The Coronavirus Job Retention Scheme – commonly known as the furlough scheme – was devised by the UK government to assist businesses through the lockdowns imposed by the COVID-19 pandemic.
Businesses do a lot to prevent financial crime in their organisation. They establish internal controls, create ethical codes and policies and generally go out of their way to ensure that the assets and revenues of the business stay in the business and are not liberated for the enjoyment of others.
So what do the staff of that business do when the boss decides to commit illegal acts such as allegedly furloughing staff, claiming the money and then intimidating them into working normally?
One example, revealed in the BBC programme 'File on Four', is that of Brewster Partners – a recruitment company. File on Four reported that ,in a video call to staff, the firm's managing partner Liz Brewster is quoted as saying
'Technically, you are not supposed to be working. However, if you choose to work, we can't stop you. Yeah? Does that make sense? So, technically, yes, you're furloughed. You can choose to work, though, which I'm presuming nearly everybody here will be doing..."
One anonymous staff member is reported to have said "It didn't feel like I could refuse to work while on furlough… I just wasn't allowed to question it, and I continued on miserably."
A similar story was revealed in that same programme in connection with an individual called Kash Khokar, owner of a digital media group called Kau Media Group. Mr Khokar allegedly used intimidation and threats to make furloughed staff carry on working as they still had live campaigns to run.
So far so unethical and it's not so unlikely that some firms would see the furlough scheme as an opportunity to get their hands on government money to pay their employees whilst still extracting value from them. The full extent of this may never be known but some 30,000 complaints have been lodged with the HMRC hotline and they have opened some 7,000 investigations. More cases will no doubt emerge in due course.
HMRC has some formidable weaponry to deploy here. Apart from the Fraud Act 2006 which can be deployed against individuals there is another piece of legislation which needs to be understood by corporates.
This is the Criminal Finance Act 2020, which gives HMRC an arsenal of civil remedies. These include the right to charge 100% tax on wrongly claimed furlough payments and, importantly for company officers, the ability to make a company officer personally pay a portion of the company's penalty where there has been a deliberate act or failure attributable to that individual.
Importantly, the Act also places an obligation on businesses to notify HMRC of any wrongly claimed payments.
So where does that leave the employee who has worked , effectively illegally, for an employer who either blatantly or by implication threatened their job or compromised their loyalty to the business? Clearly they could become a whistleblower and report the business to HMRC but at what emotional cost?
And where does that leave the business once normality returns? Staff now know that their boss cannot be trusted – that they are prepared to cheat and lie in order to gain some advantage. The idea that it is OK to cheat the taxman is an old one – but in the middle of a pandemic when these funds are there to help struggling businesses? That argument may not run very far.
So there may be financial penalties as and when HMRC catch up but the damage that might have been done goes further than this. It is a loss of trust, maybe a loss of respect within the business. A critical bond between managers and staff may have been broken.
In the longer term this may be a far more damaging penalty for furlough fraud than having to pay it back.
John Taylor is an author for accountingcpd. To see his courses, click here.
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