The Comptroller and Auditor General, Amyas Morse, has qualified his audit opinion on the regularity of the 2015-16 accounts of the Department for Work and Pensions. This is owing to the unacceptably high level of fraud and error in benefit expenditure, other than State Pension where the level of fraud and error is lower.

The accounts of the Department, and those of predecessor departments administering this expenditure, have been similarly qualified each year since 1988-89.

The Department estimates total overpayments due to fraud and error in 2015-16 to be 1.8%, which equates to £3.1 billion of the total forecast benefit expenditure, maintaining the previous year’s lowest recorded level. The Department estimates the total underpayments in 2015-16 to be 1%, or £1.8 billion of total benefit expenditure (increasing from 0.9%, or £1.4 billion in 2014-15), the highest level to date.

The Comptroller and Auditor General qualified his regularity opinion due to material levels of fraud and error in benefit expenditure, excluding State Pension. State Pension continues to demonstrate a very low level of fraud and error, while overpayments in other benefits decreased slightly to 3.6% but underpayments rose to a highest ever level of 1.8%. The headline level of fraud and error overpayments across all benefits of 1.8% indicates that a step change and sustained reduction in fraud and error has not been realised.

The Department estimates some fraud and error based on previous years’ percentage rates. However it is difficult to infer trends from these in some cases as it has been a long time since any measurements have been taken. For, example, Disability Living Allowance, which accounted for £13.3 billion of expenditure in 2015-16, has not been measured for fraud and error since 2004-05. The absence of up to date information on error rates in such a large benefit stream creates a risk that the Department is making decisions based on out of data measurements.

Since last year, the Department has significantly refined its approach to fraud and error with its new overarching Fraud, Error and Debt Strategy and underpinning benefit strategies and cross cutting work. The Department is exploring wider use of Real Time Information on earnings as well as improving its forecasting and modelling activities to make fraud detection more accurate. It remains essential that DWP continues to address fraud and error given overpayments increase costs to taxpayers and reduce public resources available for other purposes, while underpayments mean households are not getting the support they are entitled to.

The Comptroller and Auditor General’s report examines Pension Credit as a case study of how the Fraud, Error and Debt Strategy is delivered at a benefit level. For Pension Credit, the Department’s provisional 2015-16 estimates showed that fraud and error overpayments were 5.6% (£350 million), an increase from 4.6% in the final 2014-15 estimates (£310 million). Underpayments were 2.3% (£140 million), an increase from 1.7% in the final 2014-15 estimates (£110 million). As for all benefits, the Department has not set a target for Pension Credit underpayments.

Universal Credit is administered through two systems: the first, Universal Credit Live Service (UCLS), is currently rolled out nationally for new single claimants, while the second, Universal Credit Full Service was in four jobcentres in London in 2015-16, and is planned to expand slowly during 2016, until roll out expands to 50 jobcentres per month from February 2017. The Department has estimated overpayments due to fraud and error in UCLS for the first time in 2015-16, at a level of 7.3% (£36 million) of forecast benefit expenditure of £500 million. Estimated underpayments due to fraud and error in 2015-16 are 2.6% (£13 million). The Department is still developing its methodology to assess fraud and error in Universal Credit and it is not possible, given the benefit’s limited roll out, to draw inferences from these initial results.

The publication of the first fraud and error estimates for UCLS will provide vital information to develop the Department’s Fraud, Error and Debt strategy further, including the approach to the roll out of the new Universal Credit Full Service, where the level of fraud and error to date is unknown.

The Department needs to develop and implement controls to tackle the inflow of fraud and error to Universal Credit claims, (as well as removing the fraud and error already identified within claims). It will require continued commitment and focus on behalf of the whole Department to implement and fully embed these initiatives on a sustainable basis if the Department is to reduce the level of fraud and error in Universal Credit to the lowest feasible level.

The Department has reported against a new “net loss indicator” in its Annual Report, and also announced a new “net loss target” for benefits and HMRC administered Personal Tax Credits of 1.6% by 2017-18. These measures look at estimated overpayments made in year, less actual and estimated benefit recoveries in year, regardless of the age of the overpayment recovered. Underpayments are not considered. At present, net loss does not compare like with like: recoveries may date back many years due to delays in identifying and recording overpayments or because the Department is able to recover benefit overpayments which occurred in the past from future State Pension payments; and some recoveries may relate to benefits no longer in payment or benefits where current year expenditure is very low for example the gross overpayment of Income Support in 2015-16 was estimated to be £100m, but the estimated recoveries were £120m. Netting off recoveries may therefore mask the accuracy of benefit administration in year.

Issuing an audit qualification is a serious matter, and the fact that this is another in a long line of qualifications does not make it any less serious. The value of fraud and error in benefit expenditure remains unacceptably high. The Department has made good progress in understanding causes of fraud and error to develop new strategies, but has some way to go to put these into effect and achieve sustainable reductions fraud and error.”

Amyas Morse, head of the National Audit Office

Read the full report

Department for Work and Pensions 2015-16 accounts

Notes for editors

  1. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

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