Covid fraudsters took billions from taxpayers by exploiting emergency business loan scheme

Counter-fraud activity for the £47bn Bounce Back Loan scheme was implemented too slowly to be effective and ongoing activity to limit taxpayers’ exposure to fraudulent loans is inadequate, the National Audit Office found.

The Department for Business, Energy and Industrial Strategy (BEIS) set up by the scheme in May 2020 - offering loans of up to £50,000, or a maximum of 25 per cent of annual turnover - to help businesses survive the pandemic. But the NAO said the scheme was vulnerable to fraud due to using limited verification measures and requiring no credit checks on borrowers.

BEIS estimated in March 2021 that as many as 11 per cent of Bounce Back Loans - worth £4.9bn - had been fraudulent. The NAO noted this figure was “highly uncertain” - in part because the estimate excluded some types of fraud such as borrowers overstating their turnover to get a larger loan.

But enforcement agencies have limited capacity to investigate potential fraud from the scheme. The National Investigation Service received more than 2,100 intelligence reports by October 2021 but is only able to investigate a maximum of 50 cases per year.

The Government has set NATIS a target of recovering at least £6m of fraudulent loans over three years with a focus on organised criminal gangs and the agency’s work so far has resulted in 43 arrests and around £3m of recoveries.

The NAO found that the Government only put in some basic anti-fraud checks on the small Covid loans it was providing to businesses once more than £28bn had already been paid out.

Checks to ensure that a company was not applying for more than one bounce back loan were not put in place until June 2020, a month after the scheme was launched.

By then, 61 per cent of the money that was to be lent under the scheme had already been paid out to businesses. Other counter-fraud activities did not begin until September 2020 as the Government focused on getting out the loans to support struggling companies.

“Government prioritised getting bounce back loans to small businesses quickly but failed to put adequate fraud prevention measures in place. One impact of these decisions is apparent in the high levels of estimated fraud,” said NAO boss Gareth Davies.

"The true level of fraud will become clearer over time, but it is clear Government needs to improve on its identification, quantification and recovery of fraudulent loans within the scheme."

The scheme was administered by the British Business Bank on behalf of the 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 £39.7 billion – went to micro-businesses’ and that ‘businesses have found the loans useful to address cashflow shortages during the pandemic’.

“This is supported by the bank’s own research which finds ‘that about 70 per cent used the funds for working capital and day-to-day 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 launch of the scheme, the British Business Bank has worked with lenders and across government to prevent, detect and counter fraud and put in place as quickly as possible additional measures to further mitigate fraud risks.”

A BEIS spokesperson 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 crack down on Covid-19 fraud and will not tolerate those that seek to defraud the British taxpayer. We are working closely with lenders and enforcement authorities to minimise fraud and ensure those that have committed fraud face consequences.”

Federation of Small Businesses national vice chair Martin McTague said: “When they created Bounce Back Loans last summer, the Government and British Business Bank were faced with an extremely difficult task: getting cash into as many of these small firms as possible, as quickly as possible, whilst rightly doing all they could to shut out fraudsters in a fast-moving situation.

“After weeks of the original interruption loan scheme simply not working for the smallest firms most in need, hold ups with the bounce back programme would have been catastrophic.”

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