The key points in the NAO commentary are as follows.

At the start of the period, the number of people moving off benefit and into sustained employment was less than a third of the level expected at the outset by the Department. Over the year, the number has built up more slowly than the Department’s assumptions had indicated. As at July 2012, 3.6 per cent had moved into sustained employment compared with the expected 11.9 per cent.

No external providers met the minimum performance levels set in their contracts and there is a considerable variation in performance. For Jobseeker’s Allowance claimants aged under-25, the best performing provider achieved 2.2 per cent into work in the period to the end of March 2012, compared with a target of 5.5 per cent. The lowest performing provider achieved 0 per cent.

There are a number of reasons for the lower than expected number of people moving from benefits to sustained employment. Early expectations were probably set too high, reported performance is understated and some providers need to improve performance. Providers have pointed to harsher than expected economic conditions but the Department does not consider that economic conditions alone are sufficient to merit a change in the underlying assumptions about the Programme over its whole life.

The Department has issued warnings to providers that their performance must improve and is considering further actions it might take to improve the outcome of the Programme, including for example, improving skills support for the Programme’s participants.

The account properly presents the amounts of child maintenance received from non-resident parents and payments to parents ‘with care’ in 2011-12. But the C&AG has qualified his opinion on the regularity of receipts and payments because of the level of error in maintenance assessments. He has also given an adverse opinion on the truth and fairness of the outstanding maintenance arrears.

In 2011-12, the Commission received £807.8 million in respect of child maintenance from non-resident parents. As a result of errors in the calculations of maintenance assessments, the NAO has estimated that a proportion of non-resident parents have made overpayments amounting to £8.8 million, while others have made underpayments totaling £13.3 million.

There is currently a reported cumulative total of £3.798 billion in outstanding arrears from non-resident parents dating back to establishment of the Child Support Agency (responsibility for which was taken over by CMEC) in 1993. Current legislation does not allow for the writing-off of outstanding arrears. These figures do not give a true and fair view because of the level of error in the underlying case data. The best available estimates of the cumulative errors indicate that the reported arrears at 31 March 2012 contained overstatements of £210 million and understatements of £319 million.

Since the inception of the statutory child maintenance schemes, there have been significant problems with the main IT systems supporting the schemes. Among other problems, the IT systems do not have the functionality to report fully arrears for the account. In order to address this, the Commission developed a separate process to scan the underlying systems and produce reports.

The Commission has made efforts to clean up the data which have resulted in the reporting of a more robust arrears position than that reported in the past. However, owing to the scale and age of the issues which have accumulated, there remain significant and unresolved inaccuracies in the reported arrears balance. The Commission was abolished on 31 July 2012, and so these actions will be taken forward by the Department for Work and Pensions.

Correction

There has been a correction to the report which accompanies this press release.

In consequence, the sentence in the press notice below “48 per cent of local authority areas in England could face shortfalls by 2017″ should read “36 per cent of local authority areas in England could face shortfalls by 2017″.

The National Audit Office has reported today on how the Department of Work and Pensions is placed to tackle the significant challenge of implementing the reforms to housing benefit.

As part of the measures announced in the emergency budget in June 2010 and the Spending Review of October 2010, the Government announced changes to housing benefit, including reductions to local housing allowance rates for private rented sector claimants and deductions in payments to social sector tenants in under-occupied homes.

The Department is actively preparing for the implementation of housing benefit reform, using available data to assess the impact of the reforms on current entitlements. It has estimated that the reforms will result in around two million households receiving lower benefits, with a smaller number receiving substantially less. Claimants with large numbers of children and those living in areas of high rent such as London will be most affected.

The Government intends the reforms to improve incentives to work and lead to positive changes for claimants. Reforms could also lead to hardship or an increased risk of homelessness. How tenants and landlords will respond is highly uncertain at the moment and the Department has commissioned independent research to evaluate the impact of the reforms after implementation.

The Department is also working with local authorities to identify the extent to which the reforms will increase the administrative burden on the authorities. It clearly has further ground to cover. Many people know very little about the changes to housing support; and the extent to which claimants have been informed varies according to where they live. Surveys of private rented sector respondents found that 87 per cent knew little or nothing about the changes that would affect them.

Uprating local housing allowance by the consumer price index, rather than local rent inflation, could put pressure on the supply of affordable local housing. The speed and extent of shortfalls could be significant. Downward pressure on rents or increased employment would mitigate the impact but NAO analysis indicates that, on current trends, 48 per cent of local authority areas in England could face shortfalls by 2017.

The Department has put in place transitional support through increased funding for discretionary housing payments. It needs to work with other departments and local authorities to monitor emerging issues and manage risks for both private and social tenants.

