Saturday, 25 March 2017

Fraud squad

An investigation in Westminster has uncovered housing benefit fraud on a grand scale. Kate Youde examines what went wrong and finds out what lessons other councils can learn

According to the government, fraud makes up only a small percentage of the annual housing benefit bill. Yet evidence collected in MPs’ own backyard has led the politician charged with tackling the problem in Westminster to claim it is ‘out of control’.

The scale of fraudulent claims uncovered during an investigation by the Department for Work and Pensions and Westminster Council was such that the Serious Organised Crime Agency issued an alert in December to warn local authorities of coordinated abuse.

Now the DWP is providing fraud specialists to help Westminster analyse data relating to 600 claims for housing benefit. The 12,000-home authority believes this will uncover ‘a significant number’ of fraudulent claims.

So, what is happening in the London borough, what can other councils learn from its experiences?

Desirable address

The DWP estimates that 1.5 per cent (£350 million) of the £22.8 billion expenditure on housing benefit was claimed fraudulently during 2011/12. In Conservative-led Westminster - a prime target for fraudsters due to its high property values - it is a much more dramatic story. In some blocks in the borough, where £220 million is allocated annually to support private and social rent, the rate of overpayment of housing benefit has been as high as 95 per cent. Investigators in Westminster estimate the overall housing benefit overpayment rate due to fraud is 10 per cent.

The borough has 26,000 housing benefit claimants and receives approximately 2,000 referrals of suspected fraudulent claims every year. There are currently 340 live housing benefit investigations, which cost the council more than £880 each to pursue. In 2012/13, the council investigated 500 claims and discovered £900,000 in fraudulent housing benefit payments.

An investigation, which launched in 2010, found organised criminals were behind a multi-million pound fraud in the borough. Westminster partnered with the DWP on the back of residents’ concerns to investigate the abuse of housing benefit fraudulently obtained to fund private properties in the Edgware Road area for illegal sub-letting.

With support from the UK Border Agency and the local Safer Neighbourhoods team, raids on seven targeted blocks between July 2011 and February 2012 revealed a rate of between 61 per cent and 95 per cent of visited tenancies being illegally sub-let. As a result, the council was able to cancel £1.1 million of housing benefit claims and the authority says it has ‘numerous investigations ongoing with three people on police bail and one prosecution going through the court system’.

The investigation led SOCA to issue a warning to all local authorities, seen by Inside Housing, about the abuse, which centred on a group of 50 Iraqi nationals - some of whom had entered the UK on Danish and Dutch passports - making claims for disability living allowance and housing benefit. SOCA believes that, in some cases, ‘corrupt professionals [including complicit lettings agents] may have facilitated the criminal activity’.

Loopholes

As apparent EU citizens, fraudsters were able to pass the ‘habitual residence test’ designed to stop non-EU nationals arriving in the UK and immediately claiming benefits. European Economic Area passport holders were receiving housing benefit while claiming to work up to 16 hours a week, excluding them from DWP means testing or the attention of Her Majesty’s Revenue and Customs for income tax or national insurance. The loophole aided the establishment of a fictitious company with approximately 50 ‘employees’. Once the residents had fraudulently claimed housing benefit, some were then illegally sub-letting their properties.

Lindsey Hall, a Conservative councillor at Westminster and the authority’s anti-fraud ‘czar’, says that while the ‘really shocking’ rate of sub-letting uncovered in the raids might not be representative across the board, it has ‘flagged up some real holes in the system’.

This month, illegal sub-letting will become a criminal offence under the Prevention of Social Housing Fraud Act (see box: Crime and punishment). So, what lessons can the extreme experiences in Westminster offer other councils?

Ms Hall believes councillors can ‘act as the conduit from the coalface up to law makers and decision makers’. She adds: ‘I think what is happening all around the country is that fraud is just buried, no one wants to admit it’s going on and, because no one’s really taken hold of it, it’s grown to a point where it’s out of control.’

While the Local Government Association insists ‘fraud isn’t out of control’ it does acknowledge it needs to be clamped down on in larger urban areas. A spokesperson says councils are increasingly looking at measures like hiring special investigators.

SOCA suggests local authorities should explore better methods of sharing information to identify where individuals are submitting fraudulent housing benefit claims in multiple areas. Similarly, the LGA is launching three pilot programmes with seven local authorities to show how sharing data between councils, housing associations and third parties can help develop new ways of catching tenancy cheats, and calling for councils to be given greater access to data from organisations such as utility companies and banks to better uncover tenancy fraud.

Welfare reform

The government says the introduction of universal credit, which rolls a number of benefits including housing benefit into a single monthly payment from October, will reduce benefit fraud as the simpler system will calculate benefit levels using real-time information linked to PAYE and pick up financial irregularities. A new IT system automatically informs local authorities of new claims or changes in benefits and tax credits.

As part of the reforms, the government is also launching a Single Fraud Investigation Service, currently being piloted in Glasgow, Corby, Wrexham and Hillingdon. The service will take over from local authorities in investigating housing benefit fraud in 2014/15.

Ms Hall thinks it will work. ‘However, it cannot operate without local knowledge,’ she stresses, no doubt hoping the other politicians in Westminster are taking note.

Crime and punishment

In the past, tenants who fraudulently sub-let their social homes faced little more than losing their tenancy if caught. However, the Prevention of Social Housing Fraud Act, which is due to come into force this summer, makes sub-letting a criminal offence in England and Wales with perpetrators facing a fine and imprisonment of up to two years.

Housing providers will be able to recover the proceeds of illegally sub-let homes. The Audit Commission estimates nearly 98,000 social homes in England could be subject to some form of tenancy fraud. Fraudsters living elsewhere and renting out their social homes for profit cost the taxpayer as much as £900 million a year, the National Fraud Authority estimates.

The government has allocated a £9.5 million pot of cash to councils - including Westminster which received £200,000 - to help tackle illegal sub-letting of social housing.

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