Business Department does not expect to recoup billions of taxpayers’ money lost to fraud and mistakes in pandemic support, says PAC report

 -  Department “effectively writing off” nearly £1 billion paid out erroneously by local authorities on its behalf  

- Of estimated £2.2 Billion lost to fraud and error in Covid schemes only about £10 Million so far recovered 

- Errors and inaccuracies in Companies House system undermine confidence and open door to fraud   

In a report today the Public Accounts Committee says the Department for Business, Energy & Industrial Strategy (BEIS) continues to make slow progress on its counter fraud activities related to the Bounce Back Loan Scheme, and its lack of curiosity about lenders’ performance increases the risk of losses for the taxpayer. The Department accepts that grant payments made through councils to their local businesses were ‘not in line with how the scheme was meant to work’ but it does not expect to recoup these funds.  

The size of the Companies Register is growing, which BEIS says reflects international trends and entrepreneurial activity. But confidence in the system is undermined by errors and inaccuracies. False statements, fake entries, errors, fictional company directors and individuals named without their consent can be used to commit crime including fraud. Making a false declaration to Companies House has been a criminal offence since 2009 but there is a record of just one conviction for this offence, in 2018. 

It is not clear how the Department holds to account third parties that deliver multi-billion-pound programmes on its behalf. The Committee is concerned that a laissez-faire approach may lead to failure to properly protect taxpayers’ money.  

Victims of the Post Office Horizon scandal continue to suffer as they await compensation due. Staff were dismissed, the Post Office took action to attempt to recover ‘losses’ that were in fact mistakes of their own system, and criminal prosecutions were pursued with people wrongly convicted. BEIS expects to provide £579 million to the Post Office to compensate victims of the Horizon scandal while continuing to operate as a going concern. Recent media reports indicate some victims are receiving only partial payments and are still owed huge sums. The Committee is seeking the date by which the Department expects all claims to be settled.  

Dame Meg Hillier MP, Chair of the Public Accounts Committee, said: “At a time of financial crisis the department for business has lost billions of taxpayers’ desperately needed funds.  It shows no real signs of making the improvements that would prevent the big mistakes it has made over many years, especially during the pandemic, happening all over again. It’s moving too slowly to compensate people for the lives ruined through the Post Office Horizon scandal.   

“Years of slogans about Britain being open for business are undermined by a dysfunctional company registration system that gives no confidence either in the proper operation of business and VAT systems, or that it will help to prevent the fraud, now the biggest crime in this country.”  

10.  The Department does not expect to recoup the majority of the estimated £985m of local authority grant payments made, mainly in error, in the first wave of Covid support schemes. Since March 2020, the Department provided local authorities with £25 billion of COVID-19 business support grants to allocate to eligible businesses. The first wave of grant schemes was not application-based but paid to businesses by local authorities according to their ratepayer databases. The Department considers that inaccuracies in these databases led to the wrong value of grant being paid out in error in some instances. Its final estimate for this first wave was £985 million paid in error. The Department believes that it will not recoup the majority of this, given there was not deliberate fraud, and the businesses were generally struggling due to Covid. We recognise that the payments were made to businesses who were struggling, however the large and irregular element of the grant payment was not paid in line with Parliament’s intention therefore it is unclear why the Department is not attempting to recover the irregular element of the grants paid in error. In addition, we have not seen the evidence the Department has to support its view that the majority of the first wave of business support grant scheme fraud and error estimate relate to error rather than fraud, as the Department’s fraud and error estimate has not been disaggregated in its 2021-22 Annual Report and Accounts. The Department does not expect to finalise its fraud and error estimates for the second wave of COVID-19 grant schemes until the publication of its 2022-23 accounts, with the third wave possibly being finalised even later.  

Recommendation 1: The Department, alongside its Treasury Minute response, should write to the Committee to quantify its latest estimates of fraud and error in each of the COVID-19 grant schemes and explain its justification where it is not seeking to pursue recoveries from businesses.   

11.  The Department’s lack of curiosity surrounding lenders’ performance in the Bounce Back Loan Scheme increases the risk of losses for the taxpayer. The Bounce Back Loan Scheme was set up quickly, with limited requirements for what data lenders should collect and how it should be shared with government. In line with initial agreements, lenders followed their ‘business as usual’ procedures for monitoring, chasing payment, and identifying fraud for government backed loans. This resulted in borrowers being at risk of being treated differently, and variations in the level of risk to the taxpayer. Lenders self-report on performance within the British Business Bank’s lender portal. Data is not, therefore, comparable between banks, and variations in lender performance are not well understood by the Department. The Department, and British Business Bank, have continued to build relationships with lenders, and obtained further information in excess of that agreed at the outset, to assist with fraud prevention and monitoring of performance. Although we understand that lenders have provided all data requested, lenders hold further information that might be helpful. For example, on the underlying credit risk of the loan books, comparing performance on government backed, and non-government backed loans. 

Recommendation 2: 

a.      The Department should set out what more it will do to identify the reasons for variances in scheme performance and encourage all lenders to reach an optimal level of performance. This is likely to include establishing the full extent of information held by lenders.  

b.      The Department should make data collection and sharing explicit within initial agreements when setting up future lending schemes. 

