2 The scale of fraud and error and
the Government's response
The three
categories of incorrect benefit payments
7. In official DWP estimates, incorrect benefit payments
are categorised into three groups:
· Official error,
due to "inaction, delay or a mistaken assessment by DWP,
a local authority or HMRC";
· Claimant error,
in which "claimants make inadvertent mistakes with no fraudulent
intent"; and
· Fraud,
when claimants "deliberately seek to mislead DWP or local
authorities which administer benefits on DWP's behalf to claim
money to which they are not entitled."[3]
8. DWP's annual estimates for each type of incorrect
payment are extrapolated from the results of a survey of a randomly
selected sample of benefit claims in payment. The survey "combines
data collated from DWP administrative systems and local authority
owned Housing Benefit systems with data collected from the claimant
during an interview." The estimates are produced to the high
standard required of National Statistics; a random selection of
results are re-checked by an independent team of experts, for
example. [4]
9. DWP publishes a short statistical summary of its
findings—four pages covering the 2012/13 estimates—which
sets out the headline results broken down by the three incorrect
payment types and the four core benefits which form the basis
of DWP's estimates (Income Support; Jobseekers Allowance (JSA);
Pension Credit; and Housing Benefit). Alongside the short summary
it publishes a detailed statistical report which sets out trends
in incorrect benefit payments; breaks down the data for each benefit
further, for example by claimant age and gender; and provides
methodological information and other background material.[5]
The scale of benefit fraud and
error
10. Of the total £5.1 billion of incorrectly
paid benefits in 2012/13, an estimated £1.6 billion was underpaid
and £3.5 billion overpaid. Of the £3.5 billion of estimated
overpayments: £700 million was due to official error (0.4%
of total benefits expenditure); £1.6 billion was due to claimant
error (0.9%); and £1.2 billion was due to fraud (0.7%).[6]
11. There is a large disparity between the official
estimate of benefit fraud and the public perception. In 2013,
an Ipsos Mori survey found that the general public believed that
24% of benefit payments are fraudulently claimed, some 34 times
greater than the level indicated by the official statistics.[7]
Fraud and error risk factors
12. The main causes of fraud and error in the benefits
system are well understood. The predominant causes are: complexity,
for example where entitlement to one benefit is linked to that
of others; and means-testing of claimants' income and financial
assets. There are also well-known risks around accurate reporting
of household make-up; entitlements for lone parents often
differ from those for parents living with a partner, for example.[8]
13. The National Audit Office's (NAO's) analysis
shows that incorrect reporting of income creates by far the greatest
risk of incorrect payments, accounting for £907 million of
overpayments (42%) across the four main benefits in 2012/13. The
next three highest value factors in the four main benefits were:
· Claims made as a single
person where the claimant is living with a partner (£268
million, 13%);
· Claims made by people
subsequently found to be "abroad or untraceable" (£232
million, 11%); and
· Claims made on the
basis of incorrectly reported savings (£176 million, 8%).
[9]
14. The current system therefore relies, to a large
extent, on claimants accurately, and in a timely fashion, informing
the administering department, agency or authority of relevant
changes in their circumstances. This is not easily achieved. In
2010 the Government concluded that:
Many customers claim multiple benefits and credits,
administered by more than one organisation. They have to report
changes of circumstance to different parts of DWP, HMRC, as well
as other government agencies and local authorities, and aren't
always aware who needs to be told what information, and when.[10]
15. The Government has stated that the introduction
of Universal Credit will reduce complexity in the benefits systems
by integrating a number of benefits into one household payment
calculated and administered by DWP. It believes that this "simplification",
accompanied by the use of real-time information on earnings (RTI)
drawn from HMRC PAYE income tax data, will contribute significantly
to reducing fraud and error (see chapter 3).
