Recently, there has been widespread media reporting of fraud concerns arising from the COVID-19 pandemic.
A key area of risk is the use of the Coronavirus Job Retention Scheme, commonly referred to as the 'furlough scheme'. The furlough scheme has been set up to reimburse a proportion of 'furloughed' employees' wages i.e. employees on a leave of absence who are kept on the payroll. Employers seeking to use it should take steps to protect against the risk of fraud in their organisation.
The scheme opened for applications on 20 April 2020 and will remain in place until the end of June 2020, but may be extended if necessary.
Examples of fraud under the furlough scheme
HMRC has warned that serious failures to comply with the furlough scheme's conditions could result in criminal prosecution.
Examples of potential frauds in relation to the furlough scheme include:
1. Employer-benefit fraud – where an employer purports to place an employee (or employees) on furlough in order to access the scheme, thus reducing their pay-roll costs, but in fact has instructed those employees to work, provide services or generate revenue for them or any linked or associated organisation.
2. Employee-benefit fraud – where an employer seeks to allow an individual (or individuals) not ordinarily employed by them to be regarded as employees for the purposes of the scheme, so that the scheme will provide funds for the individual(s) that they are not entitled to.
These types of fraud give rise to the risk of prosecution, significant reputational damage, and financial loss.
Payments under the furlough scheme may be withheld or need to be repaid in full to HMRC if a claim is found to be based on dishonest or inaccurate information or found be fraudulent.
HMRC has put in place an online portal for employees and the public to report suspected fraud in the furlough scheme.
Protecting against the risk of fraud
The message from the UK Government and HMRC is clear – they are aware of, and will investigate, fraud concerns in relation to the furlough scheme. Responsible businesses should take steps to protect against the risk of their organisation wrongfully accessing the scheme. This may include:
1. Training for payroll and HR staff to ensure knowledge of the eligibility requirements of the scheme.
2. Training of those responsible for staff management to ensure no furloughed member of staff is required to carry out any work, provide any service or generate revenue for their employer or any linked or associated organisation.
3. Updating fraud risk assessments and compliance policies to take account of the risk of fraud relating to the scheme.
4. Taking independent legal advice around access to the scheme.