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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 1999-2000 account.

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The National Audit Office report that there were losses amounting to around £400 million in the benefits paid from the National Insurance Fund in 1999-2000, by the Department of Social Security through the Benefits Agency. This has arisen from errors by officials in making benefit awards, fraudulent benefit claims and the fraudulent encashment of order books and girocheques. As a result, the head of the National Audit Office Sir John Bourn has qualified his audit opinion on the National Insurance Fund account, for the 13th consecutive year.

According to estimates produced by the Department of Social Security, which are comparable with the National Audit Office’s own findings, most of the losses can be attributed to.

  • Errors by officials in assessing Incapacity Benefit amounting to £252 million, 3.6 per cent of expenditure on this benefit. Of this, £189 million is estimated to have arisen from underpayments. In July 2001 the Department expect to publish their first ever estimate of losses in this benefit from fraud and error by claimants.
  • Losses from the fraudulent encashment of order books and girocheques which could be as much as £59 million.
  • Losses from Jobseeker’s Allowance (contribution based) from errors by officials, customers and fraud amounting to £54 million, 12 per cent of the expenditure on this benefit (compared to £73 million, 16 per cent of expenditure, in 1998-99).
  • Losses of Retirement Pensions and Widows’ Benefit from errors by officials amounting to £32 million.

In his report, Sir John notes the significant progress made by the Inland Revenue with the new National Insurance Recording System (NIRS2) but notes the backlog of work that has arisen from previous delays and phased implementation. The Inland Revenue have introduced a number of initiatives to support recovery, including a fundamental review of the way that arrears of work are prioritised and dealt with, focusing more attention on current work to prevent new arrears from building up. The Inland Revenue expect to clear the backlog of National Insurance work and to return to normal working in most areas by October 2001.

" The scale of fraud and error in benefits paid out of the National Insurance Fund is substantial and I have therefore qualified my audit opinion. However I note the significant progress made with the new National Insurance Recording System. I look forward to the Inland Revenue clearing the backlog of work that has built up and returning to normal working in most areas by October 2001, as expected."

Sir John


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