Efforts were concentrated on providing a secure gateway

The Department for Work and Pensions' Benefit Fraud Inspectorate found "little assurance investigations were conducted in line with legislation".

But the inspectors also found the city council's verification of claims was carried out to a high standard.

The council said it was preparing an action plan to deal with deficiencies.

The report, published by the Secretary of State for Work and Pensions, John Hutton, acknowledged Sheffield City Council administered �152m in housing benefits, around 11.6% of its gross revenue expenditure.

The team of inspectors found the council concentrated its efforts on providing an effective and secure gateway to prevent fraud and error from entering its benefits service.

The verification of claims was being "undertaken to a high standard" and a number of good practices were applied.

The document goes on to say "effective and comprehensive quality checking supported this".

But the report reveals "major weaknesses in the council's counter-fraud operations".

It identified a "lack of challenging targets and no effective management checking meant there was little assurance that investigations were being conducted in line with legislation or the council's policies and standards of conduct".

Investigators found weaknesses in counter-fraud

Inspectors said: "The council's sanctions target, although set at one of the lowest levels in the country, was not being met.

"This was in spite of considerable support from the Department for Work and Pensions Fraud Investigation Service.

"Poor quality fraud referrals and an ineffective sifting process had led to investigation time being wasted on unproductive cases.

"Reporting on counter-fraud performance was limited and although monitoring arrangements were in place, these were not being effectively applied or corrective action taken."

Commenting on the report Cllr Steve Jones, deputy leader of the council said: "We are conscious that we need to make improvements and we will be doing that, including talking to Liberata, our service delivery partner, about how they can up their game.

"However, we are constantly working to combat benefit fraud.

"In the last year (2005-06) the council successfully applied 89 sanctions against fraudsters including 41 prosecutions. During 2006-07 up to 31st January, the council has applied 61 sanctions.

"Sanctions the council takes against benefit fraudsters include prosecutions, administrative penalties and cautions. In all cases the fraudulent claimant pays the money back. "