The Comptroller and Auditor General, Amyas Morse, has qualified his audit opinion on the regularity of the 2014-15 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 Comptroller and Auditor General has not qualified his audit opinion on the truth and fairness of the state of the Department’s affairs as at 31 March 2015 and of the Department’s net operating cost for the year then ended.
The Department estimates total overpayments due to fraud and error in 2014-15 to be £3.2 billion, which equates to 1.9 per cent of the total forecast benefit expenditure of £168.1 billion (2 per cent on expenditure of £163.9 billion in 2013-14). While this is a slight reduction from the level of fraud and error reported in 2013-14, the Department recognizes this is not a statistically significant change. The Department estimates the total underpayments in 2014-15 to be £1.4 billion, or 0.9 per cent of total benefit expenditure (the same as 2013-14).
Within those figures, the Department estimates that, in 2013-14, fraud and error within State Pension resulted in overpayments of £0.13 billion (£0.11 billion in 2013-14), which is 0.2 per cent of related expenditure (0.1 percent in 2013-14), and gross underpayments of £0.15 billion (£0.12 billion in 2013-14), which is 0.2 per cent of related expenditure (0.1 per cent in 2013-14).
The Department recognizes that the level of fraud and error in benefit expenditure is too high and has, over the years, made many efforts to reduce it. During 2014-15, the Department has undertaken work in a number of areas to reduce fraud and error. These have had some success, as the level of fraud and error in benefits directly administered by the Department has reduced since 2013-14. However, fraud and error within Housing Benefit, which is administered by local authorities, has increased over the last two years (from 5.3 per cent in 2012-13 to 6.1 per cent in 2014-15 (if the measurement methodology had remained the same as in previous years; based on the new methodology the estimated level is 5.7 per cent).
2014-15 was the last year of a five-year Departmental fraud and error strategy aimed at achieving a reduction in overpayments of some £600 million per year from existing benefits, with a further £200 million per year to be saved through the introduction of Universal Credit. The Department aimed to reduce the estimated level of overpayments to 1.7 per cent by April 2015. The Department did not set a target for reducing underpayments.
While the final estimates of fraud and error for 2014-15 will not be published until November 2015, the NAO considers that the Department is not on track to achieve this target. The Department also set its own target to reduce the levels of overpayments and underpayments caused by its own mistakes (Official Error) by £200 million between October 2010 and March 2015. The 2014-15 preliminary estimates indicate that it has not met this target.
Furthermore, the Department has reduced the pace of the roll out of Universal Credit. As a result, Universal Credit has not yet realized the £200m annual fraud and error savings originally expected by March 2015. However, the Department expects that, once fully rolled out, the implementation of Universal Credit will reduce annual fraud and error overpayments by around £0.5 billion per annum. Before that happens, the Department should not neglect the existing levels of fraud and error on those legacy benefits which will continue to be in operation until fully replaced by Universal Credit.
The Department needs to enhance its understanding further of how and why overpayments arise in individual benefits. This requires the collection and analysis of quantitative and qualitative data on fraud and error to identify key risk areas and an understanding of how it will exploit this data to direct operational activity. The Department needs to use this data to develop fraud and error strategies for individual benefits, as it has started to do with Pension Credit and Housing Benefit.
16 July 2015