United Kingdom employers that have claimed government grants to keep employees on the payroll during the pandemic should make sure they can show their claims were made properly, given the government's efforts to fight furlough fraud.
The government is taking several steps to hinder fraud in the Coronavirus Job Retention Scheme (CJRS), including publishing details of claims made on or after Dec. 1, 2020, and allowing employees to view in their personal tax accounts claims made for them in the same period.
Jim Harra, chief of the U.K.'s tax authority, Her Majesty's Revenue & Customs (HMRC), told Parliament in September 2020 the department was exploring 27,000 "high-risk" claims and that a furlough fraud hotline had received 8,000 calls, according to news reports.
Harra estimated that as much as 10 percent of the 35.4 billion pounds (approximately $49.05 billion) that had been paid via the jobs retention program at that time may have resulted from fraud or errors.
The department reportedly has warned that it would pursue criminal charges in serious cases and made at least three arrests last year.
"There is widespread public concern about public money being wasted or stolen through these schemes," said Tim Bowden, an attorney with Dechert in London.
The job retention scheme, initiated early in the pandemic and recently extended through April 30 this year, supports businesses unable to operate normally because of the coronavirus pandemic. It currently allows them to furlough employees and seek grants covering 80 percent of their wages, up to 2,500 pounds a month.
"The most common example of furlough fraud is an employer claiming a grant for employees it claims are furloughed while requiring those employees to continue working. This may be by putting pressure on employees to work while furloughed or not telling the employees that they are making a furlough claim for them," said Laura Morrison, an attorney with Dentons in Edinburgh.
Billions of Pounds Potentially at Stake
The U.K. government reported late last year that it had made 46.4 billion pounds (approximately $64.3 billion) in CJRS furlough grants. The CJRS has protected at least 9.6 million jobs.
"There's a huge amount of money at stake," Bowden said, adding that it could take government investigators months to pick up data discrepancies.
In a guide for employers, the government notes that payments may need to be repaid in full if the claim is based on "dishonest or inaccurate information or found to be fraudulent." Employers that received too much money based on an error in a claim must repay HMRC.
"Some arrests have been publicized and apparently HMRC are conducting numerous investigations, so this is clearly a looming issue for employers," said Charles Wynn-Evans, an attorney with Dechert in London.
Any big government program designed to get money to people quickly, without proper checks and balances, creates "perfect conditions for fraudsters to attack that scheme, and for companies to be taken advantage of by errant employees and for companies to essentially make mistakes in the way they apply these schemes," Bowden said.
Early in the pandemic, the government faced pressure to put the scheme together and companies were encouraged to take advantage of it to save jobs, Bowden noted. "It was obvious right from the start, conditions were ripe for fraud to take place," he said. "You don't have sufficient time to stress test the scheme and see where the holes are going to be."
The government provides online guidance to employers for calculating CJRS claims.
Rectify Innocent Errors
Employers could run afoul of CJRS regulations any number of ways, ranging from technical errors to outright fraudulent claims for nonexistent employees, Wynn-Evans noted.
HMRC has indicated it won't actively look for innocent errors in its compliance efforts, Morrison noted.
Bowden added that the government put in place an amnesty program last autumn to give companies time to correct errors. "Even if you missed that deadline and you then discover for yourselves that you've made an inaccurate claim or received money to which you're not entitled, your position is immeasurably improved" by alerting authorities yourself, he said.
Check, Keep Records
In participating in the CJRS, employers should discuss the situation with staff and make any changes to employment contracts by agreement, following equality laws as usual, the government advises.
Employers must confirm to employees in writing that they have been furloughed or reach agreement with a trade union, and keep a written record of the agreement for five years.
Employers also must keep for six years records of the claims they make under the furlough program, said Morrison, including:
- The claim period and amount claimed for each employee.
- Claim reference numbers.
- The employer's calculations, in the event HMRC requests more information about the claim.
- For workers on flexible furlough, their usual and actual work hours.
"In our experience the vast majority of employers have tried very hard to ensure they complied with the rules," she said.
Lawyers from the Kingsley Napley firm cautioned in a November blog post that employers that don't self-report errors within a specified grace period could face penalties equal to the improper grant, which they'd also have to repay.
They also warned that directors of companies that improperly received grants and that are undergoing insolvency or are at high risk for an insolvency procedure may be liable for repaying the funds.
Bowden recommended that employers conduct an audit, either in-house or with external accountants, to make sure claims made with HMRC match company records. Employers should ensure employees don't remain active on company systems after they've left and should seek guidance from advisers on correcting any errors and minimizing penalties.
Violating the regulations, Bowden said, "creates quite a reputational risk."
Dinah Wisenberg Brin is a freelance journalist and writer based in Philadelphia.