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The Department for Work and Pensions has made good progress in tackling benefit fraud, which is estimated to have fallen from an estimated £2 billion in 2000-01 to £800 million in 2006-07, a substantial achievement by its staff, although definitional changes have helped. Tackling benefit fraud is inherently difficult as it is in the nature of welfare systems that some people will seek to defraud them and that some will succeed.

However, losses due to fraud are still a significant drain on the public purse and the high levels of fraud and error are one reason for the qualification of the Department’s accounts over the last 18 years.

The National Audit Office found that the Department has a well defined strategy for tackling benefit fraud which includes continual efforts to improve the accuracy of its estimates of fraud and error. Our benchmarking of social security systems in a range of countries considered the Department to be at the forefront of measuring welfare loss and understanding the problems. Measurement has also improved and estimates are now measured to the nearest £0.1 billion.

Protecting the integrity of the benefits system is at the heart of many of the Department’s activities such as regular interviews with jobseekers, medical examinations of people claiming disability and incapacity benefits and checks at the outset of a benefit claim. These activities are part of a range of initiatives to eradicate all types of irregularity, including customer and official error.

More specifically, the Department has developed a series of initiatives to tackle benefit fraud. The National Audit Office examined six of the most important counter-fraud activities to examine their cost effectiveness. In total, in 2006-07, we estimate these specific initiatives cost the Department £154 million to operate and identified an estimated £106 million of benefits which had been overpaid as a result of fraud.

These calculations do not take account of the deterrent or benefit of stopping the fraud continuing, both of which could be substantial but which are very difficult to quantify. This suggests, using this particular measure, that the Department is currently spending £1.50 to identify £1 of overpayments. This does not mean that these activities are not worth continuing with but does provide the Department with a baseline by which further improvements can be measured.

Despite the good progress made in recent years, the National Audit Office makes a number of recommendations to the Department to enhance its efforts to tackle fraud. Management information needs improving to enable the Department to assess the cost effectiveness of different counter fraud approaches. Despite the progress made since we last reported, the Department is still unable to assess fully the costs and benefits of its different counter-fraud initiatives.

By comparing known costs and benefits, the National Audit Office has found that some are more cost effective than others. For example, based on the value of overpayments identified, cases of suspected fraud identified through the Department’s data matching service are more cost effective than those generated by the hotline, identifying on average £24 per £1 spent compared with £16 overpayments identified per £1 spent on the hotline.

In April 2006, the Department introduced a new approach, Customer Compliance, to investigate low level frauds, enabling the existing fraud investigation service to focus on higher value, criminal fraud cases. Whilst early indications suggest that Customer Compliance – a relatively new intervention - is not yet cost effective and recovered only £0.62 for every £1 spent in its first year, stopping further incorrect benefit payments as a result of this activity saves £5.25 million per week. Recent evidence suggests that performance with this approach is improving.

In 2006-07, the Department recovered £22 million of fraudulent overpayments. The Department is subject to regulations that prescribe the amount of money and the circumstances in which it can be recovered from customers still in receipt of benefit. However, the National Audit Office recommend the Department should consider setting appropriate targets for overpayment recovery from fraud cases where customers are no longer on benefit.

Different parts of the Department deliver different stages of counter-fraud work, such as referrals, investigations and prosecutions. Although one stage of the process leads to the next, the different parts of the Department do not operate in a fully streamlined way. This can cause delays in investigating a case. The Department hopes to improve case management with its new IT system, FRAIMS, but this has been delayed and full roll out is now not expected until March 2008.

Preventing fraud from entering the benefits system in the first place is a key element of the Department’s counter-fraud strategy. It is piloting new technologies such as IT-enabled data matching and voice risk analysis to help prevent fraud at the outset of a claim.

Sir John Bourn, head of the National Audit Office, said today:

“The Department for Work and Pensions has made tackling benefit fraud a priority and has made good progress in reducing fraud, which represents a substantial achievement by its staff. It is also ahead of other comparable countries in its measurement and understanding of benefit fraud.

“The Department’s specific counter-fraud activities cost £154 million during 2006-07 and identified £106 million of overpaid benefits. Although some of the Department’s initiatives lead to earlier interception of overpayments and may deter potential fraudsters, I believe the Department could do more to determine whether its activities are cost effective.”

Notes for Editors:

1. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.

2. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office which employs some 850 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.