initiating those big changes.

  3.  Are you reasonably satisfied with the results? Do you think these results are accurate?
  (Mr Field)  They are certainly—as those of the Committee who are statisticians will know—within the bounds of reason in which we can read these results. What is crucially important, Chairman, is what the main findings of the report are and therefore where the Department now needs to concentrate more attention, given that this was thought, I think by most of us, as being the most secure benefit which we deliver and yet there are some worries over the findings. Secondly, the Government obviously wishes to accomplish much on this front but this is not the only benefit it is looking at. Our counter-fraud proposals are themselves part of the sort of first class public service we wish to deliver for claimants, therefore we are as concerned about getting benefit to people who are eligible and not claiming; as we are on cutting down on fraud. So there are real priorities the Department has to face in determining at any one time where it deploys its expertise. Of the resources going to fraud, we have to think about how best we can secure the taxpayer's advantage and within that we have to decide what we are doing on child benefit.

  4.  Is there anything which will flow from the report you have just produced? Is there any further work planned?
  (Mr Field)  There are two areas of concern and maybe, as this is one of the difficult questions, Hilary would like to come in as well! There are the 16-plus group and the findings that the report shows up there. Secondly, the difficulties the Department has had in the past in tracking people who rightly move in and out of this country and do not always tell us when they have gone. These are two areas which much concern me and maybe Hilary would like to come in so it is not a monologue from me.
  (Ms Reynolds)  The main areas of loss that we could confirm through the survey were in the 16 to 19 year old age range, children who were being claimed for as if they were still in full-time education and were not, either because they had gone into training schemes, gone and got work for themselves, in some cases signed on for income support themselves and in some cases got married, all of which render you ineligible for receiving child benefit as well. So that was one key area for us. The second area of confirmed losses was children in moving partnerships, where partners and families are moving around and the care of the child also shifts, and we have not always had the correct information there. There is a wide range of other frauds which are set out in detail at the back of the Benefit Review Report, which give you by numbers how many confirmed frauds we have had in each possible category. It is towards the end of the report, Table 21.

  5.  I would like to come back in detail on that because colleagues have some questions on both of these areas which you have identified as areas of continuing concern. While Hilary has the floor, I wonder if you could just explain for us in a wee bit more detail what the differences are between the definitions of high suspicion of fraud, medium suspicion and low suspicion of fraud, and maybe also a wee bit about how these savings are calculated because some of the headline figures are taken over a six month period in terms of quantifying what fraud is extant? Could you help us with some technical definitions?
  (Ms Reynolds)  There are three categories of fraud which we label in this review. The first is confirmed fraud, where we have examined one of the random sample cases and found, through either admission by the person or through third party verification, that the basic entitlement conditions of child benefit have not been met or are not now being met even though they were at the start of the claim, where the customer could reasonably be expected to have known they should have told us of the change and have deliberately not done so, and where we have sufficient evidence to support a prosecution, and that is quite important. So this is a fraud where we believe we have enough evidence to prosecute were we to go down that road. That is confirmed fraud. In those cases we both stop the benefit and can recover a past incorrectly paid benefit. High suspicion of fraud is where we as investigators and we as adjudicators have a very strong suspicion that there is fraud in there based on the evidence we have gathered through the process. For instance, a case where somebody on a visit voluntarily relinquishes their entitlement to a claim when we go forward would fall into that high suspicion case, but the evidence we have gathered would not be sufficient on its own to lead us to prosecution. It is frequently around the family arrangements where we are told that the partner only moved in that morning by coincidence just as we were visiting. So there is a high suspicion there. Low suspicion is based on the information we have gathered there could well be fraud in there, such as the child might in fact not be living with the person claiming the child benefit based on the type of information we are getting back, say, from a questionnaire, or we are unable to obtain third party verification from a GP or a doctor because they have not responded to us either because they choose not to respond or they feel uncomfortable in responding, but there is not enough to go on to allow a prosecution, and it is not a high suspicion. So there is judgment in there but there is also a lot of expertise from our trained validators who have looked at every single case.

  6.  That is distinct from incorrectness where the report quite clearly shows there are some actual administrative errors?
  (Ms Reynolds)  Yes, there is customer error and there is departmental error.

  7.  And they are teased out and categorised separately?
  (Ms Reynolds)  They are indeed, and that is a separate and quite important issue for us.

  8.  The totality of the fraud estimated is multiplied out by a half year, am I right about that?
  (Ms Reynolds)  For benefit reviews we take a snapshot, so if the review says, "Let's look at all the sampled cases and find out what has been incorrectly paid", we then annualise that snapshot. So we are saying there are 234 cases of confirmed fraud at around £10 a week, annualise that up and we get the total annual loss from this benefit. It is not a weekly benefit saving multiplier.
  (Mr Field)  Which is the number of weeks one. So there is a difference.

Mr Wicks

  9.  Does that include those who have gone home, as it were, back to their motherland? Because this is based on a sample, is it not?
  (Ms Reynolds)  Yes.

  10.  Obviously that sample will not cover those cases because they are abroad.
  (Ms Reynolds)  What it has covered is the total sample we looked at, which is around 4,000, and the cases where we have found we have lost money, and then that has been extrapolated across the whole child benefit caseload, which is around 7 million claims in a year, and annualised. So it will include, I think, the four cases where the person has gone abroad. Those will be incorporated in and we have lost as a result an amount of money on those cases.

  11.  Yes, but that is from that random sample.
  (Ms Reynolds)  Yes, from the random sample, because it is giving us a national overview without targeted——

  12.  I am confused.
  (Mr Field)  That is a separate operation, Malcolm. All these operations have these peculiar names but this one is called Operation Rattle and is actually specifically looking at those who have come to this country, legitimately claimed child benefit and then have left this country and have not told us they have left.

