COVID Fraud – What Does it Mean for You and Your Business?

The answer to that question is criminal charges, fines and penalties, repayment of funds received, and reputational damage for both you and your company. Not ideal is it?

As the vaccination programme ramps up and we start to think about the relaxation of lockdown, the government is gearing up to raise some much-needed cash by tackling COVID related fraud. You might say, “So what? Nothing to do with me”, but the reality may be somewhat different, and you need to be prepared.

During the pandemic, the government has provided all sorts of support for businesses - furlough funding, bounce back loans, CBILS and tax deferrals to name but a few. These have been a lifeline for many but as we emerge from this crisis, reports of incorrect and fraudulent claims for support are increasing rapidly and are hitting the headlines. Not surprising really, given the sums involved. For example, if 5-10% of claims under the furlough scheme were incorrect or fraudulent, HMRC could recover £2-4 billion pounds of taxpayers’ money based on the amount paid out up to last September, not a figure the government can afford to ignore.

Claims for support have often been done in a hurry and at times of great stress. That means that mistakes, whether innocent or deliberate, will certainly have been made. At best those mistakes may lead to a requirement to repay funds and to pay fines and penalties; at worst they could lead to prosecution for fraud, money laundering and proceeds of crime offences. To minimise the risk of a big financial impact for both you and your company what do you need to know?

1. What are the biggest risk areas?

• Furlough claims for employees who carried on working during the claim period or for non-existent or non-qualifying employees;
• Use of furlough payments for unauthorised purposes;
• Providing incorrect information concerning the Covid impact on your business in support of funding applications.
   

2. How will you know there may be an issue?

• Employees may raise concerns direct or report them to the authorities;
• Internal systems may identify an issue;
• You may become aware of a problem via the media or another third party;
• HMRC/police may conduct an investigation.
   

3. What should you do if you an issue is flagged?

• In all cases preserve records and evidence that might be relevant. This can help to prove any allegations are unfounded or the result of genuine errors and if there is a problem, destruction of evidence may result in further criminal charges;
• If issues come to light as a result of internal reporting systems, these should be fully investigated and addressed, preferably by someone independent. Records of all steps taken and the reasoning behind them should be kept;
• If a director/employee has been involved in fraudulent activity, check their employment contract and follow the appropriate procedures in relation to suspension/dismissal;
• Be aware of “whistle blowing” rights. If an employee reports furlough fraud and is dismissed, and if the allegations are true, then any dismissal will automatically be unfair and the caps on sums payable as compensation will not apply. If an employee raises any concerns, the Company should not react negatively and should properly investigate the matter before deciding what steps to take;
• Directors need to comply with their statutory duties by taking the proper steps to ensure any exposure to criminal liability for the Company is minimised and that any proper claims for breach of fiduciary duties are pursued against any director involved in fraudulent activity;
• Have a PR strategy in place. Stories in the local or national press about your business taking public money it was not entitled to are not going to do much for your reputation. Having plans in place to deal with any negative comment can help with damage limitation.
   

The risk to you and your business is real. You may have no idea that a furlough claim was made for an employee who had left or that incorrect figures were used in a funding application, but ignorance is no defence, so the sooner any issues are dealt with the better. The cost of ignoring them can be high. At best, repaying government support and paying fines and penalties will have a serious financial impact on your business and at worst, criminal charges being brought will have a huge reputational impact.

If you do become aware of any errors or deliberate fraudulent actions, take legal advice as soon as possible to make sure your position is protected and the cost to the business minimised. The first arrests have already been made. Don’t let the next one be you.

Disclaimer 
The matter in this publication is based on our current understanding of the law.  The information provides only an overview of the law in force at the date hereof and has been produced for general information purposes only. Professional advice should always be sought before taking any action in reliance of the information. Accordingly, Davidson Chalmers Stewart LLP does not take any responsibility for losses incurred by any person through acting or failing to act on the basis of anything contained in this publication.