Businesses must get to grips with a Government crackdown on fraud committed by employees

05/05/2023

A new ‘failure to prevent fraud’ offence is being introduced by the Government to encourage businesses to do more to deter offending, which will ultimately protect themselves, consumers, and other businesses.

The new legislation, which is likely to come into force by the end of 2024, will make it easier to prosecute a large organisation if an employee commits fraud for the organisation’s benefit.

Larger organisations in the firing line

The new legislation, being introduced in the Economic Crime and Corporate Transparency Bill, will target a wide range of large businesses across all sectors, including not-for-profit organisations such as charities and incorporated public bodies.

A large organisation is defined (using the standard Companies Act 2006 definition) as organisations meeting two out of three following criteria:

• More than 250 employees
• More than £36 million turnover
• More than £18 million in total assets

Potential penalties

A business could face legal action under the new legislation if, for example, employees were selling products to a customer under false pretences, or falsified accounts to mislead investors.

The business in these scenarios could receive an unlimited fine if it is found to not have reasonable fraud prevention procedures in place.

These severe penalties are seen to encourage businesses to clamp down on fraudulent activities within their organisation.

SMEs still bound by fraud legislation

The above thresholds mean that small and medium-based enterprises (SMEs) will be exempt from the new offence, but they will remain accountable under the existing legal framework. These thresholds can be amended in the future through secondary legislation if necessary.

Small and medium enterprises are often the businesses that fall foul of fraud committed by larger organisations so they may benefit from the greater protection that the new legislation will bring.

What you need to do

If your business falls below the thresholds mentioned above, then while it is important to keep an eye on the existing legal framework, your organisation should not be impacted all that much.

If your business is in this scope, then it is of vital importance to ensure you have the necessary fraud prevention measures in place.

Need help with fraud prevention or advice on the new legislation? Contact us today.