Twenty-Sixth Report - Department of Work and Pensions Accounts 2019-20

Even before COVID-19, fraud and error overpayments were at their highest ever rates, with around £1 in £10 of Universal Credit paid incorrectly. The estimated overpayment rate, excluding State Pension, now stands at 4.8% (£4.5 billion) of benefit expenditure of … Read more Even before COVID-19, fraud and error overpayments were at their highest ever rates, with around £1 in £10 of Universal Credit paid incorrectly. The estimated overpayment rate, excluding State Pension, now stands at 4.8% (£4.5 billion) of benefit expenditure of £93.1 billion for 2019–20; this is the Department’s highest ever estimated overpayment rate. The Department does not currently have a target rate of fraud and error, although it has now publicly committed to setting one once it has established a clear baseline. We look forward to the Department finally setting fraud and error targets after several recommendations to do so by this Committee in recent years. Of all measured benefits, Universal Credit has the highest estimated overpayment rate - 9.4% (£1.7 billion) for 2019–20 - and it has an estimated underpayment rate of 1.1% (£0.2 billion). Fraud and error in Universal Credit is set to increase significantly in 2020–21. As a rough estimate, a doubling in caseload alone (ignoring the effect of easements to controls) could cause around £1.9 billion of additional fraud and error in Universal Credit. Recommendations: The Department needs to show sustained progress in reducing fraud and error. It should set annual targets, by risk and benefit, against which its progress can be assessed, based on its expectation of the intended impact of its counter fraud and error initiatives over time. These should be set out and reported against in its Annual Report and Accounts for 2020–21. For Universal Credit, the Department should set out its plan for year-on-year reductions in fraud and error, assessing performance against short-term, achievable targets. Show less

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The Department has made slower progress on some causes of fraud and error; this is sometimes due to legislative and regulatory restrictions. There are specific risk areas such as capital, living together, self-reported and self-employed earnings Department for Work and … Read more The Department has made slower progress on some causes of fraud and error; this is sometimes due to legislative and regulatory restrictions. There are specific risk areas such as capital, living together, self-reported and self-employed earnings Department for Work and Pensions Accounts 2019–20 7 where the Department admits it is harder to tackle fraud and error, in part due to the lack of access it has to timely, accurate data. In 2019–20, measured capital fraud and error across all measured benefits rose by £380 million (73%) to £910 million; the largest increase in value for any individual risk type. The Department is seeking to expand its use of data in this area and has performed some initial work on tackling capital risk using data from banks, which it says gave “really good results”. Although the Department has powers that allow it to ask for the information that it needs when it is doing an individual compliance investigation, it does not have legal access to the same level of information for the controls it uses to prevent and detect fraud and error. The Department must balance tackling fraud and error risk against what is feasible within the legislation around data privacy. Recommendation: The Department should review the regulatory regime around its fraud and error activities and communicate to parliament where it believes additional powers or other changes to legislation would improve controls for specific fraud and error risks. Show less

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As at 31 March 2020, the Department was owed £5.3 billion from benefit overpayments, benefit advances and Tax Credits debt. This number continues to increase rapidly. As at 31 March 2020, the Department was owed: benefit overpayments of £2.6 billion; … Read more As at 31 March 2020, the Department was owed £5.3 billion from benefit overpayments, benefit advances and Tax Credits debt. This number continues to increase rapidly. As at 31 March 2020, the Department was owed: benefit overpayments of £2.6 billion; benefit advances of £1.0 billion; and Tax Credits debt of £1.8 billion. This represents a significant annual increase of 39% (£1.5 billion) on the £3.8 billion owed as at 31 March 2019, and the amount owed to the Department is expected to increase further as Universal Credit expands and it takes on more Tax Credits debt from HM Revenue & Customs. The amount owed to the Department will have also risen when the Department temporarily suspended most debt recovery in March 2020 as direct response to the COVID-19 pandemic (it only reintroduced the recovery of new overpayments in late September). Although the Department claims that “there are cases where things are written off, but they are exceptional cases”, the reality is that around £290 million of non-recoverable benefit overpayments were written-off in 2019–20, with an additional £7 million relating to customer fraud also written-off. Furthermore, the Department accepts it will not be able to recover a significant portion (44%) of its existing benefit overpayments and Tax Credits debt, recognising a £1.9 billion impairment in its accounts. Recommendation: The Department should set out clearly in its Annual Report and Accounts, starting 2020–21: the methods open to it to recover debt; the efficacy of each of these methods on recovering different types of debt; and its expectation of its recovery of different types of debt which are accumulating due to overpayments and be clear about the resources required to deliver on its targets. Show less