October 2012

Today’s report does recognize, however, the difficulty of administering a benefits system of such complexity in a cost-effective way. According to the C&AG, the Department’s plans for introducing Universal Credit, involving new procedures and systems to verify identity and check entitlement  before payments are made, should mark an opportunity to eliminate some  of the key factors contributing to the current level of fraud and error.

The Department estimates that total benefit overpayments due to fraud and error in 2011-12 were £3.2 billion (2010-11: £3.3 billion), equating to 2 per cent of total benefit expenditure of £159 billion (2010-11: 2.1 per cent of total benefit expenditure of £153.6 billion)

Total underpayments in 2011-12 are estimated at £1.3 billion (2010-11: £1.3 billion). This equates to 0.8 per cent of total benefits spending (2010-11: 0.8 per cent).

This qualified opinion does not apply to the State Pension where the level of fraud and error is lower. Within the fraud and error figures above, the Department estimates that in 2011-12, fraud and error within the State Pension resulted in overpayments of £0.1 billion (2010-11: £0.1 billion) or 0.1 per cent of related expenditure (2010-11: 0.1 per cent), while underpayments totalled £0.15 billion (2010-11: £0.1 billion), 0.2 per cent of related expenditure (2010-11: 0.1 per cent).

Complementing the changes to procedures associated with the introduction of Universal Credit, HMRC plans to introduce a real time information system for Pay As You Earn, linking the tax and benefits systems for the first time. This has the potential to reduce significantly some of the problems around verification of entitlement for benefits which have means-tested elements to their eligibility criteria.

The accounts have been qualified for the ninth year running because of the material levels of incorrect payments found in both discretionary and regulated awards and, for the third year, the C&AG has also limited the scope of his audit opinion on the Social Fund debt balance. This is because the Department for Work and Pensions has been unable to provide him with adequate assurance over the completeness and accuracy of the amount of debt disclosed in the accounts.

In 2011-12, the Social Fund made payments of some £3.1 billion. The NAO has estimated that £45.6 million of such payments were made in error. This represents 1.5 per cent of total payments made (2010-11: £114.3 million, 2.7 per cent of total payments).

Out of the £45.6 million, an estimated £15.3 million (2010-11: £55.45 million) of error resulted from missing or incomplete documentation or information. This represents a significant reduction from 2010-11, which the Department believes is primarily due to the embedding of a project, begun in 2010-11, to scan electronically all key Social Fund documents with the aim of improving the tracking, storing and management of documentation. Today’s report notes, however, that there were still instances where the Department was unable to provide the NAO with adequate supporting documentation.

The Department has made progress in addressing the C&AG’s on-going concerns over the regularity of Social Fund payments and is looking at further improvements in order to continue to drive down the level of error.

Work on the debt issues is still ongoing and progress has not been as rapid as expected. The Department is therefore producing an action plan for resolving the debt differences over the next year.

While the 2010-11 accounts properly present the amounts received and paid, he has qualified his opinions on the regularity of receipts and payments because of the level of error in maintenance assessments. He has also given adverse opinions on the truth and fairness of the outstanding maintenance arrears (reported in note 6 to the account). Today’s report recognises, however, that significant improvements have been made by the Commission to the information available on child maintenance arrears. The accounts have been qualified in terms of regularity because of the errors made in the calculations of maintenance assessments. Some payments have been based on incorrect assessments and some have been paid at the wrong rate. The best estimates for irregular receipts and payments for 2010-11 are £10.2 million overpayments and £13.9 million underpayments.

The C&AG has also given adverse opinions on the truth and fairness of note 6 to the account, the outstanding child maintenance arrears, which the Commission reports to be £3.748 billion at 31 March 2011. These figures do not give a true and fair view because of the level of error in the underlying case data. The best available estimates of the cumulative errors indicate that the reported arrears at 31 March 2011 contained overstatements of £219 million and understatements of £316 million.

Since the Commission took over responsibility for the statutory child maintenance schemes in November 2008, it has made significant improvements to the information available on child maintenance arrears. Errors in the underlying case data, which were previously unknown, have therefore now been made visible. The C&AG is obliged therefore to give an adverse opinion on the reported arrears. The opinions on arrears do not reflect a deterioration in the accuracy of data; rather increased transparency of errors that have accumulated since the inception of the statutory child maintenance schemes.

The Commission estimates that £0.54 billion (14 per cent of the total) of the outstanding balance is likely to be collectable. However, given the level of error in the underlying arrears data, there is significant uncertainty surrounding the accuracy of the estimated collectable amount.

