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Head of the NAO Sir John Bourn reported to Parliament today that he has qualified his opinion on the accounts of the Department for Work and Pensions. This is because of substantial levels of estimated losses from fraud and error in benefit expenditure, a significant limitation in the evidence made available to the NAO during the audit of expenditure on Incapacity Benefit, and material uncertainties over the completeness, existence and accuracy of amounts recorded in the accounts for benefit overpayment debtors.

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However, as a result of work carried out by the Department to improve the accuracy of certain creditor balances, Sir John has been able to lift one long-standing qualification on this aspect of the accounts.

Sir John reports that, according to the Department’s own estimate, the amount lost from payments in all benefits in 2003-04 because of fraud and error is approximately £3 billion. This is the same estimate as reported in 2002-03 and 2001-02 and represents some 2.8 per cent of the £109 billion of gross expenditure by the Department on a wide range of benefits, employment programmes and associated administration costs.

Sir John has qualified the Department’s accounts and those of the former Department of Social Security for 15 years running because of the level of estimated fraud and error in expenditure on welfare benefits.

The two benefits with the highest risk of fraud and error are Income Support and Jobseeker’s Allowance. The Department estimates that overpayments to customers of working age in the year to 31 March 2004 from fraud and error amounted to £610 million (5.8 per cent of expenditure on that benefit) for Income Support and £230 million for Jobseeker’s Allowance (9.0 per cent of expenditure). This makes a total loss of £840 million in these two benefits in 2003-2004, compared to £1220 million in the year to September 1998 and £920 million in the year to 31 March 2003.

These figures show a combined loss in 2003-2004 of 6.4 per cent from the expenditure on these two benefits, which is a 38 per cent reduction from a baseline of 10.4 per cent of losses in 2002. This betters the target that the Government had set the Department of a reduction of 33 per cent by 31 March 2004. (One percentage point of the reduction results from a change in the methodology for recording fraud an error.)

Levels of fraud and error in Housing Benefit are also a concern. The results of a new continuous Housing Benefit review indicate that an estimated £650 million (5.3 per cent) of Housing Benefit expenditure was overpaid by local authorities on behalf of the Department in the twelve months to September 2003 owing to fraud and error.

The significant limitation on the evidence made available to the NAO during their audit of Incapacity Benefit arose because the Department was unable to locate the supporting papers in 106 of the 800 cases that the NAO had sought to examine to check that eligibility conditions were met and accurate payments had been made.

"I welcome the Department’s achievement in meeting the Government’s target to reduce fraud and error in Income Support and Jobseeker’s Allowance. However, in 2003-2004, as a result of fraud and error, an estimated £3 billion of welfare benefit was paid to people who were not properly entitled to the money. Therefore the challenges the Department faces in reducing the scale of fraud and error across the benefit system to an acceptable level still remain very large indeed."

Sir John Bourn


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