Appendix 1
Introduction
The Government welcomes the Committee's Sixth Report
of Session 2013-14 which considered fraud and error within the
benefit system. The level of fraud and error is lower than before
the start of the Parliament and both the Department for Work and
Pensions (DWP) and Her Majesty's Revenue and Customs (HMRC) are
fully committed to reducing it further as part of the Government's
long-term economic plan.
The DWP has a strategic target to reduce overpayments
due to fraud and error to no more than 1.7% of Annually Managed
Expenditure (AME) spend by March 2015. This was set out in the
joint DWP and HMRC strategy on tackling fraud and error in the
benefits and tax credits system published in October 2010. We
remain committed to doing all we can to meet this target and are
working across Government and with local government to deliver
initiatives that will contribute to further reductions in fraud
and error as well as exploring any additional opportunities.
The Department is delivering key capabilities to
allow us to meet our strategic commitments, including fully supporting
the introduction of Universal Credit.
The 2013-14 initial estimates show that fraud and
error within DWP benefits stands at £3.3 billion or 2% of
overall welfare expenditure. Benefit fraud is at 0.7% of welfare
expenditure, claimant error overpayments have fallen to 0.9% of
spending and official error overpayments have dropped to their
lowest rate of 0.4% of benefit expenditure.
The DWP and Local Authorities (LAs) recovered around
£940 million in 2013-14 that had been overpaid due to benefit
fraud and error across Great Britain, an increase of £100
million over the last two years.
HMRC decreased the rate of tax credits error and
fraud from 7.3% in 2011-12 to 7.0% in 2012-13 and it is now at
its lowest level since tax credits were introduced in 2003. HMRC
is on track to reduce it further towards 5.5% by 2014-15.
Separating reporting of fraud
and error statistics
Whilst we understand that making a distinction
between claimant error and fraud is not always straightforward,
we believe 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 benefit
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. (Paragraph
19)
We are keen to hear views about the presentation
of our statistics and are happy to consider changes. We have a
continuous improvement approach to making our Fraud and Error
publication more accessible and relevant to users, recently adding
infographics, an example of which is shown below.
DWP already separate out fraud from claimant error
and official error within the National Statistics release. On
15 May 2014, DWP Press Office released via Twitter the following
"Infobite" that clearly sets the three types of loss
to the benefit system apart, with clear definitions.[1]
Fraud and error are presented together because they
are an estimate of the monetary amount lost to the benefit system,
which is a requirement of the Annual Report and Accounts, as examined
by the National Audit Office.
We agree that evidence suggests public perceptions
of fraud in the benefit system do not reflect the situation. However,
it is clear that this notion is not based on the national statistics,
whether fraud, error or the total. Therefore we do not believe
that changing the national statistics would have the desired effect
on public understanding. Maintaining the link between them allows
context to be drawn i.e. that fraud is substantially lower than
error.
Any substantial change to the calculation of the
estimates would be likely to undermine confidence in the accuracy
of the statistics. As DWP are currently working towards a target
to reduce fraud and error by 2014-15, no change could be considered
until after the
2014-15 publication as we need to keep the same measure to check
against our target.
We are, however, considering a redrafting of the
current publication: our 150 page document is unwieldy for our
stakeholders. The base data, methodology and content would remain
the same; the format of presentation (e.g. within a document or
part of the supplementary tables and charts) is what is under
consideration to ensure focus on key messages.
As part of this redraft, we will pay particular attention
to ways in which we can reduce the risk of conflation between
fraud and error, to meet the aim of the Committee's recommendation.
Communication with claimants
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. (Paragraph
24)
We recognise the importance of high quality communications
and the need to improve our letters to ensure these are written
in plain English, are understood by our claimants and importantly
drive the required claimant behaviours. As a result we have centralised
the development of claimant communications into one team within
our operational business.
The development and improvement of claimant communications
will be done following a standard operating model which ensures
claimant and behavioural insight are central to the production
of content for our communications, whether that be a letter, form,
text message or email.
Communications and behavioural insight experts within
DWP's Claimant Communications Unit have worked with academic and
industry experts to develop new core standards for claimant communications.
