NAO sounds alarm over DWP’s ‘record high’ fraud and error rates

Watchdog says department accepts pandemic response means overpayments will “remain significantly higher than normal for some time”
National Audit Office Credit: Matt Foster

By Jim Dunton

20 Jul 2021

National Audit Office head Gareth Davies has spoken of his “concern” at record levels of fraud and error in the nation’s benefits system after the Department for Work and Pensions estimated it overpaid £8.3bn in 2020-21.

Relaxations to the checking regime for Universal Credit that were prompted by a surge in new claimants in the early weeks of the coronavirus pandemic saw DWP’s non-state-pension overpayments increase by £3.8bn in the last financial year. Nearly all of the increase in fraud and error related to Universal Credit, the public spending watchdog said.

Although DWP only marked the 20th anniversary of its founding last month, the NAO said 2020-21 was the 33rd successive year that the department and its predecessor departments had seen their accounts qualified by auditors due to the level of material fraud and error in the benefits system.

According to the annual report, Universal Credit overpayments rose to 14.5% in 2020-21, up from 9.4% the previous year. The NAO acknowledged that the increase took place at time when Universal Credit claimant numbers doubled from three million to six million, but quality assurance checks “significantly reduced” and “6,000 of 8,000 compliance staff were redeployed”.

The NAO said DWP expected the level of overpayments across all benefits, excluding state pension, to remain at 7.5% in the current year “and to remain significantly higher than normal for some time”. The figure was 4.8% in 2019-20.

DWP has not set a fraud and error target for the current year, but the NAO said it planned to set one for 2022-23 in the autumn, when the post-Covid-19 baseline level is expected to be clearer.

“It aims to reduce Universal Credit overpayments to 6.5% by 2027-28, although its forecasts indicate that this is not achievable within its current plans or resources,” the NAO said.

The NAO said DWP was owed £5bn of overpayments, a situation that was “placing additional strain on its resources and potentially causing uncertainty and hardship to claimants”.

It added that the department was “not sure”how much of its estimated 2020-21 loss it would recover, on the grounds that it had “attempted to recover only 10% of the estimated loss in the last 5 years”.

DWP’s annual report and accounts also confirm that the department has set aside £1bn to reimburse around 132,000 people who have been underpaid their state pension over the past 30 years.  

The NAO said the department’s response to the impact of the pandemic had ensured that those in need received prompt support, but that the easing of controls led to a significant increase in fraud and error.

It urged DWP to “identify and review” all cases where fraud could have occurred where controls were relaxed, ensuring that there is clear and prompt communication with claimants about any debt they owe as a result of overpayments.

NAO head Davies said the department should also conduct a lessons-learned exercise on its approach to fraud and error during the pandemic.

“I am concerned that the level of fraud and error in the benefits system continues to increase year on year, now reaching its highest level since records began,” he said.

“This has a real impact on public funds and on those who face deductions to their income due to overpayments.

“I recognise that the pandemic and the resulting surge in the number of claimants has increased DWP’s exposure to fraud and error.

“It must now review all cases that could have been subject to fraud during this time, whilst continuing to progress our past recommendations on how to reduce fraud and error.”

In his foreword to the DWP’s annual report and accounts, permanent secretary Peter Schofield said he was proud of the way the department had responded to the demands of Covid-19 and that the organisation had made the safety of staff and service users its “number one priority”.

But he said the current year would “continue to provide significant challenges” for the department, and that it would continue to grow its capacity and reduce backlogs caused by the pandemic.

“Action to address fraud and error is a priority, using data and analysis to review higher risk claims, and implementing our strategy to prevent fraud and error occurring in the first place,” he said.

A DWP spokesperson added: “Those found to have claimed benefits to which they are not entitled face criminal investigation.”

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