Rise in Covid-19 loan fraud serves as a reminder of the controls needed to reduce risk and liability, says Know-it

Despite a package of loans giving businesses an unprecedented level of support throughout the pandemic, taxpayers now face losing up to £26bn due to fraudulent applications or an inability to pay the money back. According to Know-it, a cloud-based credit management platform, this serves as a timely reminder of the controls required to tackle fraud, financial crime and non-payment – issues that have been plaguing businesses for years.

The Coronavirus Bounce Back Loan (BBLS) and Coronavirus Business Interruption Loan (CBILS) schemes have been at the core of the government’s efforts to help businesses keep their heads above water since March. Under the BBLS, the government provided lenders with a 100 per cent guarantee for the loan and paid any fees and interest for the first 12 months. Businesses could borrow between £2,000 and £50,000, or a maximum of 25 per cent of annual turnover.

However, Action Fraud has recently reported 11 cases of fraudsters suspected of exploiting the BBLS and CBILS emergency loan schemes. According to law firm RPC, these loans were vulnerable to exploitation as lenders have only been carrying out ‘light checks’ due to the pressure of getting money to stressed businesses as quickly as possible.

Lynne Darcey, Founder & CEO of Know-it, commented:

“Fraud and financial crime –problems have been brought into the spotlight recently – have arguably been the most pressing issue facing businesses for many years now. Back in 2017, even before the recent Covid-19 outbreak, fraud and financial crime cost UK businesses £190 billion every year, with the private sector hit hardest losing around £140 billion. SMEs usually come off worst, as they typically operate on a much lower turnover and are at risk of more serious consequences should they suffer from a major fraudulent incident.

“On the one hand, the next step for the government needs to be flexing its muscle and putting in place vigorous debt recovery procedures and fraud investigation arrangements, principally to lessen the impact of any immediate losses to the UK taxpayer. On the other, the exploitation of the BBLS and CBILS loans should remind everyone, no matter if you are a government or a business, there is always a need for basic credit checks to establish the validity of a company, its financial status and its directors. If these basic checks are not completed, then any system will always be open to fraud and default on payments and, in this instance, it is the UK taxpayer that will suffer.”

The British Business Bank (BBB) has hired external consultants to investigate the recipients of emergency loans amid the Covid-19 lockdown. The consultancies will work to uncover cases of fraud, or where businesses received funds, but did not meet the required criteria. Yet, with many in the private sector lacking these resources, there are a range of simple steps that can be taken to protect themselves going forward.

Lynne concluded:

“Even after Covid-19, the problem of fraud isn’t going anywhere. Outside of having robust debt recovery and fraud investigation arrangements, businesses must start by making simple checks on Companies House and compiling credit reports, as they can immediately help minimise fraud or giving credit when there are major risks of non-payment. However, it is not just the initial checks before the first commercial transaction that must be invested in – infrastructure must be put in place to continually monitor customers. This is crucial in an ever-changing economic environment, as it will help you stay informed on the credit worthiness of customers and ultimately ensure you are not left out of pocket.

“Yet, we understand that many do not have the resources readily available to continuously check the credit status of their customers and conduct due diligence. This is where technology plays a critical role. For example, by using technology to automate the credit control process, this can help businesses streamline this process so they can credit check and monitor and conduct due diligence, all from one place. Automating this process, firms can collate the information and identify areas of concern, without expending huge amounts of time and precious resources, ultimately helping them to limit risk and reduce fraud.”