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£27bn Covid relief fraud ‘may be tip of iceberg’

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A report out this week by the cross-party Public Accounts Committee (PAC) reveals how relaxed controls combined with the speed of the coronavirus financial support packages created “a perfect storm for thieves”, with at least £27bn lost to fraud.

1st Jul 2021
Journalist
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Fraudsters have bilked the Covid-19 business support schemes of at least £27bn, a damning report by the UK’s public spending watchdog has found.

The true scale of how much pandemic aid has been swindled away, however, may never be known as HMRC does not have a handle on the statistics relating to false claims.

In a report published today, the PAC said the government “significantly increased” taxpayer exposure to fraud and error by its twin decisions to drop basic fraud and error checks in paying out Covid loans, and to support people and businesses that it had no prior relationship with.

A perfect storm

“Our experience of past government support schemes/bailouts, and class action settlements has demonstrated that numerous false or exaggerated claims are submitted,” said Trevor Wiles, partner at the Forensic Risk Alliance. “Compounding this, the Covid-19 pandemic created a perfect storm for fraud to proliferate. Few could predict such an event.” 

The coronavirus-linked sum is on top of around £50bn lost annually to criminals and through mistakes, according to government estimates, which counts for more than 40% of all reported crime in the UK.

Banks were also slammed for their careless approach to dishing out the money as they “don’t have enough skin in the game” to be concerned about losses, the committee found.

“This report makes very uncomfortable reading,” said Pete Miller, chartered accountant at The Miller Partnership. “By that I mean uncomfortable as a taxpayer concerned about the way in which my taxes are being used by the government. We might disagree over the government's spending priorities but I’m sure none of us are happy about over £50bn of taxes being lost to fraud or error.”

Despite their different definitions, there is little to distinguish “between people grappling with complex government forms in the hope of obtaining a grant, loan or some other subsidy to which they are entitled as against people deliberately targeting frailties in the system to obtain money to which they are not entitled”, Miller said.

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Replies (43)

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By Hugo Fair
01st Jul 2021 13:14

“Many claimants through government relief schemes were suffering, some through no fault of their own, so in their own mind there was a ‘justification’ to submit claims, even exaggerated."

And that's the part of the problem that's hard to quantify or indeed police. Obviously there are some out-and-out frauds and, at the other end of the spectrum, some honest mistakes (due to speed of announcements and poor communications).
BUT ... I blame the Insurance Companies!

And, no, I'm not insane or starting conspiracy theories. There is a culture of 'over-claiming' on insurers that has grown up over the last 25+ years, that is predominantly due neither to criminality nor incompetence but to the processes operated by the insurance companies themselves.
The value paid out can be higher than the replacement cost, because the 'knock-for-knock' principle means the costs are shared out across the whole population's premiums.
But worse, the acceptance by the insured that the insurers will always seek to negotiate down the value of any claim means that the original claims are inflated ('so that what we get is what we should've claimed in the first place')!

And that culture is now endemic - hopefully not amongst the readers here, but almost certainly amongst their clients (and especially amongst unrepresented taxpayers). The difference is that HMRC (and therefore 'we') cannot afford the resources/costs to chase down this exaggeration of claims ... and so the spiral continues.

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By Justin Bryant
01st Jul 2021 13:29

"Few could predict such an event"

The same could not of course be said about the colossal amount of fraud itself, which is all that really matters here.

Perhaps DC can be blamed for orchestrating SJ's sacking/resignation (as he admitted recently), as I doubt the fraud figure would have been anywhere near as high under his watch and we would then not have needed to increase CT rates (so much, if at all) etc.

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By Ken Howard
01st Jul 2021 20:58

Ironic that many of the 3 million “excluded” were justified by rishon/treasury due to risk of fraud!

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By Ken Howard
01st Jul 2021 20:58

Ironic that many of the 3 million “excluded” were justified by rishon/treasury due to risk of fraud!

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By Duggimon
02nd Jul 2021 09:56

"Banks were also slammed for their careless approach to dishing out the money as they “don’t have enough skin in the game” to be concerned about losses, the committee found."

