Why forensic auditing is the only way to secure your supply chain.

It's been some time since I have had the time to really sit down and write an article. The positive has been that the industry has certainly picked up and I am seeing a change in mindset (albeit still too small at the moment) in terms of how Recruitment Agencies and Businesses conduct their due diligence, so there have been many meetings over the past 6 weeks and also a well needed 10 day holiday to recharge the batteries. Then I am reminded of the new world we currently live in and whilst waiting for a train into London I was "pinged" and now find myself having to isolate for 10 days, so what better time to sit down and get writing once more.

I appreciate that there are many differing opinions when it comes to compliance, how this should be conducted, the frequency in which this should be conducted, what should you actually be looking for when carrying out your due diligence? One thing that hasn't changed over the past 6 weeks is that something desperately needs to change going forward otherwise the perpetual merry-go-round that this industry finds itself on will never change and this is a responsibility that we all need to share throughout the supply chain. Another expose from the BBC on how rife mini umbrella schemes are in the industry, tax avoidance schemes still being very heavily peddled whilst the numbers of alleged umbrella employee abuses show no sign of letting up as well as countless uncoverings we have seen ourselves when working alongside our clients and contractors of which I will go into some detail further down the line in this article.

You also had the announcement from BEIS that they are planning to introduce a single enforcement body that will be responsible for regulating the umbrella industry although I believe that this is still some years off and I find this completely unacceptable and means that abuses will continue to still befall contractors and that for me is the unforgivable part - this has simply been going on for far too long and collectively its a responsibility whether we like it or not that we all need to share. So what can we do as an industry in the meantime to combat this, how do we guarantee the safety of supply chains and most importantly protect our contractors? Audit! Plain and simple, forensically audit!

At the start of this financial year, we announced the decision to have all our financial operations forensically audit by WTT Consulting, including every single payroll we run at Orca Pay Group. Whilst this was a culmination of 18 months of work for us as a business which included building a bespoke free to use compliance platform for all of our clients, the end goal was simple, to give transparency to the supply chain for every single penny that was passed through our business, passed to HMRC and of course most importantly our contractors. We feel it is our responsibility to do everything in our power to forensically demonstrate everything we can. In turn, what we have also found being audited ourselves, has given agencies and businesses the ability to also reference this against their other payroll partners which in some cases has highlighted the grim reality that abuses were happening right under their noses. In the last 4 months alone we have helped uncover, holiday pay abuses, monies being skimmed off payslips and wrapped up into employment costs, mini umbrella schemes, tax avoidance schemes, and actual contract fraud (someone taking a signed umbrella contract and putting this into a tax avoidance scheme without the business and contractor having any idea). The scary part of all of this is it will not surprise many within our industry as these are some of the more common abuses that have occurred over and over again for many years now.

Suffice to say that the businesses in question were mortified when these things are uncovered and the biggest question from them was "how did this happen?". The truth is that it's not always as easy as one thinks to uncover non-compliance or employee abuses if you don't know what you should be looking for. The practices being used now are getting more and more deceptive and hard to spot unless you know what you are looking for. How is any business expected to know that there may be a ghost system running behind the scene? Wrapping monies up in a payslip and claiming they are employment costs and then actually skimming this from the contractor is almost impossible to detect unless you actually audit each and every payslip. In the payslips that were audited the amounts being skimmed were very small from each individual, but when you add up each payslip being skimmed and the length of time this was happening over it very quickly grew into a huge sum of money! The above said, how many businesses audit each and every payslip that forensically? How many businesses actually have the resource or the time to do this? Or the most prudent question is how many businesses truly conduct a robust compliance check on a regular basis? What is a regular basis, every quarter, every 6 months, every year?? Yet many businesses have no idea that indeed this is occurring.

