Select Committee on Public Accounts Thirty-Seventh Report


2  Error and Fraud in Tax Credits

13. Tax Credits carry the risk of fraud through applicants providing false information, for example understated or undeclared income, or by mis-representing their circumstances. There is also a risk that applicants may make genuine errors in their applications which may result in incorrect awards. The C&AG qualified his audit opinion on the Inland Revenue Trust Statement accounts for 2003-04 and 2004-05 in respect of applicant error and fraud in Tax Credits.

14. Under the previous Tax Credits scheme the Department estimated that overpayments due to claimant error and fraud amounted to 10 to 14% by value. The Department informed this Committee in December 2003 that error rates would be halved with the introduction of the new Tax Credits. But in January 2005, it could not confirm if it had achieved this and expected to complete its work on error and fraud rates by mid 2005.

15. The Department is still working to quantify the likely levels of error and fraud for the new Tax Credit schemes. In July 2005 it explained that due to the time needed to complete these investigations, final results for 2003-04 would not be available until Spring 2006. By then some £45 billion will have been spent on Tax Credits, the information will be out of date and the Department will only be able to use the results to target reductions in errors in 2006-07 awards.

16. The Department has made an interim estimate that it overpaid £460 million (around 3.4% by value) because of applicant error and fraud in 2003-04. But the final figure will be higher[26] because the completed work involved the easiest cases and it is likely that the more complicated cases will contain more errors and attempts at fraud.[27]

17. The Department has acknowledged that better checks could have been made where claimants notified them of changes of circumstances which affected their award.[28] Measures designed to improve compliance were announced in the Pre-Budget Report in December 2005.

Organised crime

18. The Department estimated that some £15 million has been lost because of organised fraud.[29] It closed the Tax Credit internet facility on 2 December following a concerted effort by organised criminals to defraud the system. This attack followed the theft of some 13,000 Department of Work And Pensions staff identities, which were then used to submit false claims. The extent of the attack shifted the Department's view of the balance to be struck between claimant accessibility to the system and the risk of fraud, which it now judges as severe.[30] The Department was at a very early stage of knowing the full extent of the fraud, but believed its fraud screening had stopped the majority of attempts. It had established a Tax Credits Organised Fraud Strategy Board to oversee its work on fraud.[31]

19. The risk of Tax Credit fraud is not limited to claims made over the internet. There are different and particular risks for each channel through which Tax Credits can be claimed and the Department acknowledged that there are potential risks to any application.[32]


26   Q 18  Back

27   Q 21 Back

28   C&AG's Report, para 2.45 Back

29   Qq 89-90 Back

30   Q 71 Back

31   Q 83 Back

32   Q 88 Back


 
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