Recommendation 3

The Department has been complacent in preventing Scheme fraud and its prioritisation of ‘top tier’ fraudsters puts other government Schemes at risk. The risks that we identified at the outset of the Scheme have now materialised. The Department requested, and received, a ministerial direction at the start of the Scheme as it expected high levels of losses. Even so, counter-fraud measures were introduced too slowly. For example, it took a month after the Scheme’s launch to set up checks to prevent duplicate applications because of delays in joining up information held by different parties. The Scheme did not require lenders to check a businesses’ claimed turnover against its records for existing customers; this meant some borrowers received a larger loan than they were entitled to. It also took the Department 8 months to introduce checks to ensure businesses’ claimed turnover was correct, by which time 93% of the loans by value had been issued and some received more than they were entitled to. The Department and the Bank have placed less emphasis on tackling those smaller scale fraudsters who deliberately misstated their details, such as turnover, than on organised crime. The consequences of fraudulent activity include the individual being banned from being a company director or being able to borrow in the future, but this assumes they are pursued and caught. The Department’s response for ‘smaller’ fraudulent claims is limited and may mean that fraudsters will walk away with the money – something the Department’s fraud-loss estimates suggests is a real risk. We are concerned that its complacency towards smaller scale fraud and turnover misstatement provides a limited deterrent effect and could encourage fraudsters to try to take advantage of other government schemes. Recommendation: Next time the Department launches an emergency business support scheme, it should be explicit on the trade-offs and level of fraud it is prepared to tolerate from the outset. The Departmen