Plans by the Child Maintenance and Enforcement Commission to reduce its spending are high risk, according to the National Audit Office. There is already a £44 million shortfall in the £161 million reduction originally expected by 2014-15. The Commission is reliant on raising  £71 million in fee income from parents as part of its planned savings. These estimates are very uncertain, increasing the risk that additional cuts might be needed late on in the Spending Review that could have an adverse effect on services.

The existing child maintenance schemes were problematic from the start and large backlogs of work built up. Efficiency has improved since 2006 and the cost of administering child maintenance has reduced. There are strong indications that costs remain high. Comparisons with Australia are difficult, but the fact that the Commission spends approximately 56 pence for each £1 it collects for parents, while Australia spent 35 pence raises questions about the relative efficiency of the Commission.

The Commission does not monitor staff productivity adequately and operated with duplicate management, finance and HR functions in 2010-11 because it retained the former Child Support Agency as a separate division. The Commission has 70 offices, a quite different arrangement from the head office and six processing centres originally planned by the Child Support Agency.

The planned cost reductions rely heavily on the introduction of a new child maintenance scheme and associated IT system. Yet IT costs have increased and the Commission risks repeating some of the mistakes made on the earlier child maintenance schemes. The estimates for fee income include assumptions that the NAO cannot substantiate. There is no contingency plan if forecast income for the last year of the Spending Review in 2014-15 proves optimistic.

According to today’s report, the Commission’s plans to reduce costs are high risk and not sufficiently developed to secure the savings needed. The Commission needs to consider alternative options for restructuring and introduce measures to improve productivity.

The Department for Work and Pensions has introduced the Work Programme quickly, in just over a year, and this has had benefits, but the speed with which it was launched has also increased risks, according to the National Audit Office. The Department and providers have made assumptions about how many people the Programme will get back into work but there is a significant risk that they are over-optimistic.

The Programme, which replaces virtually all of the existing ‘welfare to work’ schemes, has a number of innovative design features that address weaknesses in previous schemes. Providers are paid primarily for the results they achieve in supporting people into employment so what the provider earns is tied to performance. Providers will receive higher rewards for supporting harder to help claimant groups into work and are paid partly out of the benefit savings they help to generate. There is more potential for competition between providers.

However, assumptions about the feasibility of the Programme might be over-optimistic. The NAO’s analysis suggests that 26 per cent of the largest group of job seekers in the Programme will get jobs, compared to the Department’s estimate of 40 per cent. Some contractors in areas of high unemployment may struggle to meet nationally set targets. It is possible that one or more contractors will get into serious financial difficulty during the term of the contracts. Today’s report also points out that no alternatives to the Programme were considered as part of the business case, nor was it piloted to test assumptions.

It has so far cost £63 million to terminate existing welfare to work contracts, including contracts with ten providers that went on to win contracts for the Programme. Two former contractors have not yet agreed settlements.

The IT project to support the Programme was not fully functional when the Programme was launched. A consequence is that the Department will not be able, until March 2012 at the earliest, to carry out automatic checks to confirm that people who find work have stopped claiming benefits. The Department needs to ensure that improvements to the IT system are delivered on schedule. In the meantime, there is an increased risk of fraud and error going undetected.

Fewer clients than expected are being referred onto the Programme as part of the ‘harder-to-help’ category. Some have been found to be ‘fit for work’ and switched into other categories and it is taking the Department longer to process assessments and appeals. As a result, some sub-contractors are frustrated at the speed with which clients have been referred to them.

It is clear that means testing will be used extensively for the foreseeable future as it helps target state support at the people that need it most, but it can have many other important consequences. For example, there can be disincentives for recipients of means-tested benefits to return to work. Means testing also makes the administration of benefits more complex and is associated with higher costs as well as increased rates of fraud and error.

In light of proposed and ongoing reforms to benefits and related programmes, the NAO notes the importance of departments sharing good practice and learning from past experiences in the design of means tests. For example, HM Revenue and Customs has struggled in the past with unexpectedly large overpayments of tax credits (£9 billion between 2003-04 and 2009-10) because of the way that payments are determined under the legislation. In spite of changes to the design of tax credits, overpayments continue to be significant.

Departments do not systematically consider or measure all of the impacts of means testing: for example, the burden on claimants, such as difficulty with completing forms and the cost of requesting advice. Issues associated with means testing, such as incorrect declarations of earnings and errors by officials in calculating entitlements, accounted for over half of all fraud and error in benefits and tax credits.

There is a lack of coordination of, and overall accountability for, means testing across government. Departments are responsible for their own means-tested benefits and their impacts, but because means-tested benefits interact with each other it is important that there is coordination. For example, no one body has responsibility for looking at how the impact of university fees will be influenced by wider means testing. This is important as some households could be financially worse off if they work more and their child is no longer eligible for a bursary to help towards tuition fees.