APPENDIX 1
Supplementary memorandum submitted by the Department for Work and Pensions
Questions 191-193: Explanation of the Department's Prosecution Policy?
The Department's prosecution policy needs to be set in the context of its overall counter-fraud strategy which is:
— To prevent fraud occurring in the first place through deterrence and tight checks at the gateway to benefit;
— Once benefit is in payment, to reduce our exposure to loss by means of additional checks in cases judged most likely (through risk analysis) to fall into fraud and by intervening quickly where there are early indications that fraud or error may have crept in;
— To investigate in depth, with a view to prosecution or other sanctions, in the smaller number of cases where there is good reason to suspect that significant fraud is occurring.
Investigating in depth is increasingly expensive as the procedures required by the criminal justice system become more onerous. As with any form of criminal investigation there will be cases where suspicion remains but it proves impossible to obtain sufficient evidence to warrant prosecution. Presenting cases for prosecution itself involves further cost, which means that acting on low-value cases may not be a good investment. As a general rule first time frauds of less than £400 are offered as cautions rather than prosecutions. Above that mark but below £1,500 the Department would usually offer an administrative penalty in a first time case. Cases where fraud has been proved before, or the loss is over £1,500, are normally sent for prosecution. In 2000-01 the Department had a success rate of 98 per cent with prosecutions.
Prosecution, and the use of cautions and administrative penalties, provide a clear deterrent and form an important part of the Department's armoury. But the resource devoted to them has to be determined within the context of the overall counter-fraud strategy set out above, the key objective of which is to prevent fraud entering the system in the first place or to nip it in the bud by early and cheap intervention wherever possible. Promoting additional prosecution-related activity at the expense of the latter could hamper our ability to drive down loss. In summary therefore, the Department's policy is where possible to increase the number of prosecutions and related sanctions by better-focused use of our investigative resources, but not by diverting effort from other parts of the counter-fraud programme.
Question 228: Information about euro compatibility?
As discussed at the hearing, DWP has a team that works on planning and preparation to identify the changes that would be required in the event of a UK decision to join the single currency. As part of this team's work, they have considered the resource implications of delivering that process.
On the basis of the planning framework set out in the Government's Outline National Changeover Plans, DWP has made broad estimates of the possible resource implications. However, it is not yet possible to determine what proportion of these resource pressures would be absorbed within existing work programmes and what proportion would need to be resourced additionally. The estimates are based on the assumption that the euro conversion work would be carried out in isolation to all other DWP work. This would of course not be the case in practice.
In addition, and as touched on at the hearing, DWP is also building in euro compatibility as it modernises systems. DWP has negotiated a Service Level Agreement with its main IT providers, the AFFINITY consortium, that all new systems should be built with euro compatibility. This will minimise the amount of work and investment that would be needed to deliver a changeover in the event of a UK decision to join the single currency.
Social welfare institutions in the euro area have not produced estimates of costs, even though they have now completed the changeover process. Their experience suggests that it is simply not possible to disaggregate the costs of euro changeoover in an environment of continual change.
So at this stage we are unable to provide a definitive estimate of costs. The costs of conversion would depend on the approach taken. What we can say is that early planning helps to minimise costs.
Question 239: Information about the extent and nature of organised crime?
Organised fraud is often linked to the work of criminal gangs, fraud against other organisations (particularly Government Departments) and criminal activity across regional and national boundaries. We estimate the level of organised fraud at around £100 million in 2000-01. It falls under two headings: instrument of payment fraud and identity fraud.
Criminal gangs are often implicated in instrument of payment fraud, for example:
— targeting of the Consignia delivery network, allowing theft from within the delivery pipeline;
— counterfeiting of instruments of payment—estimated at around £5 million a year;
— direct theft of instruments of payments, often accompanied by manipulation of the payment instrument to gain higher amounts.
DWP investigates these cases vigorously, working closely with Consignia to improve the security of the system. During 2000-01, we introduced the Order Book Control System which uses barcode scanning to identify order books that have been reported lost, stolen or recalled. Losses fell by around 30 per cent during the implementation period. The move to Automated Credit Transfer as the normal method of paying benefits should virtually eliminate this type of fraud.
