3 Claimant error and fraud
17. Tax credits are vulnerable to fraud through applicants
providing false information, for example by failing to declare
or understating their income, or by misrepresenting their circumstances,
for example by failing to declare the existence of a partner.
Claimants may also make genuine errors in their applications which
result in incorrect awards.
18. In our last report on tax credits we concluded
that the design of the tax credits scheme does not give proper
protection against error and fraud.[18]
The Department tries to maintain a balance between ensuring the
accessibility of the scheme to claimants and maintaining safeguards
against the risk of error and fraud. But tax credits continue
to suffer from the highest rates of error and fraud in central
government. While the Department has a range of measures to combat
fraud, including verification checks before the claim is paid,
it explained that it accepts changes in income and circumstances
notified to it by claimants in good faith.[19]
This approach means that erroneous or fraudulent disclosures may
only be detected by post payment checks and may go undetected
altogether.
19. The Department's most recent estimate of claimant
error and fraud in tax credits is based on awards for 2004-05.
It shows that between £1.0 billion to £1.3 billion (between
7.3 to 9.1% of the final value of awards) was paid to claimants
where they were not entitled. These are HMRC's latest figures
for overall levels of error and fraud. The C&AG concluded
that these levels of error and fraud are unacceptably high and
qualified his opinion on HMRC's Trust Statement.
20. At the Committee's previous hearing, and in response
to our last report on Tax Credits, the Department undertook to
set a target for reducing error and fraud. The Department has
now said that it cannot set targets for the reduction of error
and fraud until early in 2008, when it has two good years of data
from the early operation of the scheme.[20]
So the Department will have operated the scheme for five years
without a target for reducing error and fraud.
21. The Department is taking steps to accelerate
the production of estimates on the level of error and fraud and
will publish results for 2005-06 at the end of 2007. It plans
to publish figures for 2006-07 during the summer of 2008. It is
also examining how it can obtain early indicators of attempted
error and fraud, for example, by deriving an estimate from its
compliance work on new claims.[21]
18 Committee of Public Accounts, Twenty-second Report
of Session 2006-07, Tax Credits, HC 487 Back
19
Treasury Minute; Committee of Public Accounts, Twenty-second Report
of Session 2006-07, Tax Credits, HC 487, paras 15-17; Q
48 Back
20
Q 8 Back
21
C&AG's 2006-07 Standard Report, para 2.32 Back
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