Covid fraud spike

According to a recent report, firms in the UK suffered from a spike in fraud during the pandemic due to several factors, including remote working.

As the report highlights, businesses that had to roll out digital platforms quickly in order to support remote working in lockdown often failed to nail down their cybersecurity.

Meanwhile, separate research has found that 64 per cent of UK businesses have experienced fraud or economic crime in the last two years.

Covid fraud has also been blamed for the 5.1 per cent ‘tax gap’ in the 2020-21 tax year, although critics claim that HM Revenue & Customs (HMRC) has underestimated the gap, with one calling the assessment of tax losses “half-hearted”.

Small businesses were responsible for nearly half of the tax gap (£15.6 billion), according to HMRC’s data, with VAT underpayments of £9 billion accounting for the second-biggest chunk of the total.

Meanwhile, losses from Income Tax, National Insurance contributions and Capital Gains Tax accounted for the biggest loss of £12.7 billion in 2020-21.

According to HMRC, fraud only accounted for £2 billion. To some experts, this seems too low a figure, as the Covid Bounce Back Loan Scheme (BBLS) appears to have been misused and abused by a growing number of businesses.

The Insolvency Service is publishing data on the numbers of directors who have been disqualified on a weekly basis and there will shortly be a wave of Covid loan fraud cases hitting the courts, with even government accountants estimating that almost £5 billion was wrongly claimed via the BBLS.

Each case needs to be forensically examined to determine whether the cash was fraudulently claimed.

In some cases, fraudulent activity is immediately apparent such as those instances flagged by the Insolvency Service, in which directors spent tens of thousands on luxury items such as cars, property and flying lessons.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “It is important not to judge directors with the benefit of hindsight. Instead, the court has to understand what was reasonably in the mind of the director at the time a loan application was made.

It is for that reason that it can be important to instruct forensic accountants who can analyse the evidence from both an accountancy and insolvency regulation perspective.

This can sometimes make the assessment of the evidence far from straightforward and often the role of the accountancy expert witness includes the presentation of complex financial data in a form that a judge or jury can easily understand.”

Posted in Blog, Forensic, The Forensic Blog.