The Department for Work and Pensions (DWP) has published its 2024-25 accounts. Gareth Davies, the Comptroller and Auditor General (C&AG), has modified his audit opinion to Parliament due to the material level of fraud and error in benefit expenditure – except for expenditure on State Pension, for which the level of fraud and error is significantly lower. For more details see Basis for qualified opinion on regularity.

Here we share highlights from the C&AG’s audit certificate. You can also download the C&AG’s Report on Accounts.

You can read the full certificate and the report in context in DWP’s annual report and accounts.

Opinion on financial statements

In my opinion, the financial statements:

  • give a true and fair view of the state of the Department and the Departmental Group’s affairs as at 31 March 2025 and their net operating costs for the year then ended; and
  • have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Qualified opinion on regularity

In my opinion, except for the effects of the matters described in the Basis for qualified opinion on regularity section of my certificate, in all material respects:

  • the Statement of Outturn against Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2025 and shows that those totals have not been exceeded; and  
  • the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis for qualified opinion on regularity

The Statement of Comprehensive Net Expenditure records benefit expenditure of £290.8 billion in 2024-25. Within note 19 to the accounts, the Department estimates the level of overpayments and underpayments in the benefit system. There are:

  • overpayments of £9.31 billion (6.2% of related expenditure) excluding State Pension; and
  • underpayments due to official error of £0.75 billion (0.5% of related expenditure) excluding State Pension.

Where fraud, claimant error and official error results in overpayments and official error results in underpayments, the transactions do not conform to the relevant primary legislation specifying benefit entitlement and calculation criteria. The expenditure is therefore irregular. I consider these levels of overpayments and underpayments to be material to my opinion on the accounts.

For State Pension, the Department estimates:

  • overpayments of £0.2 billion (0.1% of related expenditure); and
  • underpayments due to official error of £0.5 billion (0.3% of related expenditure).

In my opinion, I consider these levels of overpayments and underpayments to be immaterial to the accounts.

I have therefore qualified my opinion on the regularity of benefit expenditure, other than State Pension, because of:

  • the estimated level of overpayments attributable to fraud, claimant error and official error where payments have not been made for the purposes intended by Parliament; and
  • the estimated level of overpayments and underpayments due in such benefit expenditure which do not conform to the relevant authorities.

Key audit matters

Misstatement of benefit and State Pension expenditure arising from IT complexity (Department)

Description of risk

The Department reported £290.8 billion of benefit and pension related expenditure for the period to 31 March 2025. See note 5 in the financial statements. The Department is responsible for administering and paying the State Pension and a range of working age, disability and ill health benefits to around 23 million people in accordance with the legislation and regulations for each benefit. Each individual or household provides detailed information to the Department in writing, over the telephone or electronically in support of their pension or benefit application. The Department uses this information to assess and make decisions about claims, and to make payments in accordance with legislation and regulations.

The Department processes benefit and State Pension claims by inputting and storing entitlement data in various benefit systems. To generate payments, the Department has automated the data transfers between these benefit systems, its payment system, and the bank. High volumes of data pass through these custom interfaces each day to ensure individuals and households are paid.

I have identified a significant risk of material misstatement relating to the completeness and accuracy of benefit and pension expenditure due to the high level of complexity within the information system, which increases the likelihood of a material misstatement if these data flows do not operate as intended.

Key observations

The results of my testing of the completeness and accuracy of benefit expenditure were satisfactory and I did not identify any observations to report.

Measurement of expected credit losses (Department)

Description of risk

The Department holds £10.3 billion of benefit-related receivables and has recognised £2.4 billion of expected credit losses in respect of these as at 31 March 2025. See note 14 in the financial statements.

In administering benefits and pensions, the Department will identify circumstances in which individuals or households have been overpaid, either through fraud or error. Where overpayments are identified, and the Department has a legal right to recover the excess amount paid, the amount owed is recognised as a benefit overpayment receivable.

The Department is also responsible for recovering historical overpayments of Tax Credits. These recoverable overpayments were assessed by HM Revenue and Customs (HMRC) as receivables and have been transferred to the Department for collection and are recognised as Tax Credits receivables.

In some circumstances, and particularly in Universal Credit, the Department will provide advances of benefit prior to an application for benefit being approved. These advances are recoverable from individuals or households and are recognised as benefit advances receivables.

The Department also enters a small number of loan arrangements as part of Social Fund that are recoverable under specific agreements with recipients, and are recognised as Social Fund loan receivables.

To value these receivable balances under the requirements of IFRS 9, as adapted for the public sector by the Government Financial Reporting Manual, the Department is required to reduce the gross value of these receivables by estimating expected credit losses.

The measurement of expected credit losses requires the Department to make significant judgements in the selection of modelling methods, input data and assumptions, including specific consideration of whether any future economic factors would impact modelled recoveries.

For these reasons, I have identified a significant risk of material misstatement arising from the measurement of expected credit losses on benefit receivables held by the Department.

Key observations

The results of my testing of the measurement of expected credit losses on benefit-related receivables were satisfactory and I did not identify any observations to report.

Home Responsibilities Protection (HRP) provision (Core Department)

Description of risk

The Department has recognised a provision for £29.8 million at 31 March 2025, a significant reduction from £1.2 billion in prior year for State Pension customers who have been underpaid due to errors in recording Home Responsibilities Protection (HRP). See note 17d in the financial statements.

