Case Studies

Coronavirus fraud, error in billions

by Mark Rowe

Fraud and error in the Coronavirus Job Retention Scheme (CJRS), begun in March, is likely to run into the billions, warns the National Audit Office (NAO).

HMRC will not know the actual levels until the end of 2021 at the earliest, says the NAO in a report. In September HMRC’s assumption was that fraud and error could range from five to ten per cent on CJRS, which would equate to £2.0 billion to £3.9 billion. Total spending on CJRS and the initial SEISS (Self-Employed Income Support Scheme) is forecast to reach almost £70 billion by the end of October.

Gareth Davies, the head of the NAO, said: “HM Treasury and HMRC [Revenue and Customs] met their objective to rapidly implement the schemes and the civil service should be commended for making these available ahead of schedule. Indications are that the schemes helped to protect jobs in the short-term, but it is also clear that many other people have lost earnings and have not been able to access support.

“It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme. HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme. In future, the Departments should do more while employment support schemes are running to protect employees and counter acts of fraud.”

The auditors set out how Revenue & Customs and HM Treasury could not follow standard processes comprehensively, such as producing business cases, options appraisals and detailed cost-benefit analysis. Bringing on the schemes quickly was a challenge, the auditors add; potentially increased by the lack of pandemic contingency planning or employment support schemes that HMRC and the Treasury could easily adapt.

The CJRS scheme supported 9.6 million jobs and, at its peak in May, around 30pc of the UK workforce was furloughed. The SEISS scheme supported at least 2.6 million self-employed.

The NAO reports a risk that some employers committed furlough fraud by keeping employees working in lockdown, against the rules of the scheme, or by claiming payments and not passing them on to employees in full. HMRC’s fraud hotline has received over 10,000 reports, many referring to cases where employees worked despite their employer claiming for them as furloughed staff. The NAO found that 9pc of people it surveyed admitted to working in lockdown at the request of their employer, and against the rules.

HMRC concluded it would tackle fraud through whistle-blowing and retrospective compliance work. However, employees would not have known if their employer was part of the furlough scheme unless their employer had informed them. HMRC intends to publish the names of employers claiming the new JSS scheme and to notify employees through their personal tax accounts when an employer has claimed JSS. The NAO says that HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme.

For the full 68-page report visit the NAO website.

Earlier this month the NAO published a similar report on the Bounce Back Loan Scheme.

Comment

Gus Tomlinson, General Manager of Identity Fraud, Europe at counter-fraud and compliance software firm GBG, said: “The furlough scheme has provided a lifeline for 1.2 million employers, which has been vital for people across the UK. But, even with these unprecedented circumstances, the fact that 10pc of furlough money was wrongly awarded shines a light on the need for more vigilant fraud checks across the board.

“To reduce the likelihood of this occurring again in the future, today’s innovative technology can help. For example, data orchestration supports more accurate decision making through improved context and access to richer sets of data. By embracing the connection of datasets in this way, in real time fraud prevention teams can benefit from smarter answers and insights in order to verify who is a legitimate employer and who’s a fraudster with an intent to deceive.

“Adding steps of authentication during application processes is also key. This ‘friendly friction’ is vital not only to put off scammers, but also to ensure the quick, smooth-running of operations for verified employers applying for government schemes.

“Ultimately, the rise of furlough fraud during this pandemic highlights the opportunity for the private sector and the government to work closer together to stop fraudsters. Underpinning this is the importance of improving digital identity in the UK. For example, if the government were able to quickly match applications to the furlough fraud scheme by cross checking with wider records, such as tax or universal credit schemes, then we would be better set up to significantly reduce fraud.”

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