- Levels almost doubled in pandemic from already
record highs
- Mistaken overpayments now account for 7.5% of
Department’s benefit expenditure
- Failure of even ambition to recover overpayments
means ‘billions of taxpayers’ money is almost certainly
lost’
The level of fraud and error
in the benefit system
almost doubled during the pandemic from what was
already the highest rate since records began.
Overpayments of benefits now stand at £8.3 billion,
7.5% of the DWP’s overall benefit expenditure (excluding State
Pension) of £111.4 billion.
Fraud and error were rising year-on-year before COVID-19
(and the NAO has qualified DWP’s accounts every year since
1988–89) but the Department’s response to the pandemic opened-up
new weaknesses in its systems, which the Committee says “both
organised criminals and dishonest opportunistic individuals have
used to steal from the taxpayer”, billions of whose money “is
almost certainly lost”.
At the start of the pandemic, DWP introduced a number
of ‘easements’ - relaxing or adapting usual fraud and error
controls - to enable it to manage unprecedented new numbers of
claims, alongside implementing public health measures. DWP
warned the Committee in evidence in September 2020 that
responding to the spike in demand for
benefits during the pandemic would increase fraud and error,
but the Committee says today that the amount of taxpayers’ money
being lost is “simply unacceptable”.
DWP has been investing in data and intelligence systems and in
3,000 new staff, to - among other tasks - begin to tackle years
of payment errors that had been uncovered even before the
pandemic began. But the PAC
“remains sceptical about whether its approach will
result in a real and sustained reduction in the levels of fraud
and error”, and DWP admitted in evidence that it will be unable
to demonstrate any such improvements in 2021-22.
, Chair of the Public Accounts Committee
said: “Mistaken overpayments now account for 7.5% of
DWP’s benefit expenditure. Add to this the huge task of
correcting years of underpayment of State Pension, and
the Department’s resources are stretched. This is a real-life
waking nightmare for the huge numbers of people affected, from
the most vulnerable in our society to the full-time working
families who still struggle daily to make ends meet. The
Department appears unequipped either to properly administer our
labyrinthine benefits system or detect and correct years of
mistakes across too many of our basic state welfare entitlements,
far pre-dating its current woes.
“This situation is untenable and taxpayers – who also include
benefit claimants - are losing billions because of it. There
needs to be a step change in understanding the impact of benefit
errors on people’s lives and restoring trust, because as we’ve
seen recently with pension underpayments, once a mistake in the
system materialises it can take years to resolve.”
Conclusions and recommendations
-
The scale of fraud and error in the benefit system has
almost doubled during the pandemic from what was already the
highest rate since records began. The Department spent
£111.4 billion on benefits other than the State Pension in
2020-21 and estimates that it overpaid £8.3 billion (7.5%) and
underpaid £2.2 billion (2%). This is the highest level of fraud
and error since records began in 2005. It is also the highest
ever rise in fraud and error, following last year’s (2019-20)
record high when the Department overpaid £4.6 billion of
benefits (4.8 % of 2019-20 benefit expenditure excluding State
Pension). The Department is investing in 3,000 new staff to
help combat fraud and error but has not yet explained what it
can achieve with this additional resource or new approaches to
tackle fraud and error. We previously recommended that
the Department should set annual targets by risk and benefit to
allow it to demonstrate its progress in tackling fraud and
error. Despite committing to do so, the Department has deferred
setting a target for a lower rate of fraud and error until
after the Spending Review.
Recommendation: We again recommend that the
Department takes action to achieve a sustained reduction in
fraud and error across all benefits. Alongside its Treasury
Minute response, the Department must set clear
targets for reducing fraud and error, by benefit and
risk area, against which progress can be measured, and base
these on its planned counter-fraud activities and
investments.
-
The Department’s failure to recover overpayments means
billions of taxpayers’ money is almost certainly lost.
The Department only attempts to recover a small part of the
estimated overpayments of benefits. Over the last 5 years
around 10% of benefit overpayments have been detected and
referred for collection. Some £16.1 billion of overpayments go
undetected, unrecovered, and lost to the taxpayer. Preventing
loss and recovering overpayments at this scale could reduce the
post pandemic burden on taxpayers and have a significant impact
on the Government’s ability to address other social and
economic issues.
