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Furlough fraud: a moral dilemma?

22 June 2020

We have never before seen a support scheme such as the furlough scheme. HMRC is working with businesses around the clock to help ensure that much needed funds are getting first to business and then to their employees in order to minimise as much as possible the number of redundancies resulting from the pandemic. But it would be wrong to assume that fraud is not occurring.

An online fraud hotline set up by the Government has received more than 3,000 claims of furlough fraud, while whistleblower charity Protect has seen a spike in calls to its advice line.

In attempt to limit the amount of furlough fraud, HMRC have declared that they will ‘rigorously audit’ companies for up to 5 years to ensure that claims made were legitimate and in spirit of the scheme. Currently, the government plans to give firms 30 days to admit to deliberate non-compliance of furloughing rules, according to The Telegraph.

Whilst this makes sense, the schemes details have changed several times making it difficult for employers to keep track and ensure complete compliance including: if holiday could be taken during furlough was not very clear at the start - this has now been clarified and they can be; People on maternity leave were initially unable to return and be furloughed - this has since been changed and now they can; The ability to rotate the furlough was also not clear at the start - you can also now do this.

Another factor to consider is that many organisations have been left to craft their own communications to their employees regarding their furlough situation. Some employees may be committing furlough fraud unknowingly – for example many have been asked to continue on as normal whilst furloughed, with more and more similar cases popping up in the media as of late. Though this it does not sounds devious, it is against furloughs guidelines. The new guidance for the scheme should hopefully limit miscommunications or misunderstandings moving forward.

Right vs wrong: less than obvious?

The pandemic and subsequent lockdown has created an unprecedented situation for businesses and employees. The threat of businesses collapsing and mass redundancies is a very real issue and many business owners and employees are deeply concerned about their future. This concern may drive many businesses who have otherwise acted legally and ethically to commit fraud in order to save their business and their employees’ jobs. Many employees as well may turn a blind eye or agree to fraudulent conduct out of a desire to safeguard their future.

Hypothetically, you’ve been placed on the furlough scheme for 80% of your wages and might be struggling to make ends meet. Your employer then offers to pay you the remaining 20% if you continue to work while furloughed. Would you accept or refuse?

Luckily these types of ‘compromises’ will no longer be up to the employer to suggest. In the first phase of the scheme (until the end of June) employers could choose to top up the employee’s salary above 80% but were not obliged to. In the subsequent phases (until the end of October) employers must start to make payments, including NI and pension contributions, even for the hours the employee does not work beginning 31 July.

Many have faced an ethical dilemma – with some employees concerned that if they refused to continue working they would be fired and others feeling like they had a duty to try and save the business. The situation has created many moral dilemmas that before the pandemic may never have had to have been countenanced.

Some businesses will not remain viable post-lockdown if they do not find ways to remain solvent while unable to trade. Many of these businesses can apply for other government support schemes such as bounce bank loans which will help them recover but this may not be enough.

Of course there are businesses that are undoubtedly abusing the different schemes provided by the government to line their own pockets. Some may have no intention of returning post lockdown and may have already made their staff redundant or are falsely claiming funds for non-existent staff or businesses.

For those businesses that are clearly abusing the furlough scheme and other government support schemes they should be investigated and held to account. But for those businesses and staff that may have abused the furlough scheme to save their business and their jobs. Do they deserve to be punished? How harshly should they be treated?

An HMRC spokesperson has stated that they, “Won’t hesitate to take criminal action against the most serious cases”. Any company director found guilty of abusing the system could face up to 10 years imprisonment and unlimited fines.

COVID-19 has had a devastating effect across all areas of society, most harrowingly with over 42,000 deaths in the UK.  Many have been forced to make difficult decisions and it’s a sad truth that some business owners may be forced to decide what they think is the lesser of two evils, potential prosecution or the loss of the business.

Covid-19 has turned the world upside down and with it the world of fraud and fraud prevention as well. We have seen how fraudsters have exploited the pandemic to deliver thousands of scams and fraud attacks against the public. We are only just beginning to understand the impact of COVID-19 on the frauds we fight and the frauds we will face in the future.

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Posted by: Sandra Peaston

Sandra is the Director of Research and Development at Cifas.

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Posted by: Sandra Peaston

Sandra is the Director of Research and Development at Cifas.

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