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Furlough fraud could spell doom for Harra

Philip Fisher investigates Jim Harra's estimate of the extent of furlough fraud and considers a problem that this could cause for accountants.

10th Sep 2020
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Jim Harra
HM Revenue & Customs

Jim Harra is a brave man. Once again, he has decided to cross swords with his political boss Rishi Sunak, while being cross-examined by every accountant’s favourite Parliamentary group, the Public Accounts Committee (PAC).

There is every chance that Mr Harra reads this column, since his latest prognosis echoes an article published soon after the furlough scheme was announced.

During the PAC meeting, the senior civil servant did not hold back, boldly asserting that between 5% and 10% of the £35bn payments to date under the Job Retention Scheme (the posh name for furlough), has either been paid out in error or fraudulently claimed.

BBLS, CBILS and impact on accountants

It can only be a matter of time, ie the next PAC meeting to discuss such matters, before we discover how much has been fraudulently claimed under the Bounce Back Loan Scheme (BBLS) – which could be an even bigger sum and probably to a significantly lesser extent, the Coronavirus Business Interruption Loan Scheme (CBILS).

Each of these situations could have a serious impact for accountants, since we all have an obligation to notify suspicion of fraud to our internal Money-Laundering Reporting Officers and, in turn, they have to pass information to the National Crime Agency. Such action could obviously lead to embarrassing and compromising situations, as well as the risk of accusations and finger-pointing, if the correct steps are not taken.

Is Harra next for the chop?

In case Mr Harra hasn’t noticed, his bold speaking could have personal consequences, as a significant number of his peers (many of whom will soon become peers) are seeking pastures new.

Under the benign guidance of Dominic Cummings, Boris Johnson and his cabinet colleagues appear to have instituted a policy that seeks to replace many of the country’s most senior and respected civil servants. The line connecting each of those former, or soon to be former, top officials has been a Harra-like refusal to accept excessive political interference in their areas of expertise. In almost every case, the new incumbents appear to be less experienced, which begs its own questions.

For those who are not well versed in such matters, Jim Harra currently holds the rather grandiose title of First Permanent Secretary and Chief Executive of HM Revenue and Customs. In common parlance, this means that he runs the UK’s taxing authority. He has already crossed swords with the Chancellor, questioning the advisability of both the August cheap meals scheme and furlough bonus.

Who is Harra?

Unusually in this day and age, Mr Harra has spent pretty much the whole of his working life in the department.

If Wikipedia is to be believed, he became a tax inspector in 1984, straight out of university in Northern Ireland. In fact, given that he was only 22 at the time, despite his remarkable talents it is more likely that he joined the Inland Revenue as it was in that year and actually became a fully-fledged inspector some time later.

One has to hope that such plain speaking does not land Jim Harra in the House of Lords several years earlier than planned, since he clearly has his head screwed on and should be regarded as a key adviser by the Chancellor of the Exchequer and other Treasury colleagues.

Furlough fraud, mass redundancies, and an army of agents

There is a more significant point to be made about these fraudulent and erroneous claims. Recently, there was a media frenzy about the prospect of big tax hikes in the autumn Budget. We have already seen mass redundancies across the country and those have only been the first wave of something that will undoubtedly be considerably worse for the economy when furlough ends and in the longer term. Putting these two major economic problems together, it is possible to see a big opportunity.

If one assumes, for the sake of argument, that furlough and loan fraud and error have currently cost the Exchequer £5 billion, which may not be an unreasonable estimate, then HMRC should be seeking to take on large numbers of capable but unemployed individuals with a view to turning them into ace investigators charged with reeling in as much as possible of this deficit.

In one fell swoop, the government will have cut unemployment numbers substantially and reduced the deficit by material amounts. To me, that sounds like a dream scenario.

Replies (8)

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By AndyC555
10th Sep 2020 13:32

"If Wikipedia is to be believed, he became a tax inspector in 1984, straight out of university in Northern Ireland. In fact, given that he was only 22 at the time, despite his remarkable talents it is more likely that he joined the Inland Revenue as it was in that year and actually became a fully-fledged inspector some time later."

Depends. If he joined on the 'fast-track' scheme, as I did in 1987, he was a Tax Inspector from day 1.

Fair to say I was a pretty useless Tax Inspector on day 1, knowing nothing, but nevertheless that was my job title.

Thanks (3)
By Justin Bryant
10th Sep 2020 14:32

I seriously doubt JH reads Aweb otherwise he would have picked up the phone to me, so that I could then explain how to avoid all this fraud pretty easily (or perhaps he knew himself how to do that and was overruled by the PM, sorry I meant DC).

Thanks (3)
By memyself-eye
10th Sep 2020 15:13

If I were him I'd quit before the BB loans become due next year.
" Never in the field of human generosity has so much been paid to so many with so few checks"

Thanks (3)
By ireallyshouldknowthisbut
10th Sep 2020 15:42

Furlough scheme fraud is chicken feed compare to the bounce back loan fraud.

Which wont become fully apparent I imagine for 2 or more years.

or "someone else's problem" given the speed of rotation of senior roles in government, and one of those mournful "lessons will be learned" nonsense that accompanies all massive cokes ups of this type undertaken by the predecessor.

The naively of asking the banks to lend without any skin in the game is breathtaking. Even 5% culpability would have cut the fraud by 95%.

Thanks (3)
Replying to ireallyshouldknowthisbut:
By johnjenkins
11th Sep 2020 09:51

BBL cannot be fraud unless not paid back or company goes skint just after receiving it. So let's not jump the gun. There are probably many companies who took it out purely because they were unsure of the future. Once the year is up and everything is back to normal (oh yes it will - panto starting early) the loan is repaid.

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By mbee1
10th Sep 2020 16:32

In my opinion direct entrant graduate Inspectors were mostly useless. They may have been clever but few had any common sense. I worked my way up from almost the bottom to Inspector level but the direct entrants never had a clue about how income tax (the old Sch D & Sch E) worked and most looked down on the clerical staff with disdain. Nothing changes.

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Replying to mbee1:
By AndyC555
14th Sep 2020 15:07

As one of those direct entrants, thanks for the vote of confidence.

There were hundreds of such entrants, so I'm curious as to how many of us you had direct experience of.

Personally, I found those who had worked their way up from almost the bottom to Inspector level all had chips on their shoulders about direct entrants (I didn't really but if we're going to throw around gratuitous insults, I'm happy to join in).

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By johnjenkins
11th Sep 2020 09:54

The powers that be would have known that there would be some abuse which most cases will be very hard to prove. So Jimbob how much is it going to cost us to get a few million back? Really not worth it is it? especially with all hands on deck to get MTD for the SE up and running.

Thanks (1)