Updates to The Economic Crime and Corporate Transparency Act 2023 (ECCTA) introduces a significant shift in how businesses must consider fraud.

The new corporate offence of "failure to prevent fraud" holds companies criminally liable if they lack sufficient measures to stop fraudulent activities being undertaken by employees or other associated persons. Compliance is crucial for businesses across all sectors and there is a risk of an unlimited fine of getting it wrong. In this short blog, I’ve outlined some key considerations businesses need to know, and important next steps.

Who is affected?

This legislation primarily applies to businesses meeting at least two of the following criteria, though “associated persons” such as smaller businesses supplying services to larger organisations may also be affected and therefore should also be aware of these obligations:

• Turnover: £36 million or more.
• Balance Sheet: £18 million or more in total assets.
• Employees: 250 or more.

The key considerations for your business

The new requirements mean firms will need to consider several key compliance and risk areas, including:

• Supply chain and contracting risks
  Complex supply chains and large contracts increase fraud risks. Under ECCTA, companies may be liable for fraudulent actions within their supply chains, therefore reviewing and potentially strengthening due diligence may be essential.

• Public sector and regulatory compliance
  Businesses involved in large scale projects, including those backed by the government must maintain high compliance standards. Failure to prevent fraud could lead to disqualification from future procurement opportunities, making rigorous fraud prevention crucial.

• Understanding relevant risks impacting the firm
  It is vital for organisations to fully understand where fraud risks may occur, the corresponding controls in place and where improvements could be made.  This will likely require assessing and documenting the relevant processes and controls in key departments including Finance, Sales, Procurement and Human Resources.

• Leadership accountability
  The Act increases liability for directors and senior management with responsibility ultimately resting with those charged with governance.  There is an emphasis on the need for effective fraud prevention policies, whistleblowing procedures, and employee training.

Implementing effective fraud prevention strategies

To comply with the updates to the ECCTA and mitigate fraud risks, businesses should follow the six principles outlined by the Government as follows:

• Top-level commitment: Senior leaders must actively foster a culture where fraud is unacceptable and allocate sufficient resources to anti-fraud initiatives.
• Risk assessment: Regular, documented assessments should identify and evaluate potential fraud risks. These must be updated on a regular basis to address emerging threats.
• Proportionate prevention procedures: Anti-fraud measures should be tailored to the organisation’s size, nature, and complexity, ensuring they are practical and effectively implemented.
• Due diligence: Risk-based due diligence is crucial when engaging individuals or entities providing services on the company’s behalf.
• Communication and training: Fraud prevention policies must be clearly communicated and supported by regular training to reinforce compliance.
• Monitoring and review: Continuous oversight and periodic reviews ensure fraud prevention strategies remain effective and responsive to changing risks.

By following these principles, businesses can build strong fraud prevention frameworks and demonstrate compliance with ECCTA. Setting up the necessary processes takes time and scrutiny - this is where the Risk Assurance team at Johnston Carmichael can support you.

Your next steps

While this legislation presents challenges, it also offers opportunities to reinforce trust with stakeholders and strengthen fraud prevention efforts. A proactive approach will help businesses maintain a competitive edge and ensure long-term sustainability.

Our Risk Assurance team understand the complexity of these requirements. We take a collaborative approach, working closely with your key departments to develop tailored processes, controls, and governance frameworks that align with your business needs. We have created an overview PDF which you can access by clicking the image below.

To find out more about how we can help you, please don't hesitate to get in touch with myself, your usual Johnston Carmichael adviser or by filling in the short form below.