Change and repeat claims

3.104 We conclude that Richmond has some good practices for dealing with change and repeat claims, for example the HB post officer promptly stops benefit to prevent overpayments arising. EPs are administered satisfactorily. However, there is scope to tailor benefit periods more closely to individual claimant circumstances and to follow up unreturned renewal forms. All claims are determined eventually, but Richmond’s procedure of resetting the Benefits computer system to allow a claimant to continue to receive benefit until the determination of entitlement takes place is of fundamental concern.

3.105 This section covers:

• the receipt and processing of changes of circumstances affecting benefit entitlement that are reported directly by the customer or through BA
• reviews of entitlement initiated by the LA, covering claimants who submit claims and those who fail to reclaim
• EPs.

Receipt and processing of changes of circumstances

3.106 Information about the kinds of changes that effect benefit entitlement are included on the HB and CTB claim form and on the back of HB cheque counterfoils, which is good practice.

3.107 Richmond takes prompt action to ensure that EoE notices received from BA are dealt with on the day of receipt, to avoid overpayments. Other reported changes are also actioned on the day of receipt whenever possible and this is commendable practice.

3.108 Reported changes of circumstances are generally received by letter, either sent by post to the HB section at the Civic Centre or delivered by hand to any of the reception outlets in the area. At the time of the inspection there was a backlog of about 3 to 4 weeks of work. This backlog had been caused by a combination of staffing reductions, staff absences and computer downtime as a result of year 2000 testing. However, Richmond was using overtime to reduce the backlog and told us at the time of writing (May 1999) that the backlog in respect of claim reviews had been completely cleared.

3.109 Despite this backlog of work, Richmond continues to prioritise EoE notices received from BA and ensure they are actioned immediately on the day of receipt. The HB Post Officer inputs a stop date on the computer system to prevent further payments of HB and CTB being automatically sent, subject to further checks by assessment staff to see if entitlement still exists. This is a good practice, as it helps to prevent overpayments.

3.110 Changes where there is potential or suspected fraud are referred to the Fraud section, in many instances by the HB Post Officer as a result of initial checks made at post receipt stage or by assessment staff as part of their checks on changes of circumstances. We recognise the good practice adopted here between benefits staff and the Fraud section to identify and investigate potentially fraudulent claims.

3.111 We examined a sample of 49 fraud investigations, of which 28 had been referred by assessment staff. We found that 54% of these referrals were investigated by fraud staff within 10 days. This proportion rose to 68% cleared within 20 days. We welcome the generally prompt action taken to investigate possible fraud, which reduces the risk of overpayments arising.

3.112 There is a problem with the dispatch of computer generated notices from BA. Richmond reported that BA sometimes issues EoE NHB8 notices for IS and Income-based Jobseeker’s Allowance (JSA(IB)) when benefit continues in payment. This causes extra work for Richmond and BA, but more importantly could cause worry and inconvenience to claimants. The recent installation of a RAT at Richmond should alleviate these problems by reducing the number of requests for information passing between Richmond and BA.

Reviews of entitlement initiated by the LA

3.113 Richmond allocates 52-week benefit periods for most claimants. This is borne out by our analysis of our live load sample, where 45 cases out of 48 had 52-week benefit periods allocated. However, Richmond does tailor benefit periods to suit individual circumstances to some extent, for example self-employed claimants are allocated 26-week benefit periods and bed and breakfast cases have 13-week benefit periods. There is scope for Richmond to tailor benefit periods for other categories of claimant, for example by aligning benefit periods with Family Credit expiry dates. We recognise, however, that changes to the computer system will be necessary to incorporate benefit periods other than 13, 26 or 52 weeks.

3.114 When benefit entitlement ends, renewal claim forms that are not returned are not followed up, nor does the Fraud section take further action. This represents a missed opportunity for Richmond to identify further potentially fraudulent or irregular claims.

3.115 When renewal claims are processed, the HB Post Officer acknowledges receipt of the claim form on the BENE computer system by re-setting the re-application indicator. This indicator is a key field on the system that dictates what happens to a renewal claim.

3.116 Resetting the indicator on receipt of the renewal form means BENE pays benefit for a new benefit period and so the claimant continues to receive benefit until a review of entitlement takes place. This is of fundamental concern. We also noted with concern from our analysis of the verification process that Richmond undertakes very limited verification work on renewal claims for benefit. Details are at Appendix F. In addition, there are no quality control checks on this aspect of the process. Richmond proposes to address this in the planned restructure of the HB section. Richmond also uses a short form for renewals of benefit, a practice which should cease.

