Official estimates suggest close to £5bn of the £47bn disbursed could be lost in fraud © Charlie Bibby/FT
The UK government’s measures to prevent fraud in its bounceback Covid-19 loan scheme for small businesses were “inadequate” and it needed to do more to recoup the estimated £5bn that was stolen, according to parliament’s spending watchdog.
The National Audit Office also highlighted in a report on Friday the Department for Business, Energy and Industrial Strategy’s (BEIS) focus on organised crime’s exploitation of the programme, raising the risk that smaller fraudsters will escape unpunished.
Meg Hillier, Labour chair of the House of Commons public accounts committee, said the report showed counter-fraud measures had been “too little, too late”.
“It’s now focusing on recovering money from organised crime, yet many of the smaller scale fraudsters will have slipped through its fingers,” she said.
The bounceback scheme, launched in May 2020, guaranteed bank loans of up to £50,000 to support businesses during the pandemic. It was designed to deliver loans as quickly as possible, with limited verification and lenders performing no credit checks.
It proved popular, with about a quarter of all UK companies applying. But the cursory checks, according to the NAO, “made it vulnerable to fraud and losses”.
Official estimates suggest close to £5bn of the £47bn disbursed could be lost in fraud. As of the end of March 2021, lenders claim to have prevented £2bn of fraudulent applications and detected £5.3m of fraudulent loans.
The NAO said BEIS was prioritising the pursuit of organised crime involving sums of more than £100,000, given the scale of possible fraud and its limited resources. But this meant that it had decided not to “focus its investigative resources” on smaller borrowers.
“This approach risks reducing the deterrent effect of counter-fraud activity,” the watchdog said.
The NAO found 13 additional counter-fraud measures were introduced after the scheme launched but said most came too late to prevent fraud and were focused instead on detection.
Even in December 2020, seven months after the start of the scheme, BEIS officials still found a high level of fraud risk.
The NAO also warned in the report about the lack of resources BEIS was allocating to tackle organised crime’s exploitation of the bounce-back scheme. The government uses the National Crime Agency and the National Investigation Service (Natis) to combat fraud worth more than £100,000 with evidence of organised crime.
The department set Natis a target of recovering at least £6m of fraudulent bounce-back loans over three years. The agency had made 43 arrests and recovered more than £3m up to October 2021.
However, the NAO said Natis had received more than 2,100 reports of potential bounce-back loan fraud by October 2021, but only had the capacity to pursue 50 cases a year. BEIS allocated a further £32m in October 2020 to fight the fraud.
The NAO said: “Compared with the scale of its ‘most likely’ estimate of £4.9bn of fraudulent loans, both the £32m additional budget for counter-fraud operations, and its target to recover at least £6m of fraudulent loans from organised crime, are inadequate.”
Gareth Davies, head of the NAO, said “it is clear that government needs to improve on its identification, quantification and recovery of fraudulent loans within the scheme”.
BEIS said: “We are continuing to crack down on Covid-19 fraud and will not tolerate those that seek to defraud the British taxpayer. We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences.”
Officials are also relying on lenders to investigate fraud within the scheme, but the NAO said that their “commercial incentives to do so are limited” given they can reclaim stolen money through the government guarantee.