Ministry of Social Development: Preventing, detecting, and investigating benefit fraud.

The Ministry of Social Development (the Ministry) expects to pay more than $13 billion in social security benefits in 2007/08. Therefore, it is vital that New Zealanders have confidence and trust in how the Ministry administers the social security benefits system.

To protect the integrity of the benefits system, the Ministry needs to ensure that people receive their full and correct benefit entitlements at the right time. This includes a need for the Ministry to effectively counteract benefit fraud.

We carried out a performance audit to assess the effectiveness of the Ministry's systems, policies, and procedures for preventing, detecting, and investigating benefit fraud.

The focus of our performance audit was the Ministry's Integrity Services group, which is responsible for protecting the integrity of the benefits system by preventing and reducing benefit fraud and debt. We also visited some of the Ministry's Work and Income service centres, which contribute to the prevention of benefit fraud through regular contact with the Ministry's clients.

Our findings

Overall, the Ministry has good systems, policies, and procedures in place to prevent, detect, and investigate benefit fraud.

We were unable to assess the effectiveness of recent changes (such as establishing an Intelligence Unit) made by the Ministry in response to a major benefit fraud uncovered in late 2006. However, we expect that the recent changes will further strengthen the Ministry's systems for counteracting benefit fraud and improve its assessment of fraud risks.

We have made eight recommendations for the Ministry to make improvements in the three areas of preventing, detecting, and investigating benefit fraud. Our findings are summarised below, followed by our recommendations.

Preventing benefit fraud

The Ministry does not tolerate benefit fraud, and this position is well understood and supported by staff. The Ministry follows up all allegations of benefit fraud, considers prosecution, and seeks to recover all substantiated overpayments.

The Ministry has not assessed the fraud risks associated with benefit payments, but was planning to do so at the time of our audit.

In our view, the Ministry could use its recently established Intelligence Unit to carry out fraud risk assessments to identify and assess risks associated with benefit payments. These assessments could then be linked to operational control plans to direct the Integrity Services group's work programmes.

We note that recent moves to increase the involvement of the Integrity Services group with the decision-making and standard-setting of other Ministry groups should also be beneficial for management of benefit fraud risks.

Regional Benefit Control Units within the Integrity Services group carry out several important benefit fraud prevention activities with the Ministry's clients and in local communities. These activities focus on educating people about the importance of receiving their full and correct benefit entitlements and avoiding benefit fraud.

Work and Income service centres have important benefit fraud prevention responsibilities because their staff have regular contact with the Ministry's clients when they apply for, and receive, benefits. Service centre staff are well trained to assess clients' circumstances and benefit entitlements. This training is backed up by strong quality assurance and checking procedures in the service centres.

The Ministry has recently increased its collaboration with other government agencies involved with fraud prevention. This should help the Ministry to improve identification of emerging serious fraud risks and to contribute to whole-of-government strategies for combating fraud.

In our view, there is potential for the Ministry to formally evaluate its range of benefit fraud prevention activities to ensure their ongoing effectiveness.

Detecting benefit fraud

The Ministry has several systems in place to detect benefit fraud. These include ways for staff and the public to make allegations of benefit fraud, data matching with other public agencies, and programmes that focus on groups with a high risk of committing benefit fraud.

Data matching is a significant detection activity for the Ministry. The Ministry was planning to review its data-matching activities at the time of our audit, but does not do this type of evaluation routinely. In our view, the Ministry should be evaluating its data-matching activities periodically to ensure that these activities continue to be effective in detecting benefit fraud. There is also potential for the work of the newly established Intelligence Unit to assist in ensuring that data-matching activities take account of emerging fraud risks.

Formal arrangements are in place to ensure that data is shared appropriately between the Ministry and other public agencies. The Ministry's code of conduct has clear requirements for staff who handle personal information.

The Ministry has a good mix of other fraud detection programmes, which aim to target client groups at higher risk of committing benefit fraud. We consider that there is also potential with these programmes for the Ministry to use its Intelligence Unit's specialist data analysis and statistical modelling capabilities to help ensure that the programmes are effectively targeting high-risk benefit types and client groups.

Investigating benefit fraud

The Ministry has well-established systems in regional Benefit Control Units to investigate benefit fraud. A standard procedure is used to assess the level of risk for allegations of benefit fraud. Higher-risk allegations are formally investigated. We were told that the Intelligence Unit is planning to filter all allegations of benefit fraud to identify high-risk factors. This should help to improve the prioritisation of investigations. In our view, the Ministry should also sample allegations of benefit fraud that were not assigned for investigation to see if they were actually of a low priority.

The computerised case management system used for recording and tracking allegations and investigations (called TRACE) needs significant upgrading to improve its functionality. In our view, upgrading TRACE would improve the productivity of Investigators when they are managing investigations. We also consider that changes to the system's design and functionality would improve the Ministry's ability to systematically analyse investigation records to identify causes of benefit fraud and emerging risks or trends.

The Integrity Services group has effective policies and procedures in place for ensuring that investigations meet legal requirements and Ministry standards. These include a clear enforcement policy and quality assurance procedures that ensure the success of most benefit fraud prosecutions.

Our recommendations

We recommend that the Ministry of Social Development:

Preventing benefit fraud

  1. periodically carry out fraud risk assessments of emerging risks in the social security benefits system, and use the findings to guide and target its management of fraud prevention activities;
  2. regularly and formally evaluate its benefit fraud prevention activities, and use this evaluation to help target benefit fraud detection and investigation activities;

Detecting benefit fraud

  1. regularly and formally evaluate the effectiveness of its data-matching activities for detecting benefit fraud;
  2. use fraud risk assessments of emerging benefit fraud risks to help evaluate and target its data-matching activities;
  3. use its Intelligence Unit to periodically analyse its client databases to ensure that detection programmes are targeting areas of risk;

Investigating benefit fraud

  1. periodically carry out evaluative sampling of allegations of benefit fraud that are not assigned for investigation to confirm that they were actually of a low priority;
  2. upgrade its computerised benefit fraud case management system to improve the overall functionality and usability of the system; and
  3. regularly and formally review the results of individual benefit fraud cases to identify any emerging trends or risks in the benefits system.
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