Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 60-79)

DAWN PRIMAROLO MP, MR TONY ORHNIAL AND MS SARAH WALKER

14 MARCH 2007

  Q60  Mr Breed: So in terms of the actual figures, in 2005-06 there were 160,000 disputed overpayments which were written off and that has now in the current year dropped to 8,600 which is, by any measure, a massive reduction and that is all down to the fact that you now explain things in a way which means you have not made the error?

  Ms Walker: No, it is not that. What it is, is the cases we were dealing with in 2005-06 largely related to the very early days of the system. We did have a backlog that accumulated which we were then dealing with and in the very early days of the system, regrettably, we were making a lot more mistakes and therefore a lot more of those disputes were justified and we then did write off the overpayments. We have now got into a state where because we are turning these round in four weeks we are dealing with current issues and our current accuracy rates are much better and the level of mistakes is a lot smaller.

  Q61  Mr Todd: Just returning to a point that was raised earlier, in the trip that the Committee made to Preston, one of the absolutely clear impressions we gained was of a team with wholly inadequate management information to support their decision-making. I think actually some of the questioning that has come up has continued to confirm that. There is a lack of certainty as to how this system is working and that gives you a poor tool set to deal with problems that remain. I want to dwell on one or two of those problems. Firstly, can I talk about compliance arrangements with you. HMRC have increased the resources put into compliance checks and between 2004-05 and 2005-06 raised the number of checks by around 40%. The yield from the activity has increased by something like 300%. Can you explain the difference between those figures? What are you doing differently? Are you targeting it better? Are you finding more fraud? What is actually happening?

  Dawn Primarolo: The e-portal is closed and that would be a significant amount of that and I think, yes, the balance between pre and post award check, which has changed, enables better compliance and more information is available, so that produces that result and I think the figures are in the NAO table.

  Q62  Mr Todd: So you are saying the reason for that very large increase in 2005-06 of the yield was simply the identification of the fraud being perpetrated through the portal use?

  Dawn Primarolo: Yes.

  Ms Walker: A large element.

  Dawn Primarolo: Not all but a large element of it, yes.

  Q63  Mr Todd: Compliance checking is only a tiny proportion of the total number of claims, about 2% to 3% or something like that. How is that targeted?

  Dawn Primarolo: On a risk assessment the Department does.

  Ms Walker: We have a series of risk rules which are in our automatic systems which pick up characteristics of claims which suggest they need further checking.

  Q64  Mr Todd: I see and so there is a pretty scientific basis for the choice of 146,000, is there?

  Ms Walker: Absolutely.

  Q65  Mr Todd: On the basis that that complies with your risk analysis of your claim pool, you think there are about 146,000 that need to be checked more intensively?

  Ms Walker: Yes, we provide the resources that are necessary to check high-risk cases.

  Q66  Mr Todd: When you examine the track record of error which was discussed earlier in other questions, there appears still to be a relatively high prevalence of official error but also of claimant error as well, which of course compliance checks are supposed to address too; it is not purely an attempt to deal with mass fraud, it is also to deal with those who have genuinely put in the wrong information. Would the level of error that is known to us—and I have to say we do not know a lot—suggest that the compliance activity is too low?

  Ms Walker: The figures that we have for error and fraud, the ones that were published last year, relate only to 2003-04 which was the first year of the system, and we would hope that is not typical of the steady state, but, yes, it is true that the majority of that is error rather than deliberate fraud. We do to some extent use our compliance staff to pick up error but errors are also picked up within the normal processing.

  Q67  Mr Todd: What I am hinting at is whether this is a cost-based activity and you are putting in a certain amount of resource because that is what you think you can afford to do, bearing in mind the yield that appears to be being produced by compliance would suggest that you should be putting in rather more.

  Dawn Primarolo: It is based on the risk assessment that the Department gives me.

  Q68  Mr Todd: We only have the figures for 2005-06 so we do not have a particularly current position. What is your impression of compliance activity in the year just coming to an end?