The improvement of our products will be aligned to these clear
standards which ensure we provide clear and simple explanations
to claimants. The Unit is working closely with operational colleagues
to transform the clarity and effectiveness of our claimant communications.
We are developing an improvement plan to ensure we
prioritise and target improvement activity at those products which
are causing the most issues both to our customers and from a business
efficiency point of view. To enable us to do this we are using
our performance data and speech analytics to pin point those letters
which claimants have to call for an explanation about. We will
also be establishing feedback loops with claimants, operational
staff and stakeholder organisations.
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
into fully transfer to Universal Credit. (Paragraph
24)
An early priority for the Claimant Communications
Unit is the improvement of ESA communications. This is on the
back of the recent Litchfield recommendations which highlighted
the need for improved products using behavioural insight to ensure
we drive positive claimant behaviour.
Housing Benefit, Universal Credit
and the role of local authorities
We welcome the introduction of the Automated
Transfer to Local Authority Systems (ATLAS). We recommend that
DWP and appropriate representatives from local government conduct
a joint review of ATLAS, including the level of resource needed
to analyse ATLAS data, with a view to enabling local authorities
to access the DWP data they need to verify Housing Benefit claims
more easily. This review should be conducted and improvements
implemented before the end of 2014. (Paragraph
37)
The Department works continuously with LAs and across
Government to explore ways of improving the administration of
Housing Benefit (HB). We should not consider the Automated Transfer
to Local Authority Systems in isolation as this is just one of
the ways data is shared with LAs.
In addition to ATLAS, LAs receive information about
changes in claimants' circumstances direct from DWP legacy systems
through a system known as Electronic Transfer of Data (ETDs).
LAs also receive information at the point of claim through the
Local Authority Input Document (LAIDs) and Local Authority Claim
Information (LACIs). Subject to a range of controls designed to
safeguard customer data, only authorised LA staff are able to
access the Department's Customer Information System (CIS) to see
information held by the Department.
Currently the ATLAS and ETD notifications do contain
a lot of duplicate information. This is because the data is drawn
from different sources within DWP (ATLAS draws its data from CIS,
while ETDs draw data direct from DWP legacy systems). CIS does
not contain all the data LAs need for HB purposes, neither do
the DWP legacy systems; drawing data from both sources gives LAs
access to the full range of data available to DWP. Removing the
duplication that exists between the ATLAS and ETD notifications
would be a significant improvement for LAs and DWP has a project
in place as part of the Local Authority Data Sharing programme
that is aiming to achieve this before the end of 2014.
In addition to this project the Department, in a
direct response to the Select Committee's Report, has work in
hand to develop and deliver an improvement plan for ATLAS to build
on and complement existing improvement activity. This will specifically
explore how challenges to performance improvement can be addressed
and how the existing arrangements can be optimised. This activity,
which will be undertaken across DWP and will involve local government,
is due to reach an initial view by August 2014.
It is in everyone's interests that LAs make the best
possible use of all the data available to them for the assessment
of HB claims. Where individual LAs are experiencing particular
performance issues the Department has a small team of specialist
consultants who will, at no cost to the LA, review processes with
them and suggest where improvements can be made. These reviews
will often include the consideration of the arrangements for handling
ATLAS notifications. In the past year this team has worked with
43 LAs and has previously run specific ATLAS workshops involving
representatives from over 35 LAs.
The Department also encourages the sharing of good
practice in a wide variety of ways. Examples include articles
in relevant newsletters and magazines and through the use of an
online collaboration tool to which all LAs have access at no cost
to themselves.
By utilising real-time information (RTI) on
PAYE income, Universal Credit has the potential to substantially
reduce incorrect benefit payments due to inaccurate or late reporting
of claimants' earnings; and it is projected to produce significant
savings in Tax Credits. However, RTI cannot provide the complete
solution, as it will not apply to a significant proportion of
claimants who are paid outside the PAYE system, including the
self-employed. Moreover, the full gains of RTI in relation to
reducing benefit fraud and error are largely dependent on the
successful national implementation of Universal Credit, which
is at least three years away by the most optimistic schedule.
We therefore welcome steps to apply RTI to existing benefits where
possible and recommend that DWP and HMRC consider methods to automate
this process. (Paragraph 48)
The real-time information Bulk Data Matching project
will match details of claimants receiving DWP legacy benefits
against HMRC RTI to identify those claimants who have either failed
to declare or have under declared earnings and non-state pensions.