Recommendation: The Department should, as part of its
Treasury Minute response, set out what action it is taking to
recover the money it has paid out because of fraud or error,
and set annual targets for recovering taxpayers’
money.
-
We are concerned by the Department’s assertion that it
will be unable to demonstrate a reduction in fraud
and error in 2021-22. The
Department asserts that the level of fraud and
error in its annual official statistics will remain
at around 3.9% of all its benefit
expenditure and not fall significantly when it
reports its next estimate in May 2022.
It attributes this in part to the timing of when
it conducts its sampling exercise. But the
Department has adapted or reintroduced many of
the controls it relaxed at the start of the
pandemic in an attempt to prevent fraud and
error. It has also checked and corrected
927,000 of the new claims for Universal Credit where fraud or
error was potentially identified. While the
Department claims that it is
making savings across the benefit system, it is
unable to explain how these will reduce the
amount of fraud and error in
its expenditure.
Recommendation: The Department needs to demonstrate
that its actions are reducing fraud and
error. Working with the National Audit Office, it
should ensure that by the time of its 2021-22
Annual Report and Accounts it has in place a
framework for reporting which allows:
- timely reporting of progress, in addition to the annual
statistical estimate, to support more responsive action to fraud
and error trends;
- a consistent basis for reporting how much money has been lost
or saved for the taxpayer as a result of action to
prevent fraud and error; and
- supplementary information on how much of
the overpayments and underpayments have
been detected and how much has been recovered or
paid out in arrears.
-
The Department has lost a grip of Universal Credit
overpayments, which account for most of the £3.8 billion
increase in fraud and error and are now at the highest
overpayment rate of any benefit. The Department
estimates it overpaid £5.5 billion of Universal Credit in
2020-21, which is equivalent to 14.5% of its overall Universal
Credit expenditure and £3.8 billion more than 2019-20. This
compares to the previous peak of 9.7% overpayments in Tax
Credits in 2003-04. The business case for Universal Credit said
it would reduce overpayments due to its reliance on real time
information on people’s incomes from employers. But the rate of
overpayments has increased every year since the Department
started to measure Universal Credit overpayments in 2015-16. It
still aims to reduce fraud and error overpayments to the 6.5%
level specified in the original business case for Universal
Credit by 2027-28. It also aims to move all the people claiming
legacy benefits and Tax Credits to Universal Credit by the end
of 2024, which means a significant number of new claimants will
shortly move onto a system that is error prone. The Department
is unable to show how it expects to achieve the reduction to
6.5% and does not currently have the necessary plan or
resources to achieve it.
Recommendation: The Department should, in its
Treasury Minute response, set out how it will achieve the target
of 6.5%, specifically setting out what it will do, its
expected milestones, and its
target reductions for every year up to
2027-28.
-
The Department was taken by surprise by the significant
rise in the significant rise in levels
of Universal Credit fraud attributed
to self- employment and capital
declaration during the pandemic. This increase in
overpayments has been overwhelmingly due to fraud: either
individuals stealing taxpayer’s money because they saw an
opportunity to do so, or organised crime gangs, using stolen
identities to defraud the benefits system. The Department
knew that its decision to change some of its controls within
Universal Credit to manage the surge of claimants at the start
of the pandemic was likely to result in an increase in the
level of fraud. Not only did more people claim Universal
Credit, but more of these people had self-employed income and
capital, which are harder to verify than income where tax is
paid through the Pay As You Earn system (PAYE). The Department
was nonetheless taken by surprise by the extent of fraud
against the Universal Credit system and the propensity of
claimants to fraudulently misstate their income and capital.
Overpayments as a result of fraud from self-employment and
capital increased to £1,456 million and £943 million
respectively in 2020-21. We have previously found that slower
progress in tackling some of the causes of fraud and error can
be due to legislative and regulatory restriction and
recommended the Department communicates with Parliament over
what additional powers or other controls it needs to address
this risk. But the Department has yet to set out what it needs
to do to tackle these types of fraud effectively.
Recommendation: The Department should, within 6
months, set out its plan for tackling the emergent risks of
overpayments as a result of capital and
self-employment fraud. As part of this, it should clearly
set out what it needs to achieve this, such as changes
to its systems, additional staffing, access
to data or legislative changes.
