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Bounce Back Loan counter-fraud was ‘inadequate’

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The government prioritised getting Bounce Back Loans to small businesses quickly, but failed to put adequate fraud prevention measures in place, a new report from the National Audit Office found.  

7th Dec 2021
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The scale of possible Bounce Back Loan (BBL) fraud has been put under scrutiny in a new report from the National Audit Office (NAO), which found that the government acted too slowly to prevent fraud and needs to improve the recovery of fraudulent loans.

The damning report on the handling of the loan scheme’s counter-fraud activity investigated how the government’s attempts to set up a “simple, quick, easy solution for those in need in of smaller loans” was fraudulently exploited.   

Gareth Davies, the head of the NAO, said, “The true level of fraud will become clearer over time, but it is clear government needs to improve on its identification, quantification and recovery of fraudulent loans within the scheme.”

The cost of fraud

The scheme issued £47bn in loans, but as the report found and as previously reported on AccountingWEB, billions were lost in fraud

The Department for Business, Energy and Industrial Strategy (BEIS) estimated in March 2021 that 11% of BBLs worth £4.9bn were fraudulent. But this estimate excluded some frauds such as where a borrower overstates their turnover to get a large BBL. 

The department also estimated that 37% of BBLs worth £17bn will not be repaid. Again, the NAO raised questions over this figure, as it represents those wanting to repay, but who can’t and also those who took the money fraudulently. 

Loans and repayments

At the start of the BBL scheme, the priority was to get the money out to businesses as quickly as possible, and the department deferred the counter-fraud measures to the lenders, the spending watchdog reported. The only counter-fraud checks at the outset were know your customer checks, while loans were dished out within 24-48 hours.

The report raised concern over how credit and affordability checks were removed and businesses were allowed to self certify to facilitate faster lending. As the urgency reduced, however, the scheme still relied on businesses to self-certify. 

The NAO concluded: “The impact of prioritising speed is apparent in the high levels of estimated fraud.”

Additional counter-fraud measures were introduced over time, but by then it was too late and these measures focused instead on detecting fraud that had already taken place, with the launch of a fraud hotline. The argument at the time was that the introduction of more checks at the start of the scheme would have slowed down the delivery of loans. 

That said, the NAO also found that the BEIS didn’t inspect fraud data until several months after the scheme had launched.

The NAO recognised that the counter-fraud measures evolved over time, but added that the scheme “lacked clear governance at the outset and sufficient resources” and the auditors did not find any documents setting out the department’s ambitions or metrics to measure the impact of counter-fraud activity. 

Pursuing organised crime

And now, due to the extent of fraud and limited resources, the department is focusing its efforts on pursuing organised crime, where sums more than £100,000 were involved. 

The BEIS set a target to recover at least £6m in fraudulent loans from organised crime over three years, but the NAO has called this inadequate. 

So far, the agency’s work has resulted in 43 arrests across 33 investigations and more than £3m of recoveries. 

With attention on organised crime, the department chose not to investigate borrowers who overstated their turnover by less than 25%, as long as there were no other fraud indicators. 

While the department has given a low priority to this bottom-tier fraud, and is hoping lenders will pick up the slack, the NAO warned that lenders have limited commercial incentives to do so. 

The theme of overstretched government departments continued throughout the report, with enforcement agencies enlisted to recover loans also stretched by the potential fraud levels across all the other government Covid support schemes. 

Recommendations

The NAO signed off its report with recommendations that the department should implement by April 2022. 

Top of the list of recommendations was to produce a formal strategy for measuring BBL fraud and to measure the performance of each counter-fraud measure, adapting its approach as necessary.

Other recommendations include the need to develop a robust business case for detecting and preventing loan fraud, refreshing its fraud risk assessment at least every six months and evaluating options for controls against any new fraud risks on a cost-benefit basis.

AccountingWEB readers react

BBL fraud has been well documented on the pages of AccountingWEB. Only last month, two directors received a ban from the Insolvency Service after they opened three bank accounts for the sole purpose of fleecing the loan scheme. 

BBL is not the only government support that was exploited during the peak of the pandemic. A recent BBC Radio 4 documentary uncovered three rogue employers who raked in furlough money, while their workers continued working. 

Reacting to the NAO report, AccountingWEB reader Jim100 has witnessed first hand the scale of BBL deceit, with builders and sole traders with limited bank accounts making duplicate applications and companies less than three months old applying for BBLs and then trying to liquidate. 

Jim100 is now coming across liquidators who are targeting companies with Bounce Back Loans.

“[It] just makes an accountant’s life difficult as we have to decide in some cases if we disengage and report them, then there is a director loan issue,” said Jim100. 

The reader has rejected a couple of potential clients because they took more of a bigger BBL than they were entitled to.

Another AccountingWEB reader, 97mwill, shared a recent incident of a client who had minimal trade in his company and took out two BBLs for £30,000 after being asked, what do you think your turnover could be? 