The banks started the loan schemes with proper checks, then were told by the government to speed up the process and stop querying applicants so rigorously.

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Replying to Duggimon:
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By johnjenkins
02nd Jul 2021 10:09

That doesn't exonerate banks for giving loans to newly formed companies. That really is a simple check.

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Replying to Duggimon:
Brainy Smurf
By R5P
02nd Jul 2021 10:43

My personal experience of dealing with one of the large high street banks over the last few months is that they were aggressively pushing us to apply for a CBILS, which we neither wanted nor needed. It got to the point where they were offering to help us come up with a reason why we needed the loan. In the end I had to be quite forceful in saying we were not interested.

The attitude of business relationship manager was you might as well have the money because it does not matter if you pay it back or not as we are guaranteed to get our money back from the Government. Whether this was purely the attitude of that individual or a wider systematic approach of the bank in question I do not know, but it has certainly put me off dealing with that particular bank in future.

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Replying to Duggimon:
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By gphemy
02nd Jul 2021 11:17

Absolutely right, Duggimon. Not just "told by government to speed up the process" but instructed that it wasn't the banks' money at risk, just get on with it. Fast. My source was silent on the origin of the instruction, but in light of the news last month on the contract to Public First, that has a familiar ring, does it not?

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Replying to gphemy:
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By johnjenkins
02nd Jul 2021 11:58

Come on. How long does it take to check if a company has only just set up. Typical banks passing the buck yet again.

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Replying to johnjenkins:
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By gphemy
02nd Jul 2021 13:35

Come on, how long does it take to read my post? But my apologies if it was not clear.
This is about HMG telling the banks that it *does not matter* how long it takes to check if a company has only just set up. It's about HMG telling banks it's none of their business, all they have to do is to disburse the cash. Quickly!

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Replying to johnjenkins:
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By Ken Howard
02nd Jul 2021 13:38

True, but a lot of fraudsters bought off the shelf or dormant companies, which had been formed years before, so it's not that simple really. Ready made/historic companies were being sold for silly money on the auction/business websites.

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Replying to Duggimon:
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By HelenHally
02nd Jul 2021 11:21

As I remember, the banks only carried out proper checks when they had a 20% vested interest. There was a huge outcry in Westminster that funds weren't getting out to those that needed it, the scheme was changed to no liability for the banks and suddenly the banks were pouring money out their doors. Think their liability should be looked at in the overall scheme of things - they are definitely not squeaky clean

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Replying to HelenHally:
By Duggimon
02nd Jul 2021 13:54

But that's my point, there's no point blaming the banks for not performing any checks, I have no idea if it's true the government instructed them not to, but they started off by doing the usual checks, then were told to speed it up, abandon the usual process, the loans are fully backed by the government now so give out the cash.

It was that directive from the government that has led to the widespread abuse and lumping all the blame for it on the banks is stupid. Yes they could have done more to check out applicants, and left to their own devices they were doing more, then they were told that's not good enough, do it faster, we'll remove all liability from you.

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By Richard Grant
02nd Jul 2021 09:58

Add to that the PPE contracts and we are presented with a Government, and opposition, that are not fit for purpose. This was blatantly obvious from day one when you throw around these kind of sums, the only logical conclusion is that the fraud runs from the top down as the handing out of contracts has shown.

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By North East Accountant
02nd Jul 2021 09:59

It's a total and utter disgrace.

HMRC are not fit for purpose.

The politicians are too busy ***ging their aides to get to grips with it.

And no-one in power actually gives a **oss enough to do anything about it.

And us poor saps who work for a living pick up the bill.......

When I pay my taxes it boils my blood the sheer waste in Government......considering the blood, sweat, and tears that have gone into earning it.

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Replying to North East Accountant:
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By johnjenkins
02nd Jul 2021 10:06

Welcome to the real world.

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By johnjenkins
02nd Jul 2021 10:04

I'm sure Government knew quite well that if the rules were relaxed, people would take advantage.
When Government first said the pandemic would cost £330b I said it would be 5 times that.
Considering we are not out of the woods and the yearly cost to the exchequer over the next 5 years, I don't think I will be too far off.
You also have to consider the cost in terms of saving lives.

