Recommendations & Conclusions
12 items
5
Recommendation
First Report - Department for Business,…
Acknowledged
The Department has yet to set out how it is learning lessons from managing its COVID-19 business support schemes to better protect taxpayers’ money Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21 7 in future. The Department now has two years’ worth of experience designing, implementing, …
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The Department has yet to set out how it is learning lessons from managing its COVID-19 business support schemes to better protect taxpayers’ money Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21 7 in future. The Department now has two years’ worth of experience designing, implementing, and managing COVID-19 business support schemes, and some experience of recovery activities where fraud and error has been identified. It has identified some learning that, for example, has allowed it to refine its approach to identifying fraud and error in COVID-19 business support grants. However, this is to reduce shortcomings in existing schemes, and we would expect to see the Department demonstrating that it is learning wider lessons from these schemes which it could then apply to improve its stewardship of public funds in the future. Several of the Department’s major areas of expenditure in the coming years, such as supporting public sector decarbonisation and achieving net zero, will again require routing taxpayer funds through third parties as it did with COVID-19 business support schemes. We would expect lessons the Department has learned during the pandemic to support the design and delivery of these future schemes. Recommendation: The Department should continue to refine its estimates of the levels of fraud and error across its COVID-19 business support schemes, recovering monies to reduce losses to the public purse and apply any lessons learned from these to future support schemes. It should write to the Committee before the end of the year to set out how it is applying lessons learned in its ongoing activities.
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Government response AI summary
The department continues to refine its estimates of the levels of fraud and error across its COVID-19 business support schemes and will publish revised estimates in its 2021-22 annual report and accounts due to be published in Autumn 2022. The COVID-19 loan schemes are delegated …
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HM Treasury
1
Conclusion
First Report - Department for Business,…
Acknowledged
On the basis of a report by the Comptroller and Auditor General we took evidence from the Department for Business, Energy & Industrial Strategy (the Department) on its performance in 2020–21.1
Government response AI summary
The government agrees with the Committee’s recommendation and will publish revised estimates in its 2021-22 accounts. The Department will publish revised estimates in its 2021-22 accounts.
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HM Treasury
8
Conclusion
First Report - Department for Business,…
Acknowledged
Of the £21.8 billion grant funding the Department provided to local authorities to distribute in their areas in 2020–21, the Department has so far attempted to assess the extent of fraud and error in only £11.5 billion of this funding, and through a sample of only 476 grants. This very …
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Of the £21.8 billion grant funding the Department provided to local authorities to distribute in their areas in 2020–21, the Department has so far attempted to assess the extent of fraud and error in only £11.5 billion of this funding, and through a sample of only 476 grants. This very small sample represents only 0.05% by number out of a total population of circa one million grants.28 The Department now considers this insufficient to gain an accurate picture of the true level of fraud and error in these payments and has initiated a tenfold increase in its sampling of these grants to inform its 2021–22 accounts.29 The Department also told us it has committed to an even larger sample of 12,000 for its second group of grants, which it also distributed to local authorities in 2020–21.30 It has not yet started assessing fraud and error in this group and considers it unlikely that it will be able to report on these until its 2022–23 accounts.31 In addition, the Department continued to provide grant funding to local authorities in 2021–22 as part of a third group of schemes, but also considers it unlikely that it will have reliable fraud and error estimates for this group until its 2022–23 accounts.32 The ICAEW told us that non-complex fraud and error in these latter schemes could total between £318 million and £968 million if levels are comparable to those in the schemes the Department has assessed so far.33 22 Qq 10, 13, 33–36; Department for Business, Energy & Industrial Strategy, Annual report and accounts 2020–21, 25 November 2021, Accountability report, page 122 23 Department for Business, Energy & Industrial Strategy, Annual report and accounts 2020–21, 25 November 2021, Accountability report, page 122 24 Q 10 25 ICAEW, pages 4–5, paras 12–13 26 C&AG’s Report, pages 130–134 27 Q 68; Committee of Public Accounts, HMRC Performance in 2020–21, Thirty-Seventh Report of Session 2021–22, HC 641, 11 February 2022; Committee of Public Accounts, The Department for Work and
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Government response AI summary
The government agrees with the Committee’s recommendation. The general principle applies that local authorities are responsible and accountable for the lawful use of funds under Section 151 of the Local Government Act 1972. Further details to be provided in due course, detailing how full cooperation …
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HM Treasury
