Govt investigates 40 cases of tax credit fraud

The HMRC is currently investigating 40 separate tax credit fraud cases

Thursday, 08, Jun 2006 12:00

Investigations are being carried into 40 separate cases of organised tax credit fraud, the auditor general has admitted.

Head of the National Audit Office (NAO) John Bourn said the majority of the cases include multiple attempts to claim tax credits using false or stolen identities.

Although the department does not have precise figures on the sums involved, preliminary investigations suggest half the cases involve at least £250,000 each.

Mr Bourn's comments came in a letter to Conservative MP Richard Bacon, who questioned the progress made in tackling tax credit fraud after the online application system was shut down because of criminal activity last November.

HM Revenue and Customs discovered 8,800 identities were stolen from staff at London branches of Jobcentre Plus, of which 6,800 were used to apply for tax credits. More than half were stopped in time, but £2.7 million was paid out to fraudsters.

In January, the paymaster general announced that 30,000 claims for tax credits were under investigation, after it was revealed that identities had been stolen from employees at Network Rail. This led to at least 16,000 claims being stopped.

"It looks as if the problems with the Department for Work and Pensions (DWP) were just the tip of the iceberg," warned Mr Bacon, a member of the public accounts committee and MP for Norfolk South.

"Apparently, organised criminal gangs have been stealing confidential personal information on an industrial scale, from many different employers."

The news is just the latest blow to the tax credits scheme, which combines the tax and benefit schemes to support low-income families but still give them incentives to work.

Last week, the government admitted that £1.8 billion worth of claims were overpaid in 2004-05, a slight improvement on the previous year's total of £2.2 billion but enough to provoke furious criticism about the way the system works.

"The appalling design of the tax credits scheme provides a perfect opportunity for criminal gangs to commit massive fraud," Mr Bacon added: "It is quite sick-making and it calls into question the whole basis of the scheme."

In his letter, Mr Bourn says there is no evidence of the "systematic theft" of staff identities in any other government departments, but adds: "There are clearly wider lessons to be learned about the secure handling of personal data."

The NAO will be examining the outcome of the fraud investigations and looking specifically at how the DWP guards against the risks of organised crime, he says.

Police are investigating last November's suspected fraud and in the meantime, the DWP is taking steps to re-educate staff about securing paper and electronic data, in particular payroll data, which was found to be the cause of those particular fraud cases.