The initiative will initially target 300,000 of the
highest value overpayments, over 200,000 of which are for HB only
whilst less than 100,000 of which relate to Income Support, Jobseekers
Allowance, Pension Credit, Employment and Support Allowance and
Carers Allowance.
This project is expected to begin generating referrals
in a number of tranches during 2014-15; the first of which is
expected to be issued in August 2014. This initiative was included
in the Autumn Statement and is estimated to save £114 million
in AME savings during 2014-15, £15 million of which are attributed
to HB.
Many of the Department's business processes include
the use of earnings information, and the validation of evidence
of earnings. Access to RTI data presents an opportunity to realise
significant process efficiencies and achieve a more robust validation
for payment calculations. The Fraud, Error and Debt Programme
has begun work to explore how RTI data can be integrated into
our business processes through different IT solutions. As part
of this work, the Programme has developed a Proof of Concept to
test how RTI data can be used to both prevent and detect fraud
and error. The learning from this will help to inform the development
of a permanent capability across DWP's products and services,
which the Programme is taking forward.
Identification verification and
the Integrated Risk Intelligence Service
We believe that in the longer term biometric
identity systems could have an important role to play in identity
verification processes across government. We recommend that the
Government continue the Cabinet Office work to explore a government-wide
system; and evaluate the benefits of biometric identity verification
in the social security system and more widely across public sector
services, including by examining the effectiveness of the voice-recognition
system currently used in Australia. (Paragraph
55)
DWP identified the pan-government Identity Assurance
(IDA) service, being developed by the Cabinet Office, as the core
of its strategic Identity Management (IDM) solution and has been
working closely with the IDA Programme (IDAP). In August 2013,
following engagement with DWP's major change programmes, the Department
provided IDAP with a high level outline of its requirements of
an IDA service.
Our work with IDAP has continued and plans are now
in place to implement a Beta test IDA with the New State Pension
digital transformation programme in late 2014. This Beta testing
will confirm IDA meets the needs of the digital business service
for the New State Pension, before we commence further Beta testing
of IDA with Universal Credit and that service's specific requirements
as well.
The IDA service addresses two distinct identity assurance
requirements: Identity Verification and Identity Authentication.
Identity Verification provides evidence-based assurance of the
real identity of a person. Identity Authentication then allows
us to confirm on subsequent occasions that we are still dealing
with the same person as originally verified, however we may interact
with them. There are up to four increasing Levels of Assurance
indicating improving confidence in verification or strength of
authentication achieved, as defined by Government standards.
For the online IDA service, both identity verification
and authentication are the responsibility of private sector Identity
Providers (IDPs), rather than any Government authority. Whilst
these IDPs must comply with the standards for verification and
authentication set by Government, they are free to determine which
compliant methods or technologies they use to verify and authenticate
a person's identity.
Biometric methods are needed to support the higher
levels of assurance that may be required in subsequent authentication
for high risk transactions, in line with HMG guidance, as appropriate
to the channel in which they are used. DWP is keen to ensure that
any value that can be obtained from biometric identity verification
is added to the integrity and security of its services. DWP will
evaluate the potential benefit that it may be possible to obtain
from biometric identity verification, and any added value which
can be included in the integrity and security of its services.
Simpler and cheaper authentication methods may be
more cost effective for the lower levels of identity assurance,
and may be able to support more flexible cross-channel use.
DWP has a strong requirement that the Cabinet Office
should lead on extending the IDA service to address authentication
in the telephony channel as well as the current online channel.
The telephony channel will remain important to meet the range
of accessibility and support needs of our customer base, as well
as for access to pan-government Assisted Digital services and
for other Departmental service contingency planning.
A major problem in developing an identity management
service for the telephone is how to link and bind an identity
already verified by a commercial IDP to a "credential"
issued or captured for a person to be automatically authenticated
to a department's own customer services over the telephone. This
"federation" mechanism is easier to achieve with current
online technologies than by telephone.
