Fraud is expensive for the country – especially this much

A new report from the National Audit Office (NAO) has revealed that only 1% (£11.4 million) of the £1.1 billion lost to fraud from the government’s Covid business support programme has been recovered so far. 

The report notes the scale and speed of the response with eight separate grant schemes for businesses administered by local authorities developed and launched within a month. 

The grants include funds distributed via the small business grants fund (SBGF), the retail, hospitality and leisure business grants fund (RHLGF) and the local authority discretionary grants fund (LADGF). 

It also states that the lack of a shared contingency plan between local and national government on how to support businesses in the event of an emergency was a factor with some councils only hearing about new schemes when they were announced publicly, at which point they were already dealing with queries from local businesses. 

One of the key findings is for the DBT and Treasury to work with councils to draw up formal contingency plans by the end of the year on similar financial support if there is a future national emergency using the lessons of the Covid schemes.

Gareth Davies, the head of the NAO, said: “The business department and local government deserve credit for working quickly to set up and distribute grants to businesses but the full impact of fraud and error remains unclear.

“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. 

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

“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.”

We’ve written previously about how the bounce back loan scheme (BBLS)  was particularly vulnerable to fraud the NAO report also found further instances of its vulnerability including: 

  • When the BBLS launched there were only two full time staff dedicated to counter-fraud oversight at the Department for Business, Energy & Industrial Strategy (BEIS) 
  • BEIS fully expected a heightened risk of fraud when it launched the BBLS as it suspended standard lending practices and fully guaranteed the loans for lenders in order to provide support more quickly. Subsequent counter-fraud measures were introduced too slowly to be effective.
  • The total amount of fraudulent BBLS loans is estimated to be at 8% or £376 million of the £47 billion loaned out in 2020 and 2021.
  • BEIS originally estimated that 47.1% of all fraudulent BBLS loans would be repaid without any further intervention and was working with the National Investigation Service (NATIS) and other law enforcement agencies to pursue investigations. By March 31 2022, NATIS had recovered £3.8 million against a target of £6 million which represented less than 0.5% of estimated BBLS irregular payments
  • The report found that BEIS had not made the progress it planned to and as a result its additional recovery action is not starting until up to three years after businesses received the irregular payments so this delay was likely to result in a lower rate of recovery. This in part led to the resignation of Lord Agnew in January 2022.
  • The Cabinet Office set up a temporary hotline from May 2020 to receive intelligence from the public about fraud and has received 7,000 reports to date – 75% of which are related to BBLS loans.

Nobody could have foreseen the irony that the BBLS which was meant to be a lifeline for so many businesses in the Covid-19 pandemic and subsequent lockdowns would eventually turn into an anchor for them. 

Now as well as struggling to recover their lost earnings and make up for their potential and actual losses, they have regular BBLS repayments on top that have to be serviced or else deal with a more aggressive Insolvency Service. 

This is just one of the reasons why we offer a free initial consultation to any director or business owner who is concerned about the future direction of their company. 

Our expert advisors can go into great detail about all the options available to you including being able to legally close your company even if it has outstanding bounce back loan arrears. 

Different solutions exist that are a better fit for different problems because every business is unique but no matter what facet you would like to improve – we’re sure we’ll be able to help you find a way – as soon as you take the first step and get in touch.