The head of Whitehall’s spending watchdog has warned ministers there will be “no excuse” if billions of pounds worth of fraud within government schemes continues under a second coronavirus lockdown.
Gareth Davies, the comptroller and auditor general at the National Audit Office, said there had already been “significant” abuse of the furlough scheme and the bounce-back loan scheme, which would take months to identify.
In an interview with the Guardian, Davies also disclosed that auditors had launched inquiries into procurement processes following concerns there had been a lack of transparency and possible conflicts of interest when handing out coronavirus contracts.
Chancellor Rishi Sunak is coming under increasing pressure from senior Conservative MPs, opposition parties and business organisations to extend the job retention scheme, which is due to end next month.
Since it launched in April, the scheme has paid out £35bn and been used by 1.2 million employers, enabling 9.6 million jobs to be furloughed.
The bounce-back loan scheme was launched in May to distribute quick bank loans of up to £50,000, with the government promising to cover 100% of any losses.
Davies, whose role as chief auditor gives him a statutory responsibility to scrutinise all public spending, said that abuse of the furlough scheme had been of deep concern to auditors.
“You’ve mentioned the furlough scheme as a [...] source of significant fraud and error. I’d also include the bounce-back loan scheme in that list where it was clear that ministers took the decision to launch it knowing that those responsible for delivering it couldn’t guarantee the normal level of control.”
“The banks suspended their normal processes for checking out the applicants for the loan, checking out whether they have the ability to repay them and in the early stages, it wasn’t even possible to identify duplicate claims on that scheme [...] it’s probably the riskiest of the set,” he said.
Davies said he understood the urgency with which the schemes were introduced, but warned that the government must introduce new checks if similar measures are to be extended or introduced in a second wave of the virus.
“While you can understand why some of this wasn’t anticipated, there’s no excuse for it to happen a second time.
“Who knows exactly what might be needed in the future, but we must have better contingency plans so they can be rolled out quickly and the level of fraud properly controlled,” he said.
Both schemes have reportedly been targeted by fraudsters who have applied for the money using false identities.
HMRC is examining 27,000 “high-risk” claims, with a number of criminal investigations into suspected fraud now under way, the prime minister’s spokesman has said. Two people were arrested in Walthamstow, north west London, last week suspected of a £70,000 fraud.
Officers from the Met and Suffolk Police seized more than £110,000 in crypto-currency in August believed to have come from the bounce-back loan scheme. A 35-year-old woman was arrested in Ipswich on suspicion of fraud and money laundering.
Detectives found mule bank accounts – used to transfer criminal cash on behalf of others – had allegedly been used to receive the proceeds of fraudulent applications to the scheme.
Referring to a claim by HMRC officials who said their estimate for fraud and error on the furlough scheme could amount to £3.5bn, Davies said auditors were trying to uncover the exact amount of fraudulent activity.
“[It] is going to take a long time before we know the full extent of fraud and error in these schemes,” he said.
A Whitehall source said the full extent of problems in Rishi Sunak’s furlough scheme may not become clear until April when loans were due to be repaid.
Civil servants were now trying to claw back cash and pass on potential fraud cases to the police, Davies said.
“If checks couldn’t be carried out before the money was released, they are being now. People who did commit fraud on these schemes can expect there’s a good chance that they will be detected and followed up and ... the process of the law used as appropriate in those cases,” he said.
Davies also said the NAO was expecting to produce a report into government procurement processes during the coronavirus pandemic later this year. The government has been criticised for awarding contracts to associates of senior Tories, including Dominic Cummings and Michael Gove, under emergency regulations that allow services to be urgently commissioned in response to the crisis.
“We’re looking at the procurement process, a lot of public comments and concern about the transparency of some of the procurement contracts around PPE and other areas. We’re doing a detailed piece of work,” he said.
It wasn’t even possible to identify duplicate claims on that [bounce-back] scheme … it’s probably the riskiest of the set
Auditors may well also launch an inquiry into Boris Johnson’s “moonshot” testing plan – the prime minister’s ambitious mass programme to develop rapid 20-minute tests that leaked documents claimed could cost £100bn to develop.
“If £100 billion is going to be spent, then of course [we would look into it], because that’s a huge amount of public spending,” said Davies, who took over his role at the NAO in June 2019.
Sunak told MPs on Tuesday he would continue to act in “creative and effective ways” to protect jobs, following calls for a targeted extension of the furlough scheme.
The chancellor was pressed by Mel Stride, the Conservative chairman of the Treasury Select Committee, to develop further support after October.
Sunak said: “I hope he will be reassured that throughout this crisis I’ve not hesitated to act in creative and effective ways to support jobs and employment and will continue to do so.”
Responding to Davies’s comments, an HMRC spokesperson said: “The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. This is taxpayer’s money and fraudulent claims limit our ability to support people and deprive public services of essential funding.”
A government spokesperson said officials would take criminal action against the most serious fraud cases.
“All our support is targeted to make sure we use public funds responsibly. On the bounce-back loan scheme specifically banks are undertaking appropriate precautions against fraud, including customer checks and the monitoring of transactions,” he said.
• Gareth Davies was speaking to the Guardian’s Politics Podcast, which will be published at 4.30pm today (Wednesday 16 September)