Local authorities and benefit overpayments report
A hard copy of this report summary can be obtained by contacting Paul Noakes [E-Mail: Paul.Noakes@dwp.gsi.gov.uk] or by writing to him at the 'Social Research Division, Department for Work and Pensions, 4th Floor, Adelphi, 1-11 John Adam Street, London WC2N 6HT'.
Research Report No. 119
By Roy Sainsbury
This research examined local authorities' decisions, experiences and suggestions in relation to overpayments. In addition, authorities' reception and use of the new powers in the 1997 Fraud Act were explored. This research was conducted in early summer 1999 and is based on depth interviews with 82 LA staff in 18 authorities across Great Britain. The study also drew on published Benefit Fraud Inspectorate (BFI) reports. The research was carried out by the Social Policy Research Unit at the University of York on behalf of the DSS.
The main findings include:
- None of the authorities visited had a formal written overpayments policy. However, authorities had well-established structures and procedures in place for dealing with overpayments.
- Recovery action is taken in most cases. There was no evidence to suggest that the authorities visited by the researchers were avoiding their responsibility to seek recovery of overpayments.
- There was no evidence to suggest that authorities deliberately classified overpayments incorrectly to increase subsidy payments.
- The financial subsidy and incentive measures were not found to directly affect authorities' approaches to overpayment classification and recovery.
- There was a lack of information on the levels of recovery. Analysis of BFI reports suggests many local authorities were technically incapable of producing robust and complete information about recoveries.
- Although most of the powers, introduced by the 1997 Fraud Act, at the time of the research had not been widely used, the majority of these new powers were viewed positively and as useful additions to a local authority's ability to recover overpayments.
Introduction
Local authorities (LAs) administer Housing Benefit (HB) and Council Tax Benefit (CTB) on behalf of central government. Although the Department of Social Security (DSS) has statutory responsibility for benefits, LAs have considerable autonomy in the way they organise the administration of benefits. Autonomy and thus variations between LAs apply to the treatment of HB and CTB overpayments.
Overpayments of benefit occur when a claimant is paid an amount of benefit to which he or she is not entitled. They may be the result of one of a number of causes, including:
- official error, by local authorities, or by government departments such as DSS, the Benefits Agency (BA) and the Department for Education and Employment (DfEE)
- claimant error
- fraud
- other causes, such as an overpayment following the death of a claimant, or a backdated benefit increase.
Local authorities have a statutory duty to classify benefit overpayments according to their cause. The principal causes are local authority error, claimant error and fraud. Local authorities receive a 95 per cent subsidy from the DSS on correct claims, 80 per cent on fraud overpayments, 25 per cent on overpayments due to claimant error, and zero per cent on local authority errors. These rates are intended to encourage local authorities to reduce the incidence of overpayments.
Local authorities are expected to make efforts to recover overpaid benefits. They can retain any monies recovered. This is intended to act as a financial incentive to encourage the vigorous pursuit of overpayments.
The Social Security Administration (Fraud) Act 1997 (the 'Fraud Act') extended the powers of local authorities to recover overpayments from landlords, and introduced new procedures for the recovery of overpayments through the civil courts. The Act also introduced new administrative penalties for use against fraudulent claimants.
The DSS commissioned the Social Policy Research Unit to carry out research into local authorities' treatment of HB and CTB overpayments. The study was designed to explore and analyse the decisions, experiences and suggestions of local authorities regarding (a) their policies on overpayments, (b) the classification of overpayments, (c) the recovery of overpayments and (d) the 1997 Fraud Act.
This research was based primarily on qualitative methods. Interviews were conducted with 82 local authority staff in 18 local authorities in Great Britain in the early summer of 1999. In addition, the published reports of the Benefit Fraud Inspectorate (BFI) were analysed.
Local authorities policies on overpayments
'Policy' content and documentation
None of the authorities in the study had a formal written policy in relation to overpayments in the sense of a document setting out the principles, aims and objectives that informed their overpayment work and strategies for achieving those ends.
Instead, local authorities had well-established structures and procedures for dealing with overpayments. Some had developed procedure manuals while others relied on the guidance circulars from DSS to equip staff to carry out overpayment work.
Aims underlying overpayment 'policy'
The principal aims behind the organisation of overpayment work were the pursuit of good administration and to keep administrative costs low. No authority had adopted a policy of treating overpayments caused by fraud differently compared with overpayments caused by error.
Influences of overpayment 'policy'
Importantly, it was found that the current financial subsidy and incentive measures did not affect local authorities' approaches to overpayment classification or recovery.
In some authorities the reports of the BFI had been influential in recent thinking about overpayments work. Some managers are having to manage a potential tension between overpayment policy and other of their authority's policies, such as anti-poverty strategies.
