1 The scale of fraud and error
1. The Comptroller and Auditor General qualified
the Department's 2003-04 Resource Account because of:
- substantial levels of estimated
losses from fraud and error in benefit expenditure recorded in
the operating cost statement;
- a significant limitation in the evidence made
available to the National Audit Office during the audit of expenditure
on Incapacity Benefit; and
- material uncertainties over certain debtor balances
in the balance sheet.
The Comptroller and Auditor General has now qualified
the accounts of the Department and those of its predecessor Departments
for the past 15 years because of the scale of fraud and error
in welfare benefits.[1]
2. In 2003-04 the Department spent some £109
billion on a wide range of benefits, employment programmes and
the associated administration costs. It estimates that around
£3 billion of this expenditure may have been lost from benefit
payments because of fraud and error, the same estimate as reported
in 2002-03 and 2001-02.[2]
3. The Department has nevertheless made progress
in reducing fraud in the three highest risk benefits. The Department
estimates that in 2003-04 overpayments to customers of working
age from fraud and error in Income Support and Jobseeker's Allowance
amounted to £840 million, 6.4% of expenditure on those benefits.
This compares to an equivalent sum of £1220 million, 10.4%
of expenditure, in the period October 1997 to September 1998,
the first year that the Department produced accurate estimates
for fraud and error in these benefits.[3]
4. The Department said that losses from fraud and
error in Housing Benefit, which is paid by local authorities on
the Department's behalf, is currently estimated at around £600
million (4.9% of expenditure on that benefit), which is a reduction
from the baseline of £700 million for 2002-03 (5.4%), when
the Department began continuous measuring of Housing Benefit fraud
and error.[4]
5. While therefore some progress had been made with
fraud, especially in Income Support and Jobseeker's Allowance,
there had in recent years been little change in levels of customer
error, much of it caused by the complexity of the benefits. Official
error remained a problem and the Department had lost some ground
as a result of the recent re-structuring to create Jobcentre Plus
and the Pension Service. The churn in the organisation and the
disruption caused by the introduction of new techniques and improved
IT systems had increased the level of official error.[5]
6. The Department said that tackling fraud and error
was an important priority, although it had to be seen in the context
of a range of objectives set by Ministers. It has a set of public
service agreement targets and resources allocated to achieving
them. Reducing fraud and error was one of a number of objectives,
alongside, for example, helping people into work and increasing
take up of pensioner benefits. Ministers also expected the Department
to maintain the quality of service to customers and make staff
reductions. The budgets and targets together drove the running
of the Department. The current efficiency programmes would allow
the Department to meet most of the targets within budget and reduce
the number of staff by 30,000 by 2008 as planned. Savings arising
would be in the order of £1billion a year.[6]
7. The Department's estimates of fraud and error
in benefit expenditure are based on a mixture of in-depth rolling
programmes that re-perform a large sample of benefit awards each
year in particular benefits, and snapshots of fraud and error
on other benefits which are up to six years old. On this basis
£2 billion has been attributed to fraud and £1 billion
to error. Because of uncertainties in measuring fraud and error,
figures are rounded to the nearest £500 million. Compared
with 2000-01 estimates, the Department now believed that on a
rounded basis the figure for fraud was £500 million lower,
though the reduction was not a saving which had occurred in one
year. Official error on the other hand had shown some increase
in consequence of restructuring. So while the overall fraud and
error level was still estimated at around £3 billion, fraud
and error were both now estimated to be about £1.5 billion.[7]
8. The Department was working to improve the accuracy
of its measurement of fraud and error but the work was expensive,
and priority had been given to the highest risk benefits. Thus
attention had focused on Jobseeker's Allowance, Income Support,
and Housing Benefit. Retirement Pension was a considerable proportion
of the welfare budget but was not generally susceptible to fraud.
A review of Disability Living Allowance was published in the summer
of 2005, which will help to produce a more accurate estimate,
and the Department was also intending to look at Incapacity Benefit.
It aimed to have arrangements that would measure fraud and error
across all benefits on a consistent and up to date basis.[8]
9. Assessing how well the Department is performing
on fraud and error is made difficult by a lack of comparators.
The Department did not think that it could readily be benchmarked.
In comparison with other countries it might show up badly because
it had a record of measuring fraud and error, which was quite
unusual. It could not obtain data on fraud and error from the
private sector. [9]
10. The Department thought that a significant reduction
in fraud and error would take many years, but confirmed that progress
was being made in specific benefits. It was in line to meet targets
set by the Government for 2006 for Income Support, Jobseeker's
Allowance and Pension Credit, although it was uncertain whether
it would achieve the 25% reduction target on Housing Benefit.
Even here, it expected to be able to report substantial progress
by 2006. Overall, however, there was no possibility of eliminating
fraud and error with the present framework of benefits. The losses
had to be seen in the context of the £105 billion of programme
expenditure.[10]
11. As anticipated, the ending of the use of giros
and order books and the introduction of payment of benefit by
direct debit was reducing the scope for fraud. In 2004-05, as
a result of the new methods of payment, the Department expected
to reduce fraud by £45 million and save £160 million
in administrative costs from new methods of payments. It expected
that these amounts would rise to £60 million and £400
million in due course, before offsetting the cost of the Post
Office card account. The Department said that in March 2005 25.6
million were being paid by direct debit, and it had more than
achieved its target of 85% of customers paid in this way. It was
aiming to increase much further the percentage paid by direct
debit.[11]
12. There are still regional differences in fraud
and error rates. Fraud and error rates in London remain higher
than elsewhere, as they were when the Committee reported in 2001-02,
but they are converging with the rest of the country. For example,
in 2001-02 fraud and error in Income Support and Jobseeker's Allowance
in London was 9.9% of expenditure compared with 7.6% nationally.
In 2003-04 the comparable figures were 7.2% and 6.4% respectively.
Within the South East, however, the percentage of overpayments
from fraud, customer error and official error in Income Support
and Jobseeker's Allowance has increased since 2001-02. Fraud is
acknowledged to be higher risk in London and the big cities than
elsewhere.[12]
1 C&AG's Report, Department for Work and Pensions
Resource Accounts 2003-04, paras 2, 5 Back
2
ibid, paras 1, 4 Back
3
ibid, paras 4, 7 Back
4
Q 90 Back
5
Qq 86-88, 110-111 Back
6
Qq 128,132 Back
7
Qq 1-7, 34-36 Back
8
Qq 4,8, 51 Back
9
Qq 112-115 Back
10
Qq 37-51 Back
11
Qq 23-33
12 Qq 116-117; Ev 15 Back
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