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COVID-19 will lead to further increases in fraud and error. The Department has an opportunity to learn from the impacts of its control easements. In addition to 6 Department for Work and Pensions Accounts 2019–20 any rise in the level of fraud and error caused by an increase in benefit …

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The Department cannot demonstrate that it is doing everything that is cost- effective to tackle fraud and error. The National Audit Office’s work in 2019–20 on the Department’s strategy to tackle fraud and error showed that the Department could do more to understand the cost-effectiveness of individual controls. The Department’s …

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The people that are being overpaid and underpaid are amongst those least likely in society to be able to pay the money back or absorb an underpayment. The nature of means tested benefits means people entitled to receive the benefits are already those in society with the lowest incomes and …

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We took evidence from the Department for Work & Pensions (the Department) based on its 2019–20 Accounts, and the Comptroller and Auditor General’s audit certificate and report contained within that document.1

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The Department’s figures show that payment timeliness was maintained at around pre-COVID-19 levels. Its preliminary statistics show that 89% of new claims were paid on time and in full from 1 March 2020 to 26 May 2020.13 This followed the Department’s efforts to improve the portion of new claims paid …

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The Office for Budget Responsibility’s Fiscal Sustainability Report (July 2020) outlines that ‘unemployment is likely to be materially higher for several years’ and forecasts that unemployment will significantly increase from its current level (it assumes 15 per cent of people on the Coronavirus Job Retention Scheme will ‘move into unemployment’ …

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Benefit overpayments are at their highest estimated rates and have risen consistently since 2015–16. Excluding State Pension, the estimated rate of overpayments increased again to 4.8% (£4.5 billion) of estimated benefit expenditure of £93.1 billion for 2019–20, from a restated rate of 4.4% (£3.8 billion) in 2018–19. The estimated rate …

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The Department does not currently have a target rate of fraud and error for us to use to hold it to account. However, the Department does now “absolutely accept in principle” that it should have a target “given the level of public scrutiny and interest in the question of fraud …

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Universal Credit has the highest estimated overpayment rate of all measured benefits—9.4% (£1.7 billion) for 2019–20—and it has an estimated underpayment rate of 1.1% (£0.2 billion). This is the highest recorded overpayment rate for any benefit other than Tax Credits (administered by HMRC), which peaked at 9.7% in 2003–04.23 The …

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Even before the impact of COVID-19 the Department had not yet delivered the value of savings on fraud and error on which the Business Case for Universal Credit was based.26 As these were intended to be annually recurring savings, every year of delay in achieving them represents a real and …

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The Department informed us that “many more claims naturally means more fraud and error in the system”.29 The Department reported that the number of people on Universal Credit almost doubled from 2.9 million in February to 5.6 million in August and has continued to grow since.30 Fraud and error in …

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The Department acknowledges that the easements to controls it has made to respond to the pandemic will increase fraud and error more than would otherwise be expected by the increase in claims. It has produced a range of estimates of the amounts potentially at risk which has been shared with …

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The Department informed us that it has taken steps to mitigate the impact of these easements. It said it believes the key thing is to have a real-time data feed that enables it to check that the mitigations it has put in place are being effective. It provided an example …

