Mark Jenner & Co Limited – Forensic Accounting Services

UK Benefit Fraud Statistics

The latest figures from the Department For Works and Pensions (DWP) indicate that out of total benefit expenditure in the UK of £159 billion during 2011/12, some £3.2 billion has been overpaid.  £1.1 billion of this is due to fraud, with twice as much down to a combination of public and DWP errors.

Dealing With Benefit Fraud

The DWP are confident that their improving control framework is reducing losses and leading to savings in the benefit bill.  However, with admitted fraud levels hovering around the billion mark and the real figures likely much higher (it is impossible to know exactly how much fraud goes on underneath the surface) the amounts stolen continue to be massive.

In 2012 Mark Jenner & Co has seen a rise in the number of cases of benefit fraud requiring forensic accounting input.  Sometimes these are the predicate cases of theft and fraud, or the proceeds of crime cases following conviction.  This increase in work has come about primarily due to a flaw in the benefit administration system.  This is the wrong treatment of a few offenders who have claimed the incorrect benefit type.

Claiming the Wrong Benefit

We do not condone the abuse of the supplementary benefit system, and in fact feel that its regulation should be much more rigidly controlled and wrongdoers more severely punished.  However, it is our concern that the benefit regulators continue to be unable to police their public domain efficiently in certain areas of operation.  Many benefit claimants claim incorrectly and leave themselves open to severe punishment.  Many of these unfortunate people do have a right to benefit, but are not aware of the many different avenues open to them in what is an extremely complex system.  Very often, they feel that a change in their circumstances will lead to a withdrawal of benefit.  In most circumstances benefit payments are required simply to purchase the next meal.  Any delay, even a day or so, could lead to hardship.  No wonder many are fearful of reporting every little detail when their circumstances change.

In order to explain why these allegations can be made in some cases, a brief understanding of the UK benefit system is needed.

If a person unexpectedly loses their job, they are able to fall back on the welfare system.  Even if they give up work, they can obtain benefits to live on.  Also, if a person is unable to work, due to incapacity or as a result of having responsibility for caring for others, they can claim supplementary benefit.

Somebody who loses his or her job is able to claim Jobseeker’s allowance.  Those unable to work can claim Income Support.  Additional benefits such as Housing benefit (to pay rent or sometimes mortgage interest) and Council Tax benefit can be claimed depending on circumstances as these two are examples of means tested benefits.

A single parent household, where an adult is looking after young children, including the unfortunate case where disabled children require additional care, could be claiming several different benefits:

• Child benefit

• Income Support

• Housing Benefit

• Council Tax Benefit

• Disability Living Allowance

• Disability Care Allowance

The receipt of benefits depends on keeping the benefit providers up to date on any changes in circumstances.  It is a crime to claim for benefit that a person is not entitled to – and as can be seen from the number of cases that Mark Jenner & Co is presently dealing with, these can be punished quite severely with substantial proceeds of crimes sanctions following on from any convictions.

In our experience, claimants are reluctant to report changes in circumstances to the authorities.  In many cases this is obviously because they knowingly attempt to keep the benefit payments that they are not entitled to.  However, in a noticeable number of cases the reluctance is because reporting a change can upset the household cash flow and cause hardship to the claimants, or the claimant is not aware of the alternative benefits available.

A common scenario is where a mother is abandoned by her husband and left bringing up several children.  The benefit system will provide various different strands of funds as noted above that allow a reasonable standard of living to be maintained.  If any of the children are disabled, or the mother must care for an elderly or infirm relative, the payments can be substantially enhanced.

What commonly happens is that the single parent meets a new partner, or the estranged husband returns to visit her from time to time.  At this stage, the benefit claimant usually does not inform the authorities of a change in circumstances.  Arguably, nothing has changed for her.  When the visits become more frequent, the new partner or ex-husband stops over more often and also begins to contribute to the household finances, the line has clearly been crossed.  This is where the claimant, fearful that the new relationship is only transient and scared to interrupt her benefit payments, overlooks her duty to inform the authorities.

The minute somebody with an income co-habits with the claimant, the right to claim the income support and housing benefits are severely impacted, if not completely eroded. The argument that “I never know when he comes or goes” does not mitigate the responsibility to disclose changes in circumstances.

The sad fact is that in some cases, having a partner cohabiting may not have a disadvantageous impact on the overall benefit levels enjoyed.  This is because households with an income still have a right to claim two different strands of benefit – child tax credit and working tax credit. These benefits are also substantially enhanced where a disabled child or relative is involved.

This year has seen two example cases where low earning households would have been entitled to a similar amount of benefit from the correct source had they disclosed their correct circumstances.  Instead, in each case the sole parent continued to claim unemployment benefits instead of the whole household claiming tax credits.  This resulted in criminal convictions in both cases.  However, by presenting the alternative benefit scenario to the Court, something that is not formally considered by the DWP when bringing charges, a forensic report provided mitigating evidence for more lenient treatment of the admittedly criminal negligence of the claimant.

The issue outlined above is only relevant in some cases of benefit fraud.  There are many situations where no benefit is payable and the claim is simply a fraudulent attempt to obtain something for nothing.  However, there are cases where the DWP really ought to be identifying and warning that if a partner returns to the household – the benefit entitlement does not necessarily disappear.

Why defend benefit fraud?

