Uncertainty over how benefit fraud risk will be managed

15 May 2014 11:50 AM

It remains uncertain how DWP will manage the housing costs element of Universal Credit without increased risks of fraud and error, warns the Work and Pensions Committee report. 

• Report: Fraud and error in the benefits system
• Report: Fraud and error in the benefits system (PDF)
• Inquiry: Fraud and error in the benefits system
• Work and Pensions Committee

The Government has stated that an IT system (the Integrated Risk and Intelligence Service (IRIS)) will allow it to cross-check data and provide similar safeguards against fraudulent claims under Universal Credit as are currently operated by local authorities within the Housing Benefit system. 

However, last year the National Audit Office (NAO) found that IRIS was "missing" from the UC Pathfinders, and it remains unclear how or when DWP will achieve automated access to the range of property data currently available to local authorities.  The Committee concludes that such a system will need to be fully developed and tested before national implementation of Universal Credit commences. 

Committee Chair

Commenting on the report, the Chair of the Work and Pensions Committee, Dame Anne Begg MP, said:

"Through the use of RTI—real-time information on PAYE earnings—Universal Credit has the potential over the longer term to substantially reduce fraud and error in the benefits system.  However, this could be seriously undermined because of the uncertainty about how DWP will administer the housing element of Universal Credit without increased risks of fraud and error.

Under the current housing benefit system, local authorities can cross-check claims across a range of data relating to other council services.  Unless DWP is able to cross-check Universal Credit claims in a similar way it may be less effective in tackling fraud and error.

It is vital that a fully developed and tested IT system, which allows DWP to cross-check data, is in place before Universal Credit is implemented on a national scale.  Worryingly, it appears that there is no automated system in use in the Pathfinders and is not clear when or how a system will be available."

Conclusions and recommendations

On reporting of official fraud and error estimates

The official estimated benefit fraud rate is 0.7% of total benefits expenditure. The general public’s misperception is that it is some 34 times higher. To reduce the risk of confusion or conflation in media reporting, DWP should publish statistics relating to the estimated level of benefit fraud on a separate day from those related to error in the benefits system [paragraph 19].

Dame Anne Begg MP said:

"Statistics relating to benefit fraud are often conflated in media reporting with those relating to error; and people’s perceptions of the level of benefit fraud are completely out of kilter with the official estimate. This is not helped by the Government publishing all of the statistics simultaneously. Whilst we understand that the boundary between claimant error and fraud is not always clear, we believe that publishing separate summaries of estimated fraud and error rates would be helpful."

On progress towards fraud and error reduction targets

Fraud and error rates have plateaued from 2005/06 to 2012/13, despite an “uncompromising” and "zero tolerance" approach announced by the coalition Government. 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 [paragraph 29].

Dame Anne Begg MP said:

"Despite DWP devoting considerable effort and resources to fraud and error reduction, rates have hardly changed since 2005/06 and estimated overpayments remain at around 2% of total benefit expenditure.  If the ambitious target is to be met, innovative approaches are needed, not more of the same."

On innovative ways of tackling fraud and error

DWP and HMRC should 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, usingdata held by payments systems operators and banks on the types of payments due to enter individual bank accounts [paragraph 88].

In the longer term biometric identity systems could have an important role to play in identity verification processes across government. The Cabinet Office is working on a government-wide system; the Government should evaluate the benefits of biometric identity verification in the social security system and more widely across public services [paragraph 55].

Dame Anne Begg MP said:

"DWP should adopt a secure and consistent approach to public and private sector data-sharing.  This should include exploring the feasibility of a system that uses data held by banks and payment system operators to identify potentially incorrect benefit payments.

The Government should also carefully consider innovative identity verification technology, such as the voice-recognition system now used in Australian public services."

On the implementation of the Single Fraud Investigation Service (SFIS)

The Committee recommends that SFIS, a DWP-run service which will investigate all social security benefit fraud across DWP, HMRC and local authorities, be implemented, as far as is practicable, in line with the roll out of Universal Credit. The Government’s current timetable for SFIS implementation would see responsibility for Housing Benefit fraud investigations transfer from local authorities to DWP before the Department plans to take responsibility for housing costs support under Universal Credit across the country [paragraph 75].

Dame Anne Begg MP said:

"SFIS is, in principle, a good idea but it makes no sense to rush its implementation, ahead of the roll out of Universal Credit. As far as possible SFIS and Universal Credit implementation should be aligned, otherwise there could be increased risks of fraud in relation to housing costs support. The Government also needs to pause to allow negotiations with local government and the relevant trade unions about the transfer of staff into DWP."