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Furlough fraud exposed as businesses cash in

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The extent of furlough fraud perpetrated over the pandemic is only now coming to light, with the cost to the nation likely reaching the billions. 

17th Nov 2021
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The coronavirus job retention scheme finally came to a close at the end of September, after 18 months of handing out government support, but it’s only now that businesses that took advantage of the scheme while their employees carried on working are being named and shamed.  

BBC Radio Four’s current affairs documentary ‘File on 4’ has exposed some of the rogue employers that exploited the government’s furlough scheme during the pandemic. 

Organisations that cashed in on the scheme were revealed in the programme of using threatening techniques to suppress any whistleblowers to HMRC and telling workers that they are “100% still at work” and that the company would be “daft not to take” the money. 

The Radio 4 programme was released on the same day HMRC updated guidance on taxation of Covid-19 support payments, which will enable the tax authority to collect wrongly claimed CJRS payments from directors. 

‘Anything kind of goes’

The investigative programme focused first on Kash Khokhar, the owner of the digital marketing agency Kau Media Group, who wrongly claimed furlough money and used intimidation and threats of redundancy to keep employees quiet.  

Using secret recordings obtained by whistleblowers, the documentary revealed how Khokhar announced to his employees over a Zoom call at the start of the pandemic that they were being furloughed. 

However, as former employee ‘Lucy’ revealed, Khokhar then told the furloughed workers to continue working “because we still have campaigns live”. 

Another employee, a web designer, was told by Khokhar that he was going to be working with a 20% reduced salary, but didn’t mention furlough. Shortly after an email circulated which acknowledged that he had agreed to go on furlough. 

He immediately responded to the email saying that he actually agreed to a reduced salary. However, Khokhar justified keeping his employees working whilst on furlough due to “moving into a period of time that’s like wartime” where “anything kind of goes”.

The programme estimated that the digital marketing agency likely claimed around £100,000 in furlough payments. 

Khokhar, to the astonishment of his employees, also struck a deal to bulk buy PPE gowns and masks from China and sold these to the UK government for £40m.

Furlough ‘loophole’

File on 4 also uncovered similar furlough misuse allegations at Brewster Partners Recruitment Group. It’s chief executive Nigel Brewster was caught on a recording saying “It’s a Government grant, you’re absolutely daft if you don’t take it”, and that he hoped that it would bring in around £140,000.

Lisa Brewster, Nigel’s wife and the managing partner of the company, was also recorded telling furloughed staff that the morning company Zoom calls will still go ahead as a “loophole” in the furlough rules means “if you choose to work, we can’t stop you.... I’m presuming nearly everybody here will be doing that”. She went on to describe the support as "a thing to get some cash because every other business is doing it" and reiterated to the employees that "We’re still 100% at work... we’re doing that because we want to and for our mental health situation."

Fake national insurance numbers

The third story had already gained national attention in the Financial Times, after a mysterious group of companies all registered to the same virtual mailbox service in London raked in between £20m and £40m from the furlough scheme. 

Orchestrated by Rajanish Garibe, the scheme used phantom employees with fake national insurance numbers to claim furlough support for more than 2,000 employees. The report found that the Indian national Garibe did all this without even stepping foot in the UK. 

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Replies (24)

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By Jim100
17th Nov 2021 12:22

Is anyone surprised. If you offer people money, they will take it even if it is wrong as non one has any regard of authority. They are willing to take the risk. Far too many people to go after and some have escaped overseas. Each case will take hours to sort out. Could have easily been prevent with some basic checks.

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By Jim100
17th Nov 2021 12:22

Is anyone surprised. If you offer people money, they will take it even if it is wrong as non one has any regard of authority. They are willing to take the risk. Far too many people to go after and some have escaped overseas. Each case will take hours to sort out. Could have easily been prevent with some basic checks.

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By CJaneH
17th Nov 2021 15:12

A proportion of the population who consider themselves honest think that everyone lies to HMRC when submitting tax returns and to insurance companies when making claims. Money with no checks was always going to tempt those people.

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Replying to CJaneH:
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By justsotax
18th Nov 2021 16:41

I dare say some are taking a lead from this government....

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By ireallyshouldknowthisbut
17th Nov 2021 15:39

I am currently battling with an entitled client who has received well over £30k of covid payments but who's business income is up by any measure over the relevant period. They have already spent the cash and bellyaching about paying higher rate tax on it let alone repaying the 3rd to 5th grants as they are simply not eligible. First 2 are dubious too quite frankly.

its highly depressing when trying to do the right thing and stand up to these people.

