Fraud and welfare-to-work delivery

One of the more interesting ways in which different stakeholders view welfare-to-work delivery is the assumption made by the most disenchanted customers that the industry is a gravy train, and that the whole thing is some kind of fraud being perpetrated on the taxpayer with them as the victims. While at one time there was room in the industry for sharp practice, procurement and contract management both now take account of performance in securing job outcomes, eliminating the persistent underperformers. Analyses have been performed that clearly show the positive return on investment from government spending on such programmes (e.g. Pathways to Work).

The belief arises instead from the lack of resources and flexibility that providers have to meet individual customer needs, the common issue of customers with overly ambitious job goals, and the occasional antagonism felt by mandated customers. However, it may be instructive to look at what opportunities there are for fraud in the industry, and how flexible New Deal will affect these.

How the government is defrauded

Fraud happens when the government pays for something that it does not receive. There are four types of payment in modern contracts, each with different opportunities for fraud:

• Delivering a contract – this attracts a small, monthly ‘service fee’. The service fee is usually too small to cover the actual costs of delivery and can be stopped or clawed back if the delivery is halted. There is therefore no real scope for fraud by this route.
• Each customer who starts provision – A fraudulent claim would be one where the customer has not actually started delivery. People who are unsuited to the delivery or who drop out in the first week are not fraud. There are two types of customer start, jobcentre-referral and self-referral. In jobcentre-referring provisions, all customers must be sent to their course by an adviser at their jobcentre. This creates an audit trail that is checked and reconciled regularly, and the customer’s relationship with their jobcentre adviser means that it would become clear very quickly if customers who didn’t start were being claimed. Self-referring provisions recruit customers through a range of sources, but normally require proof of eligibility and a national insurance number for each customer. While recruiting unsuitable customers is possible, it’s not fraud and the resultant low job outcomes would normally make it pointless.
• Each customer who enters work – This is the primary area that fraud can occur in. All the frauds that have made the news in the past decade have been for falsely claiming job entries, either by paying customers to sign off, or by recruiting customers who already have jobs or job offers. However, providers are generally victims rather than perpetrators. Job entries are the key determinant of a contract’s success or failure. The profitability of a project is normally dependent on getting people into work. Many providers use performance-related pay to encourage their advisers and centre managers to get people into work, in the same way as recruitment agencies. If delivery staff falsely claim job outcomes, they can push up their bonuses. The provider also benefits, briefly, but the fraud is often found out fairly quickly as paid-off customers go back and claim benefits again. The provider then suffers the majority of the consequences – clawback of fraudulently obtained monies, loss of contracts and reputation, and less chance of winning work in the future.
• Each customer who stays in work for e.g. 13 weeks – Benefit claimants who entered nonexistent jobs would generally have reopened their claim by this point. In fact, low sustainment rates may be an indicator of fraudulent job outcome claims. Customers who aren’t claiming benefits are open to fraudulent claiming of sustainment in the same way that they’re open to job outcome fraud, again more to the benefit of delivery staff than the affected provider.

Is fraud still taking place?

The recent Maatwerk fraud investigation in Manchester was of a self-referring provision, NDDP, and the company's employees apparently took advantage of this to sign up people who already had job offers and then claim them as outcomes. Working Links have also had external investigators Tait Walker looking into claims of fraud and/or malpractice at their Brighton office in recent months, although this was an internal probe rather than an official DWP investigation. Both of these were confined to single offices, which fits with the ‘bad apple’ pattern of front line staff or centre managers fraudulently hitting job outcome targets.

Prior to these, the last major fraud stories were in the early part of the decade. After those, providers put stringent cross-checks in place, and the DWP tightened up its evidence requirements considerably. Almost all fraud suffered by the DWP comes from claimants lying about eligibility or claiming under false identities.

The future of fraud (see update below)

• Flexible New Deal will replace the job outcome claiming system with the one that jobcentres currently use – job entries and sustainment will be tracked through the tax system. This makes FND essentially fraud-proof. Any fraud that does happen will be confined within contract delivery, and will be exposed as soon as the DWP figures are compared with internal claims.
• Other types of provision (e.g. ESF projects) may have some scope for fraud, but modern audit trail and contract management practices should minimise the potential scale of the problem. Additionally, it's probable that the tax system outcome tracking will extend to other provisions over time.

Back to the original point: customers who think welfare-to-work delivery is a big con. Some customers might be amenable to rational discussion, but fear and distrust of imposed activity under threat of loss of benefits are not going to go away regardless of how well delivery is run. FND may offer providers the flexibility to meet individual customer needs. However, the demands of the marketplace will severely limit resources available to providers to actually take advantage of this. Specifically, flat-fee outcome payments will force providers to park more expensive-to-help customers. There will be unhappy customers around for some time yet.