The government has said that up to £3.5billion in Coronavirus Job Retention Scheme payments have been paid out in error or wrongly claimed.
MPs were told by HM Revenue and Customs that an estimated 5-10% of furlough cash has been wrongly awarded.
Fraud rate 'between 5% and 10%'
The scheme, introduced in March, has been paying 80% of the wages of furloughed workers up to a maximum of £2,500 per month.
As of September, that amount has reduced to 70%. So far, the scheme has cost the government £35.4bn.
Speaking to MPs on Monday September 7, Jim Harra, HMRC's permanent secretary, said:
"We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%.
"That will range from deliberate fraud through to error."
Employees advised to report fraud
Both HM Treasury and HMRC were ordered to speak with MPs to lay out how they were intending to reduce the scale of the problem.
"What we have said in our risk assessment is we are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time," said Mr Harra.
"Although we will expect employers to check their claims and repay any excess amount, what we will be focusing on is tackling abuse and fraud."
It marks the first time that HMRC has spoken publicly about the impact of potential fraud on the Coronavirus Job Retention Scheme.
They've advised any employee who thinks their employer may have fraudulently claimed money to report it to them by filling in a form on their website.
Already, HMRC have received some 8,000 calls to their fraud telephone hotline. They're now looking into 27,000 "high risk" cases in which they believe a serious error has been made with regard to the amount of money employers have claimed.
"While we can't get involved in any relationship between the employee and employer, we can certainly reclaim any grant that the employer is not entitled to, which includes grants they have not passed on in wages to their employees", they said.
Swetha Ramachandran, investment manager at GAM Investments, told the BBC: "The speed with which they wanted to expedite this programme in order to ensure that this was available to employers, to minimise the damage that could have been caused, means there was always a likelihood that this was going to happen.
She also told the BBC that other government programmes such as the Coronavirus Business Interruption Loans scheme and the Bounce Back Loans scheme may suffer from similar problems which could emerge in the coming months.