DWP's £4.5bn in benefit errors and fraud

Margaret HodgeBen Stansall/PA Archive/Press Association Images

The Department of Work and Pensions has failed to administer its spending properly for an incredible 24 years in a row. The National Audit Office has highlighted that this year a massive £4.5 billion has been handed out incorrectly because of fraud or error - and that the department has failed to make any improvements at all over the past year.

So what's going on, and what can be done?

Accounting failure

Amyas Morse, the Comptroller and Auditor General, has been forced to qualify his audit opinion on the 2011-12 accounts of the Department for Work and Pensions because of "the high level of fraud and error in benefit expenditure."

Shockingly, fraud and mistakes mean that in the last tax year there were overpayments of £3.2 billion. This is roughly 2% of the total benefit spend. At the same time, it underpaid £1.3 billion because of errors - bringing the department to a total misspend of £4.5 billion.

This is before the state pension is included. Here the rate of errors and fraud is lower, but the size of the pension bill means there are still accidental overpayments of £100 million and underpayments of £150 million.

Why?

Clearly a major part of the problem stems from the fact that the tax and benefits systems within government have been introduced and augmented in an ad hoc way - so key parts of the system are not joined up, and it is not simple to see where fraud and mistakes are happening.

Morse said:"The level of fraud and error in the welfare system remains unacceptably high. I recognize, however, the difficulty of administering in a cost-effective way a benefits system of such complexity."

He highlighted that the development of Universal Credit was: "An opportunity to enhance its processes to demonstrate what a modern, effective and joined-up benefits system will look like."

The Universal Credit system is expected to involve new procedures and systems to verify identity and check entitlement before payments are made. HMRC also plans to introduce a real time information system for Pay As You Earn, linking the tax and benefits systems for the first time.

Criticism

However, this has been criticised as being too little, too late. Margaret Hodge, Chair of the Committee of Public Accounts (pictured) said this was: "unacceptable."

She added: "The Department is relying on the introduction of Universal Credit to get its house in order but the transition to Universal Credit is full of risks and the Department won't even tell us if it is on schedule. The Department has got to get a grip on fraud and error now. Despite its assurances to my Committee, it has not done so and it must do better."
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