-
The Department is failing to properly protect
taxpayers’ money in deciding not to review over 433,000 cases
it knows are more at risk of fraud and error. The
surge of new claimants and the Department’s subsequent
decision to ease its verification checks for Universal
Credit during the pandemic created an environment where there
was a higher risk of more fraudulent or erroneous
claims. In January 2021, the Department decided
to retrospectively review the new claims it
received. The Department has identified 1.36 million
of the 2.1 million new claims made between March and early
June 2020 of being at particular risk of
fraud or error. Of the 1.36 million
cases at risk, the Department had
reviewed 585,000 and found that 11%
had errors. These retrospective checks have the
potential to be a powerful new tool for
the Department to tackle fraud and error in existing
claims. However, some 433,000 of the 1.36
million new claims for Universal Credit had ended by the time
the Department began its retrospective checks in
January 2021 and have not been included in
the Department’s checks. Despite
the prevalence of fraud and error within the cases it
has already reviewed, the Department currently
has no plans to review the claims which were
ended before it started its checks, or recover any
money potentially lost through these claims.
Recommendation: The Department should,
within 9 months, review the 433,000 claims identified
as at risk of fraud and error that were ended prior to
retrospective checking by the Department. It should also
consider and set out how else it
intends to use retrospective checking as part
of its efforts to tackle the causes of fraud and
error.
-
The Department is not sufficiently transparent about
the level of fraud which is the result of advances of
Universal Credit to which claimants are not
entitled. Over £1.2 billion of debt is
owed to the Department as a result of benefit advances,
nearly all of which relates to Universal Credit. At the
start of the pandemic, there was a large spike in the number of
suspicious claims for advances of Universal Credit, to 9% of
all advances. The Department does not include advances in
its annual exercise to estimate levels of fraud and
error despite evidence that Universal Credit advances are
vulnerable to fraudulent claims, particularly where people
claim an advance and then do not pursue
a subsequent Universal
Credit application. We welcome the
development that the Department has, for the first time,
recognised in its 2020-21 accounts the level
of advances that it does not believe it will be able to
recover from claimants. The Department estimates
that it will be unable to recover £61.2 million
of the £1,224 million advance benefit payments that
it was owed at 31 March 2021. However, this
does not provide transparency on the levels of advances that
were paid out incorrectly in the first place due to fraud or
error.
Recommendation: The Department
should, alongside its annual reporting of fraud and
error, monitor and publicly report on the levels of
fraud and error arising from advance payments and its
progress in tackling this type of fraud.
-
The Department has not determined how it will
use its experience during the pandemic to put in place
controls that better prevent and tackle fraud and
error. The Department has previously accepted
that it does not have cost effective controls to prevent
fraud and error and that its response to the COVID-19 pandemic
presents it with an opportunity to evaluate the controls it has
in place and assess their impact on preventing fraud and
error. The pandemic has had a huge impact on the
Department and has exacerbated many of the complexities and
issues that were already in the benefits
system. The Department has acted quickly to
ensure that claims have been assessed and paid,
including adapting its controls against
fraud and error to ensure continuity of service to
claimants. It is essential that the Department learns from
its response and identifies what it should do to ensure these
lessons are applied and improve both its ability to
respond to emergencies and its business-as-usual service
delivery. The Department has identified some
examples of how the pandemic has enabled it to try
new approaches to try to prevent fraud and error, such
as the replication of face-to-face checks online using
different technology, asking biographical questions over the
phone, or introducing an online verification system. This could
free up those working in Jobcentres to undertake other
activities to support people looking for work. But the
Department has not yet explained whether these new checks will
be kept or whether they are more effective than those they
replaced. It also admits that with hindsight it would not
have eased some of the other controls that it did, such
as those surrounding child benefit checks.
Recommendation: The Department should use its
learning from the pandemic to improve the cost
effectiveness of its controls over fraud and error. In
particular, it should, within 6 months, assess the impact of the
control easements it employed during the pandemic on fraud and
error within benefit expenditure and determine the cost
effectiveness of each measure it has (or has
not) reintroduced. / ENDS
Notes
Full inquiry info including evidence received: https://committees.parliament.uk/work/1453/dwp-accounts-fraud-and-error-in-the-benefits-system/
