Benefit fraud and administration errors within the UK's Department for Work and Pensions (DWP) cost taxpayers �3bn a year.

Approximately two-thirds of the losses are accounted for by fraud while the rest is due to errors by customers and officials.

The Department faces a considerable challenge in reducing these losses further to an acceptable level Sir John Bourn Head National Audit Office

The total losses for the 2001-02 tax year equate to nearly 3% of the department's budget.

In response, the National Audit Office has said the department should be aiming to reduce the level of estimated fraud and error to below 1%.

Big spender

DWP is Whitehall's biggest spending department and administers key benefits such as Income Support, Jobseeker's Allowance, Housing Benefit and Incapacity Benefit.

The government will be encouraged that the two benefits most vulnerable to fraud and error - Income Support and Jobseeker's Allowance - have in recent years become more secure.

Back in 1997-98 losses totalled �1.38bn, in 2001-02 the figure had shrunk to �1.15bn.

This could be partly explained by increased levels of employment in the UK since 1997.

New System

In last year's spending review, the DWP was asked to reduce losses for these two key benefits to 5.2% of expenditure - that equates to �640m.

"Although the department has taken significant steps to reduce the level of estimated fraud and error in recent years, the scale of losses remains substantial at �3 billion each year.

The department faces a considerable challenge in reducing these losses further to an acceptable level," Sir John Bourn head of the National Audit Office said.

A new system of paying some benefits direct into recipient bank accounts, being phased in from April, may help.