By Angeliki Koutantou and Harry Papachristou
ATHENS, April 25 (Reuters) - Greece has halted welfare or pension payments to 200,000 people either because they are unentitled to the money - or because they are dead, a Labour Ministry official said on Wednesday.
The number of people involved in the abuse, dead or alive, is roughly equal to two percent of the Greek population.
Benefit fraud is common in many welfare states but Greece has come under heavy pressure from the European Union and IMF to crack down in return for its latest 130 billion euro bailout.
Scams often involve people lying to officials who are too disorganised, chaotic or even corrupt to prevent the abuse.
Mismanagement has allowed some families to keep drawing pensions of relatives who have died. However, an unusually high number of 9,000 Greek centenarians drawing old-age benefits prompted the authorities to take a closer look last year.
Simple data cross checks since September had revealed the abuse. "They were caught during the inquiry and the state is reclaiming the money they have illegally taken," the senior Labour Ministry official said on condition of anonymity, adding that thousands of cases had been sent to court.
Halting the payments will save the state up to 800 million euros ($1 billion) a year, the official said.
A former senior official at the ministry, Athina Dretta, said a lack of communication between government bodies was a problem. "Registry offices didn't even have an automatic system to notify deaths to social security funds," said Dretta.
Officials also became suspicious when they noticed unusual concentrations of blind or disabled people in certain cities and islands, where corrupt social security employees were at work.
Some welfare recipients were found to be working as taxi or truck drivers.
With nearly one-quarter of the 11 million Greeks retired, the once generous welfare state has been partly blamed for a debt crisis that has shaken the euro since it began in 2009.
The pensions drew fire in countries which have funded Greece's bailouts, notably Germany.
Last year the head of a business lobby in Germany's ruling CDU party, Kurt Lauk, said pension fraud was "proof of the need to examine every last inch of Greece's finances, before even one cent (in aid) is provided".
Generous pensions are largely a thing of the past. Greece has cut them by an average 25 percent to balance the books of its state-run social security system, outraging the retired and fuelling discontent with the bailout's austerity conditions.
Athens secured the 130-billion-euro bailout last month to avoid bankruptcy and stay in the euro zone, its second rescue by the EU and International Monetary Fund in two years.
"The more authorities crack down on fraud, the more law-abiding recipients will be spared further savage pension cuts," the Labour Ministry official said.
Efforts to shore up the social security system are being hampered, however, by a wave of business closures and a rise in unemployment to a record level of nearly 22 percent.
The main pension fund IKA gobbled up 44 percent of its full-year funds as early as in the first quarter, according to budget data published earlier this month.
Government grants to plug the social security system's deficits rose by an annual 16 percent over the same period to 1.6 billion euros ($2.11 billion).