Identity fraud, whether by individuals or gangs, is always organised fraud in that it requires considerable preparation and a deliberate intention to mislead. It is often directed against several government departments. In essence it involves either the establishment of one or more bogus identities on entry to the system (ie at birth or on entry to the UK) or the hijacking and misuse of other identities. It nearly always involves the use of false documentation. Examples include:
— people smuggling—including the establishment of false identities in this country;
— hijacking of legitimate identities;
— using false documentation to establish a number of false identities after entry to the UK;
— having only one identity, which entitles the individual to state support, but that identity not being the individual's true identity—eg an individual settling in the UK on a bogus EU passport.
Identity fraud on entry to the UK is clearly restricted to those moving into the UK. The production of false identities is particularly likely in areas where entry to the UK would be unlikely using the true identity. For this reason areas of highest risk include West Africa, Eastern Europe and the Balkans. The production of false identities can reflect the activities of larger criminal networks engaged in people and drug smuggling and other criminal activities.
The Department's system for measuring fraud in IS/JSA uses a research style interview during home visits to a random sample of customers. The interview involves an identity check. In a small number of cases there is no person with the correct identity at the given address and no other trace of them can be found. Extrapolated across the caseload the expenditure on these cases is around £83 million and it is reasonable to assume that cases of identity fraud form a subset of that figure.
Very few cases are actually detected. While this may reflect in part the difficulties involved in the detection, it also suggests that this type of fraud is not pervasive. This chimes with the evidence available to other government departments. Therefore the Department assumes that the loss from identity fraud may be below £20 million a year.
Identity fraud is tackled mainly by the organised fraud teams in the Benefits Agency Security Investigation Service. This, however, is only part of wider efforts across government to prevent and detect identity fraud. This brings in the work of the Immigration Service, the Office of National Statistics and the Police and links into national criminal intelligence work. The Department has significantly tightened the identity checks it applies when adults arriving in the UK from abroad apply for National Insurance Numbers, the area where greatest vigilance is needed.
Question 247: Breakdown of the number of cases which make up the estimates for fraud, customer error and official error?
The estimated number of cases of fraud and error in IS and JSA during 1999-2000 and 2000-01 is set out in the following table:
|
1999-2000 Data |
Fraud |
Customer Error |
Official Error |
|
Income Support |
216,000 |
301,000 |
493,000 |
|
Jobseeker's Allowance |
120,000 |
32,000 |
125,000 |
|
2000-01 Data |
Fraud |
Customer Error |
Official Error |
|
Income Support |
204,000 |
296,000 |
476,000 |
|
Jobseeker's Allowance |
86,000 |
20,000 |
86,000 |
Note: There is an unquantifiable overlap between the estimates of customer error and official error.
Ref Annex A below.
March 2002
Annex A
Correspondence from Ms Rachel Lomax, Permanent Secretary, Department for Work and Pensions to Mr Nick Gibb MP
I promised to write to you to clarify the apparent discrepancy between the answer given to your recent Parliamentary Question and the answer provided yesterday in respect of question 247.
On 28 January, in answer to your Parliamentary Question asking what proportion of claimants were found to have made fraudulent social security claims (in the last two years) were prosecuted, you were told that the information was not available.
In our note to the PAC following the hearing on 4 February we supplied a table, in response to question 247, containing estimates of the number of cases of fraud in Income Support and Jobseekers Allowance in each of the last two years.
The key point is that the figures in this table are only estimates, extrapolated from the results of the Area Benefit Reviews. A sample of around 30,000 claimants was visited each year. The interviewer suspected fraud in some of them; these suspected cases were referred for a fraud investigation and in some cases fraud was confirmed. The results were then extrapolated across the whole caseload to provide an overall estimate of the number of fraudulent cases. However, we did not have evidence of fraud in particular cases other than those that formed part of the original sample. Indeed, the individual cases themselves were not identifiable.
Your Parliamentary Question referred to a proportion of claimants "found to have made fraudulent social security claims." We cannot answer the question as framed, for reasons I tried to explain—rather inadequately—at the hearing.
Figures from a statistical exercise that produced an estimate of fraudulent claims are not a basis for saying how many people have been ``found to have made a fraudulent social security claim.'' As I explained at the hearing on 4 February, we know how many cases were actually referred for a fraud investigation and we know how many of those cases had their benefit changed as a result. But that does not mean they were all fraudulent. The investigator may have accepted that there had been a genuine mistake or the evidence of fraud may have been lacking, despite the efforts made. Hence we are not able to state the number of cases that were found to be fraudulent within the 182,000 cases where the benefit was changed. It follows that we cannot express the (known) number of prosecutions as a proportion of this.
I hope this clarifies the situation.
Rachel Lomax
Department for Work and Pensions
March 2002
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