The Government has announced more details about its proposed offence of failing to prevent fraud, which could apply to certain charities.
The overall aim of the offence is to encourage large organisations to put in place fraud prevention procedures and stop them from ignoring any fraud that benefits them.
The offence will only apply to large charities - those who have any two of the following:
- more than 250 employees;
- turnover of more than £36 million;
- total assets of more than £18 million.
The offence only applies to the charity itself, not to the individual employees or trustees of the charity. However, the offence carries an unlimited fine.
The offence will be perpetrated by a large charity if:
- an employee or agent of the charity commits a relevant offence, namely: fraud by false representation, fraud by failing to disclose information, fraud by abuse of position, obtaining services dishonestly, participation in a fraudulent business, false statements by company directors, false accounting, fraudulent trading, or cheating the public revenue;
- the offence is committed for the charity’s benefit; and
- the charity did not have reasonable fraud prevention procedures in place. The Government will publish guidance about what constitutes 'reasonable' fraud prevention procedures. The offence will not come into force until that guidance is published.
There are a couple of points to note about this offence. Firstly, a charity may perpetrate the offence even though management did not order or even know about the fraud. Charities must put fraud prevention procedures in place.
Secondly, the relevant fraud may be committed by an employee or agent working abroad. A charity can still perpetrate the offence of failing to prevent fraud so long as the employee perpetrates fraud under UK law or targets UK victims.
Finally, this offence is in addition to any pre-existing offences. For example, although the offence does not cover money laundering, charities already have obligations to put anti-money laundering procedures in place. Equally, whilst the offence does not apply to individuals, individuals are still subject to the already existing offences of committing, encouraging or assisting fraud.
Charities should review their fraud prevention procedures and keep an eye out for government guidance on what constitutes reasonable procedures.
If you are concerned about your charity’s fraud prevention procedures or would like further advice about the impact of this offence, please feel free to contact our charities team.
Large charities must now put fraud prevention procedures in place.