CoverStory
The great Covid clawback
The help given to businesses during the pandemic required urgency, which came at the expense of the usual checks and balances and provided a major opportunity for fraud. Now, the monumental task of recouping the funds is under way
Words: Rachel Willcox Illustration: Jackie Parsons
During the Covid-19 pandemic, against a backdrop of deserted streets and homes occupied around the clock, vehicle theft, robbery, mugging and burglary all fell by about half, according to the Office for National Statistics (ONS). The tougher the movement restrictions, the larger the decline. However, fraud and cyber crime were a different story.
On 17 March 2020, the then chancellor Rishi Sunak unveiled a financial support package worth £330bn – equivalent to 15% of UK GDP – and pledged to do “whatever it takes” to protect businesses from the effects of the economic emergency brought on by coronavirus. His prime objective – to get money quickly into the hands of mothballed businesses – would be met, but at a cost.
The then Department for Business, Energy and Industrial Strategy (BEIS) launched the Bounce Back Loan Scheme on 4 May 2020. It saw banks, building societies and peer-to-peer lenders accredited by the British Business Bank to offer loans of up to £50,000 or a maximum of 25% of annual turnover, guaranteed by the government, to support businesses during the pandemic.
BEIS expected lenders to be the first line of defence against fraud, and they were obliged to conduct fraud and ‘know your customer’ checks. However, the scheme had limited verification and no credit checks on borrowers, which made it vulnerable to losses.
Measures to identify duplicate applications were introduced in June 2020 but, by that point, 61% of the loans by value had already been made. Checks on director changes were introduced in July 2020.
As the scheme progressed, 13 additional counter-fraud measures were introduced, but most came too late to prevent fraud and were instead focused on detection. A December 2021 report by the National Audit Office (NAO) described the government’s activity to limit taxpayers’ exposure to fraudulent loans as inadequate.
Tim Robinson, a partner in the forensic services team at Crowe, says: “The rapid rollout of the loan schemes combined with poor due diligence generated opportunities for nefarious actors to benefit via fraud. It has since become clear that many company directors took out loans during this period with little likelihood, or desire, to ever repay them.”
If money is lost then properly trained and well-resourced teams with the ability to investigate and pursue it must be deployed.
Major cash leak
Official estimates of fraud relating to Covid-19 support packages are nothing short of eye-watering: while more than £46bn has been issued by lenders to support businesses, there have been in excess of 100,000 cases of loss to fraud and error, including £4.3bn in Bounce Back loans, representing 7% of all loans made under the scheme; £2.3bn was incorrectly paid to employers who claimed taxpayers‘ money for furlough payments for employees who continued to work; and £1.1bn was lost in grants distributed by local authorities.
Although the onus was on lenders to investigate other fraud within the scheme, their commercial incentives to do so were limited, the NAO reported. Lenders could reclaim fraudulent Bounce Back loans through the government guarantee provided they followed the scheme’s rules, which required lenders to conduct counter-fraud checks with each application and use recovery processes in line with their business-as-usual standards.
Image: Alamy
Prospect of success
Professor Mark Button, co-director of the Centre for Cyber Crime and Economic Crime at the University of Portsmouth, says: “I suspect the Insolvency Service has probably got evidence on cases of directors where it will be difficult to prove fraud in a criminal court, but they can get them struck off as directors. By going down this route, it’s probably, in part, an admission that criminal prosecutions and getting money back are difficult.”
Although the Insolvency Service has broad powers to investigate directors of dissolved companies and pursue civil recovery, some believe it lacks the prosecutorial teeth of bodies such as Natis or the Serious Fraud Office. This may signal a move towards faster administrative resolution, but it could reduce the deterrent effect that criminal investigations offer.
Looking forward, Robinson says comprehensive counter-fraud policies and robust controls and processes are essential to limit the risk. “If money is unfortunately lost then properly trained and well-resourced teams with the ability to investigate and pursue it must be deployed,” he says. “Proper action and prosecution must then happen if we are to deter others from carrying it out.”
Button, meanwhile, believes the UK government should look to the US, where private lawyers can undertake legal actions in relation to fraud against the government. “Their reward is a percentage of what they get back,” he says. “They should consider something like that but, either way, this is going to rumble on.
“Hopefully we won’t have another pandemic in my lifetime but we need to be much better prepared that this kind of fraud might occur.”
Unless fraud recovery efforts are adequately funded and prioritised, the message to future fraudsters will be clear: you can get away with it.
Record-keeping
Within five months of the Labour government coming into power in July 2024, Tom Hayhoe was appointed as Covid counter-fraud commissioner for a one-year fixed term. The press release announcing his appointment said Hayhoe would work across government to use every means possible to recoup public money lost in pandemic-related fraud and contracts that had not delivered.
His remit includes scrutinising Covid-19 spending and providing assurance that everything possible has been done to recover public funds in other schemes including furlough, Covid grants and Bounce Back loans. At the end of his fixed term, Hayhoe will present a review to Parliament outlining lessons and recommendations for government procurement in the face of future crises.
Meanwhile, a review of fraud recovery activity kicked off by the current government concluded that public money was not being spent effectively. In particular, a contract signed in 2020 under the previous government with the National Investigation Service (Natis) – an agency based in Thurrock Council in Essex – fell under the spotlight.
Its remit was to focus on Covid-19 incentivisation scheme fraud worth more than £100,000 with evidence of organised crime, as well as for other fraud of high value. By October 2021, Natis had received more than 2,100 intelligence reports, but it said it only had capacity to pursue a maximum of 50 cases per year.
Despite costing the taxpayer approximately £38.5m, Natis has secured just 14 convictions and the overall amount it has recovered remains unclear. The investigation also revealed problems with Natis governance and how recoveries are reported.
Handover
In May 2025, the government announced that all ongoing viable Covid-19 fraud cases will be transferred to the Insolvency Service. Business and trade minister Gareth Thomas said the move would ensure lost funds from Covid-era fraud are recovered more quickly and effectively.
The government says the Insolvency Service has a proven track record tackling fraud and misconduct connected to pandemic support schemes since 2020 using its powers to investigate trading companies, prosecute criminal offences, disqualify directors and impose bankruptcy restrictions. By the end of March 2025, it had secured more than 2,000 director disqualifications as well as 62 criminal convictions, helping to secure more than £6m in compensation related to Covid-19 financial support scheme abuse.
“Questions around Natis’s suitability to deliver such work have been circling for some time, particularly as several other public bodies and many other expert private sector organisations would have been well-placed to generate returns,” Robinson says.
“While the government’s strategy should provide more of a solid foundation for convictions and lead to higher recovery, the sheer volume of fraudulent cases and the differing complexities of each case will continue to cause challenges. Investment and sustained effort will be required if we are to see any significant results.”
Covid fraud: government response
• The Department for Business and Trade’s (DBT) current counter-fraud strategy involves working across government, with law enforcement agencies and with commercial lenders to address fraud in Covid-19 debt schemes.
• Lenders are responsible for undertaking recovery action in the first instance and are expected to use all appropriate means at their disposal to recover outstanding Bounce Back loans in line with their existing practices, contractual and regulatory obligations.
• The British Business Bank is responsible for monitoring lender recovery, which it does through audits and a post-claims assurance process.
• The DBT is also working with lenders to pilot greater use of third-party debt collection specialists, plus compulsory liquidation for recovery and enforcement in fraud cases.
