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Last Updated: Thursday, 8 June 2006, 17:28 GMT 18:28 UK
Tax credit fraud sparks 40 probes
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The tax credit system has been blighted by overpayments and fraud
Investigations into organised tax credit fraud have spawned 40 inquiries into cases worth more than 5m in all.

In a letter to Conservative MP Richard Bacon, National Audit Office chief Sir John Bourn said the 40 cases involved multiple forged or false identities.

HM Revenue & Customs closed the tax credits online portal in December after Department of Work & Pensions (DWP) staff had their identities hijacked.

More than 30,000 claims are being reviewed, with more than 15m lost.

The culture of overpayment has left the system wide open to abuse by gangs who usually engage in benefit fraud

Of the 8,800 DWP staff whose identities were stolen, some 6,800 were used to make fraudulent claims, Sir John said - only 4,100 of which were caught before payment was made.

Mr Bacon said thousands of shop and factory workers had also been targeted.

The Treasury says the system has now been tightened up, and Sir John said his staff had seen no fresh evidence of systematic identity theft in any other public sector organisations.

This was confirmed by HM Revenue and Customs (HRMC), who told the BBC that "there is no evidence of new major organised frauds" and that the cases cited by the NAO had first been reported in January.

Repayment demands

The tax credit system was designed to help families on low incomes by supplementing their pay.

But frequent overpayments, followed by repayment demands, have left some families in financial trouble.

And the design of the system, fraud experts say, means that it has amounted to an easy target for fraudsters.

The assault on tax credits by organised criminal gangs - often operating from internet cafes - was revealed by BBC News in October 2005.

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By then, financial services firms had been warning HMRC and the police for some time that organised tax credit fraud was becoming rife.

In the months following, more and more instances of tax credit fraud came to light - as well as evidence suggesting that Paymaster General Dawn Primarolo and HMRC had known about the problem since at least mid-2005.

According to the NAO, more than half the 40 cases currently under investigation involve sums of more than 250,000.

In December, HMRC said it had identified 15m in successful fraudulent claims, although it said it had at that point only begun to quantify the scale of the problem.

And between April and November 2005, it stopped almost 40,000 suspect claims, after stopping another 17,000 in the previous 12 months.


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