The authorities was warned in May that its flagship mortgage scheme to assist small companies affected by Covid was at “very high risk of fraud” from “organised crime”, it has emerged.
The state-owned British Business Bank (BBB) which supervises the Bounce Back Loan Scheme, twice raised considerations.
A BBC report revealed that criminals have been organising pretend companies to get loans value tens of hundreds of kilos.
The Bounce Back Loan Scheme has already paid out greater than £38bn.
In early May, simply two days earlier than the scheme launched, the chief govt of the BBB, Keith Morgan, wrote of the “very significant fraud and credit risks”, including that it was “vulnerable to abuse by individuals and organised crime”.
The financial institution, he stated in a letter to Business Secretary Alok Sharma, couldn’t assure “robust controls”.
Other considerations included an “extensive reliance on customer self-certification” and “potential for market distortion”. He stated that the BBB had commissioned a evaluate of the scheme by accountants PwC, which had categorised its fraud danger as “very high”.
In his letter, dated 2 May and which adopted a electronic mail warning the day earlier than, Mr Morgan additionally raised considerations that the short introduction of the scheme had “created huge operational challenges”.
However, Mr Sharma stated the scheme ought to go forward regardless of the dangers, due to what he known as the “unprecedented situation facing the country”.
Bounce Back Loans are 100% government-backed loans of as much as £50,000, and have been launched to mitigate the massive strain on small companies after the financial system went into coronavirus lockdown. They wouldn’t have to be paid off for six years, and are interest-free for the primary 12 months.
According to newest Treasury figures, there have been 1.55 million purposes, with 1.26 million approvals and £38.02b paid out.
At the weekend, the BBC’s Angus Crawford revealed how fraudsters have been focusing on the mortgage system. One bogus firm, Tellings Home Made Furniture, “borrowed” £50,000 by stealing the non-public particulars of a person known as Mark Telling.
The revelations come after the top of the National Audit Office advised the Guardian Bounce Back Loans have been the “riskiest” of all of the bailout measures.
But a authorities spokesman advised the BBC the mortgage scheme had been very important for a lot of companies and that fraudsters could be pursued.
He stated: “Our loan schemes have provided a lifeline to thousands of businesses across the UK – helping them survive the outbreak and protecting millions of jobs.
“Our assist has been focused to make sure we assist those that want it most as shortly as doable and we cannot apologise for this.”
He said the government worked with agencies to minimise fraud, “with lenders implementing a spread of protections together with anti-money laundering and buyer checks, in addition to transaction monitoring controls. Any fraudulent purposes could be criminally prosecuted for which penalties embody imprisonment or a fantastic or each”.