Universal Credit claimants are being warned as payment errors soared after record levels of people began to claim the benefit.
MPs have warned that losses due to benefit fraud and payment error could more than double.
The Commons Public Accounts Committee said that even before the coronavirus pandemic hit, the Department for Work and Pensions (DWP) made overpayments of £4.5 billion in 2019-20 - accounting for 4.8 per cent of the total benefit expenditure (excluding pensions) of £93.1 billion.
The highest error rate occurred in UC payments, with about one pound in every £10 being paid out incorrectly.
The committee said total errors in UC payments could more than double as unemployment rises and the DWP is forced to drop some of the checks it would normally carry out to prevent fraud - reports Birmingham Live.
The DWP estimates that UC overpayments in 2019-20 amounted to £1.7 billion (9.4 per cent of the total) while there were underpayments of £0.2 billion (1.1 per cent).
However between February and August alone the numbers of UC claimants rose from 2.9 million to 5.6 million.
The committee said that as a "rough estimate" the doubling in the caseload alone could result in an additional £1.9 billion in fraud and error, even without taking into account the effect of easing some controls.
Despite the DWP adopting new "data and analytical tools" to tackle fraud and error, the committee said overpayment rates continued to rise.
It expressed concern that the deployment of technology could lead to discrimination and bias against some claimants based on their "protected characteristics" such as age, sex and race.
It said that those who were being overpaid and underpaid were among the people least likely to be able to pay back the money when mistakes were identified, or to absorb a shortfall in their income.
The committee chair Meg Hillier said: "DWP staff are to be highly commended for the incredible job they have done getting benefits to millions of new claimants in a crisis, many of whom never expected to have to rely on the welfare safety net.
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"But the DWP's system of fixing its errors can penalise the least secure with yet more debt and even lower incomes.
"DWP has now finally committed to a target for reducing its levels of error, and levels of fraud - it must ensure that the means it uses to get there do not further marginalise and discriminate against those who have little or no financial resilience to deal with the income changes these mistakes lead to."
A DWP spokesperson said: "Fraud and error is very low with 96.5 per cent of benefits paid correctly and we continue to improve our methods including our systems to identify fraud and investigate emerging threats."
The department says it has dedicated teams to investigate specific types of fraud and has established an Enhanced Checking Service, comprising trained fraud investigators.
This means benefit processing staff refer any suspicious cases for further investigation and additional verification.
It is also using messaging on social media to raise awareness of fraud and remind people of the importance of safeguarding their identity.
