Are you quite sure you're not inadvertently claiming furlough monies? Would you even know? Do you have the due diligence procedures in place to check? This issue is back in the news after more than £760m of furlough money was returned to the government by close to 4,000 UK companies. That’s according to figures released by a national accountancy group and reported by CityAm. The message it carries is that HMRC is stepping up its efforts to crack down on fraud and ‘avoidable mistakes’. More on that point shortly.
The firm behind the data is chartered accountants UHY Hacker Young and they explain why so much is being repaid. It stems from the fact that there has never been a legal requirement for a business to demonstrate that they have been financially impacted by Covid-19 in order to claim furlough grants. That has resulted in many businesses claiming furlough money as a precaution in case they were to run into financial difficulties. Many of them now realise they are okay, don’t need the money after all, so are ‘doing the right thing’ by repaying it. Neela Chauhan, partner at the firm, warns that employers should expect to see HMRC’s fraud taskforce taking an increasingly tougher approach to tackling abuse of its schemes. She describes how the Revenue has so far taken a ‘softly softly’ approach, issuing nudge letters to any firms it suspects may have claimed furlough money incorrectly, encouraging them to hand back money voluntarily if necessary. She says the next stage of its investigations will be much more aggressive.
We agree, and it’s a point we were making after the Budget in early March when the Chancellor, Rishi Sunak first announced the government’s new Taxpayer Protection Taskforce to combat fraud within Covid-19 support packages, including furlough – it’s one of the largest responses to a fraud risk by HMRC we have ever seen. Under the Furlough Scheme employers have been able to claim up to 80% of employees' salaries up to a limit of £2,500 per employee. Crucially, employers can only claim where employees have not worked or provided a 'service to' their employer whilst furloughed. However, increasingly employers are discovering that, despite having instructed employees not to work during furlough periods some have ignored that instruction. It means well-meaning staff have created a serious corporate compliance issue for their employer which could result in financial penalties and reputational damage. So, what can employers do about it? That’s a question I put to Anne Sammon in a programme we put out shortly after the Budget called ‘Furlough overclaiming? Check and repay’. The points Anne made in the interview with me back in March still hold true today. This is what she said:
Anne Sammon: “I think the first thing is to establish whether or not your employees were working during the furlough periods. We've seen a number of instances where employers have done all the right things at the. time of putting employees on furlough, so very clearly communicating that employee shouldn't be doing any work, and employees disregarding that. That's sometimes for well-intentioned reasons because they want to try and improve their employer's economic prospects and therefore they've disregarded the instruction not to work, but the first thing that you need to do as an employer is establish whether you've got any employees who might have been working during furlough because that will affect the any claims that you've made to government for the Coronavirus Job Retention Scheme grant. So that's step one. Step two is if you if you identify that you've got any employees in that bucket, you probably want to go and take some advice in terms of what amounts you need to be repaying to HMRC."
Joe Glavina: "The rules talk about providing 'a service' – that's working – but how do you judge what counts as work? You'll have staff sitting at home but responding to emails, joining Zoom calls and so on. That'll be a mixed bag in many cases?
Anne Sammon: "So the way that we've seen many organisations do this is to kind of effectively do email searches. So to run searches over the mailboxes of those employees who were furloughed to look at, first of all, the volume of emails that are being sent. It's not unusual for employees to use their work emails for personal reasons and you might expect, you know, one or two emails that are kind of connected to 'staying in touch' with the workplace, which is allowed under the furlough scheme. I think what tends to trigger a greater sense of need to investigate more thoroughly is where you see larger volumes of emails being sent by people who weren't supposed to be working. In that situation you're then looking at analysing to see what's the content of those emails. So again, I can think of a couple of examples where we've seen people getting multiple emails from online shopping services, they're clearly not connected with work, and once you start doing your due diligence you can identify those. But equally we've seen other issues where employees have been emailing one another about work-type queries and that those the ones that trip you into the need to investigate a bit more seriously and work out whether or not the employees have been working. I think the other thing that's important here is a lot of the cases that we've seen have been triggered by whistleblowing. So an employee coming forward and saying, I know I wasn't supposed to work during that period but, actually, my manager asked me to do some things and because it was my manager I did it and I'm now reflecting that maybe that wasn't the right thing for me to have done. So that whistleblowing piece is really important and making sure that the employees have a channel to blow the whistle in that situation, and also that those concerns are properly escalated and investigated."
Joe Glavina: "Last question Anne. In your paper you talk about 'forensic review tools' to help gain better insight on potential exposure. What's that about?
Anne Sammon: "So one of the capabilities that we have Pinsent Masons is that we have a forensic accounting team who are real specialists in this area who can take the data that an employer has and analyse that data to work out whether or not there are things in there, from a furlough perspective, that are of concern. So whether we've got employees who are sending large numbers of emails to a particular person, or whether the subject heading is something that looks like it's related to work. So we can help with that analysis of whether there is a big problem here or is this actually an innocent explanation? Even doing the due diligence and making sure that there's an innocent explanation, at least gives you a paper trail if HMRC ever come and raise a concern about something that you've claimed on the furlough scheme that you have actually considered, and investigated, and that you've reached your own conclusion. think the worst case scenario is if HMRC comes to you and says, you know, we've had an independent whistleblower who has contacted us through our whistleblowing hotline and said that that you have overclaimed through the furlough scheme and an employer who says, 'oh, you know, we haven't ever checked that ' that's going to be a red flag immediately.”
That paper which I referred to in that interview with Anne was co-written with tax and fraud-litigation specialist Andrew Sackey. It is called 'Furlough overclaims and essential next steps for employers' and we have put a link to it in the transcript of this programme.
- Link to guidance by Anne Sammon and Andrew Sackey on furlough overclaiming