I read and see many comments about RTI submissions and how these are enough. The simple reality is they're not. An RTI submission only shows you what has been submitted to HMRC. We posted details on LinkedIn of an avoidance scheme we helped uncover for an agency where 25 of their workers were in an avoidance scheme unknowingly. The RTI submissions of ￡19,500 had been declared to HMRC, yet these contractors had earned upwards of ￡80,000 for the year. It wasn't until a full audit had been done and also the personal tax accounts of every individual were reviewed that this was uncovered and subsequently they advised EVERY contractor to set up their own personal tax account - something that we instruct every contractor we payroll to do before we have even paid them for the first time. RTI submissions categorically do not tell you whether an umbrella employee is suffering unfair treatment either, such as holiday pay abuses or as mentioned above monies just blatantly being skimmed from a payslip. Not one contractor questioned this either, why would they when on the face of it they believe these are revenues being passed to HRMC. Once more it gives you an idea of how easy it is to commit and how it was able to continue for such a long period of time, and of course, the business had no idea and believed that everything is as it should be and they can't be blamed for believing that.

Many businesses send out compliance questionnaires that ask a number of questions regarding whether an umbrella company is operating compliantly or of late businesses asking umbrella companies to sign letters indemnifying the business in question that no prohibited payment models are being operated and that unfair treatment of umbrella employees does not exist. Again this is not enough. It's like anyone who has traveled to the United States will know, you are required to complete an ESTA before you travel and one of the questions it asks you is are you a terrorist? No one is going to say yes are they and the same can be said regarding these compliance questionnaires, who is going to admit to running a mini umbrella or tax avoidance model or that they are skimming monies from a payslip? No one! The devil is always in the details and the revenues that are generated as a result of these scams are huge and a risk well worth taking for these rogue providers!

The biggest worry for me however is commercial rebates and the almost make-believe levels these seem to be going to. The simple truth is that rebates are everywhere and in every walk of life, whether it be in supermarkets, your bank, insurance comparison websites, and of course the umbrella industry despite many saying they don't offer or pay rebates, let's just be truthful about the fact, it is a way of business life whether we agree with them or not, although it must be said there are many businesses who don't ask for rebates. I was in a meeting a fortnight ago with a Sales Director of a recruitment agency who have 104 contractors on their books. He told me that they are getting a ￡12.50 rebate on every weekly timesheet processed by their umbrella company and that the umbrella company is charging a ￡15 margin! So the umbrella company is making ￡2.50 per person per week gross. How do you break even on this with all the costs that are associated with running an umbrella company? How can you afford to pay this level of rebate? I have seen rebate demands of ￡16.50 plus, payments of ￡50,000 being requested upfront in order to secure a place on a PSL and this is before you have signed up one contractor, yes I don't dispute that in some way this is being driven because of the Covid pandemic, but really? When I challenged him on whether his business knew how this rebate was being paid he said no, that their job is to do the best financially for their business and its bottom line and it was something I couldn't argue with to a certain degree, but how do you know this rebate is not made up of monies that result from criminality (I am not suggesting that every rebate is a result of criminality either). I recently was running a demo of The Apex compliance platform that we developed and when we were discussing holiday pay, I was told point-blank that they would never be able to use us because their business had received a payment last year of ￡250,000 from their umbrella company. This amount had come from holiday pay revenues that had been split with them and that they simply couldn't afford to lose this from their bottom line, and he had absolutely no idea of the legal reality of what he had just told me for him and his business. Rebates have been around in our industry for years and years and were something that umbrella companies started but is this now the DNA of the industry we have created? Are we surprised it has become so murky or that is referred to as the wild west and we are all tarnished with the same brush? Over the years the levels of rebates have got higher and higher as the market has become more and more competitive and as a result, the revenues to pay for these have to come from somewhere. It isn't just the mini umbrella and tax avoidance schemes that have driven this, they have always been able to pay inflated levels due to the very nature of the payment models they are. Huge sums of monies are made by holiday pay abuses as I have already exampled, skimming of payslips, and other sly and devious methods, and yet the higher the rebates go the less and less the question of how these can be paid is asked by those businesses that are receiving them and like with everything I have written above in this article the reality is these businesses are going to be as culpable as the rogue providers that have been operating them. Rebates can be paid, but surely there is a responsibility to understand exactly where these monies are coming from?

