Social Security benefit fraud may not be an issue most commercial operations are too worried about. However, for those involved in the cleaning business, this type of fraud is not unusual.
Operation Hilda (named after Coronation Street's Hilda Ogden) was one of the largest benefit fraud investigations in the country. It concerned the cleaning industry and culminated last year with the jailing of the cleaning company's two directors and with the senior supervisor receiving a suspended jail sentence. The directors were disqualified from acting as directors for 5 years. So far 69 workers have been prosecuted and penalties imposed on them include imprisonment, curfew orders, community punishment, fines and rehabilitation orders. All the workers pleaded guilty.
Significantly, the Department of Work and Pensions who led the investigation through their Compliance and Investigation team, which specialises in investigating employees who conspire with their employers to commit benefit frauds, asked the Crown Court Judge to make confiscation orders against the company itself. It was not content with punishment of the employees and the company's management.
The application sought the confiscation of the entire £1.6m turnover of the company and also the lion's share of the benefits that had been wrongly paid out on the basis that the business had made a commercial advantage by using cheap labour.
The company in question had operated for many years in the North East and had landed valuable contracts for cleaning premises at holiday camp venues. The business had employed workers who were registered as unemployed and who therefore worked illegally. The scam was only possible through the collusion of management and employees.
The employees used false names and addresses (some workers had up to 7 false names) and completed P46 tax forms with false details, including dates of birth and national insurance numbers, making it deliberately difficult for the DWP to trace those involved. The effect of the deception was to enable the company and the employees to avoid paying tax and national insurance. Nearly £300,000 in benefits (ranging from jobseekers' allowance, pension credit and incapacity benefit to income support and disability living allowance) was paid out over a 4 year period.
After a long and painstaking investigation, the DWP seized the company's records and found that over 80% of the records that the company had kept were false.
One of the directors claimed he had not checked the details and had accepted them in good faith, saying that it was impractical for him to check them. The other director and senior supervisor, however, pleaded guilty and testified against him. He was convicted by the Jury.
The Crown Court was unwilling to make either element of the confiscation order on the basis that making the company liable for the fraudulent benefits paid to the cleaners was going too far and that it could not be shown that the entirety of the company's turnover was derived from illegal as opposed to lawful business. The DWP has appealed to the Court of Appeal.
Companies in this sector should keep accurate records and establish procedures to audit these records periodically, so as to minimise the risk of fraudulent practice going unnoticed. Pre-employment screening (certainly of senior staff) is always a sound recruitment policy.
If the Court of Appeal reverses the Crown Court's decision in relation to the confiscation orders, then the future implications for companies caught up in benefit fraud could be disastrous with turnover and profit vulnerable to confiscation by the authorities.
In this case, the directors of the business were involved in the scam, but in larger organisations with more complex management structures and multi-site operations, a bad apple could go undetected without the right policies and procedures in place. Senior managers can be liable for failing to delegate and supervise competently. It is often difficult to prove what you don't know if ever on the receiving end of allegations or suspicions, especially where record keeping is poor.
All suspicions of fraud should be treated with the utmost care and lawyers should be involved on a confidential basis at the earliest possible moment, even before the Police are contacted. There is a raft of law governing the investigation of suspected fraudulent activity and it is easy to get it wrong and make matters far worse. A damaged commercial reputation can be the difference between winning and losing the next contract. The wrong response could lead to the termination of valuable contracts.
What is clear is that the Government is cracking down on fraud in all its guises. Never before has it been so important for businesses to operate ethically, responsibly and transparently.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Arbitration Options Post Brexit - David Breslin - ThinkHouse September 2016 (Video)
