"Gaps and inconsistencies" in government data make it hard to work out the true scale of fraud in the public sector, according to the public spending watchdog.
In a review of cross-government efforts to clamp down on fraud, the NAO said that while reducing the problem had been a "major focus" of the tax and benefits system "for many years", the scale of fraud in the rest of government well "less well known", with "fundamental issues to be resolved before the government can demonstrate that resources are being targeted effectively".
Since 2011, a dedicated Fraud, Error and Debt team led by the Cabinet Office has required departments to record and regularly report on detected and estimated fraud and error, the first time such data has been gathered at departmental level.
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The spending watchdog praises the FED team for providing "valuable central guidance and expertise to departments to improve the way they manage fraud", and says it is "growing into a centre of expertise".
But the NAO says the exact scale of fraud within central government is still unknown, with the available data "often variable and not sufficient to accurately assess the extent of fraud".
The report points out that just 13 central government departments have so far opted in to the public sector-wide National Fraud Initiative – previously overseen by the now-abolished Audit Commission – which aims to detect potential fraud by matching data sets across 1,300 public and 77 private sector organisations.
And it says: "The most comprehensive data relates to areas of known risk – tax credit and benefit fraud [...] – but information across the rest of government is incomplete.
"The Cabinet Office has recently started collecting fraud returns from departments but there are gaps and inconsistencies in the data sets. What the data does indicate however, is that departments are reporting less loss than expected given the scale of expenditure and range of activities. Some submitted nil returns despite reporting cases of fraud elsewhere."
The NAO paints a mixed picture of departmental efforts to manage fraud, with departments reporting "varying abilities to understand and address fraud risks within their organisations", and "few incentives" for individual organisations to prioritise the issue.
"Some may lack an understanding of their exposure to fraud including knowing what their riskiest processes are," it says. "Consideration of fraud risk early in policy/ programme development through ‘fraud risk assessments’ is also not widespread. Those departments with dedicated fraud resources tend to focus on investigating cases of fraud rather than preventing it."
The NAO points out that estimated fraud in the UK public sector – standing at 0.02% of total expenditure – is lower than estimates of 3% to 5% in the European Union and the United States.
But it says the difference in those figures may suggest "significant fraud and error that is unreported or undetected and losses that are not being adequately addressed".
The report says the Cabinet Office has stepped up its efforts to provide more individual support to departments, in a bid to ensure that their data on fraud is "more accurate and internally consistent". The Cabinet Office has also recently replaced two, significantly varying departmental measures of fraud with a "true detected fraud figure" to try and give a more accurate estimate.
Among its recommendations, the NAO says departments should carry out "through fraud risk assessments" of all new policies and programmes and make efforts to improve their data.
"Once Cabinet Office is confident about the quality of this data, it should publish an annual report on fraud losses across government to improve transparency and raise awareness of fraud," the watchdog says.