The Department of Work and Pensions lost £2.5bn to fraud and error in 2006-07, despite moves to improve IT and other systems.

The level of fraud and error – accounting for more than 2% of the department’s £128bn benefits bill – was revealed by the National Audit Office as it qualified its opinion on the DWP accounts for the eighteenth year running.

In his report on the accounts, Sir John Bourne, head of the NAO, said the loss represented “a further reduction of the levels reported in previous years”, but added; “In my view it is a material sum of expenditure not spent in accordance with Parliament’s intentions and I have therefore qualified my audit opinion on the account.”

Across the benefit schemes operated by the DWP a total of £690m was lost to fraud, £1,010m to customer error, and £850m to official error, the NAO report says.

The estimated loss is down from £2.7bn in the previous year.

The report highlights the fact that IT systems were “not as integrated as they could be” as one of the factors producing payment errors, alongside the complexity of benefit rules, poor business process design and human fallibility.

But the NAO also acknowledged that the DWP had made progress in introducing new systems and procedures to both reduce fraud and error and properly value and record identified debts.

Initiatives included the development of new technologies to
identify fraud when benefits claims are made and advanced data matching, to compare data from the DWP, other government departments and external sources.

The NAO report adds: “There are plans to further develop data matching
using advanced IT systems which will allow more timely identification of fraud and error and, in particular, help to target organised fraud rings.”

A new Debt Manager IT system introduced in 2005 had helped the DWP identify and manage customer overpayment debt, the NAO found.

The NAO’s verdict on the DWP’s accounts is less severe than its report earlier this month on HM Revenue and Customs’ accounts for 2005-06, which revealed that up to five million people may be paying the wrong income tax because HMRC’s computer systems were “no longer well suited” to handling the tax.