Of course HMRC are too busy dealing with vanity projects to get stuck in.

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Replying to ireallyshouldknowthisbut:
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By GHarr497688
17th Nov 2021 22:36

Is it your job to do this or HMRC's ?

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By Hugo Fair
17th Nov 2021 16:36

Whilst the furloughed-but-kept-working stories are likely to be only the tip of that iceberg, they are generally dependent on whistle-blowers (usually employees) to uncover them.

But the case with more than 2,000 phantom employees (each with a fake NINO) is either not true - or an indication that HMRC's standard PAYE systems are fragile & deficient.

I don't know which is worse or more unbelievable:
* Every employee in an FPS has either a NINO or a blank reported - in the former case this is supposed to be validated in multiple ways (including a cross-check with other personal details), and in the latter case generates a routine that eventually creates a NINO for future use.
* Every CJRS claim was supposed to have been validated (at a minimum) as being for no greater a number of employees than had been reported on the payroll via RTI to a date just before the start of the scheme.

So ... were HMRC systems failing to perform their usual NINO cross-checks? Or were they creating a sudden surge of thousands of new NINOs without raising any kind of warning flag? Or were they allowing retrospective submissions of FPS files (for the relevant CJRS qualifying period) to be used as approval for claims? Or ... the list goes on.

But in essence, either there were one or more massive failures in HMRC's systems - or the story is not entirely true. It would be interesting to know which - but I'm not holding my breath!

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Replying to Hugo Fair:
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By johnjenkins
18th Nov 2021 11:39

Inside job?

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Replying to Hugo Fair:
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By SJH-ADVDIPMA
18th Nov 2021 12:13

I suspect the chap bought real NINO's on the dark web.

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Replying to Hugo Fair:
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By legerman
18th Nov 2021 13:14

Hugo Fair wrote:

But the case with more than 2,000 phantom employees (each with a fake NINO) is either not true - or an indication that HMRC's standard PAYE systems are fragile & deficient.

I don't know which is worse or more unbelievable:
* Every employee in an FPS has either a NINO or a blank reported - in the former case this is supposed to be validated in multiple ways (including a cross-check with other personal details), and in the latter case generates a routine that eventually creates a NINO for future use.
* Every CJRS claim was supposed to have been validated (at a minimum) as being for no greater a number of employees than had been reported on the payroll via RTI to a date just before the start of the scheme.

So ... were HMRC systems failing to perform their usual NINO cross-checks? Or were they creating a sudden surge of thousands of new NINOs without raising any kind of warning flag? Or were they allowing retrospective submissions of FPS files (for the relevant CJRS qualifying period) to be used as approval for claims? Or ... the list goes on.

But in essence, either there were one or more massive failures in HMRC's systems - or the story is not entirely true. It would be interesting to know which - but I'm not holding my breath!

Given that you had to have a payroll scheme in place and staff registered prior to March 20 (first phase) I agree it's either complete ollocks or a massive cockup by HMRC

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Replying to Hugo Fair:
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By JacquiMBurns
18th Nov 2021 14:39

It didn't help that some accountants were probably advising their clients how to get maximum furlough payments by suggesting the 'employment' of family members too....and what to say you were paying them to get the maximum benefit. I did say at the start that checks should have been made so that only those who were actually employed BEFORE say 28 February 2020 should be covered. And this could be checked easily with RT filing.

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Glenn Martin
By Glenn Martin
18th Nov 2021 10:18

I suspect the working while furloughed is potentially a big thing ranging from "we were only checking emails" to those working flat out as normal but from home etc.

Not sure what resource HMRC would have to pursue those unless staff who have ended up made redundant, become disgruntled then whistle blown.

My advice to everyone is get a practice wide fee protection policy in place if you want to get paid for sorting this mess out.

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By Ben Alligin
18th Nov 2021 11:56

Weren't all the applications made digitally? So surely HMRC Digital Roll Out Techno Team/Supremoes would have had all the checks and balances in place already.

Am I lead to believe that HRMC's digital systems failed to spot any of this fraud? This could all have been resolved by some software/app etc etc..........this would have then resulted in a savings of £millions/billions to HMRC. Sorry am I an on the wrong thread here!!!