DWP will continue to actively engage in support of
the IDAP as they evolve the standards to reflect emerging technologies
around identity assurance in all channels. Industry has an important
role to play by offering insight from their experience, to help
Government innovate and address the core identity "federation"
requirement over the telephone channel. The Department is managing
its activity based on risk, evidence and intelligence to ensure
that our response is focused on the key areas of loss/risk. Within
the Fraud and Error Service, an Operations Centre has been established
to draw in insight, evidence and analysis, and provide recommendations
and priorities for deployment of resource.
The Single Fraud Investigation
Service Project
The Single Fraud Investigation Service (SFIS)
is, in principle, a good idea. However it makes no sense to roll
out SFIS nationally, ahead of the national implementation of Universal
Credit, while local authorities retain responsibility for Housing
Benefit. We recommend that the implementation of SFIS be aligned
where practicable with the expansion of Universal Credit Pathfinder
areas and with national implementation of Universal Credit. We
further recommend that, following the summer 2014 SFIS pilots,
DWP pause implementation of SFIS to enter into negotiations with
local government and the relevant trade unions about a national
framework for the transfer of local authority fraud investigations
staff into DWP. (Paragraph
75)
[See also Appendix 2]
The SFIS project will introduce a single set of policies
and procedures for all welfare benefit fraud investigations and
a single line of accountability in DWP's Fraud and Error Service
(FES). This will be a more efficient and effective way of delivering
investigations as, currently, criminal investigations of welfare
benefit fraud are carried out by 380 local authorities, HMRC and
DWP, using different approaches and often gathering duplicate
information on the same fraudster.
Single Fraud Investigations will be introduced in
two phases. Phase 1 goes live on 1 July 2014 in the following
LA areas: Blaenau Gwent, Cardiff, Corby, Cornwall, East Ayrshire,
London Borough of Hillingdon, Oldham, Southampton and Wrexham.
Phase 2 will be a gradual rollout of all remaining
LA areas from 1 October 2014-31 March 2016.
Experienced LA and HMRC fraud investigators will
be brought into DWP's local fraud teams, enhancing local knowledge
and expertise. This will lead to a consistent service for customers
across England, Wales and Scotland and allow for flexibility between
sites to better manage the peaks and troughs of work flow.
DWP believes any delays in the implementation of
the SFIS project would significantly reduce the business benefits,
delay any savings and would allow losses to the public purse to
continue at a time when measures to tackle fraud and error in
the benefit system are needed more than ever.
A delay in implementation would also lead to concern
and uncertainty for the staff affected as those involved in Phase
1 have already been issued with their transfer letters and advanced
discussions are taking place. The full rollout schedule has already
been shared with all stakeholders.
In response to the specific recommendations of the
Committee, the Project did consider aligning SFIS Implementation
with UC rollout during the Option Analysis but, for the reasons
given above, Programme Board agreed in November 2013 to adopt
the preferred approach of implementing over an 18-month period
from October 2014 to March 2016. The Project consulted extensively
and sign-off was obtained from all key stakeholders. The Project
has now gained approval to proceed to Phase 1 Implementation at
the Operational Readiness Review on 28 May 2014.
A firebreak is built into the implementation schedule
from 2 July to 30 September 2014 to allow for an evaluation of
the process, including any lessons learned. This time also allows
for the application of any changes to the Phase 2 process or detailed
implementation plans.
SFIS Project facilitates a National Joint Forum between
LA Trade Unions, Departmental Trade Unions and Local Government
representatives. The Forum is working on an agreement that will
ensure the protection of staff terms and conditions as they transfer
to DWP in phase 1.
The Project has reviewed the report published by
the Work and Pensions Select Committee and, taking into account
the significant progress made on the points raised by witnesses
since the Committee met in March 2014, SFIS is confident that
the recommendations have already been addressed.
Therefore, the Project will continue to progress
with the Implementation activity for Phase 1 and Phase 2 in line
with the current schedule. This decision has been shared with
the WPSC and the Project Stakeholders.
Data Sharing
We welcome the various pilots that DWP and
HMRC have conducted on how data held by private sector and other
public bodies could be used more effectively to reduce fraud and
error and we urge the Government to roll out the most successful
schemes as quickly as possible. (Paragraph
88)
The Cabinet Office has embarked on an open policy-making
process with government departments, civil society organisations
and experts to develop joint policy proposals on sharing data
across government. This includes data sharing for the prevention,
detection, investigation and pursuance of fraud, error and debt;
with which DWP and HMRC are fully engaged. The aim of the process
is to produce a robust policy paper, including proposals for any
necessary legislation.
