UK Watchdog: $1B of COVID Relief Loans Were Fraudulent

Recent analysis from the U.K. finds more than $1 billion in COVID relief loans involved irregularities such as fraud.

An October report by the U.K. Department for Business, Energy and Industrial Strategy (BEIS) estimates that the government gave out 990 million pounds (or $1.1 billion) in “irregular” grant payments.

In the report, first noted Wednesday (Jan. 4) by the Financial Times, the BEIS said the government will continue working to reclaim those funds throughout the year. However, the report added that “due to the prioritization of getting money out of the door, the majority of payments made in error are unlikely to be recovered by the Department.”

The report also notes that about 8% of the claims from the 47-billion-pound Bounce Back Loan Scheme for businesses were fraudulent, while also acknowledging that figure could turn out to be higher.

“The Department is working on identifying instances of loans being obtained fraudulently, penalizing those responsible and recovering funds where possible,” the report said. “We have expanded our internal counter-fraud capabilities to help us do more on this front.”

The news comes one month after a report by Congress that blames FinTech companies for tens of billions in losses due to high levels of fraud within the Paycheck Protection Program (PPP).

Launched in response to the COVID pandemic, PPP offered small and medium-sized businesses (SMBs) with fewer than 500 employees low-interest loans of up to $10 million.

As PYMNTS reported last month, many of these loans were forgivable, but a large number of businesses receiving them turned out to be ineligible or fraudulent.

“The FinTechs facilitating these loan transactions did not have in place the proper controls to mitigate the impact of these bad actors; or were perhaps blinded by the fees they were reaping, which in certain cases exceeded $1 billion,” PYMNTS wrote.

Meanwhile, the Congressional report says that the FinTechs put the blame on the Trump administration, saying its mismanagement of PPP allowed the fraud to happen.

PYMNTS also recently noted the overall benefits of the PPP program, as laid out in a research paper by the Federal Reserve Bank of Boston.

It found that PPP loans significantly improved the financial health of their recipients. On average, businesses that got loans reduced their credit risk by 18% relative to non-PPP participating peers in the four quarters after receiving their funding.

Of the companies examined by the Fed, SMBs saw a more pronounced and persistent effect on their financial health after receiving a loan compared to larger peers.

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