Charity sector on alert for new failure to prevent fraud offence

The Charity Commission has issued a regulatory alert to charities ahead of a new criminal offence, failure to prevent fraud, which will come into force in September 2025.

The offence, a product of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), applies to “organisations incorporated or formed by any means” who meet two of the following criteria:

• More than 250 employees
• Over £36 million turnover
• Over £18 million total asset value.

These conditions are measured with reference to an organisation’s preceding financial year, meaning it’s likely that only large, incorporated charities will be subject to the upcoming changes.

Failure to prevent fraud offence

Under the legislation, a charity which meets the above criteria will be criminally liable if an employee, agent or other associated person commits a ‘base’ fraud offence intending to directly or indirectly benefit:

• The charity itself
• Any entity or subsidiary receiving services from the person on behalf of the relevant body – for example, beneficiaries.

A non-exhaustive list of the base fraud offences is set out in Schedule 13 of the ECCTA, which includes::

• Fraud by false representation, failing to disclose information and abuse of position
• Participation in a fraudulent business
• False accounting
• False statements by company directors
• Fraudulent trading

Defences and exclusions

If the charity itself was, or was intended to be, a victim of the fraud, it will not be guilty of failure to prevent that fraud.

Further, the offence can only take place if the offender commits the fraud in their capacity as a person associated with the charity – so, for example, if the fraud takes place in an employee’s private life, this would not give rise to liability for the charity.

The legislation provides a defence for affected bodies if, at the time the relevant fraud was committed, they can demonstrate that:

• They had prevention procedures in place, as was reasonably expected for the body to have under the circumstances, or
• They can demonstrate that it was not reasonable in all the circumstances to expect them to have any prevention procedures in place.

The wording of the offence means that knowledge of and/or involvement in the fraud is not a pre-requisite for being found liable for failure to prevent fraud. Ignorance of the fraud is not a defence.

Home Office guidance

The Commission is encouraging any charities which may be affected to read the Home Office guidance, which sets out the offence and suggests procedures that may be put in place to mitigate the risk of falling foul of the change.

The Home Office suggests that charities caught by the criteria should have the necessary procedures in place ahead of the offence coming into force on 1 September 2025.

Implications for charities and how they can prepare

Charities which fall within the scope of the offence should take steps to ensure they are well-positioned for the change. Here are some key considerations for affected charities:

• Review existing internal policies and procedures: Does your charity have a risk management policy or register? When was it last reviewed and does it accurately represent the risk of the charity suffering fraud? Does the higher level of accountability under the new offence represent a more serious risk to the charity and its operations? How regularly are your policies reviewed?
• Carry out a fraud prevention assessment: Do the activities that your charity carries out expose you to a higher risk of fraud? Do you operate internationally and if so, what are the risk factors for continuing operations? Is your charity cash-intensive and if so, are suitable procedures in place to minimise the risk of fraud? How robust are your existing procedures for any electronic payments to or from the charity?
• Governance and training: The offence is indiscriminate and will affect trustees, directors, employees and volunteers alike. Consider whether your current training programme for fraud and anti-money laundering is sufficient. Do you employ staff in financial roles and if so, do they understand the procedures in place to prevent fraud? If you outsource these roles to a third party, do they have sufficient procedures in place?

Charities subject to the criteria will be held to a high degree of accountability. The offence is wide, the defences few and the consequences significant — so it’s a case of “better to be safe than sorry”!

Our expert charities team can offer advice on how to prepare your charity for the new failure to prevent fraud offence.