Fraudsters stole nearly £5billion from the Government’s Covid Bounce Back Loan scheme because basic anti-fraud measures were ‘inadequate’ and were only put in place once more than £28billion had already been paid out, the spending watchdog has said.

A National Audit Office report states that checks were not made to verify that companies did not apply for more than one loan bounceback. They weren’t implemented until June 2020.

The scheme was already paying out 61% of the money to the businesses by then.

The Government was primarily focused on obtaining loans for struggling businesses and not other counterfraud measures.

In its report, the NAO said the Government estimated that more than a third of loans, worth £17billion, may never be repaid due to both fraudulent activity and legitimate borrowers defaulting. 

Auditing giant PwC, which has been hired by the Government, has estimated 7.5 per cent of loans might be lost to fraud, at a potential £3.5billion cost to the taxpayer. However, the report notes that the Government estimated fraudulent loans were worth £4.9billion as of March.

As it initiated the scheme, the Government was aware of the potential risks, but the government had to balance them with the possible consequences for businesses if they didn’t get money quickly, according to the spending watchdog. 

“Government prioritized quick approvals for small-scale businesses with bounceback loans, but didn’t put into place adequate fraud prevention strategies,” said Garth Davies of NAO boss. Gareth Davies, NAO boss, said that one result of such decisions can be seen in high amounts of estimated fraud. 

The Government only put in some basic anti-fraud checks on the small Covid loans it was providing to businesses once more than £28 billion had already been paid out, the spending watchdog has said

The Government only put in some basic anti-fraud checks on the small Covid loans it was providing to businesses once more than £28 billion had already been paid out, the spending watchdog has said

The bounce back loans propped up 1.5 million businesses, potentially saving many from bankruptcy. Many businesses were also paid within 24 to 48 hours of submitting an application (stock image)

These bounce-back loans saved 1.5 million companies from bankruptcy. Businesses were paid often within 24-48 hours after submitting their application. Stock image

Was the Bounce Back Loan program? Was the Spending Watchdog’s Report accurate?

How did the government fund its Bounce Back Loan Scheme?

In addition to furlough assistance, businesses could claim money under the Coronavirus Business Interruption Loan Schemes (CBILS) or the Bounce Back Loan Schemes (BBLS), which were aimed at small and medium-sized companies.

Due to the urgency with which the Government had to issue Covid loans quickly, banks were unable or unwillingly to conduct standard checks on loans before they issued them. 

BBLS provided up to £50,000 to small firms, with most cash going to companies with fewer than ten employees. 

The Government has underwritten 80 per cent of all CBILS loans and 100 per cent of BBLS lending – though banks will probably need to exhaust all their options before asking the taxpayer.

To recover debts, lenders may have started to pay to reinstate companies on Companies House.

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes. 

What findings did the National Audit Office report?

Fraudsters stole millions of dollars through this scheme, according to the spending watchdog.

NAO concluded that government had failed to take basic anti-fraud steps and was slow in implementing them.

As it initiated the scheme, the Government was aware of the potential risks, but the government had to balance them with the possible consequences for businesses if they didn’t get money quickly, according to the spending watchdog.

A National Audit Office report states that checks were not made to verify that companies did not apply for more than one loan bounce back. They weren’t implemented until June 2020.

The scheme was already paying out 61% of the money to the businesses by then.

The Government was primarily focused on obtaining loans for struggling businesses and not other counterfraud measures.

Auditing giant PwC, which has been hired by the Government, has estimated 7.5 per cent of loans might be lost to fraud, at a potential £3.5billion cost to the taxpayer. However, the report notes that the Government estimated fraudulent loans were worth £4.9billion, 11 per cent of the total, as of March.

A Department of Business spokesman said: ‘The Government support schemes have provided a lifeline to millions of businesses across the UK – helping them survive the pandemic and protecting millions of jobs.

We are continuing to take action against fraud at Covid-19, and will not allow those who deceive the British taxpayer to continue. 

“We work closely with enforcement agencies and lenders to minimize fraud and make sure those who have committed fraud are punished.”

These bounce back loans saved 1.5 million business owners from possible bankruptcy. 

Numerous businesses received payment within 24-48 hours after submitting applications.

Instead, instead of focusing on problems that have already been identified after loans are paid off, the government has opted to do so. However, the NAO was critical of some parts.

To track down the major fraud involved in this scheme, the business department used the National Investigation Service(Natis), which is a law enforcement agency.

Natis has a limit of 50 cases per calendar year. By October, it had received over 2,100 intelligence reports.

The Government relies on the banks to stop small and mid-sized fraud. 

The loans were provided by banks to the businesses. However, the Ministers promised full reimbursement to the lenders in the event that the loans weren’t repaid. 

By April, lenders claimed to have stopped nearly £2billion in fraudulent loans from going out, and discovered £5.3million that had been paid.

British Business Bank administered the scheme on behalf of Government.

The bank’s chief executive Catherine Lewis La Torre said: ‘The bank welcomes the NAO’s findings that ”most of the loans – over 90 per cent, or £39.7billion – went to micro-businesses” and that ”businesses have found the loans useful to address cashflow shortages during the pandemic”.

“This conclusion is supported by bank research that shows that about 70% of respondents used funds to pay day-today and working capital expenses.”

‘The bank also welcomes the finding that ”most businesses have started to repay loans”, evidenced by recent data published by the Department for Business, Energy & Industrial Strategy (BEIS) and the bank, showing the overwhelming majority of businesses are meeting their monthly repayments.

“From the start of the scheme, British Business Bank worked closely with government agencies and lenders to detect, prevent and combat fraud. They also put into place additional safeguards to reduce fraud risk.

Martin McTague is the vice president of Federation of Small Businesses. He stated: “When Bounce Back Loans were created last summer, both British Business Bank and Government had to face an extremely difficult task: get cash in as many small companies as possible as quickly as possible. While rightly trying their best to prevent fraudsters from taking advantage of a situation that was rapidly moving.”

“After several weeks of interruption loans not being able to help the most needy firms, holding up the bounce-back programme would have been disastrous.”

In addition to furlough assistance, businesses could claim money under the Coronavirus Business Interruption Loan Scheme (which was targeted at small firms) and the Bounce Back Loan Scheme. 

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes.

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes. 

Due to the urgency with which the Government had to issue Covid loans quickly, banks were unable or unwillingly to conduct standard checks on loans before they issued them. 

BBLS provided up to £50,000 to small firms, with most cash going to companies with fewer than ten employees. 

The Government has underwritten 80 per cent of all CBILS loans and 100 per cent of BBLS lending – though banks will probably need to exhaust all their options before asking the taxpayer.

To recover debts, lenders may have started to pay to reinstate companies on Companies House.

In the March Budget, Chancellor Rishi Sunak announced that £100million would be used to fund a taskforce of 1,000 investigators in HM Revenue & Customs to crack down on the misuse of the furlough and self-employment income support schemes.