On the face of it, benefit fraud is very hard to defend. Faced with an allegation that a certain amount of benefit has been claimed to which you are not entitled it is difficult to see how a criminal defence can be mounted. The amount claimed appears to be black and white – taken from the relevant DWP record. The circumstances of entitlement appear to be clear, you would have failed the entitlement test if you had ticked the correct box on the form. So you end up going to prison for two months for receiving a duplicate payment of £90.38 Jobseeker’s Allowance! This was an actual case reported by Northern Ireland’s Department for Social Development in May 2011.

It is clear that there may be cases where a robust defence should be mounted to what might appear to be a heavy handed and possibly a knee jerk reaction by the authorities to what is a massive problem within the UK.

The Problem

Benefit fraud is one of the most insidious crimes that we experience in the UK. Not only does it reduce the funds available for the genuinely disadvantaged, but it increases the tax burden of the generally hard working population who then feel less charitable to the worse off.

It is generally accepted by the Government and reputable commentators that the level of benefit fraud within the UK is at least £3.3 billion out of a total welfare bill of some £200 billion. In addition there are some £2 billion losses due to tax credit fraud – bringing the total to more than £5 billion.  This is a massive sum of money, and very likely to be under stated. However, there is some resistance by the DWP and a raft of the more liberally minded to these statistics because they say it is propaganda to scare claimants into feeling guilty. One thing is certain, most fraudsters will never feel guilty unless caught!

According to the 2010 National Fraud Authority 1st Annual Fraud Indicator (based on 2008 statistics) fraud against the public sector amounts to 58% of all total fraud. The NFA’s figures are unlikely to be accurate, and are somewhat historical anyway, but there is no doubt that welfare benefit fraud and tax evasion together must form a very large proportion of the UK’s total economic loss to fraud, probably measured in several £tens of billions.

Is there a solution to benefit fraud?

Finding a solution to the problem of benefit fraud has eluded administrations past and present. The levels of benefit fraud have risen dramatically year on year in line with the massively increasing benefit budget.  What started out as a half billion give-away in 1950 (about 4% of GDP at the time) has risen to a £200 billion annual bill (now 14% of GDP) today.  The answers probably lie among the following:

• An improved benefit system
• Better trained benefit staff
• Better fraud prevention controls
• More focus on organised benefit fraud crime

What perhaps shouldn’t be a focus without a better, fairer system is a crackdown on the disadvantaged claimant who is tempted into some extra money due to the lax fraud control procedures and ease with which money can be claimed. Although I feel very strongly that new migrants who take money to repatriate, building houses and living lavish lifestyles abroad should have swinging confiscation orders made against them and deported – there are many people at the other end of the scale who deserve better help and a proper defence when things go wrong.

An example of defending a benefit fraud

I am using a hypothetical example of a benefit fraud, as I do not want to compromise any of the persons that I have assisted as an independent expert forensic accountant.  Mrs A was married for a number of years and had four children. When the eldest was about nine, Mr A felt that he had had enough and left the family home, never to be seen again. Mrs A, having rent to pay and children to feed, was advised to claim a number of benefits – as with the youngest child only a year old, it was impossible for her to do even a part time job. She was able to claim housing benefit and income support allowing her to live anything but an extravagant life with her four children.

As the years went by she struck up a new relationship with Mr X. He would come round once or twice a week for supper. As the weeks and months went by and the relationship developed he would start staying over. Eventually he moved in.

Mr X earned much less than the national average wage, but having him around was obviously an advantage for Mrs A. However, their lifestyle was still not luxurious. Mr X ran a small second hand car, and there was no spare cash. He contributed his share of the food bills and probably helped out with other bills.

Mrs A should have informed DWP immediately Mr X moved in. Because she didn’t, DWP deemed that she was not entitled to benefit dating back to a very early date that they assumed Mr X moved in. They want four years of benefits back and are prosecuting for the criminal offences – the amount would merit a custodial sentence.

The problem

It would be difficult to say that Mrs A was not guilty of benefit fraud. However, she has not benefited by the amount that is being reclaimed. The housing benefit and income support that she received went into her living expenses and for her children’s welfare. Any extra money she received from he partner went to pay for his food and the additional costs she incurred for him. She probably benefited from being taken places in the car (thus avoiding public transport costs when shopping etc) and it is likely that there would be some additional financial benefit – more cash for Christmas, birthdays etc. It is also very important to note that had Mrs A declared her new “lodger” or “common law husband” that while her existing benefits might decrease or even disappear – she was potentially eligible for different benefits such as working tax credits on the level of household income and child tax credits for her four children.

How Mark Jenner & Co can assist in such cases

By taking a common sense view on such cases, which initially seem to be black or white, it is possible to present a more rational scenario that may in some cases find favour with the prosecutors and the court.

Using hypothetical figures:

In this case, Mrs A and Mr X lived in a household that is £18,000 better off than it should have been.  In actual real cases it may be that the alternative benefit entitlement is more than that claimed, or other mistakes have been made. In one real case I had proposed this type of work for a solicitor on behalf of his client. The Legal Services Commission had actually agreed the funding and I was ready to start. However, I was instructed not to proceed because once the Crown learned that a forensic accountant was appointed they dropped the case!!

Even if a case isn’t dropped, it is hoped that some sensible level of community service is awarded in lieu of a custodial sentence, and a manageable level of real benefit, if paid back over a number of years, will satisfy the demand for justice.