  13.  I understand that.
  (Mr Field)  If you look at those, then the Department has actually dug up some very real difficulties there and we report that. For example, you may wish to cite the evidence we did in university towns where people have quite legitimately come over here to study, claimed child benefit for their children and gone back but have not actually mentioned the fact they have gone back and been claiming benefit. Localised studies in those areas show this is one area where we do need to be very careful with taxpayers' money.

  14.  We have different data sources, there is the random sample, there is the stuff about people going home, as it were, abroad, but what I am searching for is what is your best estimate of total child benefit fraud per annum.
  (Ms Reynolds)  Per annum the national level shows £51 million lost every year.
  (Mr Field)  That is for those where we would prosecute. If we then add in the cases where we are pretty certain, and where practically in every instance people surrender their benefit books, the figure goes up to £180 million in total.

Chairman

  15.  I would like to bring in Patricia Hewitt in one second about the specifics of the report. I understand that it is important to keep the methodology across these benefit reviews consistent, that is absolutely well understood, but on child benefit looking at the random cross sample it is a benefit which has got £7 billion, £8 billion of expenditure annually and what worries me is if you take the embarkation number question, if people log a claim and go off, they can claim that money for 16 years. So when you annualise it up, as you do for other benefits, for the perfectly understandable methodology that we all understand, it does not actually apply to that particular scam, and you could, if you drilled down into the finer focused abuse involved in that particular criminal act, be losing far, far bigger sums of money than you report in your random sample in the Benefits Review.
  (Mr Field)  We accept that. This is one area for further work, both on the weekly benefits savings and the way we compute costs for these benefit reviews. For example, if you are claiming your mother's old age pension and she died 17 years ago, it is not a weekly benefit saving of 30-odd weeks, and part of the prosecution is trying to present carefully the information on how long somebody has been defrauding the Department. We are actually looking at this area following the Green Paper and it may be something which the Committee wants also to consider further and make representations on. There are the two areas—how do we compute weekly benefit savings for when we are across-the-board properly trying to safeguard taxpayers' money by undertaking checks, and we do that by weekly benefit savings, and then secondly, given that we have an agreement with the Public Accounts Committee that we are going to do these surveys on all our benefits one by one, how should we in fact work out as Hilary was explaining the annual loss. We maintain how that calculation is done so you could compare one survey with another and, as you know, on income support we have gone back a second time. That shows an increase but it may be because we are better now at finding fraud than we were before, so it is difficult to read too much into even the trend of the figures. The only change we have made in how we present fraud is that we are much clearer about the different categories. Hilary explained those which we prosecute, where the person almost certainly loses benefits, and the area where we have a suspicion of fraud but it is no more than that. There are those three areas and then there are the departmental errors and customer errors. We are trying to present information to you now, to the House of Commons, to the public, which makes that distinction between these categories. It is quite important for us to make it clear, because we can then see where the main areas of risk are for when we are working out where we should put staff.

  16.  My instinct is that in these particular very finely focused areas there is a much bigger potential for fraud, putting it no higher than that, than is thrown up in the survey.
  (Ms Reynolds)  Indeed. If you think of the sample as your now national, annual snapshot across the whole customer base of 7 million families—three-quarters of whom are not on any other benefit and do not think of themselves as DSS recipients—then what we have is a snapshot of that benefit across the range. You are right, we can then go into the risk categories, for instance the 16 to 19 year olds is showing up as around a 10 per cent risk, so this is giving us the big wide picture and what we can use it for is to drill down to get a narrower picture with more risks for us.
  (Mr Field)  One further point on that, the reason why we are more confident about the 16 to 19 year olds is because the previous Committee asked the last Government to undertake a special review. First of all, the review itself was brought forward and they particularly looked at 16 to 19 year olds because that was the concern of the Committee. The results, both for that special survey and what comes from this Benefits Review itself, are very similar. I think what Malcolm was saying is that while it is quite proper to read statistical significance into our results for the whole of the sample—Hilary said it was four families, I thought it was two with eight children but anyway—for those who were abroad, whatever it is, it is actually very small; a cluster of families and you cannot read statistical significance from that. What is worrying is the other work we have done from Operation Rattle which shows, as Hilary was saying, if you dig deeper down on some areas there ought to be major concern. There is concern from the Government and maybe later on we will explain some of the things we are doing, but not too much of them.

Ms Hewitt

  17.  Just sticking to fraud for a minute, a high proportion of the fraud and the high and low suspicions of fraud seem to be accounted for by living together or undeclared marriages. Those, if I understand the tables correctly, entirely relate to the lone parent premium, and given the change in the structure of child benefit this will be a declining problem?
  (Ms Reynolds)  Certainly the problem we have found on fraud within the lone parent premium is going to disappear, yes, but we will still have—I am not sure it is a problem—the trend that there are partnerships which change and children live with different parents over time and you have the shifting around of the care of the child and therefore the eligibility to claim benefit on behalf of the child.
  (Mr Field)  The child may have two names, Patricia, and therefore there might be two claims on them. Also, the way we have built up the sample was to do part of the child benefit survey as part of our income support survey, so there were issues thrown up with not just so much one parent family benefit but where there were other parts of income support claims which were not right. Then we looked separately at those which were not on income support and dealt with those separately.

  18.  Can you say a bit more about the difference in the findings in relation to child benefit fraud but as between parents who were also claiming income support and those who were not?
  (Ms Reynolds)  It might be easier, to avoid getting it wrong, if I could give you a written note with more detail on that.[2]

Chairman

  19.  That would be helpful.
  (Ms Reynolds)  I would hate to get it wrong.


2   See Ev. pp. 28-29. Back


 
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