Accountants must be wary of COVID-support fraud
12 November 2020: Following claims of fraudulent activity around government support schemes, chartered accountants should turn to their code of ethics to assess and manage their potential exposure to ethical and reputational risk.
Reputations will be at stake if experts’ warnings of a heightened scale of fraud surrounding coronavirus government support packages materialise.
The NAO investigation into the Bounce Back Loan Scheme (BBLS) referenced a report on the potential for fraudulent applications arising from self-certification, multiple applications, lack of legitimate business, impersonation, and organised crime. The British Business Bank, which is responsible for accrediting lenders that offer BBLS, had already highlighted the risk of fraud and put additional measures in the scheme to mitigate this. However, the risk has not been eliminated and accountants must remain vigilant.
There are many ways in which fraud may arise. One is where a false claim or certification is made that a business meets BBLS or Coronavirus Business Interruption Loan Scheme (CBILS) or Coronavirus Large Business Interruption Loan Scheme (CLBILS) eligibility criteria. Another is a false claim or certification that an investor meets Future Fund eligibility criteria.
A further example of fraud is where a business does not act to repay monies that are overclaimed.
Fraud may also arise where a business makes non-permissible use of proceeds as there are restrictions on how monies received may be used. The restrictions - and the information that a lender will require to understand the purpose of the loan – are specific to each scheme. They should be checked in the respective details for businesses and lenders and, in the case of Future Fund, for investors.
British Business Bank information
BBLS: information for businesses and advisers and accredited lenders
CBILS: information for SMEs and advisers and accredited lenders
Future Fund: information for investors, companies, and advice for investors and companies applying to the Future Fund.
How does an accountant’s exposure to risk arise?
An accountant’s exposure to risk could arise in several ways. As a member in business, including when leading or running a business, through personal involvement in business applications for support, and/or when supporting eligibility confirmations, and/or making or approving the use of the proceeds.
Alternatively, it could arise as a potential investor in a company applying for the Future Fund.
Risk could also arise when acting as a trusted business adviser, external accountant or auditor, when receiving knowledge of – or helping to create – a client (business or investor) application, or the client’s use of the proceeds. To provide clarity on the role an accountant may take relating to applications for support through government schemes, members are advised to have the scope of any such work set out in writing, ideally through an engagement letter. Members should note, however, that their ethical obligations may exceed contractual terms if they develop suspicions of wrongdoing.
Exposure to risk can arise through inadvertent, as well as intentional, actions. To avoid inadvertent exposure, if it becomes clear to an accountant (whether in the business or as an adviser) that application criteria have not been met, even though it looked like they would be met at the time an application was made, those errors must be corrected and monies repaid. To fail to do so could be treated as fraud.
What should an accountant do if they suspect COVID-support fraud?
- As a starting point, you should be mindful of your ethical obligations under the Code of Ethics. Keep in mind that you must always act with objectivity and integrity, which includes not being associated with misleading information.
- Pause and reflect: if your concerns relate to your own business, then review what you think has happened, and make sure you do not become complicit in fraudulent activity. If your concerns relate to a client, make sure that you do not aid the client in any wrongdoing. If the situation is particularly serious, you may want to consider cutting ties with them.
- Assess the severity: it might be that your organisation or the client is misinterpreting the rules. If it appears there is an unintentional error, encourage those responsible to correct the position without delay. Take action: own up to and repay monies received or advise the client to do so.
- Is there an anti-money laundering element? If you suspect a client of fraudulent or criminal conduct and there are proceeds of that crime, you may need to make a Suspicious Activity Report. This guide explains what you should do if you suspect a client of money laundering.
Other government support schemes
In What to do if you suspect your client of furlough fraud we highlighted warnings of fraud surrounding government schemes to protect and support jobs and income (CJRS, SEISS) and outlined a member’s ethical responsibilities.
HMRC requires those who have received a SEISS grant confirm with HMRC whether or not they have stopped trading. See deadlines at HMRC scheme for repaying amounts overclaimed.
COVID-19 fraud: be on the lookout and act fast
Accountants fight boom in post-pandemic fraud
HMRC begins SEISS post-claim compliance activity
Guide for auditors on reporting on irregularities, including fraud
ICAEW Ethics Advisory Service: live web chat service
CABA – the charity that supports the wellbeing of the chartered accountant community