Up to £3.5 billion of furlough money may have been paid out on the back of wrong or fraudulent claims, according to the Government.
With the instability brought about by the pandemic, resultant lockdown and recession, the three components that contribute to the increasing risk of fraud – opportunity, incentive and rationalisation – appear to have provided the common climate that fuels fraudulent behaviour. It is therefore not surprising that individuals have sought to take advantage of the economic downturn by fraudulently claiming money that was being made available by the government to counteract the effect that lockdown produced.
There are likely to have been some mistakes made along the way when individuals sought to take advantage of the scheme - particularly given how claims appear to have been rushed through. However, there will be a small body that did not erroneously claim furlough, but rather had the intent to defraud the scheme to meet their own ends – the 8,000 whistleblowing reports that HMRC have received from, amongst others, employees who claim they worked while being on furlough, are testament to this.
HMRC’s approach to the rise in furlough fraud complaints is not unusual or lenient. Absent strong evidence to suggest that there has been a fraud, which will give rise to HMRC opening a criminal investigation, HMRC will approach individuals for an explanation before deciding what to do. If it is satisfied with the explanation, HMRC will work closely with the employer to recover any monies under its civil powers. If the explanations do not add up or are not supported by the relevant paperwork, individuals should not be surprised when HMRC’s criminal and civil powers are used to recoup money that has been wrongly claimed.
Protecting your reputation
Fraudulent activity can have a deeply damaging reputational and financial impact on any accused business or individual. Whilst we are yet to see the first furlough fraud conviction; the first arrest having only been made in July, there may be fierce public backlash for any company or individual found to have fraudulently abused the scheme, particularly given the impact that the pandemic and the resultant lockdown has had to many of our personal and professional lives.
There is concern that some businesses may have fraudulently claimed furlough without the knowledge of their workforce, claiming that staff have worked for less days than they actually have, inflated how many employees are on their books or given false payroll numbers in order to qualify for a greater government wage subsidy. If a company is convicted, it may lead to staff disenchantment.
Concerns are growing that furlough scheme abuse was known for some time. If that is the case, questions will arise as to why action was not taken quicker to prevent advantage being taken of the £3.5bn that was mistakenly or fraudulently claimed. Although this will not avail claimants of any action being taken against them by HMRC using its criminal or civil powers, it will lead to criticism that more should have been done to prevent the issue from escalating.
Immediate steps for employers
Employers will be wise to consider any applications that were made to ensure that not only was the correct information supplied on the making of a claim, but that the monies were properly used per the conditions of the scheme. If errors have been made, it would be sensible to approach HMRC to signpost that one was made and that the employer will cooperate with any investigation or queries that may arise as a result.
If a fraud is suspected, to which employers are alerted either through a whistleblowing complaint or an approach from HMRC, employers should seek legal advice as soon as possible. This could result in an internal investigation being undertaken by lawyers on the instruction of employers to understand whether there is any merit to a complaint that is made, before responding to any whistleblowing complaint or approach from HMRC.