Transport Scotland, the agency administering the national scheme which offers free bus travel to over-60s and disabled passengers, has identified annual savings of £24m through cutting out fraud, red tape and inaccurate payments as a result of introducing smartcard ticket readers last year.

The move came as the public spending watchdog warned that internal audits by Transport Scotland showed a “major risk” of money being claimed fraudulently or in error.

The scheme was introduced in 2006 and was criticised at the outset for not being fully costed. Financial projections from local and central governments last year indicated that it would become unaffordable during this parliament as budget cuts bite.

Smartcard ticket readers, which allow more accurate data to be recorded about passenger journeys, went live in April 2010 -- four years later than intended -- and cost £33m more than the original budget of £9m.

It is understood that millions of pounds were also wasted in the implementation of the new technology, although the readers have allowed the agency to avoid predictions that the cost of the scheme was set to soar to above £200m, instead capping the budget at £180m this year.

Michael Leach, chief executive of technology firm Itso which provided the software system for the smartcard readers, said the investment in the technology had been justified by the savings made in the annual cost of concessionary travel since they went live. He said: “The reduction, based on the latest figures I’ve seen, is £24m below where the forecast expenditure would have been if smartcards were not being used.

“People who have looked at these figures say it’s astonishing that they are as high. But we’re seeing pretty similar numbers in other parts of the country which have implemented similar fraud management plans.”

Mr Leach said losses had been incurred as a result of fraudulent activity by bus companies, some of which are thought to have deliberately submitted misleading claims, and passengers using stolen or borrowed travel cards.

Other overpayments have been made as a result of relying on inaccurate data. The cost of administering the scheme has also dropped since smartcards were introduced, he said.

The Herald reported in May that less than £20,000 had been recovered in suspected fraudulent payments last year, down from £2.2m recovered four years earlier.

MSP Willie Coffey, who serves on the Audit Committee, which examined the free bus scheme, said: “One of the big questions that remains unanswered is that we were told that the ticketing system would cost £9m and ultimately it cost us £42m. There don’t seem to be any documents to support the initial figure.

“It also has to be the bus company’s responsibility to make sure people are given accurate tickets. I had a woman come in last week who was only going to the outskirts of Kilmarnock but the ticket was marked for another town completely. I have seen dozens of cases like this.”

Labour’s transport spokesman Lewis Macdonald said: “The free bus pass was one of Labour’s best achievements for pensioners but this is alarming news. I will be writing to the Transport Minister to demand answers to what went wrong.”

A spokeswoman for Transport Scotland confirmed that £24m savings had been made in the 2010/11 as a result of smartcard technology

Estimates of the annual savings that could have been made over the first four years plus the extra costs of implementation have resulted in the total additional bill of around £100m.

The spokeswoman said: “Since taking responsibility for the scheme in 2006, Transport Scotland has continually driven efficiencies through technology and by developing staff capabilities.

“This focus ... plus the deterrent factor smart ticketing brings has led to annual savings of more than £20m.”

A spokesman for the Confederation of Passenger Transport (CPT), which represents bus and coach companies, said: “CPT welcomes the efficiencies and improvements Transport Scotland has brought to their concessions team and the many benefits associated with the introduction of smartcard ticketing equipment.”