Classification of Overpayments
Data on the amount and the causes of overpayments
Analysis of local authority subsidy data showed that in 1997/98 the value of identified overpayments was £440 million of which £358 million were in relation to Housing Benefit. DSS subsidy data indicated that the majority of overpayments (71 per cent) were the result of claimant error. Just over a fifth (21 per cent) were caused by fraud. The National Housing Benefit Accuracy Review for the same year analysed a sample of cases to estimate the amount of confirmed and strongly suspected fraud. It concluded that £840 million was lost in incorrect payments of Housing Benefit alone. Although these sources of data are not directly comparable, the size of the difference suggests the need for further investigation.
How classifications are carried out
Classification of overpayments caused by error was largely a routine administrative task carried out by staff on benefit assessment teams. It is a process which is automated to varying degrees depending on the specification of an authority's computer system. Classification of overpayments caused by fraud was, in contrast, carried out manually.
There was no evidence to suggest that authorities deliberately classified overpayments wrongly, either as fraud or as claimant error, in order to increase subsidy payments obtained from central government. Nor was there any evidence that authority staff were failing to identify and record overpayments in order to increase subsidy payments.
BFI evaluations of overpayment classifications
The published reports of the BFI reveal a picture of widely varying standards in the classification of overpayments by local authorities. Some authorities inspected by BFI appeared to have low standards of performance in relation to overpayment classification. However, the reports do not conclude that the classification system is being abused in order to avoid a subsidy penalty.
Information of overpayment classification
Little use is being made by local authorities of information about overpayment classifications as a management tool to identify problems and inform improvements in practice.
Recoverability and recovery of overpayments
Data on the recovery of overpayments
Very little is known about how much overpaid Housing Benefit and Council Tax Benefit is actually recovered by local authorities. Neither the DSS nor local authorities collect data on overpayment recoveries routinely or systematically. BFI inspection reports suggest that local authorities' performance on the recovery of overpayments varies widely and that many authorities do not have the technical capacity to produce robust and complete information about recoveries.
Recoverability
Local authorities have a statutory duty to decide if an overpayment is recoverable in law. In practice, the large majority of overpayments identified are deemed recoverable. The research showed that some authorities do not routinely make decisions about the recoverability of overpayments caused by official error, even though they are required to by law.
Deciding whether to recover
Local authorities are under no legal obligation to recover an overpayment of benefit. However, they are expected by central government to make serious attempts to recover all recoverable overpayments. In practice, it was found that recovery action is taken in most cases. There was no evidence that in the authorities visited during the research project, Housing Benefit or other authority staff ignored or avoided their responsibility to seek recovery.
Principal methods of recovery
In most cases the method of recovery is an automatic choice determined by the type of benefit overpaid and the current status of the claimant. All authorities used a standard range of recovery methods - deduction from ongoing Housing Benefit, posting to a rent or Council Tax account, and sundry debtor invoices - which accounted for the majority of their recovery actions. All authorities pursued recovery through the civil courts as a method of last resort when other recovery attempts had not succeeded.
Alternative means of recovering overpayments
The extent to which other methods of recovery were used varied considerably between the authorities visited. Most authorities rarely, if at all, sought repayment from other social security benefits administered by the Benefits Agency, from other local authorities, or used debt collection agencies.
Appeals
Authorities had very varied experiences of handling appeals against overpayment decisions, but appeals appeared to have little impact on the administration of overpayments, or of benefits more widely.
Recovery issues relevant to overpayment policy
Overpayment recovery was not the responsibility of a single local authority department or official. No department or individual officer had ownership of overpayments. Recovery work was usually distributed between at least five local authority departments (Housing Benefit, Council Tax, Housing, Finance and Legal).
The gap in the information collected by local authorities about the amounts and the types of overpayments recovered has important implications for any attempts to measure and compare the recovery performance of different local authorities.
The impact of the Social Security Administration (Fraud) Act 1997
The 1997 Fraud Act included a number of measures relevant to overpayments:
- the extension of local authorities' powers to recover overpayments from landlords
- the introduction of new civil court procedures to simplify and speed up the process of obtaining a court judgement against debtors
- the introduction of a system of administrative penalties for fraudulent claimants.
Extended powers to recover overpayments from landlords
The new powers in relation to recovery from landlords were being used occasionally in appropriate cases by some authorities and not at all in others. They were viewed mainly positively as a useful addition to a local authority's ability to recover overpayments.
New civil court procedures
The new civil court procedures were only just beginning to be used in a few authorities, where they were viewed positively as a welcome replacement for the previous costly and time-consuming procedures. Awareness and knowledge of the new powers, however, were not high.
