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Head of the NAO Sir John Bourn reported to Parliament today that, according to the Department for Work and Pensions’ estimate, £3 billion may have been lost from benefit payments, the same amount as reported in 2001-2002. This constitutes some 2.7 per cent of the £112 billion of gross expenditure recorded in the Department’s resource accounts on a wide range of benefits, employment programmes and associated administration costs.

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Sir John has indicated to the Department that, to avoid qualification of the accounts in future, it would have to reduce the level of estimated fraud and error to below one per cent of gross expenditure (equivalent to just over £1 billion in 2002-2003). The NAO have now qualified the Department’s accounts and those of the former Department of Social Security for 14 years running because of the scale of fraud and error in expenditure on welfare benefits.

The two benefits with the highest risk of fraud and error are Income Support and Jobseeker’s Allowance. Regarding Income Support, including Minimum Income Guarantee for pensioners, the Department’s latest estimate (for the year ending 30 September 2002) is that losses amounted to £860 million (5.9 per cent of expenditure on this benefit). For Jobseeker’s Allowance, losses (for the year ending 30 September 2002) amounted to an estimated £290 million (11.2 per cent of expenditure).

Levels of fraud and error in Housing Benefit are also a concern. According to the first results of a new continuous Housing Benefit review to measure fraud and error, published in December 2003, around £750 million (6.2 per cent) of Housing Benefit expenditure is estimated to have been overpaid by local authorities on behalf of the Department in 2002-2003 owing to fraud and error. Based on a Benefit Review undertaken in 1998, Housing Benefit fraud and error had previously been estimated as £840 million.

Sir John has also qualified the accounts again this year on the grounds that there are significant uncertainties over certain significant debtor and creditor balances. However, as a result of extensive work by the Department to reconcile balances in its general ledger with those on various Departmental debt systems, Sir John has been able to remove this aspect of the qualification he has made in previous years.

"The amount of welfare benefit being lost through fraud and error is continuing to run at an estimated £3 billion each year. Once again I must point out that Parliament intends that this money should go only to those who are properly entitled. The challenge which the Department faces in reducing the scale of fraud and error to an acceptable level is very large indeed. However, it is crucial that as much of the money as possible goes to those who are in real need."

Sir John

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