Furlough fraud

Complaints continue to be received by HMRC about possible furlough fraud by employers.

The government has gone to considerable lengths to support UK employers and employees during the coronavirus pandemic. A central feature of this support package has been the introduction of the Coronavirus Job Retention Scheme (the ‘Scheme’).  Wary of the potential for fraudulent claims, the Scheme requires employers and their employees to meet certain minimum eligibility criteria before a claim for funding can be made. 

It is widely accepted that at some point in the future HMRC will conduct an audit exercise to verify the claims made by employers, but it seems that some employers are taking the risk of submitting fraudulent claims, perhaps on the basis that HMRC may struggle to accurately audit every single claim.

However complaints have arisen that furloughed employees, including those on reduced wages, are being required to continue working or to undertake work for associated employers. Protect, the whistleblowing charity (formerly known as Public Concern at Work) has reported an increase in calls to its whistleblowing helpline.

The government has announced plans to give employers a 30-day window of opportunity to confess to furlough fraud.  HMRC is expected to gain powers to investigate furlough payments to ensure amounts claimed were accurate and that the money was used to pay furloughed employee costs. If funding has been overclaimed, employers have 30 days to notify HMRC, or 30 days from the date the new Finance Bill receives Royal Assent (which is expected in July 2020).

HMRC is also expected to be given powers to charge penalties to fraudulent employers who deliberately over-stated any funds claimed from the Scheme and/or who did not use the funding appropriately. This is expected to include the ability to pursue directors of insolvent companies for money.

A warning to professionals

Fraud is a serious offence which at its heart involves a dishonest act to obtain financial reward through false representation.  Although employers may commit furlough fraud in such a way as to prevent their HR department or individuals within a finance team being unaware of the practice, if professionals, either internal or external to the employer, become aware of or are suspicious of fraudulent practices and do nothing, they run the risk of becoming personally involved in the act and accountable for the fraudulent action.

Anyone who finds themselves in such a situation is advised to report their concerns internally with a line manager or supervisor and in accordance with any whistleblowing policy, or in its absence a grievance procedure. If this isn’t felt to be effective then individuals should consider taking a look at HMRC’s online reporting webpage.  Protect can also provide advice (0203 117 2520).  Concerns remain in relation to how effective employment claims may be in terms of protection for whistleblowers, particularly in view of the likelihood of losing your job, but this does need to be weighed against possible prosecution.  Only recently whistleblower Amjad Rihan was awarded $10.8 m in damages against his former employer, Ernst and Young. However, such successes remain few and far between.

If company directors or trustees of an employer organisation fail to act on knowledge or suspicion of fraudulent claims, they are likely to be in breach of their duties to act in the best interests of the organisation and risk significant reputational risks (both organisational and personal). If the organisation is a charity, such issues are undoubtably reportable to the Charity Commission.

For more information about the application of whistleblowing protection to volunteers and trustees, please see our most recent article on the subject.