Bounce Back Loan fraud amounts to £4.9Bn with up to £17Bn expected not to get repaid!

The government prioritised getting Bounce Back Loans to small businesses quickly, but failed to put adequate fraud prevention measures in place, a new report from the National Audit Office found.   NAO Bounce Back Loans Report Update

The scale of possible Bounce Back Loan (BBL) fraud has been put under scrutiny in a new report from the National Audit Office (NAO), which found that the government acted too slowly to prevent fraud and needs to improve the recovery of fraudulent loans.

The damning report on the handling of the loan scheme’s counter-fraud activity investigated how the government’s attempts to set up a “simple, quick, easy solution for those in need in of smaller loans” was fraudulently exploited.   

Gareth Davies, the head of the NAO, said, “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.”

The cost of fraud

The scheme issued £47bn in loans, but as the report found billions were lost in fraud.  The Department for Business, Energy and Industrial Strategy (BEIS) estimated in March 2021 that 11% of BBLs worth £4.9bn were fraudulent. But this estimate excluded some frauds such as where a borrower overstates their turnover to get a large BBL. 

The department also estimated that 37% of BBLs worth £17bn will not be repaid. Again, the NAO raised questions over this figure, as it represents those wanting to repay, but who can’t and also those who took the money fraudulently. 

Loans and repayments

At the start of the BBL scheme, the priority was to get the money out to businesses as quickly as possible, and the department deferred the counter-fraud measures to the lenders, the spending watchdog reported. The only counter-fraud checks at the outset were know your customer checks, while loans were dished out within 24-48 hours.

The report raised concern over how credit and affordability checks were removed and businesses were allowed to self-certify to facilitate faster lending. As the urgency reduced, however, the scheme still relied on businesses to self-certify. 

The NAO concluded: “The impact of prioritising speed is apparent in the high levels of estimated fraud.”

Additional counter-fraud measures were introduced over time, but by then it was too late and these measures focused instead on detecting fraud that had already taken place, with the launch of a fraud hotline. The argument at the time was that the introduction of more checks at the start of the scheme would have slowed down the delivery of loans. 

That said, the NAO also found that the BEIS didn’t inspect fraud data until several months after the scheme had launched.

The NAO recognised that the counter-fraud measures evolved over time, but added that the scheme “lacked clear governance at the outset and sufficient resources” and the auditors did not find any documents setting out the department’s ambitions or metrics to measure the impact of counter-fraud activity. 

Pursuing organised crime

And now, due to the extent of fraud and limited resources, the department is focusing its efforts on pursuing organised crime, where sums more than £100,000 were involved. 

The BEIS set a target to recover at least £6m in fraudulent loans from organised crime over three years, but the NAO has called this inadequate. 

So far, the agency’s work has resulted in 43 arrests across 33 investigations and more than £3m of recoveries. 

With attention on organised crime, the department chose not to investigate borrowers who overstated their turnover by less than 25%, as long as there were no other fraud indicators. 

While the department has given a low priority to this bottom-tier fraud, and is hoping lenders will pick up the slack, the NAO warned that lenders have limited commercial incentives to do so. 

The theme of overstretched government departments continued throughout the report, with enforcement agencies enlisted to recover loans also stretched by the potential fraud levels across all the other government Covid support schemes. 


The NAO signed off its report with recommendations that the department should implement by April 2022. 

Top of the list of recommendations was to produce a formal strategy for measuring BBL fraud and to measure the performance of each counter-fraud measure, adapting its approach as necessary.

Other recommendations include the need to develop a robust business case for detecting and preventing loan fraud, refreshing its fraud risk assessment at least every six months and evaluating options for controls against any new fraud risks on a cost-benefit basis.

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