Dealing with Coronavirus Job Retention Scheme (CJRS) Fraud
The CJRS (or furlough scheme) has now been in place for some time and is part of a collective national effort to protect people’s jobs during the Coronavirus pandemic. It can be tempting for businesses to keep employees working through this period when in fact this is illegal. It can also be tempting for directors to furlough themselves and continue to work, but if someone is furloughed they must not work at all.
Your clients may be committing fraud deliberately but may also have made genuine mistakes – asking the right questions can help identify your next steps.
Reporting CJRS Fraud
Employees and accountants can play a crucial role by reporting fraudulent claims to HMRC. This includes employers who are claiming on their behalf and not paying them what they’re entitled to. Similarly, if employers are asking employees to work while they’re on furlough or attempting to make backdated claims that include periods in which the employee was working, this should also be reported.
As an accountant, you need to protect yourself from complicity in furlough fraud. The most common fraud seems to be employees that continue to work even though furloughed. In many respects it may be understandable that desperate businesses will do anything to try and keep going. They may not appreciate that anti-fraud mechanisms were built into the scheme to begin with and that the HMRC has a team of fraud investigators looking for indicators of furlough fraud. It is not the intention of HMRC to pursue employers that have made mistakes as the CJRS was new and employers may have been in a hurry to make applications, but employers will be contacted and given an opportunity to rectify legitimate mistakes. Businesses may receive penalties for non-disclosure of excess claims.
HMRC will check claims that are made through the scheme, and payments may be withheld if the claim is based on dishonest or inaccurate information or found to be fraudulent. Employers will also be required to repay the amounts in full if fraud is detected at a later date. You can read more about this on the HMRC website under employer guidance.
You may wish to look at the employee guidance, there is a link to the ‘report fraud to HMRC’ page, where individuals can report those concerns.
Helping your Client
As an accountant, with the interests of your client at heart, you may be able to point out the risks of committing this type of fraud and what is or is not allowed under the scheme. You may be able to help rectify genuine mistakes.
You can advise your client how to pay back grants that have been overpaid. HMRC Information is here.
HMRC is now publishing a monthly list of employers who claimed under the CJRS on GOV.UK, as part of HMRC’s commitment to transparency and to deter fraudulent claims. You can use this to check clams that have been made by your clients. From 25th February 2021 this includes employer names, Company Registration Numbers (for those who have one) and banded amounts of how much the claim was for. You can find a full list of these bands here. These details do not include information about their employees.
As of 25th February 2021 employees can check if a CJRS claim has been made on their behalf through their online Personal Tax Account. If they do not already have a Personal Tax Account (PTA), they can set one up with HMRC, searching 'Personal Tax Account: sign in or set up'. HMRC will not be able to provide any further details apart from those available in the Personal Tax Account, so if employees have any questions about the information shown in their PTA, they should speak to their employer in the first instance.
Identifying the “Red Flags”
It may not be immediately clear to an accountant if furlough fraud is taking place and whilst you may have suspicions you may not be able to access evidence to support your concerns. There are, however, a number of red flags you should be looking out for.
Continuing expenses claims
You may be asked to process expenses claims for employees that are officially on furlough. If they are not working then they should not be claiming any kind of workplace expense (such as travel or subsistence). Once people return to work, you should look out for backdated claims or claims that are not supported by the number of staff back at work. You might spot directors trying to use the CJRS to keep going artificially.
No significant change to turnover
If employees are furloughed then you might expect the turnover of a company to be affected as there will be less income if services or goods are not being provided. This will, of course be related to the business but can be an indicator.
You might expect to see cashflow problems if goods and services are not being provided. A lack of evidence of cashflow problems may be an indicator that work has not ceased.
Company Directors undertaking more than the permitted functions
Statutory duties for Directors continue to apply and in addition, Directors are permitted to fulfill essential duties such as paying wages or administration of a company pension scheme. Furloughed directors may not do any other work of a kind they would normally do to generate commercial revenue or provide services to or on behalf of their company.
Furlough will not help everyone and these challenging times people may not always make the best decisions. The CIMA Code of Ethics requires you to apply integrity and objectivity as well as due care and as the accountant for a business you can be a voice of reason and advise an appropriate course of action for a business in difficulty. You may be the best person to point out the dangers of furlough fraud to your client and if you do this you should keep a record of the advice you have given to protect yourself should the business be investigated by HMRC.
Below is a selection of further reading – which MiPs may find helpful when communicating the seriousness of furlough fraud to employers or clients. These are not endorsed by CIMA or recommended as official guidance.
Covid-19 schemes' fraud risk 'considerable’
£26bn of Covid-19 loans ‘could be lost to fraud or default’
Reporting Coronavirus Job Retention Scheme fraud and being alert to scams - CIPP Guidance
HMRC probing almost 8,000 reports of potential furlough fraud under Coronavirus Job Retention Scheme