Ethical concerns COVID related client fraud

Aside from my responsibilities as a director of Landmark I still have a small professional practice and I do have clients that are furloughing staff.

Recently, I received an update from my institute, the ACCA, setting out ethical concerns and advice for members regarding CJRS fraud. I found the contents useful and have shared fragments in this blog.

The Legal Framework for CJRS claims

The Treasury Direction under the Coronavirus Act 2020 states that:

‘the person making the claim [CJRS]accepts that:
(a) a payment made pursuant to such claim is made only for the purpose of CJRS and
(b) the payment must be returned to HMRC immediately upon the person making the CJRS claim becoming unwilling or unable to use the payment for the purpose of CJRS.

 

No CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of CJRS’.

Examples of areas of concern that may indicate fraud include:

Employer-benefit fraud

  • where an employer purports to place an employee on furlough in order to access the scheme, but in fact has instructed that employee to work, provide services or generate revenue for that employer
  • where the employer does not pay the full furlough entitlement to the furloughed employees.

Employee-benefit fraud

  • where an employer seeks to allow an individual not ordinarily employed by them to be regarded as an employee for the purposes of the scheme, so that the scheme will provide funds for the individual that they are not entitled to.

HMRC has put in place a fraud hotline (telephone 0800 788 887) and an online whistle-blower service based on a structured email form, for employees and the public to report suspected fraud in the furlough scheme.

ACCA advice for accountants

The advice that the ACCA offers for members is reproduced below:

Professional accountants should ensure that clients understand the rules relating to the furlough claim and have systems in place to ensure compliance.

If they become aware that an employer-client is breaching the rules (for example an employee is carrying on work while on furlough), advise the client accordingly and ask the client to rectify the error. A member should keep sufficient appropriate records of discussions and advice given.

If the client rectifies the error (and repays the ‘over-claimed grant’), the accountant is free to continue to act for the client. However, should the client ignore such advice and guidance, the accountant must:

  • cease to act
  • inform HMRC of their withdrawal
  • submit a suspicious activity report to the National Crime Agency (see ACCA’s guidance on making a suspicious activity report)
  • consider carefully their response to any professional enquiry letter (also known as professional clearance letter).

Accountants should also be aware of their obligation on engagements in assisting a client to apply for any other government support measures such as Bounce Back Loans and the use of ‘Time To Pay’ arrangements. Accountants should fully explore what support is available for their client’s actions ethically and within the law. A professional accountant shall not be allowed to be associated at any time with information that they believe to be wrong or misleading.

Have your clients received CJRS letters from HMRC?

The ACCA have also offered advice to practitioners regarding the stream of letters now being sent to businesses asking them to to correct any errors made regarding past CJRS claims.

The ACCA said:

Practitioners will be aware of, or may have received on behalf of their clients, HMRC letters prompting them to correct any errors made on claims relating to the Coronavirus Job Retention Scheme (CJRS) grants.

HMRC has recently started sending out these letters – about 3,000 per week. These letters will invite the client to declare whether any overclaims were made by them in relation to CJRS grants.

The letters should not be ignored – they must be responded to even if the client believes no declaration is due. A response by letter should suffice for these purposes. Legal or expert advice should be sought before any ‘certificate of tax position’ is signed and submitted to HMRC.

Additionally, it was stated that:

The Finance Act 2020, Schedule 16 contains an amnesty for notifying HMRC of any errors or overclaims within 90 days of the later of any tax charge being payable due to the overclaim and the date of Royal Assent of the Act. As such, the earliest date this amnesty will expire will be 20 October 2020.

The following behaviours should be checked and corrected within the time limits of this amnesty:

  • not being aware that remote staff are working, eg work-related emails being generated or line managers asking furloughed staff to carry out some work
  • technical or computational issues – innocent errors such as where there is misunderstanding of the methods of certain calculations will not be targeted
  • delays in making payment to staff for the wages due from the furlough grants
  • deliberate fraudulent behaviour

This will be the only chance employers have to remedy their position without any penalties being charged so it is crucial that clients respond promptly to HMRC.

Penalties for those who fail to notify HMRC within the ‘amnesty’ period but knowingly received the CJRS grant or overclaimed the grant even though they were not entitled to claim it due to any changes in their circumstances will be based on ‘deliberate and concealed’ behaviour. This could potentially make the client liable to a penalty of 100% of the tax due.

Clearly, clients need to either confirm that their claims are valid or advise HMRC of errors and do this within the 90 day amnesty period.

Evidence of compliance

In the rush to access furlough support grants clients may not have amassed evidence to support their claims. Again, the ACCA offer sage advice on this topic. They say:

It would be advisable for practitioners to start advising their clients that all claims are checked and ensure full records are available supporting the claims. Practitioners will have assisted many clients on submitting the claims on behalf of their clients and while they may have been provided with computations and payroll records, they may not be aware of any other conditions that may have been broken by the client or their staff.

Of course, there is no advice on the nature of the CJRS claims records that need to be kept but this is where the October 2020 resources provided to Landmark’s Fee Builder subscribers may come in useful.

They include:

  • Technical notes
  • Fact sheets for clients with draft covering emails
  • A suggested format for evidencing CJRS compliance

Based on the HMRC’s interest in this area and the ACCA’s response it would appear that as practitioners we cannot ignore this issue.

A new service for your practice?

The Fee Builder resources for October 2020 would provide you with the resources to tackle CJRS compliance and record keeping needs within the requisite 90-day window offered by HMRC.

Sign up now, no financial risk, we offer new subscribers to Fee Builder a 60-day money back guarantee.

 

 

 

 

 

 

 

 

 

Bob Edwards

Bob has been working with practices across the UK offering novel ways to improve cross-sales and increase new client acquisitions. He is also interested in "step changes" in legislation that offer challenges, and therefore opportunities, for practitioners to provide new recurring and one-off support services to clients.

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