The £440,000 bill will be met by Anglesey Council
People in Anglesey have been reassured they will not have to foot a £444,000 bill after their council failed in a legal action.
A total of £444,661 will be clawed back by the UK Government towards a £2m overpayment to the Isle of Anglesey County Council.
Mr Justice Lindsay at the High Court in London was told council tax payers could face an extra £6.70 on their bills.
But the council said the burden would not fall on residents and it would use its reserve funds to pay the money.
The money will have to be paid because the council failed to refer some housing claims for checking between 1997-2000.
The hearing followed a district auditor's report which "revealed serious and systemic shortcomings in the administration of Anglesey's housing benefit."
In court Nigel Giffin QC, acting for the Government, said there had been chronic understaffing and staff were not given proper training.
Mr Giffin said the district auditor had found a complete failure to have any adequate checks on benefit payments and warnings had not been acted upon.
Richard Drabble QC, for the council, said there has no been no loss to the public purse and the authority had made no gain from what amounted to "inadvertant errors".
The council argued it was unfairly penalised by the decision which it said in a statement was "unduly harsh and disproportionate."
In a statement, the council said: "In pleading its case in court, the council has sought to draw a comparison with what this might mean per head of population but the Department of Work and Pensions and the judge also drew attention to the council's financial reserves."
The council said it had taken steps to improve their service such as restructuring, more staff, training and new software systems.
Julie Openshaw, Anglesey director of legal services, said: "This is disappointing news for the council and the whole of Anglesey.
"The council accepted that it hadn't got everything right in terms of its benefits administration, but felt and still feels that the penalty imposed by the Secretary of State was too high."
Council leader Bob Parry said: "Although the decision is disappointing, the amount of stake made the legal challenge worthwhile.
"We will be looking very carefully at today's judgment, and discussing it with other authorities that have supported us, to see whether there is any scope for further challenge."