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Fraud in COVID-19 support schemes could reach billions

Author: ICAEW Insights

Published: 02 Jul 2021

An explosion in fraud and errors in the Government’s COVID-19 support schemes is expected to cost the taxpayer tens of billions of pounds, according to a report published by the Public Accounts Committee.

In its Fraud and Error report, the Public Accounts Committee (PAC) cites figures from BEIS that up to 60% of loans issued through the Bounce Back Loan Scheme may never be repaid due to fraud or credit risks, at a cost of up to £27bn. It said the 100% taxpayer guarantee left the government “reliant on banks that it admits lack incentives given it is not their money on the line”.

At the same time, between April 2020 and March 2021 the cost of Universal Credit fraud and error rose by £3.8bn to an all-time high of £5.5bn. The government already believes that on average it loses more than £26bn a year to fraud and error through the tax and benefits systems, and has admitted to another £25bn it can’t detect.

While local authorities are responsible for delivering several government support schemes, the combination of constrained budgets and services under pressure meant they had a “variable capacity” to handle fraud, the PAC report says. 

The PAC said some early government support schemes failed to implement basic principles of effective fraud control, with the report expressing concern that departments are not required to consult with the Government’s Counter Fraud Function when designing new spending initiatives.

Dame Meg Hillier MP, Chair of the Committee, said a more robust approach to tackling fraud by the government was needed: "If BEIS is worried that 100% taxpayer loan guarantees mean the lending banks don’t have enough skin in the game, departments across government show a worrying, similar lack of urgency,” commented Hillier. 

“The COVID emergency masks a more worrying underlying approach to managing risk and taxpayers’ money,” she continued. “The committee has long been concerned about the impact of departments’ own errors – including overpayments which need to be clawed back - which leads to further hardship for the already vulnerable”.

The Committee says it is essential the government recovers monies paid out in fraud or error, to allow taxpayers’ money to be spent on those that need it most. However, it warns that inconsistency in departments’ approaches to dealing with the consequences of fraud, and error, can make enforcement appear unfair to the public.

Oliver Simms, Manager, Public Sector Audit and Assurance at ICAEW said: “The UK Government had to act swiftly to support the economy at the start of the pandemic, but also had a responsibility to protect taxpayer’s money and minimise fraud. The report makes clear that basic principles of effective fraud control were not applied to some early government support schemes, such as Bounce Back Loans and business support grants paid through local authorities, which has put billions of pounds of taxpayers’ money at risk.”

ICAEW contributed to the Fraud Advisory Panel’s response to the PAC inquiry in which it called for public bodies to be more transparent and accountable for how they tackle fraud and error, as well as improve data sharing in respect of COVID-19 related fraud. 

“We are pleased to see the PAC adopt these recommendations and also urge HM Treasury to strengthen reporting requirements around fraud, including requiring departments to estimate the level of fraud within their COVID-19 support schemes as part of their annual report and accounts. Transparency is essential to ensure the government learns lessons from the pandemic and is better placed to prevent fraud in future crisis responses,” Simms said.

David Clarke, Chair, Fraud Advisory Panel, said it welcomed recommendations by the PAC for improvements in the way government departments record and report fraud: “Transparency is at the heart of good governance and the prevention and detection of fraud. From the outset of the pandemic, the Fraud Advisory Panel urged government to publish information about companies that received financial support backed by the taxpayer to deter opportunistic and organized criminals from abusing the packages. This would allow data matching and build public trust. A year on, only limited data have been made public.”

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