More than £5bn in furlough funds lost to fraud or error, MPs say

Businesses advised to review claims as Public Accounts Committee report finds issues with job retention scheme payments are wider than expected

The extent of fraud and error within the government’s furlough scheme is far wider than expected, a report has revealed.

The Public Accounts Committee’s (PAC) updated Covid-19 cost tracker, published yesterday (23 February), found that an estimated 8.7 per cent of money distributed by the government’s furlough scheme – equivalent to £5.3bn – has been lost to fraud and error.

Dame Meg Hillier, Labour MP and chair of the PAC, said the government’s “lack of preparedness and planning” led to an “unacceptable level of mistakes, waste, loss and openings for fraudsters”. 

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She said: “[The] government must be held accountable in this way to all the future taxpayers who will be paying for this response”, adding that lessons needed to be learned for when the next big crisis hits.

The overall loss from fraud or error across all Covid responses is not known, but the report projected that this was at least £15bn across measures implemented by HM Revenue and Customs (HMRC), the Department for Work and Pensions (DWP) and the Department for Business, Energy and Industrial Strategy (BEIS). 

Last month, HMRC announced that an estimated £5.8bn had been lost to fraud across all its schemes supporting businesses during the pandemic, including the Coronavirus Job Retention Scheme, Self-Employment Income Support Scheme and Eat Out to Help Out.

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Responding to the report, a government spokesperson told People Management that no payments claimed fraudulently have been written off and that it is taking action on multiple fronts to recover overpayments generally. 

“HMRC’s Taxpayer Protection Taskforce is expected to recover up to £1bn from fraudulent or incorrect payments,” they said, adding: “There are lessons to learn but we reject many of the statements made by the PAC.”

The taskforce, announced last month and receiving £100m of government funding, will consist of 1,265 HMRC employees and aims to recoup £1bn of furlough support wrongly claimed by businesses

Commenting on the PAC’s findings, Kate Palmer, HR advice and consultancy director at Peninsula, said the changing furlough rules and requirements caused “much confusion to employers”. 

If firms were feeling nervous about fraud and errors, she said it would be “beneficial for employers to proactively check that they have stored the necessary information, and seek to compile this where data is missing”. 

Palmer also said employers could complete their own compliance check of their partaking in the furlough scheme and make HMRC aware of any errors in their claims. 

“While some may be concerned to highlight a mistake, often this will avoid increased penalties if HMRC were to identify this first,” she explained.

Alan Lewis, partner at Constantine Law, agreed that businesses should review how they have made claims under the scheme. 

“If mistakes have been made, get professional accountancy and legal advice and be prepared to make provision for payment of additional tax liabilities,” he said, adding that employers should keep all relevant records for six years and consult HMRC guidelines quickly.

But Lewis did warn that, if there has been fraud, directors of a limited company can be held personally liable, “for example based on their consenting to a fraud by the company taking place”.