The House of Commons’ Public Accounts Committee (PAC) has published ICAEW’s submission to its inquiry into the Department for Business, Energy and Industrial Strategy’s (BEIS) 2021/22 annual report and accounts, amid revelations about the largely unsuccessful attempts to recover COVID-19 grants paid out in error or lost due to fraud.

COVID-19 business support grants were funded by BEIS but distributed by local authorities. The BEIS accounts report that the government has only been able to recover 0.4% of the estimated £985m of erroneous or fraudulent grant payments made.

ICAEW’s submission to the PAC enquiry highlights some of the reasons why the recovery rate has been so low, including delays in assurance exercises, the absence of timely measurement of fraud levels, and a lack of capacity in the BEIS counter-fraud team.

The submission also raises concerns about BEIS’ reliance on the National Investigation Service (NATIS) to investigate and recover fraud given NATIS’s relatively small budget. During the evidence hearing on 5 December 2022, Sir Geoffrey Clifton-Brown MP, Vice-Chair of the PAC, contrasted NATIS’s £13.2m funding from BEIS to cover fraud investigation and recovery with the “several billion pounds” spent each year by the Department for Work and Pensions on counter-fraud, echoing a point made by ICAEW in the submission.

ICAEW’s submission calls for BEIS to strengthen its “capacity and capability as it transitions to a delivery department”. It states that investment in counter-fraud, financial reporting and internal controls would avoid a repeat of the levels of fraud and error in the COVID-19 grant schemes and would save BEIS money in the longer term.

BEIS insists that the “primary responsibility” for recovery of COVID-19 grant payments lies with local authorities that acted as BEIS’ delivery agents. However, ICAEW questions whether this is consistent with the Managing Public Money requirement that “Accounting Officers are personally responsible for the resources of their own organisation”. This point was picked up by PAC member, Jonathan Djanogly MP, who quoted ICAEW’s evidence and asked whether “BEIS needs to re-evaluate its approach”.

The government abolished BEIS in February 2023, and transferred its functions to three new departments: the Department for Business and Trade (DBT); the Department for Energy Security and Net Zero (DESNZ); and the Department for Science, Innovation and Technology (DSIT).

ICAEW’s contribution to the inquiry also highlights the important wider lessons for the government to learn ahead of local authorities being tasked with distributing support to help businesses and individuals meet rising energy costs. ICAEW is calling on the government to invest in local authority finance and commercial teams and improve how it works with local authorities by including them in the scheme design.

The submission also repeats calls made in ICAEW’s submission to the PAC inquiry on the BEIS 2020/21 accounts for a “proportionate standard framework” for assuring grants distributed through local authorities to address the “significant gap” in assurance.

Oliver Simms, ICAEW’s Manager for Public Sector Audit and Assurance, commented: “Investment in public sector counter-fraud capability, financial controls and financial reporting is vital for minimising losses to the taxpayer and achieving value for money in public spending.

“The government should learn the lessons from the high levels of losses and low levels of recovery in COVID-19 grant schemes including by allocating sufficient resources to investigate and recover fraud and addressing the current assurance gap in grants distributed through local authorities.”

Read ICAEW’s evidence to the PAC inquiry into the BEIS annual report and accounts 2021/2022.