Source · Select Committees · Public Accounts Committee
Recommendation 15
15
The Department and the Bank recognised that there was a trade-off between getting loans to...
Conclusion
The Department and the Bank recognised that there was a trade-off between getting loans to businesses quickly by removing lender checks and slowing down the delivery of the loans by putting in place more counter-fraud measures. The Bank said that this would have had consequences for the economy, but argued that the existing ‘know your customer’ and ‘anti money-laundering’ checks had prevented in excess of £2 billion of fraud. The Department did not set out at the outset of the Scheme, or in our evidence session, the level of fraud that it was prepared to tolerate as a result of such trade-offs.37 Although it knew from the start that the limited fraud prevention measures in place would make the scheme risky, it was slow to introduce detection and post-loan controls. It took eight months to bring in processes to verify borrowers’ self-declared turnover against existing HMRC data—by which time 93% of the loans by value had been issued. Similarly, the Department introduced a check to identify and prevent multiple applications on 2 June 2020, a month after the scheme’s launch—and made them mandatory by end of June when 60% of loans had already been made.38 The Department said that the delay was because of the time needed to set up data sharing processes.39 To date the Bank has identified 13,000 possible duplicate loan applications .40
Government Response
Not Addressed
HM Government
Not Addressed
3: PAC conclusion: The Department has been complacent in preventing Scheme fraud and its prioritisation of ‘top tier’ fraudsters puts other government Schemes at risk. 3a: PAC 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. 3.1 The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 The economic crisis brought about by the COVID-19 pandemic required an extraordinary response from government. The BBLS was devised to address the urgent cashflow needs of the UK’s smallest businesses. The department was clear at the outset that the scheme’s design would create a heightened vulnerability to fraud and there would be a significant risk of credit losses. The scheme was implemented under Ministerial Direction, and the exchange of letters that were published in June 2020 shows that these risks were acknowledged at the outset. 3.3 In the event of another crisis similar in scale to the COVID-19 pandemic, the government would again need to consider the trade-offs between the generosity and speed of a loan guarantee scheme, and the consequent risks for value for money. There is now increased Fraud and Financial Crime resource in the Bank. Additionally, the launch of the Public Sector Fraud Authority this year (announced in the Spring Statement) will further strengthen the ability of the government to manage and mitigate fraud risks, deal with vulnerabilities, and overall increase its counter fraud capacity and capability.