The anti-fraud activity for the £ 47 billion Bounce Back loan program has been implemented too slowly to be effective and the continued activity to limit taxpayer exposure to fraudulent loans is insufficient, found the National Audit Office.
The Department for Business, Energy and Industrial Strategy (BEIS) set up by the program in May 2020 – offering loans of up to £ 50,000, a maximum of 25% of annual turnover – to help businesses survive the pandemic. But the NAO said the program was vulnerable to fraud due to the use of limited verification measures and the lack of borrower credit checks.
BEIS estimated in March 2021 that up to 11% of Bounce Back loans – worth £ 4.9 billion – were fraudulent. The NAO noted that this figure was “very uncertain” – in part because the estimate excluded certain types of fraud such as borrowers overestimating their turnover to get a larger loan.
But law enforcement agencies have limited capacity to investigate potential regime-related frauds. The National Investigation Service has received more than 2,100 intelligence reports by October 2021, but is only able to investigate a maximum of 50 cases per year.
The government has set NATIS a target of recovering at least £ 6million in fraudulent loans over three years with a focus on organized criminal gangs and the agency’s work so far has resulted in 43 arrests and to around £ 3million in recoveries.
The NAO found that the government had carried out only a few basic anti-fraud checks on the small Covid loans it gave to businesses once more than £ 28 billion had already been disbursed.
The controls to ensure that a company did not request more than a rebound loan were not put in place until June 2020, a month after the launch of the device.
At that time, 61% of the money that was to be loaned under the program had already gone to businesses. Other anti-fraud activities did not start until September 2020, as the government focused on providing loans to support struggling businesses.
“The government has prioritized getting small business rebound loans quickly, but has failed to put in place adequate fraud prevention measures. One of the impacts of these decisions is evident in the high levels of estimated fraud, ”said NAO boss Gareth Davies.
“The true level of fraud will become clearer over time, but it is clear that the government needs to improve its identification, quantification and collection of fraudulent loans within the program.”
The program was administered by the British Business Bank on behalf of the government.
The bank’s chief executive, Catherine Lewis La Torre, said: “The bank welcomes the NAO’s findings that” most of the loans – over 90%, or £ 39.7 billion – have gone to microenterprises “and that” businesses have found the loans useful in alleviating cash flow shortages during the pandemic. “
“This is supported by the bank’s own research which finds that around 70% used the funds for working capital and daily expenses.”
“The bank also welcomes the discovery that” most companies have started to repay their loans “, as evidenced by recent data released by the Ministry of Business, Energy and Industrial Strategy (BEIS) and the bank, showing that the overwhelming majority of businesses meet their monthly repayment obligations.
“Since the inception of the program, the British Business Bank has worked with lenders and across government to prevent, detect and counter fraud and put additional measures in place as quickly as possible to further mitigate the risk of fraud. “
A BEIS spokesperson said: “Government support programs have provided a lifeline for millions of businesses across the UK – helping them survive the pandemic and protecting millions of jobs.
“We continue to fight Covid-19 fraud and will not tolerate those who seek to defraud the UK taxpayer. We work closely with lenders and law enforcement authorities to minimize fraud and ensure those who commit fraud suffer the consequences. “
Federation of Small Businesses National Vice President Martin McTague said: ‘When they created the Bounce Back Loans last summer, the government and the British Business Bank faced an extremely difficult task. : Get cash in as many of these small businesses as possible, as quickly as possible. possible, while rightly doing all they could to ward off fraudsters in a rapidly changing situation.
“After weeks where the original interrupt loan program just wasn’t working for the smaller businesses that needed it most, the delays in the rebound program would have been catastrophic.”
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