How to avoid the new fraud trap – Daily Business Magazine

Businesses could face prosecution if they fail to meet new fraud compliance requirements, writes DAVID HOUGHTON

Big companies need to take heed of a new regulation that extends the scope of fraudulent activity. If they don’t comply they could find themselves being prosecuted if fraud is committed by someone acting on their behalf – even if senior leadership was not directly involved or had no idea a fraud was being committed. 

Employees, subsidiaries, agents and other “associated persons” are all in the scope of the new Economic Crime and Corporate Transparency Act, as those who could act on a business’s behalf.  

Companies which are found to be in breach of the new compliance requirements can face prosecution, reputational damage, and significant financial penalties. Firms need to act now to ensure they’re not at risk.  

They need to review and strengthen their internal fraud prevention measures to comply with the Act by: 

• Conducting fraud risk assessments to identify vulnerabilities  
• Reviewing and updating internal controls, systems, and reporting lines  
• Ensuring staff training and awareness around fraud risks and responsibilities  
• Establishing clear procedures for reporting concerns or suspicions 

Government agencies are expected to take a proactive approach to enforcing this, and it is likely that the number of investigations will rise sharply now the legislation has taken effect.

But by making these changes, firms can ensure their risk of falling foul of the new requirements is lowered, and that their fraud prevention is as strong as possible.

Under the ECCT Act, a “large organisation” is defined as one that meets at least two of the following criteria: 

• Employs more than 250 staff  
• Has a turnover in excessof £36 million a year 
• Has assets worth more than £18 million   

While smaller businesses fall outside the immediate scope, future expansion of the ECCT Act to medium-sized entities has not been ruled out.  

Figures from the Scottish Government show that there were 2,425 large (250+ employees) businesses in Scotland as of March 2024.

These firms provided 44.1% of private sector employment and accounted for 58.3% of private sector turnover.

David Houghton is head of forensic accounting at UK top 10 accountancy and advisory firm Azets

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