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The UK watchdog criticized the lack of fraud checks on COVID loans

General view of the deserted New Bond Street with its closed shops, following the outbreak of coronavirus disease (COVID-19), London, Britain, May 7, 2020. REUTERS/Simon Dawson // File Photo

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LONDON, Dec 3 (Reuters) – The British government has failed to guard closely against fraud in COVID’s 47 billion pound ($ 63 billion) lending program for small businesses, which opens itself up to billions of pounds of losses, a watchdog warned on Friday.

The Bounce Back Loan Scheme was launched in May 2020 and did not conduct credit checks or fully verify the identity of small businesses applying for loans, said the National Audit Office, which reviews in public sector spending.

“The government prioritized the quick issuance of the Bounce Back Loan to small businesses but it failed to put in place adequate fraud prevention measures,” said Gareth Davies, the NAO’s comptroller and auditor general.

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“An impact of these decisions is evident in the high level of estimated fraud.”

The government launched the scheme to prevent the collapse of small businesses that had to stop trading due to strict lockdown restrictions at the start of the COVID-19 pandemic.

Companies can borrow up to 50,000 pounds each through banks at a fixed interest rate of 2.5%, which can be repaid over 10 years. Initially, lenders will have to give a decision on the loan within 24 to 48 hours.

In March, Britain’s business ministry, which ran the program through British Business Bank, a state lender, estimated that 37% of loans would not be repaid, and 11% came from fraudulent applications.

A subsequent investigation by PwC accountants in October changed the fraud rate down to 7.5%, although the NAO said it did not have time to review the estimate itself.

Other countries are also investigating the misuse of emergency loans issued during the pandemic.

The U.S. Special Inspector General for Pandemic Recovery said in June that Washington’s loans program was plagued by “unprecedented levels of fraud”. read more

Meg Hillier, chairwoman of a cross-party Public Accounts Committee in Britain’s parliament, said the government had done very little to reduce the “huge risk of fraud and error”.

“It is now focused on recovering money from organized crime, but many of the petty fraudsters have slipped into its fingers,” he added.

A business ministry spokesman said the loans and other support had helped millions of companies avoid staff layoffs.

“We work closely with lenders and enforcement authorities to reduce fraud and ensure that perpetrators of fraud are faced with consequences,” the spokesperson added.

($ 1 = 0.7519 pounds)

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Reporting by David Milliken Editing by William Schomberg

Our Standards: The Thomson Reuters Trust Principles.