Fraud from state-backed loan schemes has led to a 205 per cent year-on-year rise in company directors convicted of criminal activity during the coronavirus pandemic and this will increase as the Insolvency Service takes a tougher stance, research claims.
Advisory firm Mazars has found that the number of company directors prosecuted during the pandemic has risen to 30 September 2020, up from 40 the previous year.
Mazars said the rise is likely to relate to the government-backed Covid support schemes, including the bounce back loan scheme (BBLS) and coronavirus business interruption loan scheme (CBILS).
The firm said the trend is set to continue as the Insolvency Service takes an increasingly tough stance on fraud during the pandemic.
The Institute of Chartered Accountants in England and Wales and the Insolvency Practitioners’ Association have urged their members to report any suspected cases of malpractice relating to Covid support schemes directly to the Secretary of State.
Mazars said that this guidance has helped increase the number of directors being investigated and prosecuted as a result of action undertaken by the Insolvency Service.
“The Insolvency Service is sending a clear message that directors will now face serious penalties, including prison sentences, in cases of gross misconduct,” said Michael Pallott, restructuring partner at Mazars.
“Covid fraud is just one example of this. The challenges of the pandemic meant that the government’s resources were considerably stretched.
“However, the Insolvency Service has committed itself to cracking down on Covid related fraud and is taking a much more hard-line approach; it is not afraid to pursue criminal prosecutions where necessary.
“Normally such sanctions for directors would be limited to disqualification. Given the state of public finances, it is in everyone’s interests to have an effective enforcement scheme to make an example out of dishonest business owners. Directors who have committed Covid related fraud need to take serious notice of these trends.”
Mazars cited figures from the National Audit Office, which estimated that up to 60 per cent of BBLS claims could be fraudulent or defaulted on, representing over £27bn lost from the public purse.
Last month, initial estimates from the Office for Budget Responsibility, shared with City A.M., forecasted that defaults could reach £22bn, as it predicted almost a third of CBILS and BBLS loans could go into default.