Report finds £2bn benefit errors

A new report has found that errors within the benefits system have nearly doubled in the past five years.

The Commons public accounts committee said in a new report on Tuesday that the Department for Work and Pensions' (DWP) estimation of benefit error has increased from £1bn in 2001/02 to £1.9bn in 2006/07, much of it due to benefit complexity.

However the report also found that fraud within the Department's budget has decreased from £2bn to £800m over the same period.

The decrease is believed to be due to the DWP's reclassification of Disability Living Allowance and related benefits as neither fraud nor error.

According to the National Audit Office (NAO), the ministry spent £154m tackling fraud and identified £106m of overpayments in 2006/07.

The committee praised the Department for having "a better understanding than other national social security agencies of the problems and the means of tackling them".

Other improvements since the NAO and select committee last looked at the issue in 2003 have included new customer compliance teams to deal with less serious fraud, pre-payment checks and payments into banks, as well as working more closely with the Serious Organised Crime Agency, police and local authorities.

But problems were identified within the DWP's prosecution division, which has lost 17 per cent of its staff over the last five years.

Although the Department has a 90 per cent success rate in prosecutions, Leigh said it needed to £increase the deterrent effect of its investigation work by taking a much higher proportion of cases of potential fraud to court".

Debt recovery was also described as unsatisfactory, with just £22m reclaimed out of a stock of £339m.

And despite the 2003 report's criticism of the DWP's management information system, making it difficult to conduct cost benefit analysis of its fraud activities, it was not until this year that a new system, FRAIMS, was introduced at a cost of £65m.

Committee chairman Edward Leigh said: "Benefit fraud diverts public funds into the pockets of criminals and, in so doing, reduces our confidence in the benefits system.

"There has been progress: the annual level of such fraud reported by the DWP has fallen from £2bn in 2001-02 to £800m in 2006-07.

"It is welcome that the Department is now working more closely with the police and local authorities to frustrate fraudsters.

"But there are important areas where the DWP must improve its performance. Where it detects attacks by organised crime, it must take a firm and coordinated approach.

"It must get a lot better at tracking down and recovering fraud debt. It must get a firm understanding of the cost-effectiveness of its counter-fraud activities: otherwise it cannot know that it is targeting its resources to best effect. And it should increase the deterrent effect of its investigation work by taking a much higher proportion of cases of potential fraud to court.

"Fraud is one thing, error another – although determining which is which in the case of claimants can be difficult.  The estimated amount of benefit lost each year to error by customers and officials has nearly doubled over five years to almost £2bn a year. This is not acceptable. The DWP must direct its training and compliance checks on those local offices and benefits which prove to have the highest error rates."