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Section 161 of the Social Security Administration Act 1992 requires me to examine and certify the National Insurance Fund Account and this report records the results of my examination of the 1998-99 account.

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Sir John Bourn, head of the National Audit Office, today reported the results of his examination of the National Insurance Fund account for 1998-99. He qualified his audit opinion on the account due to the level of benefit fraud, estimated at £103 million, and consequent loss to the Fund. He also reported on the impact of continuing delays in implementing the new national insurance recording system, errors in jobseeker’s allowance, compliance with national insurance contribution legislation and management of contributions debt

Sir John reports that the underlying level of confirmed or strongly suspected fraud in contribution-based jobseeker’s allowance was estimated to be some £46.9 million, and that fraudulent encashment of girocheques and order books could amount up to £56.6 million. Sir John also reports on the measures taken by the Benefits Agency to combat fraud. These included a special exercise to investigate employers colluding in benefit fraud, which resulted in savings of some £26.6 million in 1998-99.

Sir John records an improvement in errors in the payment of contributions-based jobseeker’s allowance, which were some £44.9 million (9.5 per cent) in 1998-99 compared with 9.7 per cent in 1997-98.

Sir John also highlights the steps the former Contributions Agency took to maximise the yield to the Fund by identifying underpayments, and notes that in 1998-99, the Agency identified £188 million in arrears of Class 1 national insurance contributions paid by employees and their employers. On Class 2 National Insurance contributions from the self-employed, Sir John reports that the former Contributions Agency continued to experience difficulties in collecting debts. Because of problems with information technology systems some elements of the estimated outstanding debt are unreliable. The Inland Revenue are in the process of unifying the former Contributions Agency’s debt collection activities with their own systems.

Delays in implementing the new National Insurance recording system (NIRS2) have led to compensation payments of some £35 million at November 1999 to personal pension providers for the benefit of their clients. In addition, many individuals have been paid benefits on an interim or emergency basis which has required concerted effort and significant costs to review and clear. However, the functionality of the system is improving and an independent technical review of the system concluded it was capable of providing a robust and reliable platform to meet the business needs of the Inland Revenue and the Department of Social Security.

"The Inland Revenue have made substantial progress, working with Andersen Consulting, in implementing the new National Insurance recording system (NIRS 2) which underpins the National Insurance Fund. However, there is still much to be done and I am concerned that the system may not be fully operational before March 2000 or, in the worst case, until June 2001. In the meantime these problems will continue to have a significant impact on the Inland Revenue’s ability to manage National Insurance contribution debt and the taxpayer is continuing to bear compensation costs for payments made to those individuals who have suffered from delays."

Sir John


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