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What to do if you suspect your client of furlough fraud

26 June 2020: Government schemes to ease the financial impact of the Coronavirus pandemic have been a lifeline for businesses. But with measures rushed in so quickly, some will inevitably take advantage.

Not unexpectedly, most accountants have seen a big spike in work when it comes to processing grant applications for furloughed staff. The Coronavirus Job Retention Scheme (CJRS) has proved to be a lifeline for hard-pressed businesses. The Self-Employed Income Support Scheme (SEISS) has done the same for sole traders. The way that HMRC has implemented the scheme, with a quick application process and a light-touch approach, has also been welcomed.

However, it also opens up accountants inadvertently to some ethical risks. Things have been moving so quickly and there has been a need to process claims in a timely manner, with constant updates on the new measures. Clients are in trouble, and their accountants will be driven to help them. With so much focus on day-to-day survival, there are a number of ethical dilemmas that can arise.

“CJRS and SEISS were designed by the government to help people in dire need,” says Sophie Wales, ICAEW’s Head of Ethics and Economic Crime. “But because the government has designed these measures quickly, it’s not been possible to include comprehensive checks to prevent all fraud.”

Reports of fraudulent activity around COVID-19 schemes have increased, according to the National Crime Agency (NCA). The Bounce Back Loans Scheme (BBLS) and the SEISS in particular have seen a large increase in Suspicious Activity Reports (SARs).

If you suspect a client might not be following the rules, you should consider three areas under the ICAEW Code of Ethics.

Integrity

The principle of integrity requires that accountants are honest and straightforward in all professional and business relationships, which implies fair dealing and truthfulness. In the context of fraudulent furlough claims or other unethical activity, this means you have an obligation to not be associated with misleading information. If a client is seeking to make claims based on falsified or incorrect information, you have an obligation to tell the client this does not comply with the rules, and that you won’t work with them on that basis.

Professional competence and due care

Members are required to maintain professional knowledge and skill at a level that ensures clients receive a competent professional service. With so many rapid changes to COVID-19 schemes, you must make sure you’re up to speed before advising people on potentially knotty questions.

Objectivity

If you’ve been working with clients a long time, it can be very difficult to watch them struggle. Your drive will be to help them, but even in such difficult times it’s important not to lose sight of the fact that as a Chartered Accountant, you should not compromise your professional judgement through bias, conflict of interest or the undue influence of others. Make sure you’re thinking clearly and that your relationship with your clients isn’t interfering with your decision making.

What you should do if you suspect a client of fraud

  1. Pause and reflect: make sure that you do not aid that client in any wrongdoing. If it’s particularly serious, you make want to consider cutting ties with them.
  2. Assess the severity: it might be that the client is misinterpreting the rules. Or it might be that they are deliberately making furloughed staff work. The professional conduct in relation to taxation helpsheet on errors may help guide you through.
  3. Is there an Anti-Money Laundering element? If you suspect the client of fraudulent or criminal conduct and there are proceeds of that crime, you may need to make a SAR. This guide explains what you should do if you suspect a client of money laundering.

The grey areas

The moral aspects of accessing government support schemes are a greyer area. If your clients seek to claim support that they’re legally entitled to, but don’t need, it’s outside of your core professional responsibilities to make a judgement on whether the claim should be pursued. However, you may wish to have a conversation with your client about reputational risk. Wales mentions the uproar from the press and public over aggressive – but legal – tax avoidance schemes as an example of what could be to come. “How would they feel about being in the press? It is not the members’ role to make a value judgment, but there may be merit in warning clients of the reckoning they may face. There will potentially be a lot of scrutiny that could follow the pandemic. For example, Big businesses who claim what they don’t need are likely to be heavily criticised in the press.”

Useful resources

In addition to a helpsheet on SARs and the Code of Ethics, ICAEW’s Tax Faculty has created two guidance pages to help members determine what fits within the rules of CJRS and SEISS. You can view the CJRS one here. The SEISS guide can be found here.

You may also discuss your specific situation confidentially with the Ethics Advisory Service through our live web chat service or e-mail ethics@icaew.com.