Extended payments

3.117 HB and CTB EPs can be made to specific claimant groups when IS or JSA(IB) ceases because they return to work or their hours or wages increase. EPs aim to help the long-term unemployed back to work by bridging the gap between the last payment of IS or JSA(IB) and the first payment of wages. Richmond should do more to promote and publicise EPs, for example by displaying a poster in the reception area at the Civic Centre.

3.118 We examined 31 cases where an EP had been made. In all cases examined the payment had been made correctly and this is commendable accuracy.

3.119 We conclude that Richmond has some areas of good practice in its treatment of changes of circumstances and that its treatment of EPs is generally of a high standard. However, it could tailor benefit periods more closely to individual circumstances and should urgently review its procedures for dealing with renewals of claims for benefit to improve verification standards and detect fraud.

Counter fraud

Deterrence

3.120 Deterrence means activities designed to discourage fraud. It includes deterring people from making either false or fraudulent claims and encouraging current claimants to notify relevant changes in their circumstances. Relevant changes are those that would affect a claimant’s entitlement to HB or CTB.

3.121 We conclude that Richmond:

• does not take a strategic approach to deterrence
• has no policy or procedures documents setting out its aims in deterring fraud through counter-fraud activity
• has successfully prosecuted cases of HB fraud, and this is to be commended, but we have concerns about the quality of the investigations undertaken
• misses an opportunity to deter fraud by giving priority to recovery of overpayments of benefit, although fraud investigators actively seek to identify them
• could do more to deter fraud by working more closely with landlords and by implementing powers under the amended Social Security Administration Act 1992 to impose fixed penalties and recover overpayments from benefit paid to landlords.

3.122 This section covers:

• deterrence strategy
• prosecutions
• overpayments
• landlords
• implementation of powers under the amended Social Security Administration Act 1992.

Deterrence strategy

3.123 A key element in securing benefit delivery is the existence of a fraud strategy, ratified and approved by members, to focus counter-fraud efforts.

3.124 Richmond does not take a strategic approach to deterrence. It has a corporate anti-fraud and corruption policy that sets out its policy for all forms of deception against Richmond, but lacks any policy documents to specifically cover benefit fraud. In particular Richmond lacks:

• a fraud business plan that sets out the strategy and direction for its counter-fraud activity. This should also specify the areas of work to be covered and set the targets and timescales to be achieved
• a prosecution policy that sets out the circumstances in which prosecution action should be considered and when it is inappropriate
• an investigations policy that sets out the standards it expects its investigators to meet
• a publicity strategy that seeks to maximise deterrence by promoting anti-fraud policies.

3.125 The advantages of such documents are that they:

• assure management that the LA’s counter-fraud activities have members’ support
• make aims and objectives clear to management
• provide a framework for appraisal of staff performance
• make staff aware of the resources and targets set by management
• set out procedures to ensure staff adopt a consistent approach to their work
• specify appropriate management checks to ensure the quality, consistency and integrity of investigations.

3.126 We consider that Richmond should draft and implement these policy documents as a matter of high priority.

Prosecutions

3.127 Richmond took forward 4 prosecutions in 1998/99 via the local police. We sampled 3 of these prosecution cases and have concerns about their quality. Although all the prosecutions resulted in convictions, we found that:

• Richmond has no guidance for investigators to follow
• investigations undertaken were not thorough
• no regard was paid to potential overpayments of BA benefits
• recovery of HB/CTB overpayments was not given appropriate priority.

Our concerns are further covered at Appendix K.

3.128 Investigators at Richmond do not conduct interviews under caution themselves. Management believed the LA did not have suitable accommodation or equipment for conducting interviews. However, Richmond is currently exploring the possibility of investigators using the facilities within Trading Standards.

3.129 Although we consider it commendable to have undertaken prosecutions, we consider that Richmond could make greater use of the deterrence which prosecutions generate.

3.130 Richmond did not instigate publicity following these prosecutions, but instead relied on the local press reporter attending court.

3.131 There is clear evidence that Richmond did not liaise with the Benefit Fraud Investigation Service (BFIS) to establish the full extent of the fraud. This is a missed opportunity to maximise the impact of the prosecution. Publicity for counter-fraud success is also covered at Appendix K.