9
Conclusion
First Report - Department for Business,…
Acknowledged
The success of these larger samples relies on the capacity and cooperation of local authorities to respond to the Department’s requests for information.34 The Department considers that it has not yet given local authorities the opportunity to do the necessary reconciliations, as it has been asking so much of them …
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The success of these larger samples relies on the capacity and cooperation of local authorities to respond to the Department’s requests for information.34 The Department considers that it has not yet given local authorities the opportunity to do the necessary reconciliations, as it has been asking so much of them to deliver grant schemes.35 However, the ICAEW also noted that when government places additional responsibilities on local government, it is vital that it provides sufficient additional resources to enable it to administer these additional responsibilities. It indicated that the Department did not appear to have provided additional resource to enable local authorities to do so and it was therefore not surprising that some have struggled to meet the reporting and assurance requirements. It highlighted that the business support grants represented significant additional activity for some smaller local authorities, such as East Lindsey District Council, which distributed £46.5 million of payments under these schemes compared to total expenditure of £99.6 million reported in its 2020–21 accounts.36 A local authority is also responsible for any recovery actions where it has made ineligible payments.37 Local authorities would appear to have limited incentives to do so given they must cover the costs of debt recovery and prosecutions, and any recovered funds return to the Department.38 The limitations to the estimates of fraud and error also make it challenging for the Department and local authorities to assess the time and resources required to recover these funds.39
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Government response AI summary
The government agrees with the Committee’s recommendation, noting that local authorities are responsible for the lawful use of funds and must take steps to recover any payment made in fraud or error before BEIS becomes liable. BEIS will pursue collection of all outstanding debt unless …
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HM Treasury
10
Conclusion
First Report - Department for Business,…
Acknowledged
Despite recognising these limitations and uncertainty in its current estimates, the Department does not believe that its grant funding has been subject to significant fraud.40 It suggests that fraud will ultimately range between 1% and 2%, which it would consider as ‘normal’ and consistent with its expectations.41 Conversely, it suggests …
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Despite recognising these limitations and uncertainty in its current estimates, the Department does not believe that its grant funding has been subject to significant fraud.40 It suggests that fraud will ultimately range between 1% and 2%, which it would consider as ‘normal’ and consistent with its expectations.41 Conversely, it suggests that it has been more surprised by grant schemes impacted by error where local authorities have made payments to ineligible businesses or have overpaid to eligible businesses.42 Whether local authority administered grants reached the right businesses
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Government response AI summary
The government acknowledges the limitations and uncertainty in its current estimates, states that over £4 million has been voluntarily repaid from large companies and debt recovery of irregular payments due to error, fraud, or non-compliance is underway, and that full assurance work is underway and …
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HM Treasury
12
Conclusion
First Report - Department for Business,…
Acknowledged
Having sampled only 476 grants distributed by local authorities out of circa one million grants made, the Department therefore has very little visibility of which businesses have benefited from these schemes.45 It cannot say whether many businesses in receipt of grants were eligible, and whether those that were both eligible …
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Having sampled only 476 grants distributed by local authorities out of circa one million grants made, the Department therefore has very little visibility of which businesses have benefited from these schemes.45 It cannot say whether many businesses in receipt of grants were eligible, and whether those that were both eligible and received grant funding received the right amount. The very limited assessment it has already done suggests ineligible businesses receiving grant funding, and some eligible businesses received a value of grant funding they were ineligible for. Neither furthers the policy objectives of these schemes, to support those businesses most in need, and the taxpayer also loses value for money. Using tools to prevent and detect fraud
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Government response AI summary
The government agrees with the recommendation and states that lessons learned from delivering the initial COVID-19 support grants is that greater assurance can be obtained through mandating pre-payment eligibility checks by local authorities, improved assurance sampling design, innovative data collection and management, as well as …
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HM Treasury
13
Conclusion
First Report - Department for Business,…
Acknowledged
