LPS Annual Report and Accounts 2020/21

Land & Property Services

 

Introduction

  1. I am required under the Accounts Direction given by the Department of Finance in accordance with Section 11(2) of the Government Resources and Accounts Act (Northern Ireland) 2001 to report my opinion as to whether the financial statements give a true and fair view.  I am also required to satisfy myself that, in all material respects, expenditure and income have been applied to the purposes intended by the Northern Ireland Assembly and conform to the authorities which govern them; that is, they are ‘regular’.

 

  1. LPS administers housing benefit  for rates of owner occupiers on behalf of the Department for Communities (DfC).  Unlike all other Social Security benefits where payments are made, LPS administers housing benefit in Northern Ireland by offsetting housing benefit against the rate accounts of people who own their own house but are entitled to apply for a reduction as they are on low income and suffering financial hardship. There is estimated to be a substantial amount of fraud and error within these transactions amounting to 12.1 per cent of LPS total housing benefit expenditure of £34.6 million as per Figure 1. This is an increase of 1.5 per cent compared to the 10.6 per cent recorded last year.

 

  1. I consider the level of fraud and error in housing benefit expenditure to be material.  Therefore my opinion on the regularity of this benefit expenditure is qualified.

 

 

Basis of Qualification

 

Fraud and Error- Housing Benefit

 

  1. DfC’s Standards Assurance Unit (SAU) reported in March 2021 the extrapolated levels of fraud and error for housing benefit administered by LPS during the calendar year 1st January to 31st December 2020.  This report highlights estimated levels of fraud and error amounting to £2.2 million and £2.0 million respectively.

 

  1. Figure 1 below shows that the level of fraud and error has decreased from £5.8 million

         in 2016 to £4.2 million in 2020 over the five year period.

 

 

Figure 1: Estimated fraud and error in Housing Benefit administered by LPS deemed to be irregular

Figure 1: Estimated fraud and error in Housing Benefit administered by LPS deemed to be irregular

 

Source: Analytical Services Unit, DfC

 

  1. I recognise that over a number of years LPS has made considerable efforts to improve fraud and error rates. However, overpayments due to Official Error have more than doubled since 2019. While I am sympathetic to the unique and challenging circumstances LPS faced as a result of the Coronavirus pandemic in 20-21, I am concerned at this significant increase in error. My opinion on the regularity of fraud and error in Housing Benefit administered by LPS remains qualified.
     

Other Matters Arising from the Audit of Land & Property Services Accounts

 

  1. There are a number of matters referenced in the Performance and Accountability Report and the Governance Statement in the accounts.  I note specifically the following matters:


Rate Rebate Fraud and Error
 

  1. The Rate Relief Regulations (Northern Ireland) 2017 came into operation on 27 September 2017 aligning with the operation of Universal Credit. This legislation introduced a new Rate Rebate Scheme administered by LPS to support tenants or home owners in receipt of Universal Credit. This new Rate Rebate Scheme will ultimately replace the existing Housing Benefit for rates.

 

  1. In 2020-21 LPS administered £7.1 million of rate rebate that is reflected in the LPS Trust Statement. LPS estimated the amount of fraud and error within these transactions to be 9.7 per cent of LPS total rate rebate expenditure.  This is an increase of 2.5 per cent compared to the 7.2% recorded last year.
     

 

  1. I do not consider the level of fraud and error in rate rebate expenditure to be material for the year ended 31 March 2021. However, this will be kept under consideration as more claimants migrate to Universal Credit and new claims for Universal Credit increase, particularly due to the impact of COVID-19, resulting in greater eligibility for the Rate Rebate Scheme.

 

Outstanding Valuation Caseload

 

  1. There has been an increase in the outstanding non-domestic valuation caseload with 8,868 cases outstanding at 31 March 2021 (5,472 cases at 31 March 2020). There has also been a rise in the number of domestic cases outstanding, 17,510 at 31 March 2021 compared to 12,580 at 31 March 2020.

 

  1. The estimated impact on the rate revenue figure of the outstanding domestic and non-domestic caseload at 31 March 2021 is £10.6 million.  This is an increase of £2.7 million from 31 March 2020.

 

 

  1. The estimated impact of outstanding valuations is not material, therefore I have not qualified my opinion in this regard.

 

 

  1. LPS have informed me that the increase in caseload numbers in 2021 is as a result of a legacy from lockdown measures significantly disrupting normal rating valuation operations, as well as an increase in the number of challenges received in 2020 and 2021 due to the recently completed Reval 2020 exercise. I will keep this under review in my 2021-22 audit.
     

