HMRC 'could have done more' to prevent furlough fraud, NAO says

Watchdog also urges tax agency to ensure fewer people miss out on support under future schemes
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HM Revenue and Customs should have done more to minimise the risk of money being claimed fraudulently under its coronavirus job-support schemes, the National Audit Office has said, following estimates that more than £3bn may have been claimed in fraud and error.

There is likely to have been “considerable amounts of fraud and error” on the Coronavirus Job Retention Scheme and Self-Employment Income Support Scheme set up to protect jobs and support people whose incomes had taken a hit during the coronavirus pandemic, the NAO said in its latest report.

And it said the extent to which HMRC and the Treasury could mitigate fraud and error would be a “key value-for-money test” for the schemes.

Last month, HMRC permanent secretary Jim Harra said the tax agency was targeting fraudsters after estimating between 5% and 10% of applications may have been phony claims or errors. HMRC’s estimate puts the level lost by 20 September at between £2bn and £3.9bn, the NAO said.

But the number could climb higher as total spending on the two job-support schemes is forecast to reach almost £70bn by the end of this month, the NAO said.

The watchdog said there was significant evidence that employers had wrongly claimed furlough money for employees who were working, and that fake companies had claimed payments.

HMRC’s fraud hotline has received over 10,000 reports, many about cases where employees were working despite being officially on furlough; and in a survey of employees by the NAO, 9% admitted to working while furloughed at the request of their employers, against the rules of the scheme.

The report also noted that employees will only be aware that their employer had been claiming furlough payments for them if the business had told them directly. There may therefore be cases where employees were unaware that they should not have been working under lockdown, it said.

HMRC could have done more to ensure employees knew they were on the furlough scheme and therefore should not have been working, the NAO said.

To mitigate this risk in future, HMRC is planning to publish the names of employers claiming financial aid under the new Job Support Scheme announced by the chancellor, Rishi Sunak, in September. It will also directly notify people whose employers have claimed funds.

The watchdog also called on the tax agency to speed up its work to assess exactly how much money had been lost to fraudulent and mistaken claims. It must also ensure civil servants have enough resources to recover overpayments and fraudulent payments on both schemes “where it is cost-effective to do so”, the report said.

Last month, HMRC permanent secretary Jim Harra said HMRC was focusing its efforts on tackling abuse and fraud under the job-support schemes by pursuing 27,000 “high-risk” cases.

But the NAO said HMRC’s planning assumptions – which also included a fraud and error rate of 1-2% on the self-employed support scheme – were “necessarily assumption-based rather than evidence-based”.

“HMRC is developing its understanding of the full scale of fraud and error, and believes it will need to redeploy staff from tax compliance work to tackle fraud and error on the schemes,” it added.

But it said HMRC does not expect to have a complete assessment of the total fraud and error it must tackle until the end of 2021 “at the earliest”. So far, it has blocked just £10m of job-retention scheme claims.

‘Ensure fewer people are excluded in future’

The NAO concluded that the schemes have been “largely successful” at protecting jobs up to now. They have supported at least 12.2 million people, with around 30% of the UK workforce furloughed at the peak of the first coronavirus wave in May.

But it also found as many as 2.9 million people were ineligible for support under the CJRS and SEISS, and urged the Treasury and HMRC to ensure fewer people miss out on any future schemes.

The report highlighted cases where people had been deemed ineligible for support despite being financially affected by coronavirus, either because of ministerial decisions or because HMRC lacked the necessary data to protect against fraud.

They included 1.1 million people estimated by third parties to be ineligible for furlough “because HMRC had limited data to validate claims or determine eligibility”, the report said.

A further 1.6 million people did not meet the criteria for the self-employed support scheme, either because most of their income did not come from being self-employed or because their trading profits exceeded £50,000. A further 200,000 people may have lost out on support because they were newly self-employed in 2019-20 and had not yet submitted a self-assessment return.

“The NAO recommends that HM Treasury and HMRC should consider how to ensure that reliable information, covering as many people as possible, can be used to determine eligibility so that fewer people suffering loss of income are excluded from similar schemes in the future,” the NAO said.

NAO head Gareth Davies said: “HM Treasury and HMRC met their objective to rapidly implement the schemes and the civil service should be commended for making these available ahead of schedule. Indications are that the schemes helped to protect jobs in the short-term, but it is also clear that many other people have lost earnings and have not been able to access support.

“It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme. HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme. In future, the departments should do more while employment support schemes are running to protect employees and counter acts of fraud.”

A government spokesperson said: "The government's priority from the start of the outbreak has been on protecting jobs and getting support to those who need it as quickly as possible, and our employment support schemes have provided a lifeline to millions of hardworking families across the UK.

"Our schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against perpetrators, including criminal prosecution."

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