The British Business Bank is spending more than £1.1m on auditors as it seeks to weed out lenders that have broken the rules over Covid rescue loans.
Bosses at the organisation (BBB) are searching for cases where businesses were wrongly handed support through taxpayer-backed emergency schemes after the crisis struck. Banks have lent £52bn to more than 1.2m businesses since the support was introduced to prevent an economic collapse.
The programmes being examined include the Coronavirus Business Interruption Loan Scheme - where ministers have agreed to foot 80pc of a bank's loss if a borrower defaults - and Bounce Bank loans, where the guarantee is 100pc.
Firms had to meet a scheme's criteria to get the cash, such as being a certain size or showing they were financially resilient - and banks which lent money without sticking to the regulations could lose any compensation paid out for their losses.
Banks came under heavy pressure to get money out as quickly as possible in the early days of lockdown, and some executives were concerned they could be made a scapegoat if this triggered a major hit to the public purse.
The BBB administers the schemes and has asked auditors from KPMG and RSM to review loans handed out by Barclays, Lloyds, HSBC and Natwest, as well as smaller players.
Big Four auditor KPMG is being paid £680,000 to provide audit advisory services on the BBB’s lending schemes. Challenger accountant RSM has also won two audit contracts from the bank worth a total of £450,673.
It follows £20m of spending on consultants by the business bank, doled out to firms including PwC and Deloitte as it raced to get business support schemes up and running.
White collar crime experts have warned that vast sums of public money injected into the economy to fight Covid are likely to have triggered a feeding frenzy by fraudsters.
Bank industry lobby group UK Finance said that it is standard practice to audit guaranteed lending schemes and the requirement had been set out in the terms of the loan programmes.
A spokesman for the British Business Bank said it has a monitoring programme for all support schemes.
He said: “These processes help ensure that delivery partners are complying with their commitments and adhering to the terms of legal agreements, including guarantee agreements where relevant."
The Government is under growing pressure to explain how it will support businesses as the loan schemes and other taxpayer support such as furlough end. Some industry groups want the business lending schemes to be extended.
Richard Churchill, a partner at tax firm Blick Rothenberg, said the Government cannot be expected to go on providing blanket support, but that it could taking a stake in some stricken companies in exchange for offering a bailout.
He said: “The taxpayer could become shareholders of some very interesting companies and there could be a good pay back for the economy.
“It would certainly be no worse than companies closing and the taxpayer having to foot the bill in terms of unemployment and other payments.”