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ICAEW: “insufficient” fraud prevention for COVID-19 grants

Author: ICAEW Insights

Published: 29 Apr 2022

ICAEW calls for the government to learn from COVID-19 business support grants by investing in BEIS’s counter-fraud capability and addressing the assurance gap in grants distributed through local authorities.

The House of Commons’ Public Accounts Committee has recently published evidence provided by ICAEW to support its inquiry into the Department for Business, Energy and Industrial Strategy’s (BEIS) annual report and accounts 2020/21. The evidence focuses on the COVID-19 business support grant schemes and the important lessons for the government to learn for future use of local authorities as a partner to deliver priorities.

ICAEW highlights how eight months after the year end, BEIS still lacked a robust estimate of how much of the £21.8bn of funding provided to local authorities had been distributed to businesses. The Comptroller and Auditor General included an emphasis of matter within the audit certificate because he considered the uncertainty fundamental to a user’s understanding of the accounts.

In addition, ICAEW warned the estimate of £1.038bn of fraud and error could be a significant under-estimate. The estimate is based on a very small sample size of 0.05% of payments, does not include “more complex fraud”, and does not cover fraud in four grant schemes with a total value of £7.2bn. ICAEW calculates that if those schemes were included and non-complex fraud was at a similar level to the other three schemes, fraud in those schemes could total between £318m and £968m.

Without an accurate estimate of the level of fraud, BEIS lacks the information it requires to make decisions about the level of resources needed for fraud recovery. ICAEW believes that BEIS’ reliance on local authorities is “insufficient” without better assurance to be accountable to Parliament for the spending. The evidence calls for BEIS to consider establishing a specific counter-fraud team to measure and recover fraud from the COVID-19 grant schemes, as well as to invest in strengthening its counter-fraud capacity more broadly.

Oliver Simms, Manager, Public Sector Audit & Assurance for ICAEW, commented: “The government priority at the start of the pandemic was to distribute money to businesses in need of support as quickly as possible and this came at an understandable trade off against pre-payment fraud controls. However, it is disappointing that the BEIS annual report and accounts 2020/21 indicates that essential post-payment procedures to detect and recover fraud were still not in place over 20 months after the start of these schemes.

The evidence also flags several further flaws in BEIS’s assumption that it can rely on the fraud prevention capability of local authorities. For example, BEIS did not provide additional resources to local authorities to administer these grant schemes, while BEIS’s commitment to stand behind payments created little incentive for stretched local authority finance teams to invest in detecting and recovering fraud.

ICAEW believes that the high levels of fraud and the variable quality and timeliness of information provided to BEIS supports ICAEW’s position that there is a need for greater investment in local authority finance teams. It is vital that, if government is to successfully partner with local authorities to deliver on its priorities, there is sufficient financial capacity to minimise fraud and produce accurate and timely financial reports.

ICAEW has also called for the government to establish a standard framework for grants delivered through local authorities, to address the assurance gap that these COVID-19 support schemes have exposed. At least £16.5bn of the grants distributed to businesses do not appear to have been subject to any external assurance. Four of the schemes were outside the scope of local authority audit opinions because the local authorities were acting as agents of BEIS, while the National Audit Office (NAO) did not seek to audit payments made by local authorities.

ICAEW believes that this standard framework should include a requirement for recipient local authorities to appoint an independent accountant to carry out agreed procedures on grant returns and for the government to examine a statistically representative sample. This would increase the incentives for local authorities to tackle fraud, as well as clarify responsibilities and enable the government to report more accurate estimates of the levels of fraud.

Simms added: “The government needs to learn from its experiences in delivering financial support during the pandemic by strengthening fraud prevention and detection expertise in central government, adequately resourcing local authority finance teams, and ensuring there is sufficient external assurance of how taxpayers’ money is being disbursed. Otherwise, the achievement of government priorities such as levelling up or net zero carbon could be at risk.”

Read the whole of ICAEW’s submission to the Public Accounts Committee inquiry.