After the horse has bolted: covid-19 and fraud prevention

News that up to £17bn of over £47bn credit provided through covid-19 related loans will not be repaid makes for depressing reading. Further reports that as much as £4.9bn of the credit was taken by fraudsters will be angrily received, not least by those who had to tighten the purse strings over Christmas. Anti-fraud measures were implemented late and appear to have been under-resourced and inadequate. Rectifying this should now be a priority, such that individuals that have abused this scheme should now fear focused investigation and, where appropriate, prosecution efforts. However, are there the resources to do so properly?

As part of the covid-19 emergency lending program, the Bounce Back Loan scheme (BBL), the Government loaned £47bn to small businesses. However, it is now reported a significant portion is not expected to be repaid – and further, a sizeable chunk, 11 per cent at some reports, has been lost to fraud.

Of course, it was right one of the immediate priorities following the covid-19pandemic was to ensure business continuity and prevent the collapse of small businesses. However, was this prioritised at the expense of implementing inadequate fraud measures, or are inadequate measures indicative of a wider issue? The situation is not helped by reported accompanied issues with an underfunded criminal justice system. Indeed, these multiple symptoms would suggest a wider problem.

Inadequate measures

A report from the National Audit Office (NAO) concludes : “Counter-fraud activity for the Bounce Back Loan scheme was implemented too slowly to be effective and the government’s activity to limit taxpayers exposure to fraudulent loans is in adequate”.

Indeed, the scheme has faced numerous criticisms, including having limited verification, and no credit checks on borrowers, which made it vulnerable to fraud and losses. Although lenders were expected to be the first line of defence and conduct due diligence, there were apparently limited commercial incentives (indeed, lenders themselves could recover overdue loans). Further, some counter fraud measures, such as duplication checks, were introduced late and all other counter-fraud measures were implemented after September 2020.

Enhanced investigation efforts

The late implementation of counter-fraud measures shows a clear case of closing the stable door following the horse bolting. Going forwards, while specific areas of improvement have been on identification, quantification and recovery of fraudulent loans, it is primarily worth noting efforts appear to be focused on organised crime rather than, for example, overstatement of turnover by a specific percentage. Therefore, some fraudulent activity will undoubtably have slipped through the stable door.

There have been some practical steps taken. Indeed the first arrests took place in October 2020 and more arrests have followed.  Further, a HMRC taskforce has been created staffed by more than 1000 employees. Finally, the Insolvency Service will be granted powers to investigate cases following the dissolution of a company.