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Brainy Smurf
By R5P
18th Nov 2021 11:56

This is of no surprise to anyone in the profession and these stories will continue to come to light for many months yet. Greed was always going to get the better of some people, but much of this could have been stopped if HMRC had run very basic checks before making payments.

It does make you wonder in these days of corporate and social responsibility vetting by larger businesses what the long term impact will be on the accused should the allegations prove to be true.

Being based in Yorkshire we are aware of Brewster Recruitment and it’s interesting that they have been long terms sponsors of the Yorkshire Finance Leaders Awards but have recently been dropped from the named sponsors list. Also, according to one press article investors in people will be reviewing their accreditation once the investigation concludes.

If these allegations against Brewster Recruitment prove to be true then I will be removing them from my list of go to recruiters.

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By AndrewV12
18th Nov 2021 12:03

This article is dated the 17th November 2021, it could have written 18 months ago or even earlier.

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By SJH-ADVDIPMA
18th Nov 2021 12:08

The government wasted £36b in less than 2 years on track and trace, the cost of building two nuclear power stations. We really have been financially ruined by the government's response to covid.

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Replying to SJH-ADVDIPMA:
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By vstrad
18th Nov 2021 13:50

The money spent on T&T may well have been wasted but I would have hoped AWeb readers would be better informed than to regurgitate the false £36B figure.
That sum is the total budget allocated for a two year period that we are only 18 months into. It covers all the costs of testing, as well as track & trace, and Year 1 had an £8B underspend. So no, we haven't spent£36B on test and trace and we're not going to.

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Replying to vstrad:
Stepurhan
By stepurhan
20th Nov 2021 09:25

Have either of you got a source for your figures.

I still think that a system that does not do its job is a waste of money, however much was spent? It would be good to be confident in the figures involved though.

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By Self-Employed and Happy
18th Nov 2021 12:12

It was obvious to those of us working through it that it was being completely abused!!

The amount of times we had to very clearly outline the rules to clients (these are decent ones not the dodgy types) was unreal, we even knew of companies "taking the mick" with furlough (engaged with other accountants not ourselves) the pandemic brought the very worst out of people when it came to selfishness / greed.

We know of many Chartered Accountants near us that furloughed staff, they presumably used it as some kind of test to see if they genuinely needed the furloughed staff.

It was entirely aided / abetted by a HMRC that is not fit for purpose.

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By richard.snape
18th Nov 2021 13:19

It is undoubtedly true that wholesale amounts of abuse have taken place with the various Covid relief schemes and this could have been and was predicted.
However, CJRS has ended with a booming job market and very low unemployment.
So while more should have been done to prevent fraud and the miscreants should be challenged, the Government deserves credit for not letting pursuit of the perfect stand in the way of the good.
It may be that higher tax receipts now from greater employment will outweigh the fraud losses.

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Replying to richard.snape:
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By Self-Employed and Happy
18th Nov 2021 13:34

I don't buy that at all.

1) They won't know for years how much the Government backed loans handed out like confetti will cost

2) They'll use it as a reason to increase taxes (they already have) which is really really fair (not) on people who didn't take a penny from the system.

Anyway, this is leaning into politics which isn't ever a good thing to talk about.

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Replying to richard.snape:
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By Jim100
18th Nov 2021 13:47

It doesn't take a rocket science to realise you can give money but make sure you are giving it to the people who need then through some basic checks.

If I was implementing a system and there were no checks in place do you think and employees carrying our fraud due to lack of controls do you think I would still have a job ? Yes there was the urgency to get money to businesses quickly but there not going to be much effort by carrying out simple checks and have certain controls in place

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Nefertiti
By Nefertiti
18th Nov 2021 17:58

What a surprise....NOT. Well the government has been pocketing billions in contracts for rubbish PPE and other gimmicks including the £13.6 billion Track and Trace system that never works properly. So why not let the fraudsters take their share too? It is not right that only the government can steal our hard earned taxes, let the commoners participate too. Keep Calm and Carry On, it is only YOUR money that they are stealing daily.

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By Hardev
19th Nov 2021 11:42

In relation to the SEISS grants which have been claimed and now when preparing accounts it is clear that turnovers and profits have gone up during covid for some clients, would HMRC's systems pick this up and demand the grants back or does the accountant have to point HMRC to it.

Secondly regarding businesses who took the £50,000 bank loans to support the business and then used them for personal use (new car, hot tub, deposits on property) I assume accountants will not be claiming any interest on these loans as a business deduction but treat it Drawings.

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