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Select committee inquiry

Fraud and error in the benefits system

Closed

Work and Pensions Committee · Opened 22 January 2014 · Closed 5 September 2014

5 recommendations · 6 conclusions
Inquiry on parliament.uk ↗

What the inquiry looked at

“This inquiry considers where errors occur in the benefits system, and the adequacy of steps being taken to reduce them. These steps may include internal Department for Work and Pensions processes, communication between departments and local authorities, and communication with claimants. The inquiry will also consider new approaches to tackling benefit fraud, the implications for fraud and error of the introduction of Universal Credit and other welfare reforms, and lessons to be learned from the private sector, including on online fraud protection and data protection issues. Staff contact: James Clarke, Committee Specialist, Tel: 020 7219 4835, Email: clarkeja@parliament.uk”

The committee's words, from the inquiry page on parliament.uk ↗.

What it found

In the committee's words, from the summary of 6th report - Fraud and error in the benefits system ↗

THE GOVERNMENT’S APPROACH TO FRAUD AND ERROR REDUCTION

The Government has a good understanding of the fraud and error risks in the benefits system and has allocated considerable resources to fraud and error reduction; however, DWP’s current target to reduce the monetary value of benefit overpayments to no more than 1.7% of total benefits expenditure by April 2015 is ambitious. Despite a “radical new approach” announced in 2010, there has been no statistically significant change in the overall levels of benefit fraud and error since 2005/06. The Government will need to build on the successful use of real-time information on earnings (RTI) and other innovative measures, aligned with the known risk factors in each benefit, if fraud and error is to be reduced further.

THE POTENTIAL IMPACTS OF UNIVERSAL CREDIT

In the longer term, Universal Credit (UC) has the potential to substantially reduce fraud and error, particularly via the use of RTI; its potential is demonstrated by the projected savings of £820 million in Tax Credits. However, further gains from RTI will depend on the successful implementation of UC and the development of the requisite IT systems, and in the meantime its extension to legacy benefits.

The highest potential savings lie in addressing fraud and error in housing costs support.

However, there are uncertainties around DWP’s current capability to administer the housing element of UC without increased risks of fraud and error. The Integrated Risk and Intelligence Service, or a similar system, will be vital in addressing this—a fully developed and tested system will need to be in place before full national implementation of UC.

HOUSING BENEFIT

Prior to the implementation of UC, Housing Benefit is of particular concern—the monetary value of Housing Benefit overpayments is more than double that of any other benefit. DWP should review and improve the Automated Transfer to Local Authority Systems, to make it easier and less resource-intensive for local authorities to access the DWP data needed to verify Housing Benefit claims.

DATA-SHARING AND USE OF NEW TECHNOLOGIES

Beyond its plans for UC, the Government should:

• Seek a secure and more consistent approach to accessing public and private sector data, including data held by payment systems operators, to flag up potential fraud and error; and • Continue the Cabinet Office work to develop a government-wide identity verification system and consider the feasibility of safeguarding against identify fraud through the use of biometric identity verification.

What the government said

The government responded on 5 September 2014.

Summary written by Accountability Index from the government's response.

The government welcomes the Committee's report and says it is committed to reducing fraud and error further, while proceeding with the Single Fraud Investigation Service on its current schedule and not adopting the Committee's recommended delay.

  • On separate publication of fraud and error statistics, the government is "happy to consider changes" but does not believe changing the national statistics "would have the desired effect on public understanding". It is considering redrafting the publication and will pay particular attention to reducing the risk of conflation.
  • On claimant letters, it recognises the need for plain English. It has centralised claimant communications in one team, is developing an improvement plan, and says improving Employment and Support Allowance communications is an "early priority".
  • On ATLAS, the department has work in hand on an improvement plan, with an initial view due by August 2014, and a project aiming to remove duplication between ATLAS and ETD notifications "before the end of 2014".
  • On the Single Fraud Investigation Service, it does not pause or realign implementation. It says delay "would significantly reduce the business benefits" and the project will continue with Phase 1 and Phase 2 "in line with the current schedule".

Read the government's response ↗ Read the report ↗ Report an error

How the inquiry ran

Each dot is a dated item listed on this page, from the inquiry's opening on 22 January 2014 to its close on 5 September 2014.

