Tackling corporate fraud
A guide to the Failure to Prevent Fraud offence
Before the Failure to Prevent Fraud offence enters into force in September, we set out what it entails and how we can help with compliance.
It can be argued that fraud is now at the forefront of business minds. In a Cifas survey carried out in 2024, three out of five UK corporate organisations said they believed that fraud and financial crime posed a ‘serious threat’ to their business.
In order to tackle fraud, the UK government set out the Failure to Prevent Fraud (FTPF) offence to be enforced under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). The FTPF offence is set to come into force in September 2025 in an attempt to crack down on large corporations who have not taken sufficient measures to prevent fraud.
Key aspects of the FTPF offence
The FTPF offence is designed to address corporate fraud, by making large organisations criminally liable if they do not take sufficient steps to prevent fraudulent activities.
Organisations can be held criminally liable if an employee, agent, subsidiary, or other associated person commits fraud intending to benefit the organisation, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that directors or senior managers ordered or knew about the fraud.
In an effort to avoid non-compliance, overseas entities have also been included - more specifically, overseas entities can be held liable if part of the fraud occurred in the UK, or if the gain or loss was in the UK.
Who is responsible for the internal implementation of FTPF?
While it has not been defined in law regarding who is ultimately responsible, it is recommended that an individual be nominated to oversee compliance — for most organisations, this could be the money laundering reporting officer. However, it should be made clear that everyone in the organisation is responsible for managing fraud risk.
The types of fraud covered by the FTPF offence include, but are not limited to:
- Fraud by failing to disclose information: If a party in a business deal fails to disclose information that is crucial to the other party's decision-making, and this leads to a detrimental outcome for the other party, it could be considered fraud.
- Fraud by abuse of position: A company director using company money for personal expenses.
- Cheating public revenue: In other words, tax evasion.
- False accounting: Intentionally manipulating financial records to mislead stakeholders.
- Fraudulent trading: Buying goods or receiving services without intending to pay for them.
Reasonable fraud prevention procedures
To comply with the rules and regulations for preventing fraud, large organisations must implement reasonable fraud prevention procedures going forward. As the term ‘reasonable’ is open to interpretation, the guidance outlines six principles that organisations should follow.
- Top-Level commitment: Management must show a commitment to preventing fraud and foster an open culture where employees are encouraged to report ethical concerns.
- Risk assessment: Regularly identify and evaluate potential fraud risks.
- Proportionate procedures: Implement risk-based prevention procedures that are proportionate to the identified risks.
- Due diligence: Conduct thorough checks, particularly for high-risk roles in HR, payment, and finance.
- Communication and training: Ensure that anti-fraud principles are communicated and understood throughout the organisation, including through training programs.
- Monitoring and review: Continuously review and improve fraud prevention measures in light of any developments or criminal activity.
Conclusion
The main positive aspect of the introduction of FTPF has been its success in raising awareness of the importance of fraud prevention. Even just an increase in employee awareness is a huge step forward for fraud prevention, as it has been shown that internal detection methods are an effective method for businesses to highlight bad practices. For instance, a 2024 report by the Association of Certified Fraud Examiners showed that 22% of occupational fraud is found through tip-offs from employees.
As the FTPF offence comes into effect, it will likely change the way companies operate to ensure compliance with the ECCTA. Organisations must take this opportunity to review and strengthen their fraud prevention procedures; even those smaller organisations not held liable by the offence can use this opportunity to enhance their controls to prevent fraud going forward.
How can Crowe help?
For those looking to improve their anti-fraud policies and procedures before the FTPF offence comes into effect in September, contact Tim Robinson and Daniel Sibthorpe for assistance with fraud awareness training, readiness assessments, and general advice in building resilience against fraud.
