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spent on Tax Credits, the information will be out of date and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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