Overpayments

8.1 This section covers Wokingham District Council’s efforts to reduce the loss to public funds from fraud and error in the benefits system.

8.2 Wokingham District Council should aim to prevent overpayments from occurring in the first place, but when they do occur, it should be able to:

· identify them promptly

· classify them correctly

· determine if they are recoverable

· pursue recovery by the most speedy, cost effective and efficient methods available.

8.3 To help us comment on Wokingham District Council’s effectiveness in this area we:

· examined management information on overpayments that was collected by Wokingham District Council

· examined key documents and decision notices about overpayments that Wokingham District Council sent to claimants and landlords

· interviewed key staff

· randomly selected and examined 20 HB overpayments identified between April 2002 and May 2003.

8.4 Wokingham District Council agreed that our findings from our examination of the 20 overpayments was representative of its caseload as a whole and that no further sampling was necessary.

8.5 Figure 8.1 shows that Wokingham District Council is not at Standard for most aspects of its overpayment work.

 

Fig. 8.1: Results of BFI’s assessment for Overpayments

Source: BFI analysis

For an explanation about how to read this radar chart see Executive summary

 

8.6 Wokingham District Council’s arrangements for the recovery of overpaid HB/CTB was split into two areas:

· where recovery was to be from ongoing benefit payments the benefits assessors instigated and managed all recovery action

· where HB/CTB had ceased or recovery from ongoing benefit payments was not appropriate, the sundry debtors team, within the Revenues and Benefits service, were responsible for all recovery action including the control of invoices and the writing off of unrecoverable debt.

8.7 We found that in some cases overpayments were being caused or were continuing due to reported changes not being actioned quickly. This failure was attributed directly to the backlog of work within the benefits processing section and a failure to identify changes of circumstances cases for urgent action.

8.8 The sundry debtor’s team checked all overpayments raised. Although there was a lack of written procedures we found that the classification of overpayments was generally effective.

8.9 Our sampling found that effective processes were in place for recovering benefits debt. However, inconsistencies in the data collected for calculating its Best Value target meant that stated performance in terms of the amount of benefits debt Wokingham District Council reported as being recovered during previous years was unreliable. This was due to the posting of Rent Rebate overpayments to the rent account in full and Wokingham District Council were therefore unable to differentiate between rent paid and benefit recovered. The process was changed in April 2003 to enable accurate information on recovered benefit to be reported.

8.10 Each aspect of Wokingham District Council’s overpayments’ performance is discussed in the following sections.

Overpayment policies and procedures

8.11 Local authorities should link their overpayment policies to the strategic vision for housing benefits administration. These policies should be underpinned by performance targets that give:

· a clear view of the desired outcome

· accountability for providing effective and efficient debt recovery.

8.12 Wokingham District Council is not at Standard as it does not have a debt strategy that includes performance targets or a policy that underpins a corporate approach endorsed by Members, aimed at minimising and managing debt.

8.13 To achieve Standard, Wokingham District Council needs to introduce a benefits specific overpayments policy and procedures that:

· reflect corporate policy

· comply with legislation

· ensure all staff involved in overpayments work are adequately trained

· provide staff with access to written procedural guidance

· set out measurable targets in all aspects of overpayments work

· ensure overpayments work is effectively managed.

8.14 Both members of the sundry debtor’s team had received debtors training. One of the team had received full overpayments training at a previous office, but no refresher or awareness training on benefits overpayments had been provided to any Benefits staff in the 12 months preceding our on-site work. However, training was provided to all Benefits staff on the overpayment module within the new benefits IT system during our inspection.

8.15 Procedural notes on writing off overpayments were available to staff. There was no written guidance, however, on the identification, calculation, recovery or classification of overpayments.

8.16 We found that no management information was collected on the number of overpayments that were caused by processing delays. Good practice in this area would be the setting of a target for identifying changes of circumstances that could result in an avoidable overpayment being incurred.

8.17 Although some management information relating to overpayment recovery was being collected and reported to senior officers, we were told that performance was not reported to Members. In addition, senior officers were not being informed about the effectiveness of recovery methods used or receiving assurance that all available methods were being used.

8.18 Wokingham District Council recognised the need to introduce a benefits specific overpayment policy and procedures during our inspection. We were told that the sundry debtor’s team would be starting work on first drafts of these as a matter of urgency.

