Out-Law News 2 min. read
06 Jul 2021, 12:48 pm
The UK’s House of Commons Public Accounts Committee has estimated that fraud and error related to Covid-19 support schemes could cost UK taxpayers billions of pounds.
In a new report focusing on fraud and error relating to government support schemes, the committee said undetected fraud and error resulted in losses to the public purse of around £25 billion a year. This amount could be doubled through fraud relating to Covid support, with evidence from the Cabinet Office suggesting that fraudulent claims for Universal Credit, furlough and the Bounce Back Loan Scheme could add up to losses of more than £30bn.
These included potential losses of between £16bn and £27bn through fraud and credit risks on loans issued through the Bounce Back Loan Scheme; fraud and error relating to Universal Credit of £5.5bn between April 2020 and March 2021; and up to £3.5bn of furlough payments made fraudulently or paid in error by 16 August 2020.
Financial crime expert Hinesh Shah of Pinsent Masons, the law firm behind Out-Law, said the report demonstrated the significance of internal fraud controls, and the importance of conducting due diligence on new customers and third parties.
“The report acknowledges that the Cabinet Office and HM Treasury’s mechanisms for managing fraud are still in their infancy, and there needs to be greater collaboration and consultation with the government’s Counter Fraud Function. New, and existing, government schemes need to undergo a thorough fraud review process to mitigate the risk of them being manipulated by fraudsters at the taxpayer’s expense,” Shah said.
The Public Accounts Committee recommended that HM Treasury and the Cabinet Office should take a number of steps to ensure that government departments were implementing a zero-tolerance approach to fraud and error in the wake of the pandemic. It said the Treasury should, within three months, strengthen current reporting requirements and ensure that all departments measure and report on the risks of fraud and error within each of their Covid-19 support schemes.
Specifically, HM Revenue & Customs (HMRC) and the Department for Business, Energy & Industrial Strategy (BEIS), must write to the committee setting out how they will measure fraud and error in their Covid-19 schemes and build prompt measuring of fraud and error into future schemes from the outset. Along with the Department for Work & Pensions, HMRC and BEIS should also outline how they will identify and address inconsistencies of sanctions for frauds that are similar in nature.
The report follows the release under the Freedom of Information (FOI) Act by HMRC of data showing that it had opened 12,828 investigations by the end of March 2021 into fraud and error relating to the Coronavirus Job Retention Scheme (CJRS), Self-Employment Income Support Scheme (SEISS) and Eat Out to Help Out Scheme (EOHO).
The tax authority was investigating over 7,000 cases of potential fraud and error relating to the CJRS and more than 5,000 relating to the SEISS, along with over 400 cases relating to EOHO. There had been five arrests relating to the CJRS, and three relating to EOHO, but no prosecutions to date.
Tax expert Andrew Sackey of Pinsent Masons said the number of cases being taken forward were an early indication of the success of the recently created Taxpayer Protection Taskforce provided for by funding in Budget 2021, which supported the recruitment of nearly 1,300 HMRC staff specifically to combat fraud within Covid-19 support packages, plus further investment in resources and technology to target non-compliance.
Sackey said that although the majority of these cases would be civil interventions HMRC’s selective prosecution policy allowed them to focus on professionals and others in positions of trust who enabled tax fraud, and the department historically reserved criminal investigation for cases where it wanted to send a strong deterrent message as was likely in the more egregious cases of Covid-19 relief scheme abuses.
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