With the impending Royal Assent of the Economic Crime and Corporate Transparency Bill, the UK is set to introduce a significant legal change – the failure to prevent fraud offence. This legislation aims to hold organisations accountable if they profit from fraud committed by their employees. In this article, we will explore key aspects of this new offence, including understanding the mindset of fraud, identifying and combatting fraud, and the pivotal role of Capcon Argen in mitigating fraud and managing business risk.
Understanding the Mindset of Fraud
Fraud, encompassing a wide array of deceptive practices, is the most prevalent offence in the UK, constituting 41% of all crimes*. Internal frauds are a big issue for organisations and it is widely considered that there are three main factors for fraud – motivation, opportunity, and lack of surveillance. The fraudsters actions may involve dishonest sales practices, concealing vital information from consumers or investors, or manipulating financial markets for personal gain. To combat this pervasive issue effectively, it is crucial to understand the motives and methods behind fraud.
MOTIVATION FACTORS
Fraud can stem from various motivations, including financial pressures brought on by personal circumstances or extravagant lifestyles. Peer pressure may lead individuals to participate in workplace fraud to fit in or avoid harassment. Certain personality traits, such as opportunism, narcissism, and a penchant for manipulation, can drive individuals to fraud. Disgruntlement, stemming from perceived unfair treatment or missed opportunities, can also contribute. Perpetrators may rationalise their actions to alleviate guilt, justifying theft with thoughts like “I deserve it” or “it won’t hurt anyone.”
OPPORTUNITY
Fraud hinges on the presence of opportunities. Examples include employees entrusted with company assets like cash or supplies or those given a company credit card without adequate oversight. Opportunities for fraud may arise gradually, with perpetrators stealing small sums to evade detection, or suddenly, tempting individuals who hadn’t initially planned to commit a crime.
LACK OF SURVEILLANCE
Weak internal controls create favourable conditions for fraud. For instance, when a single individual has unchecked authority to process and make payments without requiring a second authoriser. To combat this, strict separation of duties, robust internal controls, and regular internal and external audits are crucial safeguards.
Identifying and Combatting Fraud
The failure to prevent fraud offence focuses on enhancing fraud prevention procedures within organisations and holding them accountable for any illicit gains resulting from employee misconduct. Importantly, it does not necessitate proving that company executives ordered or were aware of the fraudulent activities. Instead, the focus is on whether the organisation had reasonable fraud prevention measures in place (The government will publish guidance providing organisations with more information about reasonable procedures before the new offence comes into force).
To effectively identify and combat fraud, organisations should invest in robust anti-fraud policies, procedures, and measures. These measures include rigorous internal controls, due diligence, screening services when hiring employees, monitoring financial transactions, and fostering a culture of integrity and ethical behaviour. When the Economic Crime and Corporate Transparency Bill receives Royal Assent, organisations will need to demonstrate that they have adequate anti-fraud measures to avoid prosecution.
Ken Dulieu, Chairman of Capcon and Head of Capcon Argen, highlights the importance of readiness for the new failure to prevent fraud offence: “Businesses must recognise the significance of the new failure to prevent fraud offence. Being prepared is essential, not only to meet legal obligations and prevent substantial fines, but to protect their interests. It’s a matter of compliance and safeguarding the integrity of the business.”
The Role of Capcon Argen
Capcon Argen provides discreet intelligence, protection, and security services to a diverse range of sectors and clients. We understand the unique risks faced by our clients, which is why our services are tailored to meet their specific needs and risk profiles. This proactive approach ensures that organisations are well-prepared to meet the stringent requirements of the new failure to prevent fraud offence.
Our client base spans various industries, including law, insurance, entertainment, accounting, transportation, pharmaceuticals, financial services, hospitality, and food brands. For each sector, we offer a comprehensive suite of services that includes mystery guest reviews, employment verification checks, protection services, due diligence, business intelligence, high-level employment screening, and discreet investigative services.
Areas Where We Can Support Hospitality Businesses to Prepare for the New Failure to Prevent Fraud Offence
- Risk Assessments
Capcon helps businesses evaluate their fraud risk frameworks by thoroughly analysing both internal operations and external interactions. This ensures comprehensive coverage against potential fraud, identifying vulnerable areas that might have been overlooked.
- Robust Internal Controls
We assist in developing and implementing strong internal controls designed to prevent and detect fraud. This includes the secure handling of payments and thorough verification processes for bookings and refunds, ensuring that financial transactions are safeguarded against fraudulent activities.
- Technology
Capcon leverages automated systems that can detect anomalies in transactions which might indicate fraudulent activities. These technologies are crucial in minimising the risk of fraud by providing an additional layer of security.
- Compliance Audits
Regular audits are essential to ensuring that anti-fraud measures are effective and being followed. Capcon conducts these audits to help businesses demonstrate compliance with laws and regulations, thereby safeguarding them against legal repercussions and enhancing their operational integrity.
- Due Diligence
Our services extend fraud prevention strategies to include due diligence checks on all staff, business associates, suppliers, vendors, and third-party service providers. This thorough vetting process ensures all parties associated with your business meet the highest standards of integrity and reliability.
- Employee Screening
Capcon offers employee screening services and verification checks for new hires and we can conduct ongoing reviews of current staff. This includes periodic audits of employee access to sensitive information and financial controls to deter misappropriation of funds. We can also assist with implementing conflict of interest policies to mitigate internal fraud risks, ensuring that employees adhere to ethical standards and company policies.
At Capcon Argen, we pride ourselves on maintaining confidentiality and delivering professional solutions that effectively manage risks and address potential threats. Additionally, our expertise extends to data retrieval, compliance auditing, and forensic accounting, ensuring that our clients have access to a full spectrum of risk management tools and resources, as well as comprehensive training and consultancy services to help organisations implement robust anti-fraud policies and procedures.
Conclusion
The impending introduction of the failure to prevent fraud offence through the Economic Crime and Corporate Transparency Bill represents a significant step in combating fraud and holding organisations accountable for their employees’ actions. Understanding the mindset of fraud, implementing robust anti-fraud measures, and partnering with specialists like Capcon Argen are essential components of a comprehensive strategy to prevent and combat fraud effectively.
For more information, contact Ken Dulieu, Tel: +44 (0)1372 237 050 | Email: ken.dulieu@capcon-argen.com. Alternatively, complete our online form here and we will get back to you.
*Source: https://lordslibrary.parliament.uk/tackling-fraud-lords-committee-report/
Further Reading: Gov.UK Policy paper – Factsheet: failure to prevent fraud offence
