The accountant’s role in spotting furlough, CBILS and BBLS-related fraud

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Government agencies and private entities are ramping up their efforts to crack down on fraud. What should accountants look out for?

Coronavirus support schemes are due to finish over the next few months – they’ve been lifelines for millions of UK businesses. At the same time, HMRC is escalating its crackdown on fraud relating to lockdown support.

HMRC’s clampdown on fraud follows feedback from three consultations, spanning from Companies House ID checks to corporate director bans, which concluded this month. The British Business Bank has also announced its own crackdown and has brought in PwC to analyse transactions after detecting £1bn of fraudulent loan requests.

According to HMRC, the estimated current value of CJRS-related fraud or ‘error’ could be as high as £3.5bn. According to the BBC, reports of potential fraud leapt from 3,000 in April 2020 to nearly 22,000 in January 2021.

Yet it won’t be until year-end accounts and VAT returns are completed that the full extent of wrongdoings will be evident. Accountants will then be able to see whether their suspicions are confirmed.

Examples of coronavirus-related fraud include:

  • Adding non-existent staff to the payroll (known as ‘ghost’ employees).
  • Non-operational businesses claiming for bounce back loans.
  • Asking employees who have been furloughed to continue working.
  • Using Bounce Back Loans to fund private purchases.
  • Third-sector organisations putting staff on furlough then asking them to ‘volunteer’.  
  • Transferring government grants and loans to private accounts.
  • Impersonating a company to take out bounce back loans.

Fraud and wrongdoing can be relatively easy to spot, especially for accountants who know their client’s business well. It’s essential to look for patterns: financial records with unusual transactions, unusually expensive claims; healthy, or even increased turnover, despite less staff cost. Or, there may be a sudden uptick in sales, despite furloughing.

So what should accountants do if they suspect fraud has been committed?

Cut ties with client if fraud has clearly taken place

John Lawrence, Guido Accountancy

Furlough fraud is quite prevalent. The main area comes from the use of flexible furlough. The rules over flexible furlough are a bit complicated so I have no doubt there is some misunderstanding. However, with a lot of employees working from home, some businesses are claiming for non-working hours/days, when the employee is undertaking some work, even if it is minimal. But in my experience overall, claiming furlough for staff who are working normally is relatively low.

I have had discussions with a couple of clients asking ‘how would HMRC know if they made a fraudulent claim’. I have simply advised these clients that I would not act for any client, in any capacity, that commits such a fraud.

Next steps: If fraud is suspected, the accountant must refuse to take part in any fraudulent activity, including advising a client on how to bypass the rules. Accountants must advise their clients correctly on what they can claim for and what they cannot. If evidence of a fraud exists, the accountant must determine where possible, the reason for it and advise the client on steps to correct it. If necessary, cut all ties with the client if they refuse and commence anti-money laundering action.

Summary:  Advise client to correct mistakes, but if fraud has taken place and client refuses to disclose to HMRC, cut all ties with client and commence anti-money laundering action if necessary.

Escalate fraud concerns to line manager, non-executive director or external auditors 

Andrew Durant, senior MD in forensic & litigation consulting segment, FTI Consulting

We believe that Covid-19 related fraud is and will be a major financial burden on the UK economy. Potential frauds could range from companies claiming furlough money for fake employees to criminals using fake data and documents to pass themselves off as a real company to claim moneys from the bounce back loan.

It can be difficult to spot any potential wrongdoing if the accountant does not have immediate access to the information being submitted to support a claim.  However, there will be other signs that all may not be right. For example, there are anecdotal stories that high-end car dealerships are seeing an upsurge in sales.  This may be due to the fact that the various schemes are being misused and the ill-gotten proceeds are being used to purchase luxury goods.  In my experience, signs of “a lifestyle beyond one’s means” is a red flag that fraud may be occurring.  So, if accountants become aware of such spending, they should not ignore this. 

Next steps: Accountants should remain professionally sceptical and should examine any claims made by businesses in detail in order to identify any fraud early on. They can then advise their clients on how to go about correcting this. If working inside a company, read the companies whistleblowing policy to ensure that whatever steps are taken are in accordance with it.

If you suspect your line manager is involved in wrongdoing, accountants should escalate it to:

  • In-house general counsel, head of risk or money laundering reporting officer or
  • Head of audit committee and/or a non-executive director or
  • External auditors.

Accountants have additional responsibilities to report certain issues to their own institute (if the wrongdoing involves another accountant) or to the National Crime Agency (if the wrongdoing has a Money Laundering implication).

Summary:  Escalate any fraud or wrongdoing concerns to relevant higher authorities ASAP.

Don’t jump to conclusions but encourage the client to notify HMRC immediately

Mahmood Reza, Pro Active Resolutions

I’ve come across anecdotal evidence from clients about other companies where fraud has been committed. In one instance, the employers making the furlough claim were not passing on the 80 per cent wages on to the employee.

Fraud appears to happen in sectors where there is no union and where staff are not fully aware. In these types of organisations, there tends to be more ‘bending of the rules’. We’ve also been aware of some accountants incorrectly advise on how furlough calculations are made and some employers are therefore overclaiming.

Fraud is an emotive thing so it can be difficult to separate out the emotional side, especially if accountants have a good working relationship with their clients. But there needs to be a balance between professional experience, evidence and following your firm’s only internal systems and policies.

Next steps: It is the duty of the accountant to ensure their client doesn’t get into hot water. Seek an explanation from the client first, allow them to rectify their mistake and encourage them to notify HMRC right away. If the client refuses, you must report it.

Summary:  Don’t jump to conclusions that fraud has been committed, ensure the evidence is there first. If there is clear evidence, report it to HMRC immediately.

Remember your ethical duty as an accountant

Helen Barrett, Professional Standards Manager, AAT

Covid-19 has led to the most challenging conditions any of us have experienced in modern times and we know through the enquiries received into our Professional Standards team helplines that our members are facing new and more complex ethical dilemmas professionally as a result.

However, it is still important that our members continue to exercise their sound professional expertise and judgement when dealing with client affairs. If you suspect a client might not be following the rules, you must evaluate the circumstances and consider your obligations under the AAT’s Code of Professional Ethics and Professional conduct in relation to taxation (PCRT). Think about the following principles:

  • Integrity – Members are required to act honestly and straightforward in all professional and business relationships. In the context of fraudulent claims or other unethical activity, this means you have an obligation not to be associated with misleading information. If a client is seeking to make claims based on falsified or incorrect information, you have an obligation to tell the client this does not comply with the rules.
  • Professional competence and due care – Members are required to maintain professional knowledge and skills at a level that ensures clients receive a competent professional service. With so many new schemes and changes during COVID-19, you must make sure you’re up to speed before providing clients with advice.
  • Objectivity – Members will want to help clients during difficult times but it is important you keep in mind the fact that as an accountancy provider you should not compromise your professional judgement through bias, conflict of interest or the undue influence of others. Make sure your relationship with clients isn’t interfering with your decision making, such as feeling pressured to sign off on incomplete or misleading information in order to retain clients.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.

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