Select Committee on Public Accounts Minutes of Evidence



Examination of Witnesses (Questions 240-252)

MS RACHEL LOMAX, MR JOHN CODLING AND MS ALEXIS CLEVELAND

MONDAY 4 FEBRUARY 2002

  240. I am sure the Committee would love to see that. Then in the figures you gave of your legal actions, of the 9,000 convictions, were many associated with organised crime? Are you targeting that particularly for legal action?
  (Ms Lomax) We target the ones where the sums of money are large and in the sense that organised crime is unlikely to be interested in small sums there is likely to be some overlap, yes.

  241. What is the largest sum which has been involved which you have been able to pin someone down for?
  (Ms Lomax) We mentioned in the notes to the accounts some of the more successful prosecutions. Page 62 of the accounts, organised fraud, actually highlights the area for the current period where the sum of money involved was 1 million. There are some big cases going through the courts at the moment. All these fraud cases involve organised or systematic abuse of the benefit system and involve either an instrument of payment fraud or multiple identity.

  242. At one time there was a suggestion that some of the gangs involved in this were overseas based or of overseas origin. Is that still the case?
  (Ms Lomax) Yes, I think it is. We certainly pay particular attention to that.

  243. Any particular places of origin?
  (Ms Lomax) West Africa, Nigeria particularly.

  244. Do you get much in-house fraud?
  (Ms Lomax) We get some, but a surprisingly small amount considering.

  245. One has to bear in mind that we have been talking in terms of hundreds of millions, so small amounts can be big amounts to the individual. What are we talking of here?
  (Ms Lomax) We are talking of the order of 1 million overall. It is very small.

  246. Would you know off-hand—and again we may need a note but it is an interesting new area—how many cases would be involved in that sum of money?
  (Ms Lomax) I am advised 40 or 50.

Chairman

  247. Could you give us a note please, following the line of questioning from Mr Gibb, on the number of cases which make up the fraud estimate of 564 million, the customer error of 350 million and the official error of 172 million? May we have a note on the number of cases involved? Is that a yes?
  (Ms Lomax) Yes, of course.[11]

  248. What is it about the benefit system which makes it so unlikely that the Department will be able to produce a set of non-qualified accounts within a reasonable timescale? You cannot even set a target. What is it about the benefit system that makes it so difficult for you to make progress in this area? Is it the complexity of the system?
  (Ms Lomax) Do you want a note on this?

  249. No.
  (Ms Lomax) You want me to try to answer now.

  250. Yes, if you can. If it easier, answer in a note, because we have been over this ground already.
  (Ms Lomax) I would perhaps just say that the issues about the accounting systems reflect the failure to invest in adequate systems over a period of years. There is something rather unglamorous about the benefit system as a destination for scarce public funds, which has meant that we have ended up with systems which are inadequate for the task. That is one reason, and the least defensible reason why our accounts are qualified. As for the other, I go back to what John Codling was saying about the public accountability framework within which we are operating being a very demanding one. The Exchequer and Audit Act of 1921 sets a very demanding standard for any Social Security administration. I do not know what fraud and error in other Social Security administrations is. I do not know what it is in the tax system. We have gone to the trouble of measuring it and in a sense we have developed a rod for our own back but we can only lose less than one per cent through fraud and error across a system whose mission is to give money away. These are very demanding standards frankly. I do not know what fraud and customer error is across the banking system, across credit cards, across insurance companies. That does not lead to account qualification but it does in this case and that is because of the particular statutory framework within which we are operating.

  251. Perhaps I could ask this question of Sir John. Given the complexity of this system, is it practicable to produce a set of accounts that you can pass through without qualifying?
  (Sir John Bourn) What I was asked to do was certify whether the accounts gave a true and fair view of the financial transactions of the Department. It is certainly true that if you change the system of accounting that would be another way in which you could remove the qualification; that is absolutely true. This has certainly not appealed to the Committee before and it has not appealed to the Government or the Department. The Department has never sought to say they should change the accounting rules so that they do not get a qualification. You could alter the system so as to remove the requirements under the 1921 Act, if you were minded to do that, and it is difficult to believe that the Government would actually want to do it, certainly difficult to believe that PAC would ever recommend it. Year by year you do see the Department making progress in the way that Alexis Cleveland has outlined. It has got better, it has reduced the amount of fraud year by year. The two things which would really make a big difference are: the complexity and of course the fact that it is a volatile system because there are constant changes in the nature and extent of the benefits and that too has implications. If you never changed the benefit system, people would get better at understanding it and that again would increase rates of accuracy, although of course you would have to recognise, because we see this in other aspects of public administration, a system which does not change for 20 years becomes vulnerable to other kinds of fraud. Those are the ways you would have to look at it. Either you change the accounting system and the requirements for the accounts or you reduce the complexity and get Ministers to recognise that they should not change the benefits and the nature of the benefits so often.

  252. Are you agreeing that it would be wrong to set a standard which this Department could never meet? Are you actually saying that you believe that if they address seriously the complexity of these benefits, they can meet the standard you set?
  (Sir John Bourn) If one of the main things we really wanted to do was to avoid a qualification, by having much simpler benefits you could attain a position without a qualification. That would mean benefits which did not cater for the variety of social circumstances that policy currently requires to be catered for. There would be elements of rough justice in it: some people would do better than most of us would think they really ought to do, others would do less well than most of us would think they ought to do. There would be a price to be paid for getting to a position of non qualification. Mr Gibb is absolutely right: qualification is a very serious thing to have on your accounts and it has been valuable. I have discussed it with the Accounting Officer. The greater attention to the qualification has focused efforts in the last few years on the part of the Department. It is better than it used to be. It is fair to say that it does take it more seriously, people are really trying to do better. The fact that they have not got to the stage yet where the accounts are not qualified, means that further efforts down the line that they are currently working to are required to make them better year by year. I would agree with Rachel Lomax, that we are not likely to get to a position of non-qualification in the three and a half years she thinks she has.
  (Ms Lomax) Very complicated benefits are expensive to administer without leaving a substantial margin for fraud and error. I think it was Mr Williams who was trying to put the fraud and error and the cost of administering the benefit together. That is the right way to look at it. If you try to run a very complicated benefit system cheaply, you end up with a lot of fraud and error. Equally, if you were going to invest a vast amount of money in getting really good systems, it would be more expensive to run and you would probably have less fraud and error. Or, you could put the money into having a much simpler, more expensive system, which was much more generous to people, but would be cheaper to run. There are lots of trade-offs all round here. There is no easy answer to this one.

  Chairman: On that note, we must leave it. A couple of weeks ago we were discussing the royal train which was a matter of 5 million with intense media interest, public gallery absolutely full. Here today we are talking about 900 million and I suspect that we will not make the ten o'clock news. That does not negate the importance of this subject and the importance this Committee attaches to it. We thank you for seeking to answer our questions on a subject the answer to which has eluded policy makers for half a century: how to target benefits on the poor but still avoid fraud and error. Thank you very much for coming this afternoon. The public session is closed.


 


11   Ev 22, Appendix 1; and Ev 22-23, Appendix 1, Annex A. Back

 
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