New U.K. Legislation: Failure to Prevent Fraud Offence

There will be significant update in legislation that introduces the Failure to Prevent Fraud (FTPF) offence, which intensifies the obligation on businesses to strengthen their anti-fraud strategies. This legislation received Royal Assent on 26 October 2023. Implementation of the FTPF offence is expected following a preparatory period, which will begin once the government issues guidelines on ‘reasonable procedures’ for compliance. These guidelines are expected imminently, with the legislation likely to take effect in late 2024 or early 2025.

It’s crucial for all businesses to understand these changes, take proactive steps to prepare for this legislation, and protect your business.

About the Failure to Prevent Fraud offence

The FTPF offence is a new legal measure that holds businesses accountable for failing to prevent fraud committed by their employees or associated persons. This liability applies to all levels of operation, from frontline staff to senior management. The hospitality sector, where transactions often occur rapidly and in high volumes, must be particularly vigilant.

Key implications for businesses

1. Increased responsibility

   Businesses are required to take proactive steps to prevent fraud within their organization. This includes implementing and maintaining effective anti-fraud policies, procedures, and controls.

2. Risk of legal liability

   If an employee or associated person commits fraud, the business could be held legally liable if it cannot demonstrate that it had adequate procedures in place to prevent such actions.

3. Enhanced compliance requirements

   Companies must invest in training, monitoring, and auditing systems to ensure all employees understand and adhere to anti-fraud measures. This may involve regular risk assessments and policy updates to mitigate the risk of fraud.

4. Reputation management

   Non-compliance or involvement in fraud cases can severely damage a company’s reputation. Businesses must be vigilant in protecting their brand and maintaining trust with customers, partners, and regulators.

Consequences of non-compliance

• Financial penalties: Companies found guilty of failing to prevent fraud could face significant fines. The severity of the penalty would likely depend on the extent of the fraud and the level of non-compliance.
• Criminal liability for senior management: In some cases, senior management or directors may also face personal criminal liability if it is proven they were complicit or negligent in preventing fraud.
• Legal proceedings: Businesses could face legal action, leading to lengthy and costly court battles, financial strain, and negative publicity.
• Loss of contracts or business opportunities: Companies in violation may lose existing contracts or be disqualified from future business opportunities, especially in the hospitality sector where compliance with ethical standards is critical.
• Increased scrutiny: Non-compliance could lead to increased regulatory scrutiny, resulting in more frequent audits and inspections, and potentially additional regulatory requirements.

The FTPF offence places significant pressure on businesses to establish and enforce robust anti-fraud measures. Failure to comply could result in serious financial, legal, and reputational damage. Therefore, businesses must proactively adopt comprehensive compliance strategies to avoid these risks.

Steps hospitality businesses can take to ensure compliance

1. Conduct a comprehensive risk assessment

   Evaluate your fraud risk frameworks thoroughly, analysing both internal operations and external interactions to ensure comprehensive coverage against potential fraud.

2. Cultivate an anti-fraud culture through training

   Foster an environment where every team member, from executives to frontline staff, is committed to ethical behaviour. Training programmes that emphasise the consequences of fraud and the critical role each employee plays in prevention can fortify this culture. Capcon has developed a training programme specifically for this purpose.

3. Implement robust procedures

   Develop and implement strong internal controls to prevent and detect fraud. This includes secure handling of payments and verification processes for bookings and refunds.

4. Utilise technology

   Automated systems can detect anomalies in transactions that might indicate fraudulent activities.

5. Undertake compliance audits

   Regular audits are essential to ensure anti-fraud measures are effective and being followed. These audits can also help demonstrate compliance with the law if your business needs to defend its practices.

6. Collaborate and share information

   Work with UKHospitality to share best practices and learn from others in the sector’s experiences in fraud prevention.

7. Enact thorough due diligence

   Extend fraud prevention strategies to include due diligence checks on all staff, business associates, suppliers, vendors, and third-party service providers.

8. Screen employees

   Implement stringent screening procedures for new hires and ensure ongoing reviews of current staff. This should include periodic audits of employee access to sensitive information and financial controls to deter misappropriation of funds, alongside enforcing conflict of interest policies to mitigate internal fraud risks.

Capcon’s anti-fraud services

• Tailored anti-fraud procedures: Capcon’s anti-fraud protocols adhere to government guidelines and industry standards. They help businesses implement effective, scalable solutions that address unique operational needs, from booking systems to payment processing.
• Risk assessments: Capcon conducts comprehensive risk assessments to identify potential fraud risks within hospitality operations. They evaluate security measures and operational practices to find vulnerabilities and recommend appropriate safeguards.
• Anti-fraud culture training: Capcon offers training programmes to enhance fraud awareness across all levels of an organisation. Their courses, tailored to your needs, cover ethical behaviour, fraud implications, preventive actions, and more, supporting a culture of integrity and vigilance.
• Ongoing fraud prevention strategy reviews: Capcon ensures your fraud prevention strategies remain scalable and effective through regular reviews and updates, adapting to new fraud tactics and regulations.
• Thorough due diligence: Capcon’s due diligence services include vetting suppliers, third parties, and new hires, along with continuous monitoring of existing staff. They focus on verifying information accuracy, managing financial controls, and enforcing conflict of interest policies to mitigate internal fraud risks.

Given the substantial impact of fraud, and the effect the upcoming measures could have on the hospitality industry, it is crucial for all UKHospitality members to understand the implications and take steps to comply by implementing robust anti-fraud measures.

Capcon, a UKHospitality supplier, can provide detailed insights into what these changes entail and how businesses can prepare, as well as tailored training programmes for your management and staff to assist in preparing your business against fraud and meeting the requirements set out in the FTPF legislation.

For more information, contact Marcus Jones, Managing Director, Capcon, for a free initial consultation: M: 07939 436841