Department recently received spending review settlement to invest in automation
The Department for Work and Pensions overpaid £8.5bn in benefits other than the state pension in the last financial year, with estimations of fraud-and-error overpayments now at a “record level”, according to the National Audit Office.
The overpayment figure represented 7.6% of non-pension benefits spend, an increase of £380m on the previous year, DWP’s just-published annual report and accounts for 2021-22 said. The annual report said the largest increase was attributed to fraudulent Universal Credit payments, and that DWP estimated it had overpaid 14.7% of all Universal Credit payments in 2021-2022.
NAO head Gareth Davies said in his commentary on the department’s performance that the overpayment rate was the highest for any benefit ever recorded.
Davies qualified his audit opinion of DWP’s accounts because of the department’s fraud-and-error rate with benefits. He said it was the 34th time that the department and its predecessors had seen their accounts qualified because of material fraud and error.
“In 2020 we concluded that the department had not prioritised tackling fraud and error in its rollout of Universal Credit,” Davies said. “The department then needed to suspend key controls over fraud and error in order to process the number of new claims it received at the start of the pandemic. It estimates the level of Universal Credit expenditure overpaid due to fraud and error was 26.6% for claims made during the surge of new claims at the start of the pandemic (March to June 2020). This is up from 10.9% for claims made before the start of the pandemic.”
Davies noted that while DWP has “largely recovered” from the disruption caused to its operations by Covid-19, some controls over fraud and error had not been reinstated and the estimated level of fraud and error overpayments remained at a “record level”.
He added that the department was owed £7.6bn in overpaid benefits, benefit advances and tax credits by around five million claimants, up by more than £1bn on 2020-21. Davies said £2bn of debt had been recovered in 2021-22.
Elsewhere, the report said DWP now estimated that it has underpaid 237,000 state pensioners to the tune of £1.5bn over the past 37 years – a £429m increase on last year’s figure and an increase in 105,000 in terms of the number of people affected.
Davies said DWP clearly had more work to do to show it is doing all it can to tackle fraud and error over the long term.
“It has largely implemented the five recommendations I made last year to improve its response on fraud and error in the immediate aftermath of the pandemic,” he said. “However, it is still in the process of improving its understanding of the cost effectiveness of its control environment in line with my recommendations before the pandemic. Similarly, the department has committed to publishing a fraud and error target, but says it is not able to do this yet due to uncertainty in baseline levels of fraud and error.”
Davies acknowledged DWP was granted an additional £613m of funding to tackle fraud and error as part of the 2022-2025 Spending Review settlement.
The allocation includes funding for a significant increase in staff to support counter-fraud work, such as reviewing and correcting open Universal Credit cases, and for the wider use of automation and modernisation of fraud and error processes.
A DWP spokesperson said fraud had risen because of “callous criminals” exploiting measures to help those in need during the pandemic and that the situation was “unacceptable”.
“We helped bring fraud and error in the welfare system to near record lows before the pandemic, and are committed to doing so again,” they said. “We are already working on this, including reviewing 900,000 cases in the past year and publishing our new, long-term fraud plan to root these crooks out of the system, saving the taxpayer £2bn over three years, while protecting it from new threats in the future. Through this plan we’ll add 1,400 trained specialists to stop fraud in the benefit system, seek new powers to increase access to bank account data, and ensure we can directly arrest suspected fraudsters.”