Focus on Furlough Fraud - Don’t underestimate the risk of investigation warn lawyers at Constantine Law
Lawyers say Furlough fraud has not gone away despite the attention on government gatherings.
It’s reported £4.3 billion of £5.8 billion that may have been fraudulently or mistakenly claimed during the pandemic has been written off by The Treasury. However as regulatory lawyers at Constantine Law point out, even if only 26% is recovered by the new £100m HMRC 1,265 strong anti-fraud taskforce, £1 billion is still a big number to chase. The risk of investigation should not be underestimated. Business owners and finance teams need to be aware of the following from a legal, compliance, regulatory and risk perspective: ✪ It’s human nature to err and everyone will not always make the right judgement calls all the time. If you have made a mistake with your furlough claims, don’t bury your head in the sand. Seek advice.
✪ Treasury directions clearly set out the purpose of the scheme: to reimburse employers in respect of paying employees furloughed owing to circumstances arising from coronavirus.
✪ No claim should have been made if abusive or contrary to this purpose. This may come under scrutiny if furloughed staff are made redundant and make whistle-blower claims.
✪ Ultimately it’s a judgement call. Each firm had its own considerations when deciding to make a claim.
✪ Reconsider now whether this was right. If confident the claim was legitimate, document that decision, noting how the claim was linked to the purpose of the scheme.
✪ If in hindsight, it was not, rather than brazen it out, the better option may be to self-report, return funds and resolve the situation — otherwise risk the new task force knocking on the door.
✪ A regulated firm which availed itself of the CJRS (or any other similar pandemic government financial scheme) once subject to an investigation possibly for error and definitely for fraud should think carefully about its duty to be open with its regulators and consider its notification obligations as appropriate.
✪ A regulated firm where significant errors or fraud are found should be aware that their regulator may investigate with a view to not only sanctioning the firm but also the senior managers and their role to establish if any of their conduct, integrity, fitness or propriety is impaired.
✪ Businesses getting ready for a potential sale in the coming 2-3 years should think carefully about getting their house in order. A “clean” business sullied with a murky CJRS claim can delay and deter a purchaser and potentially provide grounds to push the price down or demand a belated and awkward return of the monies.
As Sarah Wallace, partner at Constantine Law says, “We urge businesses not to be lulled into a false sense of security from reports that the Treasury is writing off the fraudulent or mistaken payments. Even if attempts are made to recover 26%, that is still over £1 billion to chase, which is a substantial amount. Businesses need to get their affairs straight as soon as possible to avoid any disastrous ramifications.”
For further information please contact:
Partner, Constantine Law
0203 696 8230 | 07808 899657