Senior Metropolitan Police detectives and council leaders believe that the fraud is being conducted on a London-wide basis by gangs milking the benefits system on a number of fronts.
The Independent has learnt that in just one borough alone - Lambeth in south London - up to pounds 30m of taxpayers' money may have been stolen, out of a total budget of pounds 125m.
Police have been working with closely Lambeth to get behind the false names and addresses that litter the housing benefit register. Frequently, they have been able to trace the journey of a single cheque from council coffers to bank accounts filled with the proceeds of thousands of similar cheques.
Shortly before police raided the offices of one landlord - thought to be a "front" for one gang - the building mysteriously burned down, destroying all the files.
In the past, housing benefit fraud was thought to be confined to individuals making false claims at a petty level. However, for the first time, a senior local government figure has conceded the involvement of organised crime.
In an interview with the Independent, Heather Rabbatts, Lambeth's chief executive, said she shared the view of the Metropolitan Police that the groups were controlled by "a very few people" and were operating across the capital. The same people, she said, were thought to be responsible for a range of crimes, involving other types of benefit claims. A fortnight ago, Ms Rabbatts told the Commons Social Security Select Committee, that the problem was much worse than previously supposed.
She agreed with Frank Field, the committee chairman, who concluded: "Gangs saw this as an easy area to take public money, and they [had] moved in and set themselves up as landlords and these groups are involved in other frauds as well."
Ms Rabbatts stressed that greater co-operation between police and councils was urgently needed to combat such systematic abuse.
Apprehending small-time false claimants, she said, was no longer such a difficulty. Neither, too, was there much problem in finding council staff who were fiddling. The major, untouched area, was organised fraud.
Since Lambeth had begun looking for organised bogus claimants by visiting addresses and checking how many people really lived there, 4,000 private landlords had suddenly disappeared from the housing benefit register.
Ms Rabbatts said that, almost certainly, the 4,000 were mainly false names that had been created by professional gangs.
At one house in Lambeth, her officers had found 50 people supposedly living and claiming housing benefit. Threats have been made to Lambeth officials, and Ms Rabbatts is expecting more as her war continues.
Mr Field asked her if the work was going to become "more dangerous?" She replied that while people "are getting the message" and her force becomes more effective, they "will decide to move elsewhere - or we might be subject to more intensive pressure".
At present, said Mrs Rabbatts, police and council officers operated at a local or regional level. But the scale of the problem required some form of co-ordinated national initiative.
Ms Rabbatts said she was recruiting more staff in Lambeth to combat fraud. Speaking to the Independent, she said that in the past year, since taking over as chief executive and following the damning report by Elizabeth Appleby QC into the council, she had sacked 60 staff for fraud.
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