British companies may have fraudulently claimed up to £4 billion intended for furloughed workers – with £2 billion being taken by organised criminals – a damning report has found.
The National Audit Office (NAO) estimated that fraud and error on the furlough scheme could have ranged from five to 10 per cent on claims totalling £39.3 billion. Fraud on the first round of the self-employed scheme could have ranged from 1-2 per cent.
Of these, it is ‘almost certain’ that more than half – around £2billion – has been paid to organised criminals posing as legitimate businesses to make claims under the emergency scheme, tax officials have told the NAO.
A fifth of the money wrongly paid out is blamed on error, either by employers or HMRC.
British companies may have fraudulently claimed up to £4 billion intended for furloughed workers – with £2 billion being taken by organised criminals – a damning report has found
The spending watchdog had praised the government for rolling out support schemes for employees and the self-employed ahead of schedule when COVID-19 forced much of the economy to close down in March.
But the NAO said that under huge pressure to set up the scheme it did not have time to fully test the schemes and as a result the total scale of fraud and error was likely to be considerable.
It is worth mentioning that HM Revenue and Customs’ IT team usually needs 18 months to deliver major projects, but the furlough scheme was up and running in four weeks.
It will not know the numbers until the end of next year at the earliest.
Around 9.6 million people were put on furlough through the Coronavirus Jobs Retention Scheme, while another 2.6 million were helped through the Self-Employment Income Support Scheme.
The National Audit Office had praised Rishi Sunak’s Treasury for rolling out support schemes for employees and the self-employed ahead of schedule when COVID-19 forced much of the economy to close down in March
But the NAO said that under huge pressure to set up the scheme it did not have time to fully test the schemes and as a result the total scale of fraud and error was likely to be considerable
Companies could have bent the rules by keeping staff working in lockdown or claiming payments and not passing them on to employees in full.
It said a fraud hotline had received 10,000 reports and an NAO survey found 9 per cent of respondents admitted working at the request of their employer.
But since the line was set up in August, officials have only blocked £10 million worth of claims.
For a future Job Support Scheme, the government will publish the names of those employers making claims and notify employees through their tax accounts.
‘It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme,’ said Gareth Davies, the head of the NAO.
‘HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme.’
It also noted that 2.9 million people were not eligible for the schemes.
Now HMRC faces the challenge of how to chase possible fraudulent claims, or payments made in error.
The department believes it would take 500 staff members to track down £275 million from 10,000 of the most high-risk furlough grants.
This is a high rate of return, but the department would have to take those workers away from its tax compliance team – which has an even higher return rate.
It takes 18 months to recruit and train new staff to perform the jobs, HMRC says, so that option is off the table. But this month the department decided to take on private contractors to do some of the work.
Initially, HMRC considered publishing the names of all employers that had claimed furlough, but it later decided against this, saying it could have deterred too many legitimate claimants.
Another £36.1billion was borrowed in September – the third-highest month on record and compared to just £7billion a year ago – as tax revenues slumped and the Treasury poured out bailout money
Getting in touch with staff individually to say that their employer was claiming furlough cash to cover their salary, which might have alerted employees that their workplace was making fraudulent claims, was ruled out as too time-consuming.
It means that staff did not know if their employer was claiming money to cover their salary, unless the employer told them directly.
But HMRC has no qualms against such measures in the Jobs Support Scheme, which is due to come into force next month when furlough ends.
It will publish the names of employers who claim under the JSS, and will notify employees that their workplace has claimed support money to cover their salary.
A Government spokesperson said: ‘The Government’s priority from the start of the outbreak has been on protecting jobs and getting support to those who need it as quickly as possible, and our employment support schemes have provided a lifeline to millions of hardworking families across the UK. We make no apology for the speed at which they were delivered.
‘Our schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against perpetrators, including criminal prosecution.’