HMRC 'falling short' on efforts to recoup billions of Covid furlough fraud

Spending watchdog urges government to allocate sufficient resources to tackle fraud and error
Photo: Rosemary Roberts/Alamy

By Tevye Markson

14 Oct 2022

HM Revenue and Customs is "falling short" on its efforts to recover billions lost to fraud and error through the coronavirus support schemes, the public spending watchdog has said.

HMRC estimates around £4.5bn was lost to fraud and error, while £3.5bn went to self-employed people whose incomes increased, according to a National Audit Office report published yesterday. A further £1.5bn was given to business whose turnover increased or stayed the same during the pandemic.

HMRC had estimated that a taskforce it set up in April 2021 to carry out in-depth checks of high-risk furlough-scheme cases would recover a "minimum" of £800m in 2021-22 and 2022-23, but this is "proving challenging", the NAO said.

The Taxpayer Protection Taskforce is  now predicted to recover £623m by 2023-24 – on top of the £535m recovered in 2020-21, bringing to total to around £1.1bn – according to the report.

One reason the department’s efforts are “falling short of original expectations” is that HMRC deployed fewer staff than expected to the task force this and last year, the NAO said. The department plans to compensate for the shortfall by deploying 266 staff to this work in 2023-24.

The checks are also taking longer than expected to complete and have low yield.

NAO head Gareth Davies urged the government to “improve the way it estimates levels of fraud and error and allocate sufficient resources" to tackle the issue of billions going to waste. 

The watchdog scrutinised the role of the Treasury and HMRC in the creation and delivery of the Coronavirus Job Retention Scheme (CJRS), known as the furlough scheme; and the Self-Employment Income Support Scheme (SEISS).

The Treasury led the policy design of the schemes, while HMRC was responsible for implementing and administering them.

Some flaws 'inevitable' but more could have been done

The NAO said the schemes were introduced at speed and provided essential support to individuals, businesses and the economy during the pandemic, preventing millions of job losses.

The watchdog said it accepted that the pace at which the schemes were designed meant some flaws were “inevitable” but said the government “could have done more in bearing down on deadweight loss and the cost of error and fraud”.

It also said clear financial impact tests, rather than just basic value-for-money assessments, could have helped the departments to target financial support to those whose incomes were genuinely affected by the pandemic.

The NAO made several recommendations to improve the way these kinds of schemes are managed in the future.

It has called on HMRC to work with the Cabinet Office and government counter-fraud function to improve the consistency of data collected on grant claimants and the pace at which data can be shared between HMRC and other public bodies to identify “risky” claims.

HMRC should also improve its methodology for estimating fraud and error, the NAO added.

The estimated £4.5bn of fraud and error is 4.6% of the total cost of the two schemes. But the NAO warned that the estimate is based on limited data as HMRC only carried out random checks which “would not have picked up certain types of fraud”.

The watchdog said HRMC did not commission sufficient research with employees to understand how much fraud and error went undetected and is “unlikely to ever know how much it paid to employers opportunistically claiming furlough for working employees”, which was the main reason cash went astray.

And the watchdog said the Treasury must provide sufficient resources to HMRC and other departments for tackling fraud and error.

A government spokesperson said: “We are not writing off any fraud from these schemes – our work to root out those who abused the system is ongoing.

“Meanwhile, we effectively minimised fraud from the start with compliance checks that did not unnecessarily delay payments when they were needed and further compliance activity undertaken by HMRC has secured and protected more than £1bn.”

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