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UK charities should now be taking proactive steps to comply with the new 'Failure to Prevent Fraud' offence.
The Economic Crime and Corporate Transparency Act 2023 introduced a pivotal new legal challenge for large charities operating in the UK from 1 September 2025 — the ‘failure to prevent fraud' offence. This legislation is part of a broader effort to enhance corporate accountability and enforce proactive fraud prevention across various sectors, including the non-profit sector. The focus is on fraud committed by‘associated persons' of an organisation to benefit that organisation or to benefit a third party to which services are being provided. ‘Associated persons' are, broadly, employees, agents or subsidiaries or a person providing services for or on behalf of the organisation.
Understanding the scope: which charities are affected by the new fraud offence?
The provisions are aimed at 'large organisations', defined as those organisations (corporates or partnerships) which meet at least two of the following criteria in the financial year that precedes the fraud offence:
- employing more than 250 people,
- turnover above £36 million, or
- balance sheet total above £18 million.
Importantly, the scope of application can extend to group charities, increasing the breadth of its reach. Federated structures, branch charities and multi-academy trusts should all therefore take particular note. The financial thresholds are slightly higher where a group is concerned.
Understanding the impact: what the new fraud offence means for charities
Organisations can be held accountable for fraud committed by their employees and other associated persons, even if there was no direct instruction to engage in (or even knowledge of) such activities. Organisations must demonstrate the presence of ‘reasonable' fraud prevention procedures—a requirement that arguably offers more flexibility compared to the 'adequate' procedures mandated by earlier legislation (such as failure to prevent bribery), but which the courts may find harder to define.
Proactive measures: how charities can prevent fraud
Government guidance suggests that the following six principles should form the backbone of an effective fraud prevention framework:
- Top-level commitment: Leadership must actively support and commit to fraud prevention measures.
- Risk assessment: Continuous evaluation of internal and external risks associated with fraud.
- Proportionate procedures: Development of fraud prevention procedures that reflect the organisation's size and complexity.
- Due diligence: Rigorous checks into the backgrounds of those with whom the organisation does business.
- Communication and training: Regular dissemination of information and training on fraud risks and prevention strategies.
- Monitoring and review: Regular reviews to ensure that prevention measures are current and effective.
The guidance sets out practical steps which organisations can consider and apply in relation to each of these principles.
Preparing for the new fraud offence: steps charities should take now
If they have not done so already, large charities falling within the criteria should take steps to assess critically their fraud risks and enhance their fraud prevention strategies as a matter of priority. This may involve updating internal policies, improving financial controls, and embedding a culture of compliance and accountability throughout the organisation.
Although smaller charities may not be caught by the legislation (yet), it is good practice to review financial controls at regular intervals and the renewed focus in this area brought about by legislation means that now is an opportune time.
It is also important to note that, even if a charity is not primarily caught by the offence, it may still be impacted if it is or may be an ‘associated person' of an organisation which is within scope, for example if the charity is providing services ‘for or on behalf' of such an organisation. It is likely that organisations within scope of the offence will seek to impose anti-fraud requirements on their ‘associated persons' as part of their ‘reasonable' fraud prevention procedures.
The Charity Commission updated its guidance on internal financial controls for charities in late 2024. The updated guidance can be found here, and will be a useful starting point for charities undertaking a review of their systems.
The 'failure to prevent fraud' offence underscores a significant shift towards increased responsibility for preventing fraudulent activities within organisations. Charities must proactively adapt to these changes by strengthening their fraud prevention protocols to safeguard against potential legal consequences.
Originally published on 13 March 2025, this article has now been updated.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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