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By raju m
02nd Jul 2021 10:30

It is not a big problem for the treasury.

Just borrow, borrow and borrow.
Bring negative interest rates.

In future increase the taxes:
Bring back 52% Corporation tax.
98% top rate of income tax combined with NIC

Increase Inheritance tax to 70%

Bring back capital transfer tax.

Happy days for the young people in future.

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By ColA
02nd Jul 2021 10:35

Just wonder how many Western Atlantic/Caribbean resident entities have been bailed out by this Government for their contributing cronies and yet Sunak displays a dog whilst bemoaning the severest of impacts Brexit has caused to the City of London - no ‘passporting’!
The lunatics do appear to be in charge!

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By Ammie
02nd Jul 2021 10:54

I stopped reading this after 5 seconds.

Was a report really necessary to establish what most knew was the case at the time. More waste of funds applied to stage the work and just as bad as all the other acts of wasteful spending.

I suggest they cut the middle man out and open tentative enquiries into a sizeable sample of claimants, which may take years.

Then the real fun starts. How does HM government propose recovering unsecured claimed money spent and what will it cost to do so.

The frenzy for free money was akin to a Piranha attack on prey and the result will be the same, once it's gone, it's gone!

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Replying to Ammie:
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By Self-Employed and Happy
02nd Jul 2021 11:03

Ammie wrote:

How does HM government propose recovering unsecured claimed money spent and what will it cost to do so.

The government have already started reclaiming SEISS via self assessment

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By quintodc
02nd Jul 2021 11:00

The only fraud that matters here is the government scamdemic fraud that has caused such economic suffering for thousands across the country and world, not to mention the thousands of deaths and hundreds of thousands of serious reactions from the vaccinations. There is a big court case being brought against key members of the government who have their hands in the vaccination companies pockets....

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Replying to quintodc:
Stepurhan
By stepurhan
04th Jul 2021 19:03

I ask for your sources for these figures, but I see your posting history over the last few months reads like a conspiracy theorist checklist, so I doubt you have any. (or at least no reliable ones)

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By Self-Employed and Happy
02nd Jul 2021 11:02

£27B...hahahahaha (multiply that by 5)

From Banks pushing their own loans with higher rates but disguising them as Government Loans (yes I had to tell two of my clients to tell their banks where to shove those), to Directors mis-using the loans for personal reasons, to self-employment people smashing through SEISS grants knowing full well they had not suffered.

It was all blindingly obvious, now we probably won't ever pay back the national debt in my lifetime (I'm sub 40). It's depressing, I know of accountants that still have accounts staff on furlough, we were a very new business when this all hit and did not claim a single penny, we lowered standing orders off our own back to clients who were closed / suffering a hefty loss of trade, yet we unfortunately will all suffer the consequences by way of tax increases, yet it won't be us that moan the loudest, you can be sure it will be those that shouldn't have claimed anything in the first place.

Unfortunately you simply can't trust people as a whole to act unselfishly, you can't trust people not to take more than they deserve / are entitled to

Remember "we're all in it together"

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Replying to Self-Employed and Happy:
RLI
By lionofludesch
03rd Jul 2021 07:54

Self-Employed and Happy wrote:

£27B...hahahahaha (multiply that by 5)

From Banks pushing their own loans with higher rates but disguising them as Government Loans (yes I had to tell two of my clients to tell their banks where to shove those), to Directors mis-using the loans for personal reasons, to self-employment people smashing through SEISS grants knowing full well they had not suffered.

It was all blindingly obvious, now we probably won't ever pay back the national debt in my lifetime (I'm sub 40).

What makes you think that the country should ever be debt free?

Do you advise your clients to never, ever borrow money?

Debt is a part of progression.

Not to mention that it's foolish to think that a country can be run like your household budget.

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By richardt62
02nd Jul 2021 12:02

The obvious solution was for the government to offer loans directly to businesses via HMRC, with loan amounts determined by by filed profits over recent years.

HMRC know the reported profits, are set up to make and take payments from the correct bank account, know who authorised officials of the business are. So fraud would be minimal (and default covered by say 2% interest), could have been done rapidly and would provide a cheaper rate to the companies.

