Furlough Fraud

What is furlough?

The Coronavirus Job Retention Scheme, also known as the furlough scheme, allows employers who cannot maintain their workforce (because operations have been affected by the COVID-19 pandemic) to furlough employees and apply for a grant to cover a portion of their usual monthly wages. The scheme has been extended to 30 September 2021.

Details of furlough payments

For periods ending on, or before, 30 June 2021 employers can claim 80% of an employee’s usual salary for hours not worked, up to a maximum of £2,500 per month. From 1 July 2021, the level of grant will be reduced each month and employers will be asked to contribute towards the cost of their furloughed employees’ wages.

Under the furlough scheme, employers have the choice to either:

• Fully furlough employees which means they cannot undertake any work for their employer, and as above, the employer can claim up to 80% of their employees wages up to the maximum.
• Flexible furlough employees (which was available from 1 July 2020 onwards), means employees can do any amount of work, and any work pattern, but they cannot undertake any work during the hours they are recorded as being on furlough.

Furlough fraud cases

The BBC reported as early as July 2020, only a short time after the furlough scheme was implemented, the first known arrest was made in relation to fraudulent claims

In September 2020, a company director and accountant were arrested in relation to fraudulent claims and had their devices and business accounts seized as part of the ongoing investigation

It has not been reported how the arrests came to light, however with HMRC implementing anonymous whistle-blowing via their dedicated phone line and easily accessible online form, it is likely to encourage individuals to report suspected fraud.

What is furlough fraud?

A fraudulent claim under the furlough scheme is a criminal offence, as it is Fraud by False Representation. A person commits this offence if they dishonestly submit a claim under the furlough scheme intending to make a gain for themselves or another, or to cause loss to another, or to expose another to a risk of loss.

The representation, i.e. the claim under the furlough scheme is false if it is; untrue or misleading, and the person making the claim knows that it either is, or might be, untrue or misleading.

This means that a person who submits a fraudulent claim needn’t have received any money in order to be guilty of an offence.

Investigating furlough fraud

If you are an employer suspected of furlough fraud, the investigation is likely to involve obtaining information from; HMRC, Companies House, speaking to employees, examination of PAYE records and tax returns, and computer analysis of historic claims. Given the huge sums claimed by employers in furlough payments, and the rumours of fraud circulating, there are likely to be dedicated investigative teams who look at all of the above sources of information during the course of their enquiries before deciding whether they wish to speak to employers themselves.

Police investigating furlough fraud

Should the police contact you (as an employer) in relation to suspected furlough fraud, they may want to ask you to provide a formal sworn statement in relation to your employees and any furlough claim you have made, confirming the accuracy and honesty of the claim you have made. If you say anything in this statement which is later proved to be false then the statement is likely to be an important document in any later prosecution case. A refusal by an employer to co-operate with the investigation is certain to raise eyebrows and it is easy to see the next step being the involvement of the police, who may look to either arrest the employer, or ask them to attend the police station on a voluntary basis for an interview under caution. An employer who knowingly provides the police with false information in a furlough fraud investigation would be likely to committing a separate criminal offence of perverting the course of justice.

What would happen if an individual is found guilty of furlough fraud?

There are no specific sentence guidelines for furlough fraud as the guidelines were in place pre-pandemic. However by its very nature, furlough fraud is defrauding the Government, and this is something that Judges take a particularly unfavourable view of. There has been widespread criticism in the national media of wealthy companies making claims under the furlough scheme which makes it even more likely that Judges will take a harsh approach when sentencing anyone found guilty of this offence.  The prosecution are sure to characterise such cases as the deliberate stealing of much needed public funds designed to keep companies afloat and employees in jobs.

Sentencing for furlough fraud

The sentencing guidelines for similar offences are wide-ranging and largely dependent upon the amount of money fraudulently claimed and the position of power that an individual holds within the organisation. For example, a company director who has fraudulently claimed  £12,500 is likely to face a custodial sentence as a starting point if found guilty of this offence. The sentence range for this sum using existing revenue fraud guidelines (which we imagine will be the starting point for those facing sentence for this offence) is from 3 years imprisonment to a Community Order. Where you sit in this range will depend on the existence of aggravating or mitigating factors found to exist by the sentencing judge.

What will happen to the money that is fraudulently claimed?

The furlough scheme has cost the Government billions of pounds to date, so it would be reasonable to assume that every effort would be made to investigate potentially fraudulent claims in order to punish those guilty of fraud, but another important aspect of the investigation will be an effort to recoup money fraudulently paid out.

Proceeds of Crime Act

This is where the Proceeds of Crime Act (commonly known as POCA), becomes relevant. POCA sets out the legislative framework for the recovery of criminal assets with confiscation being the most commonly used power. You can expect confiscation to happen after a criminal conviction for furlough fraud. Money that is fraudulently claimed is a criminal asset, and as such, it could be confiscated from anyone who receives a conviction in the Crown Court for furlough fraud.

The purpose of confiscation proceedings under POCA is to deprive the person found guilty of a criminal offence of the financial benefit they obtained from their criminal conduct. This means that specific individuals (for example; company owners, managers, accountants) who are convicted, and have financially benefitted from the furlough fraud, could subsequently find themselves having to defend POCA proceedings. It is often said that the operation of POCA is grossly unfair to defendants, who may be ordered to pay massive sums which appear disproportionate to their role in the criminal enterprise and the benefit they received.

Legal advice for furlough fraud

If facing an investigation for furlough fraud, or if you have been charged and are due to appear in court, it is hugely important you take proper advice from fraud specialists at every stage to ensure you do not end up facing a prison sentence and the prospect of losing everything you own to pay back what the court thinks your financial benefit was in committing the offence.

Contact

David Gray Solicitors are here to offer advice and assistance for matters relating to furlough fraud, so please give our crime department a call on 0191 232 9547.