  1. Oral evidence 3 sessions
  2. Report 15 May 2014
  3. Government response 5 Sep 2014

What it recommended 5 recommendations · 6 conclusions

1Whilst we understand that making a distinction between claimant error and fraud is not always...
Concluded (the committee's words)
Whilst we understand that making a distinction between claimant error and fraud is not always straightforward, we believe that DWP could be clearer about the official estimated level of benefit fraud. We therefore recommend that DWP publish, on separate days, discrete statistical summaries of its estimated rates of a) fraud and b) official and claimant error in the benefits system, alongside its more detailed report, to reduce the risk of confusion or conflation of these statistics in media reporting and public perceptions about benefit fraud, and to emphasise the importance of actions to reduce error as well as fraud.
2Improving the clarity of DWP‘s communication with claimants will be a crucial factor in reducing...
Concluded (the committee's words)
Improving the clarity of DWP‘s communication with claimants will be a crucial factor in reducing claimant error—the most prevalent cause of incorrect benefit payments. Clear communication can help to ensure that claimants understand fully their benefit entitlements and the importance of reporting relevant changes in their personal circumstances. We welcome work being done to improve the clarity of DWP’s communication with claimants, as part of the development of Universal Credit. However, as we highlighted recently, considerable uncertainties remain around the timescale for developing Universal Credit, which cast some doubt on whether it will be fully implemented in 2017.
3We recommend that, wherever feasible, DWP introduce updated claimant letters, using plain English, for its...
Recommended (the committee's words)
We recommend that, wherever feasible, DWP introduce updated claimant letters, using plain English, for its existing benefits, drawing on its learning from the development of Universal Credit communications. We also recommend that DWP give special consideration to the clarity of claimant letters in relation to Employment and Support Allowance, which will be the last of the current benefits to fully transfer into Universal Credit.
4DWP has a good understanding of the causes of incorrect benefit payments and has devoted...
Concluded (the committee's words)
DWP has a good understanding of the causes of incorrect benefit payments and has devoted considerable effort and resources to fraud and error reduction. However, fraud and error rates have plateaued since 2005/06, with the estimated overpayment rate remaining between 2.0% and 2.2% of overall benefits expenditure. DWP will only meet the target set in 2010, to reduce the estimated overpayment rate to no more than 1.7% by April 2015, if it employs innovative approaches which are aligned with the known risk factors associated with each benefit.
5We welcome the introduction of the Automated Transfer to Local Authority Systems (ATLAS).
Recommended (the committee's words)
We welcome the introduction of the Automated Transfer to Local Authority Systems (ATLAS). We recommend that DWP and appropriate representatives from local government conduct a joint review of ATLAS, including the level of resources needed to analyse ATLAS data, with a view to enabling local authorities to access the DWP data they need to verify Housing Benefit claims more easily. This review should be conducted and improvements implemented before the end of 2014.
6By utilising real-time information (RTI) on PAYE income, Universal Credit has the potential to substantially...
Concluded (the committee's words)
By utilising real-time information (RTI) on PAYE income, Universal Credit has the potential to substantially reduce incorrect benefit payments due to inaccurate or late reporting of claimants’ earnings; and it is projected to produce significant savings in Tax Credits. However, RTI cannot provide the complete solution, as it will not apply to a significant proportion of claimants who are paid outside the PAYE system, including the self-employed. Moreover, the full gains of RTI in relation to reducing benefit fraud and error are largely dependent on the successful national implementation of Universal Credit, which is at least three years away by the most optimistic schedule. We therefore welcome steps to apply RTI to existing benefits where possible and recommend that DWP and HMRC consider methods to automate this process.
7We believe that in the longer term biometric identity systems could have an important role...
Recommended (the committee's words)
We believe that in the longer term biometric identity systems could have an important role to play in identity verification processes across government. We recommend that the Government continue the Cabinet Office work to explore a government-wide system; and evaluate the benefits of biometric identity verification in the social security system and more widely across public services, including by examining the effectiveness of the voice-recognition system currently used in Australia.
8Local authorities expressed concerns about DWP’s current capability to administer the housing element of Universal...
Concluded (the committee's words)
Local authorities expressed concerns about DWP’s current capability to administer the housing element of Universal Credit with the same level of safeguards which local authorities are currently able to apply to Housing Benefit administration, and therefore without increased risks of fraud and error. The Integrated Risk and Intelligence Service (IRIS), or a similar system to allow DWP to cross-check claims against the range of property data held by local authorities, will be vital. Such a system will need to be fully developed and tested before national implementation of Universal Credit commences.
9The Single Fraud Investigation Service (SFIS) is, in principle, a good idea.
Recommended (the committee's words)
The Single Fraud Investigation Service (SFIS) is, in principle, a good idea. However, it makes no sense to roll out SFIS nationally, ahead of the national implementation of Universal Credit, while local authorities retain responsibility for Housing Benefit. We recommend that the implementation of SFIS be aligned where practicable with the expansion of the Universal Credit Pathfinder areas and with national implementation of Universal Credit. We further recommend that, following the summer 2014 SFIS pilots, DWP pause implementation of SFIS to enter into negotiations with local government and the relevant trade unions about a national framework for the transfer of local authority fraud investigations staff into DWP.
10Matching information supplied for claims against data held by other public bodies and by private...
Concluded (the committee's words)
Matching information supplied for claims against data held by other public bodies and by private sector organisations such as credit reference agencies has been shown to be an effective way of both detecting incorrect benefit and Tax Credit claims in payment and preventing fraud and error from entering the system in the first place. We believe that the Government, and DWP in particular, could significantly reduce losses to the Exchequer due to incorrect payments by taking a more consistent approach to data-sharing. Proper consideration must, however, be given to data protection issues and, before using data such as that held by credit reference agencies, there must be assessment of their accuracy. Problems with data matching of addresses, for example, or names of previous residents being retained on records, could lead to people being wrongly targeted for investigation.
11We welcome the various pilots that DWP and HRMC have conducted on how data held...
Recommended (the committee's words)
We welcome the various pilots that DWP and HRMC have conducted on how data held by private sector and other public bodies could be used effectively to reduce fraud and error and we urge the Government to roll out the most successful schemes as quickly as possible. We also recommend that DWP and HMRC explore, with the Payments Council and the banking sector, the feasibility of establishing a system which flags up potentially incorrect benefits and Tax Credits payments, using data held by payments systems operators and banks on the types of payments due to enter individual bank accounts. The system should be used to trigger further investigation of potentially anomalous benefit payments, rather than automatically reject payments.

Evidence

Oral evidence sessions 3