Andrew Phillips: Fraud on furlough



Andrew Phillips

Andrew Phillips explores the potential abuses of the furlough scheme. 

In their recent COVID-19 update, the Serious Fraud Office (SFO) sought to assure us that they will continue to investigate suspected fraud, bribery and corruption, adapting ways of working where necessary to adhere to government guidance. It may be no surprise to hear that they specifically address COVID-19 fraud stating that: “Fraudsters will look to use the uncertainty of the coronavirus crisis to scam innocent people out of their money. The SFO is united with its law enforcement partners in our desire to prevent such fraud and hold the perpetrators to account.”

Unfortunately, however, there will be situations where fraud cannot be prevented or goes undetected. In these circumstances, we must hope that our investigating authorities will “track and trace” the perpetrators in order to hold them to account.

There will be a vast range of fraudulent activity taking place at the moment. Most of us will know to be vigilant when it comes to scam emails asking for our bank details. The current crisis and the government assistance being offered is also open to abuse.

The Coronavirus Job Retention Scheme (CJSR) has been an essential lifeline for employers and employees alike. Unfortunately, there will be those who seek to abuse the scheme to their own advantage and others who unwittingly use the scheme when they shouldn’t.

Employers should be very careful not to submit improper applications, else run the risk of HMRC audits, enforcement action and possibly prosecution.

Furlough

Sadly, never has a word had such a swift rise to prominence.

Reportedly, 800,000 UK businesses have made use of the government’s Coronavirus Job Retention Scheme (CJSR) and 6.3 million workers have been affected. The CJRS enables employers to retain (rather than make redundant) employees with the support of tax payer funding from the government. The government support has been vital for many employers and employees alike, but those seeking to take advantage of the CJRS ought to be careful not to unwittingly or deliberately abuse the scheme.

The cost so far is estimated at £8 billion, with the Office for Budget Responsibility estimating that CJRS could eventually cost the UK around £39bn. Employers should not see this as an unchecked handout, as if they unwittingly or knowingly submit an application for an ineligible employee it may well come back to bite them.

HMRC

Employers should be warned that HMRC are alert to the risk of employers abusing the scheme. Indeed, they have already set up an employee hotline so that employees can report employers thought to be doing so.

The CJRS stipulates that HMRC will be entitled to retrospectively audit all aspects of an employer’s claim. Given the sums involved it can be anticipated that HMRC will undertake extensive investigations in the years to come. They should have plenty of time to do so, as the CJSR requires employers to keep a record of their furloughed employees for a period of 5 years.

Employers should be careful to strictly adhere to the terms of the CJRS, else run the risk on an HMRC investigation, enforcement action and potentially criminal prosecution should a fraud be suspected.

Fraud

In Scotland, a fraud is the bringing about of some practical result by means of a false pretence. The requirement that the pretence has to be made “falsely and fraudulently” means that the accused must know that the representation is false and that he intends it to take effect.
In order to make a claim, employers will require to make a declaration that they have complied with the rules of the CJRS - including that furloughed employees have not worked during the relevant furlough period.

It is easy to see how a false declaration could constitute a fraud. It would not come as a surprise to see some employers being prosecuted in due course.

We all desperately hope that this pandemic is over sooner rather than later. When it is, and the dust settles, we can be sure that attentions will quickly turn to costs. If improper or fraudulent claims have been made, then consequences should be expected.

Employers that are intending to claim under the CJRS should protect themselves by seeking legal advice at the earliest opportunity. An awareness of the potential repercussions of not adhering to the terms of the CJRS is strongly advised.

Andrew Phillips is a consultant solicitor advocate at Jones Whyte

Tags: fraud, furlough



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