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Government fails to inject urgency into counter fraud action

Author: ICAEW Insights

Published: 15 Sep 2022

Responsibility of lenders and local authorities to combat the high levels of public money lost to fraudsters and recover COVID-19 grants obtained fraudulently, BEIS says.

The government has delivered its response to Public Accounts Committee (PAC) criticism of its handling of COVID-19 business support due to high levels of fraud, a failure to recover monies, and qualifying the business department’s accounts.

The Department for Business, Energy and Industrial Strategy (BEIS) said it planned to publish the first estimates from the findings of its grants assurance work in its 2022/23 accounts. 

The business department has maintained that it was the responsibility of lenders and local authorities to combat the high levels of public money lost to fraudsters and recover money obtained fraudulently. BEIS did, however, acknowledge mandating pre-payment eligibility checks would help combat fraud in the future.

The government said: “Since the launch of the scheme, the department has been working alongside the British Business Bank to mitigate fraud risks in the Bounce Back Loan Scheme, working with lenders, law enforcement and other partners across government.”

BEIS ministers said that in the Spring Statement 2022 the Chancellor announced new funding, “which will lead to the doubling of the department’s enforcement capacity through the National Investigation Service (NATIS) and richer data to support work with lenders, who remain the first line of defence in catching potential fraudsters”. 

The PAC has asked the Department to write to the Committee by September 2022 setting out how it would obtain full cooperation from local authorities to allow it to calculate robust fraud and error estimates for all COVID-19 business support grants, milestones for achieving these calculations, and how this information is being used to focus recovery efforts. BEIS has promised to meet this deadline.

Overall, BEIS agreed with the PAC recommendations to tighten anti-fraud checks and increase enforcement saying it had “made significant investments in its counter fraud and assurance work”. 

Oliver Simms, Manager, Public Sector Audit and Assurance, ICAEW, said: “We are pleased that the government has agreed to the recommendations of the Public Accounts Committee. However, the responses still indicate a lack of urgency in measuring and reporting the level of fraud in COVID-19 business support grants with the government only committing to providing the first estimates from assurance work in the 2022/23 accounts, which will not be published until over three years after the start of the schemes.” 

“As we stated in our response to the inquiry, without a robust estimate of the level of fraud in these schemes, BEIS lacks the information it needs to make decisions about the resources it should be allocating to recovering fraudulent payments. ICAEW believes that a relatively small investment from BEIS in supporting local authorities in fraud detection and recovery would more than pay for itself in the monies recovered.” 

In July, the Fraud Advisory Panel, an independent charity originally founded by ICAEW, launched its report Running on empty: how the pandemic revealed a wasted decade. The report established how the pandemic “caught the UK with its institutional defences down”, with underfunding in the NHS, the criminal justice system and local government combining to weaken national counter fraud defences.

At the time, Sir David Green CB QC, Chair of the Fraud Advisory Panel, said: “The COVID-19 pandemic and the blizzard of cybercrime have, in a sense, the same root. They are both products of a new world in which everything and everyone is connected. Only a holistic response can meet that challenge. We need to create a world that is resilient by design. That is the big lesson of the pandemic, in fraud and beyond.” 

Official estimates of fraud relating to the support package are eye-watering: £4.3bn in the Bounce Back Loans (BBLs, which were 93% of all loans); £5.7bn in HMRC’s three schemes; £1bn (or more) in the grants distributed by local authorities. 

A long-standing criticism of government anti-fraud measures has focused on the limited resources to investigate, prosecute and recover large-scale fraud. In the case of bounce-back fraud alone, by October 2021 the National Investigation Service (NATIS) had received more than 2,100 intelligence reports but had the capacity to pursue no more than 50 cases a year (2.4%), according to the National Audit Office.

In its response to the PAC inquiry, BEIS said additional funding for NATIS and the British Business Bank to target abuse of the Bounce Bank Loan Scheme (BBLS) “has enabled NATIS to increase its investigative capability and establish a Criminal Disruption Unit (CDU)”. 

It said the CDU will target higher-volume but lower-value fraud, while core investigations continue to target high-value fraud involving organised crime. 

The government has also promised to set out further details of its BBLS counter-fraud strategy and how it intends to pursue recoveries in case of fraud and error, including through work with lenders.

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