Credit, collections & insolvency news
HMRC has ramped up efforts to recoup £1 billion from fraudulent or incorrect furlough pay-outs, with more than 26,500 investigations into potentially fraudulent pandemic support claims launched over the past eight months.
The level of fraud and error in the benefit system almost doubled during the pandemic from what was already the highest rate since records began. Overpayments of benefits now stand at £8.3 billion, 7.5% of the DWP’s overall benefit expenditure (excluding State Pension) of £111.4 billion.
Fraud and error were rising year-on-year before COVID-19 (and the NAO has qualified DWP’s accounts every year since 1988–89) but the Department’s response to the pandemic opened-up new weaknesses in its systems, which the Committee says “both organised criminals and dishonest opportunistic individuals have used to steal from the taxpayer”, billions of whose money is almost certainly lost.
At the start of the pandemic, DWP introduced a number of ‘easements’ – relaxing or adapting usual fraud and error controls – to enable it to manage unprecedented new numbers of claims, alongside implementing public health measures. DWP warned the Committee in evidence in September 2020 that responding to the spike in demand for benefits during the pandemic would increase fraud and error, but the Committee says today that the amount of taxpayers’ money being lost is “simply unacceptable”.
DWP has been investing in data and intelligence systems and in 3,000 new staff, to – among other tasks – begin to tackle years of payment errors that had been uncovered even before the pandemic began. But the PAC “remains sceptical about whether its approach will result in a real and sustained reduction in the levels of fraud and error”, and DWP admitted in evidence that it will be unable to demonstrate any such improvements in 2021-22.
Dame Meg Hillier MP, Chair of the Public Accounts Committee said: “Mistaken overpayments now account for 7.5% of DWP’s benefit expenditure. Add to this the huge task of correcting years of underpayment of State Pension, and the Department’s resources are stretched. This is a real-life waking nightmare for the huge numbers of people affected, from the most vulnerable in our society to the full-time working families who still struggle daily to make ends meet. The Department appears unequipped either to properly administer our labyrinthine benefits system or detect and correct years of mistakes across too many of our basic state welfare entitlements, far pre-dating its current woes.”
“This situation is untenable and taxpayers – who also include benefit claimants – are losing billions because of it. There needs to be a step change in understanding the impact of benefit errors on people’s lives and restoring trust, because as we’ve seen recently with pension underpayments, once a mistake in the system materialises it can take years to resolve.”
Meanwhile research by law firm BLM into potential misuse of coronavirus fiscal support schemes has revealed that by the close of June 2021, HM Revenues & Customers (HMRC) has launched nearly 15,000 investigations into the Coronavirus Job Retention Scheme (CJRS), the Self-Employment Income Support Scheme (SEISS) and Eat Out to Help Out Scheme (EOHO). These interventions may well uncover the extent that these schemes were fraudulently accessed during the pandemic.
A freedom of information act submitted to HMRC assessed the number of compliance interventions launched by the body in an attempt to protect or recover funds lost via fraudulent misuse of Covid-19 support schemes. It showed that SEISS investigations in particular have risen rapidly since 1st April this year by 27%, with 1,367 new interventions launched, bringing the total to 6,351. Interventions into potential CJRS misuse are now at 7,632 since the pandemic began, with 584 launched into EOHO access.
There have been a further two arrests relating to CJRS and EOHO since 1 April 2021, bringing the total to five for each scheme. A first arrest is yet to be made in relation to the SEISS scheme.
In September, HMRC confirmed that £1.3bn has been repaid under CJRS since July 2020, with £300m paid back over the past three months alone, as the number of people on furlough declined to its lowest level since the start of the pandemic. HMRC also confirmed it has redeployed 360 caseworkers to investigate Covid-19 support scheme compliance cases since August 2020, at an estimated cost to the HMRC of £16m. The body confirmed that the Taxpayer Protection Taskforce, the Government’s commitment of £100m to hire 1,265 HMRC staff to investigate Covid-19 fraudsters, will be in place for 2021/22 through to 2022/23.
Analysing the findings, Julian Cox, Partner and Head of Employment at BLM, said “Whilst there’s been a lot of conversation about furlough fraud in recent months, these figures show that with the HMRC’s Covid-19 interventions in full swing, the SEISS has been a thriving ground for potential misuse of public funds. Self-employed individuals and members of a partnership tend to have a less uniform structure in their business compared to larger organisations. It could well take HMRC longer to spot instances where the person in question has accessed funds fraudulently, hence why we’re seeing a sudden rise in interventions now.”
“Given the short amount of time these extensive support schemes were assembled and launched in, and the complicated processes and criteria required to access them, some individuals and businesses will have made honest mistakes in their applications. However, there’s no doubt that others will have knowingly taken advantage.”
“Though we don’t currently know how many of these interventions actually bear out, we are now seeing the first round of arrests and prosecutions commence. There’s real risk here that the government could lose out on millions – if not billions – due to fraudulent activity, and the investigations into this. With £16m spent by HMRC so far, and a further £100m earmarked, it is going to be vital that the government works quickly to distinguish the skulduggery from the genuine mistake.”
“Given the increased investigative activity, it’s clear that self-employed, small business owners and larger organisations alike need to ensure that if they’ve accessed these schemes, they have done so properly. Anyone caught in the midst of an intervention will need to seek thorough advice, as it will prove decisive in handling any legal action taken by HMRC.”
