In 2009 HMRC was given the task of cutting losses by £1.4bn, but, according to the NAO, only managed to make savings of just £500m during its two-year push on fraud, which Chair of the Parliamentary Margaret Hodge called a "deeply worrying" situation.
HMRC set itself the target of halving the rate of tax credit fraud and error from 9 per cent to 5 per cent by March 2011 and tasked an extra 40 employees to reach their goal.
However, the NAO noted that the rate had only been cut to 8.1 per cent and a total of £2.27bn had been lost though fraud and error in 2010-11. The report also noted that there had been little progress in dealing with people failing to declare partners' income or in checking claimants' stated work and hours and that one in five claims were still being overpaid.
The NAO congratulated the department for demonstrating innovation, but said it has further to go to achieve sustainable reductions in tax credits error and fraud.
Head of the NAO, Amyas Morse, said that to tackle error and fraud effectively, there must be an improved understanding of risks and better use of information in the department.
The report concludes that, while HMRC has made improvements to its approach and increased the amount of error and fraud it prevents, HMRC is not yet achieving value for money.
However, HMRC insisted that its strategy for tackling fraud and error was "sound", but agreed that it needed to make more progress.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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