But hey, why do that when you can transfer £10's of billions of profit to the banks for no risk. Incompetence or corruption, I can't decide.

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Replying to richardt62:
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By Ian McTernan CTA
02nd Jul 2021 13:00

Do you actually work in tax or accountancy? HMRC admitted they couldn't use their own systems to tell how much people took in dividends from their own companies which was their excuse for not supporting company owners...

The banks won't be making much profit on 2.5% loans with all the admin involved..so your figure of 10's of billions is just rubbish.

And if you'd ever had to deal with HMRC you'd know they are the last people to trust to organise anything, or pay money out. Just look at the mess over subbie reclaims this year.

But thanks for the input captain hindsight.

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Replying to Ian McTernan CTA:
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By richardt62
02nd Jul 2021 19:18

Hi Ian,

No, I work in the real world running a business that will be expected to help pay for this mess.

I don't really see that dividends have much to do with this, I'm suggesting lending a percentage of profits. If that later reduces the cash left for dividends tough, at least they would still have a business.

Where do you get 2.5% from? My understanding is banks could charge up to 15% on at least some of the schemes?

I'm not suggesting HMRC are perfect, but the banks are hardly models of efficiency!

I'm not captain hindsight, I wrote to Sunak at the time clearly laying out my proposal.

You clearly think you know better, all I know is I don't see why tax payers like me should be paying out extra tax for a very poor expensive scheme after I suggested a much more effective scheme.

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Replying to Ian McTernan CTA:
RLI
By lionofludesch
03rd Jul 2021 11:30

Ian McTernan CTA wrote:

Do you actually work in tax or accountancy? HMRC admitted they couldn't use their own systems to tell how much people took in dividends from their own companies which was their excuse for not supporting company owners...

If only they hadn't abolished ACT.

A retrograde step if ever there was one. As was allowing companies to lend money to participators.

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By Arcadia
02nd Jul 2021 12:16

Please don't worry about the National Debt. It is a fiction. It is just entries in a ledger which a good old-fashioned contra (with the assets bought under quantitative easing) could sort out. We don't have to pay it off. It is a tool of financial management not an actual debt.

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Replying to Arcadia:
RLI
By lionofludesch
03rd Jul 2021 18:00

Arcadia wrote:

Please don't worry about the National Debt. It is a fiction. It is just entries in a ledger which a good old-fashioned contra (with the assets bought under quantitative easing) could sort out. We don't have to pay it off. It is a tool of financial management not an actual debt.

Interestingly, the national debt in December 2010 was £1194 bn.

After five (or so) years of Cameron's austerity, it was £1731 bn (45% increase).

Three years later (latest pre-Covid figure I could find), with less austerity but not quite a Viv Nicholson approach, it had only risen to £1821 bn (5% increase).

Austerity isn't really very successful.

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By Ian McTernan CTA
02nd Jul 2021 12:56

£27bn in fraud or credit losses. NOTE: credit losses.

the way this whole thing has been portrayed by the PAC is very deliberate, making it sound as if the entire figure is due to fraud....

Of course a large percentage of the BBL scheme loans will not be repaid, as many businesses took the loans in a desperate short term action to survive what many thought would be a couple of months of lockdown.

Of course, as usual, lots of moaning but no suggestions as to what could have been done differently in the timescale to safeguard so many businesses and some political points scoring thrown in with some emotive language as well.

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Replying to Ian McTernan CTA:
RLI
By lionofludesch
03rd Jul 2021 18:04

Ian McTernan CTA wrote:

Of course, as usual, lots of moaning but no suggestions as to what could have been done differently in the timescale to safeguard so many businesses and some political points scoring thrown in with some emotive language as well.

I wouldn't have done anything hugely different at the time.

I would, however, be boosting employment by engaging investigators to look for deliberate defaulters.

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By pleasehelpmeonip
02nd Jul 2021 12:59

Well perhaps they saw all of the contracts which the Boris Johnson Government gave to their friends and contacts and thought "we'll have some of that as well" ?. The Johnson Government is far from clean looking.