Recommendations

We recommend that Wokingham District Council:

· introduces a benefits specific overpayments policy, approved by Members, that: - reflects and includes up-to-date legislation and corporate expectations - is supported by training and detailed written guidance that enables staff to make the right decisions at all stages of the overpayment process - sets measurable targets for: - overpayments caused by processing delays and - changes of circumstances actioned to prevent overpayments - sets out clear monitoring and reporting arrangements that: - bring together all aspects of overpayment performance as set out by the Performance Standards - regularly inform senior officials and Members on overpayments performance.

Identification of overpayments

8.19 The accurate and timely identification of overpayments is important as it:

· ensures the incorrect payment of benefit does not continue

· improves the prospect of a successful recovery of the overpayment

· reduces the number of complaints and appeals.

8.20 Wokingham District Council is not at Standard. To achieve Standard it needs to introduce systems to ensure that 80% of changes of circumstances which result in a reduction of benefit or benefit ceasing are processed before the first pay day following the date sufficient information is received for it to act on the error or changes of circumstances.

8.21 We found that although documentation relating to changes of circumstances was scanned into the document image processor on the day of receipt, no prioritisation was given to post likely to result in a reduction of benefit or benefit ceasing. Our findings from the sample of 20 overpayment cases are shown in Figure 8.2.

 

Fig. 8.2: Number of days taken to process changes of circumstances
Number of days	Number of sampled cases	% of total
0 – 7	6	30
8 – 14	2	10
15 – 21	4	20
22 – 28	0	0
29 +	8	40
Total	20	100

Source: BFI sample

 

8.22 We found that processing delays had caused or had increased the amount of benefit overpaid in 12 (60%) of the 20 overpayments we examined. Only 30% of the changes in circumstance in our sample were processed within a week of the notified change and 40% took over 29 days to process.

8.23 This also confirmed that no arrangements were in place to monitor changes of circumstances notifications, despite the facility being available in the document image processing system. Reported changes of circumstances outstanding over 7 days were not identified or treated as priority. This failure directly led to increased overpayments and a direct financial loss to Wokingham District Council is incurred because overpayments due to council error do not attract subsidy.

8.24 We have recommended earlier in Processing of Claims that Wokingham District Council introduces controls to ensure that changes of circumstances are processed within the average 9 days required by Standards.

Recommendations

We recommend that Wokingham District Council:

· ensures that at least 80% of changes of circumstances that result in a reduction or cessation of benefit are processed before the first pay-day following the date sufficient information is received · introduces procedures to ensure that such changes that have still to be processed after 7 days are given priority and reasons for delay established · introduces monitoring arrangements to collect and analyse information to inform improved control of the caseload and the training needs of staff.

Calculation of overpayments

8.25 The accurate and timely calculation of overpayments is important to:

· provide a quality service to claimants and landlords

· meet regulatory requirements

· give accurate management information on the value of the overpayment debt

· ensure that only the correct overpaid amount is recovered from the debtor

· enable the correct calculation of subsidy claims and avoid subsidy losses.

8.26 Wokingham District Council is not at Standard because it does not process the calculation of overpayments, on average within 7 calendar days of the first payday after receipt of written notification of change.

8.27 We have reported in Identification of overpayments that Wokingham District Council was failing to process changes of circumstances and stop overpayments continuing within reasonable timescales. This failing directly impacted on the time it took to calculate overpayments.

8.28 We found that uncashed cheques were taken into account and procedures were in place to establish any underlying benefit entitlement when an overpayment was being calculated.

8.29 Our sampling confirmed that benefits processors had input the correct dates of change. We also confirmed that the benefits IT system had correctly identified the date that benefit had been re-calculated. The full period and amount of the overpayment was correct in all 20 overpayments we examined.

8.30 We found 4 instances in the 20 overpayments cases examined where cheques were uncashed or returned. These were all taken into account in the overpayment calculations.

8.31 We confirmed that the overpayments officer received a weekly list of uncashed cheques and had responsibility for recording returned cheques on to the benefits IT system. We were told that claims relating to the uncashed or returned cheques were checked to establish whether any overpayment calculation needed to be revised.

8.32 Overpayment calculations were automatically performed by the benefits IT system at the time the relevant changes of circumstances were processed. In the 20 overpayment cases we examined an average of 30 days was being taken to process and therefore calculate the overpayment for these changes of circumstances. We were concerned that this delay compounded the loss already incurred.

