There would be no contact between Dept of Social Protection and a landlord in a situation such as you've described.
A letter from a co-tenant may not be sufficient for the person as proof of address - per DSP website, the following may be accepted as evidence:
Household utility bill,
Official letter/document,
Financial statement,
Property lease or tenancy agreement,
Verified employers letter.
All documents must show the applicant's name and address.
Is there a clause in your friend's tenancy agreement regarding sub-letting? It could be argued that that's what he's proposing by accepting money from someone who isn't named on the tenancy.