Two things here:-
A: He may be legitimate,he may well be paying tax,insurance etc, he may not be. Report him and let the DWP sort it out, if he's koshe no problem. The DWP will know better than the neighbour's hearsay what he's claiming, if anything.
B: I'm technically severely disabled,get disability living allowance(which I'm entitled to whether working or not as it isn't means tested), however I can lift a chainsaw(legitimately and legally) and work for my self from home now, and worked for a mental health charity till recently (pay tax,and everything) as that's easier than trying to get a nine to five with a disability as most employers, unless they can see your second head or wheelchair assume you are just blagging them with a disability, or accept you have a disability and won't touch you with a s****y stick.
Having said all that, I shopped somebody recently, who told me he was claiming benefits and working and making a fair bit of money doing it.