Today (27 April), the government has announced the a new “fraud squad” that will crackdown on criminals who steal taxpayers’ money. The £25m Public Sector Fraud Authority, expected to be up and running by July, will be made up of data analytics experts and economic crime investigators. They will aim to recover money stolen from Covid support schemes and spot suspicious companies/people seeking government contracts.
Counter fraud experts will also mount mandatory inspections on Whitehall programmes to uncover vulnerabilities.
Rishi Sunak said: “We will chase down fraudsters who rip off the taxpayer. This elite fraud squad, backed by £25m, will ensure the latest counter fraud techniques are being used to track down these criminals.
“People are rightly furious that fraudsters took advantage of our vital Covid support schemes, and we are acting to make sure they pay the price.”
There is some scepticism around the potential success of the taskforce. “Whether this new taskforce will make a real difference is questionable,” said Nicola Finnerty, a partner in the Criminal Litigation team at Kingsley Napley LLP. “We have heard similar commitments before and an investment of just £25m seems very light in terms of the scale of the problems. At this point, however, any investment in enforcement to tackle fraud is to be welcomed, both for itself and as a deterrent. We need to start somewhere in turning the tide.”
MPs say banks should do more to recover losses
Meanwhile, ministers are being called on to urge banks to minimise taxpayer losses from the Covid-19 Bounce Back Loan scheme, with investigations revealing significant levels of fraud.
The latest estimates show that of the £47bn paid out in Bounce Back Loans, £17bn is already expected to be lost, with £4.9bn of that – equivalent to ten per cent – lost to fraud. The problem is that there’s no real incentive for lenders to do this. The loan was 100 per cent government-backed so if businesses don’t repay the loans, the taxpayer will.
The Public Accounts Committee (PAC) said that the Department for Business Energy and Industrial Strategy (BEIS) was “complacent in preventing fraud” during the government-backed Bounce Back Loan Scheme, adding that the government “cannot just accept” the level of unpaid debt it has said it’s going to.
The Committee said that both BEIS and the British Business Bank both missed opportunities to prevent fraud. The government effort in preventing top-tier fraudsters has also been criticised for not deterring smaller scale fraud.
Dame Meg Hillier MP, chair of the Public Accounts Committee, said of the findings: “More than two years on BEIS has no long-term plans to chase overdue debt and is not focussed on lower-level fraudsters who may well just walk away with billions of taxpayers’ money.
“BEIS must commit now to identifying what anti-fraud measures are needed at the start of any new emergency scheme so the taxpayer is better protected in future. It also needs to set out the trade-offs and what level of fraud it will tolerate at the outset.”
MPs are calling for a strategy for collecting outstanding debt. The government has already stripped guarantees from thousands of Bounce Back Loans that were based on questionable lending decisions.
>See also: Banks to get tougher on bounce back loan defaulters
‘Suitcases full of loan money’ seized at border control
Suitcases full of Covid loan money have been seized at border control with people trying to smuggle it out of the country, a Home Office source told The Times.
According to an investigation by the newspaper, other recipients used the money “to fund gambling sprees, home improvements, cars and watches”. These are among dozens of company directors who have been disqualified after misusing the Covid-19 loans scheme. Disqualification means that these people can’t be the managing director of a company for up to 15 years. Some recipients immediately transferred the cash to their personal bank account to spend on themselves rather than their companies.
The Times identified 124 cases between October 2021 and March 2022 where a business owner has been disqualified or made subject to bankruptcy undertakings because of Bounce Back Loan misuse. More than one in 230 disqualification cases listed on the Insolvency Service in late March involved some form of Bounce Back Loan abuse.
David Clarke, former head of fraud for the City of London Police, told The Times:
“These failures of due diligence are startling, proving that there were in effect no protections on the money being sent out,” he said. “It would have taken as little 15 minutes for an entry-level researcher to do the kind of basic due diligence that would have prevented these kinds of cases from happening, which might have cost as little as £20 per loan.”
A Treasury spokesman said: “Our Covid support schemes were implemented at unprecedented speed and successfully protected millions of jobs and businesses at the height of the pandemic.
“Last year we stopped nearly £2.2bn in potential fraud from the bounce-back loan scheme, and £743m of over claimed furlough grants. Our new Taxpayer Protection Taskforce, made up of nearly 1,300 staff, is expected to recover an additional £1bn of taxpayers’ money.”
Loan loophole sees money going to firms formed after the start of the pandemic
A further investigation by The Times revealed that at least £100m of taxpayer-backed Covid loans went to companies that were formed after the start of the pandemic. A loophole in the scheme meant that new businesses could benefit. “Dozens” of examples were found where these businesses used the Coronavirus Business Interruption Loan Scheme (CBILS) in this way.
There were at least 114 cases where newly-formed companies took out loans. A substantial £200m was given to companies that only occupied 20 addresses. Many of these were offices of formation agents, allowing companies to register at addresses where no business takes place.
Furthermore, a total of £17m was given to businesses that formed only two weeks before the loan was introduced.
All of this adds insult to injury for small business owners who took out the loans for legitimate purposes and are paying them back under tough economic circumstances with rising running costs, increased taxes and the repayment of other loans and support. In fact, businesses are struggling to pay back £20bn of Covid loans that they relied upon to keep them afloat over the pandemic.
Businesses struggling to repay £20bn of Covid loans