The Department was responsible for a substantial component of government’s overall financial response to the pandemic, resulting in the third-largest estimated lifetime costs of any department, as reported by the National Audit Office’s COVID-19 cost tracker.46 We have previously reported that government prioritised speed when designing and implementing measures to …
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The Department was responsible for a substantial component of government’s overall financial response to the pandemic, resulting in the third-largest estimated lifetime costs of any department, as reported by the National Audit Office’s COVID-19 cost tracker.46 We have previously reported that government prioritised speed when designing and implementing measures to limit the damage to the economy and people’s livelihoods from the impact of the coronavirus pandemic, launching schemes in a matter of weeks.47 This approach presented its own risks, and the Department acknowledged that it expected some potential recipients of funding for COVID-19 business support schemes would attempt to defraud the exchequer, and that it chose consciously to tolerate this following ministerial directions48 to proceed.49 However, there are high levels of fraud in some of these schemes, and the request for the Bounce Back Loans Scheme ministerial direction, for example, did not attempt to quantify the potential fraud exposure, or identify who the perpetrators of fraud might be, despite flagging the risk as ‘very high’.50
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Government response AI summary
The government acknowledges the economic crisis brought about by the COVID-19 pandemic required an extraordinary response from government and that the design of certain COVID-19 business support schemes, combined with the pace at which they were being implemented, would create a heightened vulnerability to fraud …
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HM Treasury
14
Conclusion
First Report - Department for Business,…
Acknowledged
Registrations of new companies on Companies House increased sharply during 2020–21. During the period 2015–16 to 2019–20, annual new company registrations averaged 640,000. By comparison, in 2020–21 there were more than 810,000, making new company registrations in that year more than 20% higher than in any of the preceding five.51 …
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Registrations of new companies on Companies House increased sharply during 2020–21. During the period 2015–16 to 2019–20, annual new company registrations averaged 640,000. By comparison, in 2020–21 there were more than 810,000, making new company registrations in that year more than 20% higher than in any of the preceding five.51 Companies House does not validate information provided to them when a new company is registered, or do checks to confirm a person with a role in a company exists.52 The Department told us that disruption can create legitimate business opportunities and the increase in and of itself is not an indicator of anything adverse; however, the Department did not evidence this assertion, and we are sceptical that creative disruption accounts for the 170,000 new companies and feel that this should have been a warning warranting closer scrutiny.53 The Department did not know whether it sought or received information from Companies House for company formation trends, and as such these ‘unusual patterns’ 45 Qq 33–36; Department for Business, Energy & Industrial Strategy, Annual report and accounts 2020–21, 25 November 2021, Accountability report, page 122 46 The COVID-19 cost tracker, available at: COVID-19 cost tracker – National Audit Office (NAO) 47 Q 41 48 Ministerial directions are formal instructions from ministers telling their department to proceed with a spending proposal, despite an objection from their permanent secretary (on grounds of risks to regularity, propriety, value for money or feasibility: the parliamentary expectations of the stewardship of public funds) 49 Qq 9, 17 50 Correspondence from Department for Business, Energy & Industrial Strategy Accounting Officer to Secretary of State for Business, Energy & Industrial Strategy seeking ministerial direction on the introduction of the Bounce Back Loan Scheme, 1 May 2020 51 Q 19 52 Q 84 53 Qq 18–21 Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21 1
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Government response AI summary
The government agrees with the Committee’s recommendation. The economic crisis brought about by the COVID-19 pandemic required an extraordinary response from government. The department was clear at the outset that the design of certain COVID-19 business support schemes, combined with the pace at which they …
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HM Treasury
15
Conclusion
First Report - Department for Business,…
Acknowledged
The Department launched its first COVID-19 business support scheme shortly after the first lockdown was announced on 23 March 2020. Since then, the Department has launched many more, and now has around two years’ worth of experience of designing, implementing, and managing its COVID-19 business support schemes.56 It has taken …
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The Department launched its first COVID-19 business support scheme shortly after the first lockdown was announced on 23 March 2020. Since then, the Department has launched many more, and now has around two years’ worth of experience of designing, implementing, and managing its COVID-19 business support schemes.56 It has taken some actions seeking to apply learning to improve these schemes and reduce fraud and error, including approaching other departments to learn from them, such as the Cabinet Office counter-fraud function. It subsequently increased capability and capacity in its own counter-fraud function, with one of this function’s new duties being to undertake mandatory fraud risk assessments at outline and final business case stages when considering new policy.57 The ICAEW told us that it believes the Department should strengthen its counter-fraud capacity and capability more widely, particularly as grants are likely to play a key role in delivering the government’s Net Zero Strategy.58