8.33 Our sampling confirmed that where evidence of underlying entitlement was held, it was used in the overpayment’s calculation. Underlying entitlement had been calculated in all 12 appropriate cases we examined.

8.34 We found that Wokingham District Council actively pursued this information. The overpayment decision notices provided the opportunity for debtors to provide evidence of underlying entitlement.

Recommendations

We recommend that Wokingham District Council:

· takes steps to ensure that overpayments are calculated within 7 calendar days of the first pay-day after receipt of written notification of change.

Classification of overpayments

8.35 The correct classification of overpayments is important as it:

· affects the level of subsidy attracted on HB and CTB payments

· can affect the level at which the recovery rate is set

· provides an indication of levels of fraud and error

· affects claims under the Security Against Fraud and Error scheme.

8.36 Wokingham District Council is not at Standard. To achieve Standard it needs to ensure that overpayments caused by its failure to act on information received in a timely manner are correctly classified as local authority error.

8.37 We found that the overpayment classifications and the classification decisions were formally recorded on the Benefits IT system or on file and were in accordance with current legislation.

8.38 The benefits processors and the sundry debtor team undertake the classification of overpayments as the benefits system does not have an automatic default.

8.39 We had concerns that no written guidance was available on the classification process and no management checks were conducted to provide assurance that correct classification decisions were being made.

8.40 To reinforce our concerns, we identified 4 cases in our sample of 30 fraud cases where the overpayment was classified incorrectly. In all 4 cases, fraud overpayments had been established but delays in assessment had caused the periods of overpayments to be unnecessarily extended. The overpayment for the period following receipt of all information should have been classified as local authority error but was incorrectly classified as fraud.

8.41 We estimated the total amount incorrectly classified in the 4 fraud cases was in the region of £550.

8.42 To contain this susceptibility to error, Wokingham District Council should provide its processing staff with:

· refresher training on the classification of overpayments

· written procedures that comply with regulatory requirements.

8.43 It should also introduce a management check of overpayment classification to reduce the chance of error, in its management checking programme.

 

Recommendations

We recommend that Wokingham District Council:

· provides its benefits processors with refresher training and written guidance on the classification of overpayments · introduces a check of overpayment classification decisions to its management checking programme.

Decisions on recoverability

8.44 Regulations 98 and 99 of the Housing Benefit (General) Regulations 1987 and regulations 83 and 84 of the Council Tax Benefit (General) Regulations 1992, are crucial because they:

· govern the classification and recovery of overpayments

· affect claimants and the finances of the authority

· affect subsidy claims under the Security Against Fraud and Error scheme.

8.45 Wokingham District Council is close to Standard. To achieve Standard it needs to provide its staff with written policy and procedures that comply with the Department’s policy on recovery of overpayments.

8.46 Wokingham District Council’s benefits processors made the decisions on recoverability and from whom an overpayment should be recovered on cases where benefit remained in payment. We were told that recovery on these cases would be from ongoing benefit at the statutory amounts.

8.47 Responsibility for recovery action was transferred to the sundry debtor team if recovery was to be by sundry debtor invoice. The sundry debtor team checked the information entered on the system by the benefits processors to ensure the details were correct. However, we did not find any evidence of management checks being undertaken on the decisions made by the sundry debtor team.

8.48 Our sampling confirmed that the overpayment was recoverable in all 20 cases we examined. We also found that due consideration was given to whom the overpayment should be recovered from. In 3 cases in our sample, overpayments were recovered from landlords.

8.49 We found evidence in the 20 cases we examined that during the classification process the contribution of council error to the total amount overpaid was normally considered. We were told that benefits processors took council errors into account when deciding recoverability. However, we report in Classification of overpayments that we found 4 cases where council error had added to an overpayment and had not been correctly classified.

8.50 There was no written guidance on recoverability and the reason for deciding that overpayments were recoverable was not documented either on individual case files or on the benefits IT system.

8.51 While the processing of changes of circumstances was slow, notification was issued to the affected person automatically by the benefits system on the same day the overpayment was decided.

Recommendations

We recommend that Wokingham District Council:

· provides its processing staff with written guidance that complies with the Department’s policy on recovery of overpayments · formally records on file or on the benefits IT system the basis of decisions on recoverability · introduces a check of decisions on recoverability to its management check programme.