Overpayments

3.132 The Fraud section generally performs well in identifying overpayments of HB and CTB. In particular, we found that investigators actively pursue evidence of irregularities in order to substantiate overpayments.

3.133 However, Richmond does not give priority to the recovery of fraudulent overpayments once they are identified and calculated. We sampled 49 WBS cases. Out of the 25 cases where an overpayment of HB had been established, no money had been recovered in 8 cases, although Richmond had made efforts to recover the sums due in the majority of these 8 cases and had made recoveries in some cases. This is a missed opportunity to maximise deterrence. In cases where recovery has not yet been pursued Richmond’s inaction could actually encourage claimants to commit further offences.

3.134 There is more information about Richmond’s performance in relation to overpayments in the section on Payment and accounting and at Appendix J.

Landlords

3.135 Richmond does not work with landlords to deter fraud. It does not produce briefing packs to educate landlords about their responsibilities, such as their responsibility to tell the LA about changes in the circumstances of their tenants.

3.136 In 1997/98 Richmond paid out over £17 million in rent allowance, which accounted for 48% of all benefit expenditure. However, Richmond does not keep a register of landlords and does not know how much benefit was paid direct to landlords. Richmond is an outer London borough where private sector rents are high. In 1997/98 the average rent allowance award was £71.28 a week, which is marginally lower than the outer London average of £74.54, but considerably higher than the GB average of £54.32.

3.137 We consider there is scope to safeguard more of the money paid out to private tenants by working with landlords to ensure that claimants become aware that their landlord will notify Richmond when they move. This is in line with landlords’ responsibilities under the HB scheme.

Implementation of powers under the amended Social Security Administration Act 1992

3.138 In 1997, amendments to the Social Security Administration Act 1992 gave LAs additional powers to assist them in their counter-fraud efforts. These include powers to:

• appoint inspectors (under section 110A)
• use fixed penalties as an alternative to prosecution (under section 115A)
• recover overpayments from benefit paid to landlords in respect of other tenants (under sections 75(5) and (6), and, under section 75(7), to recover through the courts by registration of overpayment determinations.).

3.139 The implementation and subsequent recovery of a fixed penalty in addition to the overpayment of benefit is intended to represent a substantial fraud deterrent. Similarly, the recovery of overpaid benefit from landlords is intended to encourage landlords to notify changes in the circumstances of their tenants promptly.

3.140 Richmond has made use of these powers to appoint inspectors, but has no plans to implement fixed penalties or commence recovery from landlords. We recommend that Richmond addresses the implementation of each of these powers when drafting counter-fraud policy documents.

Prevention

3.141 Prevention is minimising the opportunity for someone to commit internal or external fraud.

3.142 We conclude that Richmond’s mechanisms for preventing benefit fraud are limited. Due to resource constraints, there is no risk analysis in place. IA and EA coverage has been generally thorough and critical of Richmond’s systems. However, limited action has so far taken place in response to audit recommendations, although a detailed action plan has now been developed. Richmond’s internal controls, particularly pre-employment checks to vet staff, need improvement. Fraud awareness training should also be a priority.

3.143 This section covers:

• risk analysis
• EA and IA and internal controls
• visiting programme
• fraud awareness.

Risk analysis

3.144 Richmond does not identify, measure nor prioritise the risks of fraud it faces. At present, due to resource constraints, Richmond has no reliable means of determining the characteristics of claimants most likely to commit fraud and the areas in which fraud is most likely to occur. Richmond would benefit from adopting a risk-based approach to fraud, to identify areas of fraud and claimants who represent a high risk. This would allow Richmond to:

• assess where the HB system is weak
• develop management information as a basis for prioritising referrals
• focus investigation work on those cases most likely to generate results, such as prosecutions, fixed penalties and WBS returns, rather than the current approach which investigates all new referrals
• provide the basis for fraud awareness training plans for counter-fraud staff and assessment officers
• establish liaison and joint investigation work with BA on the basis of a shared understanding of risks.

3.145 A risk analysis would also help Richmond minimise its potential losses due to fraud and error. These could be substantial. An application of the results of the second DSS HB Review to Richmond’s HB expenditure and caseload suggests Richmond’s losses to fraud could be between £2.37 million and £3.17 million. We discuss these matters further at Appendix L and also under Detection.

