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Furlough scheme may increase fraud risk

As the furlough scheme is extended to the end of October, Philip Fisher cautions accountants regarding a potential audit issue that could also exercise MLROs.

12th May 2020
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Fraud definition

As the ravages of coronavirus continue to turn the business world on its head, the behaviour and experiences of both individuals and corporates have changed beyond recognition.

In this new world, one could divide both groups into three different categories: the honest, the dishonest and the just plain desperate.

That could well become relevant in coming months, as businesses and individuals try to recover from what has been, for most, a financial disaster without precedent in living memory.

The Prime Minister, seemingly speaking off-the-cuff on Sunday since his deputy was unaware of several of the measures the following morning, decided to “encourage” anyone who could not ply their trade from home to start working from Monday/Wednesday (Raab/Johnson).

This could have many implications. It should certainly help to boost the economy in a limited way. It could also easily have the opposite effect, should it lead to a more serious and longer-lasting lockdown.

However, the most telling consequence could be with regard to the furlough scheme, which is currently paying 7.5m people.

Almost everyone in the country and surely every accountant now knows that this arrangement pays 80% of the salaries of employees who are unable to work. More specifically, it prevents them from working if their employer wishes to claim what might in the past have been referred to as a relief. In passing, it is worth noting that there is an equivalent arrangement for the self-employed.

Following Tuesday’s announcement, the furlough scheme is to run until 31 October, with less generous rules from August.

This is great news for all of those accountants who have been utilising the arrangements to pay the salaries of support staff, junior staff and some of those who would not otherwise be making a valuable contribution.

It is also equally beneficial to the employers of a number that is currently running at approximately half of the workforce.

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