12.  The Department continues to make slow progress on its counter fraud activities related to the Bounce Back Loan Scheme. The Department’s counter-fraud response on BBLS started too late. The Department did not liaise with the Cabinet Office counter fraud function until well after the scheme launched, and had a virtually non-existent counter fraud function of its own at the time the scheme was designed, of two full-time staff. Subsequent Fraud Risk Assessments identified additional fraud risk indicators that weren’t considered at the point the scheme was launched. The Department told us key learning from Bounce Back Loan Scheme has been applied to the Recovery Loan Scheme, although this has fundamentally different features such as industry standard checks in place, and the lack of a 100% guarantee. The Department provided an update on the progress of the National Investigation Service (NATIS), which having been provided with £13.2 million funding, had recovered £5.8 million (which is 0.2% of the total estimated fraud and error for the COVID-19 business support schemes), made 58 arrests and had 558 open investigations at the time we took evidence.  

Recommendation 3:  

a.      The Department should publish its counter-fraud strategy straightaway and make maximum use of available resources, including lender data and lender audits, to target its activity where it can be most cost effective. 

b.      The Department should report back to the Committee with the updated results of the spend on counter fraud and the recovery results obtained compared to the level of estimated fraud. 

13.  The Department’s performance reporting in its annual report and accounts does not allow Parliament and the public to monitor progress towards its strategic priorities. The Department’s activities are wide-ranging, and it told us it has an ever-growing set of delivery obligations. It believes its complexity, and broad and diverse remit make it challenging to set out its performance. However, complexity is not a reason to avoid transparency reporting obligations. Departments had outcome delivery plans (ODPs) for 2021-22 which set out priorities and associated metrics, and HM Treasury expects departments to report publicly on the delivery of their ODPs in their annual reports and accounts. The Department told us that it regularly reports its ODP performance metrics internally within government; however, the Department in its Annual Report and Accounts presented outcome metrics that appeared, in some cases, disconnected from the accompanying narrative. This not only diminishes the usefulness to the reader in assessing progress towards achieving outcomes, it also risks giving the impression that the Department is including such metrics to meet minimum compliance requirements rather than to aid understanding or support transparency and accountability.  

Recommendation 4: In its Treasury Minute response, The Department, should set out what steps it has taken to ensure that performance reporting in its 2022-23 annual report and accounts will clearly and transparently document its progress against its strategic priorities. 

14.  It is not clear how the Department holds to account third parties that deliver multi-billion-pound programmes on its behalf. The Department stated that responsibility lies with the commercial bank lenders and local authorities and that it is the Department’s role to enable, support and challenge them. HM Treasury’s Managing Public Money guidelines are clear that accounting officers are personally responsible for the resources of their own organisation, even when working with other organisations. This is a point also made to us by the Institute of Chartered Accountants in England and Wales.  The Committee is clear that accountability for the Department’s resources lies with the Accounting Officer, and we are concerned that a laissez faire approach to Departmental oversight may lead to taxpayers money not being properly protected. 

Recommendation 5: The Department should set out how it retains robust oversight and challenge of third parties delivering major policies and holds these bodies to account for achieving value for money and protecting taxpayer interests. 

15.  Confidence in the Companies Register is undermined by errors and inaccuracies. Companies House, an executive agency of the Department, maintains the Register of Companies for England and Wales. The size of the register is growing, which the Department considers reflects international trends and entrepreneurial activity. However, false statements, fake entries, errors and inaccuracies (such as fictional company directors, or individuals named without their consent) can be used to commit crime, including fraud. Making a false declaration to Companies House has been a criminal offence since 2009 under the Companies Act 2006, but this legislation is rarely enforced. There is a record of just one conviction for this offence, in 2018. The Department considers forthcoming legislation following the Economic Crime and Corporate Transparency Bill will provide powers to Companies House to identity-check directors and refuse to register companies. 

Recommendation 6: The Department, alongside its Treasury Minute response, should set out the total number of convictions for making a false declaration to Companies House, and the actions which are being taken to ensure offenders are identified and prosecuted. 

16.  Victims of the Post Office Horizon scandal continue to suffer as they await compensation due. The Horizon accounting system erroneously recorded shortfalls of cash in local Post Office branches over its more than 20-year lifetime. The Post Office blamed many of these shortfalls on sub postmasters and sub postmistresses, despite it being the Horizon system that was at fault. Staff were dismissed, the Post Office took action to attempt to recover the ‘losses’, and in some cases criminal prosecutions were pursued and people were wrongly convicted. The Department expects to provide £579 million to the Post Office so that it can compensate victims of the Horizon scandal while continuing to operate as a going concern. Through one of two compensation schemes, the Department stated that 90% of compensation offers (not payments) had been made by mid-November 2022; however, recent media reports have indicated some victims receiving only partial payments and still being owed huge sums. The Department described these as the most challenging cases involving bankruptcy or insolvency, and said that it was taking professional advice. 

Recommendation 7: The Department should write to the Committee alongside its Treasury Minute response to provide details of the total value of payments made to date and the proportion of the total payments that this represents. This should be for both the Historical Shortfall and Historical Convictions schemes and indicate when it expects all claims to be settled. /ENDS 

For full inquiry information including evidence received BEIS Annual Report & Accounts 2021-22 

*Please note this report refers to the full annual accounts for the Department before its responsibilities were divided between several new departments