The National Fraud Initiative (NFI), carried out every two years by the Audit Commission, has uncovered £140 million in fraudulent benefit claims in 2006/07.

This includes £24 million in housing benefits, £4 million in income support and more than 16,000 disabled parking badges being used by people who did not need them.

However, the Audit Commission has urged local councils to take action when they are alerted to fraud.

Chairman Michael O'Higgins said: "These are not victimless crimes and some of the fraud found is both blatant and shocking. People are stealing homes, pensions, student loans, parking places and benefits, seemingly confident that no one is tracking them. They are wrong. We urge all public bodies to put in place the necessary trained staff to work with us and follow up any matches. It makes both moral and financial sense to detect fraud and over-payment."

The National Fraud Initiative collects data from local authorities to highlight discrepancies in benefit claims and employee records. It then refers the "anomalies" back to the council for further investigation.

The report says: "If there is no effective penalty for fraud there is no deterrent. We now expect public bodies to do more to follow up the potential fraud that we have identified. They should adopt a zero tolerance policy to fraud. They should also ensure that adequate resources are devoted to following up suspected frauds and over-payments."

The NFI will be extended to cover Central Government and private sector employees from October this year, although submitting information will be voluntary. There are also plans to extend the scheme to monitor people working with children and vulnerable adults who may, for example, be on the Sex Offenders' Register.

The report comes after news that incapacity benefit is now higher than the estimated cost of staging the 2012 Olympics.

The NFI currently only covers benefits paid by local authorities, but will become more involved with individual Central Government departments in the future.