3 Improving the quality of interventions
to tackle error and fraud |
11. To reduce error and fraud HMRC must identify
where claimants have not reported their circumstances accurately
or have done so fraudulently. The
tax credits system is designed to be responsive to changes in
claimants' lives and the
amount people should be paid changes with their circumstances.
HMRC has developed how it uses data to identify patterns and trends
in error and fraud to focus its interventions.
HMRC told us it has delivered a return on its investment in tackling
error and fraud, but it recognises the need for improvement.
12. There are six risk categories for tax credits
error and fraud loss, which relate to the main elements of tax
credits awards. While HMRC has reduced error and fraud in three
of these areas, it has made little progress
in two key areas 'undeclared partner' and 'work and hours'.
We recognise these are difficult areas to deal with. Together
they accounted for losses of over £1 billion in 2010-11.
13. Claimants applying as a single person and
not including their partner on the claim account for the largest
area of error and fraud.
Claimants must report household income, but identifying couples
who have claimed for tax credits as if they were single is difficult
as HMRC holds limited data on living arrangements and financial
has developed its ability to tackle this area using its CONNECT
system, which helps identify hidden relationships between people,
and new sources of third-party data. The results to assess the
performance of this intervention are not yet available.
14. There are a minimum number of hours claimants
need to work and it is a significant area of error and fraud which
HMRC has found challenging to address. This is partly due to wider
changes in how people are employed. We heard from Citizens Advice
of an increase in the use of zero-hero contracts and greater unpredictability
in the hours many people work, which can make it hard for claimants
to keep track of and report to HMRC.
HMRC is seeking ways to address this area of risk. It pointed
to the requirement, from late 2013, for all employers to report
real time information on how much they pay employees as a way
to improve how it identifies error and fraud.
15. Losses due to error
and fraud relating to 'children'
have almost doubled in three years, from £325 million in
2008-09 to £640 million in 2010-11.
This was partly due to HMRC's decision to automatically renew
around one million additional awards, so those claimants continued
to receive tax credits without taking any
further action. HMRC did not anticipate that this would lead to
an increase in claimants not reporting children aged 16 to 19
who had left full time education or training. HMRC did not carry
out enough checks in this area.
It intends to write to some claimants and require them to confirm
the information relating to children continuing in further education
or training on their claim.
16. We heard from HMRC that it has improved its
understanding of which interventions designed to tackle error
and fraud work and which do not.
It recognises that there is more that can be achieved to improve
the quality of how it targets claims for review. It is looking
to develop its analysis so that it looks at fewer claims but with
greater success in correcting awards.
HMRC is also seeking to identify new sources of data that it can
use to inform this analysis and
identify potential error and fraud. HMRC's
child benefit computer system does not automatically link to tax
credits and it undertakes a regular comparison of the data in
the two computer systems to identify discrepancies. HMRC recognises
it should be better at using the data it holds to identify patterns
17. Over 80% of error and fraud relates to changes
in the circumstances of claimants. This error and fraud can be
due to a claimant providing HMRC unknowingly or knowingly with
inaccurate information, or not proving any information at all.
Claimants notify HMRC of around six million changes of circumstances
each year and HMRC are unable to check the accuracy of each of
these changes. HMRC
undertakes a risk assessment of claims, but it was unable to tell
us how many of its interventions address changes of circumstance.
18. Claimants do not always understand what information
they need to report to HMRC and this presents a significant challenge
to HMRC in keeping claimants on the right award. Around two-thirds
of error and fraud that occurs due to a change of circumstance
relates to unreported information.
It has begun to use new analysis and data sources to improve how
it identifies unreported information, but the success of this
work is not yet known.
HMRC needs to understand why claimants do not report the information
it requires to make an accurate payment, but it has not yet developed
a detailed picture of how claimants behave.
34 Q 76; C&AG Report, para 1.2 Back
Q 151 Back
Q 97 Back
Q 73 Back
C&AG Report, Figure 1 Back
C&AG Report, para 11 Back
Q 74; C&AG Report, para 11 Back
Qq 20,124. Zero hours contracts are where an individual is on
call and is only paid for hours worked. Back
Qq 124-125 Back
C&AG Report, para 12 Back
Q 119; C&AG Report, para 3.19 Back
Q 119; C&AG's report 4.13 Back
Qq 96-97 Back
Q 97 Back
Qq 22, 64, 71-72, 106, 119 Back
Qq 81, 87 Back
Qq 87-97 Back
C&AG Report, para 3.24 Back
C&AG Report, paras 11, 4.7 Back
Q 139 Back