Anti-fraud ICL plan in doubt

DOUBTS are growing about the Government's commitment to a pounds 1.5bn project awarded to ICL in 1996 to automate the benefit payments system - one of the biggest contracts handed out under the Private Finance Initiative (PFI).

A row has also broken out between the Social Security Secretary, Harriet Harman, and the Chancellor, Gordon Brown, over the two-year delay,which had been forecast to produce savings of at least pounds 150m a year by stamping out benefit fraud. There was no mention of the project in the Green Paper on Welfare Reform published last week by Frank Field, the minister responsible, even though eradication of benefit fraud is one of the Government's key priorities.

The project involves automating all benefit payments through the network of 19,000 Post Offices by replacing girocheques and order books with electronic smart cards. The Benefits Agency, which awarded the contract, is simultaneously updating its own computer systems at a cost of hundreds of millions of pounds.

The system was supposed to have been operational now, handling 890 million transactions a year, but it will not be running fully until 2000. So far the system has only been installed in 300 Post Offices and is being tested with only 150,000 of the country's 19 million claimants. The projected fraud savings have been factored into the Department of Social Security's existing budgets. The delay in introducing the system has left a large hole in those departmental budgets.

ICL Pathway, the ICL subsidiary running the project, has spent pounds 125m installing equipment and training staff. Its total spend by the time the system is up and running is expected to reach pounds 600m. It will earn revenues, estimated at between pounds 1bn and pounds 1.5bn, by charging a royalty every time a card is used to make a benefit payment.

A leaked memo from Ms Harman to the President of the Board of Trade, Margaret Beckett, written last month, disclosed that ICL was seeking "significantly more money" to complete the project. This would put the department under "financial and contractual pressure". ICL executives have denied that they are seeking to renegotiate the terms of the contract and insist that the project remains on course.

However, there are doubts about whether the Government wants to continue with the project at all, which was awarded by the previous Social Security Secretary, Peter Lilley. The Government's Social Exclusion Unit, launched last autumn by Peter Mandelson, Minister without Portfolio, is putting pressure on high-street banks to make bank accounts available to everyone.

If this happened, social security benefits of all types could be paid straight into bank accounts by direct debit, making the expensive computerised ICL system redundant. A Post Office executive said: "There is clearly a problem between the DSS and the Treasury. But the bigger issue is whether the current government is committed to the project. The last one was and we are still waiting to see whether this one is."

The system is initially intended to eliminate encashment fraud through the use of stolen order books. But ICL believes that ultimately it could be used much more widely in the bigger battle against entitlement fraud, which is estimated to cost pounds 4bn a year.

The smart benefit cards would allow the Benefits Agency to keep sophisticated records of where and when benefits are paid up and down the country, so helping to detect patterns of fraudulent claims.