“Surprise, surprise, he now wants to get rid of the company.”

The reader added: “It is sickening the level of fraud there was on this scheme and most of them will get away with it with hardly any repercussions. The banks should be held partly to account here and some simple checks on Companies House and sight of the last copy accounts would have reduced this problem significantly.”

Replies (26)

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By GHarr497688
07th Dec 2021 18:49

The Government relied on the honesty of the Self Employed. I would think they should take a long look at themselves and ask the question "How honest are Government Ministers from any Party" that would give them the answer. At the time they had no plain and no choice but to give out these Loans. Passing the buck to the Banks was unfair. I am afraid a plan should have been in place incase this type of event occurred - that why elect Government . Pandemics have happened before and will happen again so lets hope any mistakes made are a learning curve for the future. I would suspect the worst fraudsters are now long gone and can't be caught.

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Replying to GHarr497688:
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By Hugo Fair
08th Dec 2021 10:49

Anyone interested in this article should also have a look at https://www.accountingweb.co.uk/any-answers/its-official-hmrc-go-soft-on... posted a week ago - and the associated comments.

I don't understand why we (the electorate) still tolerate an HMRC without a Minister - and so without direct accountability to Parliament!

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By Catherine Newman
07th Dec 2021 18:56

Why is there a "Health and Social Care tax imposed on anybody, even the poorest when this incompetence is going on? May be I should have claimed a Bounce Back Loan.

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By Paul Crowley
07th Dec 2021 20:09

No worries
MTD will fix it

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By Jim100
07th Dec 2021 22:59

You look how society has become more fragmented and selfish when authority has no respect. People openly boast about they exploited these loopholes. When money is so freely available of course more than ever people are going to grasp it with two hands. In fact more than two hands as they will use their other bank accounts to obtain additional funds. I saw a report last week that thousands tried to enter Wembley in the Euro Final without tickets. Do you think these individuals would think twice about taking a 50K bounceback loans. Its just the way people are nowadays if its there they will take it irrespective of the consequences or the damage it will cause.

There is no way the government has the resources to recover even a small fraction of what has been lost. More worryingly its the message that this sends to everyone else as crime does actually pay very well indeed. The Richer will become richer and poor poorer. The poor will end up paying more taxes as the result of the government lax controls and incompetence.

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Replying to Jim100:
By Nick Graves
08th Dec 2021 14:36

Jim100 wrote:

You look how society has become more fragmented and selfish when authority has no respect. People openly boast about they exploited these loopholes. When money is so freely available of course more than ever people are going to grasp it with two hands. In fact more than two hands as they will use their other bank accounts to obtain additional funds. I saw a report last week that thousands tried to enter Wembley in the Euro Final without tickets. Do you think these individuals would think twice about taking a 50K bounceback loans. Its just the way people are nowadays if its there they will take it irrespective of the consequences or the damage it will cause.

There is no way the government has the resources to recover even a small fraction of what has been lost. More worryingly its the message that this sends to everyone else as crime does actually pay very well indeed. The Richer will become richer and poor poorer. The poor will end up paying more taxes as the result of the government lax controls and incompetence.

It goes deeper than that - all the billions of Treasury IOUs that were printed for the Plandemic - how much of that money ended up in the coffers of companies associated with members of the Cabinet or wider Gov't?

The message seems to be; the fiat ponzi game is up - grab what you can whilst you still can, so I can understand (if not actually condone) the 'why shouldn't I do too?' mentality.

And yet I have clients who really could have genuinely benefitted, but seemed incapable of getting any financial help. Bizarre...

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Replying to Nick Graves:
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By johnjenkins
08th Dec 2021 15:24

Not that bizarre when you realise how hard it is to open a genuine bank account, yet scammers, not only open loads of accounts, get away with loads of dosh.

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By Self-Employed and Happy
08th Dec 2021 09:33

REALLY???

The majority of half reasonable accountants could have told them this within the first week.

What we will now be left with is billions of pounds of loans that will default, the government will have to cover them and who has to pay for that.........the taxpayers, even those that didn't take a penny!!!

You can also bet the ones who moan the most are the ones who took advantage of the whole furlough / loans / grants, they'll then look to evade tax as their self-entitlement means they "don't want to pay tax".

A vicious circle driven by a complete lack of controls.

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By minkie
08th Dec 2021 09:40

It could all have been prevented by checking turnover figures against available information, either published accounts, HMRC records or bank statements held by the banks themselves. Unbelievable Jeff !

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Replying to minkie:
By ireallyshouldknowthisbut
08th Dec 2021 11:02

Which would have arisen if the banks had even a 5% liability on on these.

The scheme was so naïve when introduced, and was called out as I recall within minutes of its announcement as it was so obviously flawed from inception with both the lenders have no skin in the game, and the lack of personal liability.

