Summary

Introduction

1.1 Local authorities (LAs) pay over £13.7 billion to 4.5 million people in Housing Benefit (HB) and Council Tax Benefit (CTB). The London Borough of Newham (Newham) paid out some £133 million in HB and CTB in 1999/2000.

1.2 Newham is recognised by central government as one of the most diverse and deprived boroughs in the country. Unemployment rates are over twice the national average and 4 out of 10 households claim HB and CTB.

1.3 A new contract for welfare: SAFEGUARDING SOCIAL SECURITY sets out the government’s strategy for tackling fraud in benefits. It called for sustained and detailed effort across 4 fronts:

· getting it right – benefit payments should be correct from day one

· keeping it right – ensuring payments are adjusted as circumstances change

· putting it right – detecting when payments go wrong and taking prompt action to correct them, with appropriate penalties to prevent a recurrence, and

· making sure things work – monitoring progress, evaluating the strength of defences and adjusting them in the light of experience.

1.4 The Benefit Fraud Inspectorate (BFI) is an integral part of this strategy. Through our reports on LAs and Department of Social Security (DSS) agencies we aim to:

· identify areas where improvements can be made to benefit administration to raise overall standards

· make recommendations to address weaknesses

· identify and spread good practices among administrators.

1.5 In our inspection of Newham we looked at the administration of HB and CTB and the processes and procedures that Newham uses to prevent, detect and investigate HB and CTB fraud.

Main findings and conclusions

1.6 Although Newham demonstrates a strong commitment to improvement, with some good working practices, the efficiency and security of the benefit system is compromised by:

· a backlog of work

· the lack of a fraud strategy to clearly direct counter fraud work

· insufficient management control over the quality of fraud investigations.

1.7 In June 1999 Newham contracted out administration of benefits to CSL following a Best Value (BV) review of the service. The review concluded that Newham’s performance was in the bottom half of Audit Commission (AC) tables in terms of the costs and speed of processing claims to HB and CTB.

1.8 Newham’s aims of contracting out its benefit service were to reach the top quartile of AC tables and in particular to:

· reduce costs

· improve claimant focus

· improve performance.

1.9 The contract had been operating for 10 months at the time of our on-site inspection and was not delivering any of these aims. We attribute this to poor management of the contract, particularly in the transition from a council-run decentralised service to an outsourced centralised service.

1.10 The efficiency and responsiveness of the benefit service is undermined by a substantial backlog of claims that has grown significantly since the contract started in June 1999. During our inspection the number of claims that awaited action was estimated at 20,428 cases – over half the caseload.

1.11 The backlog has generated a large increase in enquiries and complaints, putting a strain on Newham’s telephone Caller Centre and Customer Service centres. Performance in terms of the speed of processing HB and CTB claims has plummeted from 70% of claims paid or processed within 14 days to fewer than 40%.

1.12 Newham’s contract with CSL included implementation of the government’s Verification Framework (VF) to improve the security of the benefit system. However, the substantial backlog has led Newham to defer its planned implementation of VF twice. This deferment weakens the security of the benefit system in Newham.

1.13 Although one of the aims of the benefit contract was to reduce costs, the savings were outweighed by the additional resources that Newham allocated to clear the backlog of work and the increased rent and Council Tax (CT) arrears that occurred as a result of the backlog of work.

1.14 Newham’s organisational structure is fragmented, with several players involved in key aspects of the process:

· Newham’s Caller Centre, "one stop" Local Service Centre (LSC) and Interim Service Centres (ISCs) dealing with the majority (95%) of public callers

· CSL processing claims to HB and CTB and recovering most overpayments

· CSL’s team in Barrow in Furness processing cancellations

· Newham’s client team making benefit determinations and managing the contract

· Newham’s internal audit (IA) section carrying out fraud detection, investigation and residency visiting

· Newham’s Housing and CT departments recovering some HB and CTB overpayments.

1.15 This structure makes managing the benefit service complex. It also requires all parties to communicate and co-ordinate activities effectively. We found many instances where this not been done, with detrimental effects on the benefit service.

