Several government departments have been able to publish their financial statements for the year ended 31 March 2021 ahead of the parliamentary summer recess, including the Department for Work and Pensions (DWP) and the Home Office for example. In most cases they are radically different from the previous year, with large reductions in income, substantial COVID-19 related expenditure and lower travel costs.
DWP, one of the biggest spending departments, reports in Note 5 to its financial statements that Universal Credit expenditure increased from £18bn in 2019-20 to £38bn in 2020-21. While some of the increase can be ascribed to Universal Credit replacing some tax credits previously paid by HM Revenue and Customs, the majority is caused by the economic impact of the COVID-19 pandemic. The Office for Budget Responsibility estimates that welfare spending in 2020-21 was £13.6bn higher than they forecast in March 2020.
Note 18 to DWP’s 2020-21 financial statements discloses that total overpayments as a result of fraud and error increased to £8.4bn or 3.9% of total benefit expenditure, up from 2.4% in the previous year. This has been driven by a 14.5% overpayment rate for Universal Credit, of which 12.8% or £4.9bn has been attributed to fraud.
This high level of fraud and error has resulted in the Comptroller and Auditor General (C&AG) qualifying his regularity opinion on how public money has been used for the 33rd year in a row. The C&AG’s report included within the DWP annual report and accounts highlights the doubling of the number of people claiming universal credit to 6m at the start of the pandemic, the increase in complex claims and the deliberate relaxation of financial controls to allow the department to process new claims quickly.
Other government bodies have also been impacted by the effects of COVID-19 as it has made it harder for them to recover amounts owed to them. For example, the net value of receivables in the Home Office Trust Statement, has fallen by more than two thirds to £9m following a pause in the issuing of illegal worker civil penalties until October 2020 and a reduction in operational debt collection activity that has contributed to over £20m of debt write offs. The receivables balance at 31 March 2021 is so heavily impaired that the C&AG does not consider the estimation uncertainty in the remaining balance sufficient to require an emphasis of matter in his audit report, unlike in 2019-20
Many government bodies have undertaken new activities and seen an increase in their costs. The Home Office’s 2020-21 accounts include an Annex showing specific COVID-19 costs. These include £249m additional spend by the Crime, Policing and Fire Group as the police enforced a series of new public health regulations and lockdown measures.
A £1.2bn reduction in income also contributed to the Home Office’s £3bn or 20% increase in net expenditure. This included income from visa and immigration fees falling by over a half to £801m as visa application centres were closed between March and June 2020 and restrictions and health concerns reduced travel.
This also affected the British Tourist Authority, whose 2020-21 financial statements show income plummeting from £18m to £2.5m as tourist attraction ticket and other commercial sales predominantly on the Visit Britain website fell by 94%.
Many bodies have also reported substantial falls in travel costs as their staff adapt to home working and international travel has not been possible. For example, the accounts of the Water Services Regulation Authority (OFWAT) show that they dropped by 96% compared to 2019-20 to only £18,000, while the accounts of the Department for International Trade show a reduction of 88%.
While COVID-19 has had a major impact on almost all of government, the majority of government entities most affected by COVID-19 have yet to publish their 2020-21 accounts. The accounts of the Department for Health and Social Care, the Department for Business, Energy and Industrial Strategy, and HM Revenue and Customs are not expected to be published until at least the autumn. As ICAEW has previously reported, these accounts carry increased audit risks from higher spending, complex financial support schemes and heightened fraud risks.
Oliver Simms, Manager, Public Sector Audit and Assurance, at ICAEW commented:
“Departmental accounts for 2020-21 published to date highlight just how much impact COVID-19 has had on the operations of government over the year ended 31 March 2021 – the ‘pandemic year’. . We won’t see a fuller picture until the remaining departments publish their financial statements in the autumn and HM Treasury publishes the Whole of Government Accounts, which is an even bigger challenge given they have not yet been published for the previous year.
“The Department for Work and Pensions deserves credit for being one of the major departments to publish its 2020-21 accounts before the parliamentary summer recess and for the extent of its disclosures around fraud and error. Unfortunately, the picture it presents of Universal Credit with a 14.5% overpayment rate highlights just how far the government needs to go to tackle what is an unacceptable level of fraud and error even allowing for the situation caused by the pandemic. There needs to be a much greater focus by government on tackling fraud and error if there is to be confidence in how it is spending public money.”
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