NAO finds that almost one in ten furloughed employees were asked to work during lockdown in breach of CJRS rules

New report on coronavirus-related employment support schemes calls on HM Treasury and HMRC to do more to protect employees and counter acts of fraud

The National Audit Office (NAO) has found that almost one in ten furloughed employees were asked to work during the coronavirus (COVID-19) lockdown in breach of the Coronavirus Job Retention Scheme (CJRS) rules.

In a new report, Implementing employment support schemes in response to the COVID-19 pandemic, the NAO considers how well HM Treasury and HMRC (the Departments) have managed in implementing both the CJRS and the Self-Employment Income Support Scheme (SEISS) and, in particular, whether they have -

• managed design and delivery risks effectively in implementing the schemes;
• understood whether the schemes are reaching the people intended; and
• managed fraud and error risks effectively.

The NAO finds that, while the Departments implemented both schemes ahead of their schedules, the compressed timeframe to design each scheme meant that they could not follow standard processes comprehensively, such as producing business cases, options appraisals and detailed cost-benefit analysis. In addition, the NAO says that the Departments' challenges in implementing the schemes at pace were potentially increased by the lack of pandemic contingency planning or existing employment support schemes that they could adapt.

Turning to whether the schemes have supported the people intended, the NAO finds that, while they have been largely successful in protecting jobs through the lockdown period - with at least 12.2 million people benefiting from support - as many as 2.9 million people were not eligible for the schemes, either because of ministerial decisions about where to focus support, or because HMRC did not have data needed to properly guard against the risk of fraud. This includes -

• 1.1 million people estimated by third parties to be ineligible for CJRS because HMRC had limited data to validate claims or determine eligibility;
• around 1.6 million self-employed people estimated by HMRC to not meet the criteria for SEISS, for example because most of their income did not come from being self-employed (1.4 million people) or their trading profits exceeded £50,000 (200,000 people); and
• a further 200,000 estimated by third parties to be ineligible for SEISS because they were newly self-employed in 2019/2020 and had not yet submitted a self-assessment return.

In addition, in relation to the management of fraud and error within the schemes, the NAO finds that -

'There is considerable risk that some employers committed furlough fraud by keeping employees working in lockdown, against the rules of the scheme, or by claiming payments and not passing them on to employees in full. HMRC’s fraud hotline has received over 10,000 reports, many referring to cases where employees worked despite their employer claiming for them as furloughed staff. The NAO found that 9% of people it surveyed admitted to working in lockdown at the request of their employer, and against the rules of the scheme. HMRC concluded it would tackle fraud through whistleblowing and retrospective compliance work. However, employees would not have known if their employer was part of the furlough scheme unless their employer had informed them. HMRC intends to publish the names of employers claiming the new Job Support Scheme (JSS) and to notify employees through their personal tax accounts when an employer has claimed JSS.'

The NAO also finds that, while the scale of total fraud and error is likely to be considerable, HMRC will not know the actual levels until the end of 2021 at the earliest, adding that -

'In September HMRC’s assumption was that fraud and error could range from 5-10 per cent on CJRS, which would equate to £2.0 billion to £3.9 billion. For the first SEISS grant, HMRC’s planning assumption was that fraud and error could range from 1-2 per cent. Given the lack of available data, both these estimates were necessarily assumption-based rather than evidence-based. HMRC is developing its understanding of the full scale of fraud and error, and believes it will need to redeploy staff from tax compliance work to tackle fraud and error on the schemes.'

As a result of these findings, the NAO recommends that HM Treasury and HMRC should -

• consider how to ensure that reliable information, covering as many people as possible, can be used to determine eligibility so that fewer people suffering loss of income are excluded from similar schemes in the future;
• accelerate programmes to assess the total value of fraud and error; and
• ensure sufficient resources are committed to recover overpayments and fraudulent payments on both schemes where it is cost-effective to do so.

Commenting on the report, head of the NAO Gareth Davies said -

'HM Treasury and HMRC met their objective to rapidly implement the schemes and the civil service should be commended for making these available ahead of schedule. Indications are that the schemes helped to protect jobs in the short-term, but it is also clear that many other people have lost earnings and have not been able to access support.

It appears that the scale of fraud and error could be considerable, particularly for the furlough scheme. HMRC could have done more to make clear to employees whether their employer was part of the furlough scheme. In future, the Departments should do more while employment support schemes are running to protect employees and counter acts of fraud.'

For more information, see Implementing employment support schemes in response to the COVID-19 pandemic from nao.org.uk