Audit slams DSS overpayment

Did social security officials keep facts from the secretary of state to protect negotiations with EDS?

Did social security officials keep facts from the secretary of state to protect negotiations with EDS?

A leaked Department of Social Security (DSS) audit report has criticised officials after key facts about resolving an ITcrisis were withheld at a meeting with social security secretary Alistair Darling. The crisis concerned overpayments worth £10.5m to 112,000 benefit claimants.

The omission may have helped the DSS and services giant EDS to escape damaging publicity as officials finalised one of the biggest outsourcing deals in the history of the civil service.

The auditors found that the overpayments were the result of a series of managerial and technical weaknesses, and that the department and its main IT supplier EDS were to blame.

In their report, the auditors were critical that, when officials met Darling to discuss proposals to recover the duplicate sums, no mention was made of an option to stop a future payment to claimants.

This was a "viable, least-cost option and one that we could enforce legally," and also would "cause minimal operational implications". The audit report added, "politically, this may have caused further bad press or external pressures from lobby groups".

With only limited options at the meeting, Darling chose a softly-softly approach, in which claimants, nearly half of whom were pensioners, were asked to return the overpayment by personal cheque.

Although the selected option limited potential bad publicity, auditors found that it was one of the most costly and operationally disruptive solutions to the crisis.

EDS produced 110,000 letters requesting the return of the overpayment, which had a "tremendous" impact on the department, said the auditors. The notification letters triggered 20,200 telephone queries - with 2,000 calls on hold at one point - plus the handling of 65,000 further letters, bounced cheques and outright refusals to pay.

Some notification letters claiming back sums more than £1,000 omitted the first digit, leading to further correspondence. Other letters to claimants who had since died, and to people owing less than the cost of the 19p postage had to be stopped.

Auditors said the full ramifications of sending out notification letters "were either not relayed or explained" at the meeting with Darling.

However, the department's strategy minimised ill-feeling among claimants and led to no adverse publicity for EDS. At that time, the department was finalising plans to transfer 1,600 IT staff - almost its entire computer division - to EDS as part of a £1bn contract that had been in negotiation for four years.

The DSS's auditors expressed particular concern about the risks of duplicate payments as the government prepares to pay tens of billions of pounds in welfare benefits by automated credit transfer directly into recipients' banks.

"As we move towards delivery in 2003 it is imperative that we limit our exposure," said the report.

The department said this week that it has implemented measures to stop duplicate payments happening again. It added that internal costs of the collection exercise were estimated at about £465,000 and £2.9m of the overpayments are still outstanding.

Frank Field, a former DSS minister who has asked a series of questions about the overpayments, said, "It would appear that ministers have been kept in the dark.

"Effective government can only be ensured if officials are open and honest with ministers."

Benefits glitch

  • £10.5m benefits overpaid - £3m not recovered

  • Alistair Darling was not given all the options to remedy the fault

  • Read more on IT risk management