 

Vacancy Discharges

 

  1. The estimated level of error in the overall vacancy discharge figure of £34.0 million is 3.21% of total Net Asset Values (NAV) of vacant properties in 2020-21. The error rate for number of vacant properties found to be occupied in 2020-21 is 1.61%.  When LPS find that a ratepayer has been in occupation of a property (whether via a vacancy inspection or otherwise), the correct assessment is back-dated to when occupation began and therefore no revenue is lost.

 

  1. I have noted that there was significant disruption to the inspection process in 2020-21 as a result of the Coronavirus pandemic. All inspections carried out in this financial year were desk top inspections and there was no assistance given by the District Councils due to health and safety restrictions. LPS have informed me that inspections are progressing in 2021-22 and it is intended that councils will resume inspections shortly before the end of the financial year, although it is likely that property inspections in 21-22 will continue to be below previously existing levels. I intend to keep this matter under review.

 

 

Ratepayer Debt

 

  1. Figure 2 below shows the level of ratepayer debt has increased to £152.7 million at 31 March 2021.  Debt written off in year was £5.1 million and impaired debt, which is unlikely to be repaid in full, amounted to £51.8 million at 31 March 2021.

 Figure 2: Trends in Ratepayer Debt

Figure 2: Trends in Ratepayer Debt

 

*Note that the figures included in the table above are those from the Revenue & Benefit’s system without the Year End accounting adjustments (e.g. accrued income & losses) and as such differ slightly from the figures in the Financial Statements.
 

  1. The level of outstanding ratepayer debt has increased significantly since 2019-20. I realise this is because LPS suspended legal recovery action in 2020-21 due to restricted access to the Courts and Enforcement of Judgements offices, as well as uncertainty around how the pandemic would impact on citizens and businesses in Northern Ireland. This has also impacted on the significantly reduced level of debt write-offs in 2020-21. In addition,  the normal billing cycle for rates was disrupted by the pandemic with rate bills issuing in June rather than April and LPS have informed me that a further £11 million was collected between 1 April 2021 and the end of May 2021, when this year’s bills were issued. The level of ratepayer debt is nonetheless concerning.
     
  2. I note that LPS has recently implemented a 3-year Post Pandemic Rating debt recovery strategy, with a view to returning ratepayer debt to 2019-20 levels. LPS plans to achieve this through a combination of measures to tackle new debt, aged debt, unenforced debt and cases where the ratepayer is involved in insolvency proceedings.

 

  1. I will review progress on this strategy as part of my 2021-22 audit.

 

COVID-19 Related Issues

 

  1. The minister for finance announced a rate support package for businesses as a result of COVID-19. This package was in the form of an 18% reduction in the non-domestic Regional Rate, a rates holiday for the first four months of the 2020-21 year for all non-domestic properties (with the exception of Utilities and public bodies) and a full year’s holiday for all non-domestic properties in the retail, hospitality, leisure and tourism sectors. The introduction of the business rate holiday resulted in a reduction in rate revenue collected from £1,373 million in 2019-20 to £1,057 million in 2020-21. As a result of the rate support package for businesses, the total amount collected in 2020/21 was 23.03% less than the previous year.
     
  2. Legislation has now been introduced to provide a further rates holiday for applicable businesses in 2021-22.

Additional Fraud Occurrence in 2019

  1. In recent years there have been two significant fraud cases in LPS involving employees. Details on the first fraud case are contained in my report attached to the 2016-17 LPS accounts.

 

  1. Following on from the discovery of suspected fraudulent activity by an employee in June 2019, LPS continued to carry out an investigation in conjunction with the PSNI. This investigation discovered a total of £125k of refunds which were suspected of being issued fraudulently. The investigation also lead to the PSNI passing information to LPS leading to the discovery of further fraudulent activity, which involved the same member of staff writing-off debt on ratepayer accounts. This came to a total of £64k.

 

  1. During the 2020/21 year the investigation was completed and the PSNI passed the case to the Public Prosecution Service (PPS). The PPS decided to take the case forward and initiated legal proceedings. The case was completed in June 2021 when the ex-employee issued a guilty plea to all of the charges brought. The hearing took place in November 2021 and the former employee was sentenced to two years (one year in prison and one year on license). LPS was also awarded a compensation order of £89k.

 

  1. As the judicial process is now complete in respect of this case, I intend to produce a separate report on this fraud in order to highlight weaknesses of internal control and to identify any lessons learnt. This report is due to be published in 2022.

 

  1. I will also revisit the other matters noted in my report as part of the 2021-22 audit of the LPS Rate Levy Accruals Account.

 

 

KJ Donnelly

Comptroller and Auditor General

Northern Ireland Audit Office

106 University Street

Belfast

BT7 1EU

 

6 December 2021