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Managing the Risk of Furlough Fraud Allegations

on Tuesday, 29 September 2020.

As the Government's Coronavirus Job Retention Scheme (Scheme) is winding down, HMRC's attention is increasingly turning to allegations of so-called unscrupulous employers committing 'furlough fraud'.

The Scheme has so far cost the Government £35.4 billion, and it is estimated that between 5-10% of that money could have been wrongly paid out. Given the money involved, HMRC's focus on recovering funds that have been paid out in error or because of fraud, is hardly surprising. There is an option for HMRC to impose penalties as well as 'name and shame' employers.

Maintaining a good reputation is of utmost importance to independent schools, not least because of the charitable status of many. Given the media appetite for reporting on allegations of furlough fraud and the potential for reputational damage, it is sensible for independent schools to take the opportunity now to review their use of the Scheme in order to satisfy themselves that no errors have been made. There is a mechanism for employers to self-report to HMRC with a deadline of 20 October 2020 and so schools should take action in good time.

Even where the monies claimed were correctly processed and in accordance with the Scheme, many organisations have been reviewing whether on reflection they may not have needed to access the Scheme and public funds to the extent they did. This may have arisen where the impact on cash flow was not as significant as originally feared, and so organisations are in a better financial position than anticipated.

We have seen a number of high profile commercial companies opting to make repayments in these circumstances. This is less straightforward for charities because as a matter of charity law, payments should only be made for the purposes of the charity and are not permitted in circumstances where the governors believe that they are under a moral obligation to make the payment, but they are not under any legal obligation to do so, and cannot justify the payment as being in the best interests of the charity. Such payments are known as 'ex-gratia'.

If it is proposed to make any repayment to HMRC we recommend that governors take the decisions as to whether it can be justified in the best interests of the charity which should be fully reasoned and minuted, but ex-gratia payments should only be made with the authorisation of the Charity Commission.  

We have developed a checklist for governors of the factors to consider when making this assessment and if this would be of interest please do contact us. Where charitable schools have concerns about their use, or perceived used, of the Scheme advice should be taken on the options available to manage the risks. In some cases, consideration may need to be given as to whether it needs to be reported as a serious incident to the Charity Commission.

Coronavirus Legal Advice

For further support with managing issues surrounding furlough fraud, please see our longer note on OnStream or contact Barney Northover in our Independent Schools team on 07973 423081. Alternatively, complete the form below.

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