Administrative penalties
The new system of administrative penalties had been used on only a few occasions. Its use was seen as very limited. To impose an administrative penalty local authorities are required to gather sufficient supporting evidence to justify prosecution. There was a feeling that when such a stage had been reached on a case of suspected fraud, prosecution was the preferred course of action rather than offering the choice of an administrative penalty to the claimant.
Conclusion and issues for policy development
In developing future policy on overpayments, options lie not only in improving local authorities' performance in relation to overpayments, but also in possible changes to the benefit schemes themselves and in the behaviour and actions of claimants, landlords and other third parties. A range of policy ideas were discussed with the respondents interviewed. Many ideas emerged as their own suggestions, others were prompted by the reports of the BFI, whilst some were formulated by the research team from their reflections on the interviews and analysis of the data.
Overpayment work is currently spread among a number of departments in many local authorities. However, some Housing Benefit managers suggested that there may be advantages in bringing responsibility for overpayment administration and performance under a single management command. It was thought that there is merit in exploring this option in some detail with local authorities and their organisations.
The finding that the current subsidy and financial incentives arrangements for overpayments have little influence on the activities of local authorities raises a number of questions:
- are financial incentives and subsidies the right policy instruments for encouraging local authorities to reduce the number of overpayments and to increase the amount of overpaid benefit recovered?
- are subsidies ineffective because they are not set at the right levels? Would changes in the levels restore the effectiveness of subsidies?
- would the financial incentives be more effective if there was ownership of overpayment work in local authorities?
Overpayment incentives were found to be ineffective at present. An alternative to incentive payments is to use performance measurement as the basis for motivating local authorities to reduce overpayments and increase recoveries. Establishing ownership of overpayments work would also create the opportunity of linking the current incentive arrangements to performance.
Information on the incidence, value and causes of overpayments is already collected by local authorities. This is a rich source of data from which to develop performance indicators and targets. In contrast many authorities are not well placed to collect recovery data. There is a case for developing a comprehensive set of indicators which will allow a balanced assessment of an authority's performance and provide authority managers with information that they can use to monitor recovery performance in detail.
The prospects for preventing overpayments will be improved by implementation of the Housing Benefit Verification Framework which requires local authorities to verify information in relation to new and repeat claims and to introduce rigorous systems of claims monitoring and reviews. Other ideas for reducing overpayments included increasing administrative resources for Housing Benefit departments, better education of claimants and landlords so that changes in circumstances were reported timeously, a better service from the Benefits Agency and the Employment Service, more frequent reviews of claims in payment, and shorter award periods so that overpayments did not continue for long periods of time. Simplification of the rules of Housing Benefit and Council Tax Benefit was also discussed as a possible way of reducing the incidence of overpayments.
The dominant view among the Housing Benefit staff interviewed is that there is no compelling need to extend the current range of methods for the recovery of overpayments. However, in its reports the BFI has criticised some authorities for not recovering more overpayments from benefits paid by the Benefits Agency. An option for consideration raised by local authority staff in the study is to allow local authority staff access to claimants' Benefits Agency records so that deductions for overpayments can be made directly.
Models of funding based on counter-fraud initiatives might provide ideas for the future funding of overpayment work. Consideration could also be given to extending the roles of the DSS and BFI in relation to overpayments, to encourage more local authorities to make better use of the range of powers and provisions already at their disposal, and to take advantage of new opportunities to prevent and recover overpayments.
Relevant publications
Sainsbury, R. (1999) “Housing Benefit Exceptional Hardship Payments”, DSS Research Report No. 91, Leeds: CDS
Pettigrew, N. Thomas, A., Tovey, P., Stone, V (1999) “Housing Benefit and Council Tax Benefit Delivery: Claimant Experiences”, DSS Research Report No. 97, Leeds: CDS
Smith, N (1995) “ Local Authority Anti-fraud Incentives”, In-house Report No. 4, London: DSS
Kemp, P (1997) “Housing Benefit Data and Literature Sourcebook”, In-House Report No. 29, London: DSS
Sainsbury, R. Corden, A. and Carlisle, J. (1998) “Verifying Housing Benefit and Council Tax Benefit”, In-House Report No. 35, London: DSS
Sainsbury, R (1999) “Combating Housing Benefit Fraud: Local Authorities' Discretionary Powers”, In-House Report No. 53, London: DSS
Taper,T. Tu, T. and Caughey, A (1999) “Practice in Administration of Housing Benefit”, In-House Report No. 55, London: DSS
Lopata, R and Purslow, N (2000) “Local Authority Omnibus Survey – Wave One”, In-House Report No. 64, London: DSS