Unprecedented Stimulus Is Fueling an Explosion of Fraud, Governments Begin to Admit

“If you discover at a later stage that there was Mafia involvement, how do you undo what you’ve already done?”

The British government acknowledged on Tuesday that it may end up paying out as much as £3.5 billion of taxpayer funds in fraudulent or wrong claims for its job retention scheme, which covers up to 80% of an employee’s salary while they are on furlough. That’s the equivalent of 10% of all the money disbursed by the furlough program by mid-August.

“We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%,” Jim Harra, the top civil servant at HM Revenue & Customs (HMRC), told members of parliaments on the Public Accounts Committee, adding that an academic study had estimated that the level of fraud and error could be even higher than 10%.

The jobs retention program is not the only British stimulus program that’s proven to be susceptible to fraud. The Bounce Back Loan program, which was launched to help small businesses survive the lockdown and its lingering aftermath, has been exploited by a minority of applicants to buy luxury cars, property or even premium bonds.

One of the reasons this is happening is that the loans are self-certified, so that they can be granted within 24 hours. They are also fully guaranteed by the State, meaning that banks are not liable for any unpaid debts and are therefore quite happy to release the funds with little in the way of background checks. Much of the debt — 40%-50% according to the Financial Times — will never be repaid, since many of the businesses will collapse.

The program has so far disbursed £31 billion to 1 million small businesses — roughly a fifth of the estimated 5 million registered businesses. The vast majority of these businesses had perfectly legitimate claims to the loans. With the economy brought to a virtual standstill by the government-imposed lockdown, they needed money as quickly as possible. But in all the haste to get credit flowing, juicy opportunities were created for fraudsters to fill the pockets along the way for fraudsters to also fill their pockets.

In July, the Policy Exchange think tank warned that fraud and error could set the government back between £1.3 billion and £7.9 billion. The think tank said the government’s financial rescue scheme was prone to abuse and scams due to the sheer scale of the loan program as well as the speed at which measures were rushed through.

Governments all over the world are beginning to admit that a considerable part of their unprecedented stimulus programs has been dished out on fraudulent or incorrect claims.

Continue reading the article on Wolf Street

Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s