Where the Department identifies a potentially widespread error in administrating benefits or pensions leading to underpayments it undertakes a programme of investigation and corrective action. It recognises provisions or contingent liabilities in its financial statements based on the expected value of underpayments resulting from the anticipated corrective action. In 2021-22 DWP identified State Pension underpayments caused by gaps in the National Insurance records of some parents and carers. These individuals should have received Home Responsibilities Protection which reduced the number of qualifying years needed for a full basis State Pension while they were claiming Child Benefit. Both Child Benefit and National Insurance records are administered by HM Revenue and Customs (HMRC).

HMRC began a communications campaign to increase public awareness from September 2023 and wrote to people it thought may be missing HRP to invite them to make a claim which would result in DWP paying any State Pension arrears due. DWP recognised a provision for expected liabilities which at 31 March 2024 amounted to £1.2 billion. Nearly all individuals identified by HMRC have now been contacted and the volume of responses and individuals eligible for payment has been significantly lower than forecast.

Management information produced during the exercise, including research on the reasons why people have not responded, has informed the Department’s assessment of the remaining population at risk of underpayment and the expected value of arrears. This updated information has had a significant impact on the balance of the liability recognised in the Department’s financial statements, which has reduced from £1.2 billion in the prior year to £29.8 million. This was primarily due to revised assumptions being used for the 2024-25 valuation, in particular the lower numbers of people expected to apply for their missing HRP to be correct than DWP had estimated when preparing the original provision. The variation in valuation between these years indicates the high degree of estimation uncertainty that exists in relation to the liabilities.

For these reasons I have identified a significant risk that the HRP provision could be materially misstated through inappropriate assumptions within the model being used to calculate the provision. I also consider there to be a significant risk that estimation uncertainty disclosures are not sufficient or accurate.

Key observations

The results of my testing of the measurement and reporting of the HRP provision were satisfactory. I noted that it still remains possible that a higher number of people will apply for their records to be corrected than is reflected in the Department’s provision and that there are therefore contingent liabilities in respect of HRP as set out in note 21 to the financial statements.

Financial Assistance Scheme provision (Core Department)

Description of risk

At 31 March 2025, the Financial Assistance Scheme provision was valued at £3.7 billion (see note 17a).

The Department is responsible for the Financial Assistance Scheme (FAS). The scheme protects members of under-funded defined benefit occupational pension schemes that were wound up when their sponsoring employers became insolvent between 1 January 1997 and 5 April 2005. FAS is a closed scheme and it is administered by the Pension Protection Fund (PPF) on behalf of the Department.

The provision in the financial statements reflects the Department’s best estimate of the present value of future payments to pensioners in the scheme and its value is sensitive to changes in discount rates and inflation rates.

The value of the liability and its significance within the Statement of Financial Position means that the uncertainties in forward-looking economic assumptions and the complexity of the actuarial model from which it is derived, have the potential to have a material impact on the financial statements.

I have therefore identified a significant risk of material misstatement in the FAS provision.

Key observations

The results of my testing of the measurement of the Financial Assistance Scheme provision were satisfactory and I did not identify any observations to report.

Unfulfilled Eligibility – regularity and classification of claimant error underpayment (Core Department)

Description of risk

The Department reported £3.7 billion of claimant error underpayments, which it classifies as Unfulfilled Eligibility, in note 20 to the financial statements.

In 2023-24, the Department removed Claimant Error underpayments from the Fraud and Error statistics and reclassified these as ‘Unfulfilled Eligibility’, published in separate statistics. I have previously considered Unfulfilled Eligibility payments to be irregular and included them within the scope of my regularity qualification along with underpayments due to official error and all types of overpayments resulting from error and fraud.

I was provided with additional evidence in support of the legal position of Unfulfilled Eligibility and have evaluated this during 2024-25. I have assessed the evidence provided by DWP and it is my judgment that the legislation requires individuals to provide DWP with full and accurate information when claiming benefits and requires them to keep DWP updated about any change in their circumstances that would impact on the value of the benefits to which they are entitled. I am satisfied that in view of the additional legal evidence provided, these payments are compliant with the relevant legislation, are in accordance with intentions of Parliament and therefore are regular.

I consider that this creates a significant risk to the regularity of expenditure, arising from potential misclassification of underpayments between the Official Error and Unfulfilled Eligibility categories within the fraud and error statistics. There is also a misclassification risk in relation to the disclosures that provide context to the user of the financial statements on the impact of fraud and error in the financial statements.

Key observations

The results of my testing of the classification of claimant error underpayments (‘Unfulfilled Eligibility’) was satisfactory and I did not identify any observations to report.

Application of materiality

Departmental group

Materiality: £2.75 billion

Basis for determining materiality: 1% of prior year gross expenditure of £275.8 billion

Rationale for the benchmark applied: The overall account materiality is based on gross expenditure because the administration and payment of benefits is the Department’s primary purpose under the relevant authorising legislation for which it is held to account by the primary user of the financial statements – Parliament. The Departmental Group is dominated by Departmental expenditure with comparatively little expenditure occurring in Group components.

Department parent

Materiality: £2.75 billion

Basis for determining materiality: 1% of prior year gross expenditure of £275.8 billion

Rationale for the benchmark applied: The overall account materiality is based on gross expenditure because the administration and payment of benefits is the Department’s primary purpose under the relevant authorising legislation for which it is held to account by the primary user of the financial statements – Parliament.

The Departmental Group is dominated by Departmental expenditure with comparatively little expenditure occurring in Group components.

DWP annual report and accounts 2024-25

Audit certificate and report (pages 284 to 315)

Downloads

Report – C&AG’s Report on Accounts (pdf – 344 KB)

ePub – C&AG’s Report on Accounts (epub – 555 KB)

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