Decision notices

8.52 Regulation 77(1) of the Housing Benefit (General) Regulations 1987 prescribes that local authorities shall notify in writing any person affected by a decision made by it under these Regulations. Decision notices must contain a statement of the matters as set out in regulation 77(1) and Schedule 6 to the Housing Benefit (General) Regulations. Regulation 67, and Schedule 6 to the Council Tax Benefit (General) Regulations 1992 has provisions for CTB decision notices.

8.53 Wokingham District Council is at Standard. We report under Customer services, that its overpayment decision notices met the requirements of Housing Benefit regulations. For example, the decision notices clearly informed debtors of the reason for the overpayment, how and over what period it was calculated and why it was recoverable.

8.54 Although decision notices could be issued automatically by the benefits IT system, we were told that they were being suppressed as the notice did not give clear details of the reason for the overpayment. A series of letters was developed by Wokingham District Council to ensure the customer was told this vital information. It had also developed a suite of decision notices for the new benefits IT system that fully reflected the requirements of the legislation.

8.55 Our sample confirmed that in all 20 cases the decision notice was sent to all relevant parties within 14 calendar days following decision on the overpayment’s recoverability and classification being made.

8.56 Copies of the decision notices were held on the document image processor and were readily available to staff should they need to answer enquiries or deal with complaints and appeals.

Recovery of overpayment debt

8.57 The efficient and effective recovery of overpayments is important as it:

· deters fraud and error

· reduces losses to public funds

· is a visible demonstration of the local authority’s commitment to accuracy and propriety

· is a source of revenue for the local authority.

8.58 Sums calculated using the methods below should not be included in overpayment management information when assessing how much the local authority has recovered:

· no payment in the first place, merely methods of calculating overpayments

· deciding not to recover a valid debt

· technical overpayments

· overpayments reviewed and reduced (HB regulation 104)

· write-offs

· debts transferred to a third party

· crediting uncashed cheques.

8.59 Wokingham District Council is not at Standard. As previously reported, the benefits IT system automatically instigated recovery by deduction from ongoing HB, and the sundry debtors team pursued repayment from those debtors who were no longer in receipt of HB. We were told that CTB debt was recovered through Council Tax bills.

8.60 The Best Value performance indicator was the only target for benefits debt performance and this was reported to senior officers and Members. We were told that performance against the Best Value performance indicator was automatically calculated by the benefits IT system, using information held on both its own and the sundry debtors IT system.

8.61 We were told that the information provided to the Department in previous years had been incomplete, as it did not include information relating to overpayments in respect of council tenants. Wokingham District Council had been unable to differentiate between repayment of a Rent Rebate overpayment and credits being made to the rent account. We were told that the data being provided to the Department in respect of 2003/04 onwards included council tenant overpayments.

8.62 Wokingham District Council has set an interim local target for the Best Value recovery performance indicator of 60% for 2003/04. Performance for the period 1 April 2003 to 1 June 2003 was reported as 32%.

8.63 The Benefits IT system automatically made deductions and controlled recovery from ongoing HB. It also contained a record of all debts created and transferred the overpaid amounts to the sundry debtors IT system when debtors were no longer in receipt of HB.

8.64 The interface within the IT system ensured that when deductions from ongoing benefit broke down or when a debtor whose debt was held on the sundry debt IT system reclaimed HB, effective action was taken.

8.65 Figure 8.3 shows that in 19 of the 20 cases we examined the overpayments were fully recovered or in the process of being recovered.

Fig. 8.3: Status of recovery of HB sampled overpayment cases
	Number of cases	%
Fully recovered	10	50
Recovery action in progress	9	45
No recovery action	1	5
Total	20	100

Source: BFI sampling

8.66 In the case where repayment had not commenced recovery action was in progress. The sundry debtor team had issued a reminder invoice and was awaiting a response.

8.67 Wokingham District Council had sound controls in place to ensure individual debts were pursued effectively:

· recovery by deduction from ongoing HB was an automatic process from the outset of an overpayment or when debtors who had outstanding overpayments with sundry debt were re-awarded HB

· CTB overpayments were recovered through Council Tax bills.

8.68 The amount of benefit overpaid in our sample totalled £17,884. At the time of our inspection, Wokingham District Council had recovered £5,666 (32%). One case for an overpayment of over £7,000 could only be recovered at the low statutory amount, because the debtor was still receiving HB.

8.69 We also confirmed that different recovery methods were being used including recovery from landlords. Figure 8.4 shows the methods that were used in the cases we examined.