Now not even bothering to put any resources into clawing some of these back is a national disgrace. With the government's keeness for outsourcing everything to overpaid staff, why not simply put the private sector on it for £2,000 a day? Big accountants can score a £1,800 profit per day whilst engaging some accountants in this who would hoovering up heaps of this very quickly. It really cant be that hard to work out who has more than one loan and who lied over turnover. Big fat spreadsheet would crunch that out.

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Replying to ireallyshouldknowthisbut:
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By Justin Bryant
08th Dec 2021 11:41

I recall I was somewhat a lone voice in calling this out as a fraudster's charter at the very outset and received loads of criticism here telling me to wind my neck in & stop carping on about it etc.

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By nekillim
08th Dec 2021 09:41

As a company who did not claim a 'Bounce Back Loan' although it would have been useful! I see no reason why we should be taxed on something we did not have, and because the Government was lax in giving this money out!

May I suggest the Government takes this money (£17bn) from their own pension funds because of their gross incompetence. It may concentrate their minds going forwards!

If our company makes a mistake we have to pay, not our customers!!!

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Replying to nekillim:
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By Hugo Fair
08th Dec 2021 10:42

Ahem, most govt pension schemes only carry sufficient funds (if they're lucky) to cover payments out for existing pensioners ... so if they did that then the schemes would be 'unable to meet their commitments' (aka bankrupt). At which point who do you think has to step into the breach and fund the gap?
The govt has spent 'our' money ... now there's only two options - get it paid back or claw an equivalent amount out of us (the taxpayers).

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By Ian McTernan CTA
08th Dec 2021 11:06

It's easy to criticise with hindsight- just ask Starmer to comment.

At the time the scheme was rushed through and as is usual when that happens mistakes happen. Also, because civil servants can't speak to one another if they are in different departments it was decided that checking figures would be too difficult when HMRC staff were all on furlough or 'working' from home.

So we got a system that relied on honesty. And as usual, criminals took advantage of it. Let's hope HMRC make a better job of chasing the people we report for fraud and get the police involved too- a few prosecutions might bring a few people into line.

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Replying to Ian McTernan CTA:
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By johnjenkins
08th Dec 2021 11:54

Taking it a stage further I think Government new that there would be some dishonesty so they took the view that if it went back into the economy at some stage then "collateral damage".

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Replying to johnjenkins:
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By AndrewV12
09th Dec 2021 09:13

Good point, a necessary evil.

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Replying to johnjenkins:
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By justsotax
10th Dec 2021 11:17

I see that didn't feel the same about the £20 UC, reality is that the £20 almost certainly would have fed into the local community.....i am not so convinced about this money....?

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Replying to justsotax:
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By johnjenkins
10th Dec 2021 14:11

The UC was slightly different as it was only meant to be temporary in the first place.

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Replying to Ian McTernan CTA:
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By justsotax
10th Dec 2021 11:18

The accusation that Starmer is captain hindsight is a bit of a tough sell when you consider we have Coco the clown in charge....just saying....

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Replying to justsotax:
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By Hugo Fair
10th Dec 2021 22:40

And the connection is ?
I can't see how incompetence in one affects competence of t'other.

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By North East Accountant
08th Dec 2021 11:37

Replace your heading "inadequate" with "non-existant" and you're spot on.

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By Nebs
08th Dec 2021 12:00

Get the private sector to recover the money for a percentage of what is collected..

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Replying to Nebs:
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By Justin Bryant
08th Dec 2021 12:32

This already happens (e.g. insolvency litigation funder Manolete), although with at most £50k at stake (for each company) it's arguably not worth the candle.

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By AndrewV12
09th Dec 2021 09:12

As for the Chancellor, talk about making panic decisions on the hoof.

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By AndrewV12
09th Dec 2021 09:31

'Bounce Back Loan counter-fraud was ‘inadequate’'

I was not aware there were any fraudulent checks and balances in place, never mind inadequate ones.

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By tedbuck
09th Dec 2021 11:02

I like the idea of a minister to watch over HMRC but what would it achieve? There is obviously no-one competent in HMRC or the Treasury as the system doesn't work now so who would know better?

Perhaps they could scrap MTDfITSA and spend the money getting back the fraudulent loans and incorrect SEISS claims, not to mention wrongful furlough claims which, apocryphally, are huge as people claimed the furlough relief but got their staff to carry on working.

All comes back to the same thing - it isn't their money so why strain to get it back, the taxpayer will pay as usual - still it's nearly time for this year's Christmas party so drinks at the Treasury?

As for shortfalls in the Civil Servants' pension fund the easy answer is to make their funds into what the rest of us have instead of gold-plating them. By the way are we ever going to see real GPs again?

Silly question - why would they bother when they are getting paid for stuff they don't do and we are picking up the tab in terms of tax and paying for their pension funds. (Apologies to those who have remembered that they are a profession, and I know there are some but the others and in particular the Doctors trade union.) Well what can one say that's printable?

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