BEIS recovered just 1% of £1.1bn fraud in Covid support loans to small firms

Losses come on top of multi-billion-pound Bounce Back Loans hit, National Audit Office says
The eight schemes supported small businesses hit by the pandemic. Photo: Milos Drndarevic/Alamy Stock Photo

By Jim Dunton

24 Mar 2023

The Department for Business, Energy and Industrial Strategy recovered just £11.4m out of a total £1.1bn estimated to have been wrongly dished out under one strand of its pandemic-time support efforts for firms, the National Audit Office has said.

The financial hit comes on top of fraud that targeted other BEIS-led initiatives, principally the Bounce Back Loan Scheme, which was last year estimated to have lost £3.3bn to illegitimate claims. BEIS was was broken up in last month’s machinery of government changes, with many of its operations transferred to the new Department for Business and Trade.

The NAO’s latest report looks at eight schemes that targeted small businesses between March 2020 and March 2022. They channelled a total of £22.6bn in BEIS funding to companies via local authorities and included the Small Business Grant Fund; the Retail, Hospitality and Leisure Grant Fund; and the Restart Grant.

The public-spending watchdog said BEIS had “prioritised speed over conducting pre-payment checks” for the schemes and then failed to act quickly to conduct follow-up checks, with work to estimate losses only beginning 12 months after the first schemes launched.

“The delay in following up has made the recovery of amounts wrongly paid more difficult to achieve,” the NAO said.

The NAO said no contingency plans for supporting firms during a national emergency had existed between central and local government when the Treasury asked BEIS to work up grant-scheme proposals in late February 2020. The watchdog said 90% of the fraud and error in the small-business schemes related to the initial wave, which did not require pre-payment checks.

The NAO said that despite being delivery partners, local authorities were not notified of the details of new schemes until they were publicly announced by the Treasury. “This created significant practical challenges as councils scrambled to understand scheme requirements and answer questions from businesses,” it said.

While councils were required by BEIS to pursue funds paid out through fraud or error in the schemes, the report said there was no financial incentive for them to identify losses beyond “BEIS-directed samples” used to estimate the level of wrong payments.

The report noted that BEIS had relied on existing line-management structures to deliver the initial wave of schemes and took more than a year to put more formal programme-management arrangements in place.

A total of 4.5 million loans were made through the programme, but BEIS has not reported on the impact of the eight schemes. Market-research firm Ipsos is carrying out an evaluation that is due to report in “late spring”, according to the NAO.

NAO head Gareth Davies said BEIS and local government deserved credit for working so quickly to set up grant schemes and distribute funding to business at a time of national emergency deserved credit.

But he said it was imperative that BEIS’s successor department learned lessons from the experience and the upcoming evaluation of the schemes’ effectiveness.

“The government does not yet know the impact of these grants – in terms of maintaining jobs or how much support might have been given to businesses which did not need it,” he said.

“Without such an assessment, an overall judgement about the value for money of the schemes remains open.

“The government’s experience of working at speed with local authorities to channel financial support during the pandemic offers important lessons should similar crises occur.

“The new Department for Business and Trade can now use these lessons to improve contingency planning and to build government resilience for responding to future national emergencies.”

Among its recommendations, the NAO said DBT, the Treasury and the local government sector should draw up contingency plans for the provision of support to priority groups in the event of a future national emergency. It said leadership, governance, resourcing and risk assessment should be part of the plans.

The NAO also called on the Treasury to commission its own study on the impact of the support to business provided through the pandemic “to inform the development of future initiatives”.

A DBT spokesperson said getting financial support to businesses as quickly as possible had been the priority for the schemes. They said recovery of payments made in error or as a result of fraud would continue into next year.

“This report confirms that our Covid-19 business grant schemes helped to secure millions of businesses and livelihoods through the pandemic – supporting jobs and the economy during unprecedented times,” the spokesperson said.

“No amount of error and fraud is acceptable, and we are continuing to work hard to recover these funds where possible.”

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