Fig. 8.4: Overpayments by method of recovery used
Recovery method	Used Yes/No
From ongoing HB	Yes
By cash or cheque received after invoice	Yes
From ongoing Social Security benefit	Yes
From payments to landlords	Yes
Legal action	No
Recovery by housing department after transfer to rent account	Yes
Debt collection agency	No

Source: BFI analysis

 

8.70 The sundry debtor team actively pursued recovery of overpayments when a debtor was no longer in receipt of HB. In 5 of the cases in our sample different recovery methods had been used over the period that the overpayment had occurred. For example, when recovery from ongoing HB had broken down because HB ceased, an invoice had been sent and recovery was recommenced successfully.

8.71 We confirmed that invoices were checked and issued, normally 4 weeks after HB ceased, followed by a reminder and then a final reminder warning of legal action if the debtor did not respond.

8.72 We were told that to maximise the amount of HB recovered the sundry debtors team were intending to:

· register debts at the County Court as per Social Security Administration Act 75(7)

· consider the use of a debt collection agency.

8.73 We also confirmed that Wokingham District Council took steps to establish the whereabouts of debtors, for example by examining other council records, and whether deductions could be made from other benefits administered by the Department by using the Remote Access Terminal.

8.74 Our sampling confirmed that standard rates of deduction in line with the Department’s guidelines were used to recover by deduction from ongoing HB. It also confirmed that rates of instalment were reduced if a debtor made appropriate representation and completed details of their financial position. Decisions not to recover recoverable overpayments were also documented on file.

8.75 We examined one fraud overpayment in our sample and confirmed that it was being recovered from ongoing HB at the maximum weekly rate of £10.20. This is good practice as the prompt and rigorous pursuit of fraud overpayments is essential to provide a deterrent to potential fraudsters.

8.76 To achieve Standard, Wokingham District Council needs to:

· regularly collect and analyse management information to provide a reliable measure of its performance in recovering benefits debt

· make use of all recovery methods and report on their effectiveness to senior officers and Members

· ensure that recovery of fraudulent overpayments is prioritised.

8.77 Our sampling of 20 overpayments confirmed that there were effective controls in place to recover HB debt. However, we found that there was a lack of reliable management information regarding the overall effectiveness of its debt recovery performance.

 

Recommendations

We recommend that Wokingham District Council:

· takes steps to regularly collect and report to senior officers and Members management information that accurately informs it of its effectiveness in recovering HB overpayments. This should include the total amount of HB debt: - outstanding from previous financial years and carried forward to the current financial year - identified in the current financial year - recovered in respect of debt carried forward and new debt raised · introduces and regularly reports on the amount of benefits debt recovered by all different methods used · takes steps to ensure that fraud overpayments are given priority to enable them to be pursued vigorously.

Management of debt

8.78 Local authorities should attempt to recover all overpayments as quickly as possible to manage debt effectively. Managers should:

· ensure that recovery action is taken wherever possible

· monitor the amount of outstanding debt

· seek to keep the amount of outstanding debt as low as possible

· review working practices for continued efficiency.

8.79 Wokingham District Council is not at Standard. To achieve Standard it needs to:

· develop a write-off policy that defines a strategy for continuous improvement in reducing the level and age of debt

· introduce targets for reducing the numbers and amounts of inactive debt

· report the level and age of benefits debt to Members, at least annually.

8.80 There was no formal written write-off policy setting out the criteria for writing off HB debt. However, we did find written procedures in place that included financial controls for writing off debt. Suitable overpayments could only be written off by nominated staff and managers:

· under £2,000 – the Head of Finance

· between £2,000 – £20,000 – Head of Finance with Head of Legal Advice

· over £20,000 – the Council Executive.

8.81 Although there was no formal age debt analysis undertaken reports of debts that could be suitable for write-off were produced by the sundry debtors’ IT system. We were told that debt would only be written off if all avenues to pursue recovery had been exhausted.

8.82 While our sampling indicated that effective recovery controls were in place, there were no management checks for the progress of either individual debts or the methods of recovery being used.

8.83 No reports were provided to Members on the management of debt and no targets were in place to reduce the numbers and amounts of inactive HB debts held on the sundry debt system.

Recommendations

We recommend that Wokingham District Council:

· develops a write-off policy that sets targets to reduce both: - the level of debt - the age of debt · regularly monitors progress against targets and reports, at least annually, to Members and senior managers · sets targets for a reduction in the level and amounts of inactive debt.

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