As details of the huge scale of COVID-19 business support grants fraud continues to emerge, the government has rejected a recommendation by the Public Accounts Committee (PAC) to set out the number of convictions for false reporting to Companies House and how it intends to increase prosecutions.
Of an estimated £2.2bn lost to fraud and error in COVID-19 schemes, only about £10m has so far been recovered, according to a report into the BEIS annual report and accounts 2021/22 published in April by the PAC.
Drawing heavily on evidence supplied by ICAEW, the PAC report warned that the Department for Business and Trade (DBT) – previously the Department for Business, Energy and Industrial Strategy (BEIS) – is “effectively writing off” nearly £1bn paid out erroneously by local authorities on its behalf in pandemic support.
In a response to the PAC report published last week, DBT pushed back on calls by the spending watchdog for it to explain why it is not recovering COVID-19 grant losses. It says it has asked one of its non-executive directors to undertake a review of the ongoing assurance, reconciliation, and recovery activity due to conclude by the autumn.
In response, the government said: “DBT has developed an overarching Bounce Back Loan Scheme (BBLS) Counter Fraud strategy, which is driving an extensive programme of activity in DBT, British Business Bank (BBB) and wider delivery partners. DBT is considering whether a version of this should be made public in due course.”
In its report, the PAC recommended that DBT should set out the total number of convictions for making a false declaration to Companies House, and the actions that are being taken to ensure offenders are identified and prosecuted.
However, the government said it disagreed with the Committee’s recommendation. “Most errors on the Companies Register are accidental rather than deliberate and are corrected before enforcement action reaches the prosecution stage.
“Historically courts have been reluctant to sanction offences where the person or company has subsequently complied. Therefore, numbers of prosecutions are not an indicator of the extensive compliance activity undertaken by Companies House,” the government said in its response.
Laura Hough, ICAEW’s Director, Trust and Ethics, said: “The government’s response to the PAC report references a new independent review into the challenges of investigating and prosecuting fraud, including consideration of whether the current fraud offences and Fraud Act 2006 are suitable for modern crimes. Noting that current figures suggest that only 1% of those frauds reported in England and Wales result in a charge or prosecution, this review is very welcome.”
“Earlier this year, the government published its Fraud Strategy, setting out the ambitious aim of cutting fraud by 10% based on 2019 levels. This ambitious aim needs to be matched with an equally ambitious level of resources, given that – according to the Fraud Strategy – fraud makes up 40% of crime yet receives only 1% of police resources.”
Hough said ICAEW looks forward to working with the government over the coming months to support the delivery of the Fraud Strategy and the implementation of the Economic Crime and Corporate Transparency Act once it has received Royal Assent.
Meanwhile, the government has also responded to a separate PAC report on fraud published in March, which warned that the criminal justice system’s current approach to penalising and sentencing fraudsters is insufficient to prevent the UK being seen as a haven for fraudsters.
In its response the government accepted that the current law on Corporate Criminal Liability does not adequately hold organisations and their senior persons to account for offences committed by the corporation.
On 11 April 2023, the government tabled a new Failure to Prevent Fraud offence under the Economic Crime and Corporate Transparency Bill. A large organisation will be liable to prosecution where fraud was committed by an employee, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. The Bill is expected to gain Royal Assent later in 2023.
The government said: “The new offence will help to protect victims and cut crime by driving improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees. The government is giving law enforcement and prosecutors the powers to tackle organisations that defraud consumers, investors, other businesses and the taxpayer.”
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