For three years from 1999, IRISC managed the £7.5 billion scheme for sick and dying miners without any guidance on how fraud involving claimants or their solicitors should be identified and prosecuted. Fraud procedures were belatedly introduced in 2002.

They were strengthened a year later, on the instructions of the Department of Trade and Industry, when a team of former police and Customs officers were paid to operate from the company’s Sheffield headquarters. A former Scotland Yard detective said the team discovered “tremendous abuses of taxpayers’ money” but were frustrated by “a permanent state of inertia” at IRISC that inhibited action against fraud. “IRISC was a sausage machine that churned out compensation,” he said. “If you applied for it, you’d get it.”

The Times revealed last week that police have launched an inquiry into a miners’ union that has earned multimillion-pound profits from the coal health claims. Detectives are investigating payments linked to the scheme made by two firms of solicitors, Doncaster-based Beresfords and Wake Smith of Sheffield, to companies associated with the Union of Democratic Mineworkers.

Mick Stevens, the UDM’s vice-president, and Clare Walker, the head of claims at Vendside, a claims-handling company wholly owned by the union, have stepped down from their posts pending the outcome. Miss Walker, 41, worked for IRISC for more than 14 years before she joined Vendside in 1997.

She has maintained social contacts with several of her former colleagues, including Neil Ward, IRISC’s policy and stakeholder manager, who has been a close friend for more than 20 years.

Dozens of staff at IRISC have also moved jobs to work for solicitors’ firms that handle claims on behalf of miners. They include Mark Farrell, managing director of Beresfords, who joined in October 2004, two months after leaving his job as director of DTI contracts for IRISC.

Since 1999, solicitors’ firms have been paid £530 million by the DTI for settling claims for chronic lung disease and vibration white finger. Compensation payments total £2.5 billion.

In total, 770,000 claims have been submitted. According to DTI figures, 1,470 “potentially suspicious cases” have been referred for additional investigation since anti-fraud measures were introduced in 2002. Only 132 claims (0.017 per cent of the total) have been denied, leading to a saving of £2.6 million.

The Times has spoken separately to two former police officers who worked on fraud investigations for IRISC in 2003. Both felt their hands had been tied by an overriding focus on meeting targets relating to the number of claims settled within a specified period of time.

One said: “You’d identify what looked like a clear case of fraud and point it out to IRISC and the DTI, but they seemed frightened to do anything about it.”

The IRISC contract to run the health compensation scheme on behalf of the DTI was held by Aon, an insurance broker, until February 2004, when it was transferred to the Capita Group plc. A spokesperson said that it had placed “great importance and resources on ensuring that a robust anti-fraud regime is in place”.

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