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Government response AI summary
The government agrees with the Committee’s recommendation and will publish revised estimates for Cohort 1 grants and first estimates for the subsequent schemes in its 2021-22 annual report and accounts. The department will write to local authorities with the findings and asking them were relevant …
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HM Treasury
17
Conclusion
First Report - Department for Business,…
Acknowledged
The Department has commissioned evaluation of its business support schemes; however, it cautioned that it is proving challenging to separate the impact of various aspects of government’s overall support package which also included, for example the furlough scheme.61 Several of the Department’s major areas of expenditure in the coming years, …
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The Department has commissioned evaluation of its business support schemes; however, it cautioned that it is proving challenging to separate the impact of various aspects of government’s overall support package which also included, for example the furlough scheme.61 Several of the Department’s major areas of expenditure in the coming years, such as supporting public sector decarbonisation and achieving net zero, will again require routing taxpayer funds through third parties as it did with COVID-19 business support schemes. 54 Qq 18, 21 55 Q 16 56 Q 64 57 Q 62 58 ICAEW, paras 20, 26, 34 59 Department for Business, Energy & Industrial Strategy, Annual report and accounts 2020–21, 25 November 2021, Accountability report, page 123 60 ICAEW, paras 34–35 61 Q 40 14 Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21 2 Post Office Horizon IT programme compensation
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Government response AI summary
The government agrees with the committee's recommendation to refine estimates of fraud and error across its COVID-19 business support schemes and will publish revised estimates in its 2021-22 annual report and accounts, and will write to local authorities to start the debt recovery process.
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HM Treasury
18
Conclusion
First Report - Department for Business,…
Acknowledged
Between 1997 and 2000 the Post Office implemented a new IT system called Horizon. This system is now known to be responsible for accounting discrepancies that suggested, for example, shortfalls of cash in Post Office branches.62 At the time, the Post Office considered some of these shortfalls to be caused …
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Between 1997 and 2000 the Post Office implemented a new IT system called Horizon. This system is now known to be responsible for accounting discrepancies that suggested, for example, shortfalls of cash in Post Office branches.62 At the time, the Post Office considered some of these shortfalls to be caused by branch staff such as postmasters, resulting in dismissals, attempts to recover apparent losses, and in some cases prosecutions. Such actions had terrible personal and financial consequences for honest, hard-working staff, wrongly accused of misconduct and crime. In May 2020 the Post Office set up the Horizon Historical Shortfall Scheme to compensate staff who may have experienced cash shortfalls reported by the Horizon system through the normal course of their duties, and repaid shortfalls from their own funds.63
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Government response AI summary
The government acknowledges the devastating impact of the Horizon scandal on postmasters and states that it is right that affected postmasters are properly compensated. They will share letters with the Committee from BEIS to Post Office, providing assurances for the Historical Shortfall Scheme, interim and …
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HM Treasury
20
Conclusion
First Report - Department for Business,…
Acknowledged
The Department currently estimates that the scheme is likely to cost £153 million, of which £89 million is from the Post Office and £65 million is from the Department.65 The Department noted that its contribution was its current best estimate, and did not represent a hard and fast limit: should …
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The Department currently estimates that the scheme is likely to cost £153 million, of which £89 million is from the Post Office and £65 million is from the Department.65 The Department noted that its contribution was its current best estimate, and did not represent a hard and fast limit: should the estimate prove to be too low, then it will be increased.66 In addition to the scheme, the government has committed to covering the costs of compensation to those former Post Office employees wrongly convicted of criminal offenses. The Department currently estimates this may cost the taxpayer up to £780 million.67 62 Q 79 63 Qq 79, 80 64 Correspondence from the Department for Business, Energy & Industrial Strategy to the Board of Directors, Post Office Ltd., 14 December 2020 65 Q 78 66 Q 79 67 Qq 78–80 Department for Business, Energy & Industrial Strategy Annual Report and Accounts 2020–21 15
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Government response AI summary
The government agrees with the committee's recommendation and states it has provided over £2.5 billion in funding to the Post Office network over the past decade and will provide a further £335 million over the next three years, and will share letters with the Committee …
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HM Treasury