The DWP/HMRC joint fraud and error
strategy
16. In October 2010 the Government published a joint
DWP/HMRC strategy, setting out proposed actions to reduce fraud
and error in benefits and Tax Credits. The strategy document acknowledged
that levels of fraud and error had "plateaued" since
2005/06 (see key DWP and HMRC targets, below). It therefore identified
the need for "new and radical" measures, in which it
would take an "uncompromising" and "zero tolerance"
approach.[11]
APPARENT EMPHASIS ON BENEFIT FRAUD
17. Given that official estimates indicate nearly
twice as much error as fraud in the benefits system, we were concerned
that the Government's approach announced in 2010 appeared to place
the emphasis on addressing fraud. In the strategy document, Lord
Freud, DWP Minister for Welfare Reform, and David Gauke MP, Exchequer
Secretary to the Treasury and departmental Minister for HMRC,
highlighted the Government's intentions to:
· Employ private
sector firms on a payment by results basis,
where appropriate, to ensure the full adoption of cutting-edge
private sector fraud prevention techniques;
· Redirect resource
to the front line to prevent fraud and
error from entering the system in the first place, through enhanced
checks and tougher sanctions for those even attempting to defraud;
· Ensure that anti-fraud
activity is protected from cuts, including
through the recruitment of over 200 new anti-fraud officers to
sanction a further 10,000 fraudsters every year;
· Remove the current
silo-based approach to tackling fraud,
by creating new integrated cross-departmental data-matching and
fraud investigation services (see Single Fraud Investigation Service,
chapter 4);
· Introduce a system
for rewarding members of the public who
provide information that results in significant recovery of public
funds;
· Respond to the
growing threat of organised fraud through
a new Identity Fraud Unit and far tougher sanctions for those
involved;
· Introduce a new
mobile regional fraud taskforce to investigate
each and every claim in high fraud areas, to increase the certainty
of detection;
· Address the weakness
of the current penalty regime by abolishing
cautions as a penalty for fraud, increasing asset seizures, and
introducing far tougher one-strike and two-strike penalties, and
a new three-strike rule;
· Clean up nearly 2
million claims to remove error; and
· Increase the frontline
support provided by "Big Society partners" to help
educate and support customers to get it right first time.[12]
Of these ten measures, seven focus solely on benefit
fraud, one is aimed at fraud and error generally, and only two
appear to be specifically designed to combat error.
18. In response to our concerns that the Government's
approach was putting insufficient emphasis on reducing error,
Lord Freud told us that major initiatives to address official
error included: simplification of the benefits system through
the introduction of Universal Credit, including use of RTI; the
Automated Transfer to Local Authority Systems, an IT system which
since 2012 has provided local authorities with DWP data required
to verify Housing Benefit claims (see chapter 3); and greater
application of "data-sharing" (see chapter 5).[13]
Mr Gauke stated that the Government's aim was to reduce losses
to the Exchequer, whether through fraud or error. His view was
that making a distinction between claimant error and fraud was
not always straightforward; he highlighted that claimant error
"covers a fairly broad spectrum in terms of the level of
culpability on the part of the claimant".[14]
19. Whilst we understand that making a distinction
between claimant error and fraud is not always straightforward,
we believe that DWP could be clearer about the official estimated
level of benefit fraud. We therefore recommend that DWP publish,
on separate days, discrete statistical summaries of its estimated
rates of a) fraud and b) official and claimant error in the benefits
system, alongside its more detailed report, to reduce the risk
of confusion or conflation of these statistics in media reporting
and public perceptions about benefit fraud, and to emphasise the
importance of actions to reduce error as well as fraud.
Reducing claimant error: clarity
of claimant communications
20. In relation to claimant error, the largest of
the three categories of incorrect payment, Lord Freud told us
that DWP was trying, through marketing campaigns, to raise awareness
amongst claimants of the importance of reporting relevant changes
in circumstances and using a newly introduced £50 civil penalty
in cases where people had inadvertently or negligently failed
to do so.[15]
21. Lord Freud told us that a "core motivation"
of the Universal Credit (UC) policy was to reduce the likelihood
of claimant error by improving the clarity of DWP's communications
with claimants, so that they better understood their benefit entitlements
and their responsibility to report changes in circumstances. The
Department recognised that "too much of our communication
is too complex; there is too much jargon."[16]
DWP was developing communications which use "plain English".
Lord Freud stated that, once UC is developed and implemented,
there would be "a clean, straightforward system, which both
the claimant [and DWP staff] can understand".[17]
22. We wanted to know the extent to which the clarity
of DWP's communication with claimants was being addressed within
existing benefits as well as in the development of UC, particularly
as we have recently expressed doubt about whether the implementation
of UC can be achieved to the Government's planned timescale.[18]
Lord Freud told us it was very difficult to achieve "coherent
language" across DWP within the current system, as separate
teams worked on the different benefits.[19]
23. Improving
the clarity of DWP's communication with claimants will be a crucial
factor in reducing claimant error—the most prevalent cause
of incorrect benefit payments. Clear communication can help to
ensure that claimants understand fully their benefit entitlements
and the importance of reporting relevant changes in their personal
circumstances. We welcome work being done to improve the clarity
of DWP's communication with claimants, as part of the development
of Universal Credit. However, as we highlighted recently, considerable
uncertainties remain around the timescale for developing Universal
Credit, which cast some doubt on whether it will be fully implemented
in 2017.
24. We recommend that, wherever feasible, DWP
introduce updated claimant letters, using plain English, for its
existing benefits, drawing on its learning from the development
of Universal Credit communications. We also recommend that DWP
give special consideration to the clarity of claimant letters
in relation to Employment and Support Allowance, which will be
the last of the current benefits to fully transfer into Universal
Credit.