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Replying to pleasehelpmeonip:
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By Ian McTernan CTA
02nd Jul 2021 13:09

As opposed to going through the normal channels and taking 12-18 months to approve a contract.

The procurement system isn't designed to work in a crisis, which is why it was avoided and contracts awarded to those they knew could )mostly) get it done.

In percentage terms (instead of reading the gutter press) the actual delivery percentage on these contracts has been amazingly good. If you want to compare how it worked compared to the usual procurement program, take a look at how the Army's new mobile infantry vehicle is progressing and imagine if we had stuck to the procurement system for PPE.

It is through avoiding the usual system that so much was achieved so quickly (not to mention ordering of vaccines way ahead of the EU, etc).

Would you rather the Johnson Govt had insisted on putting everything out to tender whilst we stood there and ran out of basic PPE (at least we'd have followed procurement rules so you would have a warm fuzzy glow of righteousness as you lie in a corridor breathing your last).

Why is it so many people love moaning in this country and would rather see us fail?

Johnson and his govt aren't perfect (and don't claim to be), but at least they try and get on with dealing with the pandemic. the other side just moan and offer no alternatives just bleat on about stuff no one really cares about.

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Replying to Ian McTernan CTA:
Stepurhan
By stepurhan
04th Jul 2021 19:06

Ian McTernan CTA wrote:

In percentage terms (instead of reading the gutter press) the actual delivery percentage on these contracts has been amazingly good. If you want to compare how it worked compared to the usual procurement program, take a look at how the Army's new mobile infantry vehicle is progressing and imagine if we had stuck to the procurement system for PPE.

Source for those percentages?
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Replying to stepurhan:
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By Ian McTernan CTA
05th Jul 2021 10:15

I remember reading some official figures at the time of around 99% or so - but as usual the gutter press and leftwingers jumped on the 1%. There was even a report saying that one huge batch was 'not fit for purpose' when it was, in fact, exactly what had been ordered by the NHS.
Very much like the PPE 'shortages' which were defined as having under a certain percentage of stock or number of days worth. Fast action by the Govt resulted in the country as a whole not running out- the usual procurement process would have seen us getting our first PPE around about now if they had started in january last year...

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Replying to Ian McTernan CTA:
Stepurhan
By stepurhan
06th Jul 2021 08:46

I asked for sources, not more second-hand anecdotal evidence.

You claim to have read something somewhere that contradicts news reports. Instead of presenting that something you claim to have read, you are simply repeating your claims as fact. You are not helping yourself by making broad brush references to the "gutter press" and "leftwingers", showing you have a bias in this discussion.

If you actually have a reliable reference for your claims, then present that reference. I'm willing to persuaded that the stories appearing in newpapers I consider reputable as recently as last month are wrong. I'm not just going to take your word for it though.

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By cereus77
02nd Jul 2021 13:19

Dispiriting to see the vast effort put into IR35 “reform” by HMRC - trying to make independent contractors be taxed as temporary employees with no benefits - compared with the vast losses accrued by the same government organisation just handing money out of the door with hardly any checks at all.

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By penelope pitstop
02nd Jul 2021 14:44

Dunno what the problem is!

Just need HMRC to get their act together. They've got 20 years to sort this mess out at their leisure.

£27 billion fraud.
£27 billion penalties.
£351 million interest (£27 billion x 2.6% x 10 years average)
= almost £54.5 billion and a bit to collect.

Don't worry! Be happy!
:-)

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Replying to penelope pitstop:
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By Ian McTernan CTA
05th Jul 2021 10:16

Again, you've missed the 'fraud and credit losses' bit. It's not 27bn of fraud, it's a small proportion of fraud and the rest is expected to be defaults as companies go under despite govt support.

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Norman Younger
By Norman Younger
05th Jul 2021 09:45

Wonder how many accountants were complicit , maybe without realising it at the time , by psuhing clients to take a bullish approach in the face of the "fog of war" , but as we all know one day the weather clears.....

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Norman Younger
By Norman Younger
05th Jul 2021 09:45

Wonder how many accountants were complicit , maybe without realising it at the time , by psuhing clients to take a bullish approach in the face of the "fog of war" , but as we all know one day the weather clears.....

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