3.146 To facilitate a full risk analysis Richmond needs to have a fraud investigation management system in place. In the meantime Richmond could use an analysis of previous investigations to identify the main areas of risk, including:

• claimant types
• landlords
• addresses which pose particular risks of fraud
• the balance between rent allowance and rent rebate
• system weaknesses
• analysis of the most common types of fraud, which could be, for example, working and claiming and contrived tenancies.

This would allow Richmond to focus on high-risk claims with greater confidence.

EA and IA and internal controls

3.147 The External Auditor reviewed HB system controls in 1997/98, placing reliance on the work of IA. There were no matters arising. In recent years, before 1997/98, there were no qualifications by the External Auditor of the subsidy claim to DSS. However, in line with Audit Commission (AC) guidance, EA was carrying out an increased level of testing on the 1997/98 subsidy claim at the time of our inspection. This work was estimated to at least double the number of days EA previously spent on the claim. The claim has now been certified and a report sent to DSS. The External Auditor raised some concerns, but the overall effect of the External Auditor’s amendments was to increase the subsidy payable to Richmond.

3.148 In 1998, as part of the follow-up to the 1997 AC report Fraud and Lodging: Countering Fraud in Housing Benefit, the External Auditor also reviewed Richmond’s arrangements for benefit administration and counter-fraud work, relying on AC guidance. This examination was carried out shortly after the implementation of the 1998 restructuring at Richmond. The External Auditor commented favourably on a number of good practices at Richmond, for example:

• the LA’s recent adoption of an anti-fraud and corruption policy
• Richmond’s extensive use of data matching
• productive liaison with the police over prosecutions.

3.149 EA identified that the main areas for improvement included:

• reviewing the benefit administration quality control process
• improving working relationships with BA
• considering the implications of the VF
• developing a business plan for HB and CTB investigations
• developing a quality control programme for completed investigations
• considering the implications of the amended Social Security Administration Act 1992.

3.150 We support these major recommendations, but note with concern the limited progress Richmond had made in implementing these recommendations at the time of our inspection. There had been no follow-up of the EA recommendations at the time of our inspection and, given the concerns arising from the impact of the recent reorganisation, these should now be treated as a priority.

3.151 In 1998/99 IA devoted a relatively small number of days to the audit of HB, about 25 days out of a total of 1,300 (2%). This is low, given that HB accounts for £35 million or about 31% of Richmond’s total revenue expenditure. The allocation of audit days to areas is based on a risk index, although this was being revised at the time of our inspection.

3.152 IA adopts a systems-based approach to the audit of HB and the recent coverage was wide ranging, particularly given the constraints on available time and resources. We commend the breadth of this coverage and share EA’s view that IA performance in this area is satisfactory overall. Time constraints meant that the extent of testing undertaken by IA was limited, and IA agrees that the extent of testing could be increased. The IA report issued in November 1998 concluded that the financial, operational and administrative procedures within Richmond’s HB section were unsatisfactory. The report highlighted 3 main weaknesses:

• the limited verification is at variance with the standards of the VF
• the absence of a strategic and management framework for the Fraud section
• poor operational procedures within the Fraud section.

3.153 The Head of Revenues and Benefits has prepared an action plan in response to the audit. Implementation of the recommendations was still ongoing at the time of our inspection and further action is needed. We commend the action taken in October 1998 to ensure that staff register and declare interests if they or members of their family are either landlords or claimants.

3.154 At the time of the inspection there had been 2 recent instances of internal fraud at Richmond, both of which involved staff who were working and claiming IS. Both staff were dismissed. Richmond reports that neither case had anything to do with the HB section.

3.155 We consider there are areas where internal controls need to be strengthened. These include:

• management checks on the work of assessment staff
• levels of access to the IT system over and above that required for staff to carry out their duties
• the relatively insecure environment of the fraud room, due to the level of open access to staff.

3.156 References are taken up when new staff are recruited to the Benefits section. XXX XX XXXX XX XXXX XX XXXX XX XX XX XXXXXX XXXXXX XXX XXX X XXXXX XXXX XX XXXX XXX XX XXXX XXX XXX XX XXXX XXX XXX XXXXXX XXXXXX XXXX XX XXXXX X XXX X XX XXXX XX XXXX XX XX XXXX XXX XXX X X XXXXX

* Highlighted parts of this report are omitted from the published version as they may assist fraudsters or may contain confidential commercial information.