Progress towards fraud and error
reduction targets
25. DWP's targets for fraud and error reduction tend
to be related to the overall level of overpayments as a proportion
of total benefits expenditure. Its current target, set in the
2010 strategy, is to reduce estimated overpayments to no more
than 1.7% by April 2015.[20]
26. The NAO highlighted that there has been no statistically
significant change in overall levels of benefit fraud and error
since 2005/06—the overpayment rate has remained between
2.0% and 2.2%.[21]
Figure 1: Trends in DWP overpayments
Significant progress was made in the period from
2000/01 to 2005/06, during which the estimated overpayment rate
fell from 3.2% to 2.1%; however, it should be noted that statistically
significant change in the rate becomes more challenging as the
rate falls.[22]
27. HMRC has made more recent progress in reducing
Tax Credit fraud and error. The Tax Credit fraud and error rate
of 7.3% in 2011/12, down from 8.1% in 2010/11, was the lowest
since personal Tax Credits were introduced in 2003/04. However,
HMRC missed its target, set in 2008, to reduce the rate to no
more than 5% by April 2011.[23]
28. Although the NAO qualified its opinion on HMRC's
most recent financial accounts because of the overall level of
incorrect Tax Credits payments, its February 2013 report on Tax
Credits fraud and error noted that HMRC's recent approach had
been "successful" and "innovative" in some
respects. It found that HMRC had developed around 40 separate
measures since 2009 designed to address the six main risks of
fraud and error in Tax Credits—inaccurate information about:
partners; children; work and hours; childcare costs; income; and
disabilities. It had achieved "notable" success in relation
to three of the six risk categories: childcare costs; income;
and disability, in which considerable gains had been made through
a new approach to "data-sharing".[24]
We consider whether the Government, and DWP in particular, could
take a bolder approach to data-sharing, in chapter 5.
29. DWP has
a good understanding of the causes of incorrect benefit payments
and has devoted considerable effort and resources to fraud and
error reduction. However, fraud and error rates have plateaued
since 2005/06, with the estimated overpayment rate remaining between
2.0% and 2.2% of overall benefits expenditure. DWP will only meet
the target set in 2010, to reduce the estimated overpayment rate
to no more than 1.7% by April 2015, if it employs innovative approaches
which are aligned with the known risk factors associated with
each benefit.
3 NAO, Department for Work and Pensions: 2012-13
Accounts, Report by the Comptroller and Auditor General, December
2013, para 29 Back
4
DWP, Fraud and Error in the Benefits System National Statistics:
Quality Statement, accessed 15 April 2014 Back
5
See Gov.uk web page, accessed 10 April 2014 Back
6
DWP, Fraud and error in the Benefit System: 2012/13 Estimates
(Great Britain), January 2014 Back
7
Ipsos MORI survey, Perceptions are not reality: The top 10 we
get wrong, accessed 10 April 2014 Back
8
DWP/HMRC, Tackling fraud and error in the benefit and tax credits
systems, October 2010, chapter 2; NAO, Department for Work
and Pensions: 2012/13 Accounts, Report by the Comptroller and
Auditor General, December 2013, paras 28-47 Back
9
NAO (FAE0020) figure 5 Back
10
DWP/HMRC, Tackling fraud and error in the benefit and tax credits
systems, October 2010, para 2.3; NAO, Department for Work
and Pensions: 2012/13 Accounts, Report by the Comptroller and
Auditor General, December 2013, paras 28-47 Back
11
DWP/HMRC, Tackling fraud and error in the benefit and tax credits
systems, October 2010, p 3 Back
12
DWP/HMRC, Tackling fraud and error in the benefit and tax credits
systems, October 2010, pp 3-4 Back
13
Q156 Back
14
Q158 Back
15
Q156. Back
16
Q245 Back
17
Q156; Q245 Back
18
Work and Pensions Committee, Fifth Report of Session 2013-14,
Universal Credit implementation: monitoring DWP's performance
in 2012-13, HC 1209 Back
19
Q247 Back
20
NAO, Department for Work and Pensions: 2012-13, Report by the
Comptroller and Auditor General, December 2013, para 52 Back
21
NAO (FAE0020) figure 2 Back
22
DWP, Fraud and Error Measurement-Variance and Confidence Intervals,
accessed 15 April 2014 Back
23
NAO, Tackling tax credits error and fraud, February 2013,
para 3 Back
24
NAO, HM Revenue & Customs 2012-13 Accounts: Report by the
Comptroller and Auditor General, July 2013, para 4.8; NAO,
Tackling tax credits error and fraud, February 2013, paras
10; 2.15; 3.15 Back
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