One in 10 furloughed employees have been working for their employers, in a clear breach of the scheme that could see companies face prosecution, according to the National Audit Office (NAO).
In a report, the NAO warned billions had been lost to furlough fraud. In addition to the 9 per cent of employees who were asked to work despite being on furlough, 4 per cent were paid less than 80 per cent of their wages, it found.
The report estimated that the level of fraud could affect up to 10 per cent of those on the scheme. With the job retention scheme expected to cost £54.5bn, this equated to around £5.45bn. However, the report stated: “HMRC will not know the actual levels until the end of 2021 at the earliest.”
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The NAO said the decision by HMRC not to ensure employees knew whether their employers were using the job retention scheme made it easier for employers to commit fraud. “Employees did not know if their employer was part of the government furlough scheme unless their employer informed them,” the report said.
“HMRC ruled out publishing the details of every company claiming furlough payments, which might have alerted some employees that their employer was acting fraudulently.”
The report added that HMRC knew “there was a high risk that employers would exploit the initial [job retention scheme] rules and continue to get their employees to work for them while claiming support” and had “informed the chancellor it could not establish strong preventative controls”.
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To date, HMRC has received more than 13,000 reports of fraud relating to the scheme. It previously said at least 27,000 claims made under the scheme were at “high risk” of being fraudulent or made in error.
Kathleen Heycock, partner at Farrer & Co, warned that employers could face prosecution by HMRC as well as employment tribunal claims made by employees. “Of course, it is likely to be the most unscrupulous employers who do this so they may not be at all concerned with reputation or claims from employees – particularly when those claims will take some time to work their way through the tribunal system.
“This leaves already vulnerable employees in a very difficult position,” Heycock added.
Responding to the report, Meg Hillier MP, chair of the parliamentary Public Accounts Committee – which recently published its own report criticising the handling of the furlough scheme – said HMRC didn’t know how many fraudulent claims “managed to slip through the net”.
“[The government] missed chances to find out which companies were pocketing cash meant for their staff or forcing them to work while furloughed. HMRC has paid out billions of pounds to fraudsters. Most of this is likely to be gone for good,” she said.
The need to design and roll out the furlough scheme so quickly made it difficult to build in the necessary safeguards against fraud and misuse, said Ben Willmott, head of public policy at the CIPD.
“However, HMRC can learn lessons from the furlough scheme to improve how it ensures compliance with the job support scheme, including notifying employees that their employer is claiming wage subsidy support from the government,” he said.
As part of the new job support scheme, HMRC planned to publish the names of employers making claims and notify employees through their personal tax accounts when an employer had made a claim under the scheme.
A government spokesperson said: “Our schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against perpetrators, including criminal prosecution.”
HMRC has so far made three arrests for suspected furlough fraud, and additional criminal investigations are underway – although the body would not disclose how many.
Alan Price, chief executive of BrightHR, commented: “Although it appears that tracking down all offenders may take some time, employers should not get complacent, especially as HMRC has previously provided them with an opportunity to come forward if they do believe they made genuine mistakes.”
He added: “While they may get away with deliberate misuse in the short term, it is clear that HMRC will be taking steps to look into fraudulent activities for a long time to come.”