Summary
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 believe 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 desirable but 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 2003-04, 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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