NAO report finds department could have done more to combat fraud and error

Credit: Ali Mokhtari from Pixabay

Gaps in government data may have seen more than a million people wrongly considered to be ineligible for support payments for furloughed workers or the self-employed, a report from the National Audit Office has found.

The report highlighted cases where people had been deemed ineligible for support despite being financially affected by coronavirus, either because of ministerial decisions or because HMRC lacked the necessary data to protect against fraud.

They included 1.1 million people estimated by third parties to be ineligible for furlough “because HMRC had limited data to validate claims or determine eligibility”, the report said.

A further 1.6 million people did not meet the criteria for the self-employed support scheme, either because most of their income did not come from being self-employed or because their trading profits exceeded £50,000. An additional 200,000 people may have lost out on support because they were newly self-employed in 2019-20 and had not yet submitted a self-assessment return.

“The NAO recommends that HM Treasury and HMRC should consider how to ensure that reliable information, covering as many people as possible, can be used to determine eligibility so that fewer people suffering loss of income are excluded from similar schemes in the future,” the NAO said.

Elsewhere the auditors’ report concluded that the tax agency should have done more to minimise the risk of money being claimed fraudulently, following estimates that more than £3bn may have been claimed in fraud and error.

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There is likely to have been “considerable amounts of fraud and error” on the Coronavirus Job Retention Scheme and Self-Employment Income Support Scheme set up to protect jobs and support people whose incomes had taken a hit during the coronavirus pandemic, the NAO said.

And it said the extent to which HMRC and the Treasury could mitigate fraud and error would be a “key value-for-money test” for the schemes.

Last month, HMRC permanent secretary Jim Harra said the tax agency was targeting fraudsters after estimating between 5% and 10% of applications may have been phony claims or errors. HMRC’s estimate puts the level lost by 20 September at between £2bn and £3.9bn, the NAO said.

But the number could climb higher as total spending on the two job-support schemes is forecast to reach almost £70bn by the end of this month, the NAO said.

The watchdog said there was significant evidence that employers had wrongly claimed furlough money for employees who were working, and that fake companies had claimed payments.

HMRC’s fraud hotline has received over 10,000 reports, many about cases where employees were working despite being officially on furlough; and in a survey of employees by the NAO, 9% admitted to working while furloughed at the request of their employers, against the rules of the scheme.

The report also noted that employees will only be aware that their employer had been claiming furlough payments for them if the business had told them directly. There may therefore be cases where employees were unaware that they should not have been working under lockdown, it said.

HMRC could have done more to ensure employees knew they were on the furlough scheme and therefore should not have been working, the NAO said.

To mitigate this risk in future, HMRC is planning to publish the names of employers claiming financial aid under the new Job Support Scheme announced by the chancellor, Rishi Sunak, in September. It will also directly notify people whose employers have claimed funds.

NAO head Gareth Davies said: “HM Treasury and HMRC met their objective to rapidly implement the schemes and the civil service should be commended for making these available ahead of schedule. Indications are that the schemes helped to protect jobs in the short-term, but it is also clear that many other people have lost earnings and have not been able to access support.

“It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme. HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme. In future, the departments should do more while employment support schemes are running to protect employees and counter acts of fraud.”

A government spokesperson said: “The government’s priority from the start of the outbreak has been on protecting jobs and getting support to those who need it as quickly as possible, and our employment support schemes have provided a lifeline to millions of hard-working families across the UK. Our schemes were designed to minimise fraud from the outset and we have rejected or blocked thousands of fraudulent claims. We will not tolerate those who seek to defraud taxpayers and will take action against perpetrators, including criminal prosecution.”