Don’t fall foul of the Covid fraud crackdown - Catherine Feechan

As the UK emerges from the worst public health crisis in living memory, some businesses could find themselves facing criminal charges, fines and penalties, as the Government turns its attention to tackling Covid fraud.

Catherine Feechan is a Partner, Davidson Chalmers Stewart LLP

The pandemic saw the UK Government roll out a spectrum of support for businesses, including furlough, bounce back loans, CBILS and tax deferrals. While these measures provided a lifeline for many companies, they’ve also been subject to abuse. Last October, the National Audit Office said criminal gangs and employers may have fraudulently accessed nearly £4bn from the furlough scheme and other support measures.

Earlier this year, UK businesses were urged to review how they applied for Covid support as a £100m HMRC taskforce was launched to investigate, prosecute and recover unlawfully claimed payments. This presents a potentially serious financial and reputational threat to any company that wrongfully secured funds, whether intentionally or inadvertently.

Because the first UK lockdown was suddenly imposed and businesses were desperate for support, many claims were made in haste at a time of incredible stress. It’s unsurprising mistakes may have occurred. In the best case scenario, where a company can demonstrate a genuine error, it may only lead to a requirement to repay funds as well as a possible penalty. In the worst case, HMRC’s taskforce could pursue a prosecution for fraud, money laundering and recovery of proceeds of crime.

Major risk areas are around furlough payments, for employees who continued working during the claim period or, more seriously, claims for non-existent or non-qualifying employees. Providing incorrect information for a funding application concerning the impact of the pandemic on a business presents another significant risk.

A business that did not intentionally make unlawful Covid support claims could still find itself on the wrong side of the rules, if employees raise concerns, internal systems identify an issue, or they are made aware of a problem via the media or another third party.

In these instances, it’s important all records and evidence that might be relevant are preserved, to protect a company against any unfounded allegations or provide evidential support if a genuine error was made in making a claim.

If issues come to light via internal reporting, these should be fully investigated and addressed, ideally independently, with detailed records covering all steps taken and the reasoning behind them. Where a company director or employee has been involved in fraudulent activity, appropriate suspension and dismissal procedures should be taken in line with their employment contract

Where furlough fraud is reported by an employee, it’s essential directors are aware of whistleblowing rights and comply with statutory duties by ensuring any exposure to criminal liability for the company is minimised with concerns being appropriately investigated.

The economic turmoil accompanying the outbreak of the pandemic and its impact on business owners means it’s highly plausible that not every furlough claim was as carefully scrutinised as it might have been and inaccurate figures may have been used in a funding application.

These issues should not be ignored. By reviewing Covid support payments and other forms of financial assistance, companies can mitigate this risk. While uncovering and reporting any discrepancies may result in some funds having to be repaid, along with possible fines and penalties, that’s far preferable to potential criminal charges and associated reputational damage. Ignorance will not qualify as any form of defence.

Catherine Feechan is a Partner, Davidson Chalmers Stewart LLP