1.16 We recognise that Newham’s benefit service has undergone major changes since the start of the contract. Both Newham and CSL expressed concern that the performance of the benefit service had deteriorated, and demonstrated a strong commitment to improving it. Both parties introduced a number of organisational and operational changes during our on-site inspection to improve the efficiency and security of the system. However, it was too early for us to test the effectiveness of these new initiatives.

Getting it right

1.17 Newham’s Caller Centre, LSC and ISCs provide high levels of customer service in terms of access, responsiveness and benefit expertise. However, the high volume of callers chasing claims in the backlog of work and delay in CSL responding undermines the effectiveness of the benefit service.

1.18 Newham’s current claim forms are poorly designed and fail to capture all of the relevant information or evidence. We found that this contributes to the 80% of new claims that require further evidence. This leads to avoidable delays and inefficiencies.

1.19 There are long delays at all stages of the claims process. This reflects both the backlog of work and the in-built inefficiencies we found in the benefit operation run by CSL. All of this has resulted in Newham’s poor performance in processing HB and CTB claims against the 14-day target and from receipt to payment. We reviewed Newham and CSL’s plans to reduce the backlog of work and found that the plans had some weaknesses and limited impact on the backlog.

1.20 Newham has a variable standard of verification of claimants’ identity, income, capital and rent. There is some inconsistency and a need to improve the verification of non-Income Support (IS) and Jobseeker’s Allowance (JSA) claims and the partner’s identity. Some of the recent initiatives introduced by Newham and CSL, such as improvements to the checking regime and the pre-assessment team are aimed at addressing this.

1.21 XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXX. Newham told us during our inspection that this had been remedied through the introduction of a standard visiting form. We were told that the standard visiting form would be scanned on to a document image processing system (DIP) when this is introduced to IA in May 2000.

1.22 There are low levels of fraud awareness among staff and a misconception that referrals to Newham’s fraud team had to go through CSL. IA and CSL have prepared a training package that will be presented to staff to remedy this.

1.23 Newham’s determination team thoroughly considers matters before making legal determinations. This rigour gives Newham a high level of assurance that claims for HB and CTB are accurate. About a quarter of claims assessed by CSL are rejected by Newham’s determination team, indicating an urgent need for CSL to improve its procedures, training and management-checking regime. XXXXX
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1.24 Some determinations were unlawful as they had been made by CSL. But Newham identified these cases and returned them to CSL. Following discussions during our on-site inspection Newham and CSL took steps to revise their procedures.

1.25 Newham is vulnerable to internal fraud, as CSL does not investigate security breaches of the benefit system. IT security needs to be improved, and the respective responsibilities of Newham and CSL in this important area need to be better defined.

1.26 There are some weaknesses in Newham’s working arrangements with the Benefits Agency (BA) and the Employment Service (ES). Newham should:

· tighten up security in its procedures surrounding National Insurance number (NINO) allocation with BA

· fully utilise the Remote Access Terminal (RAT)

· XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXXXX XXX XXX

1.27 Newham’s working arrangements with the Rent Service (RS) need attention. Newham delays making referrals to the Rent Officer (RO) and fails to refer appropriate HA cases to the RO. Both parties fail to monitor the service level agreement (SLA) effectively.

1.28 Implementing our recommendations will improve security at the gateway to benefits by:

· reducing the backlog of work

· improving the design of claim forms to reduce the number of evidence requests and incorrect forms from claimants

· raising fraud awareness among staff

· improving working relationships between Newham, BA, ES and RS.

Keeping it right

1.29 Newham tells claimants and landlords at the outset of a claim of their duty to notify changes of circumstances through letters, leaflets and the claim form itself. Newham does not issue regular reminders to claimants or undertake checks during the lifetime of a claim.

1.30 In Newham, 89% of rent allowance (RA) payments are paid direct to private landlords by BACS. Newham needs to focus its efforts in this area by checking on claimants’ continuing entitlement throughout the lifetime of the claim and reminding landlords of their responsibility to report changes in tenants’ circumstances.

1.31 The backlog of work has led to overpayments because changes of circumstances that would lead to the reduction or cessation of benefit have not been prioritised or actioned promptly by CSL.

1.32 Newham’s payment preparation and dispatch processes are secure. Newham has recognised the risk of alteration to uncrossed giro cheques following an investigation into a bulk giro fraud. It is planning to address the risk by replacing uncrossed giros with other payment methods.

