The Comptroller and Auditor General, has published his audit opinion on the 2011-12 accounts of the Department for Work and Pensions.

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Amyas Morse, the Comptroller and Auditor General, has qualified his audit opinion on the 2011-12 accounts of the Department for Work and Pensions because of the high level of fraud and error in benefit expenditure. The Department’s accounts (and those of predecessor departments administering this expenditure) have been similarly qualified each year since 1988-89.

Today’s report does recognize, however, the difficulty of administering a benefits system of such complexity in a cost-effective way. According to the C&AG, the Department’s plans for introducing Universal Credit, involving new procedures and systems to verify identity and check entitlement  before payments are made, should mark an opportunity to eliminate some  of the key factors contributing to the current level of fraud and error.

The Department estimates that total benefit overpayments due to fraud and error in 2011-12 were £3.2 billion (2010-11: £3.3 billion), equating to 2 per cent of total benefit expenditure of £159 billion (2010-11: 2.1 per cent of total benefit expenditure of £153.6 billion)

Total underpayments in 2011-12 are estimated at £1.3 billion (2010-11: £1.3 billion). This equates to 0.8 per cent of total benefits spending (2010-11: 0.8 per cent).

This qualified opinion does not apply to the State Pension where the level of fraud and error is lower. Within the fraud and error figures above, the Department estimates that in 2011-12, fraud and error within the State Pension resulted in overpayments of £0.1 billion (2010-11: £0.1 billion) or 0.1 per cent of related expenditure (2010-11: 0.1 per cent), while underpayments totalled £0.15 billion (2010-11: £0.1 billion), 0.2 per cent of related expenditure (2010-11: 0.1 per cent).

Complementing the changes to procedures associated with the introduction of Universal Credit, HMRC plans to introduce a real time information system for Pay As You Earn, linking the tax and benefits systems for the first time. This has the potential to reduce significantly some of the problems around verification of entitlement for benefits which have means-tested elements to their eligibility criteria.

"The level of fraud and error in the welfare system remains unacceptably high. I recognize, however, the difficulty of administering in a cost-effective way a benefits system of such complexity.

"The Department should use the development of Universal Credit as an opportunity to enhance its processes to demonstrate what a modern, effective and joined-up benefits system will look like. In refreshing its approach to reducing fraud and error, the Department needs to continue to improve its understanding of the root causes of fraud and error."

Amyas Morse, head of the National Audit Office

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