The National Audit Office has chastised the government for failing to crack down on an estimated £5bn of loan fraud during the pandemic.
The government’s department for business, energy and industrial strategy handed out far more in Covid Bounce Back Loans than it was expecting during the pandemic with a total of £47bn dished out to around a quarter of all UK businesses.
An estimated 11 per cent of the loans, worth £4.9bn, are believed to have been fraudulent while an estimated 37 per cent of Bounce Back Loans worth £17bn will not be repaid.
“Government prioritised getting Bounce Back Loans to small businesses quickly but failed to put adequate fraud prevention measures in place,” said Gareth Davies the head of the NAO.
“One impact of these decisions is apparent in the high levels of estimated fraud. The true level of fraud will become clearer over time, but it is clear government needs to improve on its identification, quantification and recovery of fraudulent loans within the scheme,” he continued.
The loans were doled out by third party lenders, including banks, building societies and peer-to-peer lenders, who were given a 100 per cent state guarantee to cover any losses.
Efforts to recover the fraudulent loans have made a tiny dent in the amount lost. The government set its fraud investigations team a target of recovering at least £6m of fraudulent loans over three years. As of October 2021, 43 arrests have been made across 33 investigations with £3m recovered.
The National Audit Office called for the government to produce a formal strategy for managing and investigating the fraudulent Bounce Back Loan scheme claims.
News of failings to vet lenders and companies under the Bounce Bank Loan scheme come after it emerged that the government had dished out £130m in loans to questionable companies which were newly created or inactive during Covid.