The House of Commons Committee of Public Accounts recently published its report on losses attributable to fraud and error within governmental departments,
There has been much speculation about the losses that may have been incurred as a result of the pandemic, given the generous schemes on offer to support the economy. The report makes for painful reading, as it seems the speculation has been justified or possibly even underestimated. What is also apparent, however, is that even before considering losses as result of the vast sums made available in order to prop up the economy, much will need to be done to focus efforts generally, in order to reduce unacceptably high levels of loss during what would be termed ‘normal times’. It is indicated that up to £51.8 billion of the public purse is lost every year to fraud and error. Yet that only paints half the picture, as approximately £26.8 billion is lost as a result to losses in the tax and benefit systems, but in other areas of public spending where there are no formal measurements in place, further undetected losses are estimated at around £25 billion. And then there was Covid.
So how has it come to this, and what lessons can be learnt? Well, the report lays bare the lack of joined up thinking between various departments and central government, which heightens the risk of losses due to fraud and error. The reliance on individual departments being responsible for combatting and reporting fraud and error within their remit only exacerbates the problem. In departments such as HMRC and DWP, there are established procedures in place to tackle familiar issues, however in other departments, resources and capability deficiencies mean that losses are unknown, and recoverability - scant.
One of the key takeaways from the report is the fact that the risks of fraud have been known for some time, and led to the set up of the Government Counter Fraud Function (CFF) in October 2018. Its stated aims are exactly what appear to be needed to provide a harmonised cohesive approach, so as to mitigate fraud risks within the broad array of governmental departments, yet consultation with them is optional. It is, therefore, only as strong as its weakest link, and its weakest link is data sharing. It should be a powerful weapon in the fight against fraud, yet it seems very few know how to fire it.
The lack of consultation with the CFF when covid funding schemes were being developed is now starkly uncovered. One of the main initiatives which has perhaps come under the greatest scrutiny is the Bounce Back Loan Scheme, offered by the Department for Business, Energy and Industrial Strategy, (BEIS). Given the speed with which injections of funding were needed in the early days of the pandemic, in order to boost confidence and shore up the economy, controls were relaxed, and scrutiny of applications was cursory. Compliance bells were ringing loudly, but much like a patient needing urgent care, with injuries treated in order of seriousness, so too was the economy assessed. Cash injections were critical, and compliance was part of the recovery phase. Well we are now in the recovery phase, and it is no surprise to anyone that BSEI now estimates losses of up to £27 billion through the Bounce Back Loan Scheme alone. Of concern is the fact that one of the key functions of the CFF is to assess fraud risk, but BSEI did not consult with it when designing the scheme, presumably either because it didn’t know it could, or because it didn’t need to. Either way, and as highlighted in the report, this must change, and the CFF will be responsible for signing off fraud impact assessments for major projects or those identified as having heightened risks.
Other key features of the report highlight the lack of fraud and error reporting requirements within departments being a hinderance to counteractive capabilities, and as such, officials simply do not know whether resources are being properly utilised. In the March budget this year, the Chancellor announced the formation of a £100m covid fraud task force. The report suggests that this was perhaps a year too late, but in any event, given the deficiencies within the governmental departments, just what exactly are they being tasked to do?
There are many lessons which will need to be learnt and studied as the fall out from the pandemic ripens. There have, of course, been many positives, as society came together to endure and overcome hardships, but taxpayers will be looking for answers as to where money was spent, and how. The report is one step towards answering those questions, and actions will be heard louder than the words.
With an eye to the future, the report suggests the implementation of a zero-tolerance approach to fraud and error in the future, but it is difficult to see how this can be retrospectively applied looking backwards. Where there are concerns over payments made to individuals and companies under the various covid schemes on offer, there will have to be a pragmatic approach to a large number of them. Given the speed and uncertainty over the application process, unwitting mistakes will have been made, and if the borrower didn’t fully understand their own rules and processes, how could the lender?
For those who have received funds, and are now worried whether rules have been bent or broken for whatever reason, then now is perhaps the time to act to pre-empt any issues down the line. Given the scale of the task facing investigators, it is likely that any cases which can be resolved quickly will be looked upon more leniently, depending on circumstances. Therefore, expert advice and assistance on any issues which may have arisen can, in many cases, help ensure that resolution is achieved as painlessly as possible.
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The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
Solicitor in our White Collar Crime Defence Team