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What UK’s furlough fraud spike means for SA employers claiming TERS benefits

How to ensure claims don’t come back to bite

FURLOUGH fraud has been on the rise recently in the UK, with increasing reports of employers taking advantage of the government’s COVID-19 job retention scheme. According to Her Majesty’s Revenue and Customs (HMRC), the latest number of reports has jumped to 1 868 – almost double the 795 reports received as of 12 May.

Aadil Patel, Director and National Head of commercial law firm Cliffe Dekker Hofmeyr’s Employment practice, says that while the equivalent system in South Africa – the COVID-19 Temporary Employees Relief Scheme (TERS) – differs in some ways to the furlough scheme, the fraud taking place in the UK provides a clear warning for both employers and the Unemployment Insurance Fund (UIF) regarding potential misuse of the TERS benefit.

“Complaints from whistle-blowers in the UK show that employers are using the furlough scheme fraudulently in two ways,” Patel says. “Some are claiming on behalf of employees, but then requiring these employees to keep working; while others are claiming on behalf of employees that are no longer in their employ.”

In South Africa, excluding the R1-billion that is in the pipeline for payment for May claims, the UIF has already paid more than R16.5-billion for the TERS benefit of 3 290 625 workers represented by 279 111 employers. While the benefit has been positively received, garnering praise for its flexibility and user-friendliness, Anli Bezuidenhout, Senior Associate in Cliffe Dekker Hofmeyr’s Employment practice points out that it actually places additional responsibility on South African employers to keep track of which employees are being claimed for, in the event that they are audited.

“The UK’s furlough scheme is applied on the basis that the qualifying employees will not be working at all, so it is quite clear cut. South Africa’s TERS, on the other hand, is applicable when there has been a complete or partial closure of an employer’s operations as a direct consequence of COVID-19.

“Considering that this extended application will make the disbursement of TERS claims that much harder to police, we can expect the bulk of policing to come later in the form of post-payment audits,” says Bezuidenhout. She notes that the onus will be on the employer to provide proof that all applications submitted were legitimate and compliant with the steps outlined in the UIF Memorandum of Agreement (MOA).

Patel acknowledges that there may be some employers who unknowingly claim in cases where they are not entitled. “Businesses are in dire need of assistance and might struggle to navigate the regulations. Unfortunately, whether the fraudulent claims are committed knowingly or not, the employer will be liable for reimbursing the scheme– even if they did pay out to employees – leaving them out of pocket.”

To ensure this doesn’t happen, he urges employers to meticulously follow all auditing obligations when submitting their TERS claims. As per the UIF MOA with the employer, these are outlined as follows:

  • The employer must at all times keep the accounting records relating to the TERS benefits, well-kept and maintained safely, ensuring that at all times they are capable of being retrieved in a readable and printable form;
  • Records must be accessible to a person authorised by the UIF;
  • Records must be kept separately from the accounting records relating to the employer’s business, so they can be identified on a standalone basis;
  • A proper audit trail of funds received and paid to the employees must be kept;
  • No cash withdrawals nor cheques may be drawn from the TERS funds received; and
  • All records and documents must be kept for a period of at least five years from the date of last entry recorded in the accounting records.
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