New plans have been announced that will introduce a new corporate offence of failing to prevent fraud in the Economic Crime and Corporate Transparency Bill.
This new law expands upon existing legislation and aims to transform the prosecution of fraudulent activities.
The proposed offence applies to “relevant bodies” such as large organisations who meet two or more of the following criteria:
- Annual turnover exceeding £36 million;
- A balance sheet total of more than £18 million; or
- Having more than 250 employees.
A relevant body will be guilty of the new offence if an associated person commits a fraud offence intending to benefit the relevant body or certain defined connected parties.
Relevant bodies can avoid prosecution if they can prove that they had reasonable prevention procedures in place at the time of the fraud offence or that it was not reasonable to expect them to have such procedures in place.
The burden of proof falls on the relevant body, and the offence can be punished by an unlimited fine.
With this new offence soon to be in place, the question arises: Should audits help prevent fraud?
The Role of Audits in Fraud Prevention:
Audits play a crucial role in fraud prevention and can help relevant bodies comply with the new offence of failing to prevent fraud. Some ways that audits can help prevent fraud include:
Identifying Weaknesses in Internal Controls:
Regular audits can help organisations identify weaknesses in their internal controls, which can be exploited for fraudulent activities. By addressing these weaknesses, organisations can prevent fraud from occurring.
Deterrent Effect:
The knowledge that an organisation is subject to regular audits can act as a deterrent to potential fraudsters. Regular audits demonstrate a commitment to maintaining strong internal controls and reducing the risk of fraud.
Detection of Fraudulent Activities:
Audits can help detect fraudulent activities that may have gone unnoticed. This early detection can limit the damage caused by fraud and allow organisations to take corrective action.
Ensuring Compliance with Fraud Prevention Procedures:
Audits can help organisations ensure that they are complying with the Government’s guidance on reasonable fraud prevention procedures. By regularly reviewing and updating their procedures, organisations can better defend against the new offence of failing to prevent fraud.
While not required by the current regulations, audits can play a critical role in preventing fraud by identifying weaknesses in internal controls, deterring potential fraudsters, detecting fraudulent activities, and ensuring compliance with fraud prevention procedures.
As the Government issues guidance on reasonable fraud prevention procedures, organisations should leverage the power of audits to protect themselves from the risks and consequences of fraud.
If you would like to know more about our audit services, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 7 June 2023.