DWP has a well-established data-matching capability
based on data received from HMRC in particular and the Ministry
of Justice among other government bodies. This is supplemented
by a regime of case cleansing based on predictive models informed
by past overpayment data.
DWP has a detailed understanding of the causes of
overpayment informed by our regular measurement of fraud and error,
the results of which are published each six months as National
Statistics. The main losses are in the means-tested benefits,
where failure to declare income, capital and partners are the
main concerns. Whilst DWP has long matched against HMRC PAYE P45/46/14
data, it has been clear for sometime that we need to access additional
financial data to make further inroads.
Past work with Credit Reference
Agencies (CRAs)
DWP has had three bulk-matching CRA contracts and
further debt tracing and propensity to pay ones. The first bulk-matching
one was with Equifax and matched against Income Support lone parents.
This was extended until DWP's joint contract with HMRC which was
won by Experian and matched against all our means-tested benefits
other than Housing Benefit (HB). DWP had a separate contract with
Experian for matching against HB.
DWP has learned a lot from these bulk-matching contracts,
including the wisdom of basing them on payment by results rather
than volume. We are also looking to learn lessons from HMRC's
successful experience, which can only partly be explained by the
existence of more living together loss in Tax Credits in the first
place.
The position on debt has been more successful. Debt
Management piloted the use of CRA data beginning March 2011. Cases
were scored and information provided on propensity to repay, which
enabled Debt Management to apply the appropriate strategy in terms
of engaging the debtor. Overall recovery on pilot cases increased,
whilst breakage rates decreased, with Advisors able to set sustainable,
lasting, repayment plans.
As a result, the use of CRA data was introduced by
way of business as usual. This has helped Debt Management meet
recovery targets and actively manage its debt stock. More recently,
Debt has commenced a proof of concept on the use of individual
Credit Bureau Level data as a means of better informing individual
negotiations. This work is currently on-going.
Current activity
DWP is running a Proof of Concept with the Audit
Commission's National Fraud Initiative. This includes a
wide range of data-sets not currently available to DWP, such as
public sector payroll, Student Loans, Amberhill Identity fraud,
and a variety of local government licensing and housing data.
The Department has sent 1.7 million cases drawn from
Income Support, Jobseekers Allowance, Pension Credit and Employment
and Support Allowance to the Audit Commission which is in the
process of matching it against historic data from the last exercise
in 2012. We expect to get access to the referrals in June 2014
and will be selecting a controlled sample to establish whether
there is a case to submit DWP data as part of the next NFI exercise
in October 2014, when the data will be fresh. Any Annually Managed
Expenditure savings will be associated with the 2014 exercise
rather than the current Proof of Concept.
DWP is a key partner in the Cabinet Office led Counter
Fraud Checking Service (CFCS) pilot. This is seeking to establish
the value of sharing known fraud data across the public and private
sectors, including the banking and insurance sectors.
DWP is running a Proof of Concept, exploiting Specified
Anti-Fraud Organisation legislation to see if we can establish
a mutual data-sharing arrangement to prevent fraud in both DWP
and the financial sector.
We also recommend that DWP and HMRC explore,
with the Payments Council and the banking sector, the feasibility
of establishing a system which flags up potentially incorrect
benefits and Tax Credit payments, using data held by payments
systems operators and banks on the types of payments due to enter
individual bank accounts. The system should be used to trigger
further investigation of potentially anomalous benefit payments,
rather than automatically reject payments. (Paragraph
88)
We are currently in discussion with the Payments
Council and the banking industry to create further advances in
the area of data sharing and payments.
We are hopeful that activity in the banking sector
with Vocalink around their Anti Money Laundering responsibilities
will be of benefit to DWP as we wish to obtain warning of account
"behaviours" that are not consistent with receipt of
certain DWP benefits.
This work is proceeding slowly as the banks are being
cautious in their response to our request to use data in this
way.
1 This "Infobite", plus others appears alongside our publication and can be accessed on the Internet. Back
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