More than 85% of fraud allegations made by the public over the last five years were false, according to figures obtained by the Observer.

A freedom of information request to the Department for Work and Pensions discloses that between 2010 and 2015 the government closed 1,041,219 alleged cases of benefit fraud put forward by the public. Insufficient or no evidence of fraud was discovered in 887,468 of these. In 2015 alone, of the 153,038 cases closed by the DWP’s Fraud and Error Service, 132,772 led to no action.

People can use an online form on the DWP website to anonymously report suspects, listing their eye colour, piercings, scars, tattoos and other details they deem relevant. Suspicions can also be logged through the DWP benefit fraud hotline.

Information received by the Observer states that more than 1.6 million cases of benefit fraud were opened between 2010 and 2015 after reports logged by the public. Responding to the figures, Liberal Democrat leader Tim Farron said: “The alarming number of incorrect reports shows the system has failed, it should be the DWP which investigates benefit fraud, not your closest neighbours. This McCarthy-style reporting of benefit fraud is another example of the government’s desire to turn people against the welfare state and to treat sick and disabled people as second-class citizens.”

Owen Smith, shadow work and pensions secretary, spoke of “the poisonous way the Tories have continually talked down our social security system”. He said: “Where there are abuses of the system they should be dealt with swiftly. However, the government’s constant attempts to paint honest people – like low-paid workers relying on tax credits and universal credit – as ‘skivers’ is creating a hostile and accusatory environment. The Tories should view these results with shame and pledge to turn the page on their divisive rhetoric.”

The inaccurate reports will throw into question multiple government advertising campaigns, claiming that the public has a “role” in identifying “benefit cheats”. Television adverts, social media posts, letters and radio campaigns have been used to warn claimants about fraudulently claiming benefits. Government statistics show fraudulent claims accounted for 0.7% – or £1.2bn – of total benefit expenditure in the financial year 2012-2013. An estimated £1.6bn was underpaid to claimants by the DWP. In the same year a further 0.9% of total benefit expenditure was overpaid following claimant errors, which occur when claimants fail to report changes in their circumstances or the information provided is incomplete or inaccurate but there is no fraudulent intent.

There seems to be a large disparity between this and public perception: an Ipsos Mori survey in 2013 found the public believed 24% of benefits were fraudulently claimed – 34 times greater than the level seen in official statistics.

The response to the freedom of information request from the DWP states: “It should be noted that members of the public, as they are not trained to detect benefit fraud, are not always correct in their identification.” A spokesperson added: “Information from the public about suspected benefit fraud saved the taxpayer around £180m last year. Calls to the fraud hotline are vital – we take benefit fraud very seriously, so whenever we receive an allegation we investigate and, if necessary, prosecute and recover overpaid benefits.”