Can I be Investigated for Furlough Fraud?

 

Created on June 12, 2020

Another year, another raft of criminal offences that never previously existed. Unsurprisingly, one of the new areas for criminal sanction in 2020 relates to our response to the worldwide coronavirus pandemic.

The Coronavirus Job Retention Scheme (CJRS) formed the main plank of the Government’s attempt to keep businesses alive where they might otherwise have collapsed and to retain as many jobs as possible while the battle against Covid-19 is fought. What quickly became known as the “Furlough Scheme” would allow employers to retain their employees, even while there was little or no work for them to do, and for those employees to be paid a significant percentage of their usual pay without having to work.

As with any such scheme, there was huge scope for mistakes to be made and for decisions to be taken which might put the employer business at risk of criminal prosecution.

 

Genuine mistakes do not amount to fraudulent acts

A business may find that it has claimed money through the CJRS that it was not entitled to. This might be because of simple mistakes made during the process of reporting wages and claiming payments from HMRC. There is a system in place for reporting such mistakes and for overpayments to be recouped by the Government, as you might expect. Such mistakes are unlikely to lead to a criminal investigation.

The fraudulent activity that most people will think of when they consider the scheme relates to employers that have claimed furlough payments in respect of staff that have continued to work for them. The most blatant example of staff coming in to work everyday while the employer makes a claim in respect of their entire wages via the CJRS is probably quite easy to identify. In fact, the Government is encouraging staff (and anyone else with relevant information) to make anonymous reports to its HMRC website. Claims made in respect of “ghost employees” will also amount to an obvious form of fraud.

As ever, less easy to spot are those cases where the lines are blurred.

For example, what is the position where the employer furloughs staff in good faith but some of those staff members decide to carry on with aspects of their work, simply to help out their boss or to put themselves in a better position for future career development? Carrying out functions of your employment still amounts to providing a service for your employer, even if your employer hadn’t asked you to do it.

Is the employer entitled to all of the CJRS payments received? Probably not.

Have they committed fraud? Almost certainly not.

 

Dishonesty is key

Fraud requires an element of dishonesty. If the employer has not acted dishonestly, they haven’t committed a fraud.

However, an anonymous tip-off may lead to an investigation by HMRC and evidence of work being carried out by furloughed staff may be discovered. A prosecution may, but will not always, be the consequence.

 

What are the likely penalties in respect of “Furlough Fraud”?

If mistakes have been made and payments have been received that shouldn’t have been, the employer can make a report to HMRC. If this is done in a timely manner and generally within 90 days, it is unlikely that any further penalty will result. HMRC will accept the mistake as genuine and the overpayment will simply be recouped.

The Finance Act 2020 allows HMRC to impose additional penalties where overpayments have been made, the person concerned had knowledge of the overpayment at the time and a report was not made within the relevant time limit. The penalty regime provided for by this legislation is civil in nature and will not result in a criminal conviction.

However, where overpayments have been received on a significant scale or where HMRC believes the evidence of dishonesty is overwhelming, a prosecution under pre-existing legislation such as the Fraud Act becomes more likely. In these circumstances, a conviction for fraud carries a maximum sentence of 10 years in prison. Whilst sentences of that length are unlikely, the stress of a criminal prosecution and the consequences of a conviction for those involved may well lead to jobs being lost or the breakdown of a business.

 

What can Old Bailey Solicitors do to help?

With over 20 years’ experience in criminal defence work, Old Bailey Solicitors routinely advise employers and business owners facing investigation by law enforcement agencies such as the police, HMRC or the NCA. We provide advice during the interview process and we will help our clients to negotiate, where possible, to avoid prosecution.

Where a genuine mistake has been wrongly identified as evidence of dishonesty, we will help our clients gather the evidence they need and to assert their case in court in order to avoid an unjust conviction.

If you are an employer facing investigation in respect of alleged “furlough fraud” or any other financial wrongdoing, contact us at www.oblaw.co.uk or call 0207 8464 999.

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