For fraud to occur, there has to be the means, motive and opportunity. It seems furlough has provided all of this. "It's been handed on a silver platter to everyone. Even some people who you would have thought are upright citizens have been seduced by the fact they were able to access relatively unrestricted and consequence-free money," says Craig Tully, partner at tax investigation specialists, Gilbert Tax Consultants.
It wasn't that the scheme was badly thought out or inherently flawed – far from it. In just a matter of weeks, HMRC pulled off an impressive feat in response to the Treasury's instructions: develop a complex package of financial support measures at a time when thousands of businesses need it most.
However, as the National Audit Office outlined in its October review, the scheme lacks controls, checks and balances, which left the system open to abuse. As Tully points out, this could cost the state billions in money lost to fraud. It has also introduced some people to criminal behaviour they would never otherwise have considered.
Tully, also a partner at Integra Advisers, may have a somewhat skewed view of human behaviour. The nature of his role means he deals with three categories of clients on a daily basis: those who have been caught committing fraud by HMRC and need mitigation; those who have committed wrongdoing and want to make a voluntary disclosure; and those who have been accused of wrongdoing and need a defence.
Greed or need
Some people have become emboldened because of slack compliance, a lack of real consequence and because HMRC is a faceless organisation to many.
In Tully's view, it is usually 'greed or need' that drives people to commit fraud. Some people always want more than they have and when such individuals are in a financial crisis, they can justify the wrongdoing.
These individuals do not necessarily view themselves as criminals but rationalise their actions before they commit wrongdoing. "People may say to themselves, 'I'm underpaid, so I deserve more money’ or, 'they're overpaid, so I deserve to get as much as they do.'".
Interestingly, this line of thinking seems more prevalent in the UK, where businesses are more financially stressed than some of their European counterparts. In Scandinavia, for example, people – and businesses – seem to know when they have 'enough'.
There was an overwhelming demand in the UK for Bounce Back Loans: over £2bn was lent on the scheme's first day alone. "You have to ask yourself, how many people have bought premium bonds since Bounce Back Loans became available?" asks Tully.
Tully cites the sports car dealer local to his office to demonstrate how some people chose to spend their bounce back loans. "Three weeks after Bounce Back Loans were introduced, the dealership just emptied," Tully recalls. "I thought they'd closed down, but the owner told me that every single car under £50,000 had been sold."
Not enough focus on overall fraud prevention
The lack of consequences for wrongdoing is another factor in encouraging fraudulent behaviour. Certain furlough fraud cases may hit the headlines, but Tully insists that's where it ends. "The overwhelming majority of people are not investigated. There are no prosecutions. Some people may get penalties and a slap on the wrist, but that's it."
This is a particular concern for specialists like Tully, who used to work at HMRC and knows first-hand the efforts Revenue officers go to in order to prevent fraud. But there isn't enough focus on fraud prevention overall.
"No one walks down the street fearing embezzlement, so pressure isn’t on the police to allocate resources," he says. "And prevention doesn't make for good headlines. It sounds better to say, 'we've carried out this many investigations' rather than 'we've prevented this many fraud cases'."
NHS the best driver of voluntary disclosures
So with no clear consequences to fraud, personal guilt drives the end of many cases. According to Tully, one in ten voluntary disclosures are made following the serious illness of a child. In these cases, the child will have been treated by the NHS. This is a very emotive experience.
"The NHS is the point at which the state ceases to be faceless," says Tully. "The state has arranged for people to look after you and your family physically. This is why the NHS is a better driver at encouraging voluntary disclosures than anything else. People realise that without the NHS and other public services, their child would have died. Then they'll decide to make a voluntary disclosure."
For accountants who suspect – or who may have explicit knowledge – that their client has committed fraud, Tully is firm: "If there are reasonable grounds to suspect fraud, you are legally obliged to report it in a Suspicious Activity Report without tipping the client off. That's all there is to it."
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