16 December 2005
The chair of the Revenue and Customs department this week revealed he has no idea how much fraud has occurred in the government's flagship tax credits system – but estimates suggest that hundreds of millions of pounds might have been lost.
David Varney has also revealed that R&C staff were monitoring the tax credits website for signs of 'virulent' fraud months before officials closed the portal on December 2. That move followed the theft of personal details of thousands of civil servants at the Department for Work and Pensions.
National Insurance numbers, essential for claims, for up to 13,000 DWP staff were obtained by organised criminals, who used them to direct payments into fake bank accounts. A police investigation is under way.
Public Finance has discovered that the stolen details relate to the DWP's 2003/04 payroll for staff working in London, and tax credit centres dealing with work from London offices, such as Glasgow. It is not yet clear when R&C became aware of the security breach.
Varney told the Commons Public Accounts Committee on December 14 that at least £15m worth of organised fraud had been identified by R&C staff this year – including 1,500 cases involving the use of DWP staff details.
But he warned that 'we're at a very early stage of actually knowing what the extent of the DWP [related] fraud is.'
Pushed to reveal the level of fraud and error – overpayments and underpayments by the department – across the system, Varney offered a figure of 3.4% of the cash related to the 'easiest claims' to investigate. Early estimates suggest that that amounts to at least £30m of fraud and more than £450m in fraud and error combined.
However, Varney admitted that could be the 'low end' of any estimate, because more complex applications could involve higher levels of fraud. An R&C spokesman later told PF that a comprehensive assessment of fraud 'would be completed by spring 2006'.
Asked to explain why the system was open to abuse, Varney merely compounded MPs' anger at the abuse of public funds. He said: 'There are lots of attempts [at fraud], probably from the first day of the tax credits system. Our working assumption was that we would be the target of attacks.'
Dismissing MPs' suggestions that the entire system was 'flawed', Varney pointed an accusatory finger at the Commons. 'It was set up by Parliament,' he said. However, he acknowledged that the computer system underpinning tax credits was 'fragile'.
Meanwhile, the Public and Commercial Services union, which represents many of the targeted DWP staff, has called for government help to resolve any financial fallout.