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PAC slams BEIS for ‘open goal to fraudsters and embezzlers’

Author: ICAEW Insights

Published: 17 May 2022

The Public Accounts Committee says there was insufficient effort to prevent fraud and error in the distribution of business support grants and loans, adding ‘billions and billions to taxpayer woes’

The Public Accounts Committee (PAC) has published a report on its inquiry into the Department for Business, Energy and Industrial Strategy (BEIS) Annual Report and Accounts 2020/21. 

The report primarily focuses on the department’s response to the COVID-19 pandemic and the qualifications in the audit report on the department’s financial statements, but it also raises concerns about the Post Office’s financial viability arising from the Horizon scandal.

The Comptroller and Auditor General gave a true and fair audit opinion on the BEIS 2020/21 financial statements, but twice qualified his opinion on the regularity of expenditure. Firstly, with respect to the material level of fraud estimated in COVID-19 loan schemes guaranteed by BEIS, and secondly for material levels of fraud and error estimated in business support grants funded by BEIS and issued by local authorities. 

The audit opinion included emphasis of matters highlighting uncertainties in the estimates recorded in the accounts for the provision for nuclear decommissioning, contracts for difference derivatives, business support grant expenditure, and financial guarantee liabilities.

ICAEW’s Public Sector team submitted written evidence to this inquiry (ICAEW REP 16/22) raising concerns that BEIS lacked a robust estimate of the amount spent on COVID-19 business support grants, and that there was a case for allocating greater resources to preventing and recovering amounts lost to fraud. ICAEW also recommended a standard framework to establish clarity on the roles of local authorities and central government departments in reporting grants issued, as well as measures to be used to detect and prevent fraud and error.

The PAC concluded that:

  • the Comptroller and Auditor General qualified his opinion of BEIS’s 2020/21 accounts due to eye-watering levels of estimated fraud and error in COVID-19 business support schemes;
  • BEIS does not have a good enough assessment of the levels of fraud and error in local authority-administered business support grants;
  • BEIS does not know whether grants distributed by local authorities on its behalf have benefited businesses, including those most in need of that funding;
  • BEIS did not make full use of all the tools at its disposal to prevent and detect fraud; and
  • BEIS has not yet set out how it is learning lessons from managing its COVID-19 business support schemes to better protect taxpayers’ money in future.

The PAC has asked BEIS to provide a Treasury Minute setting out how it will make sure that it is doing everything in its power to reduce the current taxpayer exposure to losses through fraud and error and to address the reasons why its accounts were qualified; and clearly explain how it is planning to recover funds it identifies as claimed fraudulently or paid out in error.

The PAC has also asked BEIS to write to it setting out how it will obtain full cooperation from local authorities to allow it to calculate robust fraud and error estimates; explain to the Committee how it is going to obtain greater assurance over the regularity and value for money of grant payments made on its behalf; and (by the end of the year) set out how it is applying lessons learned in its ongoing activities.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, commented on the report by saying, “BEIS says it saw this risk coming but it’s really not clear where government was looking when it set up its initial Covid response. It offered an open goal to fraudsters and embezzlers, and they have cashed in, adding billions and billions to taxpayer woes. These lessons should have been learned from the banking crisis a decade ago; and could have been prepared in the government’s pandemic exercises. These mistakes must be written out of future crisis responses, now, and government would do well to apply the learnings to the mounting, interrelated crises it now faces in climate change, energy supply and the cost of living”.

The PAC also commented on the Post Office’s mismanagement of its Horizon programme, which has had devastating consequences for individuals wrongly accused of fraud, noting how the financial cost of compensating these individuals will largely fall to the public purse. The PAC has asked BEIS to write to the Committee alongside its Treasury Minute response to set out what actions are being taken to ensure Post Office Ltd remains a viable company, and for the PAC to be informed at the earliest opportunity if the department or the government provides assurances to Post Office Ltd over the funding of its liabilities.

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