MORE than £50m of devolved benefit payments may be lost to fraud and error this year, with more likely in future as uptake rises because of the Covid pandemic, Scotland's public spending watchdog has warned.

Audit Scotland raised the alarm as it attached a health warning to the first full annual accounts of Scotland’s devolved benefits agency, Social Security Scotland.

It said this was because an estimated £14.8m of Carer's Allowance had been overpaid in Scotland due to error in fraud last year, or 5.2 per cent of the £284m total for 2019/20.

It is the second time that problems have been flagged with the benefit.

Social Security Scotland began paying out devolved benefits in September 2018, and its first full financial year covers the 12 months to 31 March 2020.

Auditor General Stephen Boyle said there was “still a lot of key work to be done” at the fledgling Scottish Government agency.

The Carer’s Allowance figure was based on an estimate by the UK Department of Work and Pensions (DWP), which administers the benefit on behalf of Social Security Scotland.

However Audit Scotland said other DWP error and fraud estimates indicated that there could be a further £47.5m of overpayments this year based on Personal Independence Payments, Disability Living Allowance and Attendance Allowance spending for 2020/21.

This would be in addition to whatever fraud and errors occurs in Carer’s Allowance this year. 

Audit Scotland said Social Security Scotland was “highly reliant” on the DWP to deliver most of the £3.5bn of benefits for which Holyrood has administrative competence.

It said: “It is Social Security Scotland's responsibility to ensure it can appropriately assess the levels of error and fraud in the benefits in its annual accounts. 

“Due to the delivery arrangement being used, Social Security Scotland cannot directly assess the levels of error and fraud in Carer's Allowance and is instead reliant on the DWP's published estimates.”

The DWP has had its own accounts qualified for the last 31 years due to fraud and error.

Audit Scotland said the coronavirus pandemic was increasing the strain on the DWP and Social Security Scotland, potentially leading to more fraud and error overpayments.

In its audit report on the Social Security Scotland accounts for 2019/20, it said: “The pandemic is affecting how DWP estimates error and fraud for 2020/21. 

“It will not be able to carry out some of the case review activity required, as current restrictions mean that claimant visits cannot take place. There is also significant redeployment of staff in DWP which will affect its capacity in this area.”

It went on: “There has been a significant impact on employment and incomes across Scotland and the UK, with a large rise in applications for Universal Credit. 

“In Scotland the number of households in receipt of Universal Credit has almost doubled from January to August 2020, increasing from 243,641 to 473,973. 

“Universal Credit is one of the main qualifying benefits for the Scottish Government’s low-income benefits. The increase in Universal Credit caseload may result in increased applications for Scottish benefits.  

“Expenditure on Scottish-only benefits is met entirely from the Scottish budget, so any increases will need to be managed within this.” 

It said the Scottish Fiscal Commission had already projected a £12m or 18.5% rise in the forthcoming Scottish Child Payment, from £65m to £77m next year.

Mr Boyle said: "Social Security Scotland has strengthened its error and fraud arrangements and reacted quickly to the immediate challenges posed by the pandemic, but there's still a lot of key work to be done.

"It is now responsible for billions in complex benefits spending but remains heavily reliant on the DWP. 

“Benefit spending may rise because of Covid-19, increasing the potential for greater error and fraud. And Social Security Scotland needs to think about what arrangements will be needed to manage that scenario."

The Scottish Government highlighted the £540m of direct payments given to thousands of families in most need since Social Security Scotland’s launch, including £347m last year.

Social Security Secretary Shirley-Anne Somerville said: “Social security is the most significant new public service to be created in Scotland since devolution. 

"Of the ten benefits we currently offer, seven are completely new forms of assistance and the others are more generous than the UK benefits they replace. 

“Despite the impact of Covid-19, we have introduced three new benefits in the last four months and our new Scottish Child Payment that will provide eligible parents and carers with an additional £10 per child per week will be paid from the end of February 2021.

“Over the course of this year, the service has continued to grow and take on new responsibilities. And next year will bring even greater challenges with the introducing of the more complex disability benefits. 

“People can be reassured that we will continue to ensure that our social security system is there for people when they need it, and is something they can be proud of.”

Social Security Scotland chief executive David Wallace said: “I’m very proud of what we have achieved during the 2019/20 reporting period and since launching our brand new public service. And I’m pleased we have been able to effectively get money to so many people in Scotland who need it.

“There is still a lot more to do as we prepare to start to deliver the more complex disability payments and our service will continue to grow.”