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However, whether these detection activities are successful does not inform us about the impact on the underlying rate of fraud and error. The Department reported that due to the redeployment of its staff to tackle the surge of claims and the difficulties of performing its sampling exercise in lockdown, it …

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The Department also informed us that as of July, after redeploying staff back into measurement activities, it has been measuring fraud and error on Universal Credit and it is also undertaking measurement work on other benefits such as Pension Credit and Employment Support Allowance. It told us that “it is …

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The National Audit Office’s (NAO’s) work in 2019–20 on the Department’s strategy to tackle fraud and error showed that the Department has a good understanding of the types of fraud and error that occur in the benefit system, but that it needs to do more to understand the cost-effectiveness of …

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The Department told us that it wants to get to the point where its accounts are no longer qualified. It acknowledged that it is not where it wants to be, but said it knows what it needs to do.40 It said that it is working with the NAO to understand …

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The Department’s fraud and error strategy relies on modernising its technology and putting more investment into data and data analytics. It told us that “we really do see that putting more investment into data, into data analytics and into that prevention space, is going to get us where we need …

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The Department launched its Risk and Intelligence Service (RIS) in April 2018 and reported that it was using ‘increasingly sophisticated data and analytical tools’ to tackle fraud and error.43 In response to COVID-19, the Department absorbed the work of RIS and other intelligence teams into its new Integrated Risk and …

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The Department told us that it is starting to build a system that is based on ‘transaction risking’; its vision is to be in a place where it can, in real time, or near real time, assess every claim as it is coming through and take a view of how …

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There are specific risk areas such as capital, living together, self-reported and self- employed earnings where the Department admits it is harder to tackle fraud and error, in part due to the lack of access it has to timely, accurate data.46 In 2019–20, measured capital fraud and error rose by …

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The Department told us that the big fraud and error saving that it knew would come from Universal Credit is using real-time information (RTI) on earnings from HMRC in an automated way to calculate the award, and that it ‘knows’ it is “doing well on the RTI part”. However, the …

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The Department has powers that allow it to ask for the information that it needs when it is doing an individual compliance investigation, but it does not have legal access to the same level of information for the controls it uses to prevent and detect fraud and error. The Department …

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The Department’s accounts show that as at 31 March 2020, claimants owed it £5.3 billion from benefit overpayments (£2.6 billion), benefit advances (£1.0 billion) and Tax Credits (£1.8 billion). This represents a significant annual increase of 39% (£1.5 billion) on the £3.8 balance owed as at 31 March 2019. Other …

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Evidence suggests that the amounts claimants owe from benefit overpayments, benefit advances and Tax Credits are all likely to increase further in 2020–21. The Department temporarily suspended most debt recovery in March 2020 and reintroduced the recovery of new overpayments in late September.55 With recovery action paused and a surge …

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We are concerned about the risk associated with trying to reclaim an overpayment and the time it takes to recover an overpayment. The Department told us that it has “very good and wide-ranging powers in terms of debt recovery” and that “there are cases where things are written off, but …

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Fraud and error have an impact on people’s lives; when the Department recovers overpayments, this can lead to problems for claimants who face deductions from their income, whereas underpayments mean that households do not get the support they are entitled to.61 The Department informed us that it ‘carefully considers’ whether …

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For a means tested benefit such as Universal Credit, people entitled to receive the benefit will be those in society with lower incomes and savings.64 The National Audit Office’s (NAO’s) recent study on Universal Credit: getting to first payment found that ‘the Department does not have all the information it …

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The Department reports that it is able to identify claims impacted by its temporary easements to controls, and that therefore it can revisit these claims to raise any resulting over (or under) payments that might have occurred; it reports that it will be starting this work in 2020–21.66 The Department …

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In response to COVID-19, many staff within the Department’s Counter Fraud and Compliance Directorate were redeployed, meaning the Department temporarily paused compliance work.69 As it restarts its compliance activity the Department should be aware of the lessons from NAO’s Investigation into overpayments of Carer’s Allowance in 2019. 62 Q 33 …

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