  Ms Walker: We are continuing risk-based compliance activity, particularly in relation to—

  Q69  Mr Todd: Has it gone up, do you think?

  Ms Walker: The level of activity or the amount of non-compliance?

  Q70  Mr Todd: No, the level of activity. You did 146,000 checks in 2005-06. Do you think you will have increased that level in the year that you are just finishing?

  Ms Walker: We have done more I think because we were given more resources to do it in the current year.

  Q71  Mr Todd: Which slightly goes back on the point you just made, if I may be cruel. That contradicts what you have just said.

  Ms Walker: That was our assessment of the need.

  Q72  Mr Todd: I will be charitable.

  Dawn Primarolo: That is very kind of you but the assessment of the need is done on a risk assessment and the resources are put in, if the risk assessment indicates other resources are required, and that is what happens.

  Q73  Chairman: Can I just be clear about this 146,000; you are paying five million people and you are paying 98% of those claims without checking them?

  Dawn Primarolo: No, the tax credit system has a series of checks and balances in it and there is also a series of assessments on risk. I have said this before to the Committee so I will not go back over it. The attempts specifically looking at particular types of fraud and risk assessment were around pre checks, around the portal, around restricting the availability of paper claims, and those issues were directed specifically at a perceived threat on a risk assessment which the Department provides to me, a recommendation that they should do something. The tax credits system itself has compliance checks within it. I have done a note before on it but I am happy to do it again. As things go through the system, checks are made. For instance, I cannot remember whether it was one of the recommendations from this Committee or not, but the Department has undertaken a written exercise to two million families who are on the highest award or in the first taper going through with them and reminding them changes of circumstances that they should notify to the Department or changes of income. It was piloted first and that process is now underway, so there is a whole range, including the pilots that are going to be run—I think they start next Monday—on relationship breakup and whether or not there are improvements in procedure there that would speed things up. That is one of the issues that Mr Cousins has raised before. And we are looking at how we can make sure that the information is more timely and therefore changes are made quickly to act as a downward pressure on error.

  Ms Walker: Perhaps I can just add that the compliance checks are not the only checks we make to guard against error. All the claims that we get in are run against internal consistency checks so errors that are on the claim form will be picked up at that stage.

  Q74  Mr Todd: I am assuming there is some sort of process. I suppose I should not assume that based on what I have seen, but I am assuming that even this setup has some routine checks. I also noted the balance between the checks on claims that have not yet been paid and the ones that have been paid also changed between the two years, so we have started seeing a greater number of checks on claims that had not been paid at that point. Is there any legal obstruction to investigating an award before it has actually been finalised, because what we certainly found in the previous year was that the overwhelming majority of the compliance checks were on awards that had already been made and therefore you were already into attempting to recover from people or deal with a criminal act which had had some success.

  Ms Walker: We are legally entitled to check the information before we make a decision.

  Q75  Mr Todd: Even the process of investigating someone's circumstances in some detail?

  Ms Walker: Yes.

  Q76  Mr Todd: Such as obtaining information about their income and domestic circumstances and so on, if you suspect that that may be—

  Ms Walker: Yes, if we have reason to believe that the information in the claim is not correct then we are entitled to check it.

  Q77  Mr Todd: Okay. What do you think is a reasonable figure to aim for? We have had the earlier discussion about the levels of fraud and error in the system. What do you think is a reasonable target for the system?

  Dawn Primarolo: I think it should be as low as it possibly can be and we should be driving—

  Q78  Mr Todd: I am sure you would.

  Dawn Primarolo: The PAC requires 1% as the benchmark.

  Q79  Mr Todd: We do not know where we are in relation to that?

  Dawn Primarolo: But we should drive it down as hard as we can using the tools that we have to do that, and that is what is going on. I do not have a figure that I think will be all right for error and fraud because I do not think that would be acceptable to Parliament.


 
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