The Parliamentary Accounts Committee (PAC) has published a report 'Fraud and Error', warning that government actions “significantly increased” UK taxpayers' exposure to a loss of billions of pounds through fraud and error in administering Coronavirus support packages.

The report went on to further criticise government departments for little or no fraud detection systems and that even HMRC and the Department for Work and Pensions (DWP) did not use Counter Fraud guidelines or staff in implementing procedures.

It called for a series of anti-fraud actions by both HM Treasury and the Cabinet Office to effectively force government departments to take the issue of fraud and error more seriously. The Committee set out seven criticisms followed by recommendations starting out with the potential fraud costs.

1. Fraud costs

  • The Department for Business (BEIS) estimates the Bounce Back Loan Scheme could cost the taxpayer £27 billion in fraud or credit losses, with the 100% taxpayer guarantee leaving the Department “reliant on banks that it admits lack incentives given it is not their money on the line”.
  • Universal Credit fraud and error rose by £3.8 billion to an all-time high of £5.5 billion between April 2020 and March 2021.
  • The Cabinet Office estimates that fraud and error cost the overall public purse up to £51.8 billion every year. 
  • For other departments involved in public spending, there is currently no formal measurement of fraud.
  • It also expressed concern that Coronavirus-related subventions administered by local authorities would be open to fraud. In part, this may be due to financial and staffing pressures and unable to ensure the quality of audit trails.

Recommendation 

Within three months HM Treasury and the Cabinet Office should set out:

  • How they will ensure that departments are implementing a zero-tolerance of fraud and error following the pandemic.
  • How they will ensure departments apply the same level of innovation when tackling the increased risk of fraud and error as they did when implementing the COVID-19 response schemes.

2. Government has a limited understanding of fraud

The Committee accepted that while departments such as HMRC and DWP have deep experience of fraud and had a well-established approach to dealing with it, the same could not be said for other departments. This was in spite of the Global Fraud Risk Assessment by the Cabinet Office Counter Fraud Function warning of fraud issues with COVID-related grants.

Recommendation 

The Committee asked that HM Treasury and Cabinet Office should, within six months, work with all Departments to build on the existing Global Fraud Risk Assessment. It should identify and publish all the fraud and error risks to public money across government and commit to updating this publication annually.

3. Lack of urgency and high error rates contribute to fraud in some departments

The Committee pointed out that robust measurement of fraud and error was critical in countering fraud. While BEIS, DWP and HMRC were committed to estimating fraud and error, there remained the problem that the process was not prioritised enough. Even in these departments there were flaws and it highlighted:

  • HMRC does not intend to measure the rate of fraud and error in the Self-Employed Income Support Scheme and Eat Out to Help Out schemes.
  • DWP cannot say when it will set a target for reducing fraud.
  • BEIS does not expect its fraud sampling exercise on the Bounce Back Loan Scheme to complete until the end of May 2021.

Recommendation

Within three months HM Treasury must strengthen current reporting requirements and ensure that all departments measure and report on the risks of fraud and error within each of their COVID-19 support schemes. This should include:

  • The estimated value of fraud and error within their COVID-19 response.
  • How identified risks of fraud and error are being addressed.
  • Any planned action to recover taxpayer money lost to fraud and error, including timescales.

4. Departments should use counter fraud expertise when designing new initiatives

It was evident according to the Committee that in spite of the Cabinet Office’s work to increase the awareness of the new Counter Fraud Function it remained below the radar for all departments and as such, the flaws in some of the COVID-related schemes could have been avoided.

Recommendation

HM Treasury and Cabinet Office should, within six months, introduce mandatory fraud impact assessments that require formal sign off from the Counter Fraud Function for all Government Major Project Portfolio programmes and for all other schemes that departments identify as having a moderate to high risk of fraud or error. A summary of these assessments should be published.

5. Ignorance of departments anti-fraud capabilities

The Committee pointed out that while there were 16,000 civil servants working the Counter Fraud Function (with 77% in the DWP or HMRC), neither HM Treasury nor the Cabinet Office know whether departments are adequately resourced to tackle fraud and error or not. 

Recommendation

HM Treasury and Cabinet Office should write to the Committee within three months setting out how they will work with departments to build their counter-fraud capacity and ensure that each Department’s resourcing is properly aligned with its risk exposure.

6. Lack of information-sharing hinders fraud detection

The Committee found that gaps in transparency and information-sharing between departments was hindering efforts to prevent, detect and correct fraud and error. Timely data sharing can be used to prevent fraud by data matching, improve detection of fraud by sharing intelligence and enable recovery in cross-government schemes. 

Recommendation

The Cabinet Office should write to the Committee within six months detailing how it has worked with departments to identify and address gaps in real-time data sharing. HM Treasury should set out the transparency principles it expects for government support schemes, including the presumption that the business beneficiaries of government support schemes will be published.

7. Inconsistencies across departments in handling fraud

PAC warned that inconsistencies in their approaches to the consequences of fraud and error for different groups of debtors could be seen as unfair by the public. It revealed the thresholds for taking action differed widely with:

  • DWP applies a financial threshold when deciding whether to pursue criminal sanctions.
  • HMRC will only pursue criminal proceedings for the most serious crimes, focusing instead on disrupting criminal activity to make it unprofitable.
  • Although BEIS is working with the police on criminal sanctions for loan scheme fraud, it maintains it is up to the bank to follow usual recovery procedures in the first instance. 

Recommendations

HMRC and DWP should write to the Committee setting out how they will identify and address inconsistencies of sanctions for frauds that are similar in nature. BEIS should set out details of steps it will take to assess whether the recovery efforts of banks are reasonable and the steps it will take to recover taxpayers’ money if deficiencies are identified.

Useful guides on this topic

Information powers
How does HMRC gather information? What information do they already hold? What rules should you be aware of?

COVID-19: NAO publishes guide for audit and risk committees
The National Audit Office (NAO) has published ‘Guide for Audit and Risk Committees on Financial Reporting and Management during COVID-19’.

Taxation of COVID-19 support payments
The government has opened a new consultation ‘Taxation of Coronavirus (COVID-19) support payments’ on draft legislation which includes measures to tax the grants available, recover payments from businesses not entitled to them and penalise deliberate non-compliance.  

Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?

External link

Parliamentary Accounts Committee Report: Fraud and Error 


Oak ad
Are you enjoying our content? 

Thousands of accountants and advisers and their clients use www.rossmartin.co.uk as their primary TAX resource.

Register with us now to receive our unique FREE Tax Planning Tips and Advice Guide & our FREE OMB Newsletter.

 

 

Comments (0)

Rated 0 out of 5 based on 0 voters
There are no comments posted here yet

Leave your comments

  1. Posting comment as a guest.
Rate this post:
Attachments (0 / 3)
Share Your Location

 

Enjoying the Practical Tax content on www.rossmartin.co.uk? 

Sign up now to receive a unique FREE Tax Planning Tips and Advice Guide & our FREE Newsletter.

.Squirrel ad