Furlough fraud puts business ethics to the test
Whistleblowers have reported nearly 2,000 cases of furlough fraud to HMRC. What should advisers do if they believe clients are not abiding by the rules of the coronavirus job retention scheme (CJRS)?
The coronavirus business support measures open up possibilities for dishonesty and abuse, and this is particularly the case with CJRS grants, which should be used by employers to pay the costs of keeping employees on furlough.
AccountingWEB members have already swapped a few stories about dodgy CJRS claims in Any Answers, including the landlord who wanted to submit a claim for his partner, who he suddenly decided should be on a salary of £12,500 to collect rent. Or the client who furloughed two employees and then took on family members to work for the company.
Tales such as these present an opportunity for accountants to reflect on what constitutes a fraudulent claim and how they should respond should they encounter such a situation. This article sets out current professional guidance on the subject.
Reporting fraud to HMRC
Before the CJRS furlough scheme portal opened for claims last month, HMRC launched a new fraud hotline (tel 0800 788 887) and an online whistleblower service based on a structured email form. By 24 May the CJRS scheme had been used by 1m employers claiming for 8.4m employees on furlough. To date, HMRC has received around 1,900 reports of potential fraud related to the scheme.
HMRC made it clear it will be auditing employers and will clawback payments made where the application is found to be fraudulent or based on dishonest, inaccurate information. The draft legislation to bring coronavirus business support schemes into the tax system provides HMRC with the powers to recover payments of CJRS grants where the funds have not been used to pay employees’ PAYE or NICs or make pension contributions.
Examples of areas of concern
Examples of abuse HMRC will target include:
- Employers not paying the amounts received to the employees
- Asking employee to work while on furlough
- Making backdated claims to cover periods which include periods the employee was actually working.
Advice for accountants
Professional bodies including the CIOT and ICAEW published guidance for advisers on the new measures to accompany documentation focusing on maintaining professional standards. The primary guidance on this topic is Professional conduct in relation to taxation (PCRT).
The PCRT sets out the principles and standards all members and students of the seven sponsoring bodies must to follow in their tax work.
In response to the Covid-19 pandemic both the CIOT and ATT published guidance on meeting client due diligence requirements, and professional standards matters to consider as a result of Covid-19.
Since the Covid-19 pandemic the PCRT FAQs have been updated to advise on handling clients who have instructed their employees to continue working whilst on furlough, which is specifically not permitted. Employers who go down this path run the risk of committing fraud. In these instances, advisers should:
- Ensure clients understand the government guidance and take appropriate steps to ensure employees do not carry out any work that makes money or provides services for the organisation or associated organisation.
- Consider removing access to work emails, texts or phone calls
- Include an out of office message to explain that work will not be carried out until further notice.
- If they become aware that an employee is carrying on work while on furlough for a client, the adviser must advise the client of the conditions.
- Should the client continue to ignore such advice and guidance, advisers should cease to act for client.
- Consider whether a report to the firm’s anti-money laundering officer is necessary:
- If it is believed that the error was innocent and corrected straightaway, it is unlikely that there will be proceeds of crime and a report may not be necessary
- If you believe the client was fully aware of the conditions, a report is required as the client has knowingly claimed government funds which they were not entitled to and such funds constitutes proceeds of crime
- A money laundering officer will need to submit a suspicious activity report to the National Crime Agency.
ICAEW Code of Ethics
The ICAEW code of Ethics adopts a principles-based threats and safeguards approach and code applies to all members, affiliates, member firms and employees of those firms. The fundamental principles include:
- Professional competence and due care
- Professional behaviour.
The ICAEW website also provides information on compliance and professional conduct including advice on how to comply with anti-money laundering regulations.
The CJRS was introduced to protect jobs, encouraging employees to report any abuse. Since HMRC can retrospectively audit claims, it would be prudent for advisers to maintain regular communication with clients to ensure they continue to meet the conditions of the scheme.
Payments need to be used for the scheme’s intended purposes. Clients should also be aware that existing employment rights and obligations will continue between employer and employee even while the employee is on furlough.
As advisers it is our duty to ensure businesses and individuals understand government initiatives and where public money is being accessed, it is used as intended. Advisers must continue maintaining their professional standards.
Have you encountered any of the ethical dilemmas referred to in this article? Share your experiences by commenting below.
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Reshma Johar is a Tax Consultant at Carter Backer Winter. She is both ATT and CTA qualified with experience gained from practice and her involvement with the CIOT. She has a particular interest in OMB and private client taxes.