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COVID-19 scheme fraud recoveries hindered by assurance delays

Author: ICAEW Insights

Published: 14 Nov 2022

The National Audit Office says assurance delays in COVID-19 grants have led to only 0.4% of estimated fraudulent or erroneous payments being recovered.

In his report on the Department for Business, Energy and Industrial Strategy (BEIS) annual report and accounts 2021/22, Gareth Davies, the Comptroller and Auditor General (C&AG) and head of the National Audit Office, says the department has not completed its assurance checks over COVID-19 grant schemes to its planned timetable, adversely affecting the prospects for recovering fraudulent or erroneous payments.

The grant schemes were introduced by the government to support businesses impacted by restrictions introduced to contain the spread of COVID-19. BEIS set the eligibility requirements and funded the schemes, but local authorities were responsible for the administration and distribution of the grant payments in their area.

As ICAEW raised in its submission to the House of Commons Public Accounts Committee (PAC) inquiry on the BEIS 2020/21 annual report and accounts, the grant schemes involved significant additional activity for some local authorities.

The estimated level of fraud and error reported in the prior year financial statements (for 2020/21) was £1.038bn or 8.9% of the total disbursed for the first three business support grant schemes. This was based on an assurance exercise conducted by BEIS that sampled 476 payments, or 0.05% of the total. The ICAEW submission to PAC described this sample size as “clearly insufficient”.

Sir David Green CB KC, Chair of the Fraud Advisory Panel, says: “The importance of timely assurance of COVID-19 grants cannot be overestimated, particularly during a period of growing pressure on the public purse. The delay that has been identified could hamper recovery efforts and may result in fewer monies being eventually recovered than would otherwise have been possible through more timely action.”

During 2021/22, BEIS increased its sample size to 4,476 grant payments within these three schemes, leading to a revised estimate of £985m or 8.4% of the total cost. In addition, assurance work on £5.349bn of Local Restriction Support Grants (recorded in the 2020/21 accounts) and £4.023bn of further grant scheme expenditure (disbursed in 2021/22) identified an estimated £57m of fraud and error, bringing the total estimated losses to £1.042bn. These later grant schemes show significantly lower rates of fraud and error, highlighting improvements in controls over the course of the pandemic.

However, assurance work remains incomplete despite the department’s intentions to complete their work by spring 2022. The C&AG’s report states: “This delay has slowed the progress it has been able to make in supporting local authorities in identifying and recovering irregular grant payments.”

By 31 March 2022, the government had recovered just £4.2m of irregular payments in the various business support grant schemes – 0.4% of the estimated fraudulent or erroneous grant payments.

Recovery activity has so far focused on irregular payments uncovered in the assurance exercise or flagged to BEIS by local authorities. “The department is yet to apply its findings to the rest of the population of payments to help local authorities identify those non-sample-tested payments with a higher risk of being irregular,” the report states.

Similar to comments made by ICAEW in its submission to PAC, the report concludes that “the longer the department takes to start the recovery process, the lower the likelihood of successful recovery and potentially the greater the losses to the public purse”.

Oliver Simms, Manager, Public Sector Audit and Assurance at ICAEW, says: “It is disappointing that only 0.4% of the more than £1bn  estimated to have been lost to fraud and error in the COVID-19 grant schemes has been recovered. Our submission to the Public Accounts Committee highlighted how greater investment in fraud prevention and detection would provide better information on where to target recovery efforts and would likely result in a significant return on investment for the taxpayer.”

The BEIS annual report also contains details of how the National Investigation Service (NATIS), working on behalf of BEIS, had recovered just £3.8 million or 0.34% of the original estimated losses due to fraud and error in Bounce Back Loan Schemes (BBLS). Out of this sum, £2.6m has been returned to banks and partners and £1.2m has been returned to HM Treasury.

The BEIS financial statements report consolidated operating expenditure of £133bn in 2021/12, together with assets of £29bn and liabilities of £303bn as at 31 March 2022. Liabilities include £238bn in nuclear decommissioning provisions and £14bn for losses on BBLS guarantees.

BEIS Annual report and accounts 2021-22

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