Worst of all it is the contractor who is losing out and this is unforgivable especially when most of the time they are given no choice and no freedom over who they are able to use except those on the PSL. Does anyone know the impact this is having on the mental health of contractors? Do we even care? Have we become so commercially driven that we have completely forgotten the reality that without these contractors we wouldn't have a business?

There is a mentality of impunity or laziness that many seem to operate in when it comes to compliance when the stark and worrying reality is for many they are going to potentially find themselves just as guilty whether through their own fault or others who have unknowingly helped to facilitate the examples given above. Whenever I raise the obligations and responsibilities that businesses have under The Criminal Finance Act 2017 or The Proceed of Crime Act I am often asked to give examples of this, and naturally, when there is nothing forthcoming in terms of consequences it is easy to see why these are easily dismissed and once more is easy to understand. Does this still mean it's okay? Does it mean you will never be caught?

The bubble is going to burst one day soon and the real truth of just how systemic and huge the criminality has been by some in this industry is going to almost be like commercial armageddon. Brands and reputations are going to be destroyed overnight, businesses will never return and I dare say some will even find themselves in a cell. HMRC has announced a recruitment drive of 27,000 new staff, they are bringing back retired Tax Inspectors, there are ongoing cases behind the scenes as I saw in an announcement yesterday, businesses, contractors, contractor community groups are starting to fight back and say enough is enough, and rightly so. We have passed over 1024 documents of abuse in some way shape or form to the authorities and many others are following suit. This has been for many an industry with no consequences for many years, but the consequences always arrive at some point! Is it not time to ask those questions yourself? Is it worth turning a blind eye and not asking the questions that should be asked for the sake of your brand, your reputation, and your business? Do you even understand the reality of your obligations and is your business educated enough in this area? The responsibility for compliance and continuous due diligence is the responsibility of the individual business and the individual business alone.

I truly believe there is a huge education problem in our industry when it comes to how compliance should really be conducted. Much of it is again caused by ourselves as an industry, differing opinions, mud slinging, allegations of systemic abuses, proof of abuses. The simple truth is Umbrella Companies as a whole are never going to come together and unite and work collectively to collaborate on making the industry better. There is multiple industry accreditations and they don't even work alongside each other and it's why we will never ever become accredited. In their current guise, they are simply outdated and afford no protection whatsoever and actually put businesses at risk should abuses be occurring behind the scenes. This isn't personal it is just the current facts. Yet all of this leads to a lack of industry solidarity in how and what you should be looking for when conducting your due diligence so are we surprised that many businesses don't properly understand their compliance responsibilities and for many businesses, they could be potentially walking into an ambush? Yet still, this mindset persists that putting your belief in a badge means you are bulletproof. It's time you asked you asked yourselves, what do we really see within our business? Is it enough and could we see more? If you have not put reasonable measures in place as a business then you're not going to escape punishment if you are in the supply chain where abuses are happening, fact!

Finally HMRC and The Government. It is to you that I point the biggest finger of blame. You have dragged your feet for so many years knowing exactly the problems that exist in this industry and have done nothing about it. HMRC introduced a retrospective tax law with the Loan Charge and that literally killed people. What about the years and years of negligence that you have shown when all of the above is right under your noses and have done nothing to prevent this? What response do you have for this? Your recent announcement of a Single Body of Enforcement is nothing more than lip service currently and is still 3-5 years away if it gets up and running at all. For too long have you allowed this to be a consequence free industry!

As a result who continues to lose out in all of this? The contractor and it was high time that we all stood up, cut the bullshit, and put them first. They have been abused for far, far too long and have been bled dry and it's about time they knew that there was a determined collective effort to put them first. I will never ever stop fighting to make sure they are put first once more whatever it costs me. Making a stand is never easy, but it's time that this stand was made for them all, and that's why auditing is the first part of that stand. I can honestly testify how much more trusting the whole process is for a supply chain when each payroll is audited. There is complete avoidance of doubt, there is documented black and white proof that the supply chain is being protected, brands are protected, reputations are protected, and most importantly of all responsibility is being taken. Technology allows us to comfortably do this now, so why in the absence of a truly independent regulatory body, do we not collectively take the responsibility to make this a standard practice, now? The reality for some is going to be much, much darker when the bubble bursts!!!