13.  Although fraud levels vary between benefits (Figure 1), the Department is not able to say which type of benefit fraud is hardest to tackle. In many cases, fraudsters do not limit themselves to one type of fraud. Figure 2 provides the most up to date analysis of the most common benefit frauds. When departmental staff discover that someone is receiving a benefit fraudulently, they will check all the benefits that the person receives to make sure that they stop all overpayments. Many benefits act as a gateway to other benefits, which can magnify the extent of any fraud. For example, people who receive Income Support may also be entitled to Housing Benefit, Council Tax Benefit and free NHS prescriptions. If the Department does not spot invalid claims for the gateway benefit, it can expose other benefits to the risk of fraud. Since our predecessors examined benefit fraud in 2003,[22] the Department has increased its checks on customers' identities and circumstances at the outset of their claim. During 2006-07, around 250,000 in-payment claims were checked for accuracy and 13,000 claims were checked before any payment was made.[23]

Figure 2: Most common types of benefit fraud in Income Support, Jobseeker's Allowance and Pension Credit (October 2005-September 2006)

Source: Department for Work and Pensions

14.  Organised crime presents a considerable risk to the benefits system. Due to the high volume of payments, criminals can obtain large amounts of public money by fraud if they identify weaknesses in the system. An intelligence-led team within the Department's Fraud Investigation Service targets organised fraud, working closely with the police forces and the Serious Organised Crime Agency. In 2006-07, the Department's Organised Fraud Unit instigated some 900 prosecutions for serious offences against the benefits system. Around 70% of those cases which were prosecuted resulted in an actual or suspended custodial sentence, with the longest sentence being seven and a half years. The Department has closed off an important weakness in the benefits system by encouraging its customers to receive payment directly into their bank accounts rather than by giro cheque. Referrals for instrument of payment fraud—such as the theft and forgery of benefit order books—have now fallen from 150,000 per year to 6,000 per year. The Department estimates that the switch to direct payments is likely to save around £1 billion between 2005 and 2010 because of the much lower payment costs of direct payment compared with cheques or order books.[24]

15.  The Department accepts that it needs to strengthen its response to the estimated £74 million of fraud committed by people living outside the UK (Figure 2). These frauds typically occur when someone either continues to collect benefits after a customer has died, or violates benefit conditions by living abroad. At present, the Department is considering how to implement better proof of residence tests for people who are supposed to live in the UK, and proof of life checks for people living abroad. It has recruited staff in countries such as India and Pakistan to help confirm the validity of payments to local residents, and is working with the Royal Mail to help identify people who are no longer living at a UK address. Data-matching can help to identify cases of fraud. For example, the Department reviews death records in the USA and New Zealand to spot cases where they have not been notified of the death of a customer. A weekly scan also identifies customers who are now in prison and so no longer entitled to benefits. The Department estimates that £3 million of benefits were paid fraudulently to prisoners between October 2005 and September 2006.[25]

16.  'Living together' fraud occurs when a customer claims a means-tested benefit as a single person while living together with a husband, wife or civil partner. The Department estimates that 'living together' fraud costs £74 million in overpayments per year. The nature of the fraud requires time consuming evidence gathering before cases reach the required evidential standard. Weaknesses in departmental IT systems mean that the Department is not able to track routinely the court success of different types of fraud. Despite these problems, the Department denied that it is reluctant to pursue 'living together' cases. In 2006-07, it used administrative penalties in 3,782 cases (2,300 cases in 2005-06), while 2,000 cases were referred to the Department's Prosecution Division.[26]

17.  Local authorities administer Housing Benefit on the Department's behalf. Since 2003, estimated fraud on Housing Benefit has fallen from 1.9% to 1.0%, but official and customer error have risen by 7%. As a result, the Department did not meet its Public Service Agreement target to reduce fraud and error in Housing Benefit by 25% by 2005-06. The Department feels that the level of fraud on Housing Benefit is still too high and welcomes the reform that will allow local authorities to prosecute frauds against other benefits. This change should help the Department and local authorities to work more closely together. In six pathfinder areas, Jobcentre Plus offices rather than local authorities are providing Housing Benefit services to customers. It is too early to measure the impact of this pilot scheme, but the Department believes that taking the whole of the Housing Benefit system under its control would create a considerable strain on its resources.[27]

23   Qq 79, 80, 82, 116; C&AG's Report, para 2.4 Back

24   Qq 47-54, 86, 89-93, 106-107 Back

25   Qq 55, 94-96, 99-105; C&AG's Report, para 1.2 Back

26   Qq 38, 39, 73; C&AG's Report, para 2.29 Back

27   Qq 72, 87, 117-121; C&AG's Report, para 1.7; Figure 6 Back