Failure to prevent fraud offence – How forensic accountants can help

The UK is set to introduce a new criminal offence of ‘failure to prevent fraud’ as part of the Economic Crime and Corporate Transparency Bill. 

Under the new offence, an organisation will be liable where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place.

According to the Government, the new offence will “level the playing field for businesses that already take fraud prevention seriously, by penalising unscrupulous operators.”

More fraud prosecutions will likely be brought as a result of the new offence, so business owners will need to review and enhance their anti-fraud systems and controls to cover fraud committed for their benefit by employees or agents.

The new offence will only apply to larger businesses.  Despite this, small and medium-sized enterprises (SMEs) are also known to be at a high risk of fraud and the government is keen to encourage them to put in place appropriate anti-fraud to better protect them from becoming victims of fraud.

Critics claim that not including SMEs in the legislation is “short-sighted” and “unnecessary”, saying that it is essential for all companies to play their role in preventing the fraud epidemic currently facing the UK.

Roger Isaacs, Forensic Partner at Milsted Langdon pointed out that fraud cases increased by 151 per cent between 2021 and 2022, according to official data and that the new offence could load additional risk onto businesses.

“Businesses are often a prime target for fraudsters, both internal and external, with many organisations experiencing issues with embezzlement, accounts payable, cheque payments and payroll scams,” said Roger.

Business owners need to be on their guard and be aware of the time, frustration and potential losses involved if they become the victim of fraud.

“This new legislation, once enacted, will also make businesses and their owners more liable for the acts of employees and other agents acting on their behalf.

“Prevention is better than cure, but most small business-owners have more immediate and pressing demands on their time than thinking about the possibility of fraud.

“The new rules are unlikely to change this and some commentators fear that entrepreneurs could be accused of wrongdoing by virtue of not having appropriate fraud prevention policies in place, even if they were entirely unaware of fraudulent activities of their staff.  Equally the need to introduce the requisite policies needs to be done in a way that is effective without being overly bureaucratic.

“If the worst happens and a fraud is discovered, prosecutions remain very rare but forensic accountants are increasingly often working with companies to help them with private prosecutions which can sometime be a better means of recovering misappropriated funds than civil litigation.”


Sources: Global Compliance News, Spotlight on Corruption, KPMG Fraud Barometer 2022

Posted in The Forensic Blog.