War on the fraudsters

Public sector finance: Paul Gosling looks at the widening battle against benefit cheats

As much as pounds 2bn may have been stolen by housing benefit fraudsters last year, according to a recent report by the House of Commons Select Committee on Social Security. This implies that up to one in five applicants is falsely claiming, and indicates that the processing and monitoring of claims needs radical improvement.

Although attention has focused on the Government's establishing a "snooper's charter" telephone hot line, this is just one of a range of initiatives being taken to combat benefit fraud. And some of the other steps are likely to be even more cost-effective than the phone line, which is expected to save several millions for an outlay of pounds 500,000.

Since 1993, the London boroughs have been working with the Post Office, universities and colleges to detect fraudulent housing benefit and student grant applications. The inter-agency work is co-ordinated by the District Audit, which audits councils for the Audit Commission, and at a cost of less than pounds 500,000 it has saved more than pounds 10m.

A computer database compares names of benefit and grant claimants across London to detect multiple applications. District Audit stresses that although much of the fraud is perpetrated in the names of students, who are not entitled to housing benefit, this does not mean that student dishonesty is widespread. Landlords forging identities are more often the culprits.

While the London database has been very effective, it still fails to detect many frauds involving peoplefrom outside the capital, who receive student grants from their home authorities. For that reason the database is being gradually extended to operate across the country. By the beginning of next year it will contain names and addresses of claimants in 300 councils, including all large metropolitan areas.

The database will use computer "fuzzy" matching to find false claims in which people use slightly altered identities. Information is currently being collated to include the latest student intake. Suspect applications will then be examined in detail, and some claimants will be visited by inspectors early in the new year.

Fraudsters have had an easy ride over the years because of the decentralisation of housing benefit processing, which is conducted by local authorities on behalf of the Department of Social Security, without, until now, a central database capable of detecting multiple applications.

Another problem has been that until 1993 councils had no financial incentive to detect fraud. Indeed they often had disincentives, losing government grant when they reduced the numbers claiming benefits. This has been rectified, so that councils keep a proportion of the savings achieved by fraud detection or prevention.

Manchester City Council has been one of the most successful councils in the country in detecting housing benefit fraud, saving pounds 4m last year. The key, says Peter Cosgrove, the council's benefit services manager, has been to put staff resources into investigation. A team of 10 people make in-depth checks on suspect applications, and generate income for the council through their success in finding fraud.

Over the last year Manchester has become increasingly proactive, and officers visit claimants living in homes in multiple occupation, where many of the fraudulent claims originate. Investigators have found that one in three of these claims has been fraudulent.

Manchester has now obtained additional money from the DSS's challenge fund, which pays 75 per cent of the cost of new fraud prevention measures. From December a team of staff will visit all new claimants who use multiple occupancy addresses, to check that personal details are correct. Where appropriate, claimants will also be given information about additional benefits to which they are entitled.

As a result of the work of Manchester and other leading authorities, the Audit Commission will draw up a good practice guide on claims verification. Unusually, the Audit Commission is working jointly with the National Audit Office, which audits central government, to examine how the benefits system can be improved, with an emphasis on fraud prevention.

A team of auditors will visit Benefit Agency and council offices to see how well the organisations are working together. The operation expects initially to save at least pounds 100m a year, and possibly much more in later years.

Clamp-downs on a range of other benefits will follow.

A study conducted by the Benefits Agency concluded that almost 10 per cent of Income Support applications were fraudulent. Claimants of Income Support, Family Credit and Disability Living Allowance, which are all prone to fraud, can expect to be more vigorously vetted in the future.

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