Benefit fraud is a crime and undermines public confidence in the benefits system. The Department for Work and Pensions has a well-defined strategy for targeting benefit fraudsters. In 2006-07, the Department estimated that it spent some £154 million on tackling fraud, identifying £106 million of overpaid benefit, against total benefit expenditure of £120 billion. The Department estimates that fraud fell from £2 billion in 2001-02 to £800 million in 2006-07. Some £700 million of this reduction happened when the Department reclassified overpayments of Disability Living Allowance and its related benefits as neither fraud nor error. This change was reported in the annual accounts.

The United Kingdom has levels of benefit fraud and error which are similar to those in comparable countries, but the Department appears to have a better understanding than other national social security agencies of the problems and the means of tackling them. Estimated fraud now accounts for 0.6% of benefit expenditure, around £800 million. The Department must do more to reverse the rise in official and customer error. Estimated error rose from £1 billion in 2001-02 to £1.9 billion in 2006-07. The Department believes that benefit complexity is a major cause of error.

Since the Committee's last Report on tackling benefit fraud in 2003,[1] the Department has introduced new Customer Compliance teams to deal with less serious frauds. The Department has also tried to prevent fraud by increasing the volume of pre-payment checks and by successfully encouraging customers to receive benefit payments directly into their bank accounts. The Department now works closely with the police, the Serious Organised Crime Agency and local authorities to prevent, identify and act against fraud.

The Department could make more effective use of its powers and resources in tackling fraud. While the Department successfully prosecutes 90% of the cases it takes to court, the Prosecution Division has lost 17% of its staff since 2003. Debt recovery is an essential part of tackling fraud, yet in 2006-07 the Department only recovered £22 million of fraud debt out of a known fraud debt stock of £339 million. The Department has been slow to improve its management information systems, hampering its ability to measure the cost-effectiveness of counter-fraud activities. Although our predecessors concluded in 2003 that management information was inconsistent and poor, the Department has taken until February 2008 to roll out a new national management information system, known as FRAIMS, at a cost of £65 million.

On the basis of a Report by the Comptroller and Auditor General,[2] we examined the Department for Work and Pensions on progress in tackling fraud; making the best use of available resources and powers; and their effectiveness in tackling different types of fraud.