Government departments have been criticised for not joining a fraud-busting initiative despite ministers promising to crack down on illegal benefit claims and other wastes of public money.

The Audit Commission, an independent watchdog on public spending, says on Wednesday that the National Fraud Initiative has saved nearly £1bn of taxpayers' money since it was introduced 16 years ago, and more than a quarter of that in the last two years alone.

But despite being used by 1,300 public bodies including police forces, the NHS and local councils, only two central government departments - the Highways Agency and the Department for Communities and Local Government - have yet adopted the system, which constantly compares data from 8,000 data sets, each comprising details of sometimes millions of people, and flags up anomalies for investigation.

Michael O'Higgins, chairman of the Audit Commission, has now written to the head of the civil service, Sir Bob Kerslake, urging him to make participation in the NFI compulsory for government departments after previous requests had failed. O'Higgins said he had had requests for more information and meetings, but no firm commitment from any other ministers so far. "I think it's inertia rather than anything else [that is to blame]," said O'Higgins. "This is in line with the thing minsters are concerned about, and I expect there's more official level resistance - or resistance might be too strong for it: it's easier to not decide to do something than decide to do it."

Some government departments do share information, for example about housing benefit claims, but this did not allow the fraud system to investigate and detect fraud by employees. "Unless we believe there's no fraud being committed by anybody in centrral government - that might be a reason not to participate, but it's hard to think that might be the case," added O'Higgins.

The NFI identified savings of £275m across the UK in the previous two years, but the Audit Commission said it could not say whether the increase in the rate of detection was due to higher fraud levels or better detection.

In the last two years, the highest amount saved was in pensions, usually by avoiding them being paid to people who had died, saving taxpayers £98m, followed by £50m which would have been paid to people wrongly claiming council tax discounts for living alone, and £31m in housing benefit fraud and wrong payments.

Other findings included 164 workers identified by the NFI as having no permission to work in the UK and 321 false applications for social housing. More than 31,000 blue badges for disabled drivers were removed. In total, 731 people were prosecuted, 636 of them for benefit fraud.

4.6m data matches have been identified as needing further investigation, of which about one fifth were considered a priority, though many could have turned out to be legitimate claims and payments.

O'Higgins said that one striking case spotted with the help of the fraud detection software was a nurse working for two hospitals by taking regular sick leave from one or the other.

The Cabinet Office said: "Within just a few months of coming into office, ministers set up the first ever cross-government taskforce to tackle fraud ? from its pilots alone this new team has already helped save £72 million for taxpayers.

"Because fraudsters do not work in silos, we recently unveiled our plan to create a new counter-fraud checking service ? a groundbreaking partnership between the public and private sectors to improve fraud prevention and make checks quicker. The new service will allow us to adopt a "check first, pay after" approach.

"As part of our new approach we are working with the National Fraud Initiative and building on their current model."