1.33 Newham has adopted a blanket policy of setting 52-week benefit periods for all HB and CTB claims as part of its strategy to clear the backlog of work. In doing this, Newham does not distinguish between high-risk and low-risk claimants, and as it does not tailor benefit periods to take account of individual circumstances, it does not comply with the law.

1.34 Our recommendations will improve the safeguards for keeping payments right during the lifetime of a claim by:

· reminding claimants and landlords of their duty to notify changes quickly and accurately to Newham

· prioritising changes of circumstances that can lead to overpayments

· tailoring benefit periods more closely to take account of risks, thereby reducing overpayments.

Putting it right

1.35 Newham’s fraud investigations are limited and in many cases where weekly benefit savings (WBS) were claimed following investigation, the requirements of the subsidy order had not been met.

1.36 A counter fraud strategy, including a programme of sanctions supported by appropriate publicity, can have a deterrent effect on all frauds. XXXXX XXXXX X
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1.37 Newham was without a counter fraud manager for 2 years until November 1999. Since then, Newham has identified work practices that need to be reviewed and areas of work where standards need to be raised. An action plan addressing these issues has now been drawn up. It will need the continuing support of senior management and Members to achieve the improvements required.

1.38 Newham has no assurance that all overpayments are correctly identified, recorded and recovered. Overpayment decisions and the notification of recoverable overpayments are frequently made unlawfully by CSL. There has been no senior management involvement in the management of the recovery process, and efforts in monitoring and managing overpayments are hampered by the deficiencies of its new debtors system.

1.39 Newham could improve its recovery of overpayments by using the full range of recovery methods set out in section 75 of the Social Security Administration Act 1992. In particular, given that most RA is paid direct to landlords, Newham should recover RA overpayments direct from ongoing payments to landlords and pursue overpayments through registering them with the county court. Newham should also make increased use of recovery through DSS benefits and address the disparity in amounts recovered from RA and rent rebate (RR) overpayments.

1.40 Newham has already identified some areas for improvement in its overpayment process. It has outline plans to review some of the issues that we highlight in this report including subsidy classification, recovery policy and recovery from landlords.

1.41 Our recommendations, when implemented, should ensure that:

· fraud referrals will increase and become more focused

· the range, depth and quality of investigative work will be improved

· investigations are widened, prioritised and undertaken by using risk analysis

· WBS is valid

· overpayments are identified, classified and determined correctly

· the recovery rate of HB overpayments is improved, thereby increasing fraud deterrence and generating additional income for Newham.

Making sure things work

1.42 Newham has recognised the need to update its corporate anti-fraud and corruption statement and its prosecution policy and has recently developed policies on whistleblowing and an investigator’s code of conduct.

1.43 The current corporate fraud and corruption statement, dating from 1996, is deficient in that it:

· has not been clearly communicated to staff

· does not address all the relevant issues

· is not underpinned by the required operational and procedural guidelines.

1.44 Newham’s contract management arrangements have yet to deliver the intended improvements because the service developed a substantial backlog shortly after the contract began. The backlog arose because Newham and CSL did not plan and properly manage the risks of transition from a decentralised
council-run service to a contracted out centralised service.

1.45 There is a need for comprehensive quality control checks on the standard of benefit assessments. There is over-reliance on the client’s determination process to ensure that errors are corrected. This process is thorough, but the lack of an effective end-to-end quality check of claims processing is allowing inefficient working practices and training needs to go undetected and uncorrected.

1.46 Newham and CSL are currently working to clear the backlog. Both parties
have demonstrated a strong commitment, and have allocated additional resources to achieving this aim. The backlog clearance targets have not been met to date and operational errors and inefficiencies in CSL that contribute to delays have not yet been addressed. Newham must monitor CSL’s performance more rigorously, reviewing and enforcing the contract where necessary to ensure it delivers the desired outcomes.

1.47 Because the organisational arrangements are complex, with several key players involved in delivery of the benefit service, Newham needs to pay particular attention to communications and co-ordination of activities between all parties. It also needs to update and actively monitor its SLAs with BA, Benefit Fraud Investigation Service (BFIS) and RS, and to develop an SLA with ES

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