NAO qualifies DWP accounts for 32nd year running

6 July 2020: The National Audit Office reports that overpayments from fraud and error reached their highest ever estimated rate in 2019-20. COVID-19-driven claims since March are likely to increase this even further. 

The Department of Work & Pensions (DWP) published its annual report and financial statements for the year ended 31 March 2020, containing a qualified audit opinion for the 32nd year running due to the material level of fraud and error in benefit expenditure.

The audit report from the independent National Audit Office (NAO) contains a clean opinion on the truth and fairness of DWP’s financial statements for 2019-20. However, the Comptroller & Auditor General Gareth Davies (the head of the NAO) has qualified the second part of his audit opinion with respect to overpayments attributable to fraud, error where payments have not been made for the purposes intended by Parliament, and for overpayments and underpayments that do not conform to the relevant authorities.

Excluding the state pension, where the level of fraud and error is relatively low, the estimated level of benefit overpayments increased to an estimated £4.5bn (4.8%) in 2019-20 from £3.7bn (4.4%) in the previous financial year. Underpayments were estimated to amount to £1.9bn or 2.0% of the relevant benefit expenditure. 

The NAO reports that overpayments of Universal Credit increased from 8.7% to 9.4%, which is the highest recorded rate for any benefit other than tax credits. It says the most common cause of fraud and error is incorrectly reported income (leading to £1.4bn of overpayments and £0.35bn of underpayments), followed by incorrectly reported savings (at a value of £0.9bn).

NAO head Gareth Davies issued a press release commenting on his concern that the level of error and fraud in benefit payments has risen again – and highlighting the likelihood of even higher levels as a consequence of relaxed controls at the DWP during the coronavirus pandemic.

Commenting on the report Alison Ring, director for public sector at ICAEW, said: “Although the National Audit Office is quite right to stress how important it is that the DWP does more to reduce the incidence of fraud and error, it is likely that the increase seen in 2019-20 is primarily as a consequence of the further rolling out of Universal Credit, a complex welfare benefit which is inherently prone to error and more vulnerable to fraud than many other benefits.

“As well as investing more in tackling individual cases of fraud and error, the DWP may want to give further thought to the design of Universal Credit and how it could be improved to reduce the likelihood of error and fraud in the first place.

“The relaxation of controls over benefit payments during the coronavirus pandemic has helped get financial support to claimants in quite often severe financial difficulty, but that has come with the prospect of much higher levels of fraud and error in the current financial year. Reducing the levels of both over- and under-payments will be a big challenge for the DWP, especially if there is further large surge in claims as the furlough scheme comes to an end in the next few months”.

The Department for Work & Pensions Annual Report & Accounts 2019-20 and the associated NAO press release are publicly available.

This article was originally published by ICAEW.

Government watchdog sounds COVID-19 fraud risk alarm

31 March 2020: the Government Counter Fraud Function has published new guidance for public bodies about fraud arising from the actions taken to address the coronavirus emergency. 

Unfortunately, fraud is inevitable given the relaxation in scrutiny over emergency payments made by public bodies to support individuals and businesses affected by the current crisis. But there are still steps that can be taken to minimise fraud where possible.
The guidance sets out five overarching principles for public bodies to apply to counter potentially fraudulent activity in delivering emergency programmes:
1.     Accept that there is an inherently high risk of fraud, and it is very likely to happen.
2.     Integrate fraud control resources into policy and process design.
3.     Work together with fraud control teams to implement low friction counter measures to prevent fraud risk where possible.
4.     Carry out targeted post-event assurance to look for fraud, ensuring access to fraud investigation resources.
5.     Revisit the control framework when emergency payments shift into longer term services – especially where large sums are invested.
The guidance is intended to support government departments, local authorities and other public bodies to move quickly to provide financial support to those affected, whilst doing what is possible to address the inevitable frauds that will be committed. It recommends ensuring that consistent data is collected from those applying and receiving payments and putting in place robust claw back agreements to recover funds that are paid out incorrectly.
The advice makes clear that public bodies will need to put in place post-event assurance processes to review the payments being made now. 
Alison Ring, Director, Public Sector for ICAEW, commented: “It is important that public bodies move as quickly as they can to support individuals and businesses in distress but despite that, there is a lot they can do to minimise the potential for fraud. Where possible, implementing existing fraud prevention measures in the time available, combined with extensive post-transaction scrutiny and assurance to be carried out later.
The need for appropriate open access provisions, allowing public bodies to verify transactions at a later date and recover fraudulent claims where possible, will be an important component to both deferring fraud in the first place as well as detecting fraud afterwards.”

For the latest news and guidance on the ongoing impact of COVID-19 for businesses and accountants, visit ICAEW’s dedicated Coronavirus Hub.

This article was originally published by ICAEW.