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Reinforcing the prevention and detection of fraud

Author: ICAEW Insights

Published: 15 Nov 2023

In International Fraud Awareness Week, ICAEW Economic Crime Manager Mike Miller outlines the current fraud landscape in the UK and the importance of remembering to have a robust framework in place to prevent fraud.

In the year ending December 2022, one in 15 adults were victims of fraud – 18% became victims more than once. The total cost to society of fraud against individuals in England and Wales was estimated at £6.8bn in 2019-20. In the year ending March 2021, Action Fraud, the UK’s national reporting centre for fraud and cyber-crime, received victim reports totalling a loss of £2.35bn.

Fraud continues to receive significant focus from the government, business community, media and public. Fraud vectors continue to diversify with the advent of more sophisticated technologies and increasing availability. Criminals and other nefarious actors continue to exploit the landscape to defraud the UK economy, businesses and individuals of significant sums of money and sensitive data, such as identities and commercial information.

International Fraud Awareness Week is observed globally in the third week of November. It aims to raise awareness of fraud and encourages business leaders and employees, throughout the private and public sectors, to proactively take steps to minimise the impact of fraud by promoting anti-fraud awareness and education.

The government fraud strategy

The government has repeatedly talked about the need to reduce fraud in the UK. Its first significant step towards this was the release of the Fraud Strategy in March 2023, which set out the government’s aim to stop fraud at source. It aimed to achieve a 10% reduction in fraud by 2025, compared with 2019 levels. 

The strategy outlines three elements. First, the government and law enforcement will pursue more fraudsters and bring them to justice. Second, the government and industry will work together to stop fraud attempts. Third, the British people will be more empowered to recognise, avoid and report fraud when they encounter it, and better supported when they do fall victim to it. 

While the measures outlined in the strategy are theoretically a welcome step forward, there are several challenges. For example, the allocation of 400 officers to this specialist area is likely to fall significantly short of the resourcing required to achieve a significant improvement in law enforcement response. Training specialised resources will take time. 

The strategy has an unclear funding model for the future development and implementation of an effective, public-private partnership to tackle fraud. This is also prevalent in the Economic Crime Plan 2, with limited detail on future funding requirements for several initiatives. The prevalence of fraud, as underlined by the strategy, causes harm to individuals, businesses and public-sector bodies alike, yet the focus on scams and individuals fails to take a holistic approach to the threat of fraud.

The Failure to Prevent Fraud offence

As part of the Economic Crime and Corporate Transparency Act, which was recently signed into law, the government is creating a new offence: Failure to Prevent Fraud. 

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 it did not have reasonable fraud prevention procedures in place. There is no need to demonstrate that company bosses ordered or knew about the fraud and the offence applies to companies in all sectors. However, despite repeated attempts by Parliamentarians to widen the scope of the offence, only large organisations are in scope. These are defined (using the standard Companies Act 2006 definition) as organisations meeting two out of three of the following criteria: 

  • more than 250 employees; 
  • more than £36m turnover; and 
  • more than £18m in total assets. 

The government has endeavoured to keep the impact of the offence under review, and the threshold at which companies are excluded could be amended in future through secondary legislation.

Organisations should be able to avoid prosecution if they have reasonable procedures in place to prevent fraud. The government has committed to publishing guidance providing more information about reasonable procedures before the new offence comes into force.

While the Failure to Prevent Fraud offence is a welcome addition, the success of the offence will be determined by the practicalities of implementation and enforcement. Reduction in fraud will require significant cultural change to counter the developing technological landscape, among other vectors that enable fraud. The standard of the aforementioned government guidance and the proportional application of the measures outlined in this offence will be key to the success or failure of the offence going forward.

International Fraud Awareness Week is a good opportunity for firms and businesses to ensure that they have a robust environment within their organisation to effectively prevent fraud. ICAEW advises that all firms and businesses have anti-fraud policies, procedures and measures in place. Once the Failure to Prevent Fraud offence comes into effect following the publication of the government guidance, being able to demonstrate that said policies to counter fraud are in place will be critical. 

ICAEW and the chartered accountancy profession more generally will continue to work closely with the government and other public and private sector stakeholders to establish practical and impactful approaches to reduce the scourge of fraud. The Institute has produced several resources outlining measures for chartered accountants to increase their awareness of the threats of fraud and how to mitigate the impact that fraudulent activities can present, both financially and reputationally.

ICAEW recently hosted a webinar dedicated to the evolving role of forensic accountants in supporting the detection of fraud in mainstream audit. A podcast and webinar (23 November) will explore the key aspects of the new Economic Crime and Corporate Transparency Act, including the implications of the Failure to Prevent Fraud offence. We will build upon this with dedicated articles and other materials looking at the practical implication of the Failure to Prevent Fraud offence once the government guidance is developed and the exact timeframe for implementation is established. 

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