ICAEW firms are playing a key role in identifying and dealing with COVID fraud. We talk to Michelle Giddings, ICAEW’s Head of AML, about a recent survey that shows how firms are encouraging clients to pay back ineligible claims, and supporting law enforcement by reporting fraudulent activities.
COVID-19 support schemes helped millions of businesses and individuals stay afloat during the pandemic. But the sheer scale and complexity of the schemes, and the rapidity of their introduction, meant they also became vulnerable to fraud.
The government’s key support programmes ended during 2021, but ICAEW has continued to urge its firms to stay alert to the potential for COVID fraud among clients, and to exercise a high degree of professional scepticism.
To get a snapshot of how firms have responded, ICAEW recently carried out an anonymous survey of a sample of firms. “We wanted to improve our understanding of the part our firms are playing in identifying and dealing with COVID fraud,” explains Michelle.
“We also wanted to highlight how our firms are encouraging clients to refund ineligible claims, as well as helping law enforcement by reporting potentially fraudulent claims.”
With this in mind, the survey questions were geared to finding out:
- which COVID support schemes firms’ clients had applied for;
- the extent to which firms thought these clients were, or were not, eligible; and
- if firms had identified potential fraud, what their response was.
Of the 18 firms that participated in the survey, 77% were sole practitioners and 55% had a turnover of less than £100,000, with 11% having a turnover in excess of £2m. “The responses drew out a range of key issues,” says Michelle. “And even though we had a small number of respondents, the results reveal some interesting trends.”
About one in five respondents (22%) said that more than 60% of their client base had applied for COVID financial support. Bounce Back Loans were the most likely type of support, with 39% of firms saying their clients had applied for these, followed by the Coronavirus Job Retention Scheme (17%) and the Self-Employment Income Support Scheme (11%).
One of the standout findings is that 39% of respondents said they'd identified clients who had claimed support but weren't eligible for it and hadn't paid it back. “The next obvious question we asked was: Where you identified that scenario, what did you do?” says Michelle. “And out of that 39%, two-thirds said they had disengaged from their client.”
“It’s good to hear that most firms had disengaged, but we would actually have expected all of them to have done so,” she stresses. “Because, essentially, their client is now committing fraud and, as a firm, they're effectively enabling fraud by continuing to work for a client they know is doing the wrong thing.”
“Our expectation is that where clients aren't paying back support for which they're ineligible, firms should be thinking about their ethical responsibilities and whether they should still be engaging with that client.”
Overall, the survey found that firms had disengaged with a total of up to 40 clients. “That’s a pretty high number, given there were only 18 firms in the survey,” says Michelle. “We also found that up to 69 SARs (Suspicious Activity Reports) had been submitted by respondent firms.”
Firms in the survey reported that up to 64 of their clients had paid back government support directly as a result of the firm’s encouragement and intervention, with a value of up to £1,000,000. “It’s quite impactful that, from a such a small population, you've got such a high number of clients being encouraged by those firms to pay back claims,” says Michelle. “And that has led to quite a large amount of money going back to HMRC and HM Treasury.”
Firms were also asked whether they had introduced a procedure to assess clients’ eligibility for the support schemes. Almost nine in ten (89%) did have a procedure. Of these, 75% had a blanket procedure for all clients that had claimed support, while 25% just had a procedure for when they had concerns that a client had claimed and received funding it was not entitled to.
“It’s important that firms use their professional scepticism to critically challenge whether clients claiming loans or payments were eligible to apply and have used the money in the right way,” says Michelle. “So they should really be looking back over the last year and a half and checking those claims on any engagement where one of these types of support has been paid.”
Although the sample was small, the survey has provided useful insight into the experiences of ICAEW firms. “On the whole, we think it shows that our firms are playing a really positive role,” says Michelle. “But it has also highlighted where some firms should be thinking more carefully about their response.”
“We continue to urge all our firms to maintain high levels of professional scepticism around COVID support claims, and to disengage and report appropriately if they find out or suspect a client is doing anything fraudulent.”