Fraud and error in Covid support schemes 'will cost taxpayer tens of billions'

Departments' efforts to detect fraud 'hindered by a lack of real-time data sharing and weak transparency arrangements', MPs say
Photo: PA

The government’s decisions to drop basic fraud and error checks when administering its Covid-19 support loans could cost the taxpayer tens of billions of pounds, a committee of MPs has said.

In a report today, the Public Accounts Committee urged departments to claw back money lost to fraudsters and said some were showing a “lack of urgency” about the problem.

The MPs said the government had “acted quickly” to provide “vital” support to people and businesses hit by the economic impact of the coronavirus pandemic last year.

But doing so “significantly increased” its exposure to fraud and error, they said – and decisions taken by the departments managing the support schemes increased this exposure further. This included departments’ relaxation of some of the controls in place to prevent fraud and error when administering the schemes, and the government’s decision to provide support to people and businesses that it did not have a prior relationship with.

Some departments had to manage several large-scale programmes – for example, the Department for Business, Energy and Industrial Strategy had multiple programmes to deal with including the Bounce Back Loan Scheme. This “markedly changed the risks BEIS must manage”, leaving it reliant on banks to spot fraud and error.

BEIS alone has estimated it could lose up to £27bn through fraud or credit issues on the loan scheme, the report said.

But other departments that administered Covid-related support schemes – which also included the furlough and self-employed support schemes – did not have as clear a picture of how much may have been lost to fraud and error, nor did they appear to view the issue with the same urgency.

The report called on the Treasury to strengthen reporting requirements and ensure that all departments measure and report on the risks of fraud and error within each of their Covid-19 support schemes.

“It is essential that government recovers monies paid out as a result of fraud or error to allow taxpayers’ money to be spent on those that need it most,” it added.

“Our work has shown that this is often a complex and time-consuming process. Successful recovery will be dependent on the respective resources, powers and policies available to each department.”

The report also raised wider concerns about how fraud and error are managed across government.

Fraud accounts for 40% of all crime across the UK, and the Cabinet Office estimates that fraud and error cost the public purse up to £51.8bn every year. Some £26.8bn of this loss is in the tax and benefits system, and the remainder is an estimate as fraud and error rates are not clearly recorded in many areas of public spending.

The total figure does not account for any of the Covid-related losses set out in PAC’s report.

“Cabinet Office and HM Treasury’s central mechanisms for managing fraud and error are still in their infancy. We are concerned that departments are not required to consult with the government’s counter fraud function when designing new spending initiatives, even where high risks of fraud are identified,” it said.

“Whilst departments recognise the potential benefits of closer collaboration for preventing and detecting fraud and error, their efforts are hindered by a lack of real-time data sharing and weak transparency arrangements.”

PAC chair Meg Hillier said: "Fraud is never acceptable and when so many were suffering as a result of Covid the government needs to tackle fraudsters robustly. The committee has long been concerned about the impact of departments’ own errors – including overpayments which need to be clawed back –  which leads to further hardship for the already vulnerable.

“If BEIS is worried that 100% taxpayer loan guarantees mean the lending banks don’t have enough skin in the game, departments across government show a worrying, similar lack of urgency. The Covid emergency masks a more worrying underlying approach to managing risk and taxpayers’ money.”

A government spokesperson said departments had prioritised acting quickly to protect people and businesses and had provided a “lifeline to millions across the UK – helping them to survive the pandemic and protecting jobs” through Covid support schemes.

“These schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We won’t tolerate those who seek to defraud taxpayers and will take action against perpetrators, including through criminal prosecution,” they said.

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