MHCLG said the investigation is ongoing.
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The Building Safety Fund is aimed at building owners or developers who cannot afford to fix cladding issues themselves. It opened in 2020 and once again in July 2022 for new applications for eligible buildings without a funding solution in place.
The MHCLG became aware of the suspected fraud in autumn 2023, which an investigation has linked to the weakened taxpayer protections on the programme.
While MHCLG was developing the Building Safety Fund in 2020, the Infrastructure and Projects Authority highlighted the need for a full fraud risk assessment of the scheme.
A 2021 review by the Cabinet Office Complex Grants Advice Panel of an early MHCLG assessment recommended a more complete, robust, independently assured process.
NAO said the MHCLG was slow to address fraud risks on the Building Safety Fund.
An industry 'with historical integrity issues'
MHCLG commissioned in January 2024 an external review of the case to examine the processes and controls in place, including those MHCLG had amended to support pace.
Among these were a high reliance on self-certification of application information limiting MHCLG’s ability to verify details and the 80% advance payment structure, which NAO said increased fraud opportunities.
The review also acknowledged the inherent risk of misrepresentation and collusion when providing funding “in an industry with known historical integrity issues”.
It highlighted that there has not been a fraud measurement programme on the scheme and that levels of fraud detected are significantly lower than would be expected given its size and risk.
In response to CM's request for further details about the case, a spokesperson for MHCLG said the department does not comment on ongoing investigations.
The spokesperson added: “However, we take all allegations of fraud very seriously. MHCLG has a dedicated counter-fraud team that ensures all allegations are thoroughly investigated.
“We are committed to embedding any